Leveraging Market Structure through Options, Volatility, Passive flows, and Systematic Rebalancing. Research Distributed through @Hedgeye
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Joined August 2021
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Tier1 Alpha retweeted
Well, well, well… maybe change is in the air…
Ken Griffin explains why the rise of passive investing only works as long as active managers keep doing the research that sets prices
“So what’s very interesting is the rise of passive investing plays to the realization that markets are either efficient or semi-efficient."
"And it’s a way for investors to have low-cost exposure to either broad indices, to the world as a whole, or to specific sectors without having to pay the fees of active management."
"It’s been revolutionary for the world, this embracing of passive investing. But passive investing only works if there’s a meaningful community of people involved in fundamental research who are helping to set the pricing of securities."
"So passive investing requires the existence of capable, successful, and competitive traditional asset managers for the theory that underlies passive investing to actually play out, to actually manifest itself."
"So the rise of short-term investors helps to ensure that markets are efficient with respect to news that’s rapidly evolving. But we should really try to make sure that we take every step possible to make it that traditional asset managers have the ability to have prosperous and successful firms because they are so critical in the price discovery process that passive investing depends upon.”
Tier1 Alpha retweeted
100% agree. Like many others, @t1alpha and @t1acapital are making rapid progress in moving local and only using cloud/frontier for hardest 5%. The local compute token supply is exploding.
From my perspective, it’s broadband 2.0, but possibly much worse, and will require pretty strong evidence otherwise.
I get it, there are nuances for tech-bros who are deep in the weeds. Everyone has an anecdote about why I’m wrong.
Take a step back and be a commodity-bro who’s seen enough supply/demand cycles. Tokens are a commodity. Currently, the token factories are out-stripping token demand. Pricing is the adjustment factor. Except token factories are mostly fixed-price businesses. They have take-or-pay. They have commitments. They will produce tokens at a loss rather than turn off.
I’m not saying that token demand is slowing. It’s still growing at astronomical rates. I’m saying that token production is now out-pacing demand. The cycle will turn when demand accelerates or token production slows. There’s like half a trillion $ of GPUs waiting to be installed. I don’t think token production slows anytime soon.
Yeah, I get it. Jevon’s and all. It’s great for AI consumers and innovators. But the guys owning token factories are gonna all go bust in the process, and that’s like $2T of capex to date. You cannot even restructure these things and crush the debt. They’re just stranded by new, and more efficient chips. They’re always going to be stranded by new chips. More efficient Models will strand the more expensive ones. It’s a race to the bottom against fixed costs. It’s the most godawful business misallocation I’ve seen in a while. Makes the Chinese look like prudent capital allocators🤣🤣
It’s like having iron rails when the new railroads run on steel. This bankruptcy cycle will be epic…
Tier1 Alpha retweeted
"The entire story of the market can be told in the record low correlation. No higher low divergence was made... perhaps we can go for negative implied correlation. In 2010, we experienced implied correlation above 100%. Maybe 2026 will be our mirror." -Mike Green @profplum99 @t1alpha
Tier1 Alpha retweeted
A dollar of net inflow into Nvidia raises its market cap by roughly a hundred dollars, according to Michael Green. His conclusion: stock prices have almost nothing to do with fundamentals anymore.
@profplum99, former portfolio manager and chief strategist at Simplify Asset Management and now Founder and CIO, Tier1 Asset Management, spent years running macro strategies at Peter Thiel's hedge fund before building the research that made him one of the most cited critics of passive investing on Wall Street. His argument is not that passive is bad for the average saver. It is that the entire market has quietly stopped functioning the way most investors think it does.
Here is how he explained the math on my podcast:
"The average impact of a dollar into the market was five dollars. That's five hundred times more than what the original theory predicted. My estimate is that for the largest, most inelastic stocks, those multipliers are now approaching one hundred. A dollar into Nvidia is raising Nvidia's market cap by about a hundred dollars."
Every dollar that lands in a 401k on payday gets allocated by formula, not judgment, into whatever index the target date fund happens to hold. Nobody is asking if the price is fair. They are buying because the paycheck arrived. As passive share grows, there are fewer active investors left to sell into that flow and correct the price, so the same dollar moves the stock further than it used to. Green's own trading has adapted to this: not asking what a company is worth, but tracking where the flow is forced to go next.
The market has not stopped pricing risk. It has started pricing something else entirely, and most investors are still reading the old map.
We’d like to thank @AlphaSenseInc for sponsoring this episode!
Full episode below 👇
youtu.be/5i3TIaEHn6A
Tier1 Alpha retweeted
It's good to be back. Even better to share a collaboration between @t1alpha and @weareintropic in my first return post. Please checkout the analysis.
SpaceX may be the clearest example yet of how passive flows can shape price discovery.
The shares rose 62% in three sessions, before falling 7% after the largest index flows had cleared.
We colaborate with @profplum99 in this note, with the IPO acting as a blueprint for upcoming mega-cap listings. (intropic.io/research-hub/thr…)
Tier1 Alpha retweeted
Gone are the days of picking stocks on valuation and ideas alone - you need to risk manage The Machine's flows, or The Machine risk manages you
Tier1 Alpha retweeted
I literally just got off a call with an industry friend talking about the importance of novel data. Relatively small shops like CBB or @cerulli_assoc or @t1alpha are going to be much bigger winners on a relative basis than big data firms. Novel, and First. Thats what counts.
"#China’s factory activity unexpectedly contracted for the 1st time in 5 months in June."
Not unexpectedly. We released this finding...5 weeks ago.
Some interesting things happening in July as well.
bloomberg.com/news/articles/…
Tier1 Alpha retweeted
The @profplum99 piece "A Semi-Theory of Almost Everything" is a must-read look under the hood at the The Machine's engine.
Tier1 Alpha retweeted
“I wanna be a trillionaire… so frickin’ bad, buy all the things I never had”
VOO crosses Elon territory…
Some stats: 43% was due to asset appreciation, 57% from inflow — 62% of flow came from just the past three years
@t1alpha
Tier1 Alpha retweeted
it is the single most clever move Elon ever pulled off
Rule changes for the SpaceX $SPCX IPO:
Index providers waived the profitability requirement and cut the seasoning window from 90 days to 5.
This forces over $30 trillion in passive 401k and retirement money to buy SpaceX at IPO valuations.
Bloomberg Intelligence estimates S&P 500 funds must absorb 19% of SpaceX's float within 6 months.
Russell 1000 and Nasdaq 100 funds will absorb 24%.
The rules built to protect passive investors:
1. S&P 500 has required 12 months of trading and 4 quarters of GAAP profitability since 2002. Both waived.
2. Nasdaq cut its inclusion window from 90 trading days to 15.
3. FTSE Russell cut its to 5.
All three benchmarks are now structured to buy SpaceX at IPO pricing.
Tier1 Alpha retweeted
The chart below shows that passive mutual funds and ETFs now make up almost 62% of all equity funds’ assets.
Has the adage "flows follow performance" now become "flows create performance"?
@fleckcap @adamtaggart @profplum99
This Isn’t 1999 or 2007 — The Passive Bid Changed The Market Forever
In this Short video, Bill Fleckenstein @fleckcap and @AdamTaggart discuss why the passive bid has become the dominant force in markets—and why today’s environment is nothing like 1999 or 2007.
Most market participants are focusing on the wrong variables: macro data, geopolitics (war, tariffs), valuations, you name it. These matter far less than one dominant force: the “passive bid.”
What is the passive bid? It is the continuous inflows into passive investing vehicles (index funds, ETFs, retirement accounts), which mechanically deploy capital that buys regardless of valuation or macro conditions.
This creates a persistent upward force in markets, largely disconnected from fundamentals.
On top of the passive bid, you have a Federal Reserve willing to inject liquidity and policies like QE (Quantitative Easing) — even if rebranded (e.g., “RMP” – Reserve Management Purchases).
This results in cheap capital, liquidity flooding markets, and reinforcement of upward price trends. So, passive inflows + easy money = structurally bullish environment.
Why is it so hard to fight/break? @fleckcap uses the following metaphor: the passive bid is like a supertanker moving through water. It’s slow, massive, and powerful – it creates waves behind it (secondary strategies).
What followed this trend:
– Growth of algorithmic and systematic strategies
– “Copycat” or momentum-following participants (“pilot fish”)
– Factor investing built on past market behavior
This ecosystem feeds on itself: passive flows → drive trends, algos detect trends → amplify them, and more capital follows → reinforces trend.
Here is an example: the 2025 Tariffs shock happened when systematic strategies were heavily positioned. It triggered forced selling, momentum reversal, and psychological panic.
As a result, the market decline fed on itself. But importantly, this wasn’t a fundamental repricing – it was a mechanical unwind.
Labor market deterioration is what could actually break the system – not war or macro shocks, not even valuations. A shift from workers contributing to retirees withdrawing could reduce inflows into passive vehicles, and potentially reverse the bid.
Today's market is driven by flows, not fundamentals. The behavior looks “crazy” (mania-like) – similar to what we have seen in 1999 and 2007.
But there is a critical difference: back then, we had no QE, no dominant passive flows. Today, we have massive passive bid and central bank liquidity support. Therefore, historical analogies no longer work.
Get access to my notes with the key takeaways from this interview with Bill Fleckenstein by visiting my Substack (link below) ⬇️
Tier1 Alpha retweeted
MacroVoices @ErikSTownsend & @PatrickCeresna welcome, Mike Green @profplum99. They discuss why the Hormuz crisis hasn’t derailed the S&P 500’s surge to new all-time highs, Mike’s disagreement with secular-inflation forecasts, why Kevin Warsh could be more likely to cut rates aggressively than hike, and the unintended consequences of passive investing through index funds. bit.ly/3R6TDhH
Tier1 Alpha retweeted
Coimbra et al. Pension plan design augmented by passive. Many misinterpret the equity risk premium as stable. We benefitted from two "once in a lifetime" changes. papers.ssrn.com/sol3/papers.…
Tier1 Alpha retweeted
"It is not difficult to know a thing; what is difficult is to know how to use what you know."
— Master Han Fei
