In this episode we have a fascinating discussion with Mike Green of Simplify about the ongoing impact of passive investing on markets. Mike shares insights from recent academic research supporting his thesis and discusses how the risks of passive may play out over time. We also explore potential risks from increased options usage and the short volatility trade.

In the second half, we turn to the economy. Mike provides his views on inflation, recession risks, and Fed policy. He explains his concerns about bifurcation in the economy and markets, with different segments experiencing very different conditions. We conclude by discussing Mike's approach to hedging credit spread risks. Overall, Mike offers his usual thought-provoking perspectives on a wide range of market dynamics and risks.

0:00 - Introduction
2:00 - Discussion on the influence of passive investing
4:30 - Academic research supporting Mike's thesis on passive investing
8:32 - Key academic papers discussed by Mike
12:13 - Liquidity and market cap dynamics
16:36 - The risk of passive investing going net negative
19:00 - Historical examples and Vanguard's inflows
23:33 - Expected market dynamics if passive goes net negative
27:22 - Fundamentals and market behavior
28:31 - Increased use of options in the market
31:00 - Short volatility trade and current market implications
36:19 - Macro discussion and inflation trends
40:01 - Weakness in the labor market and commercial real estate
44:45 - The role of the Federal Reserve in the current economy
48:23 - Potential impact of the upcoming election on the markets
51:02 - Views on bonds and credit markets
53:03 - Strategies to hedge against credit spreads blowing out
56:12 - Diversification and portfolio construction in hedging strategies

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