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Dave Nadig
2:59
Good afternoon and welcome to ETF.com Live!
3:00
As always, you can enter your questions in the box below.
I’ll get to as many as I can in the next 30 minutes or so.
After we’re done, well post a transcript at this same address, in case you missed something.
And with that, let's start ... with Todd!
Todd Rosenbluth - CFRA Research
3:00
Hi Dave.  There's been solid ETF inflows this week to SPY and IVV and yet the S&P 500 has fallen. Seems like a good example that ETFs are riding in back seat not driving the market, no?
Dave Nadig
3:01
Yeah, I've had to field this question a lot during this little - ahem - market hiccup.
I think you have to remember that flows don't mean "everyones buying"
Flows mean "there's a disconnect between the price of the ETF and the price of the underlying"
3:02
specifically, positive flows mean that the price of the ETF is "too high" relative to the price of the stocks (in this case).
when it's too high, the authorized participant sells ETF shares they don't own, and buys stocks to offset that, delivering the stocks at the end of the day, to get new ETF shares to deliver.
When you have volatility, ANY disconnect is an opportunity
3:03
in this case, the positive flows mean "for some part of a given day, the stocks got "oversold" vs the ETF, so the AP jumped in"
this isn't surprising, actually, because we've seen such huge volatility in individual large cap names (FANG stocks, etc).
So here's a classic case where conventional wisdom (chasing flows) is a bad idea.
3:04
because the structure is about BOTH sides of fair value: the ETF, and what it owns.
But to your point Todd, for sure it means the ETF trading isn't "driving" the market in any way.
Darcy
3:04
Is there one major factor that's driving the stock market fall, or a combo?
Dave Nadig
3:04
Well, not specifically an ETF question, so these are just my opinions.
But -- by measures I look at as an individual investor, like the CAPE ratio, the market was looking fully valued, at least.
3:05
So almost everyone was suggesting we needed some sort of correction.
We're also seeing the impact of trade policies showing up in actual earnings and guidance.
So I think there's a calibration going on between the broad economic measurements (like GDP and employment, which are fine) and the actual corporate environment (which has its own issues).
3:06
I definitely do NOT think its just about rates.  Rates need to normalize, based on whats going on in the broader economy.
and the Feds job isnt to jack up asset prices.
Here's a fun question:
Dana Falmuth
3:06
HI Dave, If you were the one who won the recent Mega Millions pot, where would you invest, now that you have All The Moneys?
Dave Nadig
3:07
I will admit, I *did* buy a ticket for the big jackpot, even though I am enough of a quant to know it's just a tax on people who are bad at math.
But it was a few bucks well spent, because my wife and I spent a weekend talking about the what-ifs -- and investment certainly came up.
3:08
At THAT scale, its beyond what a human can remotely spend in a lifetime, so your time frame shifts to that of an institution.
And I would invest it just like an institution (or rather, I'd hire someone to invest it line an institution) with an infinite time horizon.
3:09
What does that mean? It means short term risk becomes almost irrelevant.  Which is why you see huge endowments invest so strongly in emerging markets, small caps and private equity.
Which is what I would do with infinite wealth.  I'd like to say I'd give tons of it away, and I would intend to.  But imagine the psychological impact?  Who knows what any of us would ACTUALLY do.
Other than hire private security.
Jameson Dunnell
3:10
Greetings Dave:What effects are the midterm elections going to have on the markets?
Dave Nadig
3:10
I saw Nate Silver from 538 present at a BlackRock event yesterday, and he put up an interstin matrix.
which had something like an 80% chance of the Dems getting the house, but a pretty tiny chance of them controlling both chambers.
3:11
From a markets perspective, I think thats what's priced in.  A D house would probably return us to the markets favorite baseline position: gridlock.
I do not think the recent selloff is somehow an "oh no not democrats!" thing.  After all, we're at the TAIL end of a great market, which has featured both D and R administrations.
3:12
Should the pendulum swing either way a LOT - both houses either D or R, I think that will cause more vol.
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