I have a scene for/from a horror film in my head (I have no idea whether I’m making this up or remembering it). It’s a group of people in a strange room with a large table in the middle covered with an enormous number of pieces from a jigsaw puzzle. As the picture starts to come together, they realize it’s a nightmarish Gothic painting. Then they realize it’s a painting of the room they are in.
I have a feeling that a lot of economists have the same expressions on their faces these days that I’m picturing in that movie scene, with each day revealing a new piece in a very disturbing picture.
Lots of people have been trying to figure out why the market keeps climbing in the face of more and more ominous news. I’ve done a couple of posts approaching this in terms of market psychology, suggesting that traders were in a state of denial about the steady flow of troubling developments we’ve seen over the past six months, but there may be another explanation. It is possible that a large number of traders have made the rational choice and moved their investments somewhere safer, but in the mrkets some of the smart money has been replaced with dumb money.
Retail Traders now account for more than 20% of total equity options volume, the most in history 🚨🚨
— Barchart (@barchart.com) August 15, 2025 at 7:16 AM
[image or embed]
With a handful of exceptions, most retail investors shouldn’t be investing in individual stocks, period. This has been true at least since the invention of the index fund, but it is arguably more so today. 2025 traders came of age during the asset bubble when stupidity was often rewarded and the dominant investor culture was HODL. With the possible exception of SoftBank and the Saudi sovereign wealth fund, this is the dumbest of dumb money, and in the long term, dumb money is a bad indicator.
No comments:
Post a Comment