Hey there, it’s Garrett.
I spent this weekend at an Irish festival - feel fine, thanks - but came across research from Michael Howell that absolutely blew my mind.
What you think you know about how markets work?
That died around 1997, and nobody told you.
The Numbers That Change Everything
Back in the mid-1990s when SPY launched, here's how markets worked:
- 80% asset allocators - People buying companies at $20, holding five years, expecting $50 based on fundamentals
- 10-15% leveraged players - Hedge funds playing momentum through derivatives
- 5-10% passive - Early ETFs just tracking indices
That made sense.
Most people analyzed companies and invested based on whether businesses were good or bad.
Today those percentages completely flipped:
- 50% passive ETFs - Buying without caring what companies do
- 33% leveraged players - Tripled from the 90s
- 20% value investors - The only ones still analyzing businesses
Why Nothing Makes Sense Anymore
Fifty percent of market flows go into stocks regardless of fundamentals.
If NVIDIA is 7.5% of the S&P, every ETF dollar puts 7.5 cents into NVIDIA whether it's overvalued or about to cure cancer.
Add 33% pure leverage - sophisticated operations borrowing through repo markets to amplify whatever's moving - and you've got 83% of the market divorced from whether companies are good businesses.
Only 20% is left doing what you think everyone does: analyzing value.
This eliminates price discovery. This is why earnings don't move stocks like they used to. Why everything moves together in massive momentum swings. Why the Buffett indicator doesn't matter anymore.
The Leverage Monster
That 33% leveraged portion creates massive momentum when working, violent unwinds when breaking. The Fed knows this - they provide "as much plumbing as necessary to ensure repo markets don't implode."
When the FNGD broke below its 20-day EMA Friday, it signaled leveraged unwinding was over. Not from fundamentals changing, but plumbing getting fixed.
Your New Reality
If you're investing like it's 1995 - picking companies, analyzing fundamentals, expecting rational pricing - you're playing a game that barely exists.
I hate to say it - I'd love to be bearish sometimes - but I've learned my lesson fighting this system.
When Treasury liquidity flows and Fed keeps repo markets stable, that 33% leveraged portion levers back up. Fundamentals become irrelevant short-term.
This is how cruise lines hit highs when nobody's cruising. How you get momentum where "all that matters is capital flowing back into the market."
The New Playbook
Understanding this changes everything:
- Stop fighting the structure - The textbook market doesn't exist
- Follow leverage signals - Watch repo markets and margin debt
- Respect passive flows - Money goes into ETF holdings regardless of valuation
- Use the system - Sell put spreads into weakness, ride momentum when leverage expands
This isn't cheerleading. I'm the most defensive trader you'll meet. But defensive means understanding what you're actually trading against: a market where 83% of participants don't care what companies do.
Friday's crisis is over because the leverage system got needed liquidity. The question isn't whether this makes sense - it's whether you'll adapt to how the game actually works.
Once you understand it, you can profit from it instead of getting crushed.
Stay Positive,
Garrett Baldwin
P.S. I’ll me live tomorrow morning feeding you new insight and market edge. Click here to RSVP.