00:00 Speaker A
My former colleague, um Eric Balchunes, former because I used to be at Bloomberg at Bloomberg Intelligence, um ETF analyst. He wrote this piece that I found really interesting where he talked about the US market being too big to fail.
00:13 Speaker A
Um, and this is a a point I’ve touched on in conversations on this show over the past several months, which is that the participation in the equity market is so vast. And this shows the biggest growth, this is one of the charts from his piece, the biggest growth has come in in in households, in individuals who have gotten into the market.
00:26 Speaker A
And so, uh what I’ve talked about is that maybe that caps the downside, right, or limits the downside in stocks. But as he points out, he says if there’s another crisis and we get a bear market, maybe the Fed could buy equity ETFs. And that’s how it could support the market.
00:41 Speaker B
The concept that in 2008 there was a moral hazard, right? This is all that people cared about. The idea that you can’t incentivize people to be reckless actors by providing some sort of government backstop. That’s why Bear was allowed to fail. There is no conception of a moral hazard anymore. The US government outright owns equities. Not AIG style buyout, not not, you know, General Motor style buyout. This is an actual strategic stake that we’ve taken. So we are literally, all of our money is invested in these companies whether we like it or not. I think it was a great point. I thought it was a great piece.
01:05 Speaker B
I don’t think it’s very good for the market. I think it distorts incentives when you have CEOs who feel like they can do whatever they want and investors who kind of expect that they’ll be bailed out, that there’s some sort of structure there. It doesn’t create the right incentives. And is a big reason why we’re up 10% even when all the indicators are flashing red.
01:18 Speaker C
I mean it’s a very provocative piece. I mean to think about the fact that this guy makes a pretty good case that this could potentially if we had any big challenges uh to our to our portfolios and things started kind of crumbling and there was sort of no indication of a Trump or whatever you want to call it, would the Fed step in? And and the writer is saying potentially maybe, it makes sense. Look what what’s look what’s happening other other other countries’ central banks, right? They’re already potentially doing things like this.
01:40 Speaker A
I don’t necessarily believe that the Fed, especially Kevin Warsh Fed would make a move like this, especially since he’s been very vocal in the past about wanting to shrink the the balance sheet. Yeah.
01:50 Speaker A
So I don’t know if it would actually happen, but does it matter if it would actually happen if the market expects it’s going to happen. I don’t know and I don’t know how broadly the market expects it’s going to happen for that matter.
