Could the "all time high" markets be propped up by ETF's?
A half rhetorical question.....but something that popped into my head.
ETF's are all, and their base, backed by positions in equities. Somewhere in a blended ETF of an ETF is an ETF that holds actual positions in stock.
ETF's have become extremely popular, to the point of where institution purchasing COULD be limited by the number of actual stocks that are out on the market. Why the limit? Though it doesn't feel like it....there are a finite number of shares for a company for trading. That number can increase or decrease based on splits or valuation adjustments.....but it is a finite number.
Could it be that ETF's in their insatiable need for delivering returns are driving up the price of equities because of demand? Suddenly.....the market is not driven exclusively by economic returns or even fear/greed. Could stock scarcity which is increasing value? Like a collectable. It is worth "something", but the price is higher because of scarcity & demand.
The movie "The Big Short" was on this weekend and it always makes me think of ETF's. Mortgage bonds were always backed by actual mortgages, which are finite...there are only so many, but then institutions started with CDO's building mortgage bonds by packaging other mortgage bonds which increased their leverage and gave the institution something to sell. Haven't ETF's done a similar thing with ETF's full of other ETF's? They ran out of stock to buy, or the stock has become expensive because of demand, so institutions had to build ETF's out of their own collection of ETF's to feed the desire?
I'm not chicken little-ing the market.....but when stock market highs don't match with long accepted economic factors from history......starts to make me wonder if demand for stock created by the hunger for ETF's and the subsequent institutional profit that comes from ETF's has created a scarcity in actual stock available to be traded. Since 80%+ of the market trading is institutional....is it possible that scarcity of stock suddenly becomes a factor in its price?
u/No_Cardiologistis — 2 months ago