The ETF Explosion: Greed, Leverage, and a Growing Bubble Risk
When I first made this chart I had to check and re-check it a few times.
Because it just looks too weird.
And that’s the thing: as an analyst, sooner or later you learn (often by making an embarrassing mistake) that if something looks weird — it *is* weird and you probably need to go and find out what error you or someone else made to make it look that weird…
The problem is there’s no error here.
Well, no data error at least.
That weird looking surge in the rolling 12-month net-change in US listed ETFs is genuine. But I am certain that some errors of a different type are going to be seen here when the dust eventually settles from this frantic ETF launch frenzy.
And p.s. here’s a little something this chart doesn’t show: a big portion of ETF launches have been focused on providing “investors“ with the means to undertake highly leveraged bets on an already bubbly looking market.
In other words, this chart is a sentiment signal — a big red flag.
And I must say, if/when we do end up seeing a bubble-bursting-bear, I would not be surprised to see chart counted among the clues listed as we say in hindsight that “there were signs…“
Key point: There has been a scrambling surge in ETF launches (a sign of the times as speculation, greed, and hype take hold).
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