Passive Capital Flows Are All That Matter For Stocks. Are They Starting To Falter? | Mike Green

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**Mike Green** (0:58)
There are some signs that we are starting to see a bit of a slowdown. Prior to the April run, we saw some diminishment of 401k flows.
My hunch is that part of what is ultimately happening here is that boomers are actually working slightly longer and millennials and younger, the Gen Z, are having trouble finding jobs. It's creating some disruption in the process. But the simple reality is those 55 and over, hiring is up dramatically, employment rates are down in part because of things like AI, the return of manufacturing or the need to return some manufacturing.

**Adam Taggart** (1:41)
Sorry to interrupt Mike, but that doesn't sound like a trend that's going to get any better anytime soon. Boomers will continue to retire and AI will probably diminish the need for younger workers to replace them at an equal rate as in the past.

**Mike Green** (1:54)
Well, that would certainly be the implications of something like AI.

**Adam Taggart** (2:06)
Welcome to Thoughtful Money. I'm Thoughtful Money founder and your host, Adam Taggart. Welcoming you here for a very special discussion with my good friend, Mike Green. Mike is portfolio manager and chief strategist at Simplify Asset Management, which holds, I've lost track of how many billions in client assets you guys now have. Mike, it's bigger every time I introduce you.
What is it now?

**Mike Green** (2:28)
It's a little over 14 billion, though.

**Adam Taggart** (2:30)
Oh my gosh. I think the last time I talked to you, I don't even think it was 10 billion, and that wasn't all that long ago. So you guys are really doing great.

**Mike Green** (2:39)
We are definitely holding our own.

**Adam Taggart** (2:41)
All right. Well, look, Mike, lots to talk about. We actually just hit on a really rich vein, right before we turn the camera on here, which I want to make maybe even the meat of the sandwich here today. But I want to get there through a couple of topics that you're well known for. We'll call this Mike Green's Greatest Hits.
I was just talking with our mutual good friend, Michael Fleckenstein, the other day, and he brought your name up, as he often does, around the topic of passive capital flows, and basically banging the drum that really nothing much matters besides the giant mindless robot of these passive capital flows. So first off, I just want to get an update from you. Where are we on them? I know you've been continuing your research on them. Last time we talked, I think you had actually recently released a white paper that was showing that you've sort of proven a correlative factor that the passive flow actually really do.
The data validates your theory that you've been out there banging for a long time. So anyways, any advances on the research side of things and just where are they right now? What's the state? Are they still rising? And they must be because we're at all time highs in the stock market the day we're talking.

**Mike Green** (4:00)
Well, a combination of retirement flows and some driven by rebalancing as well as systematic strategies like vol targeting, CTAs, etc. Actually led April to be the like off the charts record inflows versus anything we've ever seen. That's exacerbated by flows into things like levered ETFs where if you properly track the price impact of those because they are effectively taking one of your dollars and buying two or more of the underlying and doing it in the same transaction, it has an even more levered basically the square root of two impact on the flow components as well. This has just been April in particular was just an extraordinary period. May has slowed and the performance of the market has basically matched that over that time period. When we look at what happened in April, it was just a mechanical bid that came through that forced extraordinary short covering and amplified exactly the sort of stuff we would expect to see amplified in a passive inflow. The largest companies, the most volatile companies are those who basically took off and ran with the most aggressive components, in defiance of basically every narrative that exists out there. Concerns about AI, etc. All thrown into the dumpster heap of history alongside higher interest rates are going to bring back value investing. And the war. And the war. Let's not forget the war, which apparently we're losing.