The Signs Were All There | Mike Green on When Passive Flows Meet the Largest IPO in History

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**Mike Green** (0:58)
Even the discussion around Tesla's inclusion in September of 2020 hailed in comparison to the discussion that's going on now. This is recognized as something different.
And we've dropped any pretense that they are, quote unquote, passive indices. My analysis is it is mostly the passive flows. I've shown elsewhere that number is now accumulating to impact the largest US stocks by about 18% a year. Over 50% of Google's profits in this last quarter alone were tied directly to the price appreciation of its investment in Anthropic. People are putting in multiple, I put in those gains. I mean, these are one-time gains. You either have the cash to make the payment on your debt or you don't. And that's the real question I think that's going to play through. We'll look back on it if it actually plays out and we'll say, well, these signs were all there and nobody was paying attention.

**Matt** (1:54)
You're watching Excess Returns, a channel that makes complex investing ideas simple enough to actually use for better questions, lead to better decisions. I can't decide. It's like you get one part Michael Lewis, you get another part Michael Milken, and probably a few other Michaels in between. Yes, we do give a fig about this. Chief Strategist at Simplify Asset Management, Mike Green. So good to see you.

**Mike Green** (2:15)
It's great to see you, Matt. I love the intros every single time. We were all products of the 60s and 70s. Mike was the most common name for an extended period.

**Matt** (2:24)
Well, you're serving the name proud. Let me just compliment you on that.

**Mike Green** (2:29)
Yeah, it is something to be proud of. When your name is Mike Green, then you can actually find yourself on Google. So there you go.

**Matt** (2:36)
There you go. Pride points on Gmail address if nothing else. Can we talk about how boring markets are right now? This is the least interesting beat to death topic.
Why?

**Mike Green** (2:47)
I think honestly every professional investor I know is suffering through a period of deep depression because there is just nothing you can actually say about what is happening other than, here we go again.
You think you learn. My work obviously suggests there's a mechanical component to much of this. The behavior of the indices actually would seem to validate that at this point.
And so, you know, we're just kind of all waiting for what happens next, because this has not happened before. We actually don't know how this will play out. We can build models of it, and we understand the bid that is coming for SpaceX from the passive indices, the demand that that creates. The Heisman from the S&P 500 was actually a remarkable event. I candidly was a little bit surprised as I described in my subsec. I was actually in the middle of an interview discussing SpaceX when the news came out and had no quicker be the observation that I couldn't understand why S&P was doing it. I did understand why Nasdaq was doing it. I couldn't understand what S&P was doing. When the reporter I was speaking to said, well, guess what? S&P just announced they're not going to include it. I think this is actually a really critical thing to understand. It's the role that these index committees and the index construction committees actually play from a fiduciary standpoint. That's become the most interesting thing in markets right now, is this basic discussion around what sort of role should we expect passive to play? How should we expect it to impact it? It's a radical change to the discussion I was having a decade ago or even five years ago, which is people refusing to admit that indices had any impact whatsoever. We've come to an interesting conclusion that feels a little bit like a logical endpoint to some of it, but again, we just don't know, we haven't seen it before.