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Cem Karsan
Cem Karsan: The Big Print Is Coming and the Government Will Buy Stocks
- U.S. government will likely begin buying stocks directly within three to six months as part of a sovereign wealth fund strategy to manage markets, support the dollar, and compete with China. - The S&P 500 is structurally fragile: 60% of stocks are in bear markets even at index highs, the top 6% hold enough value to reach 2023 levels if the bottom 94% went to zero, and earnings growth is largely circular (driven by market gains, not operational fundamentals). - A 25–35% market crash is coming—probably post-midterms—before the government deploys its QE and stock-buying apparatus; this will be a sharp V-shaped decline lasting one to three months, not a prolonged bear market. - The U.S. has strategically closed the Strait of Hormuz and controls global oil flow to underpin dollar hegemony and block China's alternative currency arrangements. - Bitcoin benefits from coming debasement (printing and negative real rates) but faces long-term headwinds because governments prioritize control over currencies and will not allow Bitcoin to replace fiat without regulatory capture.
GM101: When Passive Breaks the Market ft. Hari Krishnan & Cem Karsan
- Harry Markowitz and colleagues published "A Model for Passive That Breaks the Market," arguing that rising passive investment share (now ~50–55% of US equities) decouples stock prices from fundamental value and increases market instability without requiring net outflows. - The paper models how above ~83% passive share, volatility can increase uncontrollably at a cubic rate; at ~91%, markets could theoretically approach zero in finite time under extreme conditions—not a prediction, but a structural risk analysis. - Markets have transformed from **value-driven to flow-driven**, where reflexive dynamics dominate fundamentals. Passive flows now determine price direction more than earnings or economic data, making volatility feed back on itself. - Concentration and leverage in mega-cap equities accelerate under passive flows: names receiving large dollar allocations push prices up faster than smaller, more elastic names, creating feedback loops that boost earnings and attract more capital. - Government entities (Fed, Treasury) are acutely aware that $500 trillion in global long assets dwarfs their direct tools; proactive market management through communication and positioning has become necessary to prevent systemic breaks. - Upside risks from continued reflexive buying compete with downside risks from sudden deleveraging or rate shocks that could trigger a 2022-style reversal across correlating assets and strategies.