Orwellian Financial Market Dynamics Part Four–SPY ETF Celebrates 20th Anniversary

The SPY ETF isn’t exactly a derivative in the typical sense of the word.  But, it is “derived” from underlying assets.  ie, S&P 500 equities.  The SPY is one of the most popular trading vehicle in the world and is an easy vehicle to manipulate markets. 

I clipped this image a little too aggressively and only got 1997 as the starting date.  But, this is the accumulated positive volume of the SPY ETF from 1997 to today.   Think of this as the volume advance-decline line for the SPY.  From the introduction of the SPY ETF in 1993 to the peak of the Internet bubble in 2000 the SPY positive volume increased 20,000%.  Even if I clipped this image accurately at 1993, the move from 1993 to 2000 is unrecognizable to the human eye at this scale.    That volume swell leading up to the 2000 Internet bubble collapse almost looks like a rounding error in comparison to what happened from 2003 onward.  The positive volume since then has swelled to 4,300% larger than the volume leading into the 2000 peak; which was the largest stock market bubble in history.   Put another way, an 86,000,000% increase has taken place in the SPY’s volume  after its first year of introduction.   That’s right, dog breath.  

Some might make the argument that ETFs are replacing mutual funds and that could help help explain the incredible swell in volume but that isn’t consistent with reality.  The reality is the entire float of the ETF is turned over about every five days.  In other words, just like every other financial instrument, long term investing is a joke. It’s all speculation.  In case you still don’t get it, this kind of parabolic bubble in financial market demand is representative of massive gambling and speculation.  A hint –>> Umm, this always ends badly. 

The most interesting part of all of this is that overall market liquidity is actually declining very substantially and has been for some time.  More on that in my next post in this series.