Submitted by QTR's Fringe Finance

Today I’m happy to offer my readers the latest from my friend Phil Bak. Phil has appeared on my podcast and runs his own Substack called BakStak.

He specializes in ETFs but I also love his perspective on all things macro, markets — and more importantly, exactly how absolutely ass-backwards our entire financial world is. You can follow him on X here.

The Rikishi Moment

Let’s talk about what is happening in our capital markets, and specifically in our index funds, but before we do we need to understand what a fall from grace looks like. And to do that we need to talk about Pete Rose.

Pete Rose wasn’t just a baseball star, he was every baseball fan’s idea of a baseball star. He was all elbows and dirt and hustle and toughness. And then he was a player-manager. The face of a franchise. The face of a sport.

And along the way he made some mistakes. As it turned out he made the worst kind of mistakes for his time, which was to gamble on the sport. It’s funny to think about it now, with sports gambling available on every phone and advertised non-stop at every sporting event. But back then the world was more concerned with old fashioned concepts like integrity, and the league decided to make an example out of Pete Rose.

15 years later, a broken Pete Rose was trying to pay the bills by lending what was left of his celebrity to WrestleMania. And he soon found himself in the ring with a 400-pound Samoan wrestler named Rikishi.

Now here is where I have to drop a ‘viewer discretion advised’. Because Rikishi had a signature move he called stinkface. Stinkface is as classy as it sounds: Rikishi would trap an opponent sitting in the corner of the wrestling ring, turn around, back up, and shove his giant rear end into the opponent’s face while the crowd went insane.

You can see for yourself, if you want. It is as bad as it sounds.

As Rikishi was rubbing his gigantic ass on Pete Rose’s face, if you look closely you can see something you won’t often see. Something in Pete’s eyes. A mixture of sadness and acceptance. A realization of how far he has fallen. Eyes that are no longer raging against where he is in life, but instead eyes that look dazed and tired and accepting of this new sad reality.

John Bogle is no longer with us, and I can only imagine how he would look upon what is happening to index funds now. I can only imagine the same sad eyes. I can only imagine the same dazed and tired acceptance, as his great invention coming from such great heights collapses into the sewers of fraud.

If you’ve been reading my stuff for a long time, and particularly back when I used to write more about stocks and ETFs, then you can probably guess where I am going. But for those of you who are new here, I’ll catch you up. This is what actually happened:

• Low cost investing was a powerful narrative that put the little guy against Big Greedy Wall Street

• That narrative drove flows into passive index funds

• The flows drove performance, causing the market cap weight (reverse-size & momentum) factor to outperform all others

• Outperformance led to yet more flows, and the circular loop was complete

• Options volume flipped equity volume, as derivatives tied to the largest indexes are driving prices even more so than index funds

• And just like that, valuations no longer matter to markets

All of this brings us up to date, and to the Rikishi moment we are now facing. That moment is the SpaceX IPO.

First, NASDAQ changed its Nasdaq-100 index rules to make it easier and faster for newly public mega-cap companies like SpaceX to enter the index. The rule changes appear to weaken...(READ THIS FULL ARTICLE 100% FREE HERE).