There’s a new ETF in town. SPDR SSGA Apollo IG Public & Private Credit ETF (PRIV) will trade Thursday at the NYSE. 

This fund intends to invest at least 80% of its net assets in investment grade debt securities, including a combination of public credit and private credit. What’s surprising is that there is a significant component of private credit in the ETF wrapper. Because private credit is illiquid, it has been a problem getting this in an ETF wrapper, since ETFs need liquidity. 

They are trying to solve this problem by having Apollo provide credit assets and they will purchase those investments back if need be. 

ETFs have owned illiquid investments in the past (there are bank loan ETFs that have illiquid investments) so this is not the first time this issue has been addressed. But Wall Street is eager to provide access to private equity and credit to the masses, and ETFs are the obvious wrapper.

Normally, ETFs are only allowed to own illiquid investments up to 15% of the fund, but the SEC says that in this case private credit can range between 10% and 35%, but can be above or below that.

This filing has been controversial. One early concern was that if Apollo is the only firm providing the liquidity, it naturally raises questions about what type of pricing State Street will get. However, State Street apparently can source from other firms if it can get better prices.

Another issue: Apollo is required to buy back the loans, but only up to a daily limit, and it’s not clear what happens after that. It’s not clear if the market makers would accept private credit instruments for redemption.

Bottom line: This is a groundbreaking but very complicated ETF. It will be closely monitored for liquidity.

Note: Anna Paglia, executive vice president, chief business officer for State Street Global Advisors, will be on ETF Edge Monday to explain how this ETF works.

Spend some time looking at trading volumes, and you’ll notice something interesting: A lot of investors recently are making outsized bets on the stock market.

Most of them are long bets, but some are short.

It’s easy to see this because there is a growing segment of the ETF business that caters to investors who want to make short-term outsized bets on the stock market.

These are leveraged and inverse ETFs. Leveraged ETFs amplify the daily returns of an index or stock using financial derivatives. For example, if an index rose by 1% in a day, a 2x leveraged ETF would deliver a 2% return, a 3x would deliver a 3% return.

An inverse ETF delivers the opposite daily performance. So a 2x inverse ETF would be down 2% on a day when the index rose 1%, and vice-versa.

These leveraged/inverse ETFs are not just growing in assets. They are becoming a greater part of the daily trading volume of the ETF universe, which is becoming a larger part of overall trading.

Who is using these products? It has a lot to do with the general rise in speculative behavior in the market. Trading in options, bitcoin, and other more speculative products has been rising.

“We’re continuing to see more investors lean into leveraged as a way to express short-term views on the market, and given all the volatility and daily market-moving headlines, it’s not surprising we are seeing higher volume and more assets entering the space,” Douglas Yones, CEO of Direxion, one of the largest providers of leveraged/inverse ETFs, told CNBC.

The first leveraged/inverse ETFs in the U.S. started in 2006 and allowed long or short bets on indexes like the S&P 500 or the Nasdaq 100. Leverage and inverse single-stock ETFs came into existence in 2022, and they too have grown fast.

The largest, ProSharesUltraPro QQQ (TQQQ), which provides 3x leveraged exposure to the Nasdaq 100 (QQQ), has nearly $26 billion in assets. Single-stock ETFs that leverage Nvidia and Tesla also now have substantial assets.

Largest leveraged/inverse ETFs

(assets under management)

ProSharesUltraPro QQQ (TQQQ) $25.7 billion

Direxion Daily Semiconductor Bull 3x (SOXL) $8.5 billion

ProShares Ultra QQQ (QLD) $7.9 billion

ProShares Ultra S&P 500 (SSO) $5.5 billion

Direxion Daily S&P Bull 3x (SPXL) $5.0 billion

Direxion Daily TSLA Bull 2x (TSLL) $3.5 billion

GraniteShares 2x Long NVDA (NVDL) $4.2 billion

Part of this is a bull market effect: Stocks are up meaningfully in the last few years, so overall assets are higher. However, these leveraged/inverse ETFs are not just growing assets, they are becoming a larger part of the ETF universe.

In 2016, when ETFs had about $2 trillion in assets under management (AUM), leveraged/inverse ETFs were about 2% of that AUM, according to Strategas.

Today, ETFs have about $11 trillion in assets under management, but leveraged/inverse ETFs make up about $81 billion of that, or almost 8% of total AUM.

“I do believe there is a generational effect at play, I think there is major appetite among younger traders wanting to play with leverage due to the gains it can provide,” Todd Sohn, head of ETFs at Strategas, told CNBC. “The barriers to entry are extremely low, you can buy these products on your phone.”

Yones estimated that 75% of the ownership of these products were retail traders, and 25% institutional, which included hedge funds, trade desks, large brokerage firms, and “anyone who has a book of positions that wants to be neutral the market.”

He estimated that a small but significant percentage of the retail traders (12%-15% of the total) were from outside the U.S., which aligns with previous reports about growing demand for 24-hour trading coming in part from retail traders in South Korea, Japan, and Europe.

Leverage and inverse ETFs, including leveraged and inverse single-stock ETFs, now routinely show up among the most heavily traded ETFs on a daily basis.

A simple way to look at this is by average daily dollar volume, the total amount of money traded in the ETF on a daily basis.

The top ETFs by daily dollar volume are still ETFs tied to the biggest indexes, mainly the S&P 500, Russell 2000, and Nasdaq 100.

Top ETFs by average 3-month daily dollar volume

SPDR S&P 500 (SPY) $27.7 billion

Invesco QQQ (QQQ) $15.3 billion

iShares Russell 2000 (IWM) $5.7 billion

iShares Core S&P 500 (IVV) $3.9 billion

Source: Strategas

However, the fifth-largest ETF by average daily dollar volume in the last three months is the ProSharesUltraPro QQQ, which provides three times leveraged exposure to the Nasdaq 100.

Altogether, five of the top 20 ETFs by average daily dollar volume are leveraged/inverse.

Leveraged/inverse ETFs: largest avg. 3-month daily dollar volume

ProSharesUltraPro QQQ (TQQQ) $3.8 billion

Direxion Daily Semiconductors Bull 3X (SOXL)$2.1 billion

Direxion Daily TSLA Bull 2x (TSLL) $1.5 billion

ProShares UltraPro Short QQQ (SQQQ) $1.4 billion

GraniteShares 2x Long NVDA (NVDL) $1.3 billion

Source: Strategas

These products are bets on short-term momentum, but they have one additional feature that has proven difficult for investors to wrap their head around: they reset on a daily basis.

Because of compounding effects, it can be fiendishly difficult to figure out what actual returns will be on anything more than a daily basis. This means that holding a 2x leveraged product for anything more than a day may result in making substantially less than a 2x return, depending on the direction of the market.

Here’s an example: Suppose the S&P 500 was up 10% one day, then down 10% the next day.

A $100 investment would look like this:

S&P 500: hypothetical $100 investment

Day 0 $100

Day 1 (up 10%): $110

Day 2 (down 10%). $99

After two days of this, you have $99, so you are down 1%. If you had a leveraged product over those two days, it would seem like you would be down 2%, or that you would have $98.

But because of the daily reset, that’s not what happens.

S&P 500: hypothetical $100 investment in 2x leveraged

Day 0 $100

Day 1 (up 10%, leveraged up 20%): $120

Day 2 (down 10%, leveraged down 20%) $96

You actually have $96, instead of $98, and bear in mind this excludes fees.

As time goes on, these calculations get progressively more complex.

As a result, those offering these products routinely state that they are not meant for buy-and-hold investors.

These funds have very large daily turnovers, so most investors seem to understand the risk of holding these products on anything more than a daily basis.

But Sohn told CNBC that all investors in leveraged products needed to be very careful.

“At some point though, it helps to take stock of the risks involved whenever the market takes a turn south,” Sohn told CNBC.

Doug Yones, CEO of Direxion, will be on the ETF Edge portion of Halftime at 12:35 PM ET on Monday, and will also livestream on ETF Edge from 1:30 PM ET. He will be joined by Todd Rosenbluth, Head of Research at Vettafi.

For decades, Art Cashin, UBS’ director of floor operations at the New York Stock Exchange, would write a New Year’s poem to reflect back on the year’s events. With Cashin’s passing earlier this month, his sons, Arthur and Peter, sent this homage to their father:

Some Other Cashins’ Comments:  An Homage Presentation
December 30, 2024 

by Arthur Cashin III and Peter Cashin

In 2024,
Wall Street stopped in fear.
No more annual poems
without Arthur here?

My brother and I
said, “Let’s give this a try,”
but with one precondition,
there would be no AI!

Genetics or environment,
we share his same vice.
So, we joined our feeble minds,
while marinating some ice. 

Paris hosted the Olympics
and chose to begin,
by having the opening
float down the Seine.

A container ship took out
the Francis Scott Key.
The world wondered if Putin
did same to Navalny.

The ruler of Syria,
al-Assad is now gone,
but in Ukraine and Gaza,
the wars still carry on.

‘Round most of the world,
incumbents lost reelection.
Here in the U.S.,
45’s now 47.

Wall Street continued
its historic bull run.
And with the help of Wegovy,
the world lost a ton.

Taylor Swift can go home.
Eras came to an end.
But only on the field
did Travis’ knee bend.

Boeing’s labor strife
paused the 737.
They also left two astronauts
between here and heaven.

Some finance greats are
no longer among us.
We lost Jim Simons and
HD’s Bernie Marcus.

We lost the deep bass
Hollywood counted upon.
The voice of Mufasa
and Vader is gone.

The choir of angels
got a whole lot better
now that Cissy and Whitney
are singing together.

Arlo Guthrie’s old muse,
she has a new haunt.
Alice Brock is in heaven,
at a new restaurant.

Toby Keith and Kristofferson
climbed that heavenly stair.
Now jammin’ with Buffett,
must be 5 o’clock there.

Phil Donahue is up there,
booking new guests.
Wonder if Dr. Ruth
will be on his stage next.

A remake of “Tootsie”
seems not to be far.
Dabney Coleman was joined
by the great Teri Garr.

Whitey Herzog submitted
his final all-star roster.
With Rose, Mays and Cepeda;
not a single impostor.

Lou Carnesecca now coaches
a team that’s the best,
with players like Mutombo
and Walton and West.

Zagallo and Beckenbauer,
both Of World Cup fame,
will rejoin greats like Pele
for a quick pick-up game.

Remember that sound bite
you’d hear without fail?
We no longer have the voice
who said: “You’ve got mail!”

A poet laureate left us,
as they eventually would.
We can’t overlook
the great Charles Osgood.

And we would be remiss
not to share why we’re sad.
This exercise brought memories
of our dear old dad.

To others, he was Arthur,
Mr. Cashin or Chief.
But he was our father
and we share now our grief.

You knew him as
he wanted to be:
Historian, philanthropist,
soul of the NYSE.

If he joined you for drink,
you should have been flattered
and talk markets or politics,
or things that truly mattered.

From comments to speeches,
writing was his art.
But was he as funny
as the late Bob Newhart?

An Xavier alum,
a true Jesuit scholar.
Of his alma mater,
there was no one prouder.

Were it not for Ray Charles
or voters in Jersey,
you never would have seen him
on CNBC.

So as this year ends
and you look to ’25,
we offer two tips
to help you survive.

Cherish those still here.
Remember those you miss.
From the Cashins to yours,
all the best is our wish.

Begorrah, menorah,
Lanza and Kwanzaa,
May your New Year be filled
with true abbondanza!

And as the ice melted
in each of our glasses,
we knew if Dad read this
he’d kick both our asses. 

Rest in peace, Dad.

Art Cashin also traditionally led the annual singing of “Wait ’till the Sun Shines, Nellie” with current and former NYSE members on New Year’s Eve. On Tuesday, the sons will lead the singing at 1:45 p.m. ET and ring the bell to close out the year.

The S&P 500 and the Nasdaq-100 indexes get new members added and old ones kicked out on Friday in a quarterly rebalancing mostly based on companies’ adjusted market capitalization. 

Years ago, these index reconstitutions had very little impact on trading. 

Not anymore. 

The explosion of index-based ETFs has changed all that. 

Today, roughly $16 trillion is indexed to the S&P 500. 

The largest Nasdaq-100 ETF (QQQ), has $321 billion in assets, and the Invesco Nasdaq-100 Index mutual fund (IVNQX) has about $100 billion in assets, so we are talking well north of $400 billion in additional assets pegged to the Nasdaq-100. 

Bottom line: what stocks are added to or deleted from these large indexes matters a lot. 

Palantir gets its wish

If you doubt that being included in a large index matters, just ask Palantir Technologies. It apparently believes it is very important. 

On November 14, the company issued a three-sentence (!) press release announcing that it was transferring its listing from the New York Stock Exchange to the Nasdaq Stock Market. Palantir concluded with this: “Upon transferring, Palantir anticipates meeting the eligibility requirements of the Nasdaq-100 Index.” 

Can’t make it any plainer than that. 

And Palantir got its wish. They are being added to the Nasdaq-100 at the close of trading on Friday. 

Coinbase denied 

Two companies are being added to the S&P 500: Apollo Global Management, and Workday. Qorvo and Amentum are being removed. 

Most people think the S&P 500 is the 500 largest companies in the United States, but it’s more complicated than that. There are a number of requirements that have to be met to get into the S&P 500, including a minimum market capitalization of $18 billion. 

However, there is no obligation to mechanically include only the 500 largest companies by market capitalization: ”Constituent selection is at the discretion of the Index Committee and is based on the eligibility criteria,” S&P Global’s methodology paper says. 

For S&P, adding Apollo (financials) and Workday (technology) are relatively safe choices. At $96 billion and $70 billion in market cap, both are squarely in the large-cap segment of the market. 

Still, many investors were hoping that Coinbase Global, which has a similar market cap to Workday ($68 billion)  would be added to the S&P 500. It certainly qualifies based on market capitalization and profitability (it’s been profitable the last four quarters). But Coinbase is a far more volatile stock that either Apollo or Workday. 

Coinbase did not make the cut. It’s not clear why, but perhaps because the S&P Index Committee was concerned about the volatility. Coinbase is one of the most volatile of all stocks. This year alone, it has moved from a low of $117 to about $350, a 200% move. 

Perhaps it’s a coincidence, but Coinbase was down 9% the day after the S&P inclusion announcement was made, and the cryptocurrency platform was excluded. 

MicroStrategy sector

Sometimes just determining where a stock should be classified can be a big issue, especially when big money is involved. 

Going into the Nasdaq-100 are MicroStrategy, Palantir and Axon Enterprise. Going out are Illumina, Super Micro Computer and Moderna. 

To enter the Nasdaq-100, a company has to be listed on the Nasdaq Global Select Market or the Nasdaq Global Market, have a free float of at least 10%, and while there is no minimum or maximum market capitalization requirement, the annual reconstitution (determining who goes in and out), is loosely based on market capitalization: ”The Nasdaq-100 Index is designed to measure the performance of 100 of the largest Nasdaq-listed non-financial companies,” Nasdaq says in its Index Methodology paper. 

Note the requirement that any entrant be a “non-financial stock.” 

Based on market capitalization, MicroStrategy has certainly earned its spot in the Nasdaq-100. It has been a monster this year, up over 400%, and now sports a market cap of about $80 billion. That alone would put MicroStrategy in the top half of the Nasdaq-100 by market value. 

Like Coinbase, it is a very volatile stock (trading range in 2024:  $50 to $500). 

More interesting is the fact that MicroStrategy is listed as a technology stock, but given that about half its value is in bitcoin (it owns 439,000 bitcoin with a current value about $42 billion), is it accurate to call it a tech stock? 

Chairman Michael Saylor has said he wants to run MicroStrategy as a “bitcoin bank.” 

Should we take him at his word? Should MicroStrategy be classified as a financial stock, which would make it ineligible to be in the Nasdaq-100? 

For the moment, it’s classified as a technology stock. Whether it stays there is uncertain. There’s this thing called the Industry Classification Benchmark (ICB), which is the system developed to categorize public companies into specific industries and sectors. There are periodic reviews to make sure companies are in their appropriate sectors. 

But that is for another day. For the moment, Bitcoin fans are loving it. Their darling is in the Nasdaq-100. 

Whether index fans will love it is yet to be determined.

Bitcoin exchange traded funds are now the largest holders of the flagship cryptocurrency. 

The 12 spot bitcoin ETFs in existence have collectively passed $100 billion in assets under management, one of the most successful ETF launches in history. 

The funds now own slightly more than 1.1 million bitcoin, equivalent to about 5% of all the bitcoin in existence. 

Collectively, bitcoin ETFs now own more of the cryptocurrency than legendary pseudonymous founder Satoshi Nakamoto, who is believed to control as much as 1.1 million bitcoin. 

Largest bitcoin holders

• U.S. Spot ETFs            1,104,534
• Satoshi Nakamoto   1,100,000
• Binance                        633,000
• MicroStrategy             402,100
• U.S. Government       198,109
• Chinese Government 194,000
• Bitfinex                            184,027
• Kraken                              158,959
• Block One                        164,000
• Robinhood                      142,361

Source:  Bloomberg/Eric Balchunas

“Bitcoin ETFs have become the vehicle of choice for bitcoin holders,” Brian Hartigan, global head of ETFs at Invesco, said Monday on CNBC’s “Halftime Report.” 

Here’s the math: U.S. ETFs now have a little over $10 trillion in assets under management. With spot bitcoin ETFs now accounting for more than $100 billion in assets, bitcoin is now about 1% of the assets under management of the entire ETF universe. 

That 1% is a significant milestone. For years, bitcoin advocates have been looking for ways to convince skeptics they should allocate a small portion of their portfolio to bitcoin. 

A typical argument is that as assets under management have grown, investors should allocate 1% of their portfolio to bitcoin. The argument is that if bitcoin goes bust, losing 1% is no big deal, but the scarcity value of the cryptocurrency leaves it with a bigger chance of increasing in value over time.

It’s now becoming a bit easier to make that kind of argument, with bitcoin accounting for 1% of the assets under management in ETFs.

 ”So for people asking that question, if you don’t own it, you’re 1% under allocated to bitcoin,” Hartigan said.

 The ETFs’ popularity boils down to pent-up demand and an up market.

“I think everything lined up perfectly for these products coming to market,” Nate Geraci, president of The ETF Store, said Monday on “ETF Edge.” “Because, remember, you had over 10 years of pent-up demand here, because the first bitcoin ETF filing was all the way back in 2013, and this has been talked about ad nauseam over the past decade. So I think that created a lot of pent-up demand.”

A relentless up market was the second catalyst. 

“Bitcoin itself has obviously performed very well,” Geraci said, noting that the crypto has more than doubled this year. ”That clearly helps. There’s just been a ton of coverage in this space that helps generate investor interest. So all of the ingredients have been there. It’s really been a perfect recipe.”

The bitcoin and ETF industry are expecting even more inflows in 2025 on two hopes. First, they want institutions to loosen investment requirements and permit clients to own and trade bitcoin. Second, they seek a friendlier regulatory environment.

“The ETF has become the liquidity vehicle for holding the digital assets themselves,” Hartigan said on CNBC’s “ETF Edge” program. “It’s liquid, that’s regulated, and I think that really touts the benefits of the ETF. So, hopefully that’s the kind of that intermediary vehicle that we needed to give the institutional marketplace more access to digital coin.”

President-elect Donald Trump’s announcement that venture capitalist David Sacks will be the crypto “czar” and the plan to nominate Paul Atkins to be chair of the U.S. Securities and Exchange Commission has bitcoin enthusiasts believing that a much friendlier regulatory environment is coming.

Atkins, a former Republican SEC commissioner, has been supportive of bringing more regulatory clarity to the crypto market.

“If the SEC were more accommodating and would, you know, deal straightforwardly with these various [crypto] firms, I think it would be a lot better to have things happen here in the United States rather than outside,” Atkins said in a “Kibbe on Liberty” podcast in February 2023. 

In that podcast, Atkins expressed support for a digital currency that is not controlled by the government.

“To have something that is not controlled by any particular entity, is not centralized, is a trustless type of product, where you have all the different miners and validators who are validating different transactions and appending them to the blockchain, makes a lot of sense,” he said.

With spot bitcoin ETFs now over $100 billion in AUM, Geraci said there is a real chance bitcoin ETFs will pass gold ETFs next year.

“For context, the physical gold ETF category, which has been around for over 20 years, that has about $125 billion in assets [compared to $100 billion in spot bitcoin ETFs],” Geraci said.

“So, it’s not inconceivable to think that spot bitcoin ETFs will surpass gold ETFs sometime over the next several months, which is just astounding when you think about it, when I think about the demand here,” he added.

Art Cashin, UBS’ director of floor operations and a fixture at the New York Stock Exchange for nearly 60 years, died this week at age 83. 

Cashin was one of the great historians of the stock market, but he was not an academic. His method of teaching did not involve citing academic studies. Instead, he taught by telling stories.

In an attempt to explain why people should think deeper about what they are doing, he often told stories that illustrated a favorite theme: Why the obvious answer is not always the correct answer. 

Cashin had to live through the constant specter of a nuclear attack in the early 1960s. One such incident taught him that sometimes investment decisions are not entirely logical.

Back then, he was spending a considerable amount of time with one of his earliest mentors, an over-the-counter trader in silver stocks whom he called Professor Jack. Here’s how Cashin told it:

“We were not quite to the Cuban Missile Crisis. We were getting there and I was still not a member yet. It was the early 60s, and word spread that something had happened and that the Russians had actually pressed the button and that the missiles were flying. The option market wasn’t on an exchange in those days, it was over-the-counter and you had to call around. I had virtually no money, and I was looking to see if I could make a $100 bet by buying a put or some such things. And everywhere I called I couldn’t get anything done. So I cleaned up and rushed down to the bar. And Professor Jack was already in the bar, and I came bursting through the doors as only a 19- or 20-year-old could. And I said, ‘Jack, Jack. The rumors are that the missiles are flying.’

And he said, ‘Kid, sit down and buy me a drink.’

And I sat down and he said, ‘Listen carefully. When you hear the missiles are flying, you buy them, you don’t sell them.’

And I looked at him, and I said, ‘You buy them, you don’t sell them?’

He said, ‘Of course, because if you’re wrong the trade will never clear. We’ll all be dead.'”

Cashin’s stories often illustrated some aspect of investing.

Volumes have been written explaining the concept of “price discovery” — that is, how anyone determines what the right price to pay for a stock should be. Scholarly papers have been written about supply and demand, as well as the information available to buyers and sellers at the time of the transaction.

To explain price discovery, Cashin liked to tell the story of the time the jeweler Charles Lewis Tiffany tried to sell an expensive diamond stickpin to John Pierpont Morgan.

Tiffany, Cashin said, knew that J.P. Morgan loved diamond stickpins, which he used to put in his tie. One day, the jeweler sent a man around to Morgan’s office with an envelope and a box wrapped in gift paper. Morgan opened the envelope, and in it was a message from Tiffany: “My dear Mr. Morgan, I know of your great fascination with diamond stickpins. Enclosed in this box is an absolutely exquisite example. Since it is so exquisite and unusual, its price is $5,000.”

In those days, Cashin noted, $5,000 was north of $150,000 in present dollars.

The note continued: “My man will leave the stickpin with you and will return to my office. He will come back tomorrow. If you choose to accept it, you may give him a check for $5,000. If you choose not to accept it, you may give him the box back with the diamond stickpin.”

The next day, Tiffany’s man came back to see Morgan.

Morgan presented him with the box rewrapped in new paper, along with a note, which said, “My dear Mr. Tiffany, as you’ve said, the stickpin was magnificent. However, the price seems a bit excessive. Instead of $5,000, enclosed you will find a check for $4,000. If you choose to accept that, you may send the pin back to me, and if not, you may keep the pin and tear up the check.”

The man returned to Tiffany, who read the note and saw the offer for $4,000. He knew he could still make money on the offer, but felt the pin was still worth the $5,000 he was asking.

The jeweler said to the man, “You may return the check to Mr. Morgan, and tell him I hope to do business with him in the future.” Tiffany then took the wrapping off the box, opened it up and found not the stickpin, but a check for $5,000 and a note that said, “Just checking the price.” 

Cashin passionately believed that the market reflected all available information — even if some were able to come to different conclusions than others. Often when the market moved for reasons that were not obvious, Cashin would come up with some plausible but not obvious reason why.

He was fond of telling a story about a man who looked at the markets during a national disaster and read the tape in a very different way than everyone else.

It was Nov. 22, 1963 — the day President John F. Kennedy was assassinated.

“I was upstairs,” Cashin told me, “And the market was selling off. And a broker on the floor, Tommy McKinnon, called up. I was in the order room. And he said, ‘Is there anything on the tape about the president?’

And I said, ‘No. Why do you ask?’ And he said, ‘Merrill Lynch is all over the floor, selling.’ And I asked him why, and he said, ‘Something about the president.'”

“So I went back. The news ticker had a bell that would ring once for ordinary news, twice for something that was special, and three for really dynamic news. And the bell rang three times. And I ran back about 15 feet to where the news ticker was. And the headline was, ‘Shots Reported Fired at President’s Motorcade in Dallas.’ And I ran back to call the floor of the Exchange to tell Tommy. And before he could pick up, the bell rang three times again. And it said, ‘President Rumored to Have Been Hit.’ And I went back to call him again. And again, the bell rang three times. And it said, ‘President’s Motorcade Diverted to Parkland Hospital in Dallas.’ And that’s when they shut the Exchange down.”

“The amazing thing, to me, was how did Merrill Lynch know before anything was on the news ticker? And it was a lesson to me in Wall Street. Presidents didn’t travel much in 1963 and so the manager of the Merrill Lynch Dallas branch said, ‘You guys go out and watch the parade. I’ll keep a skeleton crew here.’ They went out to watch the parade. A little while later, they all came in down in the dumps. And he said, ‘What’s the matter? You were supposed to watch the parade.’ And they said to him, ‘The parade got cancelled.’ And he said, ‘What do you mean?’ And they were here. And the parade was way up there. And they heard the sirens go loud. And the parade turned right.”

“And this guy was a good manager. And he called the salesmen together. And he said, ‘Give me a good bullish reason to pull the president out of a parade.’ And nobody could think of one. And he said, ‘Give me a bearish reason.’ Nobody thinks, assassination. They were nowhere near there. They were 10 blocks away. But they start thinking, nuclear catastrophe, natural disaster, blah, blah, blah. They find 100 reasons to sell. He said, ‘Begin to sell for the discretionary accounts. Start calling our clients. And tell them, ‘We think something bad happened at the parade.'” 

For Cashin, that Merrill Lynch manager was the perfect stock market Sherlock Holmes: Don’t just consider what you hear. Think beyond what happened.

By the time I met Cashin in 1997, he had been writing a daily column, Cashin’s Comments, for nearly 20 years. It was estimated to reach as many as 2 million people a day. It invariably began with an analysis of an important event: ”On this date in 1918, the worldwide flu epidemic went into high gear in the U.S.”

After a brief history lesson, he tied that event to the day’s market events: “Pre-opening Wednesday morning, U.S. stock futures looked like they might be coming down with the flu. Several earnings reports were less than glowing and some of the outlooks were cloudy.”

Cashin never took a course in literary theory, but he understood that some stories were far more persuasive than others. He knew that condensed narratives with a clear storytelling arc were the most memorable, and therefore this was the most effective way to convey information.

For Cashin, storytelling is only partly about facts: A series of Post-it notes on the wall, each with a separate fact about something going on in the market that day, is not a story. It’s how you connect the facts and weave it into a narrative that make it a story.

“I have been fortunate enough over the years to be able to look at very complicated situations or problems and be able to reduce them to understandable items by using a story or a parable,” he once said to me.

He not only uses stories, but he also anthropomorphizes the entire market: He routinely described the market as being “in a tizzy,” or that traders were “circling the wagons” to defend a particularly important level of the Dow Jones Industrial Average.

Let’s get back to the story about J.P. Morgan, Tiffany and price discovery.

For Cashin, understanding what a stock was worth was not about a mathematical formula. It was about trying to understand what the other guy was willing to pay:

“How can I, in a real estate transaction, in a stock transaction, whatever, delve into your mind and find out what will you really accept? You offer your house at three quarters of a million dollars. Is that really your price? How do I find out what the difference was? And Morgan, in his natural genius, figured out that he would offer the guy somewhat less, and if the guy took it, that was to Morgan’s advantage. And if the guy refused, then that was the price and he had to pay.”

Cashin’s secret sauce was a natural gift for telling stories with a “dramatic arc” — that is, stories with rising action, a climax, falling action and a resolution. Even the short Tiffany story contains all these elements: The action rises when Tiffany’s man presents the stickpin to Morgan with a $5,000 asking price, and Morgan counters with a $4,000 offer. The climax occurs when Tiffany declines the counteroffer. The falling action happens when he sends the courier back with the note. The resolution occurs when Tiffany opened the box and found not the stickpin but a check for $5,000 and a note that said, “Just checking the price.”

Cashin grasped that these kinds of stories pack more emotional resonance than stories that don’t have the dramatic arc, and that’s why people remember them.

When you’re a journalist, it’s easy to look at the news as a pile of facts on a bunch of sticky notes — but this isn’t what makes a story. It’s how you arrange those facts into a narrative that matters. A good narrative has emotional resonance.

Art Cashin understood that intuitively. He helped show me that the sticky notes weren’t nearly enough.

Art Cashin told stories for 60 years, but there were also a lot of stories about him. He spent a lot of time in bars.

Years ago, Cashin gave me a copy of a menu from Eberlin’s, a restaurant founded in 1872 and a fabled Wall Street hangout, long since departed. The menu was from the mid-1960s: a martini or Manhattan was $1.20.

On the list of entrées, there is this:

SPAGHETTI (a l’Arthur Cashin) …………………………………………… $2.75

I asked him one night at Bobby Van’s, his preferred watering hole late in his career, why was a spaghetti dish named after him?

“It was a hangover cure,” Cashin told me. “Eberlin’s opened at 6:00 a.m., and all the guys who had been out drinking the night before came in for something to eat. My preferred breakfast was spaghetti in a red sauce, so they named the dish after me.”

How Cashin managed to spend decades on the NYSE floor and in bars — and still released his nightly Cashin’s Comments — is a mystery to me.

I know one thing: He refused to give me the recipe for Spaghetti (a l’Arthur Cashin). I’m not even sure his family knows.

Excerpted from the book, “Shut Up and Keep Talking: Lessons on Life and Investing from the Floor of the New York Stock Exchange,” by Bob Pisani (Harriman House, 2022).

Art Cashin, UBS’ director of floor operations at the New York Stock Exchange and a man The Washington Post called “Wall Street’s version of Walter Cronkite,” has died. He was 83 and had been a regular on CNBC for more than 25 years.

In the intensely competitive and often vicious world of stock market commentary, Cashin was that rarest of creatures: a man respected by all, bulls and bears, liberals and conservatives alike. He seemed to have almost no enemies.

He was a great drinker and raconteur, a teller of stories.

For decades, he assembled a group of like-minded friends every day after trading halted, first at the bar at the NYSE luncheon club, then across the street at Bobby Van’s Steakhouse, where the group came to be known as the “Friends of Fermentation.” His drink was Dewar’s, always on the rocks.

Cashin’s success was attributable to a combination of charm, wit, intelligence, and a stubborn insistence on refusing to adopt many of the conveniences of the modern world. He was a link to an NYSE tradition. Every year, on Christmas Eve and New Year’s Eve, he led the singing of the 1905 song “Wait ‘Till the Sun Shines, Nellie.”

Cashin refused to use credit cards and paid for everything, particularly his voluminous bar bills, with cash, saying he cherished his anonymity. He never learned to use a computer — his notes were hand-written and then sent to his assistant. For years, he used an obsolete flip phone that he rarely answered.

His desk was piled high with papers he had accumulated over the decades. At times, it resembled a recycling facility.

Cashin’s suits were usually rumpled and his ties were always obsolete.

However, neither his appearance nor his attitude was haphazard. They were part of a persona that was carefully constructed over more than 50 years on Wall Street.

Arthur D. Cashin Jr. was born in Jersey City, New Jersey, in 1941. His parents were superintendents of an apartment building. His business career began in 1959 at Thomson McKinnon, a brokerage firm, when he was 17 and still in high school. Cashin had been obliged to join the workforce when his father died unexpectedly that year.

In 1964, at age 23, he became a member of the NYSE and a partner of P.R. Herzig & Co.

At that time, the vast majority of all trading took place on the NYSE floor. Cashin’s early memories revolve around the noise of thousands of brokers shouting at each other. He claimed to be able to tell if the market was moving up or down by the pitch of the screaming, because sellers sounded panicky. “And so if the pitch of the noise was high, I would know the sellers were headed my way. Or if it was a rumble, I would know that it was probably buyers coming,” he said in a 2018 interview.

In the mid-1970s, disgusted by the corruption in his hometown of Jersey City, Cashin ran for mayor. “I think I ran 12th in a field of five,” he said. “But once they discovered I was honest, there wasn’t much chance I was going to get elected.”

He returned to Wall Street. In 1980, he joined PaineWebber and managed its floor operation, continuing to do so after PaineWebber was bought by UBS in 2000.

Then came 2001.

Cashin would often recall what it was like to escape from Ground Zero on Sept. 11, 2001, after terrorists crashed two jetliners into the World Trade Center towers, killing more than 2,600 people in the heart of the nation’s financial center.

“Many of us got out that Tuesday walking through streets onto which ash, smoke and business envelopes fell snow-like, blocking both your view and your breathing,” he wrote in a commentary 13 days later. “Yet when a stranger was met, they were invited to join the convoy and offered a spare wet cloth (carried in pockets) through which to breathe as they walked. When we reached the East River (Brooklyn side of Manhattan), there was a volunteer group of tugboats, fishing boats and mini-ferries that looked like the evacuation of Dunkirk. No charge. No money. Just — “May I help you!” No one got anyone’s name. No thank you cards will be sent. But Americans — even New York Americans — who freely give to strangers but argue with neighbors were suddenly one group. In the days since, as we wander via new strange ways back to Wall Street, we all internalize the survivor’s quandary. We are lucky to be alive — but why us.”

After the Sept. 11 attacks, Cashin chaired the NYSE “Fallen Heroes Fund,” which provided millions of dollars to the families of first responders killed in the line of duty.

Though he was a respected market historian, he was most renowned as a storyteller for the stock market. He was a meticulous observer of fundamental and technical trading patterns but never let data get in the way of explaining the market in a folksy manner that made it accessible to even casual observers. He often spoke of Wall Street as a community of people with many different opinions. In his world, the bulls and bears would fight it out every day, as if it were all a John Wayne Western: “The bulls are circling the wagons, trying to defend the highs” was a common refrain.

His daily market commentary, Cashin’s Comments, was distributed to clients continuously for more than 40 years and was widely read on Wall Street. It invariably began with an analysis of an important event that occurred on that date (“On this date in 1918, the worldwide flu epidemic went into high gear in the U.S.”), and after a brief history lesson tied that event to the day’s market events (“Pre-opening Wednesday morning, U.S. stock futures looked like they might be coming down with the flu. Several earnings reports were less than glowing and some of the outlooks were cloudy”).

He was a keen observer of human behavior, a behavioral psychologist long before the word was coined. He had seen his fellow humans panic time after time, and had seen the effects of succumbing to the initial desire to sell immediately without thinking. “It tells me that people have a tendency to overreact — and to not think things through carefully,” he said. “And you break up, again, into two sets of people, those who look with some suspicion at events, and others who say, ‘Oh, I’ve got to react to that.’ Those who react immediately rarely do well. Those who are somewhat suspect, they do much better.”

He had two great loves in his life: his family and the New York Stock Exchange. In the age of computerized trading, the fabled NYSE trading floor still survives, though in greatly diminished form. When it was closed during the Covid pandemic, he said he was “disappointed … but it was understandable.” 

Cashin was philosophical when asked about the rise of electronic trading, which has slowly but surely eroded the influence of that floor. “I miss those magnificent days when your spirit hung on the fact that you were good for your word or you’re outta here,” he once said at Bobby Van’s, but admitted that electronic trading had improved the speed and accuracy of trading, particularly recordkeeping.

Among his many friends, he will perhaps be best remembered for his modesty. He seemed genuinely puzzled about his popularity. “People have an interest in — in Arthur Cashin. I can’t fully understand why,” he said.

And when The Washington Post ran a long profile of his career in 2019, calling him Wall Street’s version of CBS newsman Cronkite, he quipped: “I think I owe an apology to Walter Cronkite.”

In lieu of flowers, the family kindly requests donations be made to the Arthur D. Cashin Jr. Memorial Scholarship at Xavier High School. Contributions may be sent to Xavier High School, 30 West 16th Street, New York, NY 10011.

— CNBC’s Martin Steinberg contributed to this report.

Securities and Exchange Commission Chairman Gary Gensler spoke this morning at the Practising Law Institute’s 56th annual conference on securities regulation. 

It sounded awfully close to a farewell speech. 

“It’s a remarkable agency,” Gensler said of the SEC, which he has led since April, 2021.

“It’s been a great honor to serve with them, doing the people’s work, and ensuring that our capital markets remain the best in the world.” 

Gensler reviews accomplishments 

Gensle offered a review of what he has accomplished.  

Most notably, Gensler highlighted the many disclosure rules the SEC has enacted, including disclosure on data breaches, executive pay versus performance and additional disclosures on those seeking to control and buy more than a 5% stake in a company. 

Gensler made only passing reference to his most controversial disclosure rule, on climate change, which has been challenged in court. 

“Congress put in place important provisions about disclosure because information about securities creates a public good,” he said. 

On market structure, Gensler noted he had put in place new rules on central clearing of Treasuries and shortening of the settlement cycle for stocks from two days to one day, and had recently passed rules that allow stocks to be quoted in increments of less than a penny. 

Defense of crypto stance 

Gensler offered a full-throated defense of his approach to crypto. 

Gensler repeated his assertion that while he bitcoin is not a security, the SEC’s focus ” has been on some of the 10,000 or so other digital assets, many of which courts have ruled were offered or sold as securities” and are therefore subject to the SEC’s purview. 

He again asserted anyone offering to sell securities needs to register, and that intermediaries such as broker-dealers, exchanges and clearinghouses also need to be registered. 

He said that the failure to properly police the crypto industry had resulted in “significant investor harm” and that “the vast majority of crypto assets have yet to prove out sustainable use cases.” 

Proud to serve 

Gensler did not say he was resigning, but the tone was clear.

“I’ve been proud to serve with my colleagues at the SEC who, day in and day out, work to protect American families on the highways of finance,” he said at the end of his speech.

Greenlight Capital’s David Einhorn was interviewed by our Leslie Picker at CNBC’s Delivering Alpha event Wednesday. 

Einhorn spoke about the election results, inflation and some of his current stock picks (including CNH Industrial and Peloton Interactive), but soon returned to a familiar theme: the long, slow descent of value investing. 

“It’s continuing to get worse,” the hedge fund manager told Picker. ”We are in a secular destruction of the professional asset management community.” 

As he has done several times, Einhorn pointed a finger at passive, index investors:  “The passive people, they don’t care what the value is.” 

Markets are ‘broken’

In Einhorn’s estimation, markets are “broken,” repeating a claim he has repeatedly made this year. 

“I view the markets as fundamentally broken,” Einhorn said back in February on Barry Ritholtz’s Masters in Business podcast. “Passive investors have no opinion about value. They’re going to assume everybody else has done the work.” 

Einhorn puts much of the blame on passive investing in index funds like the S&P 500, noting that because the S&P has had a pronounced growth tilt in the past decade as technology has dominated, investors buying index funds are by default propping up growth stocks at the expense of value stocks. 

What’s more, the emphasis on earnings growth is distorting markets, the Cornell grad said. 

“You have these companies, and all they do is they manage these expectations, right?,” Einhorn told Picker.  “And they beat and they raise, and they beat and they raise, and they beat and they raise, and they’re pretty good companies, and the next thing you know, they’re trading at, you know, 55 times earnings, even though they’re growing [at] GDP plus two [percentage points] and something like that. And that’s kind of the gamification of the way that the market structure has changed, right?” 

This is causing great pain to value investors like Einhorn, many of whom have seen cash flee their funds. 

Other market observers agree: ”Value stocks have been getting cheaper and cheaper relative to their underlying fundamentals, while growth stocks have been commanding richer and richer valuation multiples,” Rob Arnott, chairman of Research Affiliates, told me in an email. Arnott is well-known in the investment and academic community for his work in asset management and quantitative investing. 

Logical switch to passive investing

You can’t blame investors for switching to index funds. 

Not only are passive funds less costly than paying an active manager, the evidence shows that active managers have been underperforming their benchmarks for decades. The most recent report from the SPIVA U.S. Scorecard, the benchmark study on active management by S&P Global, said 87% of large cap fund managers lag their benchmarks over a 10-year period. 

In other words, passive investors in index funds are making a perfectly logical decision by switching from active portfolio management. 

Still, Einhorn’s frustration is understandable. Academic research has long supported the belief that, in the long run, value outperforms growth. 

Yet, since the Great Financial Crisis, that long-term trend has been broken. In the last 15 years, for example, the iShares S&P 500 Value ETF (IVE) has gained 286%, while the iShares S&P 500 Growth ETF (IVW) is up 610% — twice as much. Growth has beaten value almost every year since. 

Value and active continue to lag

Investors, for better or worse, have come to value profitability (growth) as a primary investment metric, more important than traditional measurements like price to earnings (P/E) or value measurements like price to book. 

As for why active managers in general — of all stripes, not just value managers — have underperformed, Arnott told me it boils down to two main issues: higher costs and the fact that active managers compete against each other with little competitive advantage. 

“Costs matter,” Arnott told me. ”If indexers own the market … then removing them from the market leaves that self-same portfolio for active managers to collectively own. As their fees and trading costs are higher, their returns must be lower.” 

Another reason for long-term underperformance by active managers: They are competing against other active managers who have very little competitive edge against each other. 

“Active investors win if there’s a loser on the other side of their trades,” Arnott told me. Since passive investors tend to stay invested, ”A winning active manager has to have a losing active manager on the other side of their trades. It’s like looking for the sucker at a poker game: any active manager who doesn’t know who that loser might be, IS that loser.” 

‘Free riding’ passive

In this context, the assertion that index investors are “free riding” on the price discovery of active managers falls into the category of statements that are true — but not very interesting. 

Arnott readily agreed they are free riders, but then said, “So what? It’s a cop-out to blame index funds and their customers, because – from the customer’s perspective – why should an investor NOT index?” 

And indexers may be able to still own value and do reasonably well. Arnott also runs the RAFI indexes, which emphasize book value, sales, cash flow, and dividends, unlike other indexes that are based solely on market capitalization. He says this emphasis, particularly on profitability, has led to outperformance over time. 

Most expensive market ever 

With valuations at these levels, you’d think Einhorn would be bearish. But you’d be wrong. 

“This is the most expensive market of all time,” the 55-year-old told Picker. ”This is a really, really pricey environment, but it doesn’t necessarily make me bearish … An overvalued stock market is not necessarily a bear market and it doesn’t necessarily mean it has to go down anytime soon. I’m not particularly bearish; I can’t really see what’s going to break the market at this time.”

The New York Stock Exchange, owned by Intercontinental Exchange, wants to do trading 22 hours a day during the week. Is that good for the markets? 

The Big Board announced on Friday that it was seeking approval to expand trading on its electronic Arca platform from 16 hours a day to 22 hours a day (pausing between 11:30 p.m. and 1:30 a.m. ET) from Monday to Friday, subject to regulatory approval. 

NYSA Arca currently has a pre-opening session from 4:00-9:30 AM ET.  “Core” trading hours for both the NYSE floor and NYSE Arca are 9:30 a.m. to 4:00 p.m. ET.  NYSE Arca then has a late trading session from 4:00 p.m. to 8:00 p.m. ET.

Nasdaq, which has current trading hours similar to the NYSE, declined to comment on the NYSE announcement and declined to say whether it would match the NYSE’s proposal to expand trading hours.

The NYSE thinks so 

“Interest in U.S. equities from both retail and institutional investors continues to grow, both in the U.S. and globally,” Kevin Tyrrell, head of markets at NYSE, told CNBC in an interview on Friday.

Tyrrell, declined to provide more specific details on where the demand was coming from and declined to provide details on a survey NYSE did of its members on expanding trading hours.

“Our 22-5 [22 hours a day, 5 days a week] extended trading plan is based on numerous interactions with market participants as well as our own data and analysis,” Tyrrell, said.  “We believe our 22-5 extended plan is the right approach given current levels of investor demand and availability of current market infrastructure.”

Jim Toes, CEO of the Security Traders Association, an industry group, told CNBC the application “seems very premature as the demand by investors for overnight and weekend exchange trading is speculative.”

However, Dmitri Galinov, who formerly ran Credit Suisse’s dark pool, disagrees.

“There is definitely demand from overseas, particularly South Korea, Japan, and some demand in Europe,” he told CNBC in an interview on Sunday.  

“In addition, there are retail traders in the U.S. who want to trade at night. Many retail traders work during the day, they come home and want to trade beyond the 8 p.m. cutoff for trading.”

What about institutional traders?  Do they relish trading on thin volumes? 

“The institutions will not be the first movers, but as the volume migrates to a 24-hour curve, the institutions will come,” he told CNBC.

What about listed companies?  How might they feel about potentially higher volatility in their stocks in after-hours?

Galinov says most international companies would welcome expanded trading.

“U.S. markets are the most liquid markets in the world, so if I am an international company I would be much more likely to list on the NYSE if it had trading around the clock,” he told me.  “Trading around the clock is much more convenient if I am an international company.”

Galinov now runs the 24X National Exchange, which has an application before the SEC to trade overnight as a fully licensed exchange.  24X recently amended its application to trade from 23 hours a day seven days a week, to 23 hours a day five days a week.

Galinov said the SEC is due to rule on their application for an exchange by November 29th.

Increased global competition, the desire to capture more trading volume, and the need to accommodate a growing pool of international traders are obvious incentives for stock exchanges to seek expanded trading hours.

Several firms allow some trading in the overnight hours.  Robinhood, for example, has a relationship with Blue Ocean Technologies, which runs an alternative trading system (ATS), that allows clients to trade stocks in the after-hours.  Blue Ocean was recently reportedly forced to halt trading on August 5th during a wave of global market volatility that saw volumes spike dramatically.  It resumed trading the next day.

Many in the investing community have long expressed reservations about expanding trading. 

Dennis Kelleher, CEO of Better Markets, a nonprofit active in financial reform, has filed briefs in opposition to expanding trading hours, citing thin volumes which can lead to much wider bid-ask spreads,  the encouragement of impulsive trading at late hours, and the disadvantage retail traders may face against better-informed professional traders.

“All of that will be compounded by the increased use of AI, predictive analytics, and gamification on apps that will be hyper-targeted on those most susceptible to trading at times and in ways that are not in their best interests,” Kelleher told CNBC.

Better Markets recently filed a brief in opposition to the application of the 24X National Exchange.

“Retail investors who traded during an overnight session would be trading in a market where prices are bound to be more volatile and less favorable than during normal trading hours,” Benjamin L. Schiffrin, director of securities policy at Better Markets, said in a letter accompanying the brief.   “All around-the-clock trading on an exchange would do would be to provide another avenue for sophisticated market participants such as high-frequency traders to take advantage of retail investors.”

Jay Woods, a former designated market maker on the floor of the NYSE and currently with Freedom Capital Markets, also expressed concerns that retail traders would be trading in thin markets. 

“Prop traders [proprietary traders] are salivating over this because you are going to have the chance to trade against retail traders in very thin volume,” Woods told CNBC.

Still, Woods admitted that, “This is the direction trading is going. There is some demand, but is it healthy for the market?  Is it healthy for listed companies?  Is it good for retail investors to be trading when liquidity is thin?  There are reasons we take breaks from trading.”

The NYSE noted that the proposed change was “subject to regulatory approval.” 

Tyrrell, said that, “the NYSE plans to file updated rules with the Securities and Exchange Commission,” but declined to provide a specific timeline.  Applications for regulatory approval from the SEC typically carry a required response time of up to 240 days from the date of the filing.

Tyrrell, also noted that there will need to be changes in the securities information processors that gather the trade and quote data from U.S. stock exchanges and consolidate them into a single data feed.  “The NYSE will seek support for extended trading from the U.S. securities information processors [SIPs],” Tyrell told CNBC.