It's a Bull Market and Nobody Drinks Anymore

Roast the lamb, slaughter the ox, let us be merry — we must drink three hundred cups at a sitting. Bells and drums, fine food and jade are not worth prizing; all I ask is to stay drunk and never sober up.

— Li Bai, “Bring In the Wine” (Tang dynasty)

Li Bai used wine as a tool against sobriety. Thirteen centuries later, the market offers an inverted version of the same line: the party is still going, it just doesn’t run on alcohol anymore. The money went somewhere else.

What the episode is about

The August 14, 2026 episode of The Compound and Friends hosts a researcher who tracks the ETF industry full time, and the whole conversation circles one question: what exactly happened to this business in 2026. Roughly nine hundred new ETFs have launched year to date. Last year was about eleven hundred. Nobody expects it to slow.

The conversation wanders productively — from what sports franchises now sell for, to how Korea decided to regulate leveraged products, to why three trillion dollars of retail cash refuses to move, and finally to one chart: consumer staples down to four and a half percent of the S&P 500. One host looks at it and says: it’s a bull market and nobody drinks anymore. That became the title.

What follows is my own synthesis after listening, not a transcript summary, and not a substitute for anyone else’s judgment.

The main points

One: launching an ETF now costs so little that failure carries no penalty. The guest describes the modern product slate as a Hollywood release schedule — put out ten a year, seven flop, three hit, the hits pay for the flops. Someone offers a harsher analogy: ETFs have become file-sharing, or “come to the studio in my shed and I’ll cut the track for you.” Issuing a fund is no longer a bet. It’s a submission.

Two: there’s no referee, so copying costs nothing. A new issuer backed by Silicon Valley venture money is cloning the most popular thematic funds at half the fee, thirty of them at once. One detail from the episode captures the absurdity: there are five photonics ETFs and roughly three photonics stocks underneath them. A later entrant launched into the same theme weeks behind everyone and within four days was doing more volume than the previous four combined. In most industries you could sue. Here, nobody is coming to rescue the incumbent — which leaves brand and distribution as the only surviving axes of competition.

Three: when Goldman bought two issuers, it bought demographics, not heat. One makes buffered ETFs — options structures that trade away some upside for a defined cushion over the next twelve months. The other makes options-income funds. The guest’s read is that both serve Americans in their fifties and sixties who want yield and downside protection. That money is sticky in a way thematic money never is. He also notes, almost in passing, that these are the old brokerage structured products in a new wrapper.

Four: Korea picked a different road. Regulators there didn’t raise rates — they banned new 2x single-stock funds outright, and required something like a week of simulated trading before you’re allowed to touch leveraged products. Driver’s ed for leverage. The discussion around it is the interesting part: Korea can do this because there’s enough cultural consensus; the US can’t, because the moment one person proposes a ban, someone standing next to them announces they want five times the exposure. So the default American question becomes: can we bet on it, and will it sponsor a podcast?

Five: July’s washout scared nobody off. Leveraged long assets hit a new high-water mark, notional exposure hit a new high-water mark, and the guest says the air is getting thin up there — the counterparties writing the swaps are getting uncomfortable. But July only knocked about a quarter off the assets in those products, and the demand came straight back. His conclusion: we’re not through this.

Six: three trillion dollars of retail money market funds sit still. This is the part I’d most want to keep. The guest says one of his few good calls was predicting this money would get stuck: it poured in when rates rose, and then stocks made new highs, the Fed cut, and it still didn’t leave. Pre-pandemic that number was one and a half trillion — six years, a double. What would move it? Fed funds below three percent, or a genuine thirty-percent-plus drawdown. The second condition is the counterintuitive one: he thinks in that scenario money would flow out of money funds and into stocks, which has essentially never happened before.

Seven: defensive sectors are disappearing from the index. Staples at four and a half percent; discretionary below ten, a level that normally only shows up in genuinely bad economies — and this isn’t one. There’s more than one cause: the denominator is growing (the mega-cap technology complex is inflating the whole index), and in a world saturated with options-income products, nobody needs staples for yield anymore. That thread leads to a broader complaint about sector classification itself, a framework built in the 1930s through 1950s. Tesla sits in consumer discretionary. Energy’s beta to the index has collapsed to negative. When one bucket holds hotels, Amazon, homebuilders and an automaker, “which sectors are you overweight” stops being a question that can produce an answer.

One more thing that didn’t make the seven but that I liked: a host recalls the era when financial television would bring out a screwdriver, open up a desktop tower on air, and point at the Intel chip inside. Later they did it with the iPhone — this company makes the glass, this one makes the antenna. Audiences were riveted, and then, every time, they got bored fast. His prediction is that this year’s fascination with who-buys-chips-from-whom ends the same way. He just doesn’t know whether that’s three years out or six months.

Going further

”There’s more on the shelf every week — how am I supposed to choose?”

Start with an easily missed fact: a thousand new products a year does not mean a thousand genuinely different things now exist. The photonics example makes it concrete — five wrappers, three companies. When the number of wrappers far exceeds the number of underlying assets, the surplus isn’t choice. It’s decision cost.

So invert the order. Don’t start from “which one is better.” Start from “what does this slot in my portfolio need to do.” If you already hold something carrying technology growth exposure, another thematic fund doesn’t add return — it doubles a bet you already made, while feeling like diversification because the names are different.

When you do compare, the episode hands you three usable rulers. Fee: new entrants are actively driving down the cost of thematic and leveraged products, and there’s no case for paying double for the same thing. Scale: the guest is blunt — the institutional threshold used to be a hundred million, and it’s now a billion. “Call us when you get to a billion.” Size isn’t vanity; it sets your spread and it determines whether the fund gets liquidated in two years, forcing you to realize a gain or loss on someone else’s schedule. And the one that gets forgotten: what does it actually track. The episode offers a sharp definition — if a fund faithfully tracks what it promised and simply gathers no assets, it’s a failed business but not a failed instrument. Invert it: if it carries a fashionable name but its top holdings overlap heavily with a generic technology fund, it’s a successful business and a failed instrument.

Last layer: work out who it was designed for. Buffered and income products are built for people who need cash flow and fear another halving — that’s a life-stage need, not a market view. Thematic products are built for people with a specific conviction. Buy into the wrong cohort and nothing is wrong with the product; it just wasn’t made for you.

”Everyone’s making money — should I be using some leverage?”

Record assets in leveraged long products, record notional exposure, a stumble in July that reversed almost immediately: all of it says that borrowing force is currently very easy to rationalize, because everyone nearby is doing it and it’s recently worked.

But there’s a structural point here that has nothing to do with being bullish or bearish. A 2x product tracks twice the daily return, not twice the period return. Over a path that falls and then recovers to exactly where it started, the index is flat and the product is down. What it costs you isn’t the fee — it’s the volatility itself. That makes it a short-horizon trading instrument by construction, not a position. Not my opinion; the product’s design. The longer you hold and the choppier the path, the wider the gap.

What makes Korea’s approach worth remembering is that it regulates eligibility rather than price. Want to trade it? Do a week in the simulator first. The implicit assumption is that what goes wrong is usually not the directional call — it’s that the user doesn’t know what instrument they’re holding. The US has neither the gate nor the consensus to build one, which means the gate has to be self-installed.

The self-installed version can be short. Before you act, write down three things: how long I intend to hold this, how much movement I expect along the way, and what I do if it’s down thirty percent before my exit date. Three answers means it’s a trade. Any blank means you’re borrowing against your own emotional state. Worth noting too: the episode says the swap counterparties are getting nervous. That’s an external signal — when the people manufacturing the tool think the air is thin, the people using it have no business feeling more relaxed than they do.

”I’ve been sitting in cash — am I being stupid?”

Three trillion dollars not moving looks like a statistic. It’s actually tens of millions of people making the same decision: knowing stocks are at highs, and staying put anyway.

Drop the word “stupid.” That money earned a real, certain return through the hiking cycle. That isn’t hiding; it’s a priced choice. The better question isn’t “did I miss out,” it’s “what problem was this money solving when I put it here?” If the answer is “I need it next year” or “I need something I can reach instantly,” then it is doing exactly its job and the index has nothing to do with it. If the answer is “I didn’t know what to buy so I parked it,” then it isn’t a cash position — it’s an unfinished decision, and unfinished decisions keep occupying the slot.

The more useful thing is the conditional form of the guest’s judgment: he thinks it takes Fed funds below three percent, or a thirty-percent-plus drawdown, to move this money. You don’t have to agree with either number to borrow the shape. Write down what would make you act, instead of leaving it as a feeling. Feelings get dragged around by recent prices; conditions don’t. And once written, you’ll notice that on most days nothing is triggered — which means on most days you’re free to stop thinking about it.

That last counterintuitive claim deserves its own moment: he thinks a thirty percent decline would pull money out of cash and into stocks rather than the reverse, which has essentially never happened historically. What that really describes isn’t a flow of funds — it’s a reflex trained into an entire generation, because for well over a decade every large drawdown turned out, in hindsight, to be an entry. Whether that reflex still holds, nobody knows. But it’s worth knowing you have it. It isn’t the conclusion of an analysis. It’s muscle memory.

Worth a look

• The Compound and Friends, August 14, 2026 — the episode itself, centered on the ETF industry and market structure.
• The architecture of sector classification: look up how the prevailing global industry classification standard actually assigns companies. You’ll understand immediately why nobody on the show could name who sets the rules.
• How buffered and options-income ETFs work: both trade options for certainty — one buys a downside cushion, the other buys cash flow, and both pay for it by giving up upside. Understanding that exchange matters more than remembering product names.
• The prediction-market research referenced in the episode, on the long-standing bias that overprices longshots and slightly underprices heavy favorites. It’s a public paper, and it’s a good way in to how crowd pricing goes wrong.

One thing to take with you

The idea: purpose first, product second.

The entire episode describes one phenomenon — supply-side costs collapsed, so things now appear without limit. When things appear without limit, your scarce resource stops being options and becomes attention and the number of decisions you make. In that environment the only ordering that still protects you is: establish what this slot needs, then go find what fills it. Run it the other way — spot something good, then work backward to its purpose in your life — and you will always find a purpose, because people are very good at inventing them.

An exercise for today, and it doesn’t have to involve investing at all:

Open your subscription list and the things you’ve added in the past year. Pick any three. For each one, write a single sentence: what did this replace?

“It replaced three trips to the supermarket a week” is an answer. “It makes me more efficient” is not an answer; that’s ad copy. Out of three, there’s usually one you can’t finish — and that one is where you found the product first and reverse-engineered the need.

You don’t have to cancel it. Just remember what the blank felt like, because the next time you’re in front of a screen about to confirm something, the same blank will show up early. Recognizing it is enough.

Raw Markdown

This article is an educational discussion of investment method. It is not advice to buy or sell any individual security, offers no target prices, and does not analyze any current holding. Investing carries risk; make your own decisions or consult a qualified professional.