Dear Fellow Traveler:
I did something this week that required patience.
I took it a little easier on the editorial front as I prepared for this podcast of What Are We Missing (and also got distracted yesterday by two Steve Martin movies). Today’s episode is called The Middlemen…
And we explain the business behind Citadel, Citadel Securities, and Jane Street.
More importantly, I dive into a 40-page report that Citadel released that explained the very story we continue to cover. The markets have changed… the plumbing has changed… the mechanical nature of markets have shifted… and that has created an environment where passive investing and ODTE options dominate more and more…
These are probably the most important paragraphs in finance… because hundreds of years of modern finance have been turned sideways… Writes Scott Rubner:
The defining story of 2026 has not been a single macro event, it has been the structural transformation of equity markets.
Concentration, passive investing, retail participation, leverage, and volatility are no longer independent trends. Together, they increasingly determine how capital flows, prices are discovered, and risk is transferred. These structural forces are no longer simply influencing markets, they are increasingly defining them.
- Citadel Securities - 1H 2026 Market Structure & Flows, Introduction
We have to interpret this sentence responsibly…. Citadel isn’t telling the world that fundamentals don’t matter anymore. They’re saying something else.
I interpret this report to tell us that we can’t understand price discovery without interpreting the following things… concentration, passive investing, retail participation, leverage and volatility are all interacting with one another.
You can’t just ask what a company is worth anymore…
You now MUST ask who has to buy this stock… who has to sell it… who now has to hedge this, and who is levered to it?
And in the case of my conversation today… who’s now standing on the other side when they do? Turns out… it’s Citadel.
In the first half of the year… ETF net inflows hit a six-month record… We saw $1.2 trillion of net ETF inflows in six months.
Meanwhile, the volume of zero-dte options has reached 30% of volume…
While nearly 50% of options volume at the retail level is… ODTE.
People keep suggesting that the market is broken. It’s working directly as designed… and it’s giving our ape brains exactly what we want.
So, those three charts are all you need on a Sunday… because they showcase the incentives. And they tell us how and why Citadel and Jane Street continue to do so well. We break down how their businesses work, and the story of their success…
Here’s some Goldman numbers…
As I explained in the video today… the markets have spent years removing human emotion from the markets with lots of passive investing tools. Buying and selling based on rules… and not human behavior. But… the one thing that it hasn’t been able to eliminate… what happens when everyone needs to liquidate at the same time…
This helps explain the incredible V-shaped recoveries that have dominated the equity system… dating back to 2008…. but really becoming a staple since around 2022. See what happens when we fall into that white space below that green band?
That’s the third standard deviation of price. Be greedy when others are fearful…
This entire system can persist for decades forward… DECADES.
One more chart…
This is Nebius since Leopold Aschenbrenner had to dump his portfolio on July 29.
The short sellers went away… the buying started…
Making sellers go away is sometimes way more important than bringing buyers in…
This market is a video game. Treat it like one. Master it. It’s only going to continue accelerating into the very rules that we’re laying out.
And Citadel… and Jane Street…
Call me.
Stay positive,
Garrett Baldwin
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