ring to the surge in the gold price, the quote du jour this week comes from Richard Russell, 85-year-old author of the Dow Theory Letters. He said: “America’s Fed Chairman, Ben Bernanke, is convinced he knows the secret of avoiding hard times. The Fed can halt deflation and turn the picture into asset inflation. All it takes, thinks Bernanke, is zero interest rates and the creation of trillions of new dollars - and they will come, and they will spend. This is the path the Bernanke Fed has chosen. So far, it has not worked - they are not coming, and they are not spending. The Fed’s strategy has not even succeeded in bringing down unemployment. Bernanke’s solution - more of the same: ‘Whatever it takes, and as long as it takes.’
“Thus we have a strange and ironic situation. We have world deflation, and a Fed Chairman who believes he can manipulate the primary trend. Bernanke’s strategy is leading to a weakening dollar. The more dollars that are created, the weaker the dollar. As the dollar’s very status comes into question, wise and seasoned investors move to protect their wealth. They move to the time-honored ’safe haven’: the one unit of wealth that cannot be destroyed in that it is not a liability of any government. And, of course, I’m talking about the one unit of wealth that is never questioned - gold.
“So it’s the gold bull market that I trust and believe in. I think and I ponder - what can halt the gold bull market? The only thing that can halt the gold bull market is a complete reversal by the politicians and the Fed, and that would allow the US to sink into a state of deflation and depression. Unthinkable.”
Sunday, November 15, 2009
Tuesday, November 3, 2009
Great comments from Guild Investments
Guild Investment Global Market Commentary
Written: November 2, 2009
Last week, we had a short-lived rally in the U.S. dollar predicated on the unrealistic view that a weaker U.S. economy would send gold and oil down and the dollar up. Only algorithm writers who are completely ignorant about stock and commodity markets could believe that a poor U.S. economy is actually good for the U.S. dollar.
After a few days, the dollar’s rally reversed and began to decline again while gold and oil are once again rising. In our opinion, any declines in oil and gold prices over the next few months can be used as buying opportunities.
We expect oil to trade between $60 and $100 per barrel for the next two years. After that, we expect oil prices to rise much higher.
We favor gold bullion and gold shares, oil stocks, U.S. technology companies that are poised to serve the world market through exports, and companies in emerging countries with growth potential.
INTEREST RATES
Last week, interest rates were forced up by the market, with the yield for U.S. ten year paper rising as the Treasury tried to sell $140 billion of new bonds. Buyers are demanding higher rates, but the U.S. government is not going to raise short term rates until GDP growth increases substantially and remains good for a year or more. Although the market may continue to force up longer term interest rates, we do not expect the Federal Reserve to raise short term rates.
Indeed, the U.S. Federal Reserve wants interest rates to stay low. They realize that this is necessary to support asset values (even if they only move sideways). A U.S. asset deflation occurred in 2008 and 2009, and the government is trying desperately to reverse the trend. Although the stock market has succeeded in making a turnaround, real estate, cars, and many other asset prices remain deflated.
When it comes to keeping rates low and letting asset values rise, the U.S. Government clearly has a favorite method. They prefer to depreciate the unit of measurement: the U.S. Dollar.
Most commodities are valued in dollars, so if one weakens the dollar, prices rise in U.S. terms, but many are falling in terms of strong foreign currencies, gold, oil and other stores of values. While asset deflation continues in other currencies, asset prices have been rising in dollar terms.
CURRENCY CARRY TRADE
The currency carry trade occurs when investors borrow a given currency (let’s say the dollar) at very low interest rate and use the borrowed money to buy other currencies, stocks, and commodities. It also occurs when and investors sell dollars short and later buy them back with depreciated dollars. The carry trade is dependent on both interest rates and the value of the dollar. And it has been one of the biggest factors responsible for the stock market rally in recent weeks.
The dollar’s recent rally has some believing the carry trade is winding down. Perhaps fear of the big budget deficits and the low demand for U.S. Government bonds is causing investors to expect U.S. interest rates to rise sooner. When the fear of rising interest rates pervades the markets, this causes speculators to unwind their carry trade by buying dollars back and selling their stocks and commodities. In other words, the “carry trade” and the stock market rally are being endangered by potential higher interest rates caused by the big budget deficits.
We do not know if the market has reached its highs for 2009, but we do know that a small wave of fear is once again washing through investment markets. The big decline of 2008 and early 2009 was cathartic. The rally from this cathartic bottom has been normal, so any correction in global stocks and associated commodities will be short lived. Perhaps short-term fears of a technical market correction causes speculators to cut borrowing (on which the carry trade depends), and to sell stock positions.
U.S. DEBT
The Economist magazine echoes many of our arguments regarding U.S. debt and deficits. Last week’s Economist magazine had an important article entitled “Tomorrows Burden: Americas Debt Crisis will be Chronic Not Acute, and Long Lasting.” The article elucidates many of the points that we have repeatedly made in our commentaries over the last several years. It is well written, and I will take the liberty of paraphrasing the main points.
The author makes the point that there are three things that could lead to an acute crisis:
1.) A lender’s strike (no debt available)
2.) A crash in the dollar (possible not probable immediately)
3.) A rise in inflation (this seems remote to the Economist. It does not seem remote to us.)
The authors reason that the debt crisis will be long-lasting and chronic, but not acute. That is unless one of these three issues develops. We believe that we could experience all three of the above within a couple of years. For those who would like to read the entire article, please see this link:
http://www.economist.com/displayStory.cfm?story_id=14699754
THE NEXT U.S. FINANCIAL CRISIS IS ALREADY ON THE WAY.
It will be an inflationary crisis, and it will commence about 2012.
The U.S. Government has guaranteed banks and the housing market. It has borrowed hundreds of billions of dollars to strengthen the economy at the same time tax revenues are collapsing. Social Security and health care financing will add to the burdens. The banking crisis will probably turn into a long-term government debt crisis.
The United States has been living beyond its means, over-borrowing, and engaging in other irrational, unwise, and destructive behaviors. These behaviors have been encouraged and abetted by the Congress, former Federal Reserve Chairman Greenspan, and both Republican and Democratic administrations. A less powerful country, perhaps one which was not providing a military shield for much of the world, would have seen their currency and debt markets subjected to immense scrutiny and widespread suspicion and may have been forced to default long ago.
History has demonstrated two likely outcomes for the situation in which the U.S. currently finds itself. The first is that bond and currency market speculators make default the inevitable outcome. The second is that they devalue their currency substantially in order to pay back their debts in a diminished currency. The day approaches when the U.S. dollar will meet the fate that so many other currencies have faced over the millennia…it will suffer a substantial decline and inflation will resurge. This will probably occur no later than the end of 2012.
DEBT MARKETS
Contrary to the beliefs of some efficient market theorists, financial markets can remain highly irrational for extended periods of time. Few things prove this better than the behavior of the U.S. debt market.
The reality is that investors should be scared of the U.S. debt market. The U.S. continues to go to the markets with bond offerings, financing huge sums of borrowing to feed its ravenous appetite for spending that far exceeds the means of the taxpayers…or the logic of markets.
The markets continue to support the dollar beyond a reasonable level. This support can be partially explained by the many relationships and financial activities the U.S. Government currently undertakes. Over the years, the U.S. military’s largess and the dollar’s status as a world reserve currency have helped sustain the value of the dollar. For example, the U.S. still incurs a large percentage of the military protection costs of Germany and Japan 64 years after the end of World War II.
The value of the dollar has also been preserved because the major debt holders; Japan, China, Saudi Arabia, and Britain are large exporters to the U.S. and/or those that are allied with the U.S. militarily. Below is a chart from the U.S. Treasury Department:
ForeignHoldersofUSTBILLS-1.jpg picture by gimmarketing
LEVERAGE IN THE BANKING SYSTEM
Remember the terrible banking crisis of 2008-2009 that brought down Bear Sterns, Lehman, and Washington Mutual, and threatened others in the U.S. and Europe? You haven’t forgotten, and we haven’t forgotten, but it seems that Congress has. What’s more, they are squandering an opportunity to repair and revitalize the U.S banking system. Today, the U.S. banking system continues to be dangerously speculative and interconnected. Banks deny credit needed for small business, the major driver of employment, while engaging in unproductive speculation. And although this is clearly a serious defect in the system, Congress has failed to address it.
Even more disconcerting is that the banking lobby has Congress’ ears. Instead of listening to the proven, wise, and honest former Fed Chairman Paul Volcker, Congress is listening to the folks that brought us the last crisis. So when Volcker makes the reasonable suggestion that banks and speculative trading activities should be separated, and that only banks with no involvement in trading for their own account should get government guarantees and bail outs, Congress isn’t listening. Sadly, we fear that Congress’ unwillingness to face down the banking lobby guarantees that a new crisis is on the agenda for future years.
This is in sharp contrast to Holland, where the country’s largest bank is forced to sell its U.S. Internet banking operations and its insurance company in order to attain and maintain the use of government funds. In Britain, the trend toward breaking up large banks is being pushed by the top economists at the Bank of England, and in other countries there are demands that banks stop speculation for their own account. In our opinion, disallowing speculation by commercial banks is the only effective method to forestall the next system-wide financial crisis.
Written: November 2, 2009
Last week, we had a short-lived rally in the U.S. dollar predicated on the unrealistic view that a weaker U.S. economy would send gold and oil down and the dollar up. Only algorithm writers who are completely ignorant about stock and commodity markets could believe that a poor U.S. economy is actually good for the U.S. dollar.
After a few days, the dollar’s rally reversed and began to decline again while gold and oil are once again rising. In our opinion, any declines in oil and gold prices over the next few months can be used as buying opportunities.
We expect oil to trade between $60 and $100 per barrel for the next two years. After that, we expect oil prices to rise much higher.
We favor gold bullion and gold shares, oil stocks, U.S. technology companies that are poised to serve the world market through exports, and companies in emerging countries with growth potential.
INTEREST RATES
Last week, interest rates were forced up by the market, with the yield for U.S. ten year paper rising as the Treasury tried to sell $140 billion of new bonds. Buyers are demanding higher rates, but the U.S. government is not going to raise short term rates until GDP growth increases substantially and remains good for a year or more. Although the market may continue to force up longer term interest rates, we do not expect the Federal Reserve to raise short term rates.
Indeed, the U.S. Federal Reserve wants interest rates to stay low. They realize that this is necessary to support asset values (even if they only move sideways). A U.S. asset deflation occurred in 2008 and 2009, and the government is trying desperately to reverse the trend. Although the stock market has succeeded in making a turnaround, real estate, cars, and many other asset prices remain deflated.
When it comes to keeping rates low and letting asset values rise, the U.S. Government clearly has a favorite method. They prefer to depreciate the unit of measurement: the U.S. Dollar.
Most commodities are valued in dollars, so if one weakens the dollar, prices rise in U.S. terms, but many are falling in terms of strong foreign currencies, gold, oil and other stores of values. While asset deflation continues in other currencies, asset prices have been rising in dollar terms.
CURRENCY CARRY TRADE
The currency carry trade occurs when investors borrow a given currency (let’s say the dollar) at very low interest rate and use the borrowed money to buy other currencies, stocks, and commodities. It also occurs when and investors sell dollars short and later buy them back with depreciated dollars. The carry trade is dependent on both interest rates and the value of the dollar. And it has been one of the biggest factors responsible for the stock market rally in recent weeks.
The dollar’s recent rally has some believing the carry trade is winding down. Perhaps fear of the big budget deficits and the low demand for U.S. Government bonds is causing investors to expect U.S. interest rates to rise sooner. When the fear of rising interest rates pervades the markets, this causes speculators to unwind their carry trade by buying dollars back and selling their stocks and commodities. In other words, the “carry trade” and the stock market rally are being endangered by potential higher interest rates caused by the big budget deficits.
We do not know if the market has reached its highs for 2009, but we do know that a small wave of fear is once again washing through investment markets. The big decline of 2008 and early 2009 was cathartic. The rally from this cathartic bottom has been normal, so any correction in global stocks and associated commodities will be short lived. Perhaps short-term fears of a technical market correction causes speculators to cut borrowing (on which the carry trade depends), and to sell stock positions.
U.S. DEBT
The Economist magazine echoes many of our arguments regarding U.S. debt and deficits. Last week’s Economist magazine had an important article entitled “Tomorrows Burden: Americas Debt Crisis will be Chronic Not Acute, and Long Lasting.” The article elucidates many of the points that we have repeatedly made in our commentaries over the last several years. It is well written, and I will take the liberty of paraphrasing the main points.
The author makes the point that there are three things that could lead to an acute crisis:
1.) A lender’s strike (no debt available)
2.) A crash in the dollar (possible not probable immediately)
3.) A rise in inflation (this seems remote to the Economist. It does not seem remote to us.)
The authors reason that the debt crisis will be long-lasting and chronic, but not acute. That is unless one of these three issues develops. We believe that we could experience all three of the above within a couple of years. For those who would like to read the entire article, please see this link:
http://www.economist.com/displayStory.cfm?story_id=14699754
THE NEXT U.S. FINANCIAL CRISIS IS ALREADY ON THE WAY.
It will be an inflationary crisis, and it will commence about 2012.
The U.S. Government has guaranteed banks and the housing market. It has borrowed hundreds of billions of dollars to strengthen the economy at the same time tax revenues are collapsing. Social Security and health care financing will add to the burdens. The banking crisis will probably turn into a long-term government debt crisis.
The United States has been living beyond its means, over-borrowing, and engaging in other irrational, unwise, and destructive behaviors. These behaviors have been encouraged and abetted by the Congress, former Federal Reserve Chairman Greenspan, and both Republican and Democratic administrations. A less powerful country, perhaps one which was not providing a military shield for much of the world, would have seen their currency and debt markets subjected to immense scrutiny and widespread suspicion and may have been forced to default long ago.
History has demonstrated two likely outcomes for the situation in which the U.S. currently finds itself. The first is that bond and currency market speculators make default the inevitable outcome. The second is that they devalue their currency substantially in order to pay back their debts in a diminished currency. The day approaches when the U.S. dollar will meet the fate that so many other currencies have faced over the millennia…it will suffer a substantial decline and inflation will resurge. This will probably occur no later than the end of 2012.
DEBT MARKETS
Contrary to the beliefs of some efficient market theorists, financial markets can remain highly irrational for extended periods of time. Few things prove this better than the behavior of the U.S. debt market.
The reality is that investors should be scared of the U.S. debt market. The U.S. continues to go to the markets with bond offerings, financing huge sums of borrowing to feed its ravenous appetite for spending that far exceeds the means of the taxpayers…or the logic of markets.
The markets continue to support the dollar beyond a reasonable level. This support can be partially explained by the many relationships and financial activities the U.S. Government currently undertakes. Over the years, the U.S. military’s largess and the dollar’s status as a world reserve currency have helped sustain the value of the dollar. For example, the U.S. still incurs a large percentage of the military protection costs of Germany and Japan 64 years after the end of World War II.
The value of the dollar has also been preserved because the major debt holders; Japan, China, Saudi Arabia, and Britain are large exporters to the U.S. and/or those that are allied with the U.S. militarily. Below is a chart from the U.S. Treasury Department:
ForeignHoldersofUSTBILLS-1.jpg picture by gimmarketing
LEVERAGE IN THE BANKING SYSTEM
Remember the terrible banking crisis of 2008-2009 that brought down Bear Sterns, Lehman, and Washington Mutual, and threatened others in the U.S. and Europe? You haven’t forgotten, and we haven’t forgotten, but it seems that Congress has. What’s more, they are squandering an opportunity to repair and revitalize the U.S banking system. Today, the U.S. banking system continues to be dangerously speculative and interconnected. Banks deny credit needed for small business, the major driver of employment, while engaging in unproductive speculation. And although this is clearly a serious defect in the system, Congress has failed to address it.
Even more disconcerting is that the banking lobby has Congress’ ears. Instead of listening to the proven, wise, and honest former Fed Chairman Paul Volcker, Congress is listening to the folks that brought us the last crisis. So when Volcker makes the reasonable suggestion that banks and speculative trading activities should be separated, and that only banks with no involvement in trading for their own account should get government guarantees and bail outs, Congress isn’t listening. Sadly, we fear that Congress’ unwillingness to face down the banking lobby guarantees that a new crisis is on the agenda for future years.
This is in sharp contrast to Holland, where the country’s largest bank is forced to sell its U.S. Internet banking operations and its insurance company in order to attain and maintain the use of government funds. In Britain, the trend toward breaking up large banks is being pushed by the top economists at the Bank of England, and in other countries there are demands that banks stop speculation for their own account. In our opinion, disallowing speculation by commercial banks is the only effective method to forestall the next system-wide financial crisis.
Monday, November 2, 2009
Excellent Article on risk of ETFs
Ban swap-based ETFs, says ex-chief of Eurizon
By Chris Newlands
Published: November 1 2009 09:14 | Last updated: November 1 2009 09:14
Swap-based exchange traded funds that target retail investors should be banned, according to former Eurizon chief executive Francis Candylaftis.
Mr Candylaftis, whose departure from Italy’s Eurizon was announced last month, believes European regulators should outlaw synthetically structured ETFs that track an index. He says they do not comply with the transparency rules or expectations Ucits vehicles claim to have. Providers, he says, should instead buy the physical assets.
EDITOR’S CHOICE
Milestone auction for European CDS - Oct-22
CDS probe opens new ‘can of worms’ - Jul-15
US probe just what the CDS sector do not need - Jul-14
Insight: Effective rules require sound knowledge - Jul-07
Insight: SEC gets tough on Wall St tribalism - Jun-25
Exchange plan for derivatives welcomed - Jul-12
“The growth of ETFs in Europe is based on the myth that ETFs are transparent whereas most ETFs in Europe – with the exception of Barclays’ – are swap-based, something completely unknown to investors,” says the former head of Italy’s largest asset manager.
According to Manooj Mistry, UK head of db x-trackers, more than 50 per cent of ETF assets under management are held in synthetically-replicated index products – a trend db x-trackers is unconcerned by. Most new providers, he adds, now only adopt this structure.
This, however, angers Mr Candylaftis. “I do not understand the distinction between structured products and ETFs. Most of the time ETFs are indeed structured products that should not have Ucits status,” he says.
“ETFs are okay for institutional investors who are supposedly aware of all these features and can evaluate them, but they are much less suitable for retail clients.”
Mr Candylaftis wants European regulators to either ban ETFs that use swaps or strictly enforce the 10 per cent counterparty-risk rule.
“It is a paradox that ETFs are meant to be very transparent instruments compared to traditional funds when, in fact, they are the opposite,” he says, adding that he wants retail-focused providers that replicate an index to actually buy the physical stocks instead of using the swap markets.
Mr Mistry, whose firm only promotes synthetically-replicated index products, disagrees. “All ETFs in Europe comply with Ucits III regulations, whether they are swap-based or not,” he says. “The question really should be which method – traditional or synthetic – works and performs best for investors, and we think that is swap-based products.”
Proponents of fully synthetic replication say it offers the advantage of being able to replicate pretty much any asset class exposure. Some areas, such as various domestic emerging debt markets, are difficult to access using physical replication because of tax disadvantages that can exist for overseas investors.
Swap-based tracking also removes the settlement and tracking error risk from investors and passes them on to a third party on the date a trade is made. When working with a liquid benchmark index and a well-tested settlement system like the DTCC in the US these concerns may seem minor, but in less developed markets this can offer real benefits to investors, experts say.
Axel Lomholt, head of product development for iShares Europe, which leans heavily towards traditional replication, says he understands these advantages but adds that his firm will always purchase the physical stocks when it can.
“Our first approach is to always try and buy the underlying assets,” he says. “It’s not always easy but you’d be surprised how far you can go with that route.
“Others will tell you it is too difficult or too expensive to buy the physical stocks but a lot of exposures can be replicated traditionally if you have the platform and the scale to do so – and we have.”
He adds: “Clients prefer ETFs that are backed by the physical assets. Research shows this to be true and that is why we go down that route when we can.”
Mr Lomholt, however, does not go so far as to agree with Mr Candylaftis that swap-based ETFs should be outlawed from the retail market. “They are an extremely useful tool,” he says. “We don’t overly rely on them like some houses because of the counterparty risk that exists but I don’t agree that swaps should be banned from the world of ETFs.”
Under European Ucits rules any counterparty exposure is limited to 10 per cent of a fund’s net asset value but, in practice, many ETF issuers manage this exposure to a lower maximum percentage of 0-5 per cent.
Nevertheless, fears over possible bank failures, stemming from the Lehman collapse last year, were sufficient to drive many investors away from swap-based ETFs in favour of the more traditional ETF structure in which the fund owns all or a representative sample of the securities in the index.
“This was a big topic when Lehman collapsed, and rightly so,” says Mr Mistry. “But we fully collateralise the majority of our funds and over-collateralise on all our equity, commodity and hedge fund ETFs. We do this to remove any fears investors might have regarding counterparty risk.
“Almost 50 per cent of ETFs are fully synthetic and so it’s not true to say people now don’t want these products.”
All iShares’ fixed income ETFs use traditional index replication but Mr Lomholt concedes Mr Mistry’s point: “Counterparty risk has been a worry since the Lehman collapse but the ETF market has not itself experienced a problem up until now, even though we have been through some extreme times. That’s important to remember.”
By Chris Newlands
Published: November 1 2009 09:14 | Last updated: November 1 2009 09:14
Swap-based exchange traded funds that target retail investors should be banned, according to former Eurizon chief executive Francis Candylaftis.
Mr Candylaftis, whose departure from Italy’s Eurizon was announced last month, believes European regulators should outlaw synthetically structured ETFs that track an index. He says they do not comply with the transparency rules or expectations Ucits vehicles claim to have. Providers, he says, should instead buy the physical assets.
EDITOR’S CHOICE
Milestone auction for European CDS - Oct-22
CDS probe opens new ‘can of worms’ - Jul-15
US probe just what the CDS sector do not need - Jul-14
Insight: Effective rules require sound knowledge - Jul-07
Insight: SEC gets tough on Wall St tribalism - Jun-25
Exchange plan for derivatives welcomed - Jul-12
“The growth of ETFs in Europe is based on the myth that ETFs are transparent whereas most ETFs in Europe – with the exception of Barclays’ – are swap-based, something completely unknown to investors,” says the former head of Italy’s largest asset manager.
According to Manooj Mistry, UK head of db x-trackers, more than 50 per cent of ETF assets under management are held in synthetically-replicated index products – a trend db x-trackers is unconcerned by. Most new providers, he adds, now only adopt this structure.
This, however, angers Mr Candylaftis. “I do not understand the distinction between structured products and ETFs. Most of the time ETFs are indeed structured products that should not have Ucits status,” he says.
“ETFs are okay for institutional investors who are supposedly aware of all these features and can evaluate them, but they are much less suitable for retail clients.”
Mr Candylaftis wants European regulators to either ban ETFs that use swaps or strictly enforce the 10 per cent counterparty-risk rule.
“It is a paradox that ETFs are meant to be very transparent instruments compared to traditional funds when, in fact, they are the opposite,” he says, adding that he wants retail-focused providers that replicate an index to actually buy the physical stocks instead of using the swap markets.
Mr Mistry, whose firm only promotes synthetically-replicated index products, disagrees. “All ETFs in Europe comply with Ucits III regulations, whether they are swap-based or not,” he says. “The question really should be which method – traditional or synthetic – works and performs best for investors, and we think that is swap-based products.”
Proponents of fully synthetic replication say it offers the advantage of being able to replicate pretty much any asset class exposure. Some areas, such as various domestic emerging debt markets, are difficult to access using physical replication because of tax disadvantages that can exist for overseas investors.
Swap-based tracking also removes the settlement and tracking error risk from investors and passes them on to a third party on the date a trade is made. When working with a liquid benchmark index and a well-tested settlement system like the DTCC in the US these concerns may seem minor, but in less developed markets this can offer real benefits to investors, experts say.
Axel Lomholt, head of product development for iShares Europe, which leans heavily towards traditional replication, says he understands these advantages but adds that his firm will always purchase the physical stocks when it can.
“Our first approach is to always try and buy the underlying assets,” he says. “It’s not always easy but you’d be surprised how far you can go with that route.
“Others will tell you it is too difficult or too expensive to buy the physical stocks but a lot of exposures can be replicated traditionally if you have the platform and the scale to do so – and we have.”
He adds: “Clients prefer ETFs that are backed by the physical assets. Research shows this to be true and that is why we go down that route when we can.”
Mr Lomholt, however, does not go so far as to agree with Mr Candylaftis that swap-based ETFs should be outlawed from the retail market. “They are an extremely useful tool,” he says. “We don’t overly rely on them like some houses because of the counterparty risk that exists but I don’t agree that swaps should be banned from the world of ETFs.”
Under European Ucits rules any counterparty exposure is limited to 10 per cent of a fund’s net asset value but, in practice, many ETF issuers manage this exposure to a lower maximum percentage of 0-5 per cent.
Nevertheless, fears over possible bank failures, stemming from the Lehman collapse last year, were sufficient to drive many investors away from swap-based ETFs in favour of the more traditional ETF structure in which the fund owns all or a representative sample of the securities in the index.
“This was a big topic when Lehman collapsed, and rightly so,” says Mr Mistry. “But we fully collateralise the majority of our funds and over-collateralise on all our equity, commodity and hedge fund ETFs. We do this to remove any fears investors might have regarding counterparty risk.
“Almost 50 per cent of ETFs are fully synthetic and so it’s not true to say people now don’t want these products.”
All iShares’ fixed income ETFs use traditional index replication but Mr Lomholt concedes Mr Mistry’s point: “Counterparty risk has been a worry since the Lehman collapse but the ETF market has not itself experienced a problem up until now, even though we have been through some extreme times. That’s important to remember.”
The Economy is So Bad.....
The economy is so bad that Barack Obama changed his slogan to "Maybe We Can!"
The economy is so bad that Sarah Palin is only shooting moose for food, not for fun.
The economy is so bad that when Bill and Hillary travel together, they now have to share a room.
The economy is so bad that instead of a coin toss at the beginning of the Super Bowl in February, they will play "Rock, Paper, Scissors."
The economy is so bad that Angelina Jolie had to adopt a highway.
The economy is so bad that my niece told me she wants to dress up as a 401(k) for Halloween so that she can turn invisible.
The economy is so bad that I ordered a burger at McDonald's (MCD) and the kid behind the counter asked, "Can you afford fries with that?"
The economy is so bad that I saw four CEOs over the weekend playing miniature golf.
The economy is so bad I saw the CEO of Wal-Mart (WMT) shopping at Wal-Mart.
The economy is so bad that Bill Gates had to switch to dial up.
The economy is so bad that rapper 50 Cent had to change his name to 10 Cent.
The economy is so bad that they Pequot tribe built a reservation on the site of one of their casinos.
The economy is so bad that the Treasure Island casino in Las Vegas is now managed by Somali pirates.
The economy is so bad that if the bank returns your check marked "Insufficient Funds," you call them and ask if they meant you or them.
The economy is so bad that I bought a toaster oven and my free gift with the purchase was a bank.
The economy is so bad that the only company hiring this week is the one that sends people to scrape bankers off of Wall Street sidewalks.
The economy is so bad that I went to my bank to get a loan, and they said, "What a coincidence! That's just what we were going to ask you!"
The economy is so bad that a picture is now only worth 200 words.
The economy is so bad that Hot Wheels stock is trading higher than GM.
And the No. 1 sign how bad the economy is...
The economy is so bad that the guy who made $50 billion disappear (Madoff) is being investigated by the people who made over $1 trillion disappear (our policymakers)!
The economy is so bad that Sarah Palin is only shooting moose for food, not for fun.
The economy is so bad that when Bill and Hillary travel together, they now have to share a room.
The economy is so bad that instead of a coin toss at the beginning of the Super Bowl in February, they will play "Rock, Paper, Scissors."
The economy is so bad that Angelina Jolie had to adopt a highway.
The economy is so bad that my niece told me she wants to dress up as a 401(k) for Halloween so that she can turn invisible.
The economy is so bad that I ordered a burger at McDonald's (MCD) and the kid behind the counter asked, "Can you afford fries with that?"
The economy is so bad that I saw four CEOs over the weekend playing miniature golf.
The economy is so bad I saw the CEO of Wal-Mart (WMT) shopping at Wal-Mart.
The economy is so bad that Bill Gates had to switch to dial up.
The economy is so bad that rapper 50 Cent had to change his name to 10 Cent.
The economy is so bad that they Pequot tribe built a reservation on the site of one of their casinos.
The economy is so bad that the Treasure Island casino in Las Vegas is now managed by Somali pirates.
The economy is so bad that if the bank returns your check marked "Insufficient Funds," you call them and ask if they meant you or them.
The economy is so bad that I bought a toaster oven and my free gift with the purchase was a bank.
The economy is so bad that the only company hiring this week is the one that sends people to scrape bankers off of Wall Street sidewalks.
The economy is so bad that I went to my bank to get a loan, and they said, "What a coincidence! That's just what we were going to ask you!"
The economy is so bad that a picture is now only worth 200 words.
The economy is so bad that Hot Wheels stock is trading higher than GM.
And the No. 1 sign how bad the economy is...
The economy is so bad that the guy who made $50 billion disappear (Madoff) is being investigated by the people who made over $1 trillion disappear (our policymakers)!
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