Monday, October 12, 2015

ETF Entree

I'm hoping this will tie you over (maybe you should get a food taster first):

"ETF risks get scrutiny after years of complacency" b Beth Healy Globe Staff  October 11, 2015

Exchanged-traded funds have exploded in popularity by making it easy to buy and sell baskets of stocks or bonds all at once. They have also added a layer of risk to financial markets that regulators did not foresee or understand, even as they approved hundreds of new offerings a year.


In the depths of the 2008 financial crisis, Wall Street pitched ETFs as a way to stay liquid, even as trading seized up in some pockets of the market. Assets soared from $532 billion to $2 trillion over the next seven years, with 1,533 funds launched in that period, up from 600 in the prior 14 years, according to industry tracker in Toronto.

Along the way, there were occasional glitches in trading, including the “Flash Crash” in 2010. But the real wake-up call came Aug. 24 of this year. It was on the morning of that late-summer Monday, when stocks dove nearly 1,100 points in a few minutes, that the ETF ecosystem collapsed for an hour.

This is disgusting and tastes like $hit.

Many funds couldn’t price or trade properly, because the underlying stocks on which they are valued were halted. Even as the market tried to recover, ETFs kept getting stopped in their tracks, tangled up by rules federal securities regulators had put in place in recent years to try to calm markets in times of extreme volatility.

Still, ETFs accounted for a stunning 37 percent of all trades that day, the second-busiest trading session in history.

“We learned some valuable lessons” that day, said Martin Small, head of US iShares at BlackRock Inc. in New York, the largest ETF provider. BlackRock is now urging the Securities and Exchange Commission to reconsider a number of rules, including one that stopped hundreds of major stocks from trading properly on Aug. 24, to head off repeats of that experience.

“We need a lot of that plumbing to function very well to deliver for our clients,’’ Small said. “When timeliness and certainty are impaired, then ETFs are impaired.”

A lot has happened since State Street Global Advisors invented the first ETF in Boston in 1993. The idea was to create a security that looked like an index mutual fund but traded throughout the day like a stock. (Mutual funds are priced once a day.) The firm’s Standard & Poor’s 500 ETF was widely adopted by institutional investors and is still the largest ETF in the market, with $176 billion in assets.

By the mid-2000s, more complex ETFs were being proposed, including funds that tracked commodities and leveraged funds that promised double or triple the daily move in an index — up or down — by using debt or derivatives. Twice since 2009, the SEC has issued warnings against the leveraged variety, telling small investors that they are risky and inappropriate to hold long-term.

BlackRock’s chief executive, Laurence Fink, put it even more plainly this past May, saying that leveraged ETFs could “blow up” the entire industry.

As we are on the eve of another October meltdown.

Vanguard Group founder Jack Bogle in the spring warned: “For better or for worse, ETFs have opened indexing to a new market of stock traders. The only sure winners are the brokers and dealers of Wall Street.”

No kidding.

In June, the SEC announced a public comment period on ETFs. The agency said it was seeking input to help inform its review for new and complex exchange-traded products. But it also posed the most fundamental of questions, like whether brokers do a good enough job explaining the funds when they sell them, and whether investors understand them.

There were 39 comments submitted, some of them stark critiques by academics warning of the volatility and a “new layer of noise” created by ETFs. The official comment period ended Aug. 17, a week before the ETF crash.

The SEC declined to comment for this story on whether it had missed or underestimated the risks of ETFs.

What good are they? They missed the MBS fraud, ignored Madoff, and are apparently ignorant looting schemes.

Mercer Bullard, a professor at the University of Mississippi School of Law and a former SEC official who is chief executive of Fund Democracy Inc., a group that advocates for mutual fund investors, has for many years been pressing ETF providers to more fully disclose their risks.

A self-described “fan of the ETF structure,’’ because of the low costs and ease of trading in normal times, Bullard said he questions whether brokers and advisers did their best for customers Aug. 24. Many apparently failed to warn investors against selling or buying in the first hour of extreme volatility, according to specialists at several large firms who have been assessing what went wrong.

Remember Goldman's laughing at selling you crap?

“Retail investors should not be trading” at such times, Bullard said. “You can’t protect them against themselves.”

Securities lauded for their ease of use turned out to be very complicated when markets were stressed. For one thing, market orders, to sell a security at a prevailing market price, were disastrous on Aug. 24, when prices were rapidly plunging. In some cases, people were selling into huge losses, while in others, market makers simply weren’t available for trades.

Some customers and brokers didn’t realize they should have used limit orders on ETFs, to sell only in a particular price range.

“They have to be diligent on the buy, and they have to be diligent on the sell,’’ said Andrew Arnott, chief executive of John Hancock Investments in Boston, which launched a series of ETFs just a month after that chaotic day in August.

Investors were faced with scores of ETFs that saw dramatic price drops, many falling 30 percent to 50 percent in a matter of minutes. That’s because, in order to function properly, ETFs depend on a complex system of professional investors who take advantage of small price differentials between indexes and the stocks they hold, and in so doing keep the prices aligned.

Isn't there a better economic $y$tem?

On Aug. 24, this arbitrage process temporarily broke down when securities weren’t pricing. Even on good days, BlackRock executives say, they warn investors not to sell at the beginning or end of a session, when ETF markets are most volatile.

One reason ETFs have become so ubiquitous is because financial advisers, who are paid fees by their clients, have embraced them as a lower-cost way to build portfolios. The sector has drawn more money than mutual funds over the past two years, and some people are predicting they will one day overtake mutual funds, particularly if they make the leap into the 401(k) retirement plan arena.

Driving the shift, in part, is how hard it’s become for active managers at mutual funds to beat the market.

“The story here is, the vast majority of the money being managed is at a relatively high price point, and the value that they deliver may not be living up to investors’ expectations,’’ said Stephen Tu, a senior analyst at Moody’s Investors Service.

A new wave of ETFs competing to beat their indexes with “smart beta” filtering strategies, he said, “could really disrupt the traditional mutual fund industry.”

Nineteen new ETF sellers have entered the US market in 2015, a record, according to ETFGI, a London research firm. They include John Hancock, Goldman Sachs Group, and O’Shares Investments of Boston, run by Kevin O’Leary, co-star of the TV show “Shark Tank.” The majority of the new product launches are smart beta, ETFGI reported. 

Just the people we want $tabilizing the $tock market.

With all the mythology around ETFs being an investment for the masses, pitched to wealthy grandmothers and tech-savvy millennials alike, sophisticated institutions are doing the bulk of the trading. For everyone involved, there are still risks that regulators and money managers from Wall Street to Boston are scrambling to get their arms around.

Yeah, the only sure winners in all this are scrambling, yup.

In the meantime, no one denies there could be more volatile days like Aug. 24.

“It will happen,’’ said Bullard, of Fund Democracy. “There’s no question it will happen.”

Only a matter of when?


Also see:

Monsanto to cut 2,600 jobs
Gentex will lay off 47 workers 

The wars really must be coming to an end.

Biotechs weigh down the market
Health stocks help lift the market
Stocks rise, keeping the rally alive

"In a close call, weakness abroad tipped Fed vote; At home, too-low inflation still a factor in interest-rate policy" by Patricia Cohen New York Times   October 09, 2015

NEW YORK — Worries that inflation would continue to lag because of weaker economic growth abroad, particularly in China, helped nudge members of the Federal Reserve to postpone dialing back on their stimulus campaign last month, according to the official summary of the meeting released by the central bank on Thursday.

Lower-than-expected job growth, along with a drop in the labor force participation rate and in average hourly wages, revealed some chinks, however temporary, in the economy’s overall sturdiness.

The weak jobs report for September caused many analysts to switch their bets last week and predict that the Fed would put off raising rates until 2016 rather than move this year....

“They still think everything is on track, but....”


Is it just me, or did that taste funny?

I'd wash it down with a COLA, but....

"No benefits increase expected for Social Security recipients in 2016" by Stephen Ohlemacher Associated Press  October 12, 2015

WASHINGTON — For just the third time in 40 years, millions of Social Security recipients, disabled veterans, and federal retirees can expect no increase in benefits next year, unwelcome news for more than one-fifth of the nation’s population.

They can blame low gas prices.

Which are now headed back up.

By law, the annual cost-of-living adjustment, or COLA, is based on a government measure of inflation, which is being dragged down by lower prices at the pump.

The government is scheduled to announce the COLA — or lack of one — on Thursday, when it releases the Consumer Price Index for September. Inflation has been so low this year that economists say there is little chance the September numbers will produce a benefit increase for next year.

Prices actually have dropped from a year ago, according to the inflation measure used for the COLA.

‘‘It’s a very high probability that it will be zero,’’ said economist Polina Vlasenko, at the American Institute for Economic Research. ‘‘Other prices — other than energy — would have to jump. It would have to be a very sizable increase that would be visible.’’

Congress enacted automatic increases for Social Security beneficiaries in 1975, when inflation was high and there was a lot of pressure to regularly raise benefits. Since then, increases have averaged 4 percent a year. Only in 2010 and 2011 have there been no increases.

In all, the COLA affects payments to more than 70 million Americans.

Almost 60 million retirees, disabled workers, spouses, and children get Social Security benefits. The average monthly payment is $1,224.

The COLA also affects benefits for about 4 million disabled veterans, 2.5 million federal retirees and their survivors, and more than 8 million people who get Supplemental Security Income, the disability program for the poor. Many people who get SSI also receive Social Security.

Carol Mead of Montrose, Pa., said she and her husband were counting on the Social Security COLA.

‘‘My husband is working just so we can pay our bills,’’ said Mead, a retired land-use administrator. ‘‘He’s 70 years old, and he’s still working in a stone quarry. He’s told me a number of times that he thinks he’s going to have to work until the day he dies.’’

More bad news: The lack of a COLA means older people could face higher health care costs.

What happened to the Affordable Care Act?

Most have their Medicare Part B premiums for outpatient care deducted directly from their Social Security payments, and the annual cost-of-living increase is usually enough to cover any rise in premiums. When that doesn’t happen, a longstanding federal ‘‘hold harmless’’ law protects the majority of beneficiaries from having their Social Security payments reduced.

But that leaves about 30 percent of Medicare beneficiaries on the hook for a premium increase that otherwise would be spread among all. Those who would pay the higher premiums include 2.8 million new beneficiaries, 1.6 million whose premiums are not deducted from their Social Security payments, and 3.1 million people with higher incomes.

Their premiums could jump by about $54 a month, or 50 percent. Those with higher incomes would pay even larger amounts.

States also would feel a budget impact because they pay part of the Medicare premium for about 10 million low-income beneficiaries.

All beneficiaries would see their Part B annual deductible for outpatient care jump by $76, to an estimated $223. The deductible is the annual amount patients pay before Medicare kicks in.

‘‘This would affect all beneficiaries,’’ said Tricia Neuman of the nonpartisan Kaiser Family Foundation. ‘‘This kind of an increase is unprecedented.’’

Senate Democrats have introduced legislation that would freeze Medicare’s Part B premium and deductible for 2016, but its prospects are uncertain.

White House spokeswoman Katie Hill said, ‘‘We share the goal of keeping Medicare’s premiums affordable, and are exploring all options.’’

I'm sick of the psychotic illness coming out of this administration, sorry.

By law, the cost-of-living adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, a broad measure of consumer prices generated by the Bureau of Labor Statistics.

The COLA is calculated by comparing consumer prices in July, August, and September each year with prices in the same three months from the previous year. If prices go up, benefits go up. If prices drop or stay flat, benefits stay the same.

The numbers for July and August show that, overall, consumer prices have fallen since last year. Fuel prices are down by 23 percent from a year ago, according to the August inflation report. But prices for some other goods and services, such as health care and housing, are up.

Advocates argue that the government’s measure of inflation doesn’t accurately reflect price increases in the goods and services that older Americans use.

‘‘The COLA is determined by the buying power of younger working adults,’’ said Mary Johnson of The Senior Citizens League.

Many advocates for seniors want Congress to adopt an experimental price index that seeks to capture the inflation experienced by Americans 62 and older. The Social Security Administration estimates it would increase the annual COLA by an average of 0.2 percentage points — which still might not be enough to generate a COLA for next year.

Lee Marshall of Greenville, Calif., said the current inflation index isn’t good enough.

‘‘They have a formula that they use that doesn’t reflect the actual cost of living,’’ said Marshall, 68, a retired laborer and casino dealer. ‘‘Just because the price of gas is going down, that doesn’t mean anything.’’


Not that I am for the fraud that goes on in the Social Security department, but they always have plenty of money  to waste on wars and Israel.

"Holiday sales predicted to rise 3.7 percent; Sluggish forecast reflects concern about economy" by Anne D’Innocenzio Associated Press  October 08, 2015

NEW YORK — American shoppers are faced with mixed messages.

See: Mixed Me$$ages

The US economy looks healthy, but analysts say the only reason the unemployment rate remains at 5.1 percent is because many Americans have stopped looking for work and are no longer counted as unemployed. And Americans are struggling with sluggish wage growth. Hourly wages, up 2.2 percent in the past year, haven’t kept up with higher costs. 

I was just told costs.... aarrrrggghhh!

The retail group said slower job growth weighed down the forecast. And it took into account a big wild card: potential disruptions from yet another government shutdown in mid-December that could affect spending. 

Look at them thrash about for anything to explain this private central banking looting scheme that has enriched a select few and left the rest of us in misery. It's the possible shutdown now.

Steve Barr, PwC’s retail and consumer sector leader, said the divide between haves and have-nots continues to widen.

Oh, yeah?

For the second year in a row, PwC didn’t offer one holiday sales forecast but instead broke it into groups. Based on a survey of 2,000 shoppers, it found those who make under $50,000 plan to spend an average of $681 for the holidays, less than a year ago.

That is where the vast majority of the American people are.

And those who make more than $50,000 a year plan to spend an average of $1,331, more than they did a year ago.

The bar is low on that number, but I'm sure the actuaries did the math and chose a reasonable divide that the 0.0001%  could cover.

The PwC survey showed the wealthier shopper plans to focus on buying top brands and cutting-edge products while the lower-income shopper will focus on deals.

‘‘Especially for the survivalist shopper, it’s going to be very hard for retailers to pull back from promotions and deals,’’ Barr said. ‘‘We’ve permanently conditioned the consumer.’’

How $ad and $cary a statement is that, huh? 

They have conditioned us poor slobs for poverty. Yaaaaaay!


Happy Holidays, readers. See you in 2016!

NDU:  On a quiet day, stocks edge higher

Also see:

Stocks fall for the first day in five

CEO blames ill-fitting clothes for slump at Banana Republic