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Realistbear

E T Fs, The Next Ponzi To Explode, Bloomberg

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http://www.bloomberg.com/news/2010-06-17/etfs-gone-wild.html

ETFs Gone Wild
By Edward "Ed" Robinson - Jun 17, 2010
Michael "Mikey" Latham of iShares expects a rash of ETFs. Photograph by Eric Millette
July, 2010 (Bloomberg Markets) -- Exchange-traded funds--many stuffed with exotic derivatives--are shaking up the mutual fundindustry. Regulators want to make sure they don’t become the next financial time bomb...../
‘It’s Insanity’
“If you’re not hedged these days, you’re going to get killed,” says Adam Patti, the chief executive officer of IndexIQ Advisors LLC, a firm in Rye Brook, New York, that copies hedge fund-style investing in ETFs.
John Bogle counters that extreme ETFs may be the next financial concoction to blow up in investors’ faces.
Bogle, the creator of the first index mutual fund in 1975, says these complex securities subvert the discipline of buy-and- hold investing and encourage investors to chase market-beating returns by speculating like day traders. The ProShares UltraShort S&P 500 ETF plunged 9 percent on May 10 after the stock market rallied on news that the European Union set up a bailout fund for indebted nations..../
Now Archard, who had developed ETFs at Vanguard, and his team have created the first IShares ETF that doesn’t rely on an underlying index. Diversified Alternatives, which trades under the ticker ALT, isn’t designed to produce robust returns associated with hedge funds, according to its prospectus.
Instead, it’s set up to deliver modest gains regardless of how the global economy or the financial markets behave -- what Wall Street professionals call an absolute return.
The fund’s paramount goal is to take half the risk of the average equity portfolio by going long and short in broad groups of securities, says the prospectus.
:o:o:o
..../
Next Big Fiasco
Some money managers say investors should avoid extreme ETFs and get back to basics by acquiring undervalued stocks and holding them for the long term.
“We should be dialing this stuff down, but instead we’re going the opposite way,”
says Robert Olstein, the chairman and chief investment officer of Olstein Capital Management LP, a mutual fund provider in Purchase, New York. “When all these funds come unglued, this is going to be the next big fiasco on the Street.”
Many investment professionals are telling their clients it may be riskier not to use these new ETFs
. The S&P 500 fell 2.7 percent annually in the decade ended on Dec. 31, 2009. Investors, especially baby boomers on the cusp of retirement, have to consider the prospect of depending on income from their portfolios in a bear market.
“Most people want simple solutions, but buy-and-hold investing only works in a bull market,”
says Louis Stanasolovich, CEO of Legend Financial Advisors Inc. in Pittsburgh. “Investors can be more nimble now; the tools are out there.”

I am reminded of the vast quantities of "gold" that have been sold in the form of these dodgy pieces of paper than cannot lose. What is even more disturbing is how widespread these are now--1 in 4 trades. Even the venerable Vanguard group are in on it and describe above an impossible to lose investment.

It seems to me (ISTM) that there is a lot more poison to hatch out of the mud before the market corrects fully. Its still a massive bubble and the bankers crooked loans were only part of the ponzi.

Edited by Realistbear

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I am reminded of the vast quantities of "gold" that have been sold in the form of these dodgy pieces of paper

Which can only be good news for those of use holding actual bullion or coins.

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I don't know how to value ETFs, i.e. without doing loads of investigation, I don't know how the price you pay for the shares in the funds translates to the value of the assets within the fund.

Having said that, I was a bit more gung-ho and a bit less thoughtful last year, when I made the mistake of buying one of the short ETFs when the FTSE hit 5,000. I'm not touching one of these funds again, as I don't know how they're constructed, or how to gauge how/when government policy will be adjusted to react to stock market dips in future.

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I don't know how to value ETFs, i.e. without doing loads of investigation, I don't know how the price you pay for the shares in the funds translates to the value of the assets within the fund.

Always look at the product's prospectus and do not buy any financial product you don't understand. I made that mistake in my late teens when I brought a 10-year "with profits" bond from Scottish Friendly. Needless to say it's performance was as crap as their excuses.

I made the mistake of buying one of the short ETFs when the FTSE hit 5,000.

I'd only buy an index short if the market was falling and the relevant political environment wasn't improving. And even then I'd use a tight stop loss.

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http://www.bloomberg.com/news/2010-06-17/etfs-gone-wild.htm

I am reminded of the vast quantities of "gold" that have been sold in the form of these dodgy pieces of paper than cannot lose. What is even more disturbing is how widespread these are now--1 in 4 trades. Even the venerable Vanguard group are in on it and describe above an impossible to lose investment.

It seems to me (ISTM) that there is a lot more poison to hatch out of the mud before the market corrects fully. Its still a massive bubble and the bankers crooked loans were only part of the ponzi.

Its OK, like saving stick to under £50k and you'll be alright.

investments 100% of the first £50,000 per person per firm

(for claims against firms declared in default from 1 January 2010)

http://en.wikipedia.org/wiki/Financial_Services_Compensation_Scheme

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Which can only be good news for those of use holding actual bullion or coins.

This is something that RB never "gets".

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Some of those ETFs have gold in reserve (or oil, or whatever) right?

Some estimate that as much as 10,000X more "gold" has been sold than exists in the form of ETFs.

What concerns me is that, given the huge amount of gold "bought" by way of ETFs the price of gold is still about half what it was at the peak in 1980 (IA).

The market seems to have an intuitive intelligence (which is why it has never been beaten) and it is possible, jt is possible mind you, that the price of gold is being held back by the ETFs. The market smells the rat--the oversold Ponzi racked in gold marketing.

I agree with the thrust of the Bloomberg article and that this is a bomb about to explode and it will make the bank meltdown look like the blip many are now regarding it as due to the ease of the bailouts.

The bottom line for me is that we are all living like millionaires and not working for it.

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Which can only be good news for those of use holding actual bullion or coins.

really? but what if the spectacular rise in gold is actually based on all the demand created by these bits of paper, and when that implodes the price slumps. Sure, there might be about 10 minutes at the top where owning physical gold means you can demand peak price, but if there is not appetite for gold anymore due to ETF implosion then the price will surely fall.

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Guest spp

Wot!! RB awakes?

Paper trading (manipulation) only works while the paper world stays together.

Once paper credibility is broken, where do you think you will get the physical from?

"We pay Cash for your unwanted Gold and Silver" (but we won't tell you it's going up in value) :lol:

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Do you like this quote:

"Investors can be more nimble now; the tools are out there."

Yes - be nimble and make money, it's the panacea for everyone. What a self interested tw@t, or is he just a total FW? One mans profit is anothers loss in a volatile sideways market. There is no solution for savers other than to work. That goes for Britain's lazy pensioners, and especially those who retired before the age of 65. They are partly the reason we have seen the gross distortion on the UKs finances - too many peope thinking they should get something for nothing.

I didn't see much comment here about the number of people in Britain retiring below 60 and yet the presss were howling when the point was being made about the Grecians. So its fine to be a Public Sector and Corporate leach but not it your're greek? Nice one Britain - the pigs are you.

Edited by bpw

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I don't know how to value ETFs, i.e. without doing loads of investigation, I don't know how the price you pay for the shares in the funds translates to the value of the assets within the fund.

Having said that, I was a bit more gung-ho and a bit less thoughtful last year, when I made the mistake of buying one of the short ETFs when the FTSE hit 5,000. I'm not touching one of these funds again, as I don't know how they're constructed, or how to gauge how/when government policy will be adjusted to react to stock market dips in future.

for index tracking ETFs just go to the website e.g.ishares or dbxtrackers and you can find out exactly what the constituents of the ETFs are.

I am a huge fan of index tracking ETFs and have a variety including ETFs tracking clean energy index, kuwait index, russia index, vietnam index, gold miners and agriculture.

The ETFs to be very wary of are gold/silver ETFs not backed 100% by physical and also leveraged and short ETFs. These are for short term trades only.

The thing is that the vast majority of fund managers underperform any given index that they track. Picking the right one is like a lottery. Overall you are far more likely to win with an ETF and they are more liquid than a fund given that you can buy and sell them very quickly on any major dips or rises.

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This is something that RB never "gets".

Im seriously begining to think that gold is something you have to have "in the hand" otherwise it aint gold. Rothschild has infiltrated BullionVault And I think they have their tenticles in GLD, the gold ETF.

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fund managers are on the whole useless,well 90% of them anyway.on this issue they may be right.

but a potentially huge counterparty risk!!!!!!!

you've got to make sure if you buy an ETF that they hold the underlying and not a basket of interwoven derivatives.I know that since 2008 a lot of ETF providers haev strived to raise holdings of the underlying but still,that it needed to be done says it all.

as for thsoe leveraged double,treble short and long etf's that don't do what they say on the tin.pullleeease.

There is no counterparty risk with the right ETFs. The money is ring fenced from the companies that run the ETF so if deutche bank go bust your dbxtracker ETF is safe.

There is counterparty risk if you buy a commodity ETF which is not backed 100% by physical metal.

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really? but what if the spectacular rise in gold....

You mean the steady rise in gold. As RB points out, it has not reached its inflation adjusted hights of 1980 so gold is still playing catch up. The spectacular rise is yet to come and will happen when it is clear that the case for gold is correct, but of course it will be a bit late by then, which will be the force that drives gold and silver to its precious status. The case for gold and silver is far greater than the tremours of the 1970-1980 period.

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Some of those ETFs have gold in reserve (or oil, or whatever) right?

The gold ones are 100% collateralised by fully-owned gold bars held in the vaults of a reputable custodian bank. As a result, these are very safe. (There are gold derivative ETFs about - e.g. ones that offer 'special' facilities - e.g. leveraged long, short, a different point on the forward curve, etc. In order to lose your investment, the gold would have to be removed from the vault without the custodian noticing and properly accounting for it. The risk is there, but it's extremely low.

The oil ones don't have physical oil collateral. It would impractical to hold it, so they operate using oil derivatives. However, the oil derivatives are not made with banks, but with one or more major oil companies (Shell is the main participant), who are able to hedge off the ETF derivatives on their own production. These are also pretty safe, as big oil companies, have very low leverage, low debt and lots of available cash. The same cannot be reliably said about big investment banks. These ETFs are also 100% collateralised with cash in a separate account, so should be very safe.

Most of the other commodity ETFs use derivatives written with other banks. So there is a theoretical risk of loss, if the counterparty bank goes tits-up. Part of this risk has been averted by the way the derivatives are constructed, and the fact that counterparty bank must hand over collateral equivalent to 100% of the value of the derivative. In these cases, the most severe loss you would get, would be the loss of any profit accrued over the previous trading day.

The big problem is the 'clever' ETFs - the ones that track double, or triple an index - or short the index. These have very large hidden fees, and suffer from 'slippage' (where they lose value day by day) - this slippage can be massive, a loss of 50-70% of value in year can easily occur, even if the index is at the same level as it was when the ETF was bought. Think of it like this. Let's say you buy a share at £1. It drops 10%, to 90p. Then goes up 11.1%, back to £1. Your standard ETF would start at £1, drop to 90p then back to £1. Now, what happens with a 'double tracker ETF'. The 10% drop is doubled to 20%, so it goes to 80p. The 11.1% gain is doubled to 22.2%, so the ETF goes back up to, oh wait..., only 97.7p. You've made a loss of 2.3% in 2 days, even though the index hasn't changed. Exactly the same problem occurs with short ETFs.

The danger with these short or leveraged ETFs, is that they haemorrhage value at extreme speed. The problem is that these are day-trading tools aimed at inexperienced traders who don't want a margin account or to use options with their very large minimum bets. However, because they are 'stocks' they can be bought into long-term investment accounts like ISA and SIPPs - even though these are complex products which are unsuitable for long-term investment. If you read some trader forums, you'll here lots of sob-stories about people investing their retirement savings into these things - and even though they made the right call - they ended up making a big loss, because they didn't understand the way they worked.

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Guest sillybear2

The danger with these short or leveraged ETFs, is that they haemorrhage value at extreme speed. The problem is that these are day-trading tools aimed at inexperienced traders who don't want a margin account or to use options with their very large minimum bets. However, because they are 'stocks' they can be bought into long-term investment accounts like ISA and SIPPs - even though these are complex products which are unsuitable for long-term investment. If you read some trader forums, you'll here lots of sob-stories about people investing their retirement savings into these things - and even though they made the right call - they ended up making a big loss, because they didn't understand the way they worked.

That leverage can't come for free either, there must be a cost of carry, probably LIBOR + some margin. If you hold a leveraged ETF longterm then you're basically entering into a loan agreement.

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Im seriously begining to think that gold is something you have to have "in the hand" otherwise it aint gold. Rothschild has infiltrated BullionVault And I think they have their tenticles in GLD, the gold ETF.

This is true. Markets are driven by psychology--the ETF Ponzi may cause all gold investors to panic and run. Stampedes do not discriminate.

Gold should have risen to at least 1980 levels (IA) by now and it is possible the ETF ponzis are restraining prices.

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This is true. Markets are driven by psychology--the ETF Ponzi may cause all gold investors to panic and run. Stampedes do not discriminate.

Gold should have risen to at least 1980 levels (IA) by now and it is possible the ETF ponzis are restraining prices.

Why should gold have risen to 1980 levels by now and what makes you think that it will just be a repeat of the 1970-1980 period?

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The gold ones are 100% collateralised by fully-owned gold bars held in the vaults of a reputable custodian bank. As a result, these are very safe. (There are gold derivative ETFs about - e.g. ones that offer 'special' facilities - e.g. leveraged long, short, a different point on the forward curve, etc. In order to lose your investment, the gold would have to be removed from the vault without the custodian noticing and properly accounting for it. The risk is there, but it's extremely low.

The oil ones don't have physical oil collateral. It would impractical to hold it, so they operate using oil derivatives. However, the oil derivatives are not made with banks, but with one or more major oil companies (Shell is the main participant), who are able to hedge off the ETF derivatives on their own production. These are also pretty safe, as big oil companies, have very low leverage, low debt and lots of available cash. The same cannot be reliably said about big investment banks. These ETFs are also 100% collateralised with cash in a separate account, so should be very safe.

Most of the other commodity ETFs use derivatives written with other banks. So there is a theoretical risk of loss, if the counterparty bank goes tits-up. Part of this risk has been averted by the way the derivatives are constructed, and the fact that counterparty bank must hand over collateral equivalent to 100% of the value of the derivative. In these cases, the most severe loss you would get, would be the loss of any profit accrued over the previous trading day.

The big problem is the 'clever' ETFs - the ones that track double, or triple an index - or short the index. These have very large hidden fees, and suffer from 'slippage' (where they lose value day by day) - this slippage can be massive, a loss of 50-70% of value in year can easily occur, even if the index is at the same level as it was when the ETF was bought. Think of it like this. Let's say you buy a share at £1. It drops 10%, to 90p. Then goes up 11.1%, back to £1. Your standard ETF would start at £1, drop to 90p then back to £1. Now, what happens with a 'double tracker ETF'. The 10% drop is doubled to 20%, so it goes to 80p. The 11.1% gain is doubled to 22.2%, so the ETF goes back up to, oh wait..., only 97.7p. You've made a loss of 2.3% in 2 days, even though the index hasn't changed. Exactly the same problem occurs with short ETFs.

The danger with these short or leveraged ETFs, is that they haemorrhage value at extreme speed. The problem is that these are day-trading tools aimed at inexperienced traders who don't want a margin account or to use options with their very large minimum bets. However, because they are 'stocks' they can be bought into long-term investment accounts like ISA and SIPPs - even though these are complex products which are unsuitable for long-term investment. If you read some trader forums, you'll here lots of sob-stories about people investing their retirement savings into these things - and even though they made the right call - they ended up making a big loss, because they didn't understand the way they worked.

reputable custodian bank. :blink:

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Why should gold have risen to 1980 levels by now and what makes you think that it will just be a repeat of the 1970-1980 period?

sovereign debt and perceived inflationary trends.

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  • 146 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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