Contributors

Guggenheim ABCS Gives Us A-B-C But No Y

by

Guggenheim ABCS Gives Us A-B-C But No Y June 10, 2011 by Ron Rowland Filed under Commentary, ETF IPOs (New ETFs)   The ABC acronym stands for Australia, Brazil, and Canada.  The Guggenheim ABC High Dividend ETF (ABCS), launched earlier this week (6/8/11), packages the ten highest yielding stocks from each country into a convenient ETF format. The 30 securities consist of U.S. listed ADRs from all three countries and stocks from Australia and Canada listed in their home countries.  The underlying BNY Mellon ABC Index selects the top 10 stocks or ADRs with the highest yield for each country. … Read more

Are We In The Early Stages Of A Social Media Tech Bubble?

by

Are We In The Early Stages Of A Social Media Tech Bubble? Posted In Blog If you’re new here, you may want to subscribe to our RSS feed or follow us on Twitter and Facebook. Either way, thanks for checking us out! What’s up with all these social media companies filling for IPO’s lately? I guess the spark was lit with LinkedIn which went public just 2 weeks ago now. Since 2 other major social media tech companies have filed the paperwork for additional IPO’s – both Groupon and now Zynga. Coming Social Media Bubble? I hate to say the … Read more

Singapore Leads the Rich List

by

Singapore Leads the Rich List The Fullerton Bay Hotel Singapore LTN reports the Countries with the most Millionaires Y 2010 As financial markets improved last year, Global wealth grew in nearly every region in the World. The fastest, at 17.1%, came in the Asia Pacific region, excluding Japan, followed by North America at 10.2%. “Global wealth is at an all-time high,” says BCG Senior Partner Monish Kumar. According to BCG’s study, Global assets under management grew 8%, to US$121.8T about US$20T above the level during the depths of the Global financial crisis. The number of Millionaire households grew 12.2%, to … Read more

| Invest With An Edge

by

ETF Stats for May 2011: 1,010 ETFs Fighting For Scraps June 2, 2011 by Ron Rowland Filed under Commentary, ETF Statistics A steady onslaught of new product introductions continued in May along with the first closure of the year. Sponsors rolled out 36 new ETFs and three ETNs while retiring one ETN. The net addition of 38 brings the quantity of listed ETPs to 1,254 consisting of 1,089 ETFs and 165 ETNs. Currently, ETNs account for 13.2% of ETP listings, but only 1.5% of assets and 1.4% of trading activity. The quantity of actively-managed ETFs remained unchanged at just 34. … Read more

Shayne Heffernan Week Ahead, BFR, FTE, PVR

by

Shayne Heffernan Week Ahead, BFR, FTE, PVR   BBVA Banco Frances S.A. (ADR) NYSE:BFR, France Telecom SA (ADR) NYSE:FTE, Penn Virginia Resource Partners L P NYSE:PVR Very little in the way of economic data or corporate earnings next week could leave nervous investors on the edge of their seats. Buying the fall is the answer for traders this week the same model has worked since the Fed started round two of its quantitative easing in August 2010. “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” As Warren Buffett has … Read more

How Can A Call Option Decline In Value When A Stock Rises?

by

5:18 AM (17 hours ago) How Can A Call Option Decline In Value When A Stock Rises? by Kirk I’m sure we have all traded a call option that declined in value when the stock was on the rise. I know I have done it many times before I started focusing mostly on option selling strategies. We all know that stocks and options are completely different investment vehicles. What’s hard about the question above is that a stock’s price is just one of 7 factors that effect the price of an option. And usually this question is asked by newbie options … Read more

PowerShares 3x Dollar ETNs Arrive

by

PowerShares rolled out the first 3x leveraged currency exchange-traded products earlier this week (5/24/11).  PowerShares DB 3x Long US Dollar Index Futures ETN (UUPT) and PowerShares DB 3x Short US Dollar Index Futures ETN (UDNT) will track leveraged multiples of the Deutsche Bank Long U.S. Dollar Index Futures Index using a monthly reset of the leverage. UUPT and UDNT are ETNs (exchange-traded notes), which are long-term unsecured debt obligations that carry the credit risk of Deutsche Bank, the note issuer.  They do not actually invest in the components of the underlying index, which consists of futures contracts whose underlying asset … Read more

The Future of Books and Libraries–and Education?

by

Seth Godin has a stunningly useful commentary on books, libraries and librarians. “The librarian isn’t a clerk who happens to work at a library. A librarian is a data hound, a guide, a sherpa and a teacher. The librarian is the interface between reams of data and the untrained but motivated user.” I learned this truth too late in life.  The librarian is not the keeper of the book warehouse, but is a knowledge guide. Let me take it one step further and apply Seth’s concept to education. In the medieval university, books were scarce and expensive, far too scarce … Read more

More Spying on Elite Funds – Part 2

by
A follow-up to my last comment on spying on elite funds. We begin with an article by Naked Value on Seeking Alpha, Paulson & Co.’s Biggest Buy, Biggest Sell and Top Holdings. You’ll notice that unlike Dodge and Cox, Paulson & Co sold all their Pfizer shares, and initiated a new position in Hewlett-Packard Company (HPQ).

Unlike Soros, Paulson & Co is still betting big on gold, owning a significant stake in SPDR Gold Trust (GLD) and expects a continued recovery, and as such it thinks banks like Citigroup (C) will continue to benefit. The fund also owns Anadarko Petroleum Corp (APC) and Transocean Limited (RIG), which is the company Ontario Teachers’ bet on and made a bundle on.

Are you confused? Don’t be. You should be using the tools on the NASDAQ website to slice and dice the portfolios of these elite funds. For example, clicking on the % change in value header at the top of the fourth column will show you Paulson & Co’s new holdings (click on image to enlarge):

Note that apart from Hewlett-Packard mentioned above, Paulson & Co made a significant new investment in Weyerhaeuser (WY), buying up 31,700,200 shares during Q1 2011. Share prices for both companies are well off their highs, and if the fund did their homework, these could yield excellent returns going forward.

When analyzing 13F quarterly filings, it’s important to look at new holdings, not just top holdings. For example, looking at new holdings for Dodge and Cox which I neglected to do in my last comment, you’ll notice that they bought a significant stake in Motorola Mobility (MMI) and Microsoft (MSFT) during Q1 2011 (click on image to enlarge):

Read more

HKK: Small Cap Muscle for Hong Kong

by

If you ever get a chance to go to Hong Kong, do not pass it up.  I received my first opportunity in 1982 and immediately fell in love with the place.  The business energy level is so high there that it is infectious.  Perhaps that is one of the reasons that just two days ago, the Swiss-based International Institute for Management Development (IMD) ranked Hong Kong the World’s Most Competitive Economy.

The large companies of Hong Kong help make it a global powerhouse.  However, its smaller companies, the unsung superheros of Hong Kong, might better exemplify its true competitiveness.  With Wednesday’s (5/18/11) launch of IQ Hong Kong Small Cap ETF (HKK), U.S. investors can for the first time get easy access to this desirable segment of the world economy.

The underlying Index IQ Hong Kong Small Cap Index is a capitalization-weighted index that aims to capture the bottom 15% of the publicly available total market capitalization of companies located in Hong Kong.  The 15-year old iShares MSCI Hong Kong (EWH) targets the largest 85%, which theoretically allows for zero overlap between them.  Although the two ETFs may compete for the dollars investors decide to allocate to Hong Kong, they are actually complementary products.

HKK’s sector breakdown has Consumer Discretionary at 23.6%, Financials 18.9%, Materials 15.7%, Technology 10.9%, Consumer Staples 8.8%, Industrials 6.7%, Transportation 5.6%, Communications 2.7%, Energy 2.6%, Utilities 2.3%, and Health Care 2.2%.  This is vastly different from EWH, which has a 61.9% allocation to Financials (EWH overview page).

Read more

Spying on Elite Funds – Part 1

by

It was a beautiful long weekend in Montreal. I tried to enjoy it as much as possible getting out of the house every chance I got. Even went out with some buddies of mine on Saturday night and came back in the wee hours of the morning. Haven’t stayed up that late in a long time and of course, paid the price on Sunday as I was in a zombie state pretty much all day. One thing about turning 40, you can’t party like your 20 anymore, which is something my trainer reminded me of tonight as he trained me … Read more

On Longevity Derivatives

by

I am a firm believer in “you can’t get something for nothing.”  So it is when a new derivative is proposed.  Either there are natural counterparties to take up the exposure (reducing their risk), or speculators must be encouraged to take the risk (more likely).

So, with longevity derivatives, the risk is people living too long leading to more pension payments in future years.  The proposition is: find a party that is willing to make more payments if mortality is better than expected, and offer him a payment, or series of payments, as an inducement to enter the transaction.

Let’s think for a moment, what entities benefit from a rise in longevity?  I can think of one: life insurers.  But there is a problem: anti-selection.  People who buy life insurance tend to be sicker than those of the general population, who tend to be sicker than annuitants.  Annuitants live the longest, and their lifespans improve the most on average.  Life insurers would find taking on longevity risk to be a dirty hedge at best for their life insurance books.  In general there have been few reinsurance agreements for longevity risk for immediate annuity portfolios, but then, that would be a really small component of the life insurance industry at present.

Even when terminal funding was permitted (back in the 1980s to early 90s) — where plan sponsors could buy annuities from insurers to free themselves from their

Read more

How to Deal With Excessive Risk Concentration?

by
Jonathan Jacob of Forethought Risk, an independent risk advisory firm, sent me his Benefits Canada article, How to deal with excessive risk concentration:

In my previous column, Examining portfolio risk, we discussed ex-ante risk, ex-post risk and how both measures can provide greater understanding of portfolio risk. In this column I would like to discuss the options that are available to a pension fund manager that discovers excessive risk concentration in a fund through ex-ante risk reports.When a pension fund utilizes the services of multiple investment managers, there is potential for overlap of risk, causing excessive concentration of risk. Excessive risk concentration can be found in exposure to a single company, a sector of the economy, or a currency among others. If the pension fund manager receives ex-ante reports on risk which aggregate all investment manager portfolios, he or she may recognize an exposure as excessive prior to a potential blow-up.

One potential approach to the excessive risk is to ask one of the investment managers to trim risk to the asset with excess exposure. The investment manager will likely disapprove the request, justifiably claiming that the initial agreement did not include such restrictions and any future measurement of their performance will be tainted by this decision.

Read more

Investors Turning to Active Commodities Strategies?

by
I hooked up for lunch with commodity relative value fund manager I spoke to on Monday. He’s looking to raise raise capital for this new fund which he will be managing with other experienced traders and we went through his pitch book. 

I’ve sat with some of the best hedge fund managers in the world. The best of the best know the theory but more importantly, they can give you tons of examples of actual trades that went for and against them. That’s exactly how this manager presented his views. He has the academic and industry credentials, but it’s his actual commodity trading experience in Canada and the US that came through as he walked me through one trading example after another.

I love talented alpha managers. I’ll repeat what I’ve been stating the last few posts, there is exceptional alpha talent in Quebec that is being underutilized or worse still, totally ignored. I met two of Montreal’s best hedge fund managers today and I wouldn’t bat an eyelash to invest in either one of them (the other is an equity market neutral manager).

The question I get from outside-Quebec investors is if they’re so good how come the Caisse and other large Quebec institutions don’t invest in these new and existing hedge funds? There are a lot of reasons. First, reputation risk. There have been quite a few scandals in Quebec with institutions getting burned with funds like Lancer, Norshield, Norbourg, and other frauds. The last thing any institution here needs is to read that some hedge fund they invested with blew up, especially if it’s a local fund (the media in Quebec are merciless).

Second, unlike other places, Quebec lacks the entrepreneurial drive to develop the absolute return industry here in Montreal. There

Read more

Kroszner and Shiller, Reforming U.S. Financial Markets

by
A slight but nonetheless thoughtful book,Reforming U.S. Financial Markets: Reflections Before and Beyond Dodd-Frank (MIT Press, 2011) grew out of the fifth Alvin Hansen Symposium on Public Policy held at Harvard in 2009. At this symposium Robert J. Shiller and Randall S. Kroszner presented papers, which were then commented on by Benjamin M. Friedman (the editor of this volume), George G. Kaufman, Robert C. Pozen, and Hal S. Scott. 

I assume those readers who watch CNBC are acquainted with Shiller and Kroszner, since both are frequent guests. Shiller, a professor of economics at Yale University, is probably best known for his bookIrrational Exuberance. He also developed, with Karl E. Case, the Case-Shiller home price indices that depress us month after month. Kroszner, a professor of economics at the University of Chicago’s Booth School of Business, is a former fed governor.

In this post I want to concentrate on a couple of points in Shiller’s more controversial paper, “Democratizing and Humanizing Finance,” described by Pozen as “almost philosophical.” (p. 102)

Read more

Economic Issues for the Telecom Industry: 2011-2012

by

By Dr. Bill Conerly

Economic uncertainty is only one significant issue facing the telecom industry now, but it intertwines with the technological changes and social changes that are causing so much turmoil in the industry. Once the path for consumer and business spending is defined, the other changes affecting the industry will fall into clearer focus.

Nutshell

Consumer spending is reviving and now exceeds its pre-recession peak. Consumers were slow to get going after the financial crisis and even now are being conservative. Key to the growth is the increase in consumer incomes. That’s surprising to many given the weak employment numbers, but there is solid explanation for rising incomes. First, hours worked per employee has risen since the depths of the recession. Second, those with jobs have earned pay raises averaging about two percent per year. Third, taxes as a share of consumer income have fallen in the past two years, partly for stimulus policy and partly because lower incomes are subject to lower tax rates. Finally, we’ve actually enjoyed job growth in recent months, with the employment count about one percent higher than a year ago. So consumers have more money than they used to.

Consumers are being prudent with their extra income. About 88 cents out of every additional dollar of take home pay is being spent, with 12 cents going into savings and paying down debt. The average savings rate is about six percent now, so the practice of saving 12 percent of additional earnings will raise the average savings rate over time. This is sound financial practice for most households. Although more money is going into savings, more money is also going into spending. That ensures that the current economic strength will continue.

Read more

Stock Price Gaps – Why They Happen And How To Trade Them

by
By Kirk Du Plessis

Beginning traders were probably shocked the first time they experienced a stock price gap. I guess even the most experienced traders still get taken back when there is an unexpected stock price gap in a stock they are trading. Either way I wanted to cover once again why they happen and what you can do (if anything) to trade them.

It Happens When The Market Is Closed

Nearly all stock price gaps happen in pre market trading or during after hours trading. Call them Black Swans if you want since they seemingly come when you least expect it.

Generally speaking gaps are rare for the normal stock. Most mutual funds, ETF’s, and other illiquid assets actually gap more frequently which make the gaps less important.

How The Actual Price Gap Is Created

A price gap is created when a stock closes at say $91.50 (as AAPL did below) for the day which is at 4:00 PM EST and then the next day opens dramatically higher or lower than it’s previous closing price of $91.50.

Read more

Just Another Manic Monday?

by
On Monday, I hooked up for lunch with someone who works at a successful Montreal hedge fund. He complimented me on my blog and then we started talking about alpha talent in Quebec. There are some exceptional hedge fund managers in this province that are being totally ignored by Quebec’s large institutions (for God knows what reason!). 

I would like all the global funds that read my blog to contact me (LKolivakis@gmail.com) and I’ll be glad to share more information on our alpha talent in Quebec. Many managers have worked in London, New York, Chicago and decided to move back to Montreal for personal reasons. I want to support them as much as possible because Montreal’s hedge fund community is small but offers tremendous potential. I want Montreal to become the fastest growing hedge fund center and will do everything I can to support our talented alpha managers.

The person who I had lunch with today introduced me to another person who is in the process of starting a relative value commodity fund. I spoke with this manager late this afternoon and was blown away by how sharp this guy is. Unlike most commodity fund managers who mostly trade front end oil futures, this manager and his small team have years of experience trading all commodities, including energy, metals, corn, sugar, and other soft commodities.

We had a great discussion on the financial crisis. Like me, he was extremely bearish back in 2006. I told him I was researching all these complex CDO-squared and CDO-

Read more

How to Shrink the Deficit

by

It annoys me that Republicans argue against elimination of special tax benefits for anyone, calling it a tax increase.  Let’s get things straight here: tax increases are things that affect everyone. The tax code needs to be cleaned up, as do subsidies.  It is not the proper place of government to be handing out special favors.  If the Republicans want to do what is right they need to trade — eliminate a subsidy/tax break that some of their constituents like in exchange for eliminating a subsidy/tax break that the Democrats like.  Rinse, lather, repeat, until we are back to something … Read more

The Cost of Being Poor

by

As if the current job market and economy didn’t make it hard enough for low income households in America to make ends meet, it turns out that living below the poverty line is actually more costly in many respects as well. It not only takes money to make money, it also takes quite a bit of money to live in poverty. This graphic illustrates how expensive it is to be a poor American… Source: Onlinesociologydegree.net

Analysis of New High Beta and Low Volatility ETFs from PowerShares

by

Invesco PowerShares brought out two new and unique ETFs last Thursday (5/5/11).  PowerShares S&P 500 High Beta Portfolio (SPHB) and PowerShares S&P 500 Low Volatility Portfolio (SPLV) are innovative products that employ quantitative beta-weighting and volatility-weighting as part of the underlying index construction.  As with any new investment strategy, you need to understand how these new ETFs will function before putting them in your portfolio.

– PowerShares S&P 500 High Beta Portfolio (SPHB) (SPHB overview) tracks the new S&P 500 High Beta Index, which consists of the 100 stocks from the S&P 500 with the highest sensitivity to market movements, or beta, over the past 12 months.  The 100 stocks are weighted proportional to their 12-month beta coefficient at each quarterly rebalancing.

– PowerShares S&P 500 Low Volatility Portfolio (SPLV) (SPLV overview) tracks the new S&P 500 Low Volatility Index, which consists of the 100 stocks from the S&P 500 with the lowest realized daily volatility over the past 12 months.  The 100 stocks are weighted inversely proportional to their 12-month realized volatility at each quarterly rebalancing.

Beta & Volatility

Beta is one of the most misunderstood investment terms, and it is often incorrectly assumed to be a word that is interchangeable with volatility.  However, that is not the

Read more

Profits From New Global X Food ETF Will Help Fight Hunger

by

Global X introduced a new ETF targeting the global food industry on May 3, and said it will donate all profits to help fight world hunger.  The Global X Food ETF (EATX) tracks the Solactive Global Food Index, consisting of the 50 largest global firms with significant business operations in the food industry. The index targets companies that derive the majority of their revenue from the production, development, or distribution of food or food ingredients.  Stock weightings are determined by free float capitalization, but to ensure diversification, positions are capped at 4.75% at each 6-month rebalancing. There are seven stocks … Read more

Chinese recycling and US interest rates

by

I mentioned in last week’s blog entry that during my trips to New York, Washington and Hangzhou in the past two weeks one of the common themes was concern about rising debt levels and weaknesses in the banking sector.  Another theme – one which I want to discuss in this entry – was the possible impact of China’s rebalancing on US and global interest rates.  A lot of people were very concerned that if China does indeed rebalance, US interest rates will soar.

The argument runs like this.  If China raises the consumption share of GDP faster than investment declines, this will result in a reduction in China’s current account surplus.  Clearly if China’s current account surplus drops, the amount of capital it exports must drop in tandem – since a rising share of consumption means a declining share of savings and so a declining excess of savings over investment which must be exported.

But because it is recycling the world’s (and history’s) largest current account surplus, China is one of the world’s largest purchasers of US government bonds.  If China’s current account surplus declines, and so China sharply cuts back on its purchases of US government bonds, this should automatically cause US interest rates to rise.

In at least half the meetings I attended this was the argument.  Fortunately for me, just after I returned to Beijing Martin Feldstein made the same argument in a Project Syndicate blog entry.  He starts out;

Read more

ETF Stats for April 2011: 1,216 and Counting

by

A barrage of product introductions in April resulted in 23 new ETFs and 20 new ETNs coming to market.  The number of launches matches the 43 in June 2008 while falling short of the record, 50 in January 2007.  The month-end quantity now stands at 1,216 (consisting of 1,053 ETFs and 163 ETNs).  Actively-managed ETF listings remained unchanged at 34.

April became the fourth month in a row without any closures.  However, the streak ends there as BXDD, Barclays’ 3x no-reset inverse S&P 500 ETN, becomes the first casualty of 2011 later this week.  The four-month stretch of no closures is the longest since 2007.

Trading activity plummeted in April, with total ETP dollar volume declining 30% to less than $1.3 trillion.  There were only 13% fewer trading days than March, so daily trading activity was down as well.

The number of ETFs in the Billion Dollar Club, those averaging more than one billion dollars in daily trading activity, dropped from eleven to just seven.  However, those seven funds accounted for more than 56% of all ETP dollars traded.  New to the list this month was iShares Silver Trust (SLV), which saw unprecedented trading activity of $67 billion due to the strong rally in silver.  SLV was the third most active ETF behind SPDR S&P 500 (SPY) at $374 billion and iShares Russell 2000 (IWM) at $84 billion.

Products averaging more than $100 million of trading per day numbered 67, a decrease of eight from March.  Those 67 funds, just 5.5% of all ETPs, accounted for 89% of all dollars traded.

Read more

Reforming the banks

by

I just got back from a very interesting but hectic week in New York and Washington, followed by two days at a conference in Hangzhou.  During my meetings I noticed that much of the discussion, and many of the questions I was asked by both government officials and investors, focused on debt levels and reforms in the Chinese financial system.  I have written a lot about rising debt in China and am glad that analysts and policymakers seem to be spending a lot more time thinking about balance sheet issues.  Every case of rapid, investment-driven growth in the past century, as far as I can make out, has at some point reached a stage in which debt levels rose to unsustainable levels and precipitated either a debt crisis or a long grinding adjustment period.

The reason debt levels always seem to grow unsustainably, I suspect, is that in the initial stages of the growth model much if not all of the investment is economically viable as it pours into building necessary infrastructure whose profits and externalities exceed the cost of the investment.  The result is real growth.  At some point, however, the combination of subsidies, distorted incentives (in which investment benefits accrue to those making the investment while costs are shared broadly through the banking system), and very cheap financing costs leads inexorably to wasted investment and debt rising faster than asset values.  This is when the debt burden begins to rise in an unsustainable way.

Read more

New Wall St. Slogans to replace the aged “Sell in May & go Away”

by

Check out this great clip of proposed replacement sayings for that old adage of “Sell in May and go away.” Here are a few of my favorites: “Buy today’s cause it’s early May“, “Buy tomorrow with funds you borrow“, “Buy all commodities without hesitation, but don’t dare we have inflation“, “Buy the REITs cause real estate is on fire, but don’t you dare become an actual home buyer” What is your favorite?   [youtube=http://www.youtube.com/watch?v=_FHWqIneWY4&feature=player_embedded&h=400&w=500]

‘s Changed Since the Flash Crash

by

Summary Report of the Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues,February 18, 2011Do you feel lucky? Well… do ya?It has been nearly one year since the infamous Flash Crash of May 6, 2010 exposed the vulnerabilities in our USmarket structure.Steady and controlled selling gave way to a dangerous and precipitous plunge, as algorithmic proprietary traderstripped over each other to see who could hit the next bid the fastest. After a pause in one market center, the algo-bots raced to see who could take offers and cover shorts the fastest, and the 1,000 plus DJIA drop reversed just asfast. Phillip Morris fell from nearly $49 to … Read more