ETFs – a brief update.

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Another quick note this to update the two part post on ETFs,   ETF’s – The Next Accident Waiting to Happen, and  ETF’s Part 2  that I wrote a little while ago.

Towards the end of  part 2 I wrote

…ETF shares are themselves traded in the markets the ETFs are following, as are the shares of the banks who run and fund those ETFs. Shares in some of the banks who run the ETF market will be in many ETFs. At what point does the value of the ETFs pump up the value of the bank shares, which pumps up the value of the market the ETF is following which pumps the value of the ETF?

We had this sort of run-away feedback in the market for CDOs just before they exploded.

Couldn’t happen?

This morning I came across this from, of all places, Fox News from the 14th of May.

Bank ETFs Take a Beating

…The Financial Select Sector SPDR (XLF: 14.43, -0.08, -0.52%) struggled to shake the losses from its second largest holding, which is JPMorgan.

…Other ETFs taking a hit are Vanguard Financials ETF (VFH: 30.63, -0.16, -0.52%) and Revenue Shares Financials Sector NYSE:RWW), down 0.8% and 1.4%, respectively. JPMorgan is each fund’s second largest holding, accounting for 6.4% and 8.7% of each.

None of these losses is a crisis of course. But are they a sign that what I was writing about ETFs was not so outlandish? With shares in European and American banks continuing to decline and set to drop further the feedback mechanism between the value of the banks in the underlying market and in the ETFs following that market, ETFs which many of those banks run, own or make the market/ provide liquidity for could start to bleed.

And then of course the there’s no financial show without the pantomime dame, AKA The Regulators, to deliver the fatuous comedy turn…

Regulators are working to finalize restrictions aimed to limit a bank’s ability to trade within its own funds, struggling to draw the line between valid hedging and speculative bets.

I think the only relevant word in that sentence is ‘struggling’.

14 thoughts on “ETFs – a brief update.”

  1. bill40

    Glem,

    The problem is always exactly the opposite to the one that the neo liberals claim it is. Today, that nice Mr King, all but said so in so many words. The real problems are shrinking wages, too much private debt and not enough government spending. The MSM report from the opposite view.

    The neo liberals claim that “phoney money” is created by state spending. Logic proclaims that it is created by financial deriatives. It’s not just EFTs it is the whole gamut of the multi tyrillion dollar fraud that is imploding.

    I never used to think this but I will be alive to witness the end game, whatever that might be.

    Reply
  2. ch-ch-changes

    The end game indeed appears ever closer.

    Not that you’d notice from the mainstream media……

    The EZ, the BRICS and the Middle East won’t grieve over the imploding Anglo US model once the various derivative time bombs go off in London and New York.

    The irony is it makes no difference IMO, since even if the EZ does begin to break apart, the derivative time bombs will still go off and the vultures won’t be able to make enough from breaking up PIIGS to cover it.

    Thanks Golem for shining yet another light into the murky corners of the Wizards world

    Reply
  4. steviefinn

    I wonder what the next weapon of mass financial destruction’s abbreviation will be. I would suggest WTF’s.

    Reply
    2. richgb

      Here’s one in keeping with burgeoning feudalism: BUM – Bow U Muppets!

      Here’s Max Keiser, on his best behaviour, talking to Mike Maloney about gold:
      http://rt.com/programs/keiser-report/debt-accounting-max-keiser/

      I know there has been frenzied debate (and a lot of cussing) between the gold bugs and the MMT supporters on this blog, but what this programme indicates to me is that if the US economy implodes then a gold-backed currency will be the panicked response. Relatively simple to implement, the aurous standard could be with us for many years before MMT can be re-activated.

      Reply
  5. Jim M.

    RIP- Ridiculous Interest Payments

    FAME – F- All Mortgage Equity

    TITS – Troika Institutes Total Shambles

    And so on, ad nauseum.

    Reply
  6. Desmond Dillon

    if the masters of the financial universe had dynamite for brains it wouldn’t blow their hats off.
    real growth can only happen when the zombie banks are liquidated and asset prices are allowed to find a realistic base. there is no capitalism in a world of manipulated markets.

    .

    Reply
    1. Jim M.

      Hehe… round these parts the expression is:

      If brains were dynamite they couldn’t blow the wax outta their ears!

      but I take your point, Desmond. As for liquidating zombie banks and marking to market…nobody seems to be talking along those lines. In fact, they seem willing to consider anything but those two things.

      Makes you wonder what they might be afraid of!

      Now, where did I put that Black Hole?

      Reply
  8. Wirplit

    Interesting development when Gold in its physical form is in huge demand as a supposed safe haven and is increasingly hard to obtain…repeat in its physical form.

    This would fit with usual supply and demand. Hence gold prices go up? Well no, noone seems at all sure of that and why? maybe its due to go down? Because so much of the “gold” traded is in the form of paper assets and is the paper actually backed by real gold?

    I am not so sure about how useful gold is in a real crisis but I sure as hell would rather have it in the shape of a reassuringly heavy pleasingly coloured hunk of metal than as a bit of flimsy paper with a promise on it… knowing a lot of people have similar bits of paper… l

    As Dave Harrison gave in the useful link to TradewithDave http://tradewithdave.com/?p=10106
    :

    “To summarize, Dave believes the price of gold is going to go down for two primary reasons; untenable counter-party risk at the Comex and the general liquidation of GLD units. Dave believes the coordinated public relations campaign on everything from Jim Rickard’s Currency Wars and Matthew Bishops’s In Gold We Trust to the most recent release of John Butler’s The Golden Revolution is a coordinated effort to get the masses interested in buying gold (of the paper variety) in an effort to provide price support for the re-hypothecated precious metal as those in the know unload their paper.”

    So behind all the EDF business you are so admirably highlighting Golem is there the more general fact that the market structures themselves are beginning to look dodgy as a whole…not just their obvious manipulation but even in the basic numbers they are asserting as plain facts… like Gold prices?

    Are the indices just smoke and mirrors too? … and will this become, not just something we point out here on this blog, but a general understanding beginning to take hold in the wider world?

    Right now the markets have the look of that famous picture of the cops in Whitehall during the Great Trafalgar Sq. Poll Tax rebellion… looking to right and left and equally lost either way!

    I mean of course they are and always have been bent but when the actual mechanism starts to become fundamentally distrusted… like for example when the gold price is no longer actually really a reflection of what is actually happening to the real supply/demand…

    .. then what is to trust? How can even the market believers continue then? One theorizes about end times for the markets but when it actually starts to come about… well its awe inspiringly scary! Or is it just me waking up with another jolt of reality?

    Reply
    1. Gary

      Wirplit

      As long as history keeps repeating that ALL fiat currencies eventually go to their intrinsinc value of ZERO , in not more than about 50 years(we are about 40 years into this current dollar one, statistically geriatric), then gold will be a fine hedge against monetary collapse. All these paper gold schemes , mainly ETFs, that may or may not have the actual gold that they say they have backing them, are all designed to funnel gold buying funds away from physical gold and into IOU proxies for gold. As much as they deny it, the central banks are dead scared of gold, and rightly so. They may win some battles, but in the end they will lose the war.

      I have placed my bets on 5000 years of history, and dumb greedy central bankers who counterfeit money(IOUs) using a printing machine. All credit , including paper money , is ultimately a claim on gold. We are long overdue for these $quadrillons to be settled, or defaulted upon.

      Steviefinn

      http://jessescrossroadscafe.blogspot.co.uk is a great font of knowledge about gold.

      Reply

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