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Ray Hendon

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  • Barclays Will Not Pick Up Lehman ETNs [View article]
    Exchange Traded Note, a financial insturment somewhat similar to an exchange traded fund, except with an ETN the value of the note is strictly limited to the credit worthiness of the sponsor. They are not protected by any of the provisions of the Investment Company act of 1940, as mutual funds and ETFs are.


    Best Wishes,

    Ray
    Sep 26 09:01 PM | Likes Like |Link to Comment
  • A Peek Under the Wisdom Tree [View article]
    Indexor: Here is the official reply from WisdomTree:

    Income distributions by the Funds, including distributions of short-term capital gains, will be taxed as ordinary income. Capital gain distributions by the Funds, if any, will be taxed as long-term capital gains. Gains from sales of fund shares will generally be taxed as capital gains in accordance with the investor's holding period. Shareholders should refer to the applicable WisdomTree Dreyfus Currency Income ETF prospectus for important tax information and should consult their tax advisers regarding their personal tax situation.

    Hope this helps.

    Ray

    Sep 26 02:04 PM | Likes Like |Link to Comment
  • Barclays Will Not Pick Up Lehman ETNs [View article]
    It isn't going to help. But, they were always toxic to me. I have never understood, from an investor's point of view, what the attraction of an ETN was over the much more protected and transparent ETF.

    An odd sidenote to this whole episode is that the three ETNs at question have less than $5million in assets each. In total they are just over $13Million. So there are no big enchaladas at stake.

    But, the entire story hasn't been told, yet. The bankruptcy judge may arrange a sale of these assets to another buyer sometime before they are otherwise liquidated. Investors in these unfortunate insturments still have a glimmer of hope. But, had they been mutual funds or ETFs, their assets would have been protected from Lehman's failures as money managers.

    Best wishes,

    Ray
    Sep 26 11:39 AM | Likes Like |Link to Comment
  • A Peek Under the Wisdom Tree [View article]
    I discussed the tax issue with Mr. Lavine, and he provided me with an answer that I can't recall with enough specificity to do you any good. I am going to submit your question to WisdomTree for their official response. As soon as I get it, I'll post it here.

    Thanks for the comments and question.

    Ray
    Sep 25 03:02 PM | Likes Like |Link to Comment
  • A Peek Under the Wisdom Tree [View article]
    Thanks for your comments, Brian. You do have a good point about the potential relationship between hot money and its effects on currency prices, but I am not signing on to the scenario you outline about inflows and interest rates. I think there are some flaws in the plan, but I'm not going to make a counter-argument now. It would take a lot of space and time, but this is something we might revisit at another time.

    I will make one note, however. I think the most important variable in predicting the interest rate effect is not the relative rate of interest, i.e., high or low, but the direction of expected change. If interest rates are expected to rise and do, this would devastate longer-term bond prices, regardless of where they start from. It would, of course, help bond prices if they were expected to fall and did, in fact. fall.

    Also, emerging markets do not support a sufficiently liquid high-quality credit market, so all of the ETFs that specialize in this segment of the market use forward contracts as their primary assets, and they depend on the roll for their interest earnings. You can only extend this out so far, and contracting with an exceptionally long roll period places a huge burden on the fund's net asset value. What if thery're wrong? I don't know of any that want to take on this type of risk.

    You might consider contacting your local WisdomTree rep with your suggestion about venturing out the yield curve. From what I have learned from Mr. Lavine and from his counterpart at Barclays, they listen to their advisors clients. You might start a revolution in the business. (:~)

    Thanks again for your input.

    Best wishes,
    Ray

    Sep 24 01:28 PM | Likes Like |Link to Comment
  • Bond Wars Update: International and Junk [View article]
    Doubling down is a risky strategy, although I have used it successfully in the past. It does lower your average share price and if a recovery occurs, your profits are enhanced. I'm not certain about PCY's prospects for recovery as far as timing. There is great turmoil in the markets now. I would certainly never recommend it--just point out the risks and leave it to you. My risk preferences are probably much more conservative than yours.
    However, I am bullish on emerging markets over the long haul. Russia and Turkey have a lot of room to grow, but it's going to be bumpy. My concern in Russia is the fate of the ruble. It is mostly a free floating currency, as far as I know. It could take a huge hit if the political situation there gets much worse.

    Good luck.
    Sep 19 10:33 AM | Likes Like |Link to Comment
  • Bond Wars Update: International and Junk [View article]
    Greg: Remember that EMB holds only dollar denominated debt. So there is no currency risk. There is, of course, credit risk, but when a foreign government issues dollar denominated debt it is usually a higher credit quality. While this fund will not capture any currency gains, neither will it lose to currency falls.

    Also, with regard to trading below NAV, I suspect that since the Russian exchanges have been unable to trade for a few days, there is no reliable way to evaluate their debt obligations. When trading opens again, which I am sure it will, then we will get a better understanding of the value of the ruble and the value of their securities. Until then, the market apparently holds a dim view of their real value.
    Sep 18 03:49 PM | Likes Like |Link to Comment
  • Bond Wars Update: International and Junk [View article]
    Looking at the detail of their holdings, it looks like the death list of an airlines crash where there no survivors. Chilean debt is their largest holding, and the Chilean economy and currency has been besieged lately. This is also true for most of Latin America. Then they have Bulgaria, Hungary and Turkey--two of which (Hungary and Turkey) have currencies under severe attack. I don't have good data on Bulgaria, but it is a former vassal state of Russia, with little experience in modern capitalism.

    Then, they have over 4.5% invested in Russian bonds. Russia's equity market has been forced to close for the last two days, attributable to the meltdown of some of their largest banks--all are severely undercapitalized (like the U.S. banks, only more so), and the ruble has been vanquished.
    I have no time table for when any of these collapses will conclude. At the edges of the financial world, all these countries, indeed almost all emerging markets except China and India are suffering greatly as the world's investors try and get a grip of what's happening. I don't think there is going to be any fast recovery for them. But, when they do recover, it will be twice or three times the rate of developed economies. The volatility of emerging markets equities, currenies and debt is exceptional. You must be prepared to take some big lumps if you get into these investments. Personally, I have confidence that most of those I listed will recover. Their economies have far to go on the upside. But their fairy tale growth has ended for now, and it may be some months before all the commotion settles down.
    For now, there is an international flight to quality--can you believe U.S. Treasuries? They are still the prime debt instruments in the world.

    Best wishes,

    Ray
    Ray
    Sep 18 01:03 PM | Likes Like |Link to Comment
  • Bond Wars Update: International and Junk [View article]
    Turbo Grande:

    You are correct about EMB. This fund does buy only U.S. dollar denominated debt. My apologize for my error in my first response.
    Thank you for the information.

    Ray
    Sep 17 12:16 AM | Likes Like |Link to Comment
  • Bond Wars Update: International and Junk [View article]
    We buy them with dollars, but the sponsor buys them in local currencies. Even if they didn't, however, fluctuation in the exchange rate between the two currencies would be reflected in the NAV. There is no escaping the currency risk unless you hedge the amounts.

    Best wishes,

    Ray
    Sep 16 07:56 PM | Likes Like |Link to Comment
  • New Currency ETN from Barclays [View article]
    Alpha Seeker: Headwinds is probably an understatement. More like a hurricane. That doesn't stop the sponsors, however. There is such a lag between first filings and finally bringing the product to market, that they often end up at the exact wrong place and the worst possible time. But, this won't deter all investors, as low prices are a good time to buy if you can past the current wind level.

    Ray
    Sep 5 12:20 PM | Likes Like |Link to Comment
  • New Currency ETN from Barclays [View article]
    I think that for the yuan you get the difference of the forward contract price and the spot price. As far as I understand, China prohibits Americans from holdingg yuan and from making local deposits with yuan balances. This prohibition forces fund managers to use forward contracts to try and duplicate local rates. The theory is that the difference between forward and spot rates will equal the current interest rate differential between the currencies, but there have been many studies that show that this does not work in practice.

    The bottom line is, I don't know what you are earning, only to say it is the difference between a forward contract price and the spot rate.

    The credit rating of Barclays is AA, I believe. Usually, if they are dealing with another institution on credit swaps, they deal with highly rated firms. I don't know the details of their counter-party contracts.

    Best wishes,

    Ray
    Sep 5 08:53 AM | Likes Like |Link to Comment
  • Hard Time for Soft Currencies [View article]
    bmaclaverty: Interesting possibility--this option is always available--the U.S. has done it for the last sever years. I have not made an explicit study of bouts of competitive devaluations, so I cannot speak with any special knowledge of the subject. Just off the top of my head, if this kind of destructive practice did occur, it would most likely be on a regional basis. S.E. Asia, Latin America, Eastern Europe, etc. If this is the way it would play out, then the controlling forces would be the regional leaders. In Asia it is China, with Japan playing a more silent role. In Latin America, Mexico and Brazil are local leaders, but the U.S. is still the Monroe Doctrine practiticioner and would yield much influence. Eastern Europe is difficult for me to assess. The old Soviet Union members are now, for the most part, looking to Euroland, but some in the furtherest east (Bulgaria, Romania and all the absurdistans that populate western asia) are still under Russian influence to some degree.

    It's just a guess, but I think the real leaders of these regions could keep a lid on the kind of destructive practices you fear.

    Best wishes,

    Ray
    Sep 4 02:50 PM | Likes Like |Link to Comment
  • Hard Time for Soft Currencies [View article]
    Thanks for the comments, guys. Chance, good idea about using a symbolic language in a book about currencies. I'll get to work on it, soon. (:~)

    Ray
    Sep 4 12:43 PM | Likes Like |Link to Comment
  • Report from the Bond War Frontlines [View article]
    The last sentence should read: They poorly reward tyhe investor...
    Aug 30 08:08 PM | Likes Like |Link to Comment
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