At the end of Q3, ETF assets custodied at Schwab (SCHW -0.5%) of $216B were up 20% from a year ago. Flows to ETFs of $4.2B brought the total YTD to $14.2B. Retail traders accounted for 12% of 12-month ETFs flows, double the level of a year earlier.
61% of Q3 ETF flows were to equity-based ETFs, and 16% went to fixed-income products.
The fast flows (and fast retail flows) come as Schwab last month unveiled a massive expansion of Schwb ETF OneSource commission-free ETFs, adding 65 new funds and seven new issuers.
Things are volatile out there. Just seven weeks after recommending investors unload Russian stocks, Morgan Stanley does a 180, calling the country a "tactical" buy, i.e. don't buy and sock away in a drawer.
“We do not have cause to believe the [Ukraine] situation is deteriorating, and worst case outcomes (such as additional sanctions) now appear a less likely scenario," says Morgan equity strategist Ronan Carr. The Market Vectors Russia ETF (RSX -1%) is lower by 12.2% since Morgan's August 29 sell recommendation.
The team at JPMorgan, on the other hand, which has advised selling Russia since July, continues to hold that opinion, noting de-escalation in Ukraine could be six months to a year out, and sanctions won't be lifted until after that.
Santa Barbara, CA-based Sientra (Pending:SIEN) is set for its IPO of 5M shares of common stock at $14 - 16.
The medical aesthetics company sells a variety of implants to plastic surgeons, including tissue expanders as well as body contouring and facial implants. Its primary products are silicone breast implants, offered in over 120 variations in size, shape and texture.
Last year's brutal winter left stockpiles at their lowest since 2003, but a production boom has essentially replenished those supplies ahead of the heating season, and the price of natural gas is at its lowest level of the year.
Stockpiles this spring were less than half of their 5-year average, but should be just 8.7% below normal by Nov. 1, according to the EIA.
Alongside the fall in prices, traders have cut long positions in natural gas futures to their lowest since August, according to the CFTC, a major reversal from the heavy bullish sentiment as the winter of 2013/14 wrapped up.
Weather forecasts aren't helping - the NOAA predicts heating degree days will be 12% lower than a year ago (below-normal temperature is still expected, but not as bad as last winter).
In more bad news for an already-weak global economic recovery, China's GDP growth will slow to 3.9% over the coming decade as productivity gains evaporate and Beijing fails to push through necessary reforms, says the Conference Board.
Foreign companies, says the report, should realize China is in "a long slow fall in economic growth ... The competitive game has changed from one of investment-driven expansion to one of fighting for market share.”
Putting finer numbers on the forecast, the Conference Board sees economic growth averaging 5.5% from 2015-2019 (vs. last year's 7.7%), and slowing further to 3.9% between 2020-2025.
China could reverse the slowdown with market-related reforms, says the CB, but the group is skeptical such changes - sure to cause short-term growth and political pains - will be made.
Wetting their fingers and sticking them in the wind, strategists at Goldman Sachs cut their year-end forecast for the U.S. Treasury yield to 2.50% from 3%, and those at JPMorgan to 2.45% from 2.7%. The moves come following a plunge in the 10-year yield over the past month - to 2.19% from 2.66%.
The revisions underscore what is becoming a nearly annual event where January 1 sees nearly all of the Street recommending investors shun long-term U.S. government paper, only to reverse themselves some months later (Goldman started the year expecting 3.25%, and JPMorgan 3.65%).
“We think anxieties about the ‘passage of the baton’ between the Fed and the ECB have increased," says Goldman's Francesco Garzarelli.
Kudos to the team at HSBC - about the only bond bull which could be found at the start of the year - which called back then for a year-end 10-year yield of 2.1%.
The Nikkei has slumped alongside Western markets over the past few weeks - down more than 10% - but gained 4% overnight following Friday's big rally in the States.
Also at work is a published report saying Japan's $1.2T Government Pension Investment Fund (GPIF) will boost its allocation target for domestic shares to about 25% from 12%. Foreign holdings of stocks and bonds will be lifted to a combined 30% from 23%, while holdings in JGBs will be cut to 40% from 60%.
The GPIF has been expected to announce a higher domestic stock target, but the 25% figure is likely toward the top end - if not exceeding - of market expectations.
Futures had been marginally higher, but IBM's big earnings miss and 8% premarket decline has brought the DJIA (NYSEARCA:DIA) lower by 0.65% and the S&P 500 (NYSEARCA:SPY) down by 0.3%. Nasdaq 100 (NASDAQ:QQQ) futures are off 0.2%.
Europe's lower by more than 1% and the Nikkei soared 4% overnight following the big gain in the States on Friday.
The 10-year Treasury yield is flat at 2.2% and gold is up $6 per ounce to $1,245.
China is due to report Q3 GDP tomorrow, in what could turn into fresh panic over the state of the global economy.
The economy is forecast to have grown 7.2% in the July-September period, the slowest pace since the first quarter of 2009 and down from 7.5% in the previous three months.
Over the weekend, media outlets reported that the People's Bank of China is planning an injection of about 200B yuan ($32.7B) into some national and regional lenders to keep liquidity ample and bolster growth.
French Finance Minister Michel Sapin reaffirmed that France would pursue a slow deficit reduction due to its need to maintain its fragile recovery, ahead of a meeting in Berlin with German counterpart Wolfgang Schaeuble.
Sapin also reiterated that Germany should lead an effort to boost investment in the euro zone, promising that France would continue to pursue structural reforms.
Regarding the country's budget, French Economy Minister Emmanuel Macron announced Sunday that he was sure the European Commission would not reject Paris' 2015 plan although it breaks EU deficit limits.
Remember last summer's private-equity legal settlements which ensnared sector names like Carlyle Group (NASDAQ:CG), Blackstone (NYSE:BX), KKR, and the P-E arm of Goldman Sachs (NYSE:GS) for colluding to keep a lid on the prices of buyout targets? Needless to say, management didn't bear the burden of the settlement penalties, but neither did the shareholders. In the case of Carlyle at least, the $115M fine was shouldered by the investors in one of its buyout funds.
Those investors include state and city workers and retirees from across the country, and chances are they were unaware they were responsible for these costs due to the highly secretive nature of the agreements made between P-E and the pension funds which invest in them.
Disclosure "would cause substantial competitive harm," says a Carlyle spokesman. “This is an overreach on Carlyle’s part, and frankly it violates the spirit of the indemnification clause of our contract,” says NYC Comptroller Scott Stringer, who oversees three city pension funds invested in that particular Carlyle vehicle.
Private-equity firms now manage $3.5T in assets, and pension funds have been among the more willing investors, with 10% of their assets - or $260B - in P-E. Yet the terms of their deals - including what they're paying to take part - are hidden from view despite open-records laws demanding just the opposite.
“Hundreds of billions of public pension dollars have essentially been moved into secrecy accounts,” says former SEC lawyer Edward Siedle. "It’s very damning legal boilerplate that sums up the fact that they are the highest-risk, highest-fee products ever devised by Wall Street.”
Moody's downgrades government of Russia's debt rating by one notch to Baa2 from Baa1 and maintains Negative outlook.
Key drivers for the downgrade: "i) Russia's increasingly subdued medium-term growth prospects, exacerbated by the prolongation of the Ukraine crisis, including through the impact of expanded international sanctions. ii) The gradual, but ongoing erosion of the country's foreign-exchange buffers due to capital flight, Russian borrowers' restricted international market access and low oil prices."
"Given the negative outlook on the rating, Moody's sees limited upward pressure in the next 12-18 months. A stabilization of the rating outlook could be triggered by a resolution of the crisis in Ukraine."
A little discussed reason the stock market may have hit bottom and started to recover: The realization that the lowest oil prices in four years will provide a stimulus of more than $1T to global economies, according to Citigroup.
“A reduction in oil prices also results in a reduction in prices across commodities, starting with natural gas, but also including copper, steel and agriculture,” says Ed Morse, the bank's head of global commodities research.
Alas, some big banks say the collapse in oil is nearly over, but much will depend on whether OPEC supports the price by cutting production, as is the norm, or protects its market share by keeping production steady.
Money continues to exit emerging market funds, $2.39B last week vs. $3.5B in October's first week. It's the fourth week of outflows in the last five, with ETFs accounting for $1.86B of the total vs. $2B the prior week.
The UBS team of Howard Park and Geoff Dennis: "The level of emerging market fund flows continues to hold up well given the correction in MSCI GEMs since 9/3 has now reached 11.8%. However, outflow momentum seems now to be building and we suspect there may be more outflows to come until markets stabilize."
Up 1% today, EEM is down 7% in a month and low lower for 2014.
In a purely political move, President Obama appoints former VP Joe Biden Chief of Staff Ron Klain to the post of Ebola "czar." No one knows for sure what the lawyer will do in the post since he knows next to nothing about Ebola, the scientific basis for the spread of highly contagious diseases and infection control protocols and procedures. He probably looks good on television, though.