CAPT GW

Why ETFs Are a Scam

A.I.P., you did mention Vanguard, and I am long some of their ETFs. The Vanguard name has seemed particularly reliable, so thanks for mentioning them.


On Jun 05 03:24 PM American in Paris wrote:

> His article is rubbish. He is obviously bitter because he cannot
> compete against ETFs. Vanguard introduced ETFs into its portfolio
> because it enabled its investors to reduce their costs. By the way,
> he has a right to be bitter, but not to mislead readers with babble
> talk.

Why ETFs Are a Scam

I agree that the ETF is not an index fund. I have come to view ETFs as more like closed end mutual funds where estimaed NAV has only a suggested relationship to market value. But is it any easier to determine the NAV of the moment of a closed end fund?

Why Houses Now Are Like Stocks in 2002

Felix -- I don't have time to do the homework, but housing costs (aka real estate prices?) seems to be a function of supply and demand, and a function of income. Incomes are falling, but not so much. (Say down by 5% to 9% in the past 18 months? Just a SWAG.) Supply has leveled off and demand has remained fairly close to old levels. (Sure some adult kids have moved in with parents, and vice versa, but on the whole, new household formation moves apace with population growth, and that's mostly up.)

So, prices have certainly fallen, and the "affordability index" is what? A 20 year low, perhaps? You have the data available, but i think that at current interest rates and income levels, that home prices could over-fall, but real estate is a commodity that cannot be manufactured easily. And with immigration and population growth, and foreign investment in US real estate, it seems reasonable that the asset class won't tumble until mortgage interest rates rise to such a high level (as they did in the 1980s) that they push mortgage affordability into the dumpster.

IMHO.

Timely Insight for Trading ETFs More Effectively

Hello, Don

Good article. You touch on something you might have already covered in other articles -- the imperfection of he ETF as a tracking vehicle for an index. Unlike an open-end index mutual fund that must close its books each night and mark values to market, the ETF trades at a discount or premium to market, and that's where sentiment can either lead one to over pay or under sell the security. I have found that the discount or premium on SSO and SDS are unpredictible, except that as momentum gathers, it seems that the disadvantage to the trade increases.

Is the S&P 500 Now Cheap?

Paul -- Thanks for the sanity. Btw, what is the real P/E on the S&P 500 index? The answers to that question that I get from numerous sources are ALL OVER THE PLACE, from less thn 10X to higher than 18X. Which is correct? And who has a good way to estimate the current PE and mesh it with the expected next quarter's anticipated S&P500 earnings? At <10X, I'd be a bull, especially if I thought that if the next quarter's losses were factored into that estimate. In the meantime, If the PE is around 15 or higher, then I'd be very cautious about being a long-term bull.

Barron's Takes Down Cramer, Again

After reading the article and comments here, I have to say that I respect Cramer and i try to watch the 1st 10 minutes of his show every night -- it gives me a good excuse to make it to the pub at 6PM for a pint and a quick market update.

Having worked in the industry for a while, I have to say that Cramer is a rare breed that may not exist long into the future. Here's a guy with a depth and breadth of knowledge that is huge. He is a virtual one man investment organization: portfolio manager, economist, analyst and showman/salesman. He is as smart as any of the folks on the preceding CNBC hr. show -- Fast Money, but he caters to a different and more common audience.

(I would bet that if Cramer was on the selection committee for a mutual fund, he'd be hell to work for. He knows a lot about everything and has strong and quick opinions. Anyone would be working overtime to answer his many and varied questions.)

A. What I appreciate about Cramer include: his astute macro view at the beginning of the show; his interviews with CEOs and powerful folks influencing Wall St.; his sector trend analyses; and his quick commentary on literally hundreds of stocks that he gets called on. I also appreciate his sharp and well-deserved criticisms of the so called "luminaries" of the financial world -- former SEC Chairman Cox, Treasury Secretary Geithner, tarnished CEOs, and others.

B. What I find negative about Cramer, and this is why I think the average person shouldn't pay attention to the recommendations or look to Cramer for individual investing ideas, is: his frustrating lack of consistency with recommendations (for example, one day CBI is a dream stock, highly touted, and a couple of weeks later CBI is a dog -- Which is it? And so it goes for dozens of recommendations); his opaque analytical madness (are they primarily technical or fundamental? If technical, why not be consistent across every analysis and show an 18 month trend chart first? If he's using a relative strength tool, why not discuss that? And if he's fundamental, then he has to base his analysis on PE PB PEGS and forward projections, as well as management analytics and industry trends.); and his silly propensity to come on stage seemingly ready to take credit for market rises, even when he was pessimistic the night before, and to bash tangible or intangible causes for market downturns on those days when he was especially optimistic the day before. Traders are often wrong, and they take their lumps.

Having detached from Wall St. years ago, I do not really know if good traders come to work with a theme in their head and stick with it, or f they are essentially reactive to indicators all day long. Unfortunately for Cramer, he takes a trader's mentality into a show designed for a non-trading audience. His audience needs steady reliable themes, something that Cramer delivers only part way on, and then muddles with his trader's personality.

(PS: Recommendations to CNBC -- 1. Allocate 15 minutes to "Professor Cramer" as a Harvard educated investment educator, allocate 10 minutes of interviews and market reviews, and 35 minutes to Cramer being Cramer; 2. Post a Cramer's recommendation's scorecard as a segment in the show. Cramer's Wall of Shame was funny, even if cruel. Sometimes self-effacing criticism is necessary, so Cramer needs to caution his viewers that even he belongs on a wall of shame ... it's an accountability thing, which then leads to greater credibility.)

'Bad Bank' Is a Bad Idea

Oh, and with the issuance of warrants to shareholders and bond holders in the new renovated bank, the bank ought to be allowed to IPO its new bank in order to raise new capital. This IPO will get investors jumping back into the market once they see that there are some well-established financial infrastructures coming back online.


On Jan 30 01:58 PM CAPT GW wrote:

> Some good points, but there is an infrastructure to existing banks
> that cannot be replaced by tearing a hole through floundering institutions.
> It's not like the tsunami of looming bank failures was caused by
> isolated decision makers. It was across the board fostered by weak
> regulation and deregulation. And, as with a massive blackout, a massive
> wave of bank failures -- the failure of the entire banking system,
> will affect everyone. So there is a responsibility to keep the banking
> system -- a national monetary utility, just as the national electrical
> grid is a national utility -- alive and working for the average depositor
> and borrower.
>
> My suggestion takes part of van Dijk's suggestion, but adds a certain
> twist to it. If the US imposes a "good bank/bad bank" solution to
> failing banks, there ought to be a cost to share holders of the failing
> banks, and there ought to be a big haircut to bond investors appropriate
> with the investor's failure to exercise due-diligence and oversight.
> (After all no one obligated the investors to make those investments,
> and we shouldn't reward dumb investing!)
>
> How to do this without causing a run from ever investing on banks?
> Here are some very rushed quick thoughts consistent with the paragraph
> above:
>
> 1. In any bank that declares it is undercapitalized and technically
> insolvent due to troubled assets, the government ought to be willing
> to process the existing bank into a renovation status.
>
> 2. Shareholders ought to see existing shares wiped down to par value
> per share or $1/share, whichever is less, and then given one warrant
> -- the right to purchase new shares at a stated price (say $20/warrant)
> -- in a renovated good bank for every share they own.
>
> 3. Depending on the depth of insolvency, bond holders ought to be
> haircut by 50% of par value on bonds, and then cashed out, but given
> an equivalent number of warrants in the reconstituted bank as shareholders
> were entitled to.
>
> 4. Bad assets are transferred into an RTC subsidiary vehicle that
> will trade like CMOs, with a variety of tranches based on expected
> priority of payments.
>
> 5. The SEC ought to ban any "renovated bank" from short sales for
> a period not less than 4 years after the renovated bank is rechartered.
>
>
> 6. The Attorney General's office ought to find a just recommendation
> regarding executive liability for running a bank into the ground.
>
>
> 7. Banks ought to have to make detailed reports regarding swaps exposure
> and exposure to financial wizardry. The walls ought to be restored
> between investment banking and commercial and retail banking. <br/>
>

'Bad Bank' Is a Bad Idea

Some good points, but there is an infrastructure to existing banks that cannot be replaced by tearing a hole through floundering institutions. It's not like the tsunami of looming bank failures was caused by isolated decision makers. It was across the board fostered by weak regulation and deregulation. And, as with a massive blackout, a massive wave of bank failures -- the failure of the entire banking system, will affect everyone. So there is a responsibility to keep the banking system -- a national monetary utility, just as the national electrical grid is a national utility -- alive and working for the average depositor and borrower.

My suggestion takes part of van Dijk's suggestion, but adds a certain twist to it. If the US imposes a "good bank/bad bank" solution to failing banks, there ought to be a cost to share holders of the failing banks, and there ought to be a big haircut to bond investors appropriate with the investor's failure to exercise due-diligence and oversight. (After all no one obligated the investors to make those investments, and we shouldn't reward dumb investing!)

How to do this without causing a run from ever investing on banks? Here are some very rushed quick thoughts consistent with the paragraph above:

1. In any bank that declares it is undercapitalized and technically insolvent due to troubled assets, the government ought to be willing to process the existing bank into a renovation status.

2. Shareholders ought to see existing shares wiped down to par value per share or $1/share, whichever is less, and then given one warrant -- the right to purchase new shares at a stated price (say $20/warrant) -- in a renovated good bank for every share they own.

3. Depending on the depth of insolvency, bond holders ought to be haircut by 50% of par value on bonds, and then cashed out, but given an equivalent number of warrants in the reconstituted bank as shareholders were entitled to.

4. Bad assets are transferred into an RTC subsidiary vehicle that will trade like CMOs, with a variety of tranches based on expected priority of payments.

5. The SEC ought to ban any "renovated bank" from short sales for a period not less than 4 years after the renovated bank is rechartered.

6. The Attorney General's office ought to find a just recommendation regarding executive liability for running a bank into the ground.

7. Banks ought to have to make detailed reports regarding swaps exposure and exposure to financial wizardry. The walls ought to be restored between investment banking and commercial and retail banking.

PermaBear Market Wisdom

Math is so funny! Yes, the $1MM investment that drops 97% will be only worth $30K before it "rebounds" 150% to a whopping $75K.

With most investors down 30% to 50% so far, that means that the average $1MM portfolio is now worth $500K to $700K by now. It will take a 100% return for a 50% loser to recover; and a 42% return for a 30% loser to recover.

10 Banks 'Guaranteed' to Survive and Prosper

Why not USB or WBK? My read is that they are "tbtf" and relatively well run leaders in their respective markets.

Stocks vs. Bonds: Long-Term and Short-Term

There is another next set of charts that Richard didn't post -- the equivalent 50 and 100 year performance comparisons, and then a set of global markets comparisons, and comparisons to select baskets of precious metals and other commodities.

But it seems intuitive that ownership (i.e., equity) markets are going to much more unstable as the US economy adapts to multiple sea changes -- (1) an aging US population that will turn the social safety net into an inverted pyramid; (2) the unprecedented population implosion forecasted for our major trading allies over the next 70 years (Europe and Japan first, then the rest of the westernized economies of the world), which will be far more dramatic than in immigrant friendly nations like Canada, the US, Australia and New Zealand; (3) the economic and military and diplomatic surge of a largely-totalitarian communist China; (4) a universal, all-nations, surge in government debt and government deficits never seen in modern times; (5) an ongoing population explosion taking place the most unruly and restless parts of the world, which is leading to a deterioration of the rule of laws, the rise of an international criminal class, and to anti-social behaviors on a scale never known before and which is transpiring in the least industrialized and most resource rich parts of the world, implying that industrialized commerce will eventually be held hostage to critical commodity shortages and left to do commerce with resource-rich "thugocrats"; and (6) the eventual islamization of the European Union as the pre-WWII and Boomer generations die off and leave their pint-sized pool of descendants and scions to compete with a burgeoning population of (largely unassimilated and non-Westernized) muslim immigrants.

Add to the above list the unknown wild cards of climate change induced catastrophes, the potential failure of preventive health measures to forestall pandemics, international instability, and the rise of techno-terrorism, and the future risk environment looks about as risky as it ever did during the Cold War -- perhaps even more so, because the possible outcomes and paths to catastrophe and demise are now more numerous than they ever had been.

And all of this will take place as Boomers age and invest for the long haul. Seems like investing in gold, chain-link necklaces is going to become a catastrophe hedge. The mattress should also be part of a sound asset allocation strategy, too. But then maybe I'm just being exceptionally pessimistic.

New ProShares ETFs Double Up Commodities Exposure

Looks like this is something to consider for the "explore" part of someone's "Core and Explore" asset allocation.

In this environment, I now lean toward a core 30% in an ETF -- "VTI", and another 20-30% in secure bond funds or ETFs. "SHY" is fairly stable and can be traded as an ETF. (Wish there were a stable NY or national short-term municipal bond ETF!) VFIIX or USGNX are decent GNMA funds with 4.55 to 5% yields, and they certainly work. They especially work today in IRAs! The rest should be probably kept in a guaranteed money market and/or a safer basket of muni bonds, until stability returns. (As some semblance of security returns to the markets, ETF's like these commodity based ones might work when the dollar starts to weaken and as emerging markets get up steam. In addition, my "explore" allocation could possibly include up to 5% in ultra short or long postions to capitalize on obvious trends that have proven themselves. But in 4Q/08, there is no direction. The Obama rally is a good short-term event, but the fiscal crisis still will go on well-beyond 1/20/09.

Will Bear Market Rally Continue or Stall Out?

There is a lot of smart money feeling bullish on the Obama Administration. And the normal rule of thumb is to buy when others are afraid, so last Thursday would have marked the day to buy as the VIX suggested record levels of fear. (But what about the role rational fear? On Thursday, it looked as if Citi, GM and any leveraged lender could be on the ropes. Was that irrational fear or irrational? And does record levels of fear FOR A GOOD REASON -- namely that we have a lame-duck administration with a POTUS, who, despite his Harvard MBA, has little comprehension of the profoundly risky situation over which he presides -- mean that the market should have repriced risk accordingly, therefore that buying on thursday would have been a fool's errand?

And is the market irrationally exuberant in factoring in the positive prospects under a new administratio when the new administration is 2 months from taking the reins?