RobertB

Residential Housing ETFs Reflect Recovery Expectations

another twist - umm&dmm are trusts that have a source of income w/zero credit exposure b/c they hold tbills(&cash) as collateral. somewhere down the road this c/b a value driver. i just looked at the s1 again to confirm this - if/when tbill ylds revert to hist norms to a point they exceed expenses, resulting net cash must be plowed back into the trusts first to restore nav and thereafter pd out to the shareholders quarterly.

Is There a Bad Bet with the MacroShares Housing Funds?

Let's see.... the housing market is significantly larger than the stock market, home equity (not too long ago, anyway!) was something like 2/3rds a typical consumer's balance sheet, and the lack of efficiency and price discovery in housing was arguably the single-largest contributor to historic seizures in global financial markets and ensuing wealth destruction. And then there's shiller, a guy that has spent decades and likely invested a ton of$ attempting to spark innovation that might help address this problem.

no doubt macroshares are more expensive (and very different) compared to ETFs - and they're no panacea to the housing market mess - but labelling these things a "dumb idea" in the absence of alternative, more efficient means to get (or hedge) exposure to future home prices is puzzling.

Mixed Housing Data: Clearing Up the Picture

no doubt some of the recent data are encouraging, but I remain concerned about the looming downside potential. unemployment is stubbornly high, income growth is stagnant, there are reports that the "shadow" inventory is quietly growing, and home affordability subsidies from the feds are scheduled to terminate (e.g., $8k first time homebuyer credit mentioend above, as well as the $1.25 trillion MBS purchase facility). we're in uncharted waters

Edward Jones Discontinues Sale of Leveraged ETFs

i think that the levered ETFs can be very useful trading tools - just make sure you understand them. the providers can do just so much, they disclose the risks, people need to be accountable for their actions (or ignorance) too. the housing macroshares are not ETFs, and the leverage is applied cumulatively from inception not daily

Direxion Launches 3x Leveraged REIT ETFs

buy&hold investors who dont do their homework + daily levered ETFs + index vol = disaster soup ("unexpected" compounded daily returns + potential for huge unwanted yr end distributions + embedded derivs.... do your homework !!) also, you contrast 2-3x etfs w/shiller's product macrosahres (umm, dmm) -not an etf (and higher fees) but unique R.E. play b/c based on home prices (not comml reits not builders), and lev multiplier is applied to cumul index return (no constant leverage trap for buy&hold like the daily products) and the housing index isnt so volatile (it trends).

Direxion Offers Long, Short 3x REITs ETFs

Ron,

Right-on re: the market!!! I don’t own these things and I don’t think they will solve the world’s problems, just think we should embrace innovation w/o prejudice in times like these, and let the mkt have its way (with more effective regulation than we’ve seen in the recent past, of course). I rest my case re: your original “widely-panned” assertion (and your recommeded reading list) with the below, I hope it’s constructive.
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Re: “The Two Horsemen”
the author (who is anonymous, btw) described his submission as a “diatribe” (Websters: “a bitter, sharply abusive denunciation, attack, or criticism”). s/he’s entitled to it, although I think most informed and educated blog-readers would be inclined to question the veracity of such a “source”. the author’s “dumb and dumber” reference is ironic, incl the remarksre: july7 performance - plain evidence that s/he was/is clueless about how this product works. s/he also criticizes macros for incldg std disclaimers in the prospectus – as if this isnt SOP for any listed security! best irony is the closing: “Never trade based on anything you read here. Especially in this particular diatribe…. For a full disclaimer, please visit my Terms & Conditions page.”

Re: “Trading Concept Flawed”
This piece contained no criticism or “pan”, even tho the headline might suggest otherwise - it was about the author’s concern re possibility that there m/b conflict of interest (ie, index control and investment products based on it). this is a non-issue - shiller isn’t involved in the data collection or calculation of the index, hasn’t for years

Re: “Fraught with Risks”
another instance where the content of the article doesn’t jive w/an ominous headline tone. Nussbaum seems to have some discomfort with macros premiums and discounts, what he consider “odd” about umm/dmm relative to etfs. Didn’t read like an indictment to me (btw, it is true that most every financial instrument OTHER than etfs trades above or below nav reflecting future expectations – so in the big picture, how “odd” is this??). def not a glowing review, but imo not a “pan”, either - one can infer from what nussbm wrote that his view is that macros will be useful to at least some people

Re: “Ripoff”
This is the same diatribe (the author’s own description, not mine) as “Two Horsemen”, above, only with a more confrontational title and different domain.

Re: “Is this a Joke”?
it’s clear this individual is panning macros, no doubt about it, but his “reasoning” raises an eyebrow, imo. I do have respect for shiller and like much (tho certainly not all) of his work- maybe this guy has an issue with him, the author appears to see no value in finding a way to better manage home price risk (however small a start one might think a security like umm/dmm might be towards that end). there’s nobody else out there other than shiller macros trying to start solving this problem w/a market solution. this piece also begs the questions, “does the author also consider futures/fwds/ swaps instruments/mkts valueless and mere “vehicles for naked gambling”, too?” and “is it worthwhile to try to start markets for home price risk, and if so, how would you propose doing so?”

Direxion Offers Long, Short 3x REITs ETFs

Ron,

wow.

- when you suggest that people who have written favorably (or even neutrally) about these things "do not comprehend", that's pretty condesending stuff, but more significant, I think you're greatly underestimating the intelligence of traders/investors and financial reporters (and people like me who have taken the time to read-up on this admittedly unique product). Many of the reviews I've read are from reputable sources (forbes, fortune, wsj, IU, index u, certain other bloggers).
- again, what initially caught my eye in your report was your statement that umm/dmm products have been "widely panned". i've since (re)reviewed articles/blogs out there, and that's simply not true. (even in your above response, which I appreciate, you're now acknowledging the existence of "glowing articles" about umm/dmm).
- while i must agree that it's difficult to assess how thorough time mag was in their analysis, their focus seems to have been on the fact that macros have created the easiest way (so far anyway) to express a view on future home prices. given the global fallout of the busted u.s. housing bubble, i surmise they recognized "any" progress towards creating a more efficient and complete housing market (in the absence of any other initiatives) was worth commending. just a guess
- imo your criticism appears to be based on a questionable premise, ie, "if a product doesn't work like a 'traditonal ETF', there's something wrong with it". I say we should welcome innovation and try new things, esp for big markets that currently lack liquidity/transparency (like housing). You can't put housing in an etf, at least at this time you cant
- I've re-read parts of the pro, website and their pitch materials. imo, macros are going out of their way to describe how these things are NOT etfs. I'm not sure how youre left with a different impression.
- macroshares prices are not supposed to track the benchmark; nav (or what macros people call "uv") does. This (and resulting prems/discs) is surely different vs ETFs - but not differnt than the $trillions in other financial instruments that the mkt prices at prem/disc to underlying val (for ex common stock, bonds). the nav of macros (altho not price) absolutely DO move with the index, I've re-read the macro materials, and they are clear about this.
- re: today's price changes in umm/dmm the best (and plausible, imo) explanation I can suggest is that the bullish housing starts data released today created demand for umm and pressured dmm. that said, in light of how these things work, the "real" price discovery with these products is less about short term moves (again - not an etf) and more about what the current share prices imply about home prices in the future.

sorry for the length, hope its helpful

Direxion Offers Long, Short 3x REITs ETFs

Ron,

it's good to see you underscore that macrshrs/etf are different animals. i've done a lot of homework on mshares, in my opinion they are potent. revolutionary& defintely have a place (how else can you express a view directly on future home prices? how else do we get needed price discovery in housing). Since I really think mshares esp the housing ones are brilliant (though certainly not flawless), and b/c most reviews i've read are favorable (fortune, IU, CNBC. even time magazine says umm/dmm "best inventions" last year) or neutral at worst, assertion that umm/dmm have been "widely panned" caught my eye. that claim coupled w/the confrontational tone/plain negative bias in your Jun 30 article risks making your readers think you have an personal axe to grind with Schiller or something - you might consider taking a deep breath and pushing the re-set button.

CGTS THURSDAY 16 JULY 2009: Rally in Housing Stocks?

nice post

Buying and Selling Houses (Virtually) on the New York Stock Exchange

the fees are relatively high, but you're getting something that's unique and far more expensive to transact in otherwise (i.e., buying/selling sticks/bricks). also, the beta-adjusted annual expense is closer to 40bps (because you're getting 3x exposure). I also like the leverage approach with these things - the multiplier is applied to the cumulative index change, so the daily compounding problems that buy-and-holders encounter with levered ETFs goes away. pretty neat.