Indexor

Rick Santelli: The Best Five Minutes in CNBC History

Congratulations to Rick Santelli for voicing his opinion. It is shared by many, especially investors, tax payers and law-abiding citizens.

The man who spent the largest amount of money in history to buy the presidency, who spent the largest amount of tax payer money in history on his inauguration, who is about to spend the largest amount of future tax payer money in history after spending $600,000 to fly his private jet to Denver to sign his "stimulus" bill, appears to have a trait that exceeds even his prodigious oral abilities. That would be spending other people's money.

Keep at it Rick Santelli. Somebody has to protect our future tax liabilities.

9 Utility Stocks for Income Without Volatility

Interesting that after Bill Gross' comments were published, utility ETFs saw increased buying and quickly jumped higher in price. Yet, on Friday, after the opening market rally died down, utility ETFs closed down in price (XLU lost -.62%, VPU lost -.25%). As soon as money seemed to move back into more risky asset classes (i.e. smallcaps), those stodgy old utilities seemed to lose their luster. Longer term I agree with the assessment of Bill Gross.

Tuesday Outlook: Commodities, Global Markets

Dave:

I always appreciate your work. In your chart of WIP you noted: "Are WIPs better than TIPs? Some must think so." There is a big tax difference between the two. Phantom income.

The drawback to holding TIPs in a taxable account is that they generate "phanton income." The principal value is adjusted annually to reflect inflation, and you're forced to pay taxes on the increase - even though you don't actually receive the money until you sell the bond or it matures. iShares will send you a 1099 that calculates your phantom income each year but TIP remains best for QUALIFIED ACCOUNTS only.

WIPs are somewhat different. The monthly distributions made by WIP include the coupon interest accrual and the CPI adjustment on the principal. The fund is able to pay this out by selling a very small
portion of the portfolio every month that there is a positive CPI
adjustment. Since the CPI adjustment is paid out every month, from a tax standpoint, there is no "phantom income" realized by the shareholder.

Hope this helps.

5 Ways to Slash Your ETF Expenses

Unfortunately, while lower expense ratios are great, that's not the only data point upon which you should be making your ETF purchase decision. The analysis that goes into ETFs is much different than simply deciding which of 5-6 index mutual funds to buy, because of the lower expense ratio.

Hopefully we've now all learned that "Buy-and-Hold" is not an investment strategy for mutual funds, and certainly not for ETFs. When making a purchase, you will likely find that the newer ETFs have a much broader Bid/Ask spread. Unless you are only buying 100 shares at a time, these thinly traded issues can be very difficult to purchase at a reasonable price. 10,000 shares or more can be impossible to fill, even at the Asked price.

But the real problems can develop when you need to sell a position. Not only is the Bid/Ask spread much wider, you may not be able to get out of the position even close to the Bid price, as there simply aren't enough buyers with interest. In a falling market, buyer liquidity tends to dry up quickly, sometimes making it almost impossible to exit at any price, as too many of us experienced last year.

Most ETFs with large assets under management, have strong institutional ownership. They tend to have the narrowest spreads, often 1 BP. They also tend to have the greatest liquidity, allowing you to buy and sell even large position trades, right at the Bid/Ask price, almost instantly.

You might be wise to stick to the larger, well established ETFs until the lower cost issues can attract sufficient assets to close up the Bid/Ask spreads and provide the liquidity you may desperately need to get out of the position in a Bearish environment.

International Bond ETFs' Correlation to Equities

Here's a thought:

Take each of the four foreign bond ETFs you mentioned - BWZ, BWX, JGT and WIP - and compare each one to UUP (PowerShares US Dollar Bullish) on a charting service, such as stockcharts.com. You will find each of the foreign bond ETFs have a strong negative correlation to UUP.

While we are always looking for issues that provide additional diversification through negative correlation, do you find that foreign bonds are simply a good diversifier because of their currency "effect?" In other words, as long as the dollar continues to weaken, foreign bonds should provide both diversification and alpha. But if the US dollar begins to strengthen, won't foreign bonds prove to be much less of a diversifier and produce negative alpha just when global stocks are also entering a downward trend?

28 Key Asset Categories: How Do They Compare?

Hmmm..."Prudent Man CFA" is an options trader? That seems like a bit of a dichotomy in and of itself.

I agree that investing is more art and less science. And as Richard Shaw has provided for us once again, his version of art has painted a colorful canvas that many of us non-CFA's find extremely beneficial. While it may be void of continuously diminishing intrinsic values, I find it full of useful ideas, among a broad array of asset classes, that mere mortals might actually use to make money.

Thank you Mr. Shaw.

The Imminent Equity Implosion

Excellent article. Based simply on common sense and written in plain english. However, I am still not convinced gold/silver will reach the levels you mention. Even with the throng of current gold bugs espousing 1,200 gold (which would provide a solid 25% return from current levels) we don't appear able to get past the 1,000 resistence level. We had the same psychological mindset with the DJIA back in the 1970s and it took well over a decade to break through. I believe gold could be caught in the same trading range for a number of years, regardless of the level of damage the Obama administration inflicts on our economy, our psychology and our quality of life.

What's Going on with iShares Muni Bond ETF?

Richard:
Thanks for pointing out the Arb problem. Sadly, MUB broke down Oct 7, precisely at 2:00 PM (EST), with a relatively small trade that immediately shaved 3% of its value, placing it at a sharp discount and the begining of a rapid price decline. A call to iShares that day provided no insight other than a comment that it was believed short sellers had recently increased positions in the fund. Liquidity evaporated for municipals that day, as it had for most non-Treasury fixed-income ETFs. As the price continued its rapid descent, it was extremely difficult to liquidate MUB shares that week, even at full Bid prices.

The credit crisis seems to have taken arbitrageurs out of the game, relegating MUB and most other non-Treasury fixed-income ETFs to the same status as Closed-End-Funds. This has been a very troubling development and brings up a question as to whether the ETF structure is viable for fixed-income investments.

As you stated: "If the arbitrage was working, MUB would probably not have such a contrasting performance relative to VWLUX. We suppose that means when the arbs resume full functionality, MUB will decline." My question - Will arbitrage ever return?

Choosing the Right Sector ETF: A Seeking Alpha Expert Panel

Scott:

Would you care to share your "...proven sector rotation model" with us?

ETF Market Trends: Just Another 'Debase' Party on Wall Street

Happy B-Day Clinton. Hope you enjoy Thanksgiving as well.

Good article. I always enjoy both your perspective as well as the data you present.

Defending the 'Most Dangerous ETFs': A Response to Don Dion

Dorlan H. Francis:

Your socialist Obama/Pelosi agenda is showing. You may want to continue selling life insurance and refrain from dabbling in the securities business until you have a firmer grasp.

3 Reasons Why Gold ETFs Are on a Rush

Ron:

TPTB (not TPBT) = The Powers That Be

Bond ETF Yields in Historical Context

Richard:

Excellent post. But then again, your posts are always informative and educational, often with a bit of humor thrown in for good measure. Your charts put the truth out there in black and white, whether we like the results...or not.

Here's an additional fact on MUB and all muni bond ETF holding periods that you might find useful:

You must hold Muni ETFs for 6 months before harvesting losses. Any
losses realized under the 6-month time frame will first have all the tax-exempt income that is received, deducted from that loss. Only then will additional losses qualify as a short-term capital loss.

What Obama Needs to Know about Tim Geithner, the AIG Fiasco and Citigroup

Thank you for your excellent article.

Frontier ETFs: Balancing Liquidity Risk, Concentration Risk

Old Trader:

Don't forget one of the most important aspects of this article:

"It’s not that you should avoid the prospects of Africa and/or the Middle East. Yet you should be concerned about how liquid your ETF choice is."

One of the lessons we learned from 2008 is to have a much greater respect for liquidity. New ETFs and those with a small number of assets under management tend to have larger spreads between their Bid/Ask prices, and often insufficient interest on the buy side when you want to sell your position.

Mr. Gordon is simply trying to make sure you understand the risks involved in trading ETFs that may not be apparent, and that simply don't exist in regular open-end mutual funds.