Anyone who bought gold in 2008 is probably more than tempted to cash in their profits right about now.
Reflecting the scale of the change in sentiment — and confirming that there was indeed something of a choke level for gold at around the $1,908 mark — is the following chart from Macro Risk Advisors which neatly sums up the degree to which investors have been liquidating gold ETF positions. Read more
It’s come to our attention that the precious metals investing community has been rendered a little “worried” by a sudden and sizable accumulation of inventory in the iShares physical Trust, the SLV for short. (H/T Kid Dynamite)
According to ZeroHedge, 572 tonnes were added to the trust in just one day. And while that does not represent a record for the fund, it is “the biggest one day addition of physical silver to SLV in ordinary course operations”. Or so, at least, ZeroHedge says (though we haven’t double checked the numbers ourselves at this point). Read more
Definitely a turn-around for the books in the Kweku Adoboli case.
From the FSA on Monday, emphasis FT Alphaville’s (and the whole release really is worth a read): Read more
The following is a transcript of Kweku Adoboli’s last recorded phone call at UBS with members of the bank’s back office accounting team.
Not only does it reveal that Adoboli may have used Blackrock and SocGen as faux counterparties for hiding losses but that the “back-office genius” seemingly had difficulty grasping the difference between an asset and a liability (at least in public). Scrutiny of the bank’s unsettled trades, meanwhile, seems to be what prompted his eventual confession. Read more
The great UBS vs Kweku Adoboli trial has finally come to an end.
The verdict: Adoboli was sentenced to seven years for fraud related to a $2.3bn loss, but found not guilty of four counts of false accounting. Read more
No clouds in my storms
Let it rain, I hydroplane into fame
Comin’ down like the Dow Jones
When the clouds come, we gone
We fly higher than weather Read more
Gordon Brown is set to ring the opening bell at the New York Stock Exchange on Tuesday.
Which makes it an almost perfect day to reveal that the Flash crash of May 6, 2010 may have had a European angle. Read more
At a time when traditional dealers are being squeezed by growing regulatory burdens — think Basel, TRACE and the Volcker rule — the incentive to hold market inventory is diminishing.
Not only is it expensive and risky to manage bonds, equities or commodities, there’s the fact that the old models push the boundaries of what’s acceptable in terms of principal risk and proprietary trading. Read more
We wrote about Kenya’s M-pesa mobile money model on Wednesday, which we think is a really innovative and encouraging development in the world of money supply.
The point we were trying to make at the time is that there are some interesting parallels between Safaricom’s role in the M-pesa e-money market and the role of central banks in conventional money markets. Read more
In our previous post, we made the point that if the old goldbug accusation that central banks and bullion banks were suppressing the gold price by selling or lending gold into the market is true, then in the current cash-for-gold universe — which features negative gold lease rates — the opposite must apply.
That is, the very same entities may now, if anything, be supporting prices in the market. Read more
Tough love from Data Explorers on Monday:
Truly talented investors do not whinge during a ‘risk off’ environment like now. Instead, they find a place where the risk vs. reward pay-off is slanted in their favour. Read more
From “The LTROs have saved Europe and US jobs are coming back!” to “Never mind, we might be even closer to econo-tastrophe than we were last year” in just five months — via Credit Suisse Trading Strategy:
Successful or not, Facebook’s IPO has taught us one very important thing over the last two days.
The blogosphere/Twittersphere knows extremely little about greenshoe IPO mechanics. And yet, because who shouts loudest makes the most waves…the idea that Morgan Stanley had “lost face” on the IPO due to its commitment to take on shares at $38 “at a burden” to itself managed to linger around far too long for comfort. Read more
FT Alphaville’s resident credit expert Lisa Pollack is on the case regarding JP Morgan’s “egregious” loss announced on Thursday.
But, as we wait for her analysis, here’s a great little snippet from Kid Dynamite with regards to what counts as a viable hedge and what doesn’t in this crazy financial world of ours. Read more
Emma Dunkley at Citywire has stumbled across a bit of a mystery.
In April, the iShares Dax ETF experienced outflows of some $5bn. For a fund which held about $13bn under management at its peak, that’s a sizeable chunk of capital that just flew out: Read more
If one article sums up how ETFs have come to change the market structure of the equity universe, it’s this one from Paul Amery at Index Universe on Thursday.
As he recounts, the thing that really worries regulators is the role ETFs play in the shadow banking world today. To what degree do their security deposits fund banks, and what sorts of maturity transformation is going on behind the scenes? Also, to what degree do ETF providers fulfil a credit intermediation role by transferring capital and liquidity from savers to borrowers, even when most ETF investors are unaware of the fact that their “deposits” may not be fully capitalised at all times? Read more
Last week a rather interesting thing happened in the world of volatility ETNs. The VelocityShares 2x short-term Vix futures ETN, backed by Credit Suisse and known as TVIX, announced that after a brief period of suspended issuance it would reopen the note to issuance orders from market makers.
It had previously closed issuance on February 21 citing “internal limits” at Credit Suisse. Read more
A list of shadow-banking entities, as defined by the European Commssion in its latest green paper on shadow banking:
Hot on the heels of Goldmanite Greg Smith’s admission that clients are perhaps the least of some banks’ concerns…
The technical committee of the International Organization of Securities Commissions (IOSCO) has taken a stab at sorting through the conflicts of interest to be found within one of our favourite market sectors: exchange traded funds (ETFs). Read more
Remember Europe’s little security settlement problem (especially in ETFs)?
Seems the European Commission has finally decided to take some action. Read more
US banks are pushing for their activities around exchange-traded funds to be exempt under the so-called Volcker rule, highlighting the importance of the funds as a tool for the big financial institutions that create and sell them, the FT reports. Banks often act as “authorised participants” for exchange-traded funds, setting up and managing shares in the more than $1tn worth of ETFs in existence in the US. But those activities could fall foul of the proposed Volcker rule, which aims to ban speculative trading at US banks. According to some interpretations, ETFs are not included in the special Volcker carve-out that allows banks to “make markets” on behalf of their clients. “Market makers in exchange-traded funds enter into a number of transactions, such as creating and redeeming ETF shares,” the Securities Industry and Financial Markets Association, which represents big banks and investors, said in its submission to US regulators on the Volcker rule. Read more
Trading in the most popular US exchange-traded funds fell to multiyear lows in January, threatening to increase transactions costs for retail investors. ETFs, which track the performance of a basket of securities such as an equity or bond index, have surged in popularity in recent years, reaching $1tn in assets by the end of 2011, according to BlackRock. The FT reports the fall in ETF trading volumes has coincided with a decline in volatility and correlations in January, compared to their elevated levels in the second half of 2011. That appears to have made index-based investing strategies, which can benefit if an entire asset class moves in the same direction, less popular. Read more
It’s been a while since FT Alphaville looked at settlement fails, but the following chart from RBC Capital Markets did catch our eye this week:
Investors and traders reduced their bets on 13 key commodity contracts by 19 per cent in 2011, according to a WSJ/Dow Jones analysis of data from the CFTC. The exodus was the biggest in at least 12 years, outpacing the flight seen in 2008. Open interest in 13 key commodities dropped to 8.7m contracts at the end of last year, from 10.7m contracts at the end of 2010. It came from a range of commodities—from crude oil to copper to cotton. All categories of traders contributed to the decline, including hedge funds and producers and consumers of raw materials. Index funds and other investment products often used by retail investors also showed outflows in the last months of the year, according to Barclays Capital.
A record number of new US exchange-traded funds failed to attract substantial investor demand last year, leaving fund operators facing losses in one of the first signs that the industry’s explosive growth may have peaked, the FT reports. ETFs allow investors to trade baskets of securities, such as the S&P 500 or precious metals, on exchanges with low management fees. Their popularity has surged in recent years, drawing investors away from mutual funds. The US ETF industry ended last year with more than $1tn in assets under management, compared with $540bn at the start of 2009. But that rapid growth has attracted scrutiny from regulators, and there are signs the market may be saturated. “There are a huge and growing number of ETFs out there that are truly sub-scale [uneconomic]” said Ogden Hammond, who tracks the industry for McKinsey, the consultancy. “Larger fund managers have more ability to absorb losses, but at some point operators will have to make a decision about pulling the plug.” Read more
Back in October, iShares, the world’s leading exchange traded fund provider, decided to set an important transparency example for the ETF industry. The ETF provider began providing the market with details of its securities lending operations. Such operations are a key part of the of the business for iShares since most of its ETFs are done through “replication” where the cash instruments are held, rather than the exposures of the funds being created by derivatives, i.e. “synthetically”.
And some interesting themes have started to emerge with regards to the collateral it holds to support those loans. Read more
FT.com reporter Jason Abbruzzese submits this guest post for FT Alphaville.
They say nothing in life is certain apart from death and taxes. But, as it turns out, if you’re trading exchange traded funds the latter is becoming increasingly more questionable. Read more
As we all know by now, providers of swap-backed ETFs have no obligation to collateralise funds with anything resembling the indices being tracked.
It’s all okay, because the collateral is marked-to-market every day, and (in Europe at least) there’s a neat swap in place which ensures that any variance between the collateral held and the performance being promised to investors is temporarily guaranteed by the credit integrity of the swap provider. (At least until the whole thing is reset and re-collateralised with fresh assets to make up for any shortfalls.) Read more
One thing we’ve learnt about Delta One is that it’s head-scratchingly, mind-bogglingly tricky to explain.
And exactly how the division makes money, outside of the fees it charges investors is even harder to work out. Read more
Anyone following the markets will know that end-of-day volatility has been a problem since at least the 2008 crisis.
Despite that, it’s only in the last month that mainstream pundits have begun to look more closely at the issue, arguing in most cases that the volatility results from the rebalancing activities of leveraged and inverse exchange-traded funds. Read more