Etf's And Derivatives

[Taggart]

From what I've seen so far ETF's (Exchange Traded Fund's) seem to work well in normal markets. These are not normal times however. Anyone care to speculate on what may happen to these ETF's with their exposure to derivatives, if things get a lot worse in the world markets than they already are?

[lannarebirth]

Most ETF's ARE derivatives and they way they've worked in the past few years is, they've been the tail wagging the dog of global markets. Imagine you're trading for a hedgefund or trading desk of a major bank. With, sat 10 million dollars you can move the ETF of an index average up .5% in 10 minutes. How many billions of dollars might that have cost to buy the underlying? If you can get traders to follow through, you've moved the market for pennies on the dollar. They really have to go if any real market reform is coming.

Also. I've read anecdotal accounts that there are far more ETF's currently than delivery of the underlying can support. If that's true, it's a big problem.

Edited October 26, 2008 by lannarebirth

[Taggart]

Most ETF's ARE derivatives and they way they've worked in the past few years is, they've been the tail wagging the dog of global markets. Imagine you're trading for a hedgefund or trading desk of a major bank. With, sat 10 million dollars you can move the ETF of an index average up .5% in 10 minutes. How many billions of dollars might that have cost to buy the underlying? If you can get traders to follow through, you've moved the market for pennies on the dollar. They really have to go if any real market reform is coming.

Also. I've read anecdotal accounts that there are far more ETF's currently than delivery of the underlying can support. If that's true, it's a big problem.

Thanks. I've been doing a bit of searching and found this article in the UK Financial Times. It explains these ETF's in fairly good detail, but I get the feeling the author is pulling his punches about the potential dangers.

[lannarebirth]

Most ETF's ARE derivatives and they way they've worked in the past few years is, they've been the tail wagging the dog of global markets. Imagine you're trading for a hedgefund or trading desk of a major bank. With, sat 10 million dollars you can move the ETF of an index average up .5% in 10 minutes. How many billions of dollars might that have cost to buy the underlying? If you can get traders to follow through, you've moved the market for pennies on the dollar. They really have to go if any real market reform is coming.

Also. I've read anecdotal accounts that there are far more ETF's currently than delivery of the underlying can support. If that's true, it's a big problem.

Thanks. I've been doing a bit of searching and found this article in the UK Financial Times. It explains these ETF's in fairly good detail, but I get the feeling the author is pulling his punches about the potential dangers.

Worth a read IMO:

http://www.cross-currents.net/x060208t.pdf

[colibra]

Thanks for the link LANNEREbirth

This one I thought was worth a read also http://www.24hgold.com/news-gold-silver-Th...0_Jim_Willie_CB

[lannarebirth]

Most ETF's ARE derivatives and they way they've worked in the past few years is, they've been the tail wagging the dog of global markets. Imagine you're trading for a hedgefund or trading desk of a major bank. With, sat 10 million dollars you can move the ETF of an index average up .5% in 10 minutes. How many billions of dollars might that have cost to buy the underlying? If you can get traders to follow through, you've moved the market for pennies on the dollar. They really have to go if any real market reform is coming.

Also. I've read anecdotal accounts that there are far more ETF's currently than delivery of the underlying can support. If that's true, it's a big problem.

Heres the first domino to fall.

CFTC probes big oil ETF on February roll

By Moming Zhou & John Spence, MarketWatch

Last update: 5:27 p.m. EST Feb. 27, 2009

The U.S. futures trading regulator said Friday it is looking into the trading activities of the biggest oil exchange-traded fund when it earlier this month moved its positions to the next-month oil futures contract.

The Commodity Futures Trading Commission said its enforcement staff is investigating the United States Oil Fund LP (USO:united states oil fund lp units and other market participants regarding the Feb. 6 "roll", or sale of the expiring front-month oil contract and purchase of the successive month's contract.

"I want to reassure the public that the CFTC takes seriously issues surrounding price movements in our nation's vital energy markets," said Stephen Obie, acting director of the CFTC's Division of Enforcement, in a statement.

The CFTC's probe into the fund illuminates the growing clout of commodities ETFs. Their size means they are no longer just a passive investment reflecting prices but sometimes can move markets.

http://www.marketwatch.com/news/story/CFTC...28416F88A9E7%7D

I imagine similar stories relating to other commodity etf's, Gold etf's and equity index etf's will be emerging eventually. They've basically ruined the market with these etf's. They gotta go.

[Naam]

Most ETF's ARE derivatives and they way they've worked in the past few years is, they've been the tail wagging the dog of global markets. Imagine you're trading for a hedgefund or trading desk of a major bank. With, sat 10 million dollars you can move the ETF of an index average up .5% in 10 minutes. How many billions of dollars might that have cost to buy the underlying? If you can get traders to follow through, you've moved the market for pennies on the dollar. They really have to go if any real market reform is coming.

Also. I've read anecdotal accounts that there are far more ETF's currently than delivery of the underlying can support. If that's true, it's a big problem.

no anecdotes LRB but a well known fact! by pointing to "underlying" you submitted the evidence.

[lannarebirth]

Most ETF's ARE derivatives and they way they've worked in the past few years is, they've been the tail wagging the dog of global markets. Imagine you're trading for a hedgefund or trading desk of a major bank. With, sat 10 million dollars you can move the ETF of an index average up .5% in 10 minutes. How many billions of dollars might that have cost to buy the underlying? If you can get traders to follow through, you've moved the market for pennies on the dollar. They really have to go if any real market reform is coming.

Also. I've read anecdotal accounts that there are far more ETF's currently than delivery of the underlying can support. If that's true, it's a big problem.

no anecdotes LRB but a well known fact! by pointing to "underlying" you submitted the evidence.

Yes, but it doesn't apply in all cases. Many etf's are derivatives that seek to mirror a given financial instrument, with mixed success. These are the problen ones. Others are "trust" types that actually buy the underlying. This type is unlikely to implode, but they're still bad for markets, in that they create the illusion that a lot more money is entering the market than is in fact.

[Gary A]

I can tell you about three ETF's. My broker recommended them as being quite safe and paying good dividends.

PTY - Paid $17.24 now worth $7.49

PFN - Paid $18.75 now worth $4.89

CWF - Paid $10.02 now worth $2.61

[midas]

Yes, but it doesn't apply in all cases. Many etf's are derivatives that seek to mirror a given financial instrument, with mixed success. These are the problen ones. Others are "trust" types that actually buy the underlying. This type is unlikely to implode, but they're still bad for markets, in that they create the illusion that a lot more money is entering the market than is in fact.

Lanna so are these included in the figure of $586 trillion which was mentioned in the article

you also posted a couple of weeks ago?

[Naam]

I can tell you about three ETF's. My broker recommended them as being quite safe and paying good dividends.

PTY - Paid $17.24 now worth $7.49

PFN - Paid $18.75 now worth $4.89

CWF - Paid $10.02 now worth $2.61

does that mean you have to postpone the purchase of that aircraft carrier you had in mind?

[Naam]

Yes, but it doesn't apply in all cases. Many etf's are derivatives that seek to mirror a given financial instrument, with mixed success. These are the problen ones. Others are "trust" types that actually buy the underlying. This type is unlikely to implode, but they're still bad for markets, in that they create the illusion that a lot more money is entering the market than is in fact.

Lanna so are these included in the figure of $586 trillion which was mentioned in the article you also posted a couple of weeks ago?

yes.

[Gary A]

I can tell you about three ETF's. My broker recommended them as being quite safe and paying good dividends.

PTY - Paid $17.24 now worth $7.49

PFN - Paid $18.75 now worth $4.89

CWF - Paid $10.02 now worth $2.61

does that mean you have to postpone the purchase of that aircraft carrier you had in mind?

I lost interest in the aircraft carrier when I moved upcountry. I decided on a new Ferrari instead but now I'm going to wait for the ETF's to come back before I order it.

How long do you think I'll have to wait?

[Lost in LOS]

I can tell you about three ETF's. My broker recommended them as being quite safe and paying good dividends.

PTY - Paid $17.24 now worth $7.49

PFN - Paid $18.75 now worth $4.89

CWF - Paid $10.02 now worth $2.61

does that mean you have to postpone the purchase of that aircraft carrier you had in mind?

I lost interest in the aircraft carrier when I moved upcountry. I decided on a new Ferrari instead but now I'm going to wait for the ETF's to come back before I order it.

How long do you think I'll have to wait?

you can order it right now........you will have to wait a really long time to pay for it though

[Carmine6]

I can tell you about three ETF's. My broker recommended them as being quite safe and paying good dividends.

PTY - Paid $17.24 now worth $7.49

PFN - Paid $18.75 now worth $4.89

CWF - Paid $10.02 now worth $2.61

does that mean you have to postpone the purchase of that aircraft carrier you had in mind?

I lost interest in the aircraft carrier when I moved upcountry. I decided on a new Ferrari instead but now I'm going to wait for the ETF's to come back before I order it.

How long do you think I'll have to wait?

you can order it right now........you will have to wait a really long time to pay for it though

Make sure you get 4 wheel drive. Otherwise it'd be a frivolous extravagence.

[Naam]

I can tell you about three ETF's. My broker recommended them as being quite safe and paying good dividends.

PTY - Paid $17.24 now worth $7.49

PFN - Paid $18.75 now worth $4.89

CWF - Paid $10.02 now worth $2.61

does that mean you have to postpone the purchase of that aircraft carrier you had in mind?

I lost interest in the aircraft carrier when I moved upcountry. I decided on a new Ferrari instead but now I'm going to wait for the ETF's to come back before I order it.

How long do you think I'll have to wait?

my fair estimate is that you still have to plough your rice paddies twice this year with your tractor or a buffalo on loan from a kind neighbour.

[Gary A]

I intend to keep my little four wheel drive Yanmar tractor out of the flooded rice paddies this year. Just today my wife bought an iron buffalo to do the mud work. That cost 68,000 baht. I figure the payback for all the machinery will be about ten years provided the crops are good.