Frugal News
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| Some ETFs fall short on pricing |
| 11/21/08 2:44 PM EST | Indexing |
| "For the thinly traded ETFs, many of the most problematic trades seem to take place moments after the market opens. For example: On Nov. 14, an investor sold 500 shares of First Trust S&P REIT Index ETF for $8.18 -- about 12% below the value of the fund's underlying holdings -- at two seconds past 9:30 a.m. EST. Three minutes later, 1,000 shares sold at a price about 3% below. By 10 a.m. the discount had settled to about 1%." |
| More Indexing: S&P 500 index: now more poor, less standard |
| Complex and pricey |
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| S&P 500 index: now more poor, less standard |
| 11/21/08 2:41 PM EST | Indexing |
| "Every once in a while the committee faces a rare situation where a large portion of the S&P 500 Index does not meet one or more requirement they have outlined. Usually the simply ignore it and hope that it just goes away on its own." |
| More Indexing: Complex and pricey |
| New ETFs can serve as caution signs |
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| The Treasury once again can borrow for free |
| 11/21/08 2:33 PM EST | Bonds |
| "Ok, the Treasury can not borrow for free. Three month Treasury bills, according to Bloomberg, yield something like 2 basis points." |
| More Bonds: Treasury yields drop to record lows |
| The new order |
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| Complex and pricey |
| 11/19/08 12:28 AM EST | Indexing |
| "The fund holds a motley collection of 21 ETFs and fully three make up less than 1% of the portfolio. Compare the complexity of this fund with the simplicity of the ING Streetwise Balanced Fund, which has 40% in bonds and 60% split equally among Canadian, U.S. and other developed markets." |
| More Indexing: New ETFs can serve as caution signs |
| Tumult jars bond-tracking ETFs |
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| Just say no to Detroit |
| 11/17/08 2:17 PM EST | Government |
| "Over the past decade, the capital destruction by GM has been breathtaking, on a greater scale than documented by Mr. Jensen for the 1980s. GM has invested $310 billion in its business between 1998 and 2007. The total depreciation of GM's physical plant during this period was $128 billion, meaning that a net $182 billion of society's capital has been pumped into GM over the past decade -- a waste of about $1.5 billion per month of national savings. The story at Ford has not been as adverse but is still disheartening, as Ford has invested $155 billion and consumed $8 billion net of depreciation since 1998." |
| More Government: Treasury may purchase stakes in insurers |
| Repeal the Glass-Steagall act |
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| The perils of efficiency |
| 11/17/08 2:10 PM EST | Markets |
| "The logic behind these reforms was simple: the market would allocate resources more efficiently than government, leading to greater productivity. Farmers, instead of growing subsidized maize and wheat at high cost, could concentrate on cash crops, like cashews and chocolate, and use the money they made to buy staple foods. If a country couldn't compete in the global economy, production would migrate to countries that could. It was also assumed that, once governments stepped out of the way, private investment would flood into agriculture, boosting performance. And international aid seemed a more efficient way of relieving food crises than relying on countries to maintain surpluses and food-security programs, which are wasteful and costly." |
| More Markets: Joe investor, the markets are all yours |
| Wall street lays another egg |
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| How AIG got Uncle Sam over a barrel |
| 11/14/08 4:20 PM EST | Stocks |
| "The Treasury has secured crowd-pleasing concessions; for example limits on executives. bonus payments. But the real question is whether the preference shares are safe. AIG has a trillion-dollar balance-sheet. There is now a thin buffer of core equity between the taxpayer.s preference shares and any further losses. The hope is still that as markets recover, AIG can sell the crown jewels of its insurance business at a premium to book value. That may well take years. Plenty of time to reflect on how an offer of a temporary loan, to a company that barely made the list of systemically vital firms, spiralled into one of the biggest corporate bail-outs ever." |
| More Stocks: How AIG failed |
| Next likely bank failures |
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| The corn isn't green |
| 11/12/08 4:50 PM EST | Markets |
| "H.L. Mencken once remarked that there is a "well-known solution to every human problem - neat, plausible, and wrong." That quote comes to mind when considering the vocal group of neoconservatives, agribusiness lobbyists, and politicians that claims that the best way to cut American oil imports, and thereby impoverish the petrostates (and, in theory, reduce terrorism), is to require automakers to manufacture "flex-fuel" cars that can burn motor fuel containing 85 percent ethanol or methanol." |
| More Markets: The crisis and what to do about it |
| Shipping floored |
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| Beware of fees |
| 11/12/08 11:08 AM EST | Brokers |
| "Insult is about to be added to the injury done to your investment portfolios in the past year. With the value of your account falling, you may find yourself paying higher commissions to trade stocks, as well as miscellaneous fees from which you were previously exempt. Not convinced on the merits of putting money into the markets right now, with share prices knocked way off their peaks of last summer? Now you have the additional motivation of being able to avoid parasitic fees by reinflating your depleted account." |
| More Brokers: Qtrade retains crown |
| Financial advisers vs. academia |
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| The crisis and what to do about it |
| 11/10/08 11:47 AM EST | Markets |
| "The salient feature of the current financial crisis is that it was not caused by some external shock like OPEC raising the price of oil or a particular country or financial institution defaulting. The crisis was generated by the financial system itself. This fact - that the defect was inherent in the system - contradicts the prevailing theory, which holds that financial markets tend toward equilibrium and that deviations from the equilibrium either occur in a random manner or are caused by some sudden external event to which markets have difficulty adjusting. The severity and amplitude of the crisis provides convincing evidence that there is something fundamentally wrong with this prevailing theory and with the approach to market regulation that has gone with it. To understand what has happened, and what should be done to avoid such a catastrophic crisis in the future, will require a new way of thinking about how markets work." |
| More Markets: Shipping floored |
| Disappointing diversification |
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| I.O.U.S.A. 30-minute movie |
| 11/09/08 5:00 PM EST | Debt |
| "Wake up, America! We're on the brink of a financial meltdown. I.O.U.S.A. boldly examines the rapidly growing national debt and its consequences for the United States and its citizens. Burdened with an ever-expanding government and military, increased international competition, overextended entitlement programs, and debts to foreign countries that are becoming impossible to honor, America must mend its spendthrift ways or face an economic disaster of epic proportions." |
| More Debt: Student loan fugitives |
| The death of the credit card economy |
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| Time to ditch the style box |
| 11/08/08 9:51 AM EST | Funds |
| "Looking over the last 15 years, the style box is very correlated with itself. The lowest correlation is 75%, between largecap value and smallcap growth. That is not a reason to categorize managers; the difference between the average largecap value and growth manger is teensy. It is even true between largecap value and smallcap growth. And in more recent years, the correlations have been tightening to nearly 90% at worst." |
| More Funds: Beware ETNs |
| Beware ETNs, Part 2 |
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| Challenging the crowd in whispers |
| 11/02/08 2:17 PM EST | Shiller |
| "I clearly remember a taxi driver in Miami explaining to me years ago that the housing bubble there was getting crazy. With all the construction under way, which he pointed out as we drove along, he said that there would surely be a glut in the market and, eventually, a disaster. But why weren.t the experts at the Fed saying such things? And why didn.t a consensus of economists at universities and other institutions warn that a crisis was on the way?" |
| More Shiller: A psychology lesson from the markets |
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| Good riddance |
| 11/02/08 10:58 AM EST | Bogle |
| "In Berkshire Hathaway's 2005 annual report Warren Buffett offered the parable of the fictional Gotrocks family. Sole owners of corporate America, this huge clan sits back and collects the generous rewards of investing. Until fast-talking helpers arrive and persuade some family members to pay the helpers to try to earn more at the expense of other family members. But in total the family ends up with less. Why? Because the Gotrocks are now paying the helpers, thus diminishing the total return earned by all the businesses in their portfolio. Worse, the Gotrocks are now forced to pay taxes on the capital gains incurred as the helpers swap stocks back and forth. After several go-rounds with different helpers, the Gotrocks finally listen to an old, wise uncle who advises them to fire all the helpers and simply reap 100% of their investment gains themselves." |
| More Bogle: John Bogle says U.S. government seems 'punch drunk' |
| The arithmetic of mutual fund investing |
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| New ETFs can serve as caution signs |
| 10/30/08 7:17 PM EST | Indexing |
| "There are many notable exceptions, but all too often an ETF's debut coincides with the moment when investors should be starting to think about taking profits in the area of the fund's focus. As is evident in the table below, this isn't a new phenomenon. In 1996, the incipient ETF industry was bolstered by the addition of a quartet of Asian funds. Just 16 months later, Asian currencies nosedived and stock prices throughout the region collapsed, kneecapping investors with double-barreled blasts." |
| More Indexing: Tumult jars bond-tracking ETFs |
| An active value strategy in disguise |
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| A return to thrift |
| 10/30/08 11:54 AM EST | Thrift |
| "Sometimes it takes a near-death experience to change bad behavior. Think of your friend who quit Lucky Strikes after a coronary incident. Or look at how banks are reducing their dependency on debt after watching rivals go belly-up. On Wall Street this process of reducing debt relative to equity is called deleveraging. Main Street should be deleveraging too." |
| More Thrift: The new age of frugality |
| American savers have drawn the short straw |
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