Chasing Yield

Chasing yield is the tactic of going for the highest-yielding investment available at the expense of other considerations. One of those considerations that gets disregarded in the chase is whether the yield being…offered…is radically higher than that of other investment vehicles on the market. If it’s much higher, that yield likely is too good to be true.

Another consideration that gets lost in the chase is the underlying soundness of the issuer. Checking the level of soundness is hard work, often tedious and boring. It’s necessary, though, and it’s equally necessary to avoid the flip side of that: the laziness of just jumping onto a handy get-rich-quick scheme, which is what so much of yield-chasing is.

Hence a cautionary tale offered by The Wall Street Journal.

Exchange Traded Notes are “fund” instruments that pedal other people’s debts aggregated into exchange traded fund-like instruments. They’re centered on

options-based strategies and certificates of deposits whose returns are tied to stocks or currencies.

That last is important. When the stock—or stock indexes—or the currency—or currency indexes—fall, the ETN’s instruments fall in value. And whey those instruments fall below a threshold, the issuer can take them off the market.

The issuer is not the ETN—that’s the bit about not owning the asset. However, when the issuer takes its instrument off the market, the ETN is still stuck, and its value falls, and it falls catastrophically if it’s a leveraged ETN.

And that’s what happened during the current sharp market drop. Before the nascent—and still fragile because it’s built on future expectations, not current economy performance—recovery began, one bank alone was forced to take 15 of its ETNs off the market entirely, wiping those investors’ investments. Folks old enough to know better—retirees—but who were trying to double up to catch up from the Panic of 2008 losses, lost hundreds of thousands of dollars in hard cash money and money they could have had had they been willing to collect profits along the way instead of letting it all right on their roulette/faro/baccarat bets.

Don’t understand what I’ve written above regarding ETN structure (I’ve been deliberately very high level in my description)? That’s a hint. If you’re not clear on the nature of the investment you’re contemplating, walk away from it.

 

RTWT.

A Murder of a Black Man

Dave Patrick Underwood was a black man in front of the Ronald V Dellums Federal Building and US Courthouse in Oakland, CA. He was murdered in a drive-by shooting as part of the larger rioting and looting that’s going on throughout California under cover of “protesting” the murder of George Floyd, another black man, 2,000 miles away in Minneapolis, MN.

Underwood was employed by the DHS’ Federal Protective Service, he was on duty guarding the building, and he was in uniform.

California’s Progressive-Democratic Governor Gavin Newsom,

who speaks of the protests that followed Floyd’s death as an example of people “rightfully outraged at how systemic racism is allowed to persist,” said of Underwood’s murder that “no one should rush to conflate this heinous act with the protests.”

Apparently, Dave Patrick Underwood wasn’t black enough to suit Newsom.

Disgusting.