Category Archives: markets

Chasing Yield

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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 “Careful” Economy

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In a Wall Street Journal op-ed about the dangers we’re facing because we’re reopening our economy much too soon to suit him, John Cochrane had this remark:

…the most important thing government can give us is accurate and timely information on how widespread the virus is in each community—how dangerous it really is to go out—something we don’t have now.

The truly Critical Item on how dangerous it might be to go out is the mortality rate, and that’s down around 1% for Americans younger than 60-ish, which includes children and working age Americans, and it’s not much higher for those older.

That mortality rate is going down further as we learn more about the components of the denominator.

Of course, getting sick can be more than an inconvenience, but even hospitalization rates are falling, both in absolute terms and as we learn more about those denominator components.

Mortality rate information, contra Cochrane, in fact is well known to those of us who seek it out—which we have to work too hard to do because the press and Progressive-Democrat State governments studiously ignore it.

In the end, the medical dangers of restarting are overblown and the economic dangers of not restarting are underestimated if not ignored outright.

There’s nothing uncareful about reopening now or of pushing the pace of reopening.

Long Overdue

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The People’s Republic of China has been able to raise billions of dollars for its various business outlets by listing them on American stock exchanges—all while being exempt from the same public visibility and auditing requirements that other nations’ companies and our domestic ones must satisfy on our exchanges.

Maybe that’s changing.

Legislation passed by the Senate—and now introduced in the House—would kick Chinese companies off US stock exchanges unless their audits are inspected by US regulators.

And

The Senate legislation requires the Chinese companies with shares traded here to disclose to the Securities and Exchange Commission whether they are owned or controlled by state authorities.

This, though, would mean that all of them would have to admit disclose that they are controlled by state authorities. A 2017 intelligence law enacted by the PRC government requires all PRC companies to “cooperate” with intelligence requests of agencies of that government.

Now we have:

China says sharing audit work papers would violate its sovereignty and risk leaking state secrets.

There’s an effect of that 2017 law.

Michaels and Otani, at the first link, think that

economic tension between the two global superpowers, amplified by political outrage in the US over China’s role in the spread of the new coronavirus

are pushing this new emphasis. Emphasis maybe, but neither the economic war (now relabeled Cold War by the PRC) that the PRC has been inflicting on us for years nor the current Wuhan Virus situation and the PRC’s perfidy in the virus’ spread have anything to do with the substance of this. The secretiveness of the PRC’s outlets listed on our exchanges has been extant since they first were listed, and that’s what needs correction.

It’s enough that we gave the PRC Most Favored Nation status (mistakenly, in 20-20 hindsight). There’s nothing that warrants PRC companies on our exchanges being treated any differently than any other company—domestic or foreign—on our exchanges.

PRC companies need, badly, to be audited, and tossed from our exchanges at the slightest hesitation to be audited and for the same violations, should they be audited and any violations found, as any other company whose violations warrant expulsion.

This is especially important given that the PRC isn’t just any foreign nation; it’s an enemy of the United States. American dollars shouldn’t be involved in funding PRC companies.

House Relief Bill

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Here’s what’s in the House “relief” bill, written in House Speaker Nancy Pelosi’s (D, CA) kitchen where she could have ready access to her special ice cream. The bill was written with zero Republican input, zero Republican amendments, carefully limited debate on the House floor, and passed almost entirely along party lines; although the bill did make 14 Progressive-Democrats choke to the point of voting against it, and one Republican was too timid to oppose it.

  • $1 trillion in funding for state and local governments

Money that State and local government do not need. To the extent that Federal funds—the dollars of taxpayers who are citizens of other States—are needed in a particular State, those funds should go directly to the point of need: the individual citizens and those citizens’ individual businesses.

  • relief to wealthy residents of high-tax states like New York by waiving the $10,000 cap on the federal State and Local Tax (SALT) deduction for 2020 and 2021

These look like the same 1% that the Progressive-Democrats hate so much, and they look like the folks ex-President Barack Obama (D) disdained as having made enough money. But they’re not the same 1%—their the rich donors to the Progressive-Democratic Party and Party-supported causes.

  • explicitly omitting Hyde Amendment limits on Federal abortion funding
  • explicitly withdrawing the work requirement criterion for food stamps

It’s important to keep in mind, on that last, that the work requirement wasn’t limited to requiring actual work. In lieu of work, the recipient could seek work, train for work (vis., take community college classes, intern, etc), do volunteer work, and so on.

Other goodies include

  • student loan debt forgiveness
  • $25 billion for the Postal Service
  • $3.6 billion to states for planning and preparation of elections

That last contains a national requirement to hold elections by mail—the Progressive-Democrats’ unconstitutional attempt to Federalize our elections.

All that money, and all of it is irrelevant to the supposed need for additional relief from the economic dislocation to which the Wuhan Virus situation has led. The Progressive-Democrats could have passed an actual relief bill, but they’ve chosen—again—to hold relief hostage until they’re paid their ransom in the form of their leftist wish list.

The Progressive-Democrats also could have sat back and done nothing for the moment, following the Senate’s recommendation that Government stop throwing money around and instead observe the effects of the money already shoveled out into the firebox.

No. The Progressive-Democrats chose instead to provide in Bill form, Progressive-Democratic Party Presidential candidate Joe Biden’s campaign platform.

How cynical. Especially during this period of economic distress.

Time for a New Plan

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That’s what Dr Marty Makary, Professor of Surgery at Johns Hopkins Medicine, says.  Broad lockdowns might have been justified at the outset of the present Wuhan Virus situation, but new information has arisen.

Since that time, we have data that has taught us that this infection is associated with public transit, with density, with mass gatherings, with city-to-city travel and it is associated with climate[.]

And

What we do know, [is that] there are safe ways to conduct activities in society if we use certain precautions and we probably need a targeted approach where we find areas where there is either an outbreak or an ongoing increase in cases, and use some of the more aggressive strategies in that particular location.

A man once said, When the facts change, I change my mind—what do you do, sir?

Some State governors, when the facts change, reemphasize their original positions, denying that change has occurred.