Clean energy: a bubble?

An interesting chart is coming from Tom Konrad.
It depicts the composition of several ETFs investing in ‘renewable energy’.

There are now 16 clean energy ETFs. Coming from 2 five years ago. That's called: inflation

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Steel ETF

We learned already a little about iron ore and China.

What will happen to this?

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Attack

Away with the leveraged ETFs.
On Wednesday, Dow Jones reported Morgan Stanley Smith Barney had also placed under review the sales of its leveraged and inverse exchange-traded funds “that regulators said might not be suitable for individual investors”.
This, obviously, has big implications for an industry which until recently appeared confident of further growth, largely via the ETF-isation of ever more exotic underlying assets.
The key point the current blowup demonstrates is that an important distinction should now be made within the industry which currently tends to use the ETF name as an umbrella term for all its offshoots – plain vanilla index-focused ETFs, exchange-traded-commodities (ETCs), exchanged-traded-notes (ETNs) and exchange-traded-products (ETPs).
The latter, of course, being more suited to institutional rather than retail investors.
Meanwhile, if you want to see how things can really go wrong in an ETF structure, note the following SEC filing from the United States Natural Gas Fund (UNG) released late on Wednesday, in which the fund — already forced into the bilateral market by position limits — admits it could now be forced into buying completely unrelated assets with a poorer correlation to natural gas futures.

As Olivier Jakob, an energy market analyst at Petromatrix sums up the story:
We have in the past called the ETFs on single-commodity Futures a cancer for the Futures market. From the current CFTC hearings on position limits it does seem that the main commodity investment banks are now in the process of trying to manage rather than fight the process of setting position limits in the energy markets. In order to preserve some of their core business we would think that investment banks will have to sacrifice the concept of open-ended commodity ETFs.

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Is a new trend emerging?

Some people say that the natural gas ETF (ticker: UNG) account for one-third to one-half of all gas contracts traded on the futures markets. And maybe this size is influencing the price of the futures.
Anyway, UNG was seeking regulatory approval to issue new shares and this request was rejected.
Since March the fund has grown sixfold.
This restriction could be set up an arbitrage opportunity.. Because if demand for UNG-shares remain high, this ETF can trade with a premium vis-à-vis the underlying asset.

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About correlation

I found this morning this website http://www.etfconnect.com/.
A very comprehensive site that not only shows you around in the ETF-universe but also in the world of funds.
One function is the ‘fund sorter’ which let you sort out funds versus various criteria.
Now, there exist close-end funds and ETF investing in almost the same underlying. Only thing: an ETF is shadowing an index very closely while a closed end fund –as an example- can quote with a premium or a discount.
Now imagine you have an ETF and a closed-end fund investing in the same underlying. Normally they should move in the same direction at the same pace. Their ratio should be 1.
But this is not always the case.
As an example we take the Market Vectors Russia ETF and the Templeton Russia Fund (ticker: RSX and TRF).
They have almost the same underlying but they do not move in unison due to the fact that TRF can quote at a discount or a premium.
As is illustrated.

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We're all brothers/sisters

Are the Russians different from the Americans? No, comrad. As long finance is concerned there is not that much difference if we observe the course of the S&P500 and the CEE ETF, which is investing in Eastern European and Russian stocks.

It’s summer. Fish are jumping in our harbor (literally). Time to close down the week and going for walk to my local (read: pub) for a good pint of Guinness and a jolly sing-along.
Adios to everybody and enjoy the weekend.

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Overbought

It’s simple and still so difficult. Trying to nail down the ETF’s which are most overbought and short them.
As a measure the 50-day moving average is taken. And this is the observation:
The Russian stock market ETF is the most overbought, trading 36.17% above its 50-day. India ranks second at 35.72%, followed by the steel ETF (SLX), emerging market Europe (GUR), metals and mining (XME), and Singapore. The majority of the ETFs on this list track countries.

Thanks to Bespoke Invest:

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The oil-scam

Now, here is a nice one. It has to do with the contango situation in the oilmarkets. Due to the fact that there was such a huge difference in spot and forward prices some months ago, the ETF’s shadowing the futurecontracts were not picking up at the same pace as the futurecontract itself. The reason is that these ETF’s have to deal with volatility and other specific technical factors.
So the last couple of months the USO ETF could not perform in the same way as the underlying.

From Phil’s Stock World we have following comment – by the way guess who is handling all that USO cash flowing in? Right. Goldman Sachs. –

So here you are giving your money to an ETF that gives its money to the biggest shark in the ocean, who chews off your legs in transaction fees and contango spreads BEFORE they even bother to circle around for the kill by gaming the market. NOT ONLY THAT, but the idiotic rules of the fund lead them to PUBLISH THE DAYS THEY ARE ROLLING IN ADVANCE so every little shark in the sea knows exactly when and where to feast on your bloody, bobbing carcas this month - and the next and the next and the next. Don’t worry though, once you are chewed up and digested, there will be a fresh round of suckers herded back into commodities and the commodity pushing stocks and ETFs every time GS, MS or Cramer need another payday.

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Wait, this is confusing.
This message was circulating yesterday – hat tip to The Market Oracle

Breaking News: Imminent Big Bank Failure on Overnight Bank Loan Failure
Jim Willie of the Hat trick Newsletter has just sent an urgent message of a potential imminent big bank failure that would be expected to hit the financial markets hard - message as follows –

just got word from a reliable source with an excellent track recordhe calls me every several weeks when he has something very critical to sharehe wants me to put the word out and to see what comes back to confirm or add to the storyan extremely large overnight bank transaction loan failed last night, gathering major attentionit started in US west coast, went to Hong Kong, then Singapore, then Londonit failed in London, by that is meant no return was given on the overnight loanhe guessed the size was something like $10 to $30 billionhe suspected (without much direct evidence) that it was Citigrouphe believes the failing bank is a London subsidiary for a giant US-based bankhe likened it to a plumbing blockage with extreme backup consequenceshe expects a ripple effect to cause shock waves, or a flood of sewagewe wondered if it could have Commercial Paper consequences, since often used in overnightshe has five expert friends watching for specific market reactions, like LIBORso be on the lookoutin February, this source said that in May June timeframe, foreign creditorswill put the screws to the US bankers, who are recognized as totally corruptforeigner big bankers want to remove some power levers from US control

QUOTE ME IF YOU WISH

my source remains anonymous/ jim

Just after being published around 10.20, the Footsie started to slide.
Than the financials in the US session acted as follows:

Yes, the bear ETF for financials is reversing.

Coïncidence?

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USO and FAZ

Will the oil price rebound anytime soon?
As far as the oil ETF is concerned (ticker: USO) not. The modest rebound of the last week is not met with stronger volume.
On the contrary.

The renko chart of the Financial Bear 3x Shares ETF (ticker FAZ) seems to be bottoming. Does this mean that good news from banks have lesser and lesser impact?
Now, in recent days more than 125 million shares were traded in the FAZ. That’s a lot. That’s more than the combined trading volume of Microsoft, Intel, IBM and Exxon combined. Without any doubt this fact is influencing the prices of the underlying bank names, because this ETF is constructed as a derivative in order to generate the three times leverage.
It’s clear that a lot of trading power is hooking up here.

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FAZzzzzzz

Three weeks ago FAZ (the bearish leveraged financials ETF) was worth more than 100 USD.
Now it'ss under 10 USD.
Things can change fast these days.
Let’s party with the crowd.
And keep an eye on the huge volume. Taking profits or new short sales?

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The next disaster - but not yet

The vultures circling around commercial real estate deals are becoming more and more numerous.
The sale of the John Hanccock Tower to Normandy serves as a striking example of what’s going on. This property was appraised for 1.3 bln USD in 2006 after being traded at 935 mln USD in 2003. In the foreclosure auction two days ago this marquee building in Boston changed hands for 660 mln USD.
Mall owners have to renew a lot of loans this year while malls get emptier by the day. It’s obvious that firms are going to default soon.
Build on mountains of debt, outlets like Macerich (ticker: MAC), Simon Property Group (ticker: SPG), Taubman Centers (ticker: TCO) and Developers Diversified Realty (ticker: DDR) to name a few, are all doomed if a white knight is not passing by soon.
A REIT which can suit one who wants to short is SRS.
The rot is everywhere.

Let’s name them: Bank of Ireland and Allied Irish Bank have submitted proposals to the Irish government to set up their version of good bank – bad bank. They put 35 bln € forward as the total figure. What’s going to the bad bank? Mainly real estate/development loans which have crippled the Irish banks. No more chicken wings and Guinness in the Harbor Master the coming months, lads.

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To FAS or to FAZ

I love this bonus rage in the States.
And the tax of 90%.
Where is it going to stop? Is the mob going to take the streets again?
They drag the CEO before Congress to grill him and chastise him over the bonuses of AIG. This is a guy who came out of retirement to work for 1 USD a year to try and turn this thing around.
The mob hasn’t changed that much over the centuries.
Ok.
Let’s get over it.

And go elsewhere.

Also the FAS (3x Leveraged Financial ETF) is going down. Yesterday it opened 10% higher only to close 5% down. Is the short squeeze over?

The most popular stocks these days are FAZ and FAS. In this all shorting story of financial stocks, these ETF become increasingly popular.
This is the FAZ (thanks Tim). Look how positive momentum is building like a storm after a hot day. The volume is increasing while the price is not going lower anymore. Ready for this ride?

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Is the bear coming back...

There is some odd correlation between housing and banking. Or better between the FAZ and the SRS ETF.
FAZ is the Direxion financial Bear 3x Triple-Leveraged ETF designed to yield investment results approximately equivalent to 300% the inverse of the return of an investment in the Russell 1000 Financials Index, which tracks financial related securities in the Russell 1000 Index.
The SRS ETF is the Ultashort Real Estate ETF.
These two seems good buddies, most of the time. And they are loved by day traders and hedgies
But not now as the FAZ was down yesterday while the SRS with a gain of 3 was pointing the direction of housing stocks.

Hat off to Tim

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