No Man’s Land

I have written a couple of times that I didn’t think oil in the low $50’s (compared to the high $50’s) mattered much to stocks. That still seems to be the case. So the obvious questions is what oil number will be positive for stocks? An obvious answer would be less than $50 and maybe that will be correct but I think it might need to go to and stay at $47-$48 and I’m not sure it can. What makes oil confusing, to me, is that we hear different things about the capacity to refine crude oil. What makes oil simple, for me, is growing demand from China and India. Growth rates will probably ebb and flow but it is logical to me to that these two countries have added upward pressure on the price. There will be periods where short term supply issues trump this demand but it is there and growing...

The Last To Know

I’m sure I’m the last to know but Vanguard came out with three new ETFs that focus on foreign stocks. One is for emerging markets (VWO), another for Europe (VGK) and the third is the Pacific (VPL). The may come to regret the symbol for that last one;-) VWO has four of the same top ten holdings as iShares emerging Markets (EEM). What strikes me about VWO is that with in the top ten is Brazilian oil giant Petrobras (PBR) and the Petrobras preferred. VWO has Sasol (SSL), which is a South African oil stock, at number 6. Where as it is number 18 in EEM. So there are differences. VGK compares to the iShares Europe 350 (IEV). These two have nine out ten top tens in common so expect a very tight correlation. VPL is 74% weighted in Japan so it will likely correlate to iShares Japan (EWJ). I have no exposure to Japan for clients so this one holds very little appeal. Vanguard seems to have only created me too ETFs. I can understand the risk a firm takes by creating an ETF product line that people don’t care about, hello Morningstar?, but there is demand for different regions and at some point soon I expect providers to ramp up the...

Shorting ETFs

The folks over at ETF Digest sent me an article about the difficulty of shorting ETFs. The article cites several factors contributing to the problem. 1) Timezone issues make hedging foreign ETFs more difficult (for the party on the other side) 2) Brokerage firms don’t want the liability that might go with allowing someone to go short 3) No net new share creation for the provider means no new fee income 4) Institutional clients get preferential treatment 5) ETFs not linked to any known indexes There were a couple of other ones that you can read in the article. There were a couple of things missing from the article, in my opinion. My understanding of how short sales work is you have to borrow shares. The only shares that can be borrowed (hypothecated {spelling?}) are shares owned in a margin account with a margin debit. If you check the agreement for whatever firm you use you will find this somewhere. I asked author and site proprietor David Fry if this was part of the problem. I also asked if the new rules on naked shorts were part of the issue either. Mr. Fry replied that the big issue is that it is not profitable to carry ETFs in inventory. I don’t think that’s how it works. I called Ameritrade and Schwab and found out that the rules about hypothication have not changed from my understanding. That being the case if I try to short iShares Belgium (EWK) today I might get told none are available. If you then buy 2000 shares tomorrow on margin (with a debit in you...

Planning Ahead

It is worth noting that things like beer and food would likely do well if this environemnt persists. The point being that neither an economic nor stock market downturn would alter your consumption pattern of relish or Nilla Wafers. This effect tends to cause money to flow to these areas as demand for safe havens increases. This is probably why healthcare has done well over the last couple of...