OK, so I am trying to be funny with that title. PowerShares at some point listed the Japanese Government Bond Futures ETN (JGBL) and the 3x Japanese Government Bond Futures ETN (JGBT) which both offer long exposure to the JGB market albeit in an ETN. Now PowerShares has come along with inverse versions of those same funds; the PowerShares DB Inverse Japanese Government Bond Futures ETN (JGBS) and the PowerShares DB 3x Inverse Japanese Government Bond Futures ETN (JGBD).
The already existing long versions of these funds have little to no volume so why would they come out with inverse versions that would seem to have little promise of garnering much volume?
Candidly, I don't know but I do have a theory. For a couple of funds that do not trade much, the two older long funds have a lot of assets; about $80 million each per Google Finance. Providers don't seed funds with that much money, not even close. Someone, for some reason has positions in these funds (IMO). If that is correct then it is possible, very plausible, that PowerShares knows who has these positions and whoever it is now wants exposure on the other side of the market.
Over the years I have heard of instances where a big pool of money has a direct line into a fund provider like this and when the manager asks for a particular product it happens. I think this can be a positive in that if ETFs are the democratizing force I think they are then providers creating products based on end-user demand is a positive for the people making the request but also for the fund companies because if there is demand for fund then that demand will lead to AUM.
I've disclosed a few times that I've been lead to believe that this blog has had influence on a handful of funds that have come out over the years. While I don't know if that is true, I have been asked for input on numerous occasions and so it is logical that other advisors/bloggers/both are also asked for similar input.
This blog has tried to chronicle the evolution in the space since inception in 2004 (how nutty is it that the blog is seven years old?) and will continue to do. You, as an audience of end users can have input here, and at other blogs too, to help the industry evolve. This is very democratizing only if you take advantage of it.
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10 comments:
Speaking of bonds: http://tinyurl.com/7kmrbw9 (reg req)
Sell-off in S. European bonds w/ Italy now over the 7% threshold where rollover becomes unsustainable and Spain exceeding the 450bp spread threshold with German bonds that previously marked the Irish crash.
Futs feeling it this morning for sure.
Keep your powder dry, hold on to your hats. Think I know how my pappy must have felt in 1937 now.
To what extent has this entire situation been accelerated/exacerbated by the shenanigans pulled with Greek CDS that the "voluntary restructuring" wouldn't trigger payouts.
Thhe politicians thought they were bigger than the market and didn't think it through. Unintended consequences and all that.
The default-w/o-being-a-default game and the screwing of the CDS holders didn't help but bigger problems and market doubts were already baked in the cake and this looks more and more like a good old fashioned bank run.
A Euro in a Spanish or Italian bank was supposed to be as good as a Euro in a Dutch or German bank but in the absence of fiscal unification and a central bank declaring it will be a lender of last resort if needs be (doesn't have to do it, just make it clear it will) there is no mechanism to assure that.
The bond markets suspected that but now they are growing sure so, barring a full-throated declaration from the European central bank backing Spanish and Italian bonds and banks, I think we are just about out of games now.
The US markets have shown themselves slow in response to Europe so there is probably still time to set things up if Europe continues to slide.
I am still holding my long US T-bond position needless to say.
And, just to stay on topic, Japanese bonds may not look like such a bad deal after all.
ETFs I want to see:
-- Kardashian ETF. Content: Clothes and cosmetic producers. public-relations firms, law firms specializing in divorce, and a psychology practice for when being a Special K is just too, too difficult.
-- ETF-Providers ETF. Content: the firms ginning up the endless steam of product. Why invest in the product when you can invest in where the profits are going, to the product producers.
-- Analgesic ETF. Content: companies making headache pills, much in demand for those of use attempting to invest successfully in today's markets. Also, companies making upset-stomach products, for those of us who look at finance around the globe and become nauseous.
BillM
RW and Mike C
Can not disagree with you that there are problems and you have identified some.
But, hold on to your hat as the market will go higher.
"hold on to your hat as the market will go higher"
I don't disagree, there are a number of factors -- mostly technical but some fundamental and quantitative -- that suggest the truncated rally could extend. It's the degree of sensitivity to bad news that will decide in the shorter run I think so I continue to hedge that.
A European depression though will be another matter.
NB: One good thing though, anyone paying attention now knows that the absolute amount of sovereign debt is not the critical factor; e.g., before the crisis Spain (and Ireland) had virtually none, Italy had nearly 100% of GDP and Japan's ratio was double that of Italy (200% of GDP) yet it is Japanese bonds that remain expensive (ultra low yields).
I don't disagree, there are a number of factors -- mostly technical but some fundamental and quantitative -- that suggest the truncated rally could extend.
FWIW, I think so as well. Fact of the matter is we are in the seasonally strong period (Nov-Apr) and I'm starting to believe stuff like that (calendar effects) trump economic reality (Europe, ECRI oncoming recession) as long as the market can still collectively "belive" it might yet work out. Even in the 07-09 bear market, the market really didn't decline much net overall from Oct 07 through Apr/May 2008. I'm thinking we can delay the real ugliness until perhaps the back half of 2012.
Technically, the market is tracing out a symmetrical triangle, and IF it breaks to the upside perhaps another few months of upside back to the April highs are in the cards. Investment wise, still quite hedged, but trading wise looking at bullish trades on strong charts like AZO, IBM, and ULTA.
NB: One good thing though, anyone paying attention now knows that the absolute amount of sovereign debt is not the critical factor; e.g., before the crisis Spain (and Ireland) had virtually none, Italy had nearly 100% of GDP and Japan's ratio was double that of Italy (200% of GDP) yet it is Japanese bonds that remain expensive (ultra low yields).
Japan retains full sovereign control to issue the currency its debt is denominated in. Score +1 for the MMTers. At least so far, they've been the most correct in their predictions about bond yields. Neither the U.S. nor Japan as seen the skyrocketing yields predicted by MANY.
Cullen over at pragcap.com has had some good notes basically saying the long bond yield is chained/constrained by short rates so as long as we have ZIRP, long yields are not going anywhere. Here is the part where I get fuzzy. At what point is the Fed absolutely compelled to act on short rates. Last CPI numbers I saw I recall looked to be tracking higher. Is the Fed really going to stay at ZIRP at 5-6% CPI? They do that, and trading wise I am backing up the truck on gold futures.
"Score +1 for the MMTers."
Yep, but score +1 for those who remembered their Hicks too; e.g., http://tinyurl.com/44ef4ll and yours truly.
"Here is the part where I get fuzzy. At what point is the Fed absolutely compelled to act on short rates."
Color me fuzzy on that one too but as long as real interest rates on TIPS remains negative or close to it I'm not going to worry about it and neither I suspect will the Fed. However I also suspect the Fed wouldn't mind seeing the dollar go cheaper and that usually has positive implications for gold and other commodities even if it doesn't initiate further currency panic.
None of the main reserve currency producers -- USA, Japan and Eurozone -- can afford a more expensive currency and all will fight to keep theirs from becoming too expensive so ...
Who could have imagined that there would be a demand for a 3x inverse on JGBs - what's next, a 3x on Iraqi dinar bonds?:) Still, the 3x up and down on JGBs do point out two very conflicting view of macroeconomics, bonds and central banks. John Mauldin has said several times that Japan with its 200% Gov't debt to GDP is a "bug in search of a windshield". Kyle Bass also I believe has some "black swan" options or CDS and the linke on JGBs and Japan. On the other side, one reads that the short JGB trade has been an alluring but utterly failed approach by hedge fund managers over the years, since almost all of Japan's debt is held domestically and major pension funds don't have much else to buy. Keep in mind that with persistent deflation, the real rate of JGBs is well higher than the stated coupon rate. It'll be interesting to see which side of the 3x will profit here.
It looks like the European bond contagion is starting to spread to the non-PIIGS. It could get ugly in a hurry.
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