When there are more ways to MEASURE/Index the the Stocks than there are actual stocks, it is a sign that the system is too complex to be relevant. Get out. Sell Everything Now.
As Bloomberg reports, traditional ones such as the S&P 500 are collections of securities weighted by market value, and index funds mimic them as a low-cost way to deliver the market’s performance. Many new indexes are different:They include stocks based on custom criteria, such as having low volatility or high dividends. The recent explosion in indexes has been driven by demand as many new benchmarks essentially repackage active investment strategies into indexes, says Eric Balchunas, senior exchange-traded fund analyst at Bloomberg Intelligence. They can then be tracked by so-called smart-beta ETFs, which fund companies are rolling out rapidly. Money managers are under pressure to cut costs, says Balchunas, as investors shift their money into funds with low fees. Smart-beta ETFs are generally more expensive than S&P 500 funds but cheaper than actively managed funds. It remains to be seen how well the new funds will perform.
As we wrote previously, for now, the debate about the impact of ETFs rages, and will do so inconclusively as long as trillions in central bank liquidity prop up broader risk assets and equity markets. It is only once central banks take start soaking up some $18 trillion in excess liquidity that the true impact of ETFs will be visible. Until then, we leave readers with thoughts from a recent note by JPM’s Nikolaos Panigirtzoglou, first reported here last October, and summarized below, on what the take over by ETFs really means:
- Markets become more brittle, risky: “The shift towards passive funds has the potential to concentrate investments to a few large products. This concentration potentially increases systemic risk making markets more susceptible to the flows of a few large passive products.”
- Passive or index investing favours large caps as most equity indices are market cap weighted. “This could exacerbate the flow into large companies beyond to what is justified by fundamentals, creating potential misallocation of capital away from smaller companies. To the extent that these passive funds become even more dominant in the future, the risk of bubbles being formed in large companies, at the same time crowding out investments from smaller firms, would significantly increase.”
- The proliferation of index funds increases the size of stock inclusion flows. In turn, market moves around index constituent changes become more pronounced overpenalizing companies leaving the index and causing excessive gains to companies entering the index.
- Crashes, when they happen, will be bigger and badder: “the shift towards passive funds tends to intensify following periods of strong market performance as active managers underperform in such periods of strong market performance. In turn, this shift exacerbates the market uptrend creating more protracted periods of low volatility and momentum. When markets eventually reverse, the correction becomes deeper and volatility rises as money flows away from passive funds back towards active managers who tend to outperform in periods of weak market performance.”
- Markets become less efficient: “if passive investing becomes too big, potentially crowding out skilled active managers also, market efficiency would start declining. In turn, this would present opportunities for active managers to extract arbitrage profits.”
UPDATE: Regarding The Debts of Nations:
One of the methods to protect ourselves is moving our wealth and savings into other currencies. Digital Currencies -such as Bitcoins, Monero, Ethereum, ZCash, etc– exist and actually being used as virtual currencies by every day people. I accept bitcoins and alt coins in my trade.
(Full disclosure, and very happy to make it. 🙂
There are many ways to get starting in converting your existing wealth into virtual currencies. Such as:
- Changelly.com – Easily convert U.S. Dollar Federal Reserve Notes into Bitcoins, Ethereum, and any other digital currency.
- BitQuick.co – Buy and Sell Bitcoins for US Dollars.
- CoinMama.com – Buy Bitcoins with US Dollars in bulk.
Another option of getting into Digital Currencies is to start minting your own. Within 5 minutes, you can be mining Sound Money on the blockchain. Digital Currencies are democratizing and aiding in an economy being raped by bankers and their debt ponzi scam. Fed Notes aren’t worth the paper they are printed on when bankers print DEBT NOTES in numbers like septendecillions. (a Trillion trillion trillion trillion. The Gross Trade of the Entire Planet Earth for all History is a rounding error with that much debt sitting at the FEDERAL RESERVE SYSTEM).
The process to mining:
- Click the link
- create an account (email, password, not much more)
- download the app for your computer
- Login to the app
- Start the Smart Miner with about 75% of the CPU processor cores. and just let it mint the most profitable seigniorage for you.
- Use the digital currency, trade them on exchanges, and even convert them back to Federal Reserve Notes!
When Greg Mannarino says, “Be your own Central Bank.” This is one of the ways he means! hehehe. Earn the seigniorage on minting your own alt coins (and easily convert to bitcoins, ethereum, etc)
No one knows the true value of ANYTHING. Real money is too distorted by fake debt wealth -and being covered up by the bankers- to know what the real price of anything. Mining on your own computer is a great creative way to move into digital wealth without the bankers.
Here are a short list of Digital Coin Exchanges for trading any digital currencies:
Cryptopia.co.nz – Based in New Zealand, it is a jack of all currencies exchange. Very professional. Their chart tools are very useful for Markets; The Mining Pools could be integrated with MinerGate and any other mining software. There is a Marketplace for goods traded in bitcoins, a Bitcoin Lottery, and their own Digital Currency.
C-Cex – a Large Digital Currency Exchange with professional market chart tools.
NovaExchange – A Large Simple Digital Currency Exchange
Bleutrade– A Large Simple Digital Currency Exchange
PoloniEx– Based in the STATE OF DELAWARE, UNITED STATES INC
Yobit– A very compact exchange with everything available in a quick view dashboard for traders.
P.S. And if there is any reason to support these block chain Currencies, this is it:
So… Pass this message on to others who know the value of Sound Money. Share this message.