Products to watch?
12 months or more ago, the products that went toxic included auction rate securities, some principal protected products and some mortgage related offerings. Not good for the client, the mantra went. Any thoughts on what’s next to go bust? Things are settling down, but we can’t rule out more “surprises.” Should clients stay away from long-term bonds – or at least realize the risks, for example? WSJ had an interesting piece on closed-end funds which can yield more than 10%. “Often, the income you earn in the short run mightn’t be worth the principal you lose in the long run.” < ="-" =“text/; =utf-8”>< name=“ProgId” =“Word.”>< name=“Generator” =“Microsoft Word 9”>< name=“Originator” =“Microsoft Word 9”><>
I have come to the conclusion that many closed-end funds are similar to a SPIA in a sense that the principle typically gets depleted over time. However, closed-ends can be a better way to capture more income along the way. You need to be careful about using good managers that can utilize leverage effectively. Right now, with rates at all-time lows, closed-end funds that utilize leverage should have an advantage.
I think this is a good thread…very though provoking. Its hard to imagine securities that could potentially wreak the havoc that CMOs and ARS did. I think it will be on a much smaller scale in the near future. My guess would be whatever new idea Wallstreet comes up with next.
Insurers with VAs with large lifetime income riders could be the next shoe to drop. For all their critics who said VAs are too expensive, many are coming to the realization they were underpriced by a wide margin.
[quote=BigBroker] 12 months or more ago, the products that went toxic included auction rate securities, some principal protected products and some mortgage related offerings. Not good for the client, the mantra went. Any thoughts on what’s next to go bust? Things are settling down, but we can’t rule out more “surprises.” Should clients stay away from long-term bonds – or at least realize the risks, for example? WSJ had an interesting piece on closed-end funds which can yield more than 10%. “Often, the income you earn in the short run mightn’t be worth the principal you lose in the long run.” < ="-" =“text/; =utf-8”>< name=“ProgId” =“Word.”>< name=“Generator” =“Microsoft Word 9”>< name=“Originator” =“Microsoft Word 9”><!–if gte mso 9><>
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Those witch doctor double and triple index ETF’s. total snake oil.
They’re snake oil, but they are now properly (hopefully) disclosed snake oil. Not the case for ARS and the like.
They’re snake oil, but they are now properly (hopefully) disclosed snake oil. Not the case for ARS and the like.
dont do em.
blood sucking trial lawyers circling already
I also think (somehow) ETF’s will blow.
When stuff gets too popular in our biz we always screw someone, somehow
I agree with Shania (can’t believe I actually typed that). Stay away from leveraged etfs. They are bad news and aren’t efficient (especially when held longer term). If you want leverage, buy puts or calls on non-leveraged, high volume etfs.
NYCTrader - not that I use them at all, but Leveraged ETFs have been discussed to death on the compliance side.
Also, puts and calls aren't really effective or possible in the SMA world (when you are the SMA manager trading accounts on multiple platforms).[quote=Wet_Blanket]NYCTrader - not that I use them at all, but Leveraged ETFs have been discussed to death on the compliance side.
Also, puts and calls aren't really effective or possible in the SMA world (when you are the SMA manager trading accounts on multiple platforms).[/quote]WB, why can't an adviser use puts/calls outside of an SMA portfolio in a brokerage acct?
The advisor can, but the SMA manager can’t (which is who I work for).
I got a “product” that has the “Blow UP” potential (if ever adopted by Wallstreet):
Peer to Peer Lending It is technically still in its infancy, but it is practically the Wild West (as far as compliance and unscrupulous marketing practices go). see: www.prosper.com and www.lendingclub.com Lending Club handles itself better than Prosper Marketplace, and has a better business model (if that means anything), but they have started a push to get FA's and RIAs to invest (their clients' money) in peer-to-peer loans.[quote=NYCTrader] I agree with Shania (can’t believe I actually typed that). Stay away from leveraged etfs. They are bad news and aren’t efficient (especially when held longer term). If you want leverage, buy puts or calls on non-leveraged, high volume etfs.
[/quote]
I loved them for my own account.
those trips were fun.
I was having flashback to back in the day trading futures.
U and Us stop them totally
hey, could I sue myself?
[quote=Wet_Blanket]The advisor can, but the SMA manager can’t (which is who I work for).[/quote]
No offense WB, but I think you’re the only SMA compliance officer on this forum.
That's what makes me soo special. Okay, so under your example, an FA can do option strategies to hedge positions purchased in a SMA account. That too me sounds like a lot of work, considering that positions can open and close in the SMA with no warning, and some client may not have exactly the same holdings and weights. But I can see you point if you are using options on large ETFs as a general hedge.[quote=Wet_Blanket]The advisor can, but the SMA manager can’t (which is who I work for).[/quote]
No offense WB, but I think you’re the only SMA compliance officer on this forum.
For good reasons watch munis. Higher tax rates are coming…
Treasuries.
Yes, I agree with this. When the herd hears of higher tax rates, there should be high demand for muni's. Also, there is very good value in Taxable muni's for IRA accounts.[/quote] WTF is a taxable muni?[quote=Buckeye]For good reasons watch munis. Higher tax rates are coming…
Thanks for the heads up. I was not aware that there was an actual term for how BABs worked.
[quote=buyandhold] Treasuries.
[/quote]
US govies gonna blow?
funny
you’re probably right. Obama nation has us headed to the pink sheets
[quote=deekay]Thanks for the heads up. I was not aware that there was an actual term for how BABs worked.[/quote]
Taxable GOs are a great way to get yield for conservative clients with IRAs. Beats the hell out of CDs and treasuries.
Private REITS chap my hide. Every one that I have seen on investor statements show the paper value, but none of the clients were aware that 100% of the ones I have seen have suspended redemption. If they were exchange traded I doubt they would be valued at 50% of what is showing on the statement. When you look at the REITs financial statements (which are often hard to find), cash flow is often negative, yet they are still paying a 7% yield.
That's how they are supposed to work. The negative cash flow as you put it, is actually negative income. EBIDA is positive in most credible cases. In fact, the depreciation is what allows them to pay 7% yeild due to the tax advantage nature of real estate holdings.Private REITS chap my hide. Every one that I have seen on investor statements show the paper value, but none of the clients were aware that 100% of the ones I have seen have suspended redemption. If they were exchange traded I doubt they would be valued at 50% of what is showing on the statement. When you look at the REITs financial statements (which are often hard to find), cash flow is often negative, yet they are still paying a 7% yield.
One thing that is pushing down the yields on them though is the lack of supply. BAB's are more attractive to investor's as a whole and cost the municipalities the same interest payments as lower yielding tax-free Muni's. The demand for the tax frees coming to market is high by those that want them so the prices are being bid up. High tax rates will further push that yield down. The real interesting thing is what will happen to the 2011 issues after the BAB program runs out? I think the corporate market will have a nice rally. My opinion is that Corporates are being pushed down by BAB's and once that runs out their yields will come down (since the BAB alternative is gone). Most agree that BAB's are noticably better than corporates for the yield to risk ratio. Less demand currently means corporates will rebound when that demand improves.For good reasons watch munis. Higher tax rates are coming…
That's how they are supposed to work. The negative cash flow as you put it, is actually negative income. EBIDA is positive in most credible cases. In fact, the depreciation is what allows them to pay 7% yeild due to the tax advantage nature of real estate holdings.[/quote] No, negative cash flow is what I said. Don't go there, I know me some financial statement analysis.[quote=joelv72]Private REITS chap my hide. Every one that I have seen on investor statements show the paper value, but none of the clients were aware that 100% of the ones I have seen have suspended redemption. If they were exchange traded I doubt they would be valued at 50% of what is showing on the statement. When you look at the REITs financial statements (which are often hard to find), cash flow is often negative, yet they are still paying a 7% yield.
That's how they are supposed to work. The negative cash flow as you put it, is actually negative income. EBIDA is positive in most credible cases. In fact, the depreciation is what allows them to pay 7% yeild due to the tax advantage nature of real estate holdings.[/quote] No, negative cash flow is what I said. Don't go there, I know me some financial statement analysis.[/quote] Well then clarify. You said they have suspended redemptions yet they have a 7% yield? So they have a 7% yield contingent upon positive cash flow or regardless of cash flow? Suspended redemptions should make them trade at pennies on the dollar (look at Ford's Preferred Issues, they are 5 years in arrears on payment and trade at a HUGE discount)[quote=LSUAlum][quote=joelv72]Private REITS chap my hide. Every one that I have seen on investor statements show the paper value, but none of the clients were aware that 100% of the ones I have seen have suspended redemption. If they were exchange traded I doubt they would be valued at 50% of what is showing on the statement. When you look at the REITs financial statements (which are often hard to find), cash flow is often negative, yet they are still paying a 7% yield.
That's how they are supposed to work. The negative cash flow as you put it, is actually negative income. EBIDA is positive in most credible cases. In fact, the depreciation is what allows them to pay 7% yeild due to the tax advantage nature of real estate holdings.[/quote] No, negative cash flow is what I said. Don't go there, I know me some financial statement analysis.[/quote] Well then clarify. You said they have suspended redemptions yet they have a 7% yield? So they have a 7% yield contingent upon positive cash flow or regardless of cash flow? Suspended redemptions should make them trade at pennies on the dollar (look at Ford's Preferred Issues, they are 5 years in arrears on payment and trade at a HUGE discount)[/quote] OK, the one I looked at the other day had negative cash flow (net income before non-cash items). The 7% yield is a dividend that (you guessed it!) is invested right back into the REIT (not sure if there is a cash option, didn't get that far once I saw the insane CDSC.) The REIT was paying for this with new funds coming in (Ponzi, anyone?). Since it is a private REIT, there is no exchange to quote a price, what you get on the statement is a cost basis plus the reinvested dividends. The only way you can get your money out is to redeem your shares with the REIT. The REIT has suspended redemption (everyone wanted out all at once). The client shows me the statement and says something like "I bet you couldn't put up numbers like that, no losses-see!!", without knowing he couldn't get his money out if he tried, and it would trade for pennies on the dollar if it had been listed on an exchange.[quote=joelv72][quote=LSUAlum][quote=joelv72]Private REITS chap my hide. Every one that I have seen on investor statements show the paper value, but none of the clients were aware that 100% of the ones I have seen have suspended redemption. If they were exchange traded I doubt they would be valued at 50% of what is showing on the statement. When you look at the REITs financial statements (which are often hard to find), cash flow is often negative, yet they are still paying a 7% yield.
Private REITs in fee based accounts is an issue (seperate from what you guys are discussing). The main reason is that you are lucky if the REIT is priced annually and potentially you can be charging fees on $10 share price when in reality it is $8.
You know, I have been mildly curious about how they go about pegging a value per share on a private REIT. Is it based on book value, or do they use a market value of the underlying real assets?Private REITs in fee based accounts is an issue (seperate from what you guys are discussing). The main reason is that you are lucky if the REIT is priced annually and potentially you can be charging fees on $10 share price when in reality it is $8.
To tell you the truth, I am not sure. I believe they value the underlying real estate assets on a periodic basis. I have a brother-in-law who is a lawyer for a very large REIT firm, whose brain has been picked over by yours truely, but that question never came up to me.
Enough about REITs, I’m telling you - Peer to Peer lending is a hot mess.
Enough about REITs, I’m telling you - Peer to Peer lending is a hot mess.
sooo.
an intermediary gets private bowwows and lenders together?
I have been reading the web site. its a lending bookie.
how much do they? is it a "pooled" loan. interesting
I don't have the exact numbers, but a couple million a month (at least Prosper does), which is low volume compared to what they did before the SEC shut them down.
Quick background on this: A borrower goes to the website and puts up a listing for whatever they want (between $1,000 and $25,000). A credit check is performed and certain financials are posted for lenders to see. Lenders who want to bid on the action put in their minimum bid, and it goes off like an auction. So one loan for $5,000 could have 100 different lenders on it. The problem was that these were promissory notes sold by Prosper to the lenders (technically) and considered securities, which were never registered with the SEC or the respective states. So the SEC shut them down and they went itno a quiet period (for about 6 months) as they got their affairs in order. Now they are back and have added new restrictions on who can borrow money (minimum credit scores). Previously, the default rate on these loans were staggering, I believe around 40+%. Some borrowers were basically stealing money with no intention to pay back, because the collections process was a joke. You could basically get $25,000 for a ding on your credit history. Current issues facing the company is that it is running in the red. They are living on short term borrowed money from VC. Their advertising is blatantly misleading. They advertise returns around 9%, which is no where near what the average "investor" gets (usually a negative return). They compare themeselves to irrelevant benchmarks when it suits them (with the stock market tanked, it made their smaller negative return look better). The whole thing is a joke, which is a shame because I like the idea of cutting banks out of the loan business. If Wallstreet ever bundled this garbage, it would be a terrible. LendingClub is trying to get FAs and RIAs to invest client money in these loans - which I also think is foolish due to the risk and the inability to predict default (totally crapshoot). If by chance you picked a basket of loans that didn't default, you could earn a really nice return.[quote=Wet_Blanket]
I don’t have the exact numbers, but a couple million a month (at least Prosper does), which is low volume compared to what they did before the SEC shut them down.
Quick background on this: A borrower goes to the website and puts up a listing for whatever they want (between $1,000 and $25,000). A credit check is performed and certain financials are posted for lenders to see. Lenders who want to bid on the action put in their minimum bid, and it goes off like an auction. So one loan for $5,000 could have 100 different lenders on it. The problem was that these were promissory notes sold by Prosper to the lenders (technically) and considered securities, which were never registered with the SEC or the respective states. So the SEC shut them down and they went itno a quiet period (for about 6 months) as they got their affairs in order. Now they are back and have added new restrictions on who can borrow money (minimum credit scores). Previously, the default rate on these loans were staggering, I believe around 40+%. Some borrowers were basically stealing money with no intention to pay back, because the collections process was a joke. You could basically get $25,000 for a ding on your credit history. Current issues facing the company is that it is running in the red. They are living on short term borrowed money from VC. Their advertising is blatantly misleading. They advertise returns around 9%, which is no where near what the average "investor" gets (usually a negative return). They compare themeselves to irrelevant benchmarks when it suits them (with the stock market tanked, it made their smaller negative return look better). The whole thing is a joke, which is a shame because I like the idea of cutting banks out of the loan business. If Wallstreet ever bundled this garbage, it would be a terrible. LendingClub is trying to get FAs and RIAs to invest client money in these loans - which I also think is foolish due to the risk and the inability to predict default (totally crapshoot). If by chance you picked a basket of loans that didn't default, you could earn a really nice return.[/quote]It's funny, they were talking about this about three years ago in one of the financial porn mags. I remember thinking what an idiotic idea it was. They were hiring people to actually call the borrowers (or go see them) and threaten them at one point. Then they got caught doing that and were forced to back off.
Yeah, the whole business model is heavily beneficial to deat beat borrowers. This came to my attention while I was working on my MBA. One of my “free thinking” finance professors brought it up as an interesting idea.
I actually wanted to test out the idea and take out a small loan. I was registered at the time, so I needed permission to do the transaction - because I couldn't determine whether or not it was a security, and whether or not I would have been considered "selling away." I talked to Prosper for clarification - they didn't know. I called up FINRA - they didn't know what the hell I was talking about. Said that first I needed to know if these notes were considered securities. So I called up the SEC and talked to one of their lawyers - who had no idea. 6 months later they get shut down by the SEC. (I'm not taking credit for this, there have been plenty of red flags along the way). Funniest part is how the notes are structured. They are technically owned by Prosper, not the lender/investor. So when they go tits up, the lenders are screwed because the notes will be taken by creditors. There are actually people that have dumped upwards of $500,000 into these "investments."As an aside -
Pooled lending is basically what the Government lending programs do. Similarities - Borrowers are lower rated and do not get money from Private Banks (i.e. bank won't lend it's own money to borrower based on risk / reward) - Borrowers meet lower minimum standards to borrow money from one institution (either lendingclub.com OR the US Government in this example) - Lending institution does not use it's own funds loan the money (banks have an expectation of profit to losses that this entity does not concern itself with because it's not using it's own money) - Touted as a social experiment that makes solid sense to give good quality people loans they may not be otherwise able to get - Underestimates the losses from defaults - Interest rates on these loans are LOWER (with higher risk, wtf??) than private loans (inefficient lending anyone?) Differences: - Lenders (individuals in both cases) have an expectation of return from lending club but have no such expectation from US Government - Individuals have the option to particpate in lendingclub but NOT the option to pay taxes So if lending clubs or pooled lending is a bad idea, what's that make Government Loan Programs?[quote=LSUAlum] As an aside -
Pooled lending is basically what the Government lending programs do.
Similarities
- Borrowers are lower rated and do not get money from Private Banks (i.e. bank won’t lend it’s own money to borrower based on risk / reward)
- Borrowers meet lower minimum standards to borrow money from one institution (either lendingclub.com OR the US Government in this example)
- Lending institution does not use it’s own funds loan the money (banks have an expectation of profit to losses that this entity does not concern itself with because it’s not using it’s own money)
- Touted as a social experiment that makes solid sense to give good quality people loans they may not be otherwise able to get
- Underestimates the losses from defaults
- Interest rates on these loans are LOWER (with higher risk, wtf??) than private loans (inefficient lending anyone?)
Differences:
- Lenders (individuals in both cases) have an expectation of return from lending club but have no such expectation from US Government
- Individuals have the option to particpate in lendingclub but NOT the option to pay taxes
So if lending clubs or pooled lending is a bad idea, what’s that make Government Loan Programs?
[/quote]
fukcing retarded post.
idiot
Wet
we do 95% disret managed. usually say no to clients ideas
we like and own F
guy called to buy f preferred (cramer pick )
look into it. makes sense
we buy name. a MF preferred, right? safe
next day…Skullmobile EVERYWHERE
bust the trade, call the FBI etc etc
too risky, client objectives to conservative blah blah.
i laughed. thought about you
Hahaha - that’s music to my ears. Another upstart thwarted!
j/k Did the F position plus the F preferred push the % of the portfolio to that company into the "Danger Zone"? And did I understand you correctly, did you try to add this non-managed position into a SMA or an account managed by you?nope.
busting trade illogical
he OWNS F common (lower on capital food chain).
preferred by definition is "safer"
BUT because of the lawsuits from subprime we going too far the other way.
so, in the firms rule book a ford preferred needs a more aggressive profile the ford common (brilliant)
we take our medicine and move on with life
we understand we are part of the Borg and resistance is futile…
no, we bought a name because the client asked to buy it in a disret. account.
Im with U and Us
If you’re giving me the whole story, then that’s retarded. I’m glad I’m not at a B/D anymore.
My answer is: MAC[quote=Shania Twain] nope.
busting trade illogical
he OWNS F common (lower on capital food chain).
preferred by definition is "safer"
BUT because of the lawsuits from subprime we going too far the other way.
so, in the firms rule book a ford preferred needs a more aggressive profile the ford common (brilliant)
we take our medicine and move on with life
we understand we are part of the Borg and resistance is futile…
no, we bought a name because the client asked to buy it in a disret. account.
Im with U and Us[/quote]
[quote=Wet_Blanket] If you’re giving me the whole story, then that’s retarded. I’m glad I’m not at a B/D anymore.
My answer is: MAC [/quote]
hahah. We laugh it off. part of deal.
compliance is there to protect us.
what is mac?
what is sma?
Seperately Managed Account.
Are you screwing with me?No
Im stupid. I’ve never heard that.
Must be an Indy term?
No. I’m pretty sure your firm calls it that. If you personally manage your own clients’ discretionary accounts, then you wouldn’t have any use for it.
No, it’s not just Indy. In fact Wirehouses use them quite frequently. It’s basically a fee only account that has discretionary authority typically given to one or more professional money managers.
It's a way to have Bill Gross manage your FI holdings directly for you at the behest of the client. They can issue edicts on what securities can and can not be purchased (i.e. no tobacco holdings of any kind).ive heard
macs, pim,pspm,pim.pia,consults,select,CSD,gpm…
If you guys really want to get into it, SMAs are largely governed by the Investment Company Act of 1940: Rule 3(a)-4. This is what keeps these sponsored programs from being considered Investment Company products.
Put simply, ithas to meet 5 basic requirements: 1. Must be managed on the basis of client's financial situation and objectives. 2. Client can impose reasonable restrictions. 3. Client receives a statement at least quarterly detailing the account activity and fees. 4. Client retains shareholder rights on each security (for the most part). 5. Personnel of the manager is available to the client.[quote=mlgone][quote=LSUAlum]No, it’s not just Indy. In fact Wirehouses use them quite frequently. It’s basically a fee only account that has discretionary authority typically given to one or more professional money managers.
It's a way to have Bill Gross manage your FI holdings directly for you at the behest of the client. They can issue edicts on what securities can and can not be purchased (i.e. no tobacco holdings of any kind).[/quote] pssst dude......it's a joke.......everyone knows this[/quote] I assumed he was being serious by how he responded to Wetblanket. Again, this site is for learning so you can't assume 'everyone knows this'.It's a safe assumption that Shania is being an ass.
Firms are only required to re-price every 18 months. However, some firms will update all client accounts when one client liquidates or purchases secondary shares of the REIT. Jones does this, so they get more accurate pricing more often than every 18 months. However, if no clients place transactions on a particular, then there's no updated price. Jones actually goes to the REIT's every 12 months for a price to be safer. Wouldn't surprise me if there was some $7.00 and $6.00 junk out there right now. I am waiting for pricing and bids on 3 of them right now. I'm holding my breath.Private REITs in fee based accounts is an issue (seperate from what you guys are discussing). The main reason is that you are lucky if the REIT is priced annually and potentially you can be charging fees on $10 share price when in reality it is $8.
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