Products to watch?

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Feb 23, 2010 8:28 am

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"><>

Feb 23, 2010 8:40 am

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.

Feb 23, 2010 9:58 am

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.

Feb 23, 2010 11:06 am

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.

Feb 23, 2010 11:17 am

[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"><>







Those witch doctor double and triple index ETF's. total snake oil.

Feb 23, 2010 1:30 pm

They're snake oil, but they are now properly (hopefully) disclosed snake oil.  Not the case for ARS and the like.

Feb 23, 2010 1:44 pm
Wet_Blanket:

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

Feb 23, 2010 1:45 pm

I also think (somehow) ETF's will blow.



When stuff gets too popular in our biz we always screw someone, somehow

Feb 23, 2010 2:06 pm

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. 



Feb 23, 2010 2:15 pm

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).
Feb 23, 2010 2:26 pm
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).



WB, why can't an adviser use puts/calls outside of an SMA portfolio in a brokerage acct?

Feb 23, 2010 2:39 pm

The advisor can, but the SMA manager can't (which is who I work for).

Feb 23, 2010 3:41 pm

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.
Feb 23, 2010 3:48 pm
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.





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?

Feb 23, 2010 7:29 pm
Wet_Blanket:

The advisor can, but the SMA manager can't (which is who I work for).



No offense WB, but I think you're the only SMA compliance officer on this forum.

Feb 23, 2010 8:26 pm
NYCTrader:
Wet_Blanket:

The advisor can, but the SMA manager can't (which is who I work for).



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.
Feb 23, 2010 8:48 pm

For good reasons watch  munis.  Higher tax rates are coming...

Feb 23, 2010 8:58 pm

Treasuries.

Feb 23, 2010 9:39 pm
AGEMAN:
Buckeye:

For good reasons watch  munis.  Higher tax rates are coming...

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.
 
WTF is a taxable muni?
Feb 23, 2010 9:56 pm

Thanks for the heads up.  I was not aware that there was an actual term for how BABs worked.