The ETF Game Will Come Crashing Down; All $1.2 Trillion Of It (SPY, INDEXSP:.INX)
Andrew Snyder: Wall Street is rigged. The bankers get all the reward while you take all the risk. Unless we fight back, it’s only going to get worse. There is so much you need to know about what takes place on Wall Street. The greed, the vanity, the coercion… it’s disgusting.
Take Jamie Dimon, the “fool” at the head of JPMorgan. His firm lost at least $2.3 billion in a bet involving corporate debt.
Yet Dimon claims he knew nothing about it. All he has done in the five days since the announcement is say he screwed up and he’s sorry for it.
I don’t want to… but I believe Dimon.
He didn’t know what his lieutenants were up to. Hell, even they were too ignorant to know. JPMorgan’s Chief Investment Office was in over its head with layer upon layer of complicated and illiquid hedges.
That’s what is so scary about Wall Street.
It has grown too big and too fat. The grand old days of buying and holding a blue chip are long gone. That’s too simple.
Now if you want to stay ahead of the herd, you need synthetic leverage… collateralized swaps… or whatever’s hot on the Street this week.
But it doesn’t stop there. Oh, boy… no, it doesn’t.
If you’ve followed my musings for any time, you know I am no fan of the ETF game. It’s crooked. It’s twisted. And it will come crashing down… all $1.2 trillion of it.
Most investors look at plain-vanilla ETFs and wonder how something so innocent could ever be deadly.
I will tell you how.
The game is rigged. And most investors have no idea.
If you’ve studied the ETF market, you know it is dominated by a mere handful of popular funds. In fact, fewer than two dozen funds control over half the industry’s assets. That means the remaining 1,400 funds are fighting for scraps.
But that will change if the folks who profit from the industry get their way. The companies that run the exchanges on Wall Street want regulators to open the door to an unheard-of practice.
Last weekend we learned the NYSE and Nasdaq want ETF issuers to pay market makers for buying and selling shares of thinly traded funds.
If it happens, it will change the market in a way we have never seen before.
No longer will supply and demand separate the winners from the losers.
Instead… the issuer with the deeper pockets comes out on top.
Anybody with a brain that’s not clouded by the haze of greed can see what will go wrong if market makers start collecting paychecks from fund issuers.
Your fund needs a good year to stay ahead of the competition? Why not send the market maker a year-end “bonus” and see what happens? Or better yet, threaten to hand the account to a competitor and see what happens.
Here’s the scariest part, though. This scam is likely to be legal by this time next year.
Just about everybody on Wall Street would win. The exchanges will see more volume. The ETF issuers will sell more shares. And the market makers have a steady new side job.
The only folks who will lose… are you and me.
Remember, the regulators charged with approving this move are the industry’s top insiders — the revolving door between Wall Street and Washington swings fast these days.
Dimon may not have known what his Chief Investment Office was doing… but there was no reason he had to think twice about it. JPMorgan’s CEO is a board member of the Federal Reserve Bank of New York.
If his troops failed, he knew you and your fellow taxpayers would be there to pay the cleanup costs.
This same kind of blind greed and insider coercion is infiltrating the ETF market.
On today’s Wall Street, risk means nothing. It is all somebody else’s money.
Related: S&P 500 Index (INDEXSP:.INX), SPDR S&P 500 ETF (NYSEARCA:SPY).
Andrew Snyder is the Editorial Director of Taipan Publishing Group and the Managing Editor of Taipan Insider. Andy’s first year in the world of finance and investing involved learning the intricate details of the financial industry, as an advisor. He specialized in handling the vast portfolios of very wealthy clients, where he excelled at making them even wealthier. Since then Andy has received his MBA, published an award-winning book and been published in numerous publications. He has also appeared on Fox News and other media outlets.
With his background in research combined with his hedge fund-style education and knowledge of the market, Andy is acclaimed for his no-nonsense style of writing and his sharp, deep-thinking analysis. His goal is to use his knack for Wall Street research and analysis to lead his readers to little-known profit opportunities. Andy’s readers have described him as unshakeable, suspiciously knowledgeable and just a bit nutty; these qualities have led him to uncover market-moving events and turn them into reliable, double- and triple-digit gains.