A Nod to the Majors

"The Majors" are the most traded currency pairs in the world, there is no Lieutenant Colonel above them (to explain that statement, a Major is usually the next rank after Captain in the Army, and just before Lieutenant Colonel).

The Majors comprise the EURUSD ("probably" the most traded currency pair in the world aka. "The North Atlantic Treaty"), the USDJPY (ever so topical with the Bank of Japan regularly making statements - trading at around 93 Yen, aka "Tokyo DisneyLand"), Cable (aka The Cameron Camera) trading around $1.52, Ozzie (aka "The Kylie Minogue" - 1.02 USD; sailing very close to parity), Swissie (or The Swiss Cheese - USDCHF - roughly 92 centimes) and Loonie (USD/CAD - a largely cordial relationship since the War of 1812 - trading at 1.01 CADDIES).

The most interesting of the Majors at the moment are Tokyo-Disneyland, The North Atlantic Treaty and The CamCam.

Livingston's Cerebral Guide to the Corporate Loan Market

The corporate loan market is here explained by Livingston in no particular order.

Investment Grade versus Leveraged Loans

The "investment grade" loan market is the "golden child" of the loan market. It comprises loans to companies rated >= BBB/Baa3 with relatively low spread to LIBOR. Nothing very exciting - these are solid companies, with strong credit ratings that can finance themselves relatively cheaply.

The "leveraged loans" market, on the other hand, is a different kettle of fish. Here we deal with companies with weaker credit ratings and spread >= LIBOR + 150bps.

Side note: leveraged loans are also used in leveraged buyouts (LBOs) of companies.

Institutional Loans

Loans structured for sale to institutional investors, e.g. mutual funds, hedge funds, insurance companies, CLOs (where loans are pooled together, requires deeper explanation (later)).

Secondary Loans / Secondary Market

A secondary loan market is one in which loans trade after primary syndication completes - mostly this involves leveraged loans.

The area of banks that are dedicated to bringing these loans to the market is called loan underwriting/syndication. From the league table perspective, this has a jargon all of its own.

* Lead left - only lead bank on a transaction
* Lead bookrunner / Lead arranger - top 1 or 2 banks in the transaction (called left and right)
* (Titled) Agent - usually lead arranger
* Co-agent - involved but not from the earliest stages

Role of the Revolver

Both investment grade and leveraged loans generally involve some sort of revolver. It offers flexible financing for corporations.  With an RCF- as its sometimes known (the F stands for "facility") , the loan can be repaid and redrawn. Revolving credit is generally linked to LIBOR.

CLO

With a CLO, you pool together a bunch of loans. The payments of these loans are passed on to the owners of various tranches of the CLO. CLOs are an instrument of syndication - it's basically creating debt for companies, packaging that debt into a "marketable" format for willing investors, thus lowering the cost of capital the company.

Financial Twitter

In the "Economics and markets" category of our Twitter selection:

Check out PIMCO on Twitter. Also:
Ed Bradford on G-bonds,
StLouis Fed on all things Federal Reserve.
ZeroHedge on various, including Bonds.
Sallie Krawcheck on banking.
Roubini on Economics.
Nick Firoozye from Nomura.

You can also follow some "finance-related" institutions, such as:

NYSE Options (includes the "AMEX" market subsumed by the "NYSE")

The BUNDESBANK wants its gold BACK

The German Bundesbank, second largest holder of gold in the world after the United States, has decided at least half its gold should be in its own vaults. Part of this comes with pressure from the German Precious Metals Association. Apparently, last year the U.S. Federal Reserve had refused to allow Germans to verify their gold held in US vaults (reported in Der Spiegel).

Trading the RICI

The RICI is the Rogers International Commodities Index, being promoted by the NYX, and founded by James Rogers, Jr., which started at a value of 1000 in July 1998.

Commodities are selected based on their importance to "worldwide consumption" - commodities merely of national interest are omitted (like Azuki - red bean - futures, on TOCOM). Additionally, the index focuses on the most liquid contracts e.g. COMEX Silver, rather than silver on the Tokyo Commodity Exchange. COMEX silver trades in USD per troy ounce, versus TOCOM's yen per gram. Note that COMEX is owned by the CME Group.

Over January and February 2013, the index is moving from ICE Coffee to NYSE Coffee, similarly ICE Cocoa to NYSE Cocoa.

Beeland Management Company is an advisor to RICI (Beeland being Mr Rogers middle name).

CQG is another advisor into RICI. They provide trading into JP Morgan, Citi and Kyte.

Most Levered Commodity Assets

ATM commodity options give you generally 5-10 times leverage. You can get a pretty good 8x to 9x leverage from trading base metals options on LME aluminium and copper. Copper has higher leverage than aluminium although their volatilities are roughly the same. Crude options give you about 8x leverage.

Microsoft Ready to Eat Dell

Michael Dell, Microsoft and Silver Lake are preparing to re-take Dell for $24.4bn. This is a huge transaction in the "take-private" deal category.

John Brennan is an MD with Silver Lake in Menlo Park (San Mateo County, California). Christian Lucas (former Head of European Technology at Morgan Stanley) is an MD with Silver Lake in London.

The Incoming Governor of the Bank of England

Ex-Goldman Sachs Mark Carney will become Governor of the Bank of England on July 2013. He studied at both Harvard and Oxford. As Governor of the Bank of Canada, he explained that his "fundamental priority" was to ensure "low, stable and predictable inflation".

The Art of Inverse Equity ETFs

Inverse ETFs allow investors to hedge long equity positions. It also facilitates some form of long/short equity trading.

Proshares (it seems) offers good liquidity in Inverse ETFs.

Here's a case study of SH, which was created in 2006. SH allows you to go 100% short the S&P 500. The expense fee is 0.89%. The NAV is calculated at 4pm ET.

How does Proshares the ETF work? As of 1 Feb 2013, it's partly achieved by being ~$64m short on the S&P 500 e-Mini March contract - a massively popular futures contract (trades 5 days a week on a March quarterly cycle). But as not all the liquidity can be executed on the exchange, a large percentage of the short position is achieved via Equity Index Swaps (e.g. they are short $380m against Goldman Sachs, $306m short against Deutsche Bank).

This is an interesting concept: selling protection (insurance) via an ETF by massively shorting the futures market.

The Global ETF Market & Focus: From Super-Cheap SCHX to Innovative EG Shares

Awesome Size of the Global ETF Market

The Global ETF Market, as reported by London's Financial Times newspaper, has invested in it a sum greater than 2 trillion dollars. It also states that nearly 70% of that figure is held by Blackrock's iShares (acquired from Barclays in 2009), State Street and Vanguard. In Europe, Lyxor, owned by Societe Generale, is also pretty big.

ETFGI is a company focused on ETF research, started by staff from Morgan Stanley, involved in investment research and strategies.

How does an investor compare ETFs?

Metrics for Comparison

One metric is the EXPENSE RATIO. One of the cheapest ETFs is the Charles Schwab US Large Cap ETF  (SCHX) which has an expense ratio of 0.04%. It is non-leveraged and holds assets of $1bn (about 18% of holdings are in the IT sector).

Morningstar is a company that gives ratings to ETFs,based on performance, adjusted for cost, and adjusted for risk.

ETF "Categories"

They also assign special categories to ETFs, depending on the asset class. For example, a US stock ETF might be classified as "Large Growth", "Large Value" or "Large Blend" or sector-based e.g. "Real Estate", "Utilities", "Technology". In the area of Alternatives they have categories like "Managed Futures", "Volatility", "Equity Precious Metals" or "Inverse Equity".

What does the "Equity Precious Metals" category consist of?

These funds invest in equities connected with precious metals, such as gold mining companies.

ETF Exchanges

NYSE ARCA has a whole range of tradable ETFs, searchable by issuer. For example, iShares have 10 ETFs on ARCA.

Indian ETFs

EG Shares has developed Indian ETFs. Once such, is NYSE:INXX, an Indian Infrastructure ETF. It has an expense ratio of 85bps. The investment is done via equities, ADRs and GDRs. The companies purchased must have a market cap of at least $200m at time of purchase.

EG Shares also produce Brazil and China infrastructure ETFs. CEO Marten Hoekstra was formely the CEO of UBS Wealth Management Americas.