• Saks (NYSE:SKS) reported a surprise quarterly profit

• Microsoft (NASDAQ:MSFT) shares rose 3.0%, and led the gainers on the DJIA, after Morgan Stanley (NYSE:MS) and UBS (NYSE:UBS) recommended the shares.  Morgan Stanley's analyst raised the price target on the stock due to encouraging demand for Windows 7 and upbeat expectations for holiday season demand.  UBS' analyst placed a $34 price target on the shares

• Barclays Capital (NYSE:BCS) raised ExxonMobil (NYSE:XOM) to "overweight"

• Autodesk (NASDAQ:ADSK) offered a slightly downside fourth-quarter guidance of 24 cents a share ex-items

• Salesforce.com (NYSE:CRM) said it sees fourth-quarter earnings of 14 cents to 15 cents a share, versus Street estimates of 15 cents a share

• BMO Capital downgraded Research in Motion (NASDAQ:RIMM) to "market perform" from "outperform," cutting the price target to $64 from $100

• A counter-offer to Kraft's (NYSE:KFT) hostile, $16 billion Cadbury (NYSE:CBY) offer may be in the works from Hershey (NYSE:HSY) and Ferrero

• ExxonMobil (NYSE:XOM) shares were upgraded to "overweight" at Barclays Capital (NYSE:BCS)

• A regulatory filing showed Berkshire Hathaway (NYSE:BRK.A) nearly doubled its Wal-Mart (NYSE:WMT) holdings; added almost 112 million Wells Fargo (NYSE:WFC) shares; the filing showed a 1.28 million holding of ExxonMobil (NYSE:XOM) shares; and 3.2 million shares of SunTrust Banks (NYSE:STI)

• UBS (NYSE:UBS) CEO Grubel outlined an ambitious goal of annual pre-tax profits of $14.89 billion over the next 3-5 years

• Dillard's (NYSE:DDS) reported a smaller than expected third quarter loss, with a non-GAAP loss of 3 cents, versus estimates of a 51 cent loss on revenues of $1.36 billion, off estimates of $1.38 billion. Same-store-sales fell 9%

It is indeed an old adage that while goods things are to be preferred over bad things it is possible to get too much of the former. Looking at recent comments from the governor of the Reserve Bank of Australia it is not difficult to imagine how these, albeit old and worn, pearls of wisdom may well have inspired Mr. Stevens in his effort to tiptoe the thigthrope between signalling the intention to raise rates into an expected economic recovery on the one side and trying to prevent the Aussie shoot of on helium into the sun with wings of wax on the other.

(quote Bloomberg)

Australia’s central bank Governor Glenn Stevens signaled a surge in the nation’s currency to near parity with the U.S. dollar has given him scope to slow the pace of future interest-rate increases.

Stevens, who yesterday became the first central banker in the world to raise borrowing costs twice in 2009, said the 28 percent gain in the currency this year may hurt exports and cool inflation, allowing him to “gradually” raise borrowing costs. Just last month, he warned it may be “imprudent” to keep rates at “emergency levels.” The local currency and bond yields fell as traders slashed bets on another quarter-point boost next month, after Stevens raised the overnight cash rate target to 3.5 percent from 3.25 percent. Investors have been driving the Australian dollar toward parity with the greenback, betting China’s economic growth will boost exports from Australia, the biggest shipper of iron ore used in making steel.

Policy makers “are probably glad for the parity talk as it reduces the amount of work they need to do with monetary policy,” said Matthew Johnson, an interest-rate strategist at UBS AG in Sydney. “A December move is a 50-50 proposition.” Traders are betting there is a 50 percent chance Stevens will increase the key rate by another quarter point on Dec. 1, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 12:22 p.m. today. Prior to Stevens’s comments, they had a 96 percent bet on such a gain.

Mr. Stevens' comments follows in the heels of the recent push by part of the Aussie towards parity with the US dollar reflected primarily in the fact that the RBA has already raised twice in 2009 (from 3.00 to 3.5%) as well as a growing risk sentiment which is a fundamental prerequistie, in the current market, for observing investors react to (growing) yield differences. In so many words, this is all about carry trade and more specifically about the fact that in a world where the G3 and others are still fiddling with quasi- or outright QE it takes a brave sould to initiate a hiking process since it will mean an immediate reaction in the currency market. This is especially the case when the liquidity anchor effectively constitutes the US and thus; while the US pump priming keeps a floor under risky assets and volatility at low levels it becomes a veritable turkey shoot to gun for those currencies whose central banks are on the hike (see more here).

Following Mr. Stevens' comments, the Aussie did lose a bit of its steam even if many currency punters still see it racing towards parity over the course of the coming year.

For example David Forrester who is currency economist at Barclays Capital expects the Aussie to test the parity level in 2010, a call based on the idea that the RBA will have hiked rates to a full 5.5% by the end of next year. Needless to say, in a world where risky assets continue to fly and risk aversion is kept in check this will provide a juicy interest rate differential vis-a-vis the G3 and thus the carry trade flows (be they actual carry trades or simply spot market piggy backing) will be plentiful. 

The question is of course; can you blame the RBA for wanting to raise rates?

As it turns out, not really and particularly not in light of global central banks' new found focus on asset prices in setting the policy rate. You know, it was all Greenspan's fault and all that jazz. Still, for those worried about a too rapid V-shaped recovery, Australian house prices seem to offer plenty of things to worry about.

From Q3-08 to Q1-09 the house price index (weighted for the 8 biggest cities) fell a modest 5.6%, a drop which has been decisively paired in Q2/Q3-09 with the index rising a cumulative 8%. This picture is repeated if we look at a general gauge for consumer spending in the form of a sector break down of retail sales.

Consequently, the annual as well as monthly flow of retail trade turnover never really went decisively into negative in the context of the financial crisis which has no doubt contributed to the fact that the RBA never really contemplated a move into ZIRP and QE.

What happens next then?

Well as I noted recently, the burden of rebalancing may be tough to carry for those economies who have central banks brave enough to raise interest rates. Ironically of course and if it is really asset prices you are worried about, the risk is naturally that you just end up sucking in liquidity as you which in itself defeats the purpose of the hiking campaign (see Edward's recent piece on Norway for a Scandinavian perspective on this). Naturally, you can retort to Brazil like capital controls, but in a world where capital flows freely and where the global economies are largely interdependent, this is like trying to stop a freight train with a VW Polo. Also, allow me to finish with a small quibble of mine in relation to the sudden urge by part of central bankers to target asset prices. I mean, this is fine and all and for those who know a little bit about monetary policy this is not something completely new. The problem is merely that targeting asset prices may not only be counterproductive in a world where asymmetric liquidity conditions and carry flows are the norm, by targeting asset prices also entail targeting a price which is considerable more volatile than traditional prices (because I assume that forecasting long term asset prices is not as easy as many believe). In this way, a steady gaze at asset prices may also conflict with central banks' general propensity to favor incremental and gradual moves.

Whether this is the case in Australia, only time will tell. Yet, from the lovely fjords of Oslo, to the beaches of Rio, and on to the Great Barrier Reef policy makers may soon learn that you can indeed get too much of a good thing.

According to the National Stock Exchange, U.S. ETNs had $6.9 billion in assets at the end of September. ETFs were literally 100 times more prevalent, with $697 billion in assets. That included $62 billion just in long commodity ETFs.

That’s just crazy. And it highlights investors’ irrational fear of the ETN product structure.

I remember when ETNs first came to market in 2006: Investors couldn’t get enough of them. Barclays Capital launched the iPath Dow Jones-UBS Commodity Index ETN (NYSEArca: DJP) and it quickly gathered assets.

The reason was simple: ETNs offered two huge advantages over commodity ETFs.

First, they promised perfect tracking. If you bought an ETN, you would receive the full return of the benchmark, minus the fund’s expenses. Period. That’s handy, since commodity ETFs have been more prone to tracking error than most equity funds.

But the real advantage of commodity ETNs was (and remains) their tax treatment. The prospectus said (and still says) that ETNs can be treated basically like zero-dividend stocks for tax purposes. If you hold a commodity ETN for longer than a year, you only pay 15 percent long-term capital gains taxes when you sell. What’s more, you don’t have to pay any taxes until you sell.

By comparison, futures-based commodity ETFs like the PowerShares DB Commodity ETF (NYSEArca: DBC) are treated like futures by the IRS. That means that gains are marked-to-market each year, and investors must pay taxes on those gains at a blended 60 percent/40 percent long-term/short-term capital gains tax rate. For a high-earning investor, that puts the blended tax rate at 23 percent, payable every year.

That’s a huge difference. An ETN investor pays a 15 percent tax rate, deferrable until the ETN is sold; the ETF investor pays a 23 percent tax rate, due annually.

Risk Factor

Why don’t we see more assets flow into ETNs? The only possible reason (short of simple ignorance) is the credit risk.

The N in ETN stands for note, and that’s what they are: unsecured debt notes. Like any other uninsured promise-to-pay, their entire value depends on the credit of the issuing bank. If you buy a Deutsche Bank ETN and Deutsche Bank goes bankrupt, you lose all your money.

It’s not a theoretical fear. The very few people who held the three Lehman Brothers ETNs to the bitter end lost their money when the firm went bankrupt. It’s obvious, looking at the numbers, that the credit crisis stopped the growth of ETNs in their tracks.

But let’s be honest: For an investor who is paying attention, the likelihood of losing money in an ETN is vanishingly small. Most ETNs offer daily redemptions at net asset value, meaning that (even ignoring the quoted market) an investor of size (50,000 shares in the case of iPath) can sell out of the product within 48 hours and get the full net asset value of the note from the issuer.

So ask yourself: How likely is it that Barclays Capital or Deutsche Bank, or whomever is underwriting a particular ETN, will go bankrupt with less than 48 hours’ warning? Or to put a margin of safety on it, how likely is it that they will go bankrupt in the next week?

The answer right now is: not very.

For taxable investors who pay attention to the market, read the newspaper, monitor stock quotes, etc., the likelihood of being caught out on an ETN is tiny. Meanwhile, the risk of overpaying the IRS if you buy and hold a commodity ETF is 100 percent.

ETNs don’t make sense for all investors. In nontaxable accounts, I actually prefer ETFs. If you want a truly fire-and-forget investment, where you can walk away for a year or two, ETFs are the way to go. But for taxable investors who pay close attention to their accounts, there’s a lot to be said for the ETN structure.

(One caveat here: There is a risk that the CFTC’s plan to enact new regulations in the commodities market will force some ETNs to shut down. If that happens, investors would get their money back, but they could be hit with short-term capital gains if they’ve held a note for less than a year. It’s tough to gauge how large a risk this is, but it’s legitimate.)

The 30-share Dow Jones industrial average rose 56 points, or 0.6%, to 9,497.34 and the S&P 500 index added 9 points, or 0.9%, to 1,025.39, its highest close in 11 months.  The tech-heavy NASDAQ added 19 points, or 0.94%, to close at 2,037.77 points. On the New York Stock Exchange, advancing issues outpaced those that declined three to one on volume of 1.32 billion shares.  However, a jump in the CBOE Vix volatility measure, which rose 1.4% to 25.62, added a note of caution to the upbeat mood.

Dollar’s plunge to an 11-month low was also due to a Monday release from the United Nations, which again called for less dependence on the greenback as the premier global reserve currency. Indications that China would diversify some of its interests into gold also hurt the dollar, although the size of China's reserves mitigates against much impact.  Nevertheless, the news helped gold prices.  This morning's news indicated Barrick Gold (NYSE:ABX) is planning to raise up to $3.5 billion through a new share offering priced at $36.95 per share.

Yesterday, General Electric (NYSE:GE) was the leading gainer on the DJIA after being upgraded by JP Morgan (NYSE:JPM).  Costco (NASDAQ:COST) advanced 2.3% after two brokerages upgraded the stock. Among tech issues, IBM (NYSE:IBM) retreated 0.3% after it was downgraded; however, the firm noted it is "well ahead" of its 2010 earnings target of $10-$11 per share.  Advanced Micro Devices (NYSE:AMD) surged 14.6% as Barclays Capital (NYSE:BCS) upgraded the shares to "outperform."  AIG (NYSE:AIG) shares slumped 10.5% after Credit Suisse (NYSE:CS) downgraded the stock to "underperform," noting "little to no value for common equity" remains.

Nine of the ten S&P industry groups recorded gains Tuesday , with oil and gas (+2.7%) and basic material shares (+2.1%) leading the list of gainers.  Only healthcare shares registered declines, declining 0.3%.  Crude prices spiked $3.31 to $71.33 on expectations today's OPEC meeting will see no change in the production levels.  Moreover, Goldman Sachs (NYSE:GS) maintained a favorable long-term view on the group, saying there is an "increasing evidence of a stronger-than-expected recovery in global industrial activity."  Chevron (NYSE:CVX) and ExxonMobil (NYSE:XOM) shares gained 2.2% and 2.1%, respectively.  Among basic material issues, Alcoa (NYSE:AA) rose 3.5% to $12.60.

In today's Presidential appearance before a rare joint session of Congress, President Obama will attempt to resuscitate his healthcare reform package and counter the groundswell of centrist opposition, which has driven his ratings to a low 52% point.

Investors can procure cheap loans for buying newly created consumer loan-backed, new and existing commercial mortgage-backed bonds. The deadline for investors to request loans for buying asset- backed debt for the seventh round of the TALF is Sept. 3.

The deal, called BAAT 2009-2, will be jointly led by Bank of America/Merrill Lynch, Barclays Capital (BARC), Citigroup Inc. (C), Credit Suisse Group (CS) and Royal Bank of Scotland (RBS). Last month, Bank of America sold the first deal eligible under TALF of $4 billion auto-loan backed deal at 135 basis points over a benchmark.

TALF was set up in March to reinvigorate the battered securitization market following the bankruptcy of Lehman Brothers Holdings Inc. Although TALF was originally applicable only to securities backed by consumer loans, it has been expanded to include commercial mortgage loan-backed bonds.

TALF loans against newly issued asset-backed securities and existing commercial mortgage-backed securities will be extended through March 31, 2010. For newly issued CMBS, which takes considerable time to be put together, the extension is until June 30, 2010.

The Fed is relying on the TALF to lower borrowing costs and unlock credit to consumers and small business. The program may provide as much as $200 billion in loans to finance the purchase of highly rated asset-backed securities comprising new consumer and small- business loans.

The Dow Jones industrial average edged up 3.32 points, or 0.03%, to end at 9,509.28.  The Standard & Poor’s 500-stock index fell 0.56 points to end at 1,025.57, and the NASDAQ fell 2.92 points, or 0.14%, to 2,017.98.  On the New York Stock Exchange, winners narrowly edged losers on volume of 1.23 billion shares.

Shares of auto-related companies were under pressure as the government’s cash-for-clunkers program was set to end.  Financial stocks retreated 0.9% after an influential banking analyst noted that the current economic crisis could see another 150-200 banks failing.  Moreover, SunTrust Bank (NYSE:STI) CEO warned of further pressure among US banks from troubled commercial real estate loans throughout 2010.  Its shares fell 3.8%. The news outweighed a report from Barclays Capital (NYSE:BCS) in which ratings on three credit card firms were raised to "overweight," due to estimates that a peak in write-offs is near at hand.  The firm raised its American Express (NYSE:AXP) rating to "overweight," and increased its price target to $38 from $28.

A rise in crude prices to almost $75 per barrel helped oil and gas shares lead the gainers on the S&P 500 with a 1.3% advance.  Shares of ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) rose 2.0% and 1.5%, respectively.  Defensive health care and utility shares also advanced, with gains of 0.3% and 0.2%, respectively.

President Obama's anticipated, 9:00 AM ET announcement from Martha's Vineyard, where he is on vacation with his family, regarding the reappointment of Fed Chairman Bernanke could boost sentiments today.  Many on the Wall Street like Bernanke’s calming presence and have grown increasingly confident in his ability to avoid further financial missteps. Moreover, the early nomination offers the Chairman the opportunity to make plans beyond the end of his term, which would include the exit strategies needed as the economy improves.

Barclays Capital announced today that it is halting the issuance of new shares in the iPath Dow Jones-AIG Natural Gas ETN (NYSEArca: GAZ).

GAZ is the third commodity-focused exchange-traded product to stop issuing shares in the past few weeks, joining the United States Natural Gas Fund (NYSEArca: UNG) and the PowerShares DB Crude Oil Double Long ETN (NYSEArca: DXO).

GAZ saw significant inflows after the sponsors of UNG (the only competing natural gas product) announced on August 12 that they were suspending issuance of new shares. GAZ ended July with $127 million in assets, but closed yesterday with $187 million, nearly a 50% increase.

Investors turned to GAZ following the announcement because UNG started trading at a large premium to its net asset value; it closed yesterday at a 12.4% premium to NAV. Investors may have been playing that premium, taking a long position in GAZ and a short position in UNG, anticipating that UNG’s premium would eventually disappear.

ETF and ETN issues are worried that the CFTC will impose strict position limits on commodity holders, making it difficult or impossible for these products to track their benchmarks. They are halting issuance of new shares to cap the size of these funds. Issuers do not want to be in a position where they are forced to redeem shareholder positions to meet new CFTC caps.

In the filing announcing the move, Barclays warned that more iPath ETNs may join GAZ in the near future.

“In light of current market dynamics and ongoing regulatory review, the factors underlying the temporary suspension of the Notes may impact other commodity-linked iPath ETNs in the future.”

ProShares has launched its third inverse exchange-traded fund designed to short longer-term Treasuries.

The ProShares Short 20+ Year Treasury (NYSE Arca: TBF) is expected to charge an annual expense ratio of 0.95.

Along with a pair offered by rival Direxion, the new offering represents the fifth ETF on the market taking short positions in the typically highly liquid government-backed fixed income market.

But the newest is different from the rest. It offers less juice than others already on the market.

TBF seeks to provide 100% inverse exposure to the daily performance of its underlying Barclays Capital index.

ProShares has two other inverse ETFs aimed at providing 200% inverse coverage: The UltraShort 7-10 Year Treasury (NYSE Arca: PST) and the UltraShort 20+ Year Treasury (NYSE Arca: TBT).

Direxion also has a pair of inverse Treasury ETFs: The Daily 10-Year Treasury Bear 3x Shares (NYSE Arca: TYO) and the Daily 30-Year Treasury Bear 3x Shares (NYSE Arca: TMV). Both provide 300% inverse exposure to their underlying indexes and charge expense ratios of 0.95% each.

Despite reporting a profit in 2008, Delphi's equity declined by $320 million, or 28%, to $820 million primarily due to unrealized losses on its investment portfolio. Particular areas of concern in Delphi's investment portfolio for additional losses are its above-average exposure to residential mortgage-backed securities and asset-backed securities.

The latest offering comes as a measure to top up Delphi‘s capital levels. It will also bolster the company’s tangible common equity ratio, providing flexibility for future growth.

Delphi competes with Conesco Inc. (CNO), Stancorp Financial Group Inc. (SFG) and American Equity Investment Life Holding Co. (AEL).

XShares Advisors LLC has announced that it plans to close the AirShares EU Carbon Allowances Fund (NYSE Arca: ASO).

Entering July, the exchange-traded product had just $4 million in assets. ASO launched in December 2008 with nearly $5 million in seed money as an asset base.

ASO is actually a commodity pool that tracks a basket of exchange-traded futures contracts for European Union allowances (EUAs). Each contract provides for delivery of 1,000 EUAs at a specified price.

The ETF-like product, as AirShares refers to ASO, invests in futures contracts that expire each December beginning in 2009 and extending through 2012. As contracts approach their December expiration, the fund sells expiring contracts and replaces them with contracts of later expirations.

Since the commodities involved aren't physically deliverable, ASO can't be considered an ETF. But it acts like many exchange-traded commodities products that are popular in Europe.

Carbon exchange-traded products began appearing in the second half of last year to much hoopla. But their role in a diversified investment portfolio remains in debate since little in the way of research is out on how investing in such a niche corner of the market can impact long-term portfolios.

That has led to speculation that only traders well-versed in carbon emissions markets would trade such futures contracts through an exchange-traded product.

ASO was actually the second such fund of its type. Another type of fund, referred to as an exchange-traded note, was first to market in the carbon field. Last June, Barclays Capital gained first-mover status into the U.S. exchange-traded products market for carbon emissions with its iPath Global Carbon ETN (NYSE Arca: GRN).

Just like ASO, it trades throughout the day along an exchange. But GRN is priced a bit cheaper at 0.75%. As an ETN, however, GRN carries counterparty risk since it actually represents an investment in unsecured debt notes.

Interestingly, GRN isn't doing any better than ASO. It has less than $3 million in total assets.

In announcing the shuttering of ASO, XShares said that it "has considered the current market conditions and the growth prospects of the small fund in the foreseeable future and decided that liquidation was in the best interests of the fund and its shareholders."

The fund is eligible to de-register because it has fewer than 300 common stock shareholders of record.

Shareholders may sell their shares without transaction fees on or before July 31, the firm added in its statement. All shareholders of record remaining on that day will receive cash equivalent to the net asset value of their shares as of the same date, including any capital gains and dividends.

-- This article was submitted by IndexUniverse.com's Murray Coleman.

* Apollo Group (NASDAQ:APOL) also bettered expectations with third-quarter earnings of $1.26 per share, beating estimates of $1.12 on revenues of $1.05 billion, up from $835.2 million a year ago and estimates of $1.04 billion

* Dell (NASDAQ:DELL) is said to be developing a pocket-sized product for accessing the internet on Google's (NASDAQ:GOOG) Android software

* General Mills (NYSE:GIS) said it increased its quarterly dividend 4 cents to 47 cents a share

* Societe Generale raised its rating on Barclays Capital (NYSE:BCS) to "hold" from "sell" citing its improved capital position from the sale of its fund business to BlackRock, also noting estimates of profitability in 2009 and 2011. Its analysts expect Barclays (NYSE:BCS) to post losses in 2010

* Broadcom (NASDAQ:BRCM) announced that its has raised its hostile takeover bid 19% to $912 million for Emulex (NYSE:ELX)

* A federal jury announced a $1.67 billion verdict against Abbott Labs (NYSE:ABT) in a Johnson & Johnson (NYSE:JNJ) patent infringement suit

The list is long and varied, and ebbs and flows over time. But here are some of the sources (public, private and otherwise) that I turn to in my day-to-day reading. I'm sure I'm leaving out quite a few sites, but this at least is a partial list.

NATIONAL PUBLICATIONS

IndexUniverse.com and IndexUniverse.eu: It goes without saying that IndexUniverse.com and IndexUniverse.eu are the best sites on the Web for information about ETFs and how they are used in portfolios.

IndexUniverse.com

IndexUniverse.eu

Slate/The Big Money: Those two Web sites aside, I start my day at Slate.com, and its sister finance site The Big Money. I find the daily news summary (and weekly magazine summaries) the best meta-journalism on the Web. They offer quick, succinct and erudite summaries of the major national, international and business news of the day. Five minutes and I'm up to speed.

Today's Papers

Today's Business Press

Weekly Magazines

Wall Street Journal: After Slate, I usually turn to WSJ.com. Rupert Murdoch or no, the Wall Street Journal is still the organ of the finance industry, and has some great reporters. I read much of the paper, but make sure never to miss columns or articles by Jason Zweig, Shefali Anand, Eleanor Laise, John Spence or Ian Salisbury, among others.

For what it's worth, I stopped getting the paper version of the WSJ last year, after subscribing for nearly a decade. I miss it, but it seemed like a waste of trees.

http://www.wsj.com/

Financial Times: As good as the WSJ is, the FT is smarter about the markets, and I read it on a daily basis as well. I scan for ETF stories and read the commodity section in full; I also monitor the Lex columns. I don't follow their Alphaville section much, but I'm always impressed when I do get there.

http://www.ft.com/

MarketWatch: John Spence, as mentioned above, is one of the best ETF reporters out there (and an IndexUniverse.com alum). I keep an eye on his columns at MarketWatch, and also read Chuck Jaffe regularly.

http://www.marketwatch.com/

Barron's: I wish I read Barron's more than I do, but I check in periodically. When I do, I find that I like Tom Sullivan's column quite a bit. I've also started to regularly read Mike Santoli, who is smart, funny and to the point.

http://www.barrons.com/

OTHER SOURCES

Yahoo Finance: Yahoo Finance Is the go-to site for news aggregation and (most importantly) total-return data on ETFs and indexes. I love the charting features, and the fact that you can download historical total returns for any stock, index or ETF is simply invaluable.

Finance.yahoo.com

Pimco: If you're not visiting Pimco's Web site once a month, you're doing yourself a disservice. Bill Gross and Paul McCulley's commentaries are invaluable, and often fun to read. I read Mohamed El-Erian's commentary too, but less religiously.

http://www.pimco.com/

SEC.Gov: One of the least user-friendly Web sites in the world, but once you've cracked the code of the SEC search engine, you can find filings for any ETF that exists or is in registration. I'm on there five times a week reviewing prospectuses.

http://www.sec.gov/

Cumber.com: I keep pace with the commentary of the Cumberland Advisors crew, including David Kotok and Bob Eisenbeis. They're both smart and frank about how they're approaching the market, and use ETFs exclusively for the equity side of their business.

http://www.cumber.com/

Random Roger: Ditto Roger Nusbaum, who takes a nice real-world view of the markets, with just the right touch of detached irony.

randomroger.blogspot.com

Ed Yardeni: As a member of the press, I get Ed Yardeni's summary reports, which are extraordinarily useful. If you're not a member of the press, it costs big $$$.

http://www.yardeni.com/

Barclays Capital Research: Ditto the research reports from Barclays Capital. I read their weekly reports regularly, and devour their annual Equity Gilt study from cover to cover. Whenever I get my hands on one, I feel like I have received the blueprint to how the universe really works.

http://www.barcap.com/Client+offering/Research/Global+Asset+Allocation/Equity+Gilt+Study

Provider Web sites: Provider Web sites are often the best source of information on ETFs. iShares is probably the best, but nearly all of the providers do a good job and offer a lot of information.

ETF News Aggregators: To gather some of the other stories that I would otherwise miss, I subscribe to a host of ETF news aggregators, including the LinkedIn ETF Group and ETF Express.

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Here are highlights from Friday's Analyst Blog:

Optimistic on Osiris

Osiris Therapeutics, Inc. (OSIR) reported financial results for the first quarter 2009 on May 7, 2009. Total revenues in the quarter were $12.7 million, up from $0.4 million for the same period for 2008, and slightly above our forecasts of $11.8 million.

Revenues include the recognition of $10.0 million in amortized license fees from Genzyme Corp. (GENZ) and $2.6 million related to the contract with the U.S. Department of Defense. The company reported net income of $14.8 million, or $0.45 per share for the quarter. This figure is comprised of losses from continuing operations of $7.9 million, or $0.24 per share, and income from discontinued operations of $22.7 million, or $0.69 per share.

Barclays Boosted by Lehman Ops

Today, Barclays PLC (BCS, or Barclays) posted a 15% year-over-year increase in pretax profits to £1.4 billion, driven by a 361% gain in pretax earnings to £907 million at Barclays Capital, stemming from the acquisition and integration of Lehman's North American operations. While net income attributable to shareholders rose 12%, diluted earnings per share dropped 33% due to dilution caused from the sale of additional shares last year.

Net revenues increased 42% year over year due to the Lehman acquisition and strong growth at the international businesses in Global Retail and Commercial Banking on growth in assets. However, profits at all of Barclays' retail and commercial banking operations were hit by a sharp deterioration in credit quality and higher loan impairment charges, particularly in the UK, Spain, and India. Total impairment charges rose 79% year over year to £2.3 billion, including £1.1 billion at Barclays Capital, which was up 45% year over year and included credit market write-downs of £754 million.

Intersil Corporation Looks Ahead

Intersil Corporation (ISIL) is an OEM of analog and mixed signal semiconductor ICs. Management expressed confidence that the bottom is behind it, and judging from the increasing order rates and growing backlog, we are inclined to agree.

The High Performance Analog market is a key reason we are bullish on the shares.

Isis Our Top Mid-Cap Biotech Pick

We are keeping our Buy rating and $22 price target on Isis Pharmaceuticals (ISIS). We are big fans of antisense technology and believe that the number of potential therapeutic applications is enormous. Antisense drugs may have significant potential to treat a number of diseases where small molecule and biologic compounds have failed.

Although still early-stage, antisense technology as a platform for developing drugs reminds us greatly of the promise of biologic drugs over a decade ago. Potential mechanisms such as siRNA, RNAi, alternate splicing and micro RNA have the potential to change how we treat disease in the years to come.

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A new futures exchange  backed by some of the biggest banks and broker-dealer groups in the world is apparently ready to begin operations in June. 

The Electronic Liquidity Exchange is aiming to break the "near-monopoly" grip the Chicago Mercantile Exchange  has on futures markets in the U.S., according to the Financial Times. 

The New York City-based exchange was established by a dozen financial firms: Bank of America, Barclays Capital, BGC Partners, Citadel, Citigroup, Credit Suisse, Deutsche Bank Securities, GETCO, JPMorgan, Merrill Lynch, PEAK6 and The Royal Bank of Scotland.

In October 2008, ELE named  Neal Wolkoff as its chief executive. He was a former CEO of the American Stock Exchange. Before that he served as chief operating officer of the New York Mercantile Exchange.

At that time, Wolkoff said: "Initially, ELX will focus on the significant opportunity to bring lower transaction costs, successful innovation, and greater speed and efficiency to the global market in U.S. Treasury futures contracts."

The Financial Times notes this is a particularly challenging environment to launch a new exchange. Although through mergers and acquisitions the CME  has captured nearly all of the market for financial and commodity futures, trading volume in those areas have fallen dramatically since the credit crisis started more than 18 months ago. 

The ELX didn't immediately return calls for clarification on its launch schedule early Thursday. The new group does have a Web site with more information. You can find it here.

Standard & Poor's has launched the first in a series of global low carbon indexes, which could eventually lead to a third exchange-traded product being made available to U.S. investors focusing on that corner of the alternative energy market.  

The S&P U.S. Carbon Efficient Index will measure the performance of large cap U.S. companies with relatively low carbon emissions, while seeking to closely track the return of the S&P 500.

The new S&P benchmark will have some competition. Last year, Merrill Lynch launched its own MLCX Global CO₂ Emissions Index. At the time, index officials said they hoped to base an ETF off the product.  

The S&P U.S. Carbon Efficient Index is different from both the Merrill Lynch product and the exchange-traded products now out. The AirShares EU Carbon Allowances Fund (NYSE Arca: ASO) is actually a commodity pool that tracks a basket of exchange-traded futures contracts for European Union Allowances (EUAs). Each contract provides for delivery of 1,000 EUAs at a specified price.

Since the commodities involved aren't physically deliverable, ASO can't be considered an ETF. But it acts like many exchange-traded commodities products that are popular in Europe. It's also important to note ASO represents a pool of futures contracts rather than notes.

That's significant since another type of fund, referred to as an exchange-traded note, is already on the market. In late June, Barclays Capital gained first-mover status into the U.S. exchange-traded products market for carbon emissions with its iPath Global Carbon ETN (NYSE Arca: GRN).

Carbon emission credits are traded by companies who get tax breaks and other incentives for lowering pollutants into the air. These standards are designed to set limits on the amount of a pollutant that can be released into the atmosphere and allocates credits among companies creating emissions. Those that do not use all their emissions credits can sell them to companies that need them.

By some estimates, the global carbon market is worth more than $50 billion a year.

The new S&P index includes constituents of the S&P 500 that have a relatively low carbon footprint, as calculated by Trucost Plc. Trucost, the environmental data organization quantifies the environmental impact of more than 4,500 companies across different sectors and geographies.

Trucost calculates the carbon intensity of companies in the S&P U.S. Carbon Efficient Index by researching and standardizing publicly disclosed information and engaging directly with companies to verify its calculations on an annual basis, according to S&P. 

(Carbon Footprint is calculated as the company's annual greenhouse gas emissions assessment, expressed as tons of carbon dioxide equivalent, divided by annual revenue.)

The Index is rebalanced quarterly at which point the stocks in the S&P 500 are ranked by their carbon footprint. The 100 equities with the highest scores and whose aggregate exclusion does not reduce any individual sector weight of the S&P 500 by more than 50%, are removed. 

Interestingly enough, S&P says the average annual carbon footprint of the S&P U.S. Carbon Efficient Index was 48% lower than that of the S&P 500.

I know what you all are thinking. Since when has Hougan been a technician?

I’m not. I don’t really believe in technical analysis. But I do think that charts provide an interesting snapshot of the market, and that through ETFs, you can get a feeling for what pieces of the market are working. And at this point, I'm willing to try anything.

With that in mind, I’ve been spending a lot of time lately looking at the Financial sector. I’ve been waiting … hoping … praying for some sign of a bottom. But it just isn’t there. The chart of the Select Sector SPDRs – Financials ETF (NYSE Arca: XLF) looks like a staircase to hell.

One of the beautiful things about ETFs, however, is that you’re not limited to just “Financials.” There are nearly 20 Financial sector ETFs on the market today, and you can use them to drill down to the industry level. You can buy not just “Financials” but specific industries like Insurance, Regional Banks, Financial Services and … Broker-Dealers.

You wouldn't want to for most of them, however: most of the charts look worse than the chart for XLF.  Insurers in particular are a disaster.

But that last one---Broker-Dealers---still has a chance.

If you overlay the chart for the iShares DJ Broker Deal ETF (NYSE Arca: IAI) on top of the chart for XLF (which you can do on Yahoo! Finance), you can see that XLF and IAI tracked each other perfectly through the first of this year. Starting January 14, however, they started to diverge … sharply. Since that day, XLF is down nearly 40%, while IAI is down only 12%. And for now, IAI is holding above its November lows: As I write this, it's trading at $15.18, more than a buck above it's November low of $14.08. It’s the only piece of the Financials sector that can make that claim.

Barclays Capital released a research report yesterday suggesting that investors are in hysteria over Financials. According to Barclays, investors are overestimating the potential liabilities and driving the Financial sector down below any reasonable estimate of fair value. They weren't sure when that process would end.

They did say, however, that the broker-dealers would probably be the first part of the sector to bottom, as they have the least amount of bad debt on their books and (from a certain perspective) the best opportunity to profit from uncertainty. 

The chartists among you would point out that IAI needs to make a higher high than the one it achieved on January 6 (at $20.97) before it establishes an uptrend. That’s true. But at least it hasn’t broken that low … yet.

The top holdings of IAI are Goldman Sachs (12.4%) and Morgan Stanley (10.6%).

As bloggers across the Internet were talking up a potential sale of exchange-traded funds leader Barclays Global Investors, some real news was taking place at the San Francisco-based asset management giant. 

The $1.5 trillion asset manager said on Thursday it had hired longtime Citi/Smith Barney executive John Longley as its new head of national accounts in the U.S.

In that role, Normal 0 false false false EN-US X-NONE X-NONE MicrosoftInternetExplorer4 /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;} Longley will set the strategic direction and lead a team to expand iShares ETF distribution through partnerships with national and regional banks and brokers, according to the company. 

Earlier in the day, a Financial Times blog came out with a report that built on speculation running through the industry that Barclays Plc was preparing to unload its asset management arm. BGI refused to comment on the rumors.

But a later Reuters report, citing an inside source, disputed that claim. And a Dow Jones piece from London also seemed to dismiss the blog item.  (See related article here.)

Although an ongoing credit crisis is creating havoc within the financial sector -- while at the same time, most ETF providers are still attracting net inflows -- parent Barclays' chief executive has been quoted recently as saying that he prized BGI's growth potential for the entire company.

Besides owning one of the world's largest asset managers with BGI's 3,000 institutional clients, Barclays also operates a leading distributor of exchange-traded notes, Barclays Capital. It serves as the investment banking arm of Barclays Bank.

But as the rumors of an emminent break-up  of the global financial institution were dying, BGI was moving to beef-up its distribution channels. Besides the iShares ETF line, the firm also oversees the LifePath target-date retirement family of funds, global long-short investment strategies for institutional investors and securities lending services, among others.

Longley has a background in distribution and customer relations management stretching back 20 years. He joined Smith Barney in 1993 and moved up from a branch to regional and divisional director for the firm. Longley has worked in the U.S. as well as abroad and last year was named chief executive of Citi's private banking operations in the U.S. and Canada. 

Last year, his responsibilities were expanded to include Citi global wealth management's domestic lending services and its capital strategies unit. 

The selection of Longley figures to reinforce BGI's strategy of moving deeper into the institutional marketplace with its ETF business. Last year, it hired the leading global researcher in the exchange-traded marketplace, Deborah Fuhr. She had been a pioneer in developing and analyzing exchange-traded investment products for Morgan Stanley's institutional clients. (See related story here.)

Normal 0 false false false EN-US X-NONE X-NONE MicrosoftInternetExplorer4 /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;} "We are delighted to have someone of John’s caliber and experience join us as we continue to reinforce our leadership position in the fund industry," said Michael Latham, CEO of U.S. iShares at BGI, in a statement.

-- This article was submitted by IndexUniverse's Murray Coleman. 

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It's a question I've received from a number of advisors recently, particularly late last week, as the share price of the leading ETN issuer Barclays PLC tumbled headlong toward zero. Those questions have abated now that Barclays' share price has stabilized—and may abate more given Barclays' announcement today that it earned $7.5 billion in 2008 while writing down nearly $12 billion in bad debt. But as you say, there's no guarantee we've seen the worst of things yet in the Financials space.

The risk in holding an ETN, of course, is that some weekend we will wake up to learn that the underwriting bank has been nationalized and its senior debt holders wiped out. This seems extraordinarily unlikely for a bank as large as Barclays—especially for one that is profitable right now—but it is a question in this extraordinary environment.

Currently, a small minority of note holders are voting with their feet. Assets in the iPath DJ AIG Commodity Index Total Return ETN (NYSEArca: DJP) are down about 18% ($225 million) year-to-date, while the fund itself is down just 3.6%, suggesting some withdrawals. Still, there is more than $1.2 billion invested in the note, and it remains the largest broad-based, exchange-traded commodity product in the world ... ETF or ETN.

The thing that gets overlooked about ETNs in the commodity markets is that they have real advantages over ETFs; namely, zero tracking error and superior tax treatment.

On taxes, commodity futures ETFs like the PowerShares DB Commodity Index Fund (NYSEArca: DBC) are taxed as 1256 contracts. That means any gains you make in the funds are taxed annually, whether or not you sell the fund; there is no way to defer capital gains. Moreover, those gains are taxed 60% as long-term gains and 40% as short-term gains, creating a maximum blended tax rate of 23%. Commodity ETNs, by contrast, are taxed like traditional equities: No taxes are due until you sell the note, and gains on ETNs held for more than a year are taxed as long-term capital gains, at 15%. That can be a big difference for longtime holders.

This superior tax treatment is theoretically under review at the Internal Revenue Service, but the IRS has taken no action on the matter since a flurry of activity more than a year ago. It seems likely to me that the IRS has simply exercised a pocket veto, refusing to rule on the matter and therefore letting the status quo persist.

Tracking error is a topic that gets overlooked, but it can be significant in the commodity space. Tracking a commodity index, with its monthly contract rolls and other factors, is hard—much harder than tracking a broad-based equity index. The iShares S&P GSCI Commodity Index Fund (NYSEArca: GSG), to take one example, missed its benchmark by 0.98% in 2008. Admittedly, it outperformed the index—tracking error in commodity funds tends to dampen returns, and GSG's index crashed in 2008—but chances are the fund will lag a bit on the upside as well. With an ETN, you are assured 100% of the index return, eliminating tracking risk.

Still, there's no avoiding the elephant in the room: ETNs are credit notes, and there is a chance in today's environment that you will wake up and find that the banks have been nationalized and unsubordinated debt (which is what ETNs are) has been wiped out.

The ETN providers have done everything they can to mitigate this risk: They allow daily redemptions, for instance, so you can exit the fund at net asset value in a one-day window. But there's nothing they can do to change the nature of what ETNs are.

So that's the question to you, Jim: Would you own an ETN in the current environment? Are the benefits—particularly in the commodity space—worth that risk?

Barclays Sells Stake To Middle Eastern Investors

In this Bloomberg News report, Barclays Plc said it sold a 32% stake to Abu Dhabi's royal family and two Qatari investors after the London-based bank turned down government aid.

The financial giant is parent to Barclays Capital, issuer of exchange-traded notes, and Barclays Global Investors, the leading ETF family in the U.S. The article notes that shares of Barclays Plc dropped 10% on Thursday to their lowest levels in two decades.

The fall seems to also be attributed to admissions by Barclays that its deal in October includes provisions that could require it to sell more shares at a discount to the group of Middle Eastern investors. 

You can read the story here.

The Plight Of Barclays & ETNs

This Wall Street Journal story running in the paper's Friday morning editions and on its Web site considers the plight of Barclays' latest woes in terms of the many ETN investors holding such notes in their portfolios. 

You can read it here.

Option Activity Jumps In ProShares ETF

Is the sell-off in government bonds about done? This report by Reuters explores the fact that options volume in a ProShares UltraShort Treasury ETF soared on Thursday.

An analyst notes that buying and selling activity in puts with February options expiration dates indicates traders are betting on rising prices and declining yields in Treasuries.

You can read the story here.

Huge Losses Causing Hedge Funds To Cut Fees, Overhaul Strategies

This enterprising Bloomberg News article contrasts the fact that hedge funds recorded record asset losses last year despite the fact that average investment returns by some counts wound up beating the S&P 500. 

Such clashing events are leading experts to expect in 2009 that hedge funds will slash fees and offer more transparency to investors. Interestingly enough, another comparison of corresponding data cited in the article points to a leading hedge fund index starting the new year way ahead of the S&P 500.  

Recovery Of Financials Still Not In Sight?

In this look at the plight of ETFs covering financial stocks, Investor's Business Daily markets reporter Trang Ho writes that the sector continued its fall on Thursday. 

That seems to suggest that the previous day's "monstrous rally was merely an oversold bounce and that a bottom has yet to form," she wrote.

You can read the story here.

Lee Kranefuss, chief executive officer of BGI's iShares business, recently took time to discuss with IndexUniverse's Murray Coleman the future of exchange-traded funds and recent developments relating to the industry's dominant product line.

IU:  Barclays recently renamed the Lehman-based bond indexes to the Barclays Capital moniker. Will the iShares Lehman ETFs change?

Kranefuss:  Barclays Capital completed its acquisition of Lehman Brothers' North American Investment Banking and Capital Markets businesses. As part of the transaction, Lehman Brothers' indices have become part of Barclays Capital. The Lehman indexes are now Barclays Capital indexes. iShares will be renaming those ETFs. It's our practice to include the index provider in the name of the funds; we think that transparency is important for investors. People ought to know which index a fund is following.

IU: BGI's market share as a percentage of assets under management has dropped in 2008 by more than 5% through October. At the same time, State Street Global Advisors and Vanguard have recorded more than 1% gains. What do you attribute this to?

Kranefuss: You've really got to look at these pieces of data over time. SSgA's ETF assets, for instance, are concentrated in a couple of large funds that have huge swings in assets due to a large institutional base and general market sentiment.

Eight out of every $10 dollars in ETFs have flowed into iShares for several years. We built the industry, and that obviously invited competition. One wouldn't expect that sort of concentrated asset gathering to continue. In the long run, we're still the leading ETF provider by far in the U.S. and globally. And competition is a good thing for a new product category. ETFs are a relatively new product to a lot of people. So more assets coming into the industry is good for BGI and everyone else. It validates what we're doing with ETFs and keeps us on our toes.

IU: BGI has 24 ETFs in registration that haven't come out yet. Do you expect most of those to still launch?

Kranefuss:  While I'm very limited in what I can say about funds in registration, we are committed to building out the product line in the U.S. which currently has 178 ETPs. We expect that to include equities and especially fixed income, which only represents about 20% of our lineup right now. We've got lots of room for many new products, particularly in areas of the market that are traditionally more difficult for retail investors to access. ETFs are a huge democratizing force in the marketplace.

IU: The longer-term picture is that bid/ask spreads keep widening for ETFs. Do you see this as a systemic problem?

Kranefuss: The current widening of bid/ask spreads is reflective on the volatile markets. Typically, correlations between the spread for the ETF and the spread of the underlying securities widen by the illiquidity of the underlying markets. So dealers have to make wider spreads on the ETF. That having been said, there are times when an ETF's spread can actually be tighter than on the underlying securities. For example, a few weeks ago the spread on the iShares iBoxx High Yield Corporate Bond Index Fund (NYSE: HGY) was 26 basis points. At the same time, the spread on the underlying basket of bonds was trading at 56 basis points. The spreads on the ETF was much tighter than if investors bought the underlying bonds as individual issues.

IU: You recently launched asset allocation funds. Who is the market for these and how will advisors use them in a portfolio?

Kranefuss: One of our key target markets is advisors. There are some segments of their business that would benefit from an ETF that offers a premixed diversified portfolio targeted to a particular date such as a child's entering college or to a specific risk level. There are numerous other types of examples. These are another set of tools to build out a diversified portfolio. Life cycle funds are gaining increased interest in 401(k) plans and we think that the iShares asset allocation funds are an excellent option for small 401(k) plans that are often advised by financial advisors. Currently ETFs have small penetration into the 401(k) market, so we'll see how the new funds take off.

IU: Are there any plans to lower the expense ratio on the iShares MSCI Emerging Markets Index (NYSE: EEM)?

Kranefuss:  Through time we've lowered expense ratios as warranted. We're always looking for opportunities. Right now, we feel that all of our products are well-priced. You can see by how asset flows are going into funds. Emerging markets are complicated and not easy to operate a fund against in terms of benchmarking. So people have done an assessment and found that EEM is fairly priced. And EEM is a bit more institutional driven. It has been one of our fastest growing funds, even in the current environment.

IU: What do you see as the big trends for ETFs going to be in 2009?

Kranefuss: One big trend is going to be a shakeout in the industry. There are a lot of people who entered the business a year or two ago who don't have sustainable business models. People want to invest with experienced, stable, long-term focused managers.

Another trend will continue to be the growth of ETFs. Mutual funds are losing assets. As people continue to learn the advantages of ETFs - transparency, relatively low costs, and tax-efficiency - they're going to keep moving to ETFs. And as people face end-of-year capital gains possibilities, those advantages are going to become even more apparent.

Lee Kranefuss, chief executive officer of BGI's iShares business, recently took time to discuss with IndexUniverse's Murray Coleman the future of exchange-traded funds and recent developments relating to the industry's dominant product line.

IU:  Barclays recently renamed the Lehman-based bond indexes to the Barclays Capital moniker. Will the iShares Lehman ETFs change?

Kranefuss:  Barclays Capital completed its acquisition of Lehman Brothers' North American Investment Banking and Capital Markets businesses. As part of the transaction, Lehman Brothers' indices have become part of Barclays Capital. The Lehman indexes are now Barclays Capital indexes. iShares will be renaming those ETFs. It's our practice to include the index provider in the name of the funds; we think that transparency is important for investors. People ought to know which index a fund is following.

IU: BGI's market share as a percentage of assets under management has dropped in 2008 by more than 5% through October. At the same time, State Street Global Advisors and Vanguard have recorded more than 1% gains. What do you attribute this to?

Kranefuss: You've really got to look at these pieces of data over time. SSgA's ETF assets, for instance, are concentrated in a couple of large funds that have huge swings in assets due to a large institutional base and general market sentiment.

Eight out of every $10 dollars in ETFs have flowed into iShares for several years. We built the industry, and that obviously invited competition. One wouldn't expect that sort of concentrated asset gathering to continue. In the long run, we're still the leading ETF provider by far in the U.S. and globally. And competition is a good thing for a new product category. ETFs are a relatively new product to a lot of people. So more assets coming into the industry is good for BGI and everyone else. It validates what we're doing with ETFs and keeps us on our toes.

IU: BGI has 24 ETFs in registration that haven't come out yet. Do you expect most of those to still launch?

Kranefuss:  While I'm very limited in what I can say about funds in registration, we are committed to building out the product line in the U.S. which currently has 178 ETPs. We expect that to include equities and especially fixed income, which only represents about 20% of our lineup right now. We've got lots of room for many new products, particularly in areas of the market that are traditionally more difficult for retail investors to access. ETFs are a huge democratizing force in the marketplace.

IU: The longer-term picture is that bid/ask spreads keep widening for ETFs. Do you see this as a systemic problem?

Kranefuss: The current widening of bid/ask spreads is reflective on the volatile markets. Typically, correlations between the spread for the ETF and the spread of the underlying securities widen by the illiquidity of the underlying markets. So dealers have to make wider spreads on the ETF. That having been said, there are times when an ETF's spread can actually be tighter than on the underlying securities. For example, a few weeks ago the spread on the iShares iBoxx High Yield Corporate Bond Index Fund (NYSE: HGY) was 26 basis points. At the same time, the spread on the underlying basket of bonds was trading at 56 basis points. The spreads on the ETF was much tighter than if investors bought the underlying bonds as individual issues.

IU: You recently launched asset allocation funds. Who is the market for these and how will advisors use them in a portfolio?

Kranefuss: One of our key target markets is advisors. There are some segments of their business that would benefit from an ETF that offers a premixed diversified portfolio targeted to a particular date such as a child's entering college or to a specific risk level. There are numerous other types of examples. These are another set of tools to build out a diversified portfolio. Life cycle funds are gaining increased interest in 401(k) plans and we think that the iShares asset allocation funds are an excellent option for small 401(k) plans that are often advised by financial advisors. Currently ETFs have small penetration into the 401(k) market, so we'll see how the new funds take off.

IU: Are there any plans to lower the expense ratio on the iShares MSCI Emerging Markets Index (NYSE: EEM)?

Kranefuss:  Through time we've lowered expense ratios as warranted. We're always looking for opportunities. Right now, we feel that all of our products are well-priced. You can see by how asset flows are going into funds. Emerging markets are complicated and not easy to operate a fund against in terms of benchmarking. So people have done an assessment and found that EEM is fairly priced. And EEM is a bit more institutional driven. It has been one of our fastest growing funds, even in the current environment.

IU: What do you see as the big trends for ETFs going to be in 2009?

Kranefuss: One big trend is going to be a shakeout in the industry. There are a lot of people who entered the business a year or two ago who don't have sustainable business models. People want to invest with experienced, stable, long-term focused managers.

Another trend will continue to be the growth of ETFs. Mutual funds are losing assets. As people continue to learn the advantages of ETFs - transparency, relatively low costs, and tax-efficiency - they're going to keep moving to ETFs. And as people face end-of-year capital gains possibilities, those advantages are going to become even more apparent.

Lee Kranefuss, chief executive officer of BGI's iShares business, recently took time to discuss with IndexUniverse's Murray Coleman the future of exchange-traded funds and recent developments relating to the industry's dominant product line.

IU:  Barclays recently renamed the Lehman-based bond indexes to the Barclays Capital moniker. Will the iShares Lehman ETFs change?

Kranefuss:  Barclays Capital completed its acquisition of Lehman Brothers' North American Investment Banking and Capital Markets businesses. As part of the transaction, Lehman Brothers' indices have become part of Barclays Capital. The Lehman indexes are now Barclays Capital indexes. iShares will be renaming those ETFs. It's our practice to include the index provider in the name of the funds; we think that transparency is important for investors. People ought to know which index a fund is following.

IU: BGI's market share as a percentage of assets under management has dropped in 2008 by more than 5% through October. At the same time, State Street Global Advisors and Vanguard have recorded more than 1% gains. What do you attribute this to?

Kranefuss: You've really got to look at these pieces of data over time. SSgA's ETF assets, for instance, are concentrated in a couple of large funds that have huge swings in assets due to a large institutional base and general market sentiment.

Eight out of every $10 dollars in ETFs have flowed into iShares for several years. We built the industry, and that obviously invited competition. One wouldn't expect that sort of concentrated asset gathering to continue. In the long run, we're still the leading ETF provider by far in the U.S. and globally. And competition is a good thing for a new product category. ETFs are a relatively new product to a lot of people. So more assets coming into the industry is good for BGI and everyone else. It validates what we're doing with ETFs and keeps us on our toes.

IU: BGI has 24 ETFs in registration that haven't come out yet. Do you expect most of those to still launch?

Kranefuss:  While I'm very limited in what I can say about funds in registration, we are committed to building out the product line in the U.S. which currently has 178 ETPs. We expect that to include equities and especially fixed income, which only represents about 20% of our lineup right now. We've got lots of room for many new products, particularly in areas of the market that are traditionally more difficult for retail investors to access. ETFs are a huge democratizing force in the marketplace.

IU: The longer-term picture is that bid/ask spreads keep widening for ETFs. Do you see this as a systemic problem?

Kranefuss: The current widening of bid/ask spreads is reflective on the volatile markets. Typically, correlations between the spread for the ETF and the spread of the underlying securities widen by the illiquidity of the underlying markets. So dealers have to make wider spreads on the ETF. That having been said, there are times when an ETF's spread can actually be tighter than on the underlying securities. For example, a few weeks ago the spread on the iShares iBoxx High Yield Corporate Bond Index Fund (NYSE: HGY) was 26 basis points. At the same time, the spread on the underlying basket of bonds was trading at 56 basis points. The spreads on the ETF was much tighter than if investors bought the underlying bonds as individual issues.

IU: You recently launched asset allocation funds. Who is the market for these and how will advisors use them in a portfolio?

Kranefuss: One of our key target markets is advisors. There are some segments of their business that would benefit from an ETF that offers a premixed diversified portfolio targeted to a particular date such as a child's entering college or to a specific risk level. There are numerous other types of examples. These are another set of tools to build out a diversified portfolio. Life cycle funds are gaining increased interest in 401(k) plans and we think that the iShares asset allocation funds are an excellent option for small 401(k) plans that are often advised by financial advisors. Currently ETFs have small penetration into the 401(k) market, so we'll see how the new funds take off.

IU: Are there any plans to lower the expense ratio on the iShares MSCI Emerging Markets Index (NYSE: EEM)?

Kranefuss:  Through time we've lowered expense ratios as warranted. We're always looking for opportunities. Right now, we feel that all of our products are well-priced. You can see by how asset flows are going into funds. Emerging markets are complicated and not easy to operate a fund against in terms of benchmarking. So people have done an assessment and found that EEM is fairly priced. And EEM is a bit more institutional driven. It has been one of our fastest growing funds, even in the current environment.

IU: What do you see as the big trends for ETFs going to be in 2009?

Kranefuss: One big trend is going to be a shakeout in the industry. There are a lot of people who entered the business a year or two ago who don't have sustainable business models. People want to invest with experienced, stable, long-term focused managers.

Another trend will continue to be the growth of ETFs. Mutual funds are losing assets. As people continue to learn the advantages of ETFs - transparency, relatively low costs, and tax-efficiency - they're going to keep moving to ETFs. And as people face end-of-year capital gains possibilities, those advantages are going to become even more apparent.

Good day… And a Wonderful Wednesday to you! OK… Are you up on these “pirates” stories going on right now? That’s pretty unbelievable, eh? And… We are all fans of “pirates” here on the Currency Trading Desk, but these guys now are giving “our pirates” a black eye!

The currencies range traded yesterday in a very tight range, as Treasury Sec. Paulson, didn’t give in to the lawmakers and allocate $25 Billion of the TARP (Troubled Asset Relief Program) funds to automakers. King Henry said, “The rescue (read bailout!) package was not intended to be an economic stimulus or…

Nickel fell as low as $4.50 at the New York open, but about-faced and pushed almost to $5 before easing late and closing at $4.8799/lb., up 25½ cents. Zinc also featured a steady upward progression to its intraday high of $0.5318/lb., up almost 2½ cents. Aluminum had a choppy trading day but managed to push to $0.8502/lb., up a penny and a half, while lead had a very strong day, ending at its intraday high of $0.6149/lb., up nearly…

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Nickel hit a steep slide early, falling below the $5 mark shortly before New York opened, and staying there the rest of the day to close at $4.9804/lb., down more than 56 cents. Zinc was also off early, but a spirited morning rally propelled it $0.5036/lb., up more than a penny and a half. Aluminum followed much the same path but failed to break even at $0.8964/lb., down less than a half-cent, while lead was modestly lower, ending down just…

With the acquisition of Lehman Brothers and its indexing unit, Barclays Capital said on Monday it's folding those benchmarks under a new brand name: Barclays Capital Indices.

The new index family will unite the combined Lehman platform with existing benchmarks run by Barclays Capital to provide a common reference point for the industry, says Larry Kantor, head of research for the firm.

"We have combined two great franchises to create a leader in the index business that covers the whole spectrum from benchmark to strategy indices," he said in announcing the changes. "We are very excited by the enormous opportunities afforded by this expanded index platform, across the full range of products and our locations around the world."

Under the unified brand, Barclays Capital will continue to calculate and publish the existing Barclays Capital benchmarks as well as the former Lehman indexes.

In addition, Barclays Capital will maintain the associated index calculation, publication and analytical infrastructure and tools that were part of the ex-Lehman Brothers platform.

During the process of combining the two index families, Barclays Capital said in a statement that "index production and publication for the former Lehman indices has been addressed as the highest priority, resulting in minimal interruption of service."

Barclays Capital will work closely with its clients and partners to appropriately address the process of re-branding index-linked products and benchmarks, the company added.

Zinc was strong, ending just off its intraday high at $0.5375/lb., up nearly 5 cents. Aluminum hit 97 cents before beating a sharp retreat back to $0.9479/lb., up three-quarters of a penny, while lead shot up to $0.6728/lb., up 3¼ cents.

Copper led the industrial metals on a tear yesterday, shooting up the most in two years, as traders became consumed with optimism generated by the…

Austria, one of Europe’s stronger economies, cancelled a bond auction on Monday in the latest sign that European governments are facing increasing problems raising debt in the deepening credit crisis.

Market conditions have steadily deteriorated in recent days with the best gauge to credit sentiment, the iTraxx investment grade index, which measures the cost to protect bonds against default in Europe, widening to more than 180 basis points, or a cost of €180,000 to insure €10m of debt over five years, on Monday.

The eurozone countries will raise €925bn ($1,200bn) in 2009, according to Barclays Capital. The UK, which is expected to increase its bond issuance from the current €137.5bn in the 2008-09 financial year, will take the figure above €1,000bn.

``The resources of the IMF may not be sufficient for wider bailouts if needed,'' said Vivek Tawadey, head of credit strategy at BNP Paribas SA in London. ``If it can't raise the money, some of the more distressed emerging markets could end up defaulting.''

Gordon Brown on Tuesday spearheaded calls for a multi-billion pound "bail-out fund" to prevent the global crisis spreading to more countries, and warned of the need to stabilise economies "across eastern Europe".....

The prime minister on Tuesday urged the oil-rich Gulf states and China to provide "substantial" funding to the International Monetary Fund, before flying to France for talks on an increase to the European Union's bail-out fund. The government is keen to emphasise the link between global action and domestic voters' interests, as well as portraying Mr Brown as a world leader.

The prime minister said it was "in every nation's interests and the interests of hard-working families in our country and other countries that financial contagion does not spread". While he did not rule out the UK making a contribution, he insisted the "biggest part can be played by the countries that have got the biggest [balance of payments] surpluses".

The IMF's $250bn (£158bn) bail-out fund "may not be enough" to prevent the crisis destabilising more countries, Mr Brown said. His spokesman added the UK was "looking at a figure in the hundreds of billions of dollars" for the IMF. Mr Brown called for "action on this new fund immediately".

Germany plans to finance part of its 500 billion euro ($636 billion) bank rescue package by issuing bonds to banks in exchange for new preferred stock, according to Finance Agency head Carl Heinz Daube.

``The banks will not be allowed to sell the injected government bonds,'' Daube said in an interview in Tokyo today. ``So far there's obviously not a huge demand for any rescue measures, but this might change in the coming weeks.''

Germany's rescue plan, approved by lawmakers on Oct. 17, amounts to about 20 percent of the gross domestic product of Europe's biggest economy. Chancellor Angela Merkel's administration pledged 80 billion euros to recapitalize distressed banks, with the rest allocated to cover loan guarantees and losses.

....Hypo Real Estate Holding AG, the Munich-based lender that's already had a 50 billion euro bailout, today asked the Deutsche Bundesbank for 15 billion euros to cover short-term liquidity needs. ....Frankfurt-based Deutsche Bank AG may also need 8.9 billion euros of new capital, more than any bank in Europe, Merrill Lynch & Co. analysts Stuart Graham and Alexander Tsirigotis wrote on Oct. 20.

The bailout plan is still being discussed in Berlin and more information will probably be released at the end of this week, Daube said.

Germany may meet additional funding needs for its bank rescue by selling six-month bills before examining options for borrowing using longer-term securities, Daube said. The government plans to offer between 212 billion euros and 215 billion euros of debt through its 2009 program, about the same as the 213 billion euros scheduled for this year.

The debt-for-equity swap will probably have ``next to no effect'' on the country's yield curve because the notes offered to banks won't trade in the so-called secondary market, he said. The yield curve plots the rates of government bonds according to their maturities, and increases indicate higher borrowing costs.

``The government deficit of course will increase, the outstanding volume of bonds will increase as well,'' Daube said. ``The number of outstanding bonds available in the secondary market will stay exactly the same.''

Van Eck Global's Market Vectors family of exchange-traded funds has erased the Lehman name from its municipal bond portfolios.

The shortened names for the muni bond ETFs coincide with a stock split already completed on the funds. The company hopes the moves will simplify marketing and increase the attractiveness of the funds.

The underlying Lehman indexes will continue to be used, and there will be no change to the ETFs' investment objectives, but the once-veritable bond-based brand of the now-extinct bank has disappeared from the marketed names of the ETFs.

The Lehman index group is now part of Barclays Capital as a result of the British bank's purchase of bankrupt Lehman.

Adam Phillips, managing director of Market Vectors, said in an interview with IU.com on Monday that the change in the names was unrelated to any fears that there might be negative association with Lehman among investors.

"We wanted to simplify the names, and now given that Lehman was folded into another company, it made sense. But the main emphasis in the change is to highlight the different points on the yield curve offered by the three ETFs," Phillips said.

The changes to the ETFs are as follows:

Market Vectors launched the family of muni bond funds to exploit the lack of similar portfolios in the ETF market. The choice of short, intermediate and long muni funds, AMT-free and investing on a national basis, made for a unique product launch. Still, the Market Vectors ETFs are better known for global and commodities-themed portfolios. Market Vectors ETFs had a total of $4.8 billion in assets under management as of September 30, 2008. MLN had $21.4 million in assets; ITM had $29.3 million; and SMB had $12.2 million, as of Sept. 30.

     -- this article was submitted by Eric Rosenbaum

“Oil prices have witnessed a dramatic collapse - unprecedented in speed and magnitude,” OPEC said, adding that prices have fallen to levels that could jeopardize “many existing oil projects and lead to the cancellation or delay of others, possibly resulting in a medium-term supply shortage.”

The 1.5 million-barrel daily reduction exceeded the expectation of many analysts, but failed to rally crude prices which have plummeted 57% since hitting a record high record high of $147.27 a barrel on July 11.  Light,…

The losses among banks, insurers and money managers may spark the next round of writedowns on CDOs after $660 billion in subprime-related losses. They may force lenders to post more reserves against losses after governments worldwide announced $3 trillion in financial-industry rescue packages since last month, according to Barclays Capital.

– Meanwhile, Reuters reports that U.S. banks will need more $700 billion in government cash injections to stay afloat because “banks cannot predict how many of their loans will sour because they do…

Nickel soared to about mid-morning and, though it eased off from there, still managed a solid positive close at $5.5618/lb., up 38¾ cents. Zinc followed nickel to a mid-morning peak, but it too backed off to end at $0.6494/lb., up more than 2 cents. Aluminum hit its high in the pre-dawn hours, before falling and then trading sideways in New York for a gain of 2 cents, to $1.0046/lb., while lead had a strong, mostly upward day, adding 4 cents, to $0.6951/lb.

Copper rallied to its biggest daily gain in two years, as traders bet on hopes that world financial cooperation will help to forestall a global recession.

“A degree of immediate relief in financial markets has led to base metals firming across the board, particularly in copper,” wrote analysts at Barclays Capital in London.

The big equities rebound helped, as well

“Copper has been mimicking the moves in the stock market,” said Michael Gross, of OptionSellers.com in Tampa, Florida. “They will probably continue to trade pretty close together for the next several sessions as people try and figure out if the government actions will have an impact on improving the economy.”

The metal was also buoyed when Chile's Escondida, the world's biggest copper mine, said on Friday that it is being forced to declare force majeure on some of its deliveries. Escondida will be unable to meet some contract obligations for copper concentrates after the shutdown of a mill used to pulverize rock.

“The Escondida news is very, very bullish,” said Dan Smith, analyst at Standard Chartered. “On its own [the mine] accounts for 8 percent of global supply.”

Meanwhile, aluminum smelters are in trouble. “Ninety-three percent of all the smelter capacity in the world is losing money with prices at around $2,200 per tonne,” says Jim Southwood, president of CRU Price Risk Management, said. “We have just reached to that level where there is significant pain for producers.”

Source: Base Metals Rally Sharply

Aluminum moved steadily higher, adding 2 cents, to $1.0129/lb., while lead gave up a lot of its gains after mid-morning, but still managed to tack on more than three-quarters of a cent, to $0.7326/lb.

Copper bounced off its 19-month low as traders tiptoed back in on a weakening dollar and broader rebounds in commodities.

There was also a good bit of “dollar-driven short-covering,” said LaSalle’s Zeman.

But Zeman added that the copper market “will likely have trouble moving considerably higher given the dim economic outlook and lack of supply threats. Prices are likely to remain in a sideways trading pattern, near-term.” Meanwhile, the Fed’s actions buoyed some investor’s spirits.

“There's some hope that the Fed is going to add some liquidity to these markets and help the credit situation ease a bit,”said Ron Goodis, of Equidex Brokerage Group in Closter, New Jersey. “The credit markets are now unbelievably important for copper, because of the impact it has on the economy.”

On the supply side, inventories monitored by the LME surged 9,600 metric tons yesterday, to 208,350 tons. That marks their highest level since February 2007. However, between 80-90% of stocks are held by one entity.

Still, Barclays Capital (BARC) analysts wrote that “the supply side is extremely problematic,” with output expected to remain “weak well into next year and that does suggest that when demand prospects brighten, there is the potential for a very strong price recovery.”

Source: Base metals mixed -  Copper rises as buck declines.