Schwab’s new ETFs solve one critical problem in the ETF market, but they won’t take over the world. At least not for a while.

I’ve been thinking about the Schwab ETF launch all week, trying to figure out if it’s a game-changing event or an overblown bit of marketing. I think it’s a bit of both.

The big news, of course, is that Schwab is entering the ETF market and breaking new ground on fees. It has launched four ETFs that offer the lowest expense ratios in the world: As low as 0.08 percent for U.S. broad market exposure. The new Schwab Total Market ETF (NYSEArca: SCHB) and Schwab Large Cap Equity ETF (NYSEArca: SCHX) are now the lowest-cost mutual funds available to retail investors.

What’s more, Schwab is offering zero commissions for Schwab customers who buy or sell the ETFs.

That’s a big deal. Commissions are a huge hurdle

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Apologies for the lag between posts. I decided to take a little summer vacation. Moreover, I’ve been at a bit of a loss for interesting stock picks of late and the market itself seems to have entered a bit of a (relative) lull. We all seem to be holding our breaths waiting for an inevitable correction or, for the more optimistic, someone to declare alls clear.

Though I wrote a post disparaging Sears Holdings from the point of view of a retail investor, further research and thinking has actually put it firmly on my radar from a value perspective. Readers of this blog may know that its syndicated on two very interesting websites – GuruFocus and Seeking Alpha. While I appreciate the

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This, a day after news hit that someone had stolen a “code” Goldman uses to do high-frequency program trading. According to Assistant U.S. Attorney Joseph Facciponti…

“The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,”

Of course, Goldman isn’t the only group out there using high-frequency program trading. If Goldman’s code could manipulate the market, couldn’t other codes do the same? Of course they could. And here’s what the SEC had to say about it…

The Securities and Exchange Commission believes institutional money managers are “sophisticated” enough to trade against the machines without further regulation.

“We don’t want to curtail liquidity,” said Gene Gohlke, associate director for the SEC. Gohlke said it’s up to the managers themselves to make sure other traders aren’t manipulating their models.

The SEC, tasked with preventing market manipulation from destroying

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“Timing is everything” goes the old adage. But all investors and traders know that timing an entry point or exit point of an investment idea and strategy is like predicting the weather without sophisticated radar equipment. In fact it might be more difficult.

Why? Not only because the fundamentals these days are enormously complicated, whether we are speaking of the stock markets, the bond markets, or the commodities markets, but because there are so many factors beyond our control and knowledge.

The “usual suspects” come to mind. The exchange specialists, the large instutional traders, the big financial firms with their trading desks, and now we are all competing with the Federal Reserve and the U.S. Treasury, who appear to be able to buy and sell anything they decide to whenever they want. Isn’t that your perception as well?

So none of us can effectively “time the markets”. We can look back with

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Recent financial events have hindered the profitability of prime brokerages and now banks must find a replacement for the once lucrative business of securities lending. Securities lending has been a very profitable activity for prime brokerages that involves swapping ownership rights (excluding voting rights) at a specified rate depending on the security’s ability to borrow.  During this time hedge funds generally short the stock. The hedge fund repurchases the shares at a lower price (hopefully) and returns them to the investment bank. Last year was the worse on record for hedge funds as they lost approximately 20% on average.  Goldman Sachs[GS], Citigroup[C], and JP Morgan Chase[JPM] won’t be able to rip their clients in the fixed income markets forever. They will need to find a way to replace the business lost on this part of the trading floor.

What was so profitable

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The following are some interesting articles I have read over the past few days that readers may also like to have a look at:

• John Bogle (The Wall Street Journal): A crisis of ethic proportions, April 20, 2009. We must establish a “fiduciary society”.

• Martin Wolf (Financial Times): Why the “green shoots” of recovery could yet wither, April 21, 2009. Is the worst behind us? In a word, no. The rate of economic decline is decelerating. But it is too soon even to be sure of a turnaround, let alone a return to rapid growth. These are still early days.

• Mohamed El-Erian (Financial Times): Bank tests we should get stressed about, April 21, 2009. The aim is to ensure global consistency in banking that also clarifies accountability and responsibility.

• Simon Johnson (The

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I'm reporting live from the Inside ETFs conference in Boca Raton, Florida, which is off to a great start.

We have nearly 500 people in attendance—up significantly from last year's event—and it's a lively crowd. I sat on the "ETFs 101" panel yesterday with Steve Sachs (Rydex), Tom Lydon (ETF Trends) and Barry Rabinowitz (an independent financial advisor). We had planned to spend two hours walking people through the basics of ETFs, talking about their structural advantages over competing products, the creation/redemption mechanism, etc. 

But 10 minutes in, the audience jumped in with questions ... and they were great questions. We had to cut things off after two hours, but I think we could have talked for five or six hours if we had had time. People are hungry for information, and they are very, very interested in how ETFs can help them deliver better returns to clients.

During the talk, we spent

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Traditionally safe dividend stocks have been whacked along with everything else by this credit crisis, as struggling companies are forced to slash payments. But David Newman says Reverse Convertible Notes are little-known securities that truly guarantee a steady income. And you never have to own the underlying stock…

More from David at The Sovereign Society:

Dividend-paying stocks used to offer a way to “play it safe.” Especially during bear markets, the regular paychecks could help “soften the blow.” But not anymore.  The truth is; dividend investors are getting hammered.

The Wall Street Journal calculated that 36 companies in the Standard & Poor’s 500-stock index have cut or suspended dividends this year, removing $33.3 billion from investors’ pockets.

And of the 7,000 or so publicly traded companies that report dividend information to the S&P, 138 decreased their dividends during the third quarter… a 15-fold increase from the same period last year.

And since these

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At year-end 2007, US retail investments in mutual funds were approximately 57% allocated to equities, 14% to bond funds and 26% to money market funds, based on data from the “2008 ICI Factbook”.

Within the equity category, US retail investors were 74.1% allocated to US stocks and 25.9% allocated to international stocks. Based on world market-cap allocations, that represents an approximate 80% overweight for US stocks and an approximate 56% underweight for non-US stocks.

Although some US institutions do invest in mutual funds, they accounted for only 13.9% of US mutual fund assets in 2007. That was sufficiently low, that we believe mutual fund allocations are reasonably representative of US retail investor behavior.

US mutual fund assets at the end of 2007 represented 46% of worldwide mutual fund assets. That tracks fairly closely with the 44.15% US market-cap among the world’s stock markets …

img src="http://photos1.blogger.com/img/43/5843/160/thinking.jpg"br /br /emfont color="#0000FF"(P.S: Sorry for any disturbances the advertisements above may have caused you)/font/embr /It is my belief that if the retail investor does his research properly and bases his buying decisions on long-term business fundamentals coupled with a reasonable valuation, his downside is limited and he can expect the stock to emeventually/em rise, whether on market realisation of the business potential, or on the margins hitting a sweet spot of the business cycle, or on management/fund buyouts reflecting insider/institutional awareness of the intrinsic value of the business. The key word is "eventually", because the time the investor has to wait for the stock to rise is unknown. But my point remains --- the patient investor will eventually see the stock gain some buying interest.br /br /When that happens, another aspect of time becomes important for the investor: how long will the stock enjoy its place in the ...