Friday Randoms

A few things this morning. First you probably know that Pimco has filed for a few ETFs including a 20 year zero coupon ETF. This could be interesting. Zeroes don't pay interest. They are bought at massive discounts and accrete toward par at a prevailing interest rate at the time you buy. If interest rates rocket higher right after you buy the price of a longer dated zero will get crushed. I remember buying zeroes for a client when I was at Lehman Brothers with rates, if memory serves, at about 9% on their way below 8% (this was in 1990) and these people made 20% in what seemed like ten minutes. It was the first trade I ever did that worked out in that manner.

That of course was in the middle of a colossal bull market for bonds. The fate of interest rates from here is far less certain and a 20 year zero fund bought at the wrong time would get pasted. But the fund would be a great way to add volatility to a bond portfolio which can be appropriate for some people. The idea of buying 20 years for only four point something percent does not sound good to me but if rates get up into the sixes or so then going out that far becomes a lot more attractive.

However buying zero coupon bonds is very easy to do, same as regular treasuries so I'm not sure why a fund is necessary here. I may not have written about zeroes ever before as generally I don't to add yieldless volatility in for clients but maybe I'll view it differently if yields go back to 7%.

This article reminded me about the two carbon ETPs (one is an ETF and the other an ETN). If you link through you will see that they have done quite well of late in conjunction with the equity markets' rally. While the concept is quite intriguing if it continues to correlate with the stock market it may not pick up a lot of traction. The carbon stuff turns out to be a play on corporate activity, more correctly the market's perception of corporate activity. Maybe that will change later but that remains to be seen.

Next up is that apparently ETF Securities' first US fund is due to launch according to this article and this one. If the name ETF Securities rings a bell these are the folks that listed all those exchange traded commodities in London a few years back. They had filed for platinum and palladium funds and these were expected to the first to actually list but it turns out it will be the silver ETF and it should have symbol SIVR. Since we already have a silver ETF I'm not sure another one will make a big impression but platinum (in an ETF versus ETN) and palladium could be interesting and useful for some people.

I like the idea, in commodities, of gold, broad based agricultural and then a single commodity that has some basis for an out sized return. I would think that an industrial metal or a soft not well represented in the broad based agricultural product chosen could work in that context. I have the first two covered for clients but have not yet delved into that third category. For some ongoing context I would still only go to mid single digits with the total commodity exposure.

Finally the full piece about Harvard in Vanity Fair by Nina Munk is on the web. Maybe it has been out for a while, I don't know but I just found it yesterday.

The article is not so much about HMC by itself as it is the problems at the school now, some of the decisions made, the politics involved and HMC's role in all of it. One of the big problems was excess. The largess of the various construction projects coincided with incorrect assumptions about what the endowment would be able to do and how long it would be able to do it. How different is this from what happens to many individuals? Someone buys as much house as they can afford, have a couple of car payments, a few hundred in credit card payments and all is going well until some sort unforeseen bump in the road comes along and fouls it all up.