So Ritchie doesn’t understand ETF’s either

The second is broader, and is a liquidity issue. If there is a run on these funds in the event of a stock market downturn I can see them adding to liquidity pressure as they effectively leverage the underlying assets by double quoting them. This could ratchet a downturn in market sentiment and add to instability, effectively reflecting the burst of a double bubble. Anything that can do that is dangerous. The fact that ETFs have had a good track record simply says they have reflected the market recovery (as opposed to the real market recovery) from 2008. Nothing suggests that they add real value, and I strongly suspect that in a period of instability they would do the exact opposite.

There are leveraged ETF’s most certainly, but the definition of an ETF doesn’t imply leverage at all. Consider and ETF which says it is invested in BP and Shell, tracking those two stocks. It will buy 100 Shell, 100 BP, (ignore weighting here) and then issue 200 ETF shares, each of which is half a BP share and half a Shell share. If more people want to buy hte ETF then they buy more Shell and BP shares, if more people want to sell then they sell hunks of stock.

This isn’t leverage. No more of the asset is created than existed before the ETF.

Liquidity can indeed be a problem, a those running open ended funds in commercial property have found out but that’s a different matter.

13 thoughts on “So Ritchie doesn’t understand ETF’s either”

  1. Greengrocers sell ETF’s. Market makers trade ETFs.

    You are right about the substantive issue, of course.

  2. It’s a small point, Tim, but I wonder if you should change your tags for these stories to something like ‘Exposing Richard Murphy’s idiocy’, so that casual visitors and googlers who stumble across them realise who and what you’re talking about? For us regulars, it doesn’t matter but it would be nice to think a wider audience was being targeted?

  3. I’m not sure this blog is in Google. Certainly, it wasn’t, I think someone complained about my doing neoliberal hate speech or something. Recall some senior lecturer chortling about it I think.

  4. If the ETF is holding assets, then the guy is just parading his ignorance. He might have a point in the cases of ETFs that just hold derivatives but I suppose the distinction would be lost on him. Truly no limits to Murphy’s ignorance. I suspect he can’t even run his train set

  5. I see that Punam Christuy has tried to educate the stupid one and been rebuffed. There is no word to describe the epic stupidity of Richard Murphy

  6. Tim

    You are back on google now fortunately (for how long who knows) –

    As for the post itself, the comments section is hilarious. Even though he has been put right by all three commenters after the sycophants he insists he knows something every other commentator does not. However, we should bear in mind that in the Curajus state he posits, he would remove all Markets in Equities, Fixed Income, Commodities or indeed anything that he considers ‘akin to a casino’, so this is merely an emanation of that mindset.

  7. Can we complain to google about murph?

    What, hypothetically speaking, would be said grounds?

    Candidly, requiring people to have grounds for complaints is just neoliberal sophistry.

  8. Murphy has some strange ideas about leverage, most ETFs are index trackers anyway.

    Regulators have expressed concerns about Bond ETFs as bonds tend to be traded over the counter and less liquid than equities. But not to do with leverage.

  9. Lmgtfy:

    “An ETF, or exchange-traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold.”

  10. SE, it is quite similar to an investment trust, that exotic beast that has been around since joint-stock companies were invented

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