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ETF Trading Volume Eclipses US GDP
In "signs of the coming financial apocalypse" news, ETF trading has now eclipsed US GDP.
You read that correctly. Here’s Bloomberg:
In the past 12 months investors traded $18.2 trillion worth of ETF shares, according to data from the New York Stock Exchange and Bloomberg. That's a 17 percent increase from the 12 months prior and more than triple what it was 10 years ago. For perspective, that means the amount of dollars exchanging hands through ETFs is now more than the U.S. gross domestic product, which stands at $17.4 trillion.
To the Zero Hedge faithful, it should be immediately clear why this is so frightening, but for anyone who may be new to the "why BlackRock is a dangerous company" (to quote Carl Icahn) debate, allow us to explain, and because we’ve covered this extensively, we’ll stick to the high points.
First, the post-crisis proliferation of ETFs has funneled massive amounts of retail money into corners of the market where mom and pop previously never dared to tread. This trend has been exacerbated by ultra accommodative central bank policy, which has had the effect of herding investors into riskier assets in a desperate search for yield.
This comes as banks have pulled back from their traditional role as middlemen in the secondary market, meaning that while instruments like HY bond ETFs give the impression of daily liquidity, they cannot, by definition, be more liquid than the underlying assets they reference, and if dealers are unwilling to expand their inventories in a sell-off, fund managers facing sizeable redemptions could find that transacting in size is virtually impossible without having a significant negative impact on prices.
So far, the diversifiable nature of fund flows (i.e. when one fund faces redemptions, other funds are seeing inflows) has allowed fund managers to use portfolio products in place of sellside dealer books. But that won’t work when flows become unidirectional (i.e. when everyone is selling) and if the underlying cash market is inordinately thin when fund managers finally need to sell assets, a fire sale could ensue due to a dearth of willing buyers.
In essence, the ETF market is a mirage - a shiny veneer that masks a very ugly underlying situation.
If you need proof of how dangerous things have become, you needn’t look further than the fact that some of the world’s largest asset managers - Vanguard among them - have lined up emergency liquidity lines that can be tapped in the event a rate hike, a wave of bankruptcies in HY, or some exogenous shock sends ETF holders to the exits all at once (for the complete guide to ETF phantom liquidity, see here).
Think about that for a minute - what does it say about the market when fund managers plan to borrow money from banks to meet redemptions rather than risk selling the underlying assets?
Of course the greatest tragedy here is that the continued use of ETFs and other portfolio products to satisfy diversifiable flows and the prospect of cashing investors out with borrowed money rather than the proceeds from asset sales in the event flows suddenly become decisively non-diversifiable only serves to exacerbate the situation - that is, the more you avoid the underlying market, the more illiquid it becomes.
Here’s Bloomberg with some numbers which help to illustrate the narrative outlined above:
But perhaps even more astonishing than the raw amount of trading is that U.S. ETFs only have $2.1 trillion in assets. In other words, the turnover in ETFs is about 870 percent a year. This is more than four times the turnover for U.S. stocks, which comes in at about 200 percent.
The increase in volume over the years can be attributed to both repeat customers as well as new participants who like anonymously darting in and out of everything from small-cap stocks to high-yield bonds to oil futures in an instrument that trades like a stock. Like a snowball rolling downhill, as an ETF sees volume increase it tends to attracts more, and bigger, investors, which in turn increase the volume.
All this manic trading is led by the insanely active SPDR S&P 500 ETF (SPY), which makes up a third of the total, or $6 trillion. That breaks down to about $24 billion a day, which is four times more than any other security on the planet and more than the next nine most traded equities combined. With $177 billion in assets, SPY’s yearly turnover equates to a mind-boggling 3,400 percent.
Beyond SPY, ETFs account for three of the top four most active equities, with the iShares Russell 2000 ETF (IWM) and the Powershares QQQ Trust (QQQ) trading over $3 billion a day each. Beyond equities, another big-time contributor to the trading volume is the iShares 20+ Year Treasury Bond ETF (TLT), which trades $1.1 billion a day, or more than what Citigroup stock trades. TLT’s massive volume shows just how thirstyinvestors are to trade bonds like stocks. (Individual bonds traditionally trade over the counter, and investors' use of ETFs to dip in and out of less liquid fixed-income assets has prompted quite a bit of controversy in recent years.)
The takeaway here, in the simplest possible terms, is this: underlying asset markets are disappearing while the vehicles that reference them are rapidly proliferating.
Obviously, this is an untenable situation and the worst part of the entire charade is that it's being perpetuated under the guise of safety, liquidity, and transparency by the companies investors trust most.
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The elephant in the room no one seems to see.
Derivatives - the metastatic bubble from hell.
I literally laughed out loud at this particular ZH article... There was no other reaction that seemed to fit. Money changing hands between hypothecated crap now eclipses the "real" economy (and that economy is padded itself).... LOL... it's just absurdity.
A contact lens covering the ocean.
"GDP" ... is that an ETF?
Nuffin' wrong! We're just bullish on America! 4 more years, 4 more years, 4 more years
Someone help me, what are the commissions on $18T??
Greece
fuck it...when it all goes boom anyone who is still mainly tied up in the bankster system is going to be wiped out and it's not like the warning signs to get to the exits as quickly as possible haven't been flashing brightly now for a more than a few years.
If they lose it all then it's their own damn fault.
And besides...it's only fiat. You know...the true barbarous relic.
Got phyzz???
Everything is awesome!
(snort!)
Yep, and Yellen will have fire up the magic money machine so we can go full Zimbabwe when it all collapses. I vote for the Bernancke as the face on the trillion dollar reserve note.....
Or gorilla
https://www.youtube.com/watch?v=vJG698U2Mvo
We are in a bubble of bubbles!
Investors traded $18 trillion...? I think he means the Feds traded $18 trillion in ETFs
Who wants to play ETF hot potatoe?
Is that you, Dan Quail?
No ... but it might be Dan Quayle.
How long can a country last when its middlemen are more important than the buyer and the seller?
Its even more fucked up when the buyer IS the seller.
Our economy is an illusion.
The Jews cannot maintain this illusion alone.
Who's helping you?
Satan doesn't forgive, he destroys.
Potemkin economy. What's funny is the others are doing it too. Added LULZ value, they then accuse each other of being fake, AND talk about and interact with the markets as if they are driven by fundamentals!
THIS. WILL. NOT. END. WELL.
In street parlance: skimming the take.
I can't remember, is that the vig or the schneid?
Churn and burn baby
and the FED account accounts for what %?
$4 trillion or better...
The FED balance sheet was the first thing that came to my mind and I believe 4 trillion was very conservative; simply because in October it will have grown by another trillion and that is just what they actually report.
---------------------
Want to stimulate the economy; send every person a "secret" or "back-door" million per individual and do not tell the Chinese and watch the economy boom, then bust.
What percentage of the market do you figure is rehypothecated, naked, short, zombie, paper being exchanged?
I am not even asking about the overinflated priced stuff (though they do intersect). Just stuff being traded that has nothing behind it, that will evaporate in an unwind?
57%
Real underlying:
Optimistic 10% based on traditional 10/1 fractional reserve lending standards.
Pessimistic .03% of it is real.
Scratch the last sentence in the article; there is no trust in "companies" and few "investors". The bottom-line is this eventually comes to a screaming halt at some point; likely in the not to distant future and many people will die as a result. So enjoy today.
... to understand Exchange Traded Funds better, here's ...
"How they workMutual Funds: Traditional, actively managed mutual funds usually begin with a load of cash and a fund management team. Investors send their C-notes to the fund, are issued shares, and the Porsche piloting team of investment managers figures out what to buy. Some of these stock pickers are very good at this. The other 80% of them, not so much.
Index mutual funds work similarly to traditional ones except that the managers ride the bus and eat sack lunches. (Actually, there are rarely human managers. Most index funds are computer-driven.) More importantly, index mutual funds put money into stocks that as a whole track a chosen benchmark. Because there's less "research" to pay for -- like trips to California to visit that refinery's headquarters (and a little wine tasting... I mean, we're in the neighborhood...) -- index mutual funds generally have lower expenses.
If the fund is popular or its salesmen make it so (yes, funds often have a sales force) it attracts gobs of money. The more money that comes in, the more shares must be created, and the more stocks investment managers (or Hal, the index robot) must go out and buy for the fund.
ETFs: ETFs work almost in reverse. They begin with an idea -- tracking an index -- and are born of stocks instead of money.
What does that mean? Major investing institutions like Fidelity Investments or the Vanguard Group already control billions of shares. To create an ETF, they simply peel a few million shares off the top of the pile, putting together a basket of stocks to represent the appropriate index, say, the Nasdaq composite or the TBOPP index we made up for the kick-off article. They deposit the shares with a holder and receive a number of creation units in return. (In effect they're trading stocks for creation units, or buying their way into the fund using equities instead of money.)
A creation unit is a large block, perhaps 50,000 shares, of the ETF. These creation units are then split up by the recipients into the individual shares that are traded on the market. More creation units (and more market shares) can be made if institutional investors deposit more shares into the underlying hopper. Similarly, the pool of outstanding ETF shares can be dried up if one of the fat cats swaps back creation units for underlying shares in the basket.
The variation in the fund structures mean subtle, but important differences at the end of the chain for individual investors."
... ~source : >>> http://www.fool.com/investing/etf/mutual-funds-v-etfs.aspx
... in other words, ETFs are a sleight of hand magic out of thin air ...
$18 trillion? Meh, that's nothing a few quadrillion more in derivatives can't fix. Danger smanger, the central planners have everything under control. BTFD.
They may as well be buying and selling clouds.
I think technically, with all the 0s and 1s, they are.
untenable? it doesnt sound untenable to me. they borrow money to meet redemptions without selling the underlying.
i hate it. but its perfect. no more market crashes - period.
remember - 401ks and pensions are too important to societal stability. they cannot be allowed to crumble, so they wont.
the market is dead. long live the market
It just goes to show you that any society that becomes generally wealthy and where leisure time fills a majority of the citizens' activities... that society inevitably slides into ethical, moral and economic chaos. IOW, humans become very unstable when they are not required to toil for their survival.
When Capitalism reaches its zenith, everyone will be an investor and no one will be doing anything.
Central Bank inflated asset bubbles will provide for all.
The biggest market in the world today is derivatives, money making money without a useful product or service in sight.
With the market in derivatives being ten times larger than global GDP we can see that making useful products and providing useful services is nearly irrelevant even today.
We are nearly there.
The nonsense of current thinking taken to its ultimate, inevitable conclusion.
What could go wrong?
It's the ultimate ponzi scheme.
This isn't a "Captialist" system. Quit using the term, you just sound like a politician. We are about as far from free market capitalism as you can get. Just because you have the freedom to go shop doesn't change that fact.
You've heard about rehypothecated gold. Meet rehypothecated shares, a paper derivative of paper.
Folks should check in with any institution that they are actually connected to and find out how they are invested. This includes local churches, school boards, volunteer fire departments, city and neighborhood councils, the Boy Scouts, the local swimming pool, etc. etc. Also your family and extended family if they will allow it.
I will NEVER forget what I found looking into the investments of the Presbyterian Church USA early in my 'awakening/reeducation' process. It was loaded to the gills with subprime by some shyster subsidiary of Capital One, Greenleaf or something like that (now out of business of course). Less than half of a major church denomination's investments were even in AAA rated issuance, and a lot of the supposed AAA was bogus.
I estimate the odds at 80%+ that someone or something that will come back to YOU is now similarly exposed to instant financial disaster.
It is worth asking.
"I will NEVER forget what I found looking into the investments of the Presbyterian Church USA early in my 'awakening/reeducation' process."
https://www.youtube.com/watch?v=5lvU-DislkI
Jajoba's witlesses interesting too.
Same founder as 322...Skull & Bones.
DXD
in free markets these etfs provide liquidity, but in manipulated markets they provide volatility, when market values are pressed to run ahead of fundamentals. individual investors will never be able to operate as bond or stock vigilantes. in the first instance their broker front runs their trades. if a majority of goldmans clients went short goldman would rehypothecate the investors capital to use against them, cause a short squeeze, and move that capital over to their side of the ledger when shorts had to capitulate. the one possible outcome is that goldman will short itself, short its own capital, which would be an act of supreme greed, but also desperation. to short itself goldman would be hedged neutral, since it borrows the shares from its own account. the market could drop 50% and goldman would still have its original capital. they wouldnt have any clients at the end of the day, but they would break the fed. why would goldman want to break the fed? you might be surprised.
You may have a point with regard to GS and the Fed. Even Bernie's chosenite clients turned on him in the end. Then again, that was a match maded in Beezle-bub heaven - Ponzi scheme wed to greedy clients...
18T equals 3 days of currency trading.
They'll just buy them off like they do everyone.
I am sure Soros and his zio friends know this... or they do now... what a great way to crash the system and wreak havoc and get spectacular gains.. one can quadruple short
no problem.. several ETF's must fall under derivatives that the US people will go good for....
Worth reposting I think.
Some else probably posted this:
"Despite billions of pounds in fines, several years of investigations and a slew of criminal prosecutions, many banks have yet to take on board the lesson of the market-rigging scandals, a report by the City watchdog has found.
In a series of damning findings, the Financial Conduct Authority said that some lenders had yet to take even basic steps towards ensuring there could be no repeat of the Libor, foreign exchange and gold price manipulation scandals"
- Gold Manipulation Scandals says the Financial Conduct Authority
http://www.thetimes.co.uk/tto/business/industries/banking/article4512251...
"...in the simplest possible terms..."
The entire political economy is based on
governments ENFORCING FRAUDS by privately controlled banks,
which results in a Wonderland Matrix Bizarro Mirror World,
where everything appears to become absurdly backwards,
about at exponentially accelerating rates, since everything
is based on the history of triumphant organized crime!
E.g.:
Just like the Federal Reserve Board actually achieved the OPPOSITE of everything that it was supposed to do, since the entire political economy based upon ENFORCED FRAUDS necessarily is run by the best available professional liars and immaculate hypocrites, whose skill set is to actually do the OPPOSITE of what they say they are doing, hence, "under the guise of safety, liquidity, and transparency," almost inconceivably powerful weapons of financial mass destruction have been developed, in ways which are consistent with the realities that the political economy is actually based upon ENFORCED FRAUDS, which are socially successful to the degree that they continue to be able to get away with doing that.
Of course, there seems to currently be no practical political point to perceiving that the basics have become runaway systems of ENFORCED FRAUDS. Nothing within those systems can change them. The only "solutions" appear to be for their own madness to become too self-destructive, as the only ways that those could actually be changed. In every way, every day, the systems whereby governments ENFORCED FRAUDS by private banks automatically become more psychotic. However, that always continued nevertheless, due to the vicious spirals of the funding of politics enabling the profits from those ENFORCED FRAUDS to then be reinvested in more ENFORCED FRAUDS.
We have reached the point where about 99% of the political economy is based upon integrated systems of legalized lies, backed by legalized violence, while those who previously profited from doing that therefore continue to become even more able to continue to do that more ... Generally speaking, it is NOT possible for people to fully comprehend globalized systems of electronic monkey money frauds, backed by the threat of force from apes with atomic bombs. That has become almost inconceivably corrupt and crazy, and has already passed beyond the event horizon into a social black hole, due to the degree that everything was more and more based upon ENFORCING FRAUDS.
Indeed, the longer term consequences, of each short-term increment of social success based on being able to back up lies with violence continuing to accumulate and accumulate, are not possible to fully imagine at the present time, since "underlying asset markets" are what were somewhat still related to the physical world, while "vehicles that reference them" are more and more manifesting in a virtual world, where the runaway systems based upon ENFORCING FRAUDS have enabled the public "money" supply to be made out of nothing, and then that "money" used to gamble with.
The only connection between human laws and natural laws is the ability to back up lies with violence, which has become the foundation of political economy based upon triumphantly ENFORCED FRAUDS. The social successfulness based upon being able to take advantage of ENFORCED FRAUDS has made the gambling with "money" made out of nothing become bigger and BIGGER, to the degree to which that virtual world has become larger and LARGER than the physical world. Since the ways that physical violence was able to ENFORCE FRAUDS, but those continued to still be false, everything "economic" has become psychotic, in proportion to the degree to which everything is dominated by those established systems of ENFORCED FRAUDS. Therefore, it has become practically impossible to imagine what the "corrections" to that scale of triumphantly ENFORCED FRAUDS could become ???
Indeed, those are such EXTREME COLLECTIVE SOCIAL INSANITIES that it has become practically impossible to fully imagine or comprehend the magnitude of those. By and large, the established systems could only come to exist and continue because of the ways that those systems could be operated by the best available professional liars and immaculate hypocrites, whose personal degree of social successfulness depended upon them operating inside of the established systems of ENFORCED FRAUDS, and thereby taking advantage of them. Those who were closer to the ENFORCED FRAUDS' SOURCE benefited the most from those ENFORCED FRAUDS, and thereby were then the most able to continue to reinvest their profits from those FRAUDS IN MORE FRAUDS, through the increasingly vicious spirals of the FUNDING OF POLITICS.
Basically, nobody who is publicly significant is willing and able to perceive the ways that human beings and civilization actually operate as entropic pumps of energy flows, through systems of organized lies operating robberies. Instead, the long history of civilization based upon being able to back up lies with violence has been growing at a roughly exponential rate, to become the currently existing systems of legalized lies, backed by legalized violence, as the established systems of ENFORCED FRAUDS, which have made everything appear to be inside of a Wonderland Matrix Bizarro Mirror World, which is as absurdly backwards as it could possible become ... FURTHERMORE, THAT CONTINUES TO AUTOMATICALLY GET WORSE, FASTER, DUE TO EVERYTHING STILL BEING BASED UPON ENFORCING FRAUDS CONTROLLING CIVILIZATION.
That is the overall context inside of which this article presents that we have passed another milestone, namely that the EFT Trading Volume Eclipses US GDP, as another symbolic indication of the degree to which the virtual world of "money" made out of nothing to gamble with has surpassed the physical world that "money" was originally supposed to represent. Since practically nobody is able and willing to address the deeper reasons for how and why human civilization necessarily operates according to the principles and methods of organized crime, the ways that has become based upon almost totally triumphant ENFORCED FRAUDS tend to not be understood, and to not want to be understood. In that context, is almost impossible to exaggerate the degree to which we are living inside of a Wonderland Matrix Bizarro World, where everything appears to be distorted ways which are absurdly backward. (Almost all of the content published on Zero Hedge only engages in relatively superficial analysis of that, while the content on the mass media continues to deliberately ignore that as much as possible.)
ENFORCED FRAUDS ARE INTENSELY PARADOXICAL.
Those are so INTENSE, that almost nobody perceives that, due to that they would have to endure much more severe cognitive dissonance than they are currently willing and able to suffer through. That is especially the case due to those who were most socially successful by operating within the systems of ENFORCED FRAUDS, by being better professional liars and immaculate hypocrites, who benefited from being relatively closer to those ENFORCED FRAUDS' SOURCES, are also the ones who would have to personally suffer through relatively the greatest degrees of cognitive dissonance, in order to comprehend the degree to which everything they were doing was always based on triumphantly ENFORCED FRAUDS, whose longer term consequences were always accumulating.
It is almost impossible to exaggerate the degree to which our civilization has become runaway criminal insanities, which are automatically becoming more psychotic, because everything became based upon ENFORCING FRAUDS, which basic facts were as deliberately ignored and denied as much as possible by those who benefited most from doing that, in each short-term increment, as well as into the more medium term. The double whammy INTENSE PARADOXES are that human beings must live as entropic pumps of energy flows, but they have developed to do that in the most socially successful ways through the maximization of ENFORCING FRAUDS, which included that civilization reversed the meaning of entropy, as one of the most abstract ways that civilization reversed the meaning of almost everything else, due to triumphantly ENFORCED FRAUDS creating a more and more Wonderland Matrix Bizarro World, whereby everything became more and more absurdly backwards.
While the article above correctly points out that we have passed another milestone of the development of civilization based upon ENFORCING FRAUDS, resulting in things becoming perversely inverted, (while that is explained by those doing that in perversely inverted ways, for the sake of safety, etc.), in my view, that kind of article does not present that story within the context of the ENFORCED FRAUDS' BIGGER PICTURE. However, I sympathize with that, since it has become practically impossible to fully comprehend the magnitude to which our political economy has become based upon ENFORCED FRAUDS, as well as similarly impossible to fully imagine whatever could be any "corrections" of that!
No problem.
When it blows the US congress will pass a law taking as collateral on their new IMF loan, every mortgage, car pink slip, your furniture, underwear, first second an third child's future earnings on the whole of Wall Street and big bank bailout. But you will get the full faith and credit 100 year promise (with interest) email from the president, so no loss and everything is awsome.