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Grexit Fears And Fed Meeting Put These ETFs In Focus

This week started with a rough stock market session as major benchmarks finished the day in the red. The Dow Jones Industrial Average fell more than 200 points in early Monday trading and was down 0.6% at the close. In fact, the steep decline eroded all the gains made this year and sent the Dow Jones into red from the year-to-date look as well. The downswing has mainly been blamed on growing concerns over the future of Greece in the Euro zone. Tensions on Rise The latest talk between Greece and its international creditors collapsed yet again last weekend, sparking off threats of default and a possible Greek exit from the Euro zone. The move sent panic alarms ringing all over the globe and renewed uncertainty in the global stock market. Notably, the Greek bourse fell 4.9% on Monday trading session, spreading the contagion across the European, Asian and U.S. markets. Added to the Greece concern is the Federal Reserve’s two-day meeting, which ends on Wednesday. Investors have been cautious and are keeping a close eye at this meeting to find out whether the Fed Chair Janet Yellen modifies the language regarding the rates hike or adds some color to the decision. While the Fed will not raise interest rates at this meeting, a spate of better-than-expected economic data has raised speculation for a hike in September or October. The Fed is expected to release its policy statement, economic outlook and interest rate forecasts at the end of the ongoing meeting. Market Impact The events have led to risk-off trading with lower risk securities, including precious metals and bonds, in vogue. Meanwhile, the broad U.S. market fund (NYSEARCA: SPY ) saw volume that exceeded 124 million shares on the day, well above average shares of roughly 105 million. A few ETFs were severely impacted by the news of the Greece deal failure while a few were in focus ahead of the Fed meeting. Below are four ETFs which are especially volatile in the wake of the Greece crisis and amid uncertainty regarding the timing of the interest rates hike: Global X FTSE Greece 20 ETF (NYSEARCA: GREK ) The Greece ETF was the worst performer on the day, losing 6.5% on elevated volume of 1.5 million shares compared to 815,000 shares on average. The fund tracks the FTSE/ATHEX Custom Capped Index and is home to a small basket of 21 companies. It is heavily concentrated on the top firm – Coca Cola HBC – at nearly 21% while other firms make up for less than 10% share. Financials takes the top spot at 25% in terms of sector holdings, followed by consumer staples (21%), consumer discretionary (16%) and telecom (10%). The product has AUM of $330 million and charges 61 bps in fees per year from investors. iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA: VXX ) While volatility products have been terrible performers over the medium and long terms due to a contangoed market and a steep roll cost, they are intriguing picks during periods of turmoil or uncertainty. That being said, VXX gained 4.2% in the session while volume hit 56.4 million shares, well above the 39.1 million average. The note has amassed $1.1 billion in AUM and charges 89 bps in fees per year. The ETN focuses on the S&P 500 VIX Short-Term Futures Index, which reflects implied volatility in the S&P 500 Index at various points along the volatility forward curve. It provides investors with exposure to a daily rolling long position in the first and second months VIX futures contracts. SPDR Gold Trust ETF (NYSEARCA: GLD ) Gold is often viewed as a store of value and a hedge against market turmoil. The product tracking this bullion like GLD could be an interesting pick to play the market turbulence. The fund tracks the price of gold bullion measured in U.S. dollars, and kept in London under the custody of HSBC Bank USA. It is the ultra-popular gold ETF with AUM of $26.7 billion and expense ratio of 0.40%. However, the ETF added just 0.4%, exchanging more than 500,000 shares in hand. The upside was capped in anticipation of a hawkish stance in the Fed meeting that would further boost the dollar against the basket of major currencies and dampen the safe haven appeal across the board. iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) The U.S. government bonds tracking the long end of the yield curve often carry a safe haven status. The flight-to-safety on Greece default concerns led these bonds higher in early trading but soon eroded most of the gains on rising rates concern. As such, the ultra-popular long-term Treasury ETF – TLT – was up only 0.2% on the day on below average daily volume. It tracks the Barclays Capital U.S. 20+ Year Treasury Bond Index and has AUM of over $4.3 billion. Expense ratio came in at 0.15%. Holding 30 securities in its basket, the fund focuses on the top credit rating bonds with average maturity of 26.90 years and effective duration of 17.20 years. Original post

Greek Debt Concerns Put GREK In Focus

Investors have been worried over the debt negotiations between Greece and its creditors this year. This also had a negative impact on the major benchmarks. Recently, Greek Prime Minister Alexis Tsipras submitted fresh proposals before its creditors to settle the debt crisis. Meanwhile, Greece failed to repay a debt of around $338.7 million to the International Monetary Fund (IMF) and decided to bundle four June payments into one, to be paid on June 30. Separately, Tsipras is looking for support from his Syriza party on this matter. However, the situation is not in his favor at this moment. Several members wanted a re-election if Tsipras lets the creditors have their say. “Realistic” Proposals New proposals are reported to consist of concessions on stricter austerity targets. Reportedly, it includes a hike in the VAT (value added tax) rate, among other financing options that will buy Greece time to strike a deal next March. It was also reported that the finance minister Yanis Varoufakis came up with an idea to transfer the debt held by the European Central Bank (ECB) to the European Stability Mechanism, Eurozone’s crisis-fighting fund. After submitting these proposals, Tsipras said he believes that Greece will be able to strike an agreement regarding debt negotiations in the near future. Though it was reported that the creditors may consider extending the country’s bailout program till the end of March 2016, creditors sounded not so optimistic about the proposals. It was reported that the creditors, including IMF, may consider the extension if Athens implements measures including pension cuts, tax increases, and other policies. Will ‘Grexit’ Happen? It is speculated that nobody wants the nation to exit the common currency bloc and thus Greece is poised to play “the game for as long as they can.” Grexit may lead to instability in the currency union, which other members of the EU would like to avoid. In this scenario, the “Grexit” prospect seems unlikely. Meanwhile, German Chancellor Angela Merkel and French President François Hollande agreed to meet Greek Prime Minister Alexis Tsipras on the sidelines of a Brussels summit to defuse the standoff between Greece and its creditors over the country’s bailout program. Moreover, the European Central Bank increased the amount Greek banks can borrow from their central bank to $94.1 billion, the highest increase since Feb 18. Separately, the New York Times’ Paul Krugman pointed out that Greece has already done a large volume of adjustments, the cost of which is so huge that the country should have been in a better position if it had exited the euro in 2010. He noted: “You can make an even better case that Greece would have been much better off if it had never joined in the first place. But at this point these are sunk costs. If Greece can negotiate a halfway reasonable compromise, one that more or less pauses further austerity, it’s hard to see that the risks of exit would be worth it.” GREK in Focus Several investors are hoping that the country will reach a deal with its creditors soon. Wilbur Ross, who along with a group of investors, has $1.47 billion riding on Eurobank Ergasias, the third largest bank in Greece, remained optimistic about the situation. Regarding the investment environment in Greece, Ross said that the dismal situation might take a swift turn in the near future “if the brinkmanship on display between Athens and the creditors ends in a credible deal that restores the confidence of foreign investors.” In this scenario, the Greek ETF – Global X FTSE Greece 20 ETF (NYSEARCA: GREK ) – will remain on investors’ radar till a potential deal is struck between Greece and its creditors. The ETF tracks the FTSE/ATHEX Custom Capped Index that is designed to reflect the performance of the 20 largest securities listed on the Athens Stock Exchange. The product holds 22 stocks in the basket and is heavily concentrated in the top 5 holdings that make up for a combined 55.4% of assets. The ETF has around $308.8 million in its asset base and sees a moderate trading volume of more than 800,000. The fund charges 55 bps in annual fees from investors and has a dividend yield of 1.1%. GREK has a Zacks Rank #3 (Hold) with a High risk outlook. The fund lost? 10.3% in the year-to-date frame and declined nearly 1% in the trailing one month. Original Post

More Pain In Store For Greek Equities As Syriza Party Holds Firm On Anti-Austerity

Summary The Syriza party seems poised to win the general election scheduled for January 25th. Party leader Alexis Tsipras will not back away from seeking relief in austerity measures previously accepted. Should the country seek to leave the euro currency, it may be made an example for others that might follow. Expect to see the Global X FTSE Greek 20 ETF shares succumb to further pressure. In May of 2010, Greece accepted a bailout package. Then Finance Minister George Papaconstantinou described the deal as including, “tough austerity measures.” The Greek people understood why the deal had to be done, though. The country was on the precipice of Armageddon, with many bankers using the phrase “difficult but necessary.” Mr. Papaconstantinou would go on to say that Greece had a choice between destruction or saving the country and that, “we have chosen of course to save the country.” Today, the same warnings are being launched from all directions. Only this time, the people aren’t listening. Or, if they are, no longer believe them. The Greeks can now vote from experience, having lived for nearly five years with the austerity measures that Syriza, the political party currently leading in the polls, vehemently opposes. For them, more than enough time to discover they don’t care much for the taste of austerity; so much so that the country appears to be ready to explore what life is like outside of the euro. And if voters are anything like Anastasis Chrisopoulos, they probably don’t feel as if there is much to lose . When asked for his feelings on the original bailout, the 31-year-old Athens taxi driver said, “So what? Things will only get worse. We have reached a point where we’re trying to figure out how to survive just the next day, let alone the next 10 days, the next month, the next year.” But investors in Greek assets do have something at risk, and the market showed its disapproval of the country’s predicament by dropping the Global X FTSE Greece 20 ETF (NYSEARCA: GREK ) to within pennies of its 52-week low. If today’s -6.70% fall is an indication of future performance under a Syriza-led government, then prepare for more pain. Germany Says Austerity Is Working; The Greek People Disagree What we know is that, earlier today , the Greek parliament rejected Prime Minister Antonis Samaras’s nominee for president, and the country is now set to hold a general election on January 25th. Opinion polls point to victory for the Syriza party, which is set on eliminating the austerity terms accepted in exchange for a bailout package now valued near $300B. To hammer home this point, Syriza leader Alexis Tsipras said that , “In a few days the Samaras government, which pillaged the country, will belong to the past, as will the memoranda of austerity.” In response, German finance minister Wolfgang Schäuble indicated his position on the issue, stating that whoever assumed power must respect the agreements already in place and that, “the tough reforms are bearing fruit and there is no alternative to them.” To support this claim, the German’s can point to the fact that the Greek economy has returned to growth for the first time in six years, and that signs of a recovery are beginning to take hold. But the people will counter this argument not with numbers, but with experiences; their own experiences, which emphatically say that their lives have not improved during austerity’s reign. For all of the pain, unemployment for 3Q2014 came in at 25.5%, which is down from its peak of 28% in 2013 but almost twice as high as the number from 2010. (click to enlarge) More damning, though, is a statistic from the International Labor Organization that says the number of Greeks at risk of poverty has more than doubled in the last five years. The support for Syriza and frustration with austerity might be related to the lack of correlation with statistical growth and quality of living. What Does It All Mean I think the wheels are in motion and that Syriza will win the general election in January. While some believe Mr. Tsipras is only talking tough, I would disagree. He has softened his rhetoric a bit, but he and the party will not back away from demanding changes in austerity that are more than symbolic. However, the eurozone barely flinched at the news, which indicates that it may be quite comfortable with letting Greece forge its own path. For me, whether Greece is better or worse off in the euro over the long run is irrelevant to my investment thesis. I would be a seller of the Greece 20 ETF because I believe the shares will be pressured in the nearer term for a couple of reasons. For one, with the election of Syriza, there will be an extended period of uncertainly regardless of the path the country chooses. If Greece attempts to stay in the euro, it will have to meet the German’s somewhere further away than Mr. Tsipras’ current rhetoric places it. This negotiation would be intense and take some time. Conversely, if it decides to exit the euro, there will be an even longer period of uncertainty, with significantly more questions to answer. Secondly, and more importantly, Greece may be made an example for any other country thinking of following its path. There is talk that the fear in the eurozone isn’t of Greece leaving but rather that other countries may follow their lead. To alleviate this concern, game theory would suggest that interested parties attempt to make the transition difficult enough to give others pause. As cynical as this opinion may seem, I do believe it is a risk that must be accounted for. While it may seem tempting to buy Greek equities sitting at or near their 52-week lows, I would be a seller as I believe that uncertainly will persist through the January 25th elections, and the increasing risk of a euro exit will push shares further south.