Week InReview
Friday | Nov 15, 2019
Is direct indexing coming for the ETF?

ETFs compete with just about everything, be it mutual funds, derivatives and even single security investing. Their newest competition is direct indexing, which means investing in a customized portfolio directly bypassing the fund wrapper altogether.

On this week’s "Trillions," Brian Langstraat, the CEO of Parametric, the largest direct indexing provider explains what direct indexing is, who it is for, what the benefits and drawbacks are and why it isn’t the “ETF killer” some have called it. Morgan Barna of Bloomberg Intelligence joins the discussion as well.

—  Bloomberg Business Podcast (r unning time 38:26)
in case you missed it...
Federal Reserve Chair Jerome Powell says short-term interest rates are back under control. Not everyone’s convinced. There’s evidence traders expect pressure to build in the weeks ahead. Brokers on Thursday are quoting repurchase-agreement rates for year-end around 3.25%, or roughly one-and-a-half percentage points higher than today’s levels, and they’ve mostly been above 3% for months. That’s even after Powell’s attempt to reassure markets on Wednesday and the central bank's announcement Thursday of its latest round of liquidity injections, some of which will span the end of the year. (Bloomberg Markets | Nov 14) See also: Powell stories below.

Last week, the Securities and Exchange Commission proposed new rules  affecting shareholder votes. One set of measures would put new regulations on the proxy advisers, effectively making them run recommendations past companies and give them a chance to respond before sending the advice to investors. (Bloomberg Businessweek | Nov 14)

Fannie Mae and Freddie Mac’s regulator said the mortgage giants will likely be ready for public offerings by 2021 or 2022, a key step toward their exits from government control. Federal Housing Finance Agency Director Mark Calabria, speaking Wednesday at a housing finance policy conference in Washington, said he expects his agency will have a rule dictating capital requirements in place before Fannie and Freddie go to market. He said they may face a period where they operate under a consent decree in which they technically exit conservatorship but aren’t free of the government’s grip. (Bloomberg Markets | Nov 13)

Indexing, the Fed, private equity: Value investors blame many things for a decade of underperformance. Is their misery at an end? (Institutional Investor | Nov 13)

Stocks rose to records in October. One corner of the debt market had a rougher time. Some securities in the $680 billion market for collateralized loan obligations, or CLOs, lost about 5% in October, reflecting worries about rising risk in the complex investment vehicles. The declines were a rare stumble for the CLO market, which has grown by about $350 billion in the past three years, according to data from S&P Global Market Intelligence, fueled by demand from government pensions, hedge funds and other yield-hungry investors. (The Wall Street Journal | Nov 11)
Fed chair on the Hill
Fed's Powell: Aspects of bank rules may affect reserve liquidity
(Nov 14)  —  Some of the turmoil in the repo market may be related to the fact that bank reserves need to be higher, but changes to regulations could be made to allow liquidity to move through the system, Federal Reserve Chair Jerome Powell told U.S. lawmakers Thursday.
  • He said policy makers are “doing a lot of forensic work to understand why.”
  • “Some of that may be that the level of reserves needs to be higher than we thought, which means our balance sheet a little bigger,” he said during a second day of congressional testimony.
  • “There may be aspects of our supervisory and regulatory practice that we can look at that would allow the liquidity that we have, which we think is appropriate, to flow more freely in the system without though undermining safety and soundness,” he said.
Powell says 'I think we have' repo market strain under control
(Nov 13)  —  “I think we have it under control,” Federal Reserve Chair Jerome Powell told lawmakers in Washington on Wednesday, referring to the mid-September disruption in the repo market.
  • “We’re prepared to continue to learn and adjust, but it’s a process and it’s one that doesn’t have implications for the economy or general public,” he said.
  • About the ruction in the repo market, Powell said “it’s a different world post-crisis.”
  • Powell said what the Fed officials learned in September was that they needed to make sure reserves don’t go under the level that was reached in mid-September, “which was a little bit shy of $1.5 trillion.”
Current policy looks right despite ongoing risks: Powell
(Nov 13) — Federal Reserve Chair Jerome Powell, while acknowledging “ongoing risks,” said the central bank’s current monetary policy stance will remain appropriate unless its outlook for moderate economic growth changes.
  • “We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market, and inflation near our symmetric 2% objective,” Powell said in text of opening statement he gave during hearing of the Joint Economic Committee of Congress on Wednesday.
  • Powell noted that “sluggish growth abroad and trade developments have weighed on the economy and pose ongoing risks,” and that inflation pressures “remain muted.”
  • He said the Fed would respond “if developments emerge that cause a material reassessment of our outlook.”
  • Powell told lawmakers that fiscal policy should be used to support the economy in the event of a downturn while urging Congress to lower the trajectory of federal government debt.
  • “Putting the federal budget on a sustainable path would aid the long-term vigor of the U.S. economy and help ensure that policy makers have the space to use fiscal policy to assist in stabilizing the economy if it weakens.”
  • Fed chair said overall financial vulnerabilities remain “at a moderate level” and overall investor appetite for risk “appears to be within a normal range.”
  • Powell said the Fed’s baseline outlook remains favorable.
  • “My colleagues and I see a sustained expansion of economic activity, a strong labor market, and inflation near our symmetric 2% objective as most likely.”
the cyber cafe
Cyber Book of the Month
To understand cyberwar, you must understand Ukraine
For experts, trying to definitively explain the full scope of a cybersecurity incident is often a difficult and delicate process. They normally don’t find reason to tie attacks back to 13th-century massacres at the hands of Mongolian warlords. Yet, in “Sandworm,” the new book from Wired magazine’s Andy Greenberg, it’s the Mongols’ 13th-century raid on Ukraine (and other brutalities the region has endured) that helps explain why this area in the world has been linked to almost every major cyberattack in the past decade.

Microsoft: Stronger BlueKeep attacks are coming
Microsoft has issued a warning for more destructive BlueKeep assaults as cyberattackers continue to refine methods of using the vulnerability to infiltrate unpatched Windows systems and set up cryptocurrency miners. The campaign weaponizing BlueKeep began this year, and while no attacks have involved ransomware or other malware, Microsoft still urges customers to check systems that might already be compromised, as the exploit can be nearly untraceable; Microsoft also urges customers to apply patches when they experience lagging.
—  ZDNet  

Servers are target of unusual ransomware
An unusual ransomware written in PureBasic –  which makes it more easily transferable between platforms –  is being used to attack enterprise servers, locking down databases. The ransomware, PureLocker, contains code used by major cybercriminal groups, and experts say it is expensive to access, meaning any hackers who buy it are likely to use it for large attacks.
—  ZDNet
binge reading disorder
Open source code will survive the apocalypse in an arctic cave
The last stop for civilization before the North Pole is Svalbard, an archipelago north of mainland Norway along the 80th parallel. Most of Svalbard’s old Norwegian and Russian coal mines have shut down, so locals have rebranded their vast acres of permafrost as an attraction to scientists, doomsday preppers, and scientist doomsday preppers. Around Svalbard, things can be hidden from the stresses of the outside world. There’s a treaty in place to keep it neutral in times of war. In other words, it’s an ideal spot for a big global reset button or two.

Maybe friendly really is as good as it gets when it comes to airports
The Wall Street Journal ranked the best of the 20 largest U.S. airports. They also ranked the best of the 20 largest airports after that  –  let’s call them medium-size.

What are the social media alternatives to Facebook?
People who wish to stay connected via social networking without Facebook's privacy issues could switch to apps such as Mastodon or MeWe, alternatives that tout data privacy while offering the usual social features, such as chat and newsfeeds. Apps such as Sociall also make it easy to transfer Facebook profile content and invite friends to follow users.
—  Fast Company
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