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Does anyone have any experience with ETNs?


During the global financial crisis I didn't buy one I liked because it was a note. The bank offering it was Deutsche Bank. (Which is now in the news with questions about its survival.)


I wasn't sure if my fear of a lack of guarantees was rational or not, but I've stuck to buying ETFs and avoiding ETNs.









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+1. ETN's are unsubordinated bank debt with a funny flavour (a total return swap). So you basically pay management fees to let a shitty bank borrow your money at 0% interest .. If you are lucky your loan is collateralized with Japanese bonds, Brazilian bank stocks and other trash said bank needs to get rid of. If you are unlucky it is not collateralized at all. Products like these didn't trade around NAV in 2008/2009 and won't trade around fair value during the next crisis either. Would recommend to stay away.


ETN's are designed to clean up bank balance sheets - not to make money for investors.

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Some Deutsche Bank Clients Reduce Collateral on Trades

  William Canny

September 29, 2016



Yea, I think there's a slow motion run happening on Deutsche. It's subtle now, but it may become not so subtle in the coming days. If the Germans are smart they bail it out this weekend. If they don't things will get pretty messy.

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Gary Gordon here seems like a pretty level headed guy. His latest article was interesting in drawing parallels with the pre-financial crisis situation with banks. Shows what people are thinking.


Note: It took a couple years but I'd say he's now firmly in the Hussman camp in terms of prospective returns. The banking sector's exposure to who knows, questions as to their "too big to fail" / bailout certainty and the fact that people own these ETNs should be concerning to those investors in my mind.



Probability: Should It Play A Part In Your Asset Allocation?

Sep. 27, 2016


"Still, would it be foolish to ignore the potentially devastating impact that an overseas financial crisis might have? Factor in the fact that Germany's largest bank is down 70% from a high and recently logged an all-time low. Worse yet, the German government exclaims that it has no intention of "bailing out" the troubled institution. If Deutsche Bank (NYSE:DB) is indeed headed for bankruptcy, what influential financial abroad would be next? Could a hardline approach against "too-big-too-fails" backfire the way that it did when Lehman Brothers folded in 2008?


Speaking of probabilities, I imagine that Angela Merkel and the Germany government will bail out Deutsche Bank if necessary, regardless of how unpopular the move might be from a political standpoint. The Lehman lesson exerts a great deal of influence, as does the U.S. Federal Reserve and European Central Bank. (Ironically enough, the recession prognosticating stock strategists at Deutsche - the analysts who I mentioned above - would get to keep their jobs.)"





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