I don’t know, you guys.
Sometimes I wonder whether it’s safe to let retail investors or really, any investors who aren’t macro hedge fund managers, trade macro themes intraday.
And see, that strikes at the heart of my real criticism of ETFs.
I, like a lot of ETF “critics”, like to sound smart. So I’ll deliver long-winded missives about liquidity mismatches in high yield and emerging market debt ETFs and I’ll point to the morning of August 24, 2015, when ETFs actually “snapped” (as it were), and then I’ll draw some ostensibly impressive-sounding conclusions about why the vehicles are dangerous.
If I’m feeling particularly ambitious or feisty, I’ll trot out Howard Marks’ “perpetual motion machine” argument and use that to critique smart-beta products which I’ll blame for factor crowding on the way to making bombastic claims about how that exacerbates sector/style rotations which in turn imperil the broader market in times of acute stress.
But the real danger from ETFs is probably just that you cannot empower Joe E*Trader or, worse, Jack Institutional, to become armchair macro strategists by giving them the tools they need to run out and make silly decisions based on – oh, I don’t know – a tweet from Donald Trump.
Early Wednesday, Trump tweeted out his version of what the President says was “a long and very good conversation with President Xi Jinping of China”.
The call was designed to set the stage for a meeting at the G-20, where Trump and Xi will attempt to come to some kind of compromise that might put the brakes on the spiraling trade war.
But it was just a phone call. And one of the participants was Donald Trump. So how do you imagine that actually went? It probably went about like Trump’s speakerphone debacle with Enrique Peña Nieto:
Despite the fact that this news was largely meaningless (until proven otherwise), investors piled into the iShares MSCI China ETF and the iShares China Large-Cap ETF based on that one Trump tweet. Both vehicles are having their best days since September of 2015:
Does that seem rational to you? You know what, don’t answer that. Because if you say “yes”, then I’ll be upset.
There is nothing rational about that. Is it possible that there was real progress made on today’s call? Well, sure. Anything is possible. Is it good news that Trump and Xi are at least talking directly? Yes, but again, there is no telling what Trump actually said.
One decent argument might be that today’s call indicates Trump is starting to get concerned about the impact the trade war is having on the U.S. equity market. If that’s true, then we could see some progress later this month.
But don’t let it be lost on you that it was just three days ago when stocks tanked in the afternoon on news that if the very talks in question don’t go well, Trump is prepared to go ahead and publish a list in conjunction with tariffs on all remaining Chinese imports that haven’t been taxed yet.
Who knows, maybe the people buying these ETFs today based on a Trump tweet will turn out to look like the smart ones (if only by accident, because what they’re effectively doing without realizing it is bottom fishing at a time when China is aggressively trying to shore up sentiment), but somehow I doubt it.