Kinder, gentler leveraging
Exchange-traded funds that use leverage have been “dismissed as ‘investment porn’ by some pundits,” said Murray Coleman in Barron’s. But a new breed of similar investment vehicles from Barclays promises to reduce the great risk in such leveraging: compounded losses. Whereas most leveraged ETFs maintain a “constant level of leverage” pegged to daily, weekly, or monthly index returns, leverage in Barclays new exchange-traded notes (ETNs) is allowed to “fluctuate with the market.” These ETNs are “an ingenious idea that can mitigate a lot of risk,” says Morningstar’s Timothy Strauts. But Strauts is not suggesting you can buy them and forget about them. Any investment that’s leveraged has to be monitored regularly.
‘Postbubble’ wisdom
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Investors might have noticed that the end of 2010 is looking a lot like the end of 2009, said Ben Levisohn in The Wall Street Journal. “Debt fears” still grip Europe, and surprising economic data are “whipsawing” U.S. markets. But a cycle of “calm followed by sudden flare-ups” is to be expected in the “postbubble world.” Investors who heed what they’ve learned these past 12 months can “exploit opportunities—and avoid traps—that others might not see.” For example, it’s now clear it would be wrong to lump all euro nations together. While Ireland and Spain are struggling, Germany and other “big economies” are thriving. Stateside, meanwhile, “booming growth is unlikely.” But history shows that during the “middle innings” of a rally, growth stocks have performed better than value stocks. Of course, “in the aftermath of a financial crisis,” no prediction is foolproof.
Credit gets the cold shoulder
Americans’ long love affair with credit might be over, said Aaron Smith in CNNMoney.com. More than 8 million consumers have stopped using credit cards in the past year, according to TransUnion. In some cases, creditors have cut them off. Many people, however, are abandoning their credit cards by choice—creating an overall decline in U.S. cardholders that’s “unprecedented,” says Credit.com’s Gerri Detweiler. Those numbers, she says, have “always gone up.” Average U.S. credit-card debt fell too, dropping more than 11 percent in the past 12 months, to $4,964.
