The Real Looters Of America, Part 1

Surely William Mark, pictured below, is the poster boy for the looting of America that is now in full swing. In a few short days of madness the man lost his entire life savings—-nearly $800,000.

William Mark lost nearly all of the $800,000 he put into ETNs.

But he was not a victim of the small time arsonists and roving bands of open air thieves that struck in major U.S. cities in recent days and which have conservatives and the Donald foaming at the mouth.

We have witnessed these eruptions first-hand since our student days during the summer of 1968 when Detroit, Gary, Cleveland, Philadelphia, Newark and sundry more became engulfed in fires, looting, riots and ruin. But they always die out after a few days of anarchy, as the worst thugs and thieves get arrested and the rest of the riff-raff moves on to other amusements.

So in this instance, too, Target and the designer handbag stores will collect their insurance money, many of the mom and pop outfits that were gutted will get disaster aid checks from Uncle Sam and the main stream media will have gotten a temporary boost to their ratings.

But for the real victims of looting—the the tens of millions of middle class savers and retirees who have been savaged by the monetary looters at the central bank—there will be no such respite.

As the empty-suited dufus who sits in the lead chair at the Eccles Building said the other day, after three decades of assault on sound money, the Fed is “very comfortable” with virtually unlimited expansion of its balance sheet and falsification of every financial asset price that moves or even stands still.

As per Mr. Mark, the Wall Street Journal summarized what happened:

When William Mark decided to get back into investing after the 2008 financial crisis, he looked past stocks and bonds. Needing to play catch-up with his retirement portfolio, the piping engineer decided to bet on a complicated product he hoped would deliver double-digit annual returns.

It worked so well—earning him 18% a year in dividends, on average—that he eventually poured $800,000 into the investments, called leveraged exchange-traded notes, or ETNs. When the coronavirus pandemic hit, he lost almost every penny.

“I’m 67 years old and I’m basically bankrupt in just two weeks,” Mr. Mark said.

Well he might be. The man bought a triple leveraged ETN (exchange traded note) that wasn’t a bond or a stock—just a pure wagering instrument that bet on companies that invest in the mortgage market, known as mortgage real-estate investment trusts (REIT). And, as shown below, when the price the mortgage trust rose by about 13% (black line), the ETN had soared by more than 40% (red line), owing to the embedded triple leverage.

Alas, when the the US economy had its Lockdown heart attack in mid-March, the value of mortgage REITs plunged, causing the the 3X leverage factor to slam ETN holder’s with malice aforethought.

The 27% decline in the embedded Mortage REIT generated at staggering 80% loss for the ETN; and, then, to add insult to injury, the Wall Street dealer which issued this wagering ticket (UBS) exercised it contractual right to close out the trade at a massive loss to the mullets who owned it.

To be sure, these risks are always there in the fine print of the prospectus. Purchasers are told that they can collect modest dividend payments if the underlying asset increases in value, and they can sell the note at any time to capture the embedded gain that is illustrated by the 40% over par value of the ETN at the top of the chart above.



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