GLD & ETF snake oil allow unlimited rehypothecation in London

The alt media economics stars are still shocked
at their all-knowing buddies who don't have
an ounce of gold or silver to their names.
Many still have ETFs like the ones that
MF Glowball ate up. GLDs and ETFs are
just snake oil. Paper which refers to
some thousandly-rehypothecated gold
that probably doesn't even exist.
Now that Holland, Germany and
Romania and others are starting to ask
questions, these paper tigers will be
shown to be cat nip.

more later

checkit: EconomicPolicyJournal
GLD & TLT: Exploring the Dark Side of Exchange Traded Funds (ETFs) With Lauren Lyster at Capital Account

Submitted by EB on 09/20/2012 12:14 -0400

Submitted by Bob English (EB) of EconomicPolicyJournal.com

Exchange Traded Funds (ETFs) have become as ubiquitous to investor portfolios, including retirement accounts, as their cousins in the mainstay mutual fund universe. Yet, few are apprised of the differences between these two asset classes. ETFs often have lower costs, are more tax efficient, and can be shorted (much to the delight of Mr. Chanos), while mutual funds may offer greater investor protections under the Investment Company Act of 1940. The latter is a subtle point worth exploring because, as the the half life for the next Fed-induced bubble happily converges with the six month mark on Mr. Bernanke's QE3, these things never matter...until they do (which is when the inevitable Fed brakes foment a crisis).

With the help of the host and producers at RT Network's Capital Account, we will explore just what can (and if one believes in such platitudes as Murphy's Law, will) go wrong when the next BearStearnsLehman cluster occurs, with particular attention to the world's largest gold ETF, GLD (thanks to Ms. Lyster) and the world's "safest" U.S. long bond ETF, TLT.

From Capital Account:

The partial transcript:

Time now for Word of the Day where we break down a financial term for our smart viewer but maybe not the financial expert. Today it's ETF or Exchange-Traded Fund. By attracting those looking to invest in nontraditional assets and sectors, the global ETF market has inflated to more than a trillion dollars in assets over the past few years...some put that number now at about 2 trillion dollars. David Kotok wrote a book on ETFs and spoke about them on our show recently. However, Kotok warns that investors should conduct serious research before purchasing shares in an ETF. We'll explain why shortly, but first, what exactly is an Exchange-Traded Fund (ETF)? Here's our definition:

ETFs are a portfolio or basket of securities, which provide diversification like mutual funds, yet are unique in that they trade on an exchange just like a common company stock. They usually track an index, either holding the underlying stocks of the index or using derivatives to achieve the same returns as the index. And since an ETF is designed to track a specific market index, one can play an entire sector without being forced to stomach the volatility inherent in any one stock.

For instance, investors can gain exposure to precious metals using ETFs. Specifically, Gold and gold miner ETFs have become increasingly popular. But if you buy shares in a gold ETF like the GLD for example, the largest gold ETF in the world, do you actually own gold? The answer is NO. You are effectively buying shares in a fund indexed to the gold market. This is not the same thing as buying physical gold bullion and storing it in allocated vaults, a key distinction.

Here (at the 2:30 mark), it's worth viewing "internationally acclaimed financial expert," Suze Orman play down (if not completely misrepresent) the virtues of owning physical gold. Contrary to the guru's advice, no: not all physical gold must be re-assayed prior to sale (if one sticks to smaller, well known coins and is not buying from this guy).

In fact, according to the ETF's own prospectus, the average investor can only redeem his or her gold shares for cash. Only those who have large holdings in a fund like GLD have the option to redeem their shares for physical gold, requiring somewhere in the neighborhood of 100,000 shares, which translates into millions of dollars. And even then it's a complicated process.