Net worth is everything. Unlike my tiny paychecks!
*Investors Blog*
- Thread starter Warstud
- Start date
$13,615K in 2022. Granted might be much higher now: https://apps.urban.org/features/wealth-inequality-charts/
I don't consider my family home either, but its an asset like any other, so from a macro standpoint it counts.
Momma said its not what you make, its what you keep!
In my working years in Silicon Valley I lusted after the BMWs, Benzes and especially The Porsches in the parking lot.
I drove Toyota strippie pickups and my gal drove a Honda Civic.
Let's just say things worked out OK on our end; your Momma is one smart lady. Please thank her for me.
If Vanguard requires 5mm in order for a customer to lend securities to the firm (fully collateralized, marked daily, plus a rate of return) then my opinion of them has increased. I say this because most retail customers do not understand that in these programs, your securities are being borrowed to cover short positions. What that means, in economic terms, is that your securities are essentially being borrowed, for minimal return to the customer, so other people (and sometimes the firm, if it takes prop positions) can take a position against the position you hold. If I have grasped the limitation correctly, VG is limiting this program to high net worth people in an effort to confine it to those people who actually (hopefully) understand the underlying economics. The returns on these programs have certainly been very minimal from the perspective of the customer / securities lender, and not at all worth it to the average customer. To put it bluntly it is easier to borrow from the customer because the broker could never get those same terms from an institutional securities lender (e.g., the interest paid and the collateral quality).
Other firms, including Fidelity, have been forced by the race to the bottom mentality prevalent in business today, to lower the minimuM holdings because for whatever reason customers think, mistakenly in my view, that they are beneficial. Just make sure you understand the collateral being pledged and that you understand your rights to get it back if the firm fails, because when you participate in theee programs it is unlikely you will be a customer for SIPC purposes with respect to this trade, and so if the firm were to fail, and it is rare but it happens, your recovery is limited to your collateral because you have given up rights to the security. Not the end of the world if you get the collateral, but given the typically very small return (particularly now that interest rates aren’t 0 so there are good alternatives) I don’t see how this is worth the trouble for the average customer. If VG has limited to very high net worth people, good for them sticking with John Bogle’s values and not screwing the average small customer.
Happy Mother’s Day to all the moms out there!
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Its an excellent post.
My question is who underwrites all this stuff? What happens when Pablo's loaned short blows up - who is going to cover the loss? Is it another MF Global in the making, or another TARP because TBTF?
It really irks me that the government will stop 2 discount airlines from merging due to "competition" when there are 10 airlines, but they have allowed essentially 2 companies to take over the entire discount broker market.
It's ok Opinion but I think there are some wrong assumptions.
First of all, in my experience the people using Fidelity must be over 3 -5 million, Fidelity makes it super clear what is happening and what the risks are. In dollar terms the returns are not huge in one day, but over time I say it's well worth it. If Fidelity goes broke? We have bigger problems!
US Bank in two of my accounts, but Fidelity has a list of all the institutions. If my short blows up and the borrower goes broke?? I get my shares back.
Your TARP sentence is hyperbole. This is nothing new. WOW.
I get it. People with say $1-$2meg probably shouldn't do such a thing, but please don't exaggerate or minimize the risks.
I started Thursday AM. So two days in a couple accounts:
Its an interesting market discussion and I am not over or under exaggerating the risks. I am posing a what if.
Fidelity holds a ton of assets for people like me. There behind a firewall. I own them, there simply the custodian.
There real income comes from their prop desk. So when you lend them shares, they are lending them to some client that wants to short them, and they make money on the spread in that loan, and on margin interest So as @RAVL pointed out, your enabling someone to short assets you own long on the cheap.
Now, in theory derivatives are balanced - there is a long for every short. However its all leveraged so when one side blows up all the domino's fall - across the entire industry not just fidelity. So its pretty easy to see if something in the market goes sideways the prop side of Fidelity goes bust pretty quick - depends on their leverage. In theory my assets are still safe and sound on the other side of the firewall.
However by lending your shares, there now on the prop side. Your the bank for the client that just went insolvent.
I don't see it taking much to blow up a prop trader. There regulated by FINRA, which is private, not the fed. Someone would have to come up with a program like TARP to bail them out or let them fail. My assets are still secure. The fed couldn't do anything or wouldn't - not their charter, fidelity prop trading is not a bank.
Not telling you to do or not do anything. Its your money, so clearly your free to do whatever you like.
But its an interesting market discussion.
It's a great discussion.
You are correct, they are still my shares. They don't just go poof, gone. But comparing the whole thing to other failures seems a bit over the top. The market has been doing this for decades. Not something new.
Some folks get 1%. To me this seems not worth it. One of my loans is 4.75%. I'm meh about this one as well. But anything over 6%, that is worth it, especially if the position is a payer. If I can get over 10% even just for a day or three, worth the risk.
If things even look shaky I will close the loan. OR if the loans even get close to some small % of my portfolio, I will call them.
I don't think they are though. There not on the investor side of the firewall. You have loaned them to the prop desk. Unless I am missing something.
So the prop desk borrows them for a fee, and sells them. That is the way a short works - you borrow shares to sell them short.
I am sure Fidelity guarantees them - yes. But if Fidelity prop desk goes bust then what? Realize I am not saying the trillions of assets Fidelity holds on the investor side - because those are not fidelities assets - there simply the custodian.
I am not saying its likely - just possible.
Yes, if the shares somehow disappear they give you shares, not collateral cash. You notice the collateral is a bit more $ than current value.
And yes, you are trusting them to not lose the cash they sold them for.
Correct.
And a lawyer too, but don’t hold that against me.
Fidelity was 100k when I opened an account there for my wife a few years ago. Most of them were higher but have been going lower.
I understood people maybe doing these programs when rates were zero although even then I would be a hard no. But now if you have assets sitting you can go direct to a bank and get a decent rate, particularly if you are willing to agree to some term. And if you are under 250k, your counterparty risk is Uncle Sam. Granted brokers don’t fail often but why do the trade to facilitate a trade against your long position and get peanuts in return? For low returns, insist on lowest risk and go to a bank. For LT capital appreciation, stick with the stock markets.
Btw, if the firm fails you get the collateral. SEC and Finra rules require collateralization because the stock that is borrowed is no longer segregated /non rehype. That is why it has to be collateralized.
That’s all I will say here. I don’t want to argue with folks.
Not arguing. Learning and discussing.
Here are the agreements if anyone wants the details.
https://www.fidelity.com/bin-public..._master_securities_lending_agreement_2021.pdf
https://www.fidelity.com/bin-public.../documents/collateral_admin_executed_2021.pdf
https://www.fidelity.com/trading/fully-paid-lending
And as I stated at lower pay out rates, not worth it.
Anyone here using e*trade?
90% loss on the tallest building in Fort Worth. It appears the long awaited CRE implosion is starting.
-- Burnett Plaza was purchased in a foreclosure auction for $12.3million
-- The block-like complex stands at 567ft tall in Fort Worth, Texas
-- The 40-story building was sold three years ago for more than $137.5million
https://www.dailymail.co.uk/news/ar...ort-worth-texas-building-sold-price-drop.html
-- Burnett Plaza was purchased in a foreclosure auction for $12.3million
-- The block-like complex stands at 567ft tall in Fort Worth, Texas
-- The 40-story building was sold three years ago for more than $137.5million
https://www.dailymail.co.uk/news/ar...ort-worth-texas-building-sold-price-drop.html
Not super surprised
If it were NYC I would not be surprised. But its in one of the supposedly most prosperous states.
I think some other venues are in for a tough time.
