The red flags of the global financial market meltdown keep popping up. This past week, the latest red flag was the melt up of the Credit Suisse 3Xs inverse natural gas ETN DGZAF to $25,000 a share. However, because ETNs are not backed by any assets, no investor that purchased DGZAF shares will be able to cash out at anywhere close to that share price, instead being relegated to likely cashing out at huge losses due to the fact that the NAV of all outstanding shares was only in the millions with a market cap of the ETN being absurdly in the billions, reflecting the complete disconnect of the share price with its NAV. Sadly, this was not the first time an ETN completely imploded, as Barclay Bank’s oil ETN also imploded when oil futures traded at -$37 a barrel earlier this year. Nor will this be the last time an ETN or an ETF implodes.
With that said, likely candidates among ETFs for a complete implosion include the NYSE gold ETF GLD and silver ETF SLV because I do not trust that these ETFs have 100% allocated physical gold and silver backing them, especially given the fact that their prospectuses state that it is illegal to repeat anything stated in the prospectus as factual. What kind of deviant banker would issue a prospectus that was such rubbish?
As this global financial system meltdown accelerates, what other banker products are likely to implode? In my opinion, we will see some banks’ money market funds “break the buck” again, meaning that its NAV will wander below the $1 NAV it strives to maintain. Of course, when this happens, bank customers will lose some of their savings because MMFs are uninsured. Which bank MMFs are most likely to break the buck at some point in the future? In my opinion, the list of banks that offer MMFs most likely to break the buck are offered by banks that most of the public consider to be “safe”, including JP Morgan, Bank of China, Goldman Sachs, Bank of America, Deutsche Bank, Citigroup and HSBC just to name a few.
