Over the past few months, the US government through the Fed, the Treasury and other federal entities, has been buying up companies, gaining control of entire industries and all along it has downplayed 2 words: Socialism and Nationalisation. Of course, both words spark huge fear not only to the markets but also to its own population. The government insisted it did not want to run any of these businesses but rather simply let them survive. And for a while, it looked like that might happen…

But in the past few weeks, the US government has gotten on the road to invalidate contracts signed by AIG and has now asked GM CEO Rick Wagoner to resign. I’m not saying these were not the right picks, or that they were. But it is still interesting that the US government is now clearly calling shots in the insurance business as well as the US automakers. And with control over several big banks, it is becomming clear that the US government is calling some shots in that industry as well. And all of this happened in a matter of months. So let’s not try to imagine where it will get if things do not improve in the next few months.

Now many questions will arise from such a role of the government. First off, as these institutions become “political”, can the government actually let them fail? Or does it become too much of a political liability to have a “public failure” of a federal rescue? And also, when will the government actually step back and let the private sector take over? We all know that the government is generally far from effective compared to the private sector and that has been proved in the US more than anywhere else. But it is also known that once the government gets involved, it has a difficult time letting go and that is what I am personally more worried about.

The Obama administration has already been criticised for not coming up with enough clarity and answers… imagine what it will be when they will start writing insurance policies, designing new cars and developping new “green cars”. Oh and there are many, many companies waiting in line to be managed by Washington.. no end to this tunnel in sight.

Just when you though that maybe ETF’s were perhaps starting to lose a bit of their “in” factor, a new class of ETF’s has been unveiled that could restart the whole trend. In Canada, “Betapro” ETF’s are high volume ETF’s that are usually leveraged and track known indexes such as commodities or stock indexes. Now, the company behind those is launching “alphapro”, a class of ETF’s that would track the trades done by “guru’s” of finance. Of course, the idea behind it is to be able to generate alpha.

The first launch will be an ETF that will trade according to Dennis Gartman’s trades. Gartman is well known across the markets for his daily newsletter that is sent out and does commentary about the markets in general as well as specific comments about most asset classes. He then gives out specific trades that could in theory be replicated. Of couse, doing so through this new ETF has many advantages, mainly the time saved, not having to look every day for the trades and also of course saving the cost of the newsletter which is very expensive.

The question of course is how well such guru’s will be able to perform. Much has been said about the inability of investors to beat the market consistently. It will be very interesting to see if these ETF’s that will track the best of the best, will be able to do so.

As well, there will probably be many investors that will try to arbitrage between the ETF’s return and the underlying trades. For example, when Dennis Gartman will be sending out his newsletter and for example saying that he wants to buy Gold. If the ETF becomes important, you will have a great number of investors that will know that the ETF needs to buy this position, which could make the price go upward. It could create a drag in returns and will be interesting to follow. Of course, this effect already exists because his newsletter is so spread out that the market knows many investors are following these trades. But having an ETF track these trades could make the effect greater.

In the end though, I am impressed with this new idea, which has the potential of creating a great deal of new interest and activity in the ETF field. There are surely many more great ideas to come…

Have you been standing on the sidelines for the past 10 days? Sure you were probably proud a couple of weeks ago to say that your investment fund was all cash, but if that was the case, then I’m sorry to tell you that you have just missed the biggest 10 day return since 1938.

The market is now up 22% from its low and it seems like there was no way to get it wrong as all major components and sectors advanced in the past 2 weeks. Only today, the S&P 500 advanced more than 7%, an incredible feat no matter what the circumstance.

Of course, the title of this post was chosen to get some reactions but it is also because we are very surprised of this rally. We had long positions but it is still very surprising to see the market rise so much. Let’s face it, in terms of the economy, there is little to celebrate and so there is little hope of rising corporate earnings. So we are not entirely certain what is causing this rally. Is there a little less uncertainty about the direction of the Obama economic team? Yes, to an extent and of course this helps the markets. But enough to justify such an advance? Certainly not in my opinion.