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Good article found at IKN on the perils of passive ETFs

Posted by ipso facto @ 17:23 on December 6, 2018  

As a mining banker I observe, on a daily basis, the corner of the market where these effects are most acute. Mining has absolutely no cyclical capital coming into it at the moment to paper over the cracks, so I’m left staring at the bare wreckage created by an absence of capital that is primarily due to the structural inefficiencies in the markets. And make no mistake about it, these structural inefficiencies are being caused by passive funds and ETF’s.

The succinct explanation as to why we should all be concerned, mining investment bankers or not, is as follows; If the dominance of passive funds and ETFs is followed to its logical conclusion, there is no need for a stock market.

Why? Because the biggest impact that ETFs and passive funds are having, invisible to most market observers (and especially those who don’t care about mining), is that the primary market for mining companies has been obliterated. While the secondary market seems superficially healthy, the new issue market is dead. A company with a good project, sensible capital structure and a a competent management team used to walk up and down Bay St before collecting a modest capital infusion for a drill program of merit, but there is now barely anyone left to write a cheque for them. And that is only partially due to the decline in the number of people willing to invest in mining, but everything to do with the fact that when ETFs take your capital, they don’t invest it in the primary market. If all of the capital willing to invest in mining is domiciled in ETFs, not a dime of new issue paper would ever get issued again.

continues https://incakolanews.blogspot.com/

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Post by the Golden Rule. Oasis not responsible for content/accuracy of posts. DYODD.