
BlackRock Is Bailing Out Its ETFs with Fed Money and Taxpayers Eating Losses - jules-jules
https://wallstreetonparade.com/2020/06/blackrock-is-bailing-out-its-etfs-with-fed-money-and-taxpayers-eating-losses-its-also-the-sole-manager-for-335-billion-of-federal-employees-retirement-funds/
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anonu
Garbage article. This sentence got me:

    
    
      Since BlackRock is allowed to buy up its own ETFs, this 
      means that taxpayers will be eating losses that might 
      otherwise accrue to billionaire Larry Fink’s company and 
      investors
    

What? The sentence indicates a deep misunderstanding of the subject which the
author writes about. BlackRock is (mostly) a fund manager: they earn money on
assets under management and not (broadly speaking) when the market goes up or
down. If the ETFs BlackRock are buying go down, it simply means they are
propping up the underlying holdings - the actual corporate bonds. They will
then "create" ETF shares and give them to the Fed. Think of the ETF simply as
an IOU.

BlackRock has also said they will be waiving the ETF fund management fee.

~~~
exclusiv
> they earn money on assets under management and not (broadly speaking) when
> the market goes up or down

Broadly speaking? Ok well what happens to the AUM when the market goes up or
down? More or less AUM. More or less money no?

Am I missing something? Wouldn't they have a ton to lose during these times?

> Today, BlackRock has been selected in more no-bid contracts to be the sole
> buyer of corporate bonds and corporate bond ETFs for the Fed’s unprecedented
> $750 billion corporate bond buying program which will include both
> investment grade and junk-rated bonds.

Seems like a nice setup. Especially now.

~~~
arkis22
You are correct that BlackRock has an incentive to maximize their AUM to
maximize their revenue.

A critical distinction though is that the Fed isn't buying BlackRock's bonds.
They are buying bonds that are represented in BlackRock's exchange traded
funds that are meant to mirror prices of real bonds.

You're not wrong that it's a sweet set up. It's better to be in BlackRock's
place. It is better to be buying coronovirus bonds for the government rather
than selling them to the government. The latter implies your company is under
severe cash flow pressure.

You shouldn't be distrustful of BlackRock because they maximize their revenue
when they maximize their AUM. If they maximize their AUM, that probably means
that your income is maximized as well.

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JauntTrooper
This article's tone is wildly conspiratorial.

Blackrock is the largest asset manager in the world. They manage $7.4
trillion. They're also one of the biggest providers of low cost index funds
for retail investors.

There's nothing nefarious about them running the Thrift Savings Plan. It's
basically a 401K program for federal government workers (the public sector's
equivalent, anyway). It's a really good program with great expense ratios and
plenty of passive index funds. The idea that they'd be using employee funds to
manipulate the stock market through future purchases is ludicrous.

What exactly is "not fully understood" about Blackrock's role in the
"outlandish valuations" of Apple and Microsoft? Blackrock is the #2
shareholder in each, after Vanguard, and owns 6.3% and 6.8% respectively. Much
of that is in index funds like the iShares S&P 500 ETF or the Russell 1000
Growth ETF.

~~~
whatok
> What exactly is "not fully understood" about Blackrock's role in the
> "outlandish valuations" of Apple and Microsoft? Blackrock is the #2
> shareholder in each, after Vanguard, and owns 6.3% and 6.8% respectively.
> Much of that is in index funds like the iShares S&P 500 ETF or the Russell
> 1000 Growth ETF.

I don't know what the original post's argument was on this but you could make
an argument that the growth of passive investing largely caused by Blackrock
and Vanguard has led to stretched valuations in a lot things. The mere fact
that these companies make it easier and cheaper to invest means there's more
money floating around chasing fewer and fewer shares given less public
companies since Sarbanes-Oxley and the rapid growth of PE/M&A.

~~~
JauntTrooper
The article was insinuating something ridiculous about Blackrock secretly
conspiring with global central banks to inflate asset prices.

Your argument is a more reasonable one to consider. I hear it sometimes
(especially from underperforming active managers), but I haven't seen much
evidence of it.

It's a seductive line of reasoning -- that passive funds are dumb money that
buy at any price and therefore let stocks run up to unreasonable levels.

You could also take the other side of it though -- that active managers get
caught up in manic buying that causes bubbles, but passive index funds are
price insensitive and hold stocks forever, so they let companies focus on
long-term growth.

I think there is probably a point where too much passive investing might make
markets less efficient, but we're not close to that yet. There are still a lot
of active funds out there. It was only last year that passive reached 50% of
US equities. It's also probably self-correcting -- if markets become less
efficient at price discovery, it gives active managers more opportunities to
find undervalued stocks and generate more wealth, which will encourage more
active management.

In practice I think they're just another type of investor. It's not like that
source of demand disappears without passive funds. If retail investors weren't
putting their money in passive funds they'd be putting them in old school
active funds like they used to do.

The decline in the number of public companies in the 21st century is a whole
other can of worms. Smaller companies just don't go public as much anymore. I
don't think you can attribute it to passive investing though. I think most of
it has to do with two factors: (1) it is more expensive to be a public company
today due to increased disclosure and compliance costs, as you stated, but
more importantly (2) the market for private funding has matured with the
growth in VC, PE, and private lending so companies can stay private longer.

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Etheryte
For those not familiar with the company name, BlackRock owns iShares, which
manages the largest S&P 500 ETF tracked in EUR [1]. This and many other ETFs
by their brands are commonly recommended as solid entry points for beginner
investors [2].

[1] [https://www.justetf.com/en/how-
to/sp-500-etfs.html](https://www.justetf.com/en/how-to/sp-500-etfs.html)

[2] [https://www.benzinga.com/money/best-
sp-500-etfs/](https://www.benzinga.com/money/best-sp-500-etfs/)

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adrr
Never got why the fed is buying ETFs instead of buying corporate paper. Also
why isn’t the fed buying new bonds if their goal is to inject liquidity back
into the companies. Who are they really bailing out?

~~~
gvhst
The Fed doesn’t do security selection. If the Fed isn’t equipped to analyze
and select individuals securities. Additionally selecting individual names is
a huge political concern. How do you decide which issues to buy? Personally
I’d rathe the Fed buy market indices which are constructed By transparent and
well understood processes instead of some opaque self brewed process. Plus the
Fed is suppose to stabilize the market as a whole and provide overall
liquidity to allow firms to raise money on their own. The Fed isn’t suppose to
directly support individual corps.

Additionally it’s important to look at how the ETFs work. I believe the ETFs
in question here are LQD and HYG for investment grade and high yield
respectively. These ETFs track the iboxx indicies for IG and HY. Even if the
Fed is buying BlackRocks ETF, this bolsters the prices of the individual
bonds, which then moves indices higher, thereby also moving up other
provider’s ETFs along with the entire fixed income market. Given this is the
case, one should pick the most liquid ETF for each asset class (Ideally all
ETFs should be purchased weighted by the NAV or trading volume of each ETF),
in that case it would be BlackRocks for US fixed income.

~~~
whatok
The Fed isn't equipped to do security selection so that's why Blackrock is
managing this facility. Blackrock is absolutely going to do secondary bond
purchases (on the Fed's behalf) once that portion of the facility is up and
running.

The Fed has also said that they don't want to influence market share of ETFs
so that's been interpreted as some sort of benchmark per manager. I believe
Blackrock was around 50% of qualifying ETFs outstanding at the time. The Fed
published purchases to date last week which has a pretty decent breakdown:
[https://www.federalreserve.gov/monetarypolicy/files/smccf-
tr...](https://www.federalreserve.gov/monetarypolicy/files/smccf-transition-
specific-disclosures-5-29-20.xlsx)

~~~
adrr
Fed has directly bought securities in every downturn that I know of. They
bought MBS during 2007 recession. They are buying corporate paper right now
directly. What they didn’t do was go bailout the mortgage REITs.

~~~
whatok
The Fed has not bought any corporate bonds yet. If you have some proof of
that, please share your source. I work directly in this space, know everything
that is going on and am unaware of any purchases so either I'm terrible at my
job or you have some information no one else has.

~~~
adrr
You are correct. They have 700bb allocated for corporate bonds but no takers.
They’ve dumped billions into MBSs and hundreds of millions into ETFs.

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pochamago
I assume a very large proportion of retirement funds are stored in these ETFs,
so average people would eat the cost either way.

~~~
whatok
A very small portion of pension or 401k plans are held in these ETFs. Pension
funds invest in and 401k plans do offer mutual funds that have the same or
similar benchmarks that these ETFs have so these facilities have helped to
stabilize those.

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jules-jules
It looks the site is down, here is an archive link:

[https://archive.is/en5hD](https://archive.is/en5hD)

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easytiger
Quality source there

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dv_dt
If you want a detailed technical view of what the Fed is doing I highly
recommend Nathan Tankus' blog. Though I don't think he's specifically covered
Blackrock's role.

[https://nathantankus.substack.com/](https://nathantankus.substack.com/)

I'd start with the series "The Federal Reserve's Coronavirus Crisis Actions,
Explained"

[https://nathantankus.substack.com/p/the-federal-reserves-
cor...](https://nathantankus.substack.com/p/the-federal-reserves-coronavirus)

~~~
hammeiam
Who is that author? He seems to be the "research director" of a student group
(MMN) but does he have qualifications?

~~~
easytiger
He's an ultra left wing, "defund the police", full time twitter posting noise
generation machine.

~~~
dv_dt
I was surpised a little at that, and am personally ok with that, but his
expertise on the Fed is pretty much tangential to those views. Tankus has been
quoted in places like the Washington Post for his detailed discussion about
Fed activities.

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starpilot
This is the real looting.

