2012Feb7 Game Changer?

EUROPE:

The business of running and selling traditional, actively managed mutual funds is already under stress, thanks to exchange-traded funds. The new Pimco Total Return ETF, debuting March 1, seems likely to only add to the pressure.

Should the ETF version of  Bill Gross's Pimco Total Return prove a success in attracting investors, the pressure will build on competitors to follow suit.

This is an unpleasant prospect for companies without Pimco's tremendous scale. It means entering a business with typically lower profit margins than traditional funds because of the low fees common among ETFs.

To be sure, it is premature for ETF boosters to declare complete victory. That is especially the case with stock funds, where the daily disclosure of holdings by ETFs is a big stumbling block for fund managers wary of tipping their hand as they buy or sell. And active managers-even Bill Gross-still need to prove worthy of investor money with market-beating performance.

INTERNATIONAL:

Greek Bailout Talks Near Point of No Return

Revisiting the Greek "Razor's Edge"

Greece takes step closer to default

Time Is Running Out for Greece, Merkel Says

Sorry for the return to Greece, but things are really heating up over there now. These articles highlight some of the reasons we are so cautious about being in the equity markets for now. The bottom line is that no one involved with the negotiations knows if a hard default can be avoided and that would be a very bad thing for investors.

It appears that there is not enough political strength within Greece to get anything done. This will leave most of the decision making to the unions and the court of public opinion. Many banks in Greece are insolvent as they stand and they have very little bargaining room left.

The rest of Europe looks to be calling Greece's hand and it is time to show the cards. Winners will be determined soon and so will losers.

COMMODITIES:

We've been following recent plunges in the Baltic Dry Index-a measure or commodity shipping costs-because it's near its lowest value since August 1986.

Today  Bloomberg reports that vessel operators have actually begun to transport goods for free and even cover some of clients' fuel costs on infrequently traveled routes, in particular on "backhaul" trips that move a boat from the Pacific to the more highly trafficked Atlantic.

In particular, the report cites Glencore International Plc, which shipped grains to Europe using a ship operated by Global Maritime Investments Ltd according to Bloomberg. Global Maritime Investments not only offered the trip for free but actually paid $2,000 per day in fuel costs.

The European Union, as it turns out, actually has high lending exposure to the shipping index, another stress that could exacerbate its already shaking financial system. Analysts estimate that European banks have about $500 billion in shipping loans on their books, and it would cost them about $100 billion to restructure them.