A battle royal between the mutual fund dinosaurs and the exchange-traded fund upstarts is hitting the US retail investing market. This is the result of the failure of ETFs to do what they were supposed to do during the China-triggered August stock market selloff. Rather than maintaining liquidity in markets, ETFs—especially the biggest ones—dropped like a stone leaving investors who needed to sell and others who had simply entered a market order getting a pittance.

The ETF contingent are unrepentant. My Qwafafew buddy Herb Blank, one of the founders of the ETF wave (he developed “country baskets”, an early variant) wrote to me:

“Anyone who reads Barron's or WSJ or Forbes knows all about how those DEMON ETFs destroyed the market on August 24. I've seen that article on the desk of every wholesaler who hawks actively managed funds. “

The fact that the ETF collapse is being used to peddle non-indexed stock-picking funds does not excuse their failure to perform as expected in the selloff, worst of all supposedly all-weather or hedge ETFs. On August 24, the market's circuit-breakers were triggered 1300 times to halt all trading of ETFs.

While ETF partisans blame the huge price swings on new govt regs put in place after the May 2010 flash crash, others (like me) think there are fundamental flaws in the ETF concept. ETFs requires qualified institutional buyers to find disparities between the prices of ETFs and their holdings. Then the institutions intervene by creating or destroying ETF shares to put them back in alignment with their portfolios. This they offset by purchases or sales of the underlying securities for a mini per share profit which can mount up.

When markets crash nobody, not even a computer program or robot used to more reasonable disparities, has time to work out the valuations and do the trades.

Chief economist Willem Buiter of Citi Research now predicts that China will trigger a global recession during the next two years, as its lagging growth hits first emerging markets and then the rest of them. This is a revision of the more optimistic economic forecasts put out at the start of the year. That's the bad news. The good is that while the risk is high, the recession will be moderate with recovery starting in 2017-8.

His analysis cites the fact that “evidence for a global slowdown is everywhere.” Already, “the main driver of global underperformance during the past two years has been EM [emerging market] weakness.” “Even success stories like India, central and eastern Europe, and Mexico are not outperforming our forecasts.”

For the record, our portfolios are out of China, emerging Asia like Thailand, and Russia, and reduced in Brazil and Africa. Mr. Buiter like other economists doesn't believe official Chinese growth numbers. And as paid subscribers can read abut, I am further cutting my personal China exposure.

Friday (as I warned) the prospect of a long weekend for Jewish market participants was holding shares back. Sunday night, the Year 5776 begins and the New Year holiday is observed for two market days, Monday and Tuesday. For stock markets, 5775, the only palindrome year in my lifetime, was not a good year. If enough apples are dunked in honey Sunday night, perhaps the next year will be better.

Software

*Didi Kuaidi, the Chinese ride-share rival to Uber in which our Tencent is a shareholder, invest in Lyft, the US rival to Uber, in May. Both Didi and Uber subsequently have raised huge sums on capital markets. Didi also was invested in by Alibaba (BABA) and was formed by merger of the 2 Chinese ride-share firms. China already has a functional and (for tourists) cheap metered and official taxi system. You only pay the fare, and not tips.

Hotels will give you a card with the destination written in Chinese characters. So I don't think the rival businesses are seeking tourist riders, but Chinese ones.

TCTZF also will get into the business of making movies, initially mostly for online consumption on its phone apps. Penguin Pictures Shanghai Ltd., the new venture, will develop a pool of artists who may work on cinema films too.

*From India, Abhimanyu Sisodia writes that “Infosys (INFY) entered a 3-yr strategic partnership with the Association of Tennis Pros' Indoor World Tour—great branding. INFY will provide scores and statistics for each match, point by point.”

Vivian adds: While India's main sport is cricket, it also has a roster of top male and female tennis aces. But the main point of the partnership is to link Infosys to tennis fans worldwide.

*INFY's sometime partner, SAP, reaffirmed its guidance. CFO Luka Mucic said the German software firm would meet its 2015 guidance of revenues up 8-10% (in constant currency) and operating profits of euros 5.6-5.9 bn.

Energy and Materials

*Valuing BP plc (BP) is proving tough for North American analysts. US-based Jeffries has slashed the UK oil company from buy to hold with a GBX 360 target price. However, Canada's Canaccord Genuity has raised its rating from hold to buy. Goldman Sachs meanwhile upgraded BP to neutral from sell. Insiders are buying, which is usually a good sign. Insiders sell for many reasons but they buy for only one: to make money from the stock of the companies where they know more than outsiders.

*Veresen (FCGYF) yields 8.2% currently although its payout may be nipped if it has to pay more for its share of the Jordan Cove gas liquefaction plant... or if its throughput deals on supply pipelines are adjusted down. And of course the yield is in loonies.

*Canada's Barrick (ABX) is selling non-core holdings in Nevada and Montana as a package on which it will start to accept bids on Monday. This is good for owners of ABX bonds. Its shareholder meanwhile are being encouraged to stay put by being given a 3% discount if they join its DRIP.

Latina Shares

*Cosan (CZZ), the maker of sugar and ethanol in Brazil, declared a Reais 0.369/sh interim dividend payable Sept. 24 without tax withholding. CZZ also is in logistics and energy.

*Vale (VALE) has not been downrated by Standard & Poors alongside the other major Brazilian stock, Petrobras. S&P downrated government bonds to junk but considers VALE a global player not subject to the sovereign ceiling. PBR of course is heavily involved in political funding.

*Banco Latino Americano de Comercio (BLX) acted as lead manager to a $102 mn 4-yr senior secured loan for La Favorita, an Ecuadorian chain of gas stations and shops, including hypermarkets which bought out the local arm of bankrupt Radio Shack. I will find out more, perhaps, on Monday, from my Ecuadorian synagogue buddy, Marta. The shareholders of BLX include the US Ex-Im Bank as well as foreign counterparts, and its funding is being blocked by the Republicans in Congress. Learning that Rafael Correa's country got a loan will not help given that Ecuador is sheltering Wiki Leaks founder Julian Assange.

Chile below.

Drugs

*As if the failure of their joint huge phase III chronic obstructive respiratory disease trial were not bad enough, GlaxoSmithKline (GSK) is required under their deal to buy 44,574 shares of beaten-down Theravance. BNP Paribas rates GSK an underperform.

*Novartis (NVS) faces a generic challenger to its Exelelon transdermal patch for treating Alzheimer's. It now is available from Alvogen as Rivastigmine in 3 strengths, which last 24 hurs.

*Insiders reported selling about 10,000 shares of in Ireland's Alkermes (ALKS), from CEO Richard Pops down. ALKS will present next Thursday at the NYC Morgan Stanley Healthcare Conference, a circus. My own weak theory on why the selling is that it is linked to a “smart pill” being launched for schizophrenia, which will improve the notorious poor compliance of patients. The ALKS version, Aristada is a long-acting injection. The FDA missed its Aug. 22 approval date to do more studies, but did not seek info from the Irish company, a worrying sign. This delayed the planned Sept. 2015 launch of the drug. As a former US firm it has to file with the SEC when these sales occur.

*On the usual low volume on Friday (when Tel Aviv is closed) and despite further closure there Sunday to Tuesday, Teva (TEVA) was up 3.25% Friday. This is smart money going to work. TASE will also be closed Sept 22 and 23 for Yom Kippur, the Day of Atonement.

Funds

*We are out of Aberdeen Asia Pacific Income Fund (FAX) which again will pay a 3.5 cent monthly dividend, of which 42% will be return of capital. Its stablemate Aberdeen Global Income (FCO) fund will pay 7 cents, of which 48% is return of capital. FAX; FCO.

*Pershing Square Hlgs Ltd NAV this week came to $26.46. Activist Bill Ackman's hedged CEF is incorporated in Europe and trades mostly in Britain. It shorts stocks, like Herbalife, which he noted is growing now only in China. This was during a CNBC interview this morning in which Ackman said he is pretty bullish on stocks and noted that the only short in his portfolio is Herbalife. His favorite long appears to be Mondelez International (MDLZ), the Kraft-Heinz spinoff, MDLZ, which lost traction in August.

Neiges d'antan

*China Chaintek shares will cease trading in London, meaning they will be worthless, because it lost its Nomad (nominated advisor), ZAI Corporate Finance Ltd. I put in an order to sell on Monday which will not prove very profitable.

*Hints of a re-rating for SoQuiMich coming from Canada's fertilizer genius, Ben Isaacson of Scotia (BNS brokerage arm), lead me to remind you that we exited in a hurry when fiddles over insider dealings by the ex-son-in-law of Pinochet, CEO Julio Ponce, were revealed. After government and board intevention to remove Ponce, BNS's analyst thinks there is a 20% upside now that Ponce will have to sell his 30% indirectly held stake in SQM. I won't buy back until it is clear how other shareholders like Kowa of Japan and Canada's Potash of Saskatchewan handle the selloff. They may seek to take control of SQM as they did before, in which case I don't want to be a minority shareholder in Chile.

*Ages ago we owned a sponsored New Zealand ADR, Sky City Entertainment, which runs casinos in hotels Down Under (Oz too). It delisted here over regulatory issues and now is back as a BoNY ADR, with 5 New Zedland shares equal to one US one, with ticker symbol SKYTY. It also supplies carparking, and food and drink to hotels and convention centers.