Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Ultrashort ETFs: Financial WMDs?
Old 11-20-2008, 10:16 PM   #1
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,613
Ultrashort ETFs: Financial WMDs?

As I travel around (figuratively) and hear people talking about strategy, I'm hearing more and more of them talking about being in all these concentrated "ultrashort" ETFs.

Especially with no uptick rule any more, does it seem feasible that the proliferation and increasing popularity of these funds are helping to unleash an incredibly destructive force in the markets and the economy? I don't how much these are moving the needle in terms of the amount of shorting going on out there, but it can't be helping and I can see a situation where people chase these funds to create an "inverse bubble" in the markets they are shorting.

Thoughts?
__________________

__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 11-20-2008, 11:44 PM   #2
Recycles dryer sheets
Gardnr's Avatar
 
Join Date: Jul 2008
Location: ENE MO - near STL
Posts: 424
Yeah, I've had some of the same thoughts about the effect of shorting and especially these ultra-short ETFs on the market. It sure seems like they would at least be adding to the extreme volatility.

I'm not sure I believe all these people though. It's kind of like everybody claiming they owned the hot tech stocks at the height of the tech market. I think many are just full of it. I'll bet they claim they sold them and went long right at the bottom too.

That said I wouldn't be surprised to find out that many "average" retail investors are just piling into the short funds at this point of the market (I mentioned it on another thread too). They've been hearing about people making money in this market that way and they just can't stand it anymore. They've got to get in. (Kind of like commodities a few months back and undoubtedly gold when it hit $1000/oz.) It just may be a downside bubble forming. I sure hope so!

They're gonna get burned sooner or later when this market turns around. It could do so in very dramatic fashion and they'll have exacerbated their losses.

Every time I've thought about the idea of trying to play that game I remind myself that it's just like a market at the top, and I stay contrarian, buying on the way down, picking up what I hope will be great long term dividend payers (including REIT funds/ETFs), and broad market ETFs/funds.
__________________

__________________
Gardnr is offline   Reply With Quote
Old 11-21-2008, 01:17 AM   #3
Full time employment: Posting here.
Frugality_of_Apathy's Avatar
 
Join Date: Jul 2008
Posts: 622
Quote:
Originally Posted by Gardnr View Post
They're gonna get burned sooner or later when this market turns around. It could do so in very dramatic fashion and they'll have exacerbated their losses.
You can't have winners without losers. The market doesn't just create money, every dollar you make is from some sucker that bought your cast offs hoping to pawn them off to some other sucker for more money down the line.
__________________
Frugality_of_Apathy is offline   Reply With Quote
Old 11-21-2008, 11:38 PM   #4
Recycles dryer sheets
Gardnr's Avatar
 
Join Date: Jul 2008
Location: ENE MO - near STL
Posts: 424
Quote:
Originally Posted by Frugality_of_Apathy View Post
You can't have winners without losers. The market doesn't just create money, every dollar you make is from some sucker that bought your cast offs hoping to pawn them off to some other sucker for more money down the line.
I don't disagree with that! They're helping to push the market down to extreme levels creating very good buying opportunities for me and others (and heartburn and ulcers ); just as happens at the top of the market but in an opposite fashion.

I'm just saying that it's just another way for the lemmings to lose more money as they follow the herd (pardon the mixed metaphor ). Other threads have referred to their coworkers/neighbors boasting of making money in short/ultrashort ETFs. This may be the best sign of a bottom yet, just as it is at the top when they're all buying the latest hot stocks.
__________________
Gardnr is offline   Reply With Quote
Old 11-22-2008, 12:42 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
dex's Avatar
 
Join Date: Oct 2003
Posts: 5,105
It is good people are starting to talk about them - another sign of a bottom.
These funds are contrary indicators.
More people that go into them could indicate a HUGE rally when they panic to get out.
Decision Point®: Chart Spotlight 11/14/2008
Read more here.
__________________
Sometimes death is not as tragic as not knowing how to live. This man knew how to live--and how to make others glad they were living. - Jack Benny at Nat King Cole's funeral
dex is offline   Reply With Quote
Old 11-22-2008, 12:52 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Quote:
Originally Posted by Frugality_of_Apathy View Post
You can't have winners without losers. The market doesn't just create money, every dollar you make is from some sucker that bought your cast offs hoping to pawn them off to some other sucker for more money down the line.
The entire world isn't a Ponsi scheme. If I own shares of a company that reinvests in projects that earn returns higher than the company's weighted average cost of capital I make money and no one loses. Investing isn't a zero sum game . . . speculating is.
__________________
Gone4Good is offline   Reply With Quote
Old 11-22-2008, 05:33 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Nov 2005
Location: North of Montana
Posts: 2,753
So, is now the time to invest speculate in a 2*bull fund?
__________________
There are two kinds of people in the world: those who can extrapolate conclusions from insufficient data and ..
kumquat is offline   Reply With Quote
Old 11-22-2008, 06:11 PM   #8
Recycles dryer sheets
ikubak's Avatar
 
Join Date: Dec 2007
Posts: 392
Is it possible to short these ultrashort ETFs? I've never shorted anything, but it sure would be fun to short one of these ultrashort ETFs when a short squeeze is going on.
__________________
Retire date Jan. 10, 2018
ikubak is online now   Reply With Quote
Old 11-22-2008, 06:41 PM   #9
Thinks s/he gets paid by the post
 
Join Date: Nov 2005
Location: North of Montana
Posts: 2,753
Quote:
Originally Posted by ikubak View Post
Is it possible to short these ultrashort ETFs? I've never shorted anything, but it sure would be fun to short one of these ultrashort ETFs when a short squeeze is going on.
see above
__________________

__________________
There are two kinds of people in the world: those who can extrapolate conclusions from insufficient data and ..
kumquat is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Financial Myth (i stole this from another financial forum). please, don't sue me. Enuff2Eat FIRE and Money 20 08-19-2007 04:26 PM
ETFs yakers FIRE and Money 11 07-02-2007 10:00 PM
ETFs Brat FIRE and Money 12 01-04-2007 11:27 PM
ETFs PJ03 FIRE and Money 5 01-19-2006 07:09 AM
ETFs DFW_M5 FIRE and Money 9 12-24-2003 04:21 AM

 

 
All times are GMT -6. The time now is 11:07 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.