Ultrashort ETFs: Financial WMDs?

[ziggy29]

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?

 

[Gardnr]

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.

 

[Frugality_of_Apathy]

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.

 

[Gardnr]

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.

 

[dex]

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.

 

[Gone4Good]

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.

 

[kumquat]

So, is now the time to [-]invest [/-] speculate in a 2*bull fund?

 

[ikubak]

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.

 

[kumquat]

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