Jump to content

Massive Selling Triggers Massive Decline


Recommended Posts

Noticed some posts on IDS today about Leveraged ETFs

 

Here is how to trade them:

 

A prime example of the evils of leveraged ETFs is the cumulative performance of the ProShares SKF fund, which tracks double the inverse returns of the Dow Jones U.S. Financials Index. Through July 2nd, the cumulative performance of the SKF since its inception in February 2007 is -33%, despite the underlying index, tracked by the IYF, being down by -63%. This sort of example has lead many to scream that leveraged ETFs "don't work." While these results aren't intuitive, this is more-or-less a caveat emptor situation, and there is a rebalancing strategy that will keep the cumulative performance of the SKF near -2x that of the IYF.

 

First, the divergence is not principally caused by the daily returns of the SKF straying from -2x those of the IYF. Error in daily return replication is not the main issue. The answer is more basic. If you start with $100, make 10% and then lose 10%, you are left with $99. If you make 20% and then lose 19% you are left with than $97.20 even though the sum of your returns was positive. The more volatile the returns are, the more likely it is that you will have a situation where the sum of daily returns is positive but your cumulative return is negative. Higher leverage multipliers will also aggravate this effect. Fortunately, this "volatility premium" problem is avoided by periodically rebalancing the position.

 

post-2079-1251155333.jpg

 

Also as an inverse explanation is a CME pdf on how to manage this crap on a daily basis...

Link to comment
Share on other sites

  • Replies 30
  • Created
  • Last Reply
I still say we are topping,gonna take some time though.

 

I have a few guesses for the next 6 months:

 

 

 

 

1.SPX to 800 or less

 

2.Bond yields hit NEW LOWS.

 

3.Oil to 25 or less

 

4.Muni's RALLY another 20%+ from here

 

 

My only position is Muni's....Lots of em.

 

 

Who is going to buy all those T-bonds beside Ben?

Link to comment
Share on other sites

gappin' down almost another full pernt in the night session :ninja:

 

gov't needs to step in here quickly to prevent blood in the streets

 

they'll probably force cramdowns on the margin man

 

underwater stockowners will git their loan principal reduced, tax-free, down to the current markit value of their common

 

it's the right thing to do, they're innocent victims

 

this way everybody wins

 

NYNY: (story developing) With S&P futures down more than 2 points mobs of Pigmen, brokers and Crapvison personalities have appeared at the steps of the NY Fed building demanding immediate intervention in the futures markets.

Link to comment
Share on other sites

hopefully not CA cities

 

I think they're all gonna default

 

 

 

Me too.

 

First a drop.

Then a trickle.

Stream.

Flood.

 

All good though. Uncle Sam will make good on the debts. He has unlimited wealth you know.

 

Some of the current stimulus money had better be going on research and development of super high diameter/pressure hoses so they can deliver the volumes of cash needed in short order.

Link to comment
Share on other sites

"There is the plain fool, who does all the wrong things everywhere, but there is the Wall Street fool, who thinks that he must trade all the time. No man can can always have adequate reasons for buying and selling stocks daily -- or sufficient knowledge to make his play a successful play."

 

From Edwin Lefevre, Reminiscences of a Stock Operator

Yeah, well, I try not to take advice from ppl like Mr Lefevre, who shot himself to death after massive multi-year mojo destroying losses. :ninja:

 

Edit: Also .. tell that to the program trading pootas.

Link to comment
Share on other sites

Noticed some posts on IDS today about Leveraged ETFs

...

A prime example of the evils of leveraged ETFs is the cumulative performance of the ProShares SKF fund, which tracks double the inverse returns of the Dow Jones U.S. Financials Index. Through July 2nd, the cumulative performance of the SKF since its inception in February 2007 is -33%, despite the underlying index, tracked by the IYF, being down by -63%. This sort of example has lead many to scream that leveraged ETFs "don't work." While these results aren't intuitive, this is more-or-less a caveat emptor situation, and there is a rebalancing strategy that will keep the cumulative performance of the SKF near -2x that of the IYF.

 

First, the divergence is not principally caused by the daily returns of the SKF straying from -2x those of the IYF. Error in daily return replication is not the main issue. The answer is more basic. If you start with $100, make 10% and then lose 10%, you are left with $99. If you make 20% and then lose 19% you are left with than $97.20 even though the sum of your returns was positive. The more volatile the returns are, the more likely it is that you will have a situation where the sum of daily returns is positive but your cumulative return is negative. Higher leverage multipliers will also aggravate this effect. Fortunately, this "volatility premium" problem is avoided by periodically rebalancing the position.

...

True for levered stock ETFs [and for dudes trading on margin].

 

Not so true for Commod ETFs rolling futures. [interest and storage costs].

Link to comment
Share on other sites

NEW YORK (CNNMoney.com) -- Shares of bailed-out mortgage finance giants Fannie Mae and Freddie Mac soared Monday, as investors try to piggyback on a rally in shares of government-backed financial companies.

 

Fannie (FNM, Fortune 500) shares rose nearly 50% in afternoon trading, while Freddie (FRE, Fortune 500) jumped almost 30%.

 

The mortgage giants' Monday rally was sparked in large part by a jump in the shares of companies like AIG (AIG, Fortune 500) and Citigroup (C, Fortune 500), said Paul Miller, anal cyst at FBR Capital Markets and Co.

 

hope=words

 

Ben is buying debt

 

Andy Gause audio segment

Andy_gause_august_19_09.mp3

Link to comment
Share on other sites

gappin' down almost another full pernt in the night session :ninja:

 

gov't needs to step in here quickly to prevent blood in the streets

 

they'll probably force cramdowns on the margin man

 

underwater stockowners will git their loan principal reduced, tax-free, down to the current markit value of their common

 

it's the right thing to do, they're innocent victims

 

this way everybody wins

 

Oh Joy! They've heard our screams. We are SAVED!

monica-stewart-dance-of-joy-i.jpg

 

sandp_future_large.gif

Link to comment
Share on other sites

Market Update 8/24/09- Professional Edition

by Lee Adler, Monday, August 24, 2009, in Professional Edition, Today's Markets | Permalink |Comments (0) Edit Click here to download complete report in pdf format (Professional Edition Subscribers). Try the Professional Edition risk free for thirty days. If, within that time, you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information.

Link to comment
Share on other sites

Me too.

 

First a drop.

Then a trickle.

Stream.

Flood.

 

All good though. Uncle Sam will make good on the debts. He has unlimited wealth you know.

 

Some of the current stimulus money had better be going on research and development of super high diameter/pressure hoses so they can deliver the volumes of cash needed in short order.

wealth money

 

funny money, that is

 

FRN's

 

soon to be obsolete and devoid of all worth

 

"when the Fed falls down, boom boom, when the Fed falls down........."

Link to comment
Share on other sites

Yeah, well, I try not to take advice from ppl like Mr Lefevre, who shot himself to death after massive multi-year mojo destroying losses. :ninja:

 

Edit: Also .. tell that to the program trading pootas.

 

I think you are confusing Mr. Lefevre, who lived into his seventies, with the subject of his most famous book, the fictionalized account of Jesse Livermore.

Link to comment
Share on other sites

Archived

This topic is now archived and is closed to further replies.

  • Tell a friend

    Love Stool Pigeons Wire Message Board? Tell a friend!
  • Recently Browsing   0 members

    • No registered users viewing this page.
  • ×
    • Create New...