Dismally, as it relates to the markets.: What tensions in the Middle East would mean to currencies.
David isolates some of the Middle East current events and the potential impact on the capital markets.
This is a good, quick read.
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9 comments:
To use the SDS etf (or the QQQ, MZZ, DXD) for insurance purposes I need to understand the "inverse minus fees and expenses" clause. Do the fees and expenses include paying the dividends on securities they are shorting? If so, would choosing the index with the smallest dividend average be wise? Also, will the ultra shorts then be responsible for twice the dividend payments--thus more fees, or will the desired effect be better captured because this part of the fees and expenses will NOT doubled?
I tried to determine this reading the prospectus, but the online version is very small print and reading through the seemingly appropriate sections on fees and distributions didn't clarify the issue. The SDS ETF seems to expect to PAY distributions and even have a DRIP.
Also, I hope, like you, that the foreign security indexes will spawn short etfs; also, the currency etfs and GLD. Thank you!
It is a good read. I am not so sure about the bad earnings season part though. The part about the Fed and bond yields is a real unknown. Who has perfect knowledge what BB will do? Four different variables are listed in the article. There are 30 different scenarios and yes, most are ugly. Tom in Indy
As I get ready to close out the night I'm reading nytimes.com. Interesting developments in the ME. Israel/U.S. may have new support and alliances never seen so public. There can always be some nut that can't stop his terroristic frenzy and launches 10thousand rockets, or there can be an unbelievable beginning of containment politics. In the latter case, wallst will have to deal with earnings, debt, and other demons. Roger may end up having the coolest head of them all.Good luck to us all. There could be pain if it gets ugly, and a more benign pain for missing the rally if it goes well.
David's comments about aliens invading and leaving Switzerland alone made me laugh out loud!
Brings me back to the several discussions about the 7 men in Switzerland who actually control the entire stock market.....
Thanks for the link Roger!
According to Angus McKenzie it is "the Pentaverate that controls the entire world, The Gettys, The Rothchilds, The Queen, The Vatican and Colonel Sanders before he went teets up."
Pop culture reference
to go double short the fund has to leverage with futures and options. I owuld not expect paying dividends like when you short a stock to be much of an issue if at all.
We (or maybe I should only be speaking for myself) need to get a handle on how the fees and expenses of the inverse ETFs compare to the double inverse ETFs for the same markets. Also, how closely the ETF's track the markets they are supposed to (partly a function of the amount of fees and expenses, but can be influenced by additional factors too).
If one wants to add a 10% short position, they can put 10% of their portfolio into an inverse ETF, but it would seem to be a no brainer to put 5% of their portfolio into a double inverse EFT to obtain the same degree of exposure to downside moves while putting the other 5% in, for example, a money market fund.
Unless, however, the double inverse fund has sufficiently higher fees and expenses or poorer market tracking than a direct inverse fund so as to eat up the benefit of keeping the cash. It is natural to expect the double inverse ETF would have somewhat higher expenses but I haven't found sufficient information that quantifies them to permit an informed choice between the inverse and double inverse ETFs. (I suppose the same issue is out there for the long vs. double long ETFs too, but I don't happen to be looking at them right now.)
I'm not sure what the difference is between the fees and expenses of single vs. double inverse ETS but assume there must be some since the double must use derivatives and/or more leverage. Not sure how much that would matter shorter term though. These are fairly new instruments and still seem rather illiquid -- e.g., the spread, difference between bid and ask, can be significant, possibly even more so than expense ratio -- so depending on time horizon that could affect the choice between buying one and simply raising some more cash; i.e., possibly too expensive short-term because of spread and (possibly) too expensive longer term because of expense ratio. This should improve as their trading volume increases and arbitrageurs begin picking off price outliers but that's the way it looks to me now.
However now that there are some more choices I tend to look at these funds as a potential hedge against risk in a particular segment of my portfolio held in retirement accounts where I can't actively short (I agree with Barry Ritholtz that there are better choices outside retirement accounts; e.g., http://tinyurl.com/jjhsz).
For example I was beginning to worry about increasing risk in several stocks and a mutual fund I hold in one of my IRAs but was reluctant to sell any of them because I thought long-term prospects were good. The assets in question represented a number of sectors but, as it happened, they were all mid-cap so rather than selling some to raise cash or buying a broader index inverse ETF I had the choice of a mid-cap inverse (MYY) and used that to hedge the area I saw as the greater potential risk. Made sense at the time and seems to be working out okay: I've given up a bit of upside but it has reduced volatility to more acceptable levels (to me), both in that segment and overall. Since my time horizon for this is fairly intermediate I don't plan on switching to the double (MZZ), at least at this point.
Roger... as always... thanks for the kind words.
I've been blogging my brains out on what's going on with all the scenarios. As one of your commentors mentioned, I've put together about four... but left out the other 26.
I just posted another comment on another posting you did. I'm really pushing to go flat until the picture is more clear. I'm trying to keep it cool and as level-headed as possible until we know as much as we need to know. The number of potential scenarios that could unravel would make it more prudent to stand aside.
I don't mind looking like a hero when I'm right. But, when you don't really know everything you need to know, you can get yourself whacked hard. My investors don't mind the prudence. And I don't mind looking timid in the face of the entire internet looking for my opinion as to what direction the market will take. Traders often forget... being flat is a position.
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