You know, I have little doubt that SKF (ultra short financials) is going to make people who are brave enough to buy it a lot of money one day in the not too distant future. But here we are, probably closer to the beginning than the end of a major bear market and look at this thing... absolute devastation.This vehicle attempts to leverage short the Dow Jones US Financial index, which includes JP Morgan, Goldman Sachs and Wells Fargo in its top holdings. In other words, the fix was in against anyone who bought SKF and just tucked it away into their bear market portfolio. Being a bear in a bear market can sometimes be worse than being a bull in a bear market as you get blown up watching evil geniuses attempt to engineer their way out of structural and systemic problems. I expect them to ultimately fail, but the damage that they can do with desperate, dishonest and ultimately inflationary policy, as they try anything to instill confidence, will have terrible effects on what is left of the economy after it finishes goring this bear fund.
Side note: You recall I took advantage of the ElliottWave International promo a few months ago for 40% off of a 3 months subscription? I did it because I wanted to see what the deflationmiesters had to say over what was sure to be an interesting run up to spring (and the anticipated hope pump). Well, I have to give credit to Prechter who dumped all his shorts in the time frame that SKF was peaking, before the terrible decline. They did not catch the exact bottom in the S&P 500, but they got the huge majority of the decline. That was a simply masterful trade. You never hold out for the exact top or bottom if you are a trader and especially if you are a bear.
Now, if anyone knows how and why SKF (XLF - financial ETF - is still less than half its level of September) tracks so poorly, please let me know. I know the fund uses derivatives in gaining its leverage, but this downside 'leverage' is ridiculous. It is this poor tracking that has kept me out of SKF, and made me take profits quickly on its sister, SRS (ultra short real estate) a few months ago [edit 7:48 and I think I gave the majority of them right back back just as quickly in a separate trade, as I recall]. I have my strengths, but micromanaging the internal dynamics of some of the tools I might use is not one of them. And this thing is a tool, a very dangerous and potentially profitable tool.
So I will plan to keep watching the banking index (NFTRH29 will begin to plot the upside target for BKX and by extension, the entirety of the Hope '09 festivities) and XLF for signs of upside exhaustion and see if I can't get a poke at this monster for an exhilarating ride in the other direction.
And no, dat ain't no recommendation. The recommendation remains a grounded, well balanced view of the markets and capital deployed sensibly with regard to preservation in a bear market. The wizards are attempting to instill confidence right now. But we saw this coming before the dopey bulls, did we not? Keep a big picture game plan front and center at all times.
Edit (2:15) Thank you for the very insightful responses from readers that clued me in on the dynamics at play on the 2X leverage. I think I will avoid this for anything but a DAY trade, if even that.
