ETF's for a bear market & recession - Top Stocks Blog - MSN Money
 
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ETF's for a bear market & recession

Posted Jan 27 2008, 12:59 PM by Douglas McIntyre
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Are we in a bear market?  If we aren't it sure feels like one.  The Dow Jones Industrial Average, or the DJIA, is down some 7.9% to date in 2008 after a December-end close of 13,264.82; and it is down some 14.5% from the 14,280.00 highs of October 2007. The Nasdaq has fared even worse with a 12.2% drop since December-end close of 2,652.28; and it is down 18.7% from the highs of 2,861.51 on October 31, 2007.

We can't predict where the market will be at the end of the year and can't predict how bad the economy will really get.  We may have a softer landing than it was looking just last week, but it is still going to feel like a thud or a hard landing if not worse to many individuals and many businesses.  We'll be the first to admit that with many in the media covering "bear markets" may already mean that the worst has been seen.  Many argue that long-term investors and value investors want to start buying stocks in a recession because if you wait for the good news to come in you might have already missed the boat.

Here is a list of "Inverse ETF"s" that are actually designed to go up in a down market.  This is in a sense the same thing as short selling without having to understand the metrics and rules of short selling.  In essence, these are the easiest transactions to make for novice investors and sophisticated fund managers alike.

ProShares has created ETF's that trade inversely with the markets.  These are aimed to allow investors and traders to hedge against market downturns or that want to profit from a market decline.  These ETFs are very liquid and actively traded and are designed to go up when indexes go down.  As a reminder, the SHORT funds use no leverage, but the UltraShort funds employ leverage.  Here is that list by Fund (Ticker):

Short QQQ (AMEX: PSQ)    
Short Dow30 (AMEX: DOG)    
Short S&P500 (AMEX: SH)    
Short MidCap400 (AMEX: MYY)    
Short SmallCap600 (AMEX: SBB)    
Short Russell2000 (AMEX: RWM)    
UltraShort QQQ (AMEX: QID)    
UltraShort Dow30 (AMEX: DXD)   
UltraShort S&P500 (AMEX: SDS)    
UltraShort MidCap400 (AMEX: MZZ)   
UltraShort SmallCap600 (AMEX: SDD)   
UltraShort Russell2000 (AMEX: TWM)
UltraShort FTSE/Xinhua China 25 (AMEX: FXP)... short selling the Chinese Stocks.
Rydex Funds was perhaps the first of the mutual fund operators that actually had the inverse of the S&P called the Rydex Ursa Fund, now called the Rydex Inverse S&P 500 Strategy Inv (RYURX).  As Rydex saw the importance and rise of ETF's, it combined its open-ended fund management operations into one that now has ETF's for traders as well.  Here are its inverse funds:

Rydex Inverse 2x S&P 500 (AMEX: RSW)
Rydex Inverse 2x S&P MidCap 400 (AMEX: RMS)
Rydex Inverse 2x Russell 2000 (AMEX: RRZ)
These are not all of the ETF's out there.  But these are two of the fund families we have seen that have liquidity and recognition in the sector. 

Comments

 

Every were I look it's INTERNATIONAL,INTERNATIOAL, & INTERNATIONL.  Is it safe "UltraShort FTSE/Xinhua China 25 (AMEX: FXP)... short selling the Chinese Stocks."  There is alot more ETF's for a market in a SOL!

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Here we are, "Black Friday," or just another one of many "black Fridays."

We need to have the regulators take a close look at the inverse ETF's, and what they are doing to the overall market volitility, and the few who are profiting off of these are doing so at the detriment of long term investors and 401k/college savers/and other long term types.

I have a hard time believing the market would be as low as it is, or as volitile as it is, were it not for these levereged investmnets, AND even more highly leveraged options. We have to change the rules to reward long term investors, and get way from day trading short one day, long the next, or even swinging back and forth several times per day using ETF's.. It's highly beneficial to professional investors who can sit in front of the screen all day, but what about the rest of us who don't have that kind of time on our hands, and what about the 90% of Americans who's retiremnt plans don't even offer these intstruments. We all know darn well that Wall Street is using these to short even the greatest companies, as there are often few buyers these days, just holders, while an inverse ETF interst is causing a net down trend even on relativly low volume days: add the panic fear selling that is happening, and it's a recipe for short selling and IETF feeding frezy.

Speaking of volume, have you seen the volume of the IETF's these days? Time to get back to buy and hold investing. The intenet has changed the landscape, and stacked the cards against long term investors. Let's limit day trading ETF"s as we do mutuals, and don't allow such large blocks to be traded on a daily basis. Let's make those who want to sell, sell, and not short sell w/ leverage, which is ruining the very source of most of our retiremnt savings. I worked hard all my life, and have watched my 500k 401k evaporate into 350 since the begging of the commodity correction in May.I am far from alone. It kills me to see so few benefiting off the few who need the money the most.

Also, shut down pre and post market trading, adn shut down floor trading. It isn't fair to small investors, and is entirely outmoded through computer trading. Sorry guys on Wall Street, but go back to your desks, and do some research, and advise you cleints. I thin these fundamnetal changes would assist in bringing back the confidence that the public has lost in the system. My employees are scared to death of the market, and i suspect these measure might level the playing field.

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