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- Apr 3, 2004
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- 33,852
Date: 2/23/2009 12:41:05 PM
Author: tradergirl
Oops. Then you don't want to know that Janus' downgraded to junk this a.m.
I just covered my 'Geithner short' though and am long some large cap tech stocks. SOX ETF.
Tech is what will lead us out of this.
In my savings account that is guaranteed for far more than I have!! I might have to pay taxes on the percentage I took out of 401K to redirect to my bank account, but at least it will accumulate, not disintegrate.Date: 2/23/2009 11:42:29 AM
Author:Dancing Fire
rental properties? stock market? hold on to cash? precious metals? or???
30 more days like this the S&P 500 will be at 0.Date: 2/23/2009 5:44:54 PM
Author: Abril
Stock market for me, all the way!
I know! Since soon all the stocks will be worthless, I plan on buying all of Exxon, or maybe just all of Estee Lauder, and putting myself in as CEO and paying myself a big salary!Date: 2/23/2009 11:14:16 PM
Author: Dancing Fire
30 more days like this the S&P 500 will be at 0.Date: 2/23/2009 5:44:54 PM
Author: Abril
Stock market for me, all the way!![]()
or Tiff & Co...you'll get to wear all their jewelry,plus pay yourself a 5 mill annual salary.Date: 2/24/2009 12:41:51 AM
Author: Beacon
I know! Since soon all the stocks will be worthless, I plan on buying all of Exxon, or maybe just all of Estee Lauder, and putting myself in as CEO and paying myself a big salary!Date: 2/23/2009 11:14:16 PM
Author: Dancing Fire
30 more days like this the S&P 500 will be at 0.Date: 2/23/2009 5:44:54 PM
Author: Abril
Stock market for me, all the way!![]()
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Date: 2/24/2009 3:49:19 AM
Author: Harriet
Thanks for the laugh!
A reader whom I'll call Racer X sent me some numbers on Friday with regard to SKF.
And Friday's numbers were even more staggering than last week's. What's it all mean?
Each share of SKF (or any equity ETF, for that matter) could be arbed against a basket of the underlying. In other words, if someone owns 100 shares of SKF, he could theoretically lock in money if he could buy the entire basket of stocks in the IYF for less than he paid for SKF. Conversely, a short in SKF could theoretically lock in money, shorting the whole basket of IYF stocks.
All the above, of course, adjusted for the leverage and the dollars involved.
The salient point is that the stocks in IYF will move in line with the price of SKF on a given day. And if SKF volume comprises such a huge percentage of volume in the underlying names, you clearly have the potential for a "wag the dog" situation.
For example, let's say Evil Short Manipulating Hedge Fund Guy buys 1000 SKF at $195. That translates into $390,000 of financials that the opposite side of the trade has now gone long. JPMorgan (JPM) comprises 9% of that. So one trade produces about $36,000 of selling pressure on JPM, or about 1800 shares.
Now remember, 40 million shares of SKF traded Friday. As did 32 million shares of FAZ, which translates into an additional $7 billion of so in the financial space.
Before we get all conspiracy-theory, keep several things in mind. Remember that most shares of these pups just flip between parties. Over and over again, they're primarily trading vehicles. At least, they should be.
The point, though, is that potential exists for someone to cause their own meltdown in the underlying stocks when the volume of the ETF can account for such a large percentage of the volume of the underlying. In the above example, the volume accounted for by SKF actually exceeds the volume in TRV.
What to do? My friend George jokingly suggests we create an ETF czar. But seriously, it's entirely possible no one actually thought these pups through from any standpoint when they allowed them to be listed. Between the compounding math that ultimately trashes them, to a situation like this where they got too big and too popular and have now become the de facto market in financials, they truly should not have gotten to market.
But hey, who could have possibly imagined this?
losing my A$$ on UYG,VLO,MSFT.Date: 2/24/2009 6:36:20 PM
Author: tradergirl
I might make you a friendly 5 cent bet on Wells Fargo being here next year in its current form.
In the financials you always have to remember the 'enhancing' effects of the double and triple long/short ETFs. I spent most of last year trading SKF (mostly up) and stopped doing it so much when they put in the 'no short' rule on the financials. Weak shorts blown out today probably. Here's something interesting to read on that subject. You can see that one fund could bring the whole complex down (theoretically). I got an email this afternoon saying my clearing firm won't let you trade them on margin anymore or write naked options.
SKF Wags the Dog