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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: Webster Groves who wrote (91262)12/6/2008 7:16:59 PM
From: mishedlo1 Recommendation  Read Replies (1) of 116555
 
The problem is slippage.
Every freaking night they rebalance to maintain 100% or 200% short.

Let's say you short and horray the stock 5%.
The next day the stock rises back to where it was and you break even.

With an inverse etf you are in the hole when that happens because to maintain 200% short or even 100% they had to short more!

As shares decline you are getting more and more and more short.
And a rally will hurt profits big big time.

With shorting yourself, as stocks decline you are getting less short every day!

I think these ETF strategies suck but we use them because we have to in Absolute Return strategy as a hedge. There are reasons we cannot short or buy PUTs in that strategy.

Hedged Growth, our long short strategy has no such problems.

Mish
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