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To: JimisJim who wrote (20162)	6/29/2014 12:24:41 AM
From: Elroy	Respond to of 34328

has to do with how they achieve leverage, using derivatives and options, and they "reset" every day at close I've heard this about some other ETNs, but not with CEFL, BDCL and MORL. I think it does have to do with how they achieve leverage. All of those have done fairly well for me, although I've held them for less than a year. If they are black holes, sure, short them. Why not? If the leveraged note is a black hole, you might as well always keep 3% or so of your holdings short the black hole. You can suffer the short term increases in price, but over the long term they're going to zero. I've tried to short UVXY and can never get the shares from the broker. Look at it's chart, something like 80,000 to 27 in a few years, it is seriously a black hole! This is amazing,. yes: finance.yahoo.com And the best thing about shorting a stock like that is you never have to cover and realize the capital gain. You just stay short the shares as they head toward zero, but never quite get there. Thus, not tax implications. But I don't know how CEFL gets its leverage. Since it is sponsored by a bank (UBS, I believe) I don't know why it couldn't just borrow 1x it's cash value at the one week rate every day, and double it's holding of the index it "tracks". That wouldn't cause any black hole issue.

To: JimisJim who wrote (20162)	6/29/2014 4:58:26 AM
From: Elroy	Read Replies (1) \| Respond to of 34328

Did a bit of reading on CEFL, I think it's a bit different than the black hole leveraged ETFs that you're thinking of. etracs.ubs.com/product/detail/index/ussymbol/CEFL For one, it sets leverage monthly, not daily. For two, I can't find this on the site, but someone posted on Yahoo that the leverage is created as I wrote, by UBS borrowing at Libor rates and just buying 2x the capital held in the ETN. These leveraged ETNs don't hold the underlying assets, they just hold an index that reflects the underlying assets. There doesn't seem to be any reason that leveraged deployed that way would cause a black hole, and in fact it's a fantastic way for individual investors to get leverage as long as short term rates are as ridiculously lowas they are now. The leverage is close to free.

To: JimisJim who wrote (20162)	6/30/2014 3:36:31 PM
From: deeno	Read Replies (1) \| Respond to of 34328

I'm not sure you did justice to each of the terms. I know you and Elroy are up on these but it just seemed incomplete and "non-leveraged EFTs (or at least many of the respectable ones) are more like mutual funds "....just hit me wrong. Obviously anyone can get definitions from wiki or online. They have generally morphed so that there are exceptions to any generalized statements, so to know the terms you would need to go to the actual prospectus of the specific fund. They can really be quite creative. on a general practical note ETF's are less fund and more index. they are not managed, per say, except to match whatever index they are suppose to represent. (don't get me started on the difference of an index and a fund) They are usually created or destroyed on the fly as institution or market makers use price discrepancies versus the actual index to arb profits. This is what keeps them trading so close to whatever index they follow. when there is a serious tracking error its generally because market makers are no longer willing to take the risk of arbing and step away from playing. leveraged ETF's are really agreements between two counter parties promising to pay a price overnight for a basket of something. Now that basket may not actually be owned, more of a promise to own them. They are more financial contracts then investments in assets. They really cant be broken down like ETF's hence you can have wildly weird tracking errors that are so wrong that some brokerage houses will not allow clients to buy through them. CEF's closed end fund. Those would resemble "mutual funds" . Actively managed funds that are closed to new investors, so that the public trades shares in some relationship to NAV - premiums and discounts......blah , blah, blah....... enough said. Leveraged CEF's - same as above, but borrow short term (currently less than 1/2 %) and buy much more stuff of what they have. ETN. exchanged traded notes. generally promises by some company to pay you whatever an index does while at the same time not owning any of the underlying asset (though maybe hedged). so the real risk is a company BK where they not hold up thier part of the bargain. I.E. Lehman. Again risky (depending on backer) as there may be large tracking errors, perhaps having nothing to do with the index, but the issuer. most big brokers want waivers signed or wont allow trading with them. Most ETF's are suppose to be short term investments. Every prospectus I've read has said as much. tracking errors over time make them poor places to take risk. Even the non leveraged ones will track, by prospectus, well less than the index given enough time. So when you compared them to "mutual funds" I just couldn't let it go. All the above is just general, again exceptions abound. All the best Deeno