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EJ
10-10-06, 02:06 PM
Next Amaranth Roils Commodity Brokers Anticipating Price Drop (http://www.bloomberg.com/apps/news?pid=20601109&sid=aQMdQJMCAIS0&refer=home)
October 10, 2006 (Edward Robinson - Bloomberg)

At 7:55 a.m., five minutes before the opening bell, Anthony Compagnino and Michael Ragazzo huddle in their office on the New York Board of Trade floor -- a booth with a dozen telephones and no chairs -- to plot their next move in the cocoa pit.

"I should have picked a less stressful job, like bomb defusing," says Ragazzo, a commodities broker at East Coast Options Services.

After five years, the rally in commodity prices has hit a wall. For two days, Ragazzo and Compagnino, his boss, have been selling cocoa futures as prices have plummeted 15 percent. Hedge funds that have been riding the richest commodities boom in a generation have dumped cocoa en masse, upending the market.

The fate of a single futures contract is just one worry for New York Board of Trade brokers and their counterparts around the world. The Reuters/Jefferies CRB Price Index, which tracks a basket of 19 commodities, sank to 295.13 on Oct. 3, its lowest level since March 9, 2005. Since May, the index had lost almost 12 percent as crude oil fell to less than $60 a barrel and gold slid below $600 an ounce. After doubling to a 24-year high of 19.3 cents a pound on Feb. 3, sugar has plunged 40 percent.

For traders like Compagnino, that was no small milestone. The decline marks the market's first reversal since 2001, when China's voracious appetite for raw materials and trades by the $1.2 trillion hedge fund industry combined to send prices soaring.

The question now is whether the drop is nothing more than a hiccup in a bull market that still has years to run -- or the start of a commodities bust.

Bears like Stephen Roach, New York-based chief global economist at Morgan Stanley, say the bust is already under way. ``The megarun for commodities has run its course,'' Roach, 61, says.

Bulls like Jim Rogers, who co-founded the famous Quantum Fund with George Soros, say commodities have plenty of steam left. The previous bull market ran for 14 years, from 1968 to '82, and this one will last at least that long, Rogers, 63, says.

Rogers, chairman of Beeland Interests Inc., a New York- based investment firm, says the recent slump is a short-term correction. "The idea that this is a bubble is laughable," Rogers says.

Over the long haul, China and India will devour raw materials as they emerge as economic powers. Supply won't be able to keep up with demand, he says. Just look at oil. As recently as 1992, China was self-sufficient in oil. Today, it's importing 40 percent of its needs.

Caught in the middle of all this are pit traders like Compagnino. They make money either by buying and selling on behalf of trading desks, money managers and companies that produce or use commodities or by wagering their own money in the markets. Futures -- agreements to buy or sell specific securities or commodities at a specific price on a certain date -- are part of the $8.7 billion-a-day market in exchange-traded commodity derivatives, a family of instruments that also includes options.

AntiSpin: I'm with Rogers. An important point that Rogers makes in the interview we had with him May this year (http://www.itulip.com/jamesrogers1.htm) is that when a recession happens during a commodities bull market, producers cut production ahead of falling demand and prices can continue to increase, in both real and nominal terms. I believe there will be a global recession, probably starting Q2 2007, and demand for commodites will decline, but producers will cut ahead of it. If OPEC is successful at cutting supply to maintain oil prices around $60 as the cartel states is its intention, what is likely to happen to oil and other nominal commodity prices when the Fed expands credit again to rescue the economy?

This is a perfect opening to address an interesting thread posted by Blaze, Is it profitable to ride the bubble? (http://www.itulip.com/forums/showthread.php?t=494) That is what iTulip is all about.

Success at playing bubbles is the reason I can fund and run iTulip, Inc. (a Mass S Corp.) instead of pulling down a paycheck at another CEO job. Selling tech in Q2 2000, going to cash and bonds until 2001, and taking a position in PMs 2001... if that isn't playing bubbles, I don't know what is.

Of course it's profitable. Yes, The Boyz know full well these are asset bubbles. Yes, they do get out when the going is good. They know the score. I hear it all the time and have for years, although I never reveal sources. For exampe, when I was in NYC on Osborn Capital business in 1999, a seasoned–very–bond trader clued me in over beers colorfully on how Wall Street pros view equities. Mind you, I'd opened the door by telling him my theories as expressed on iTulip at the time. He said, "Stock is for assholes. Get the cash. That's the name of the game. Stock is just a way to get the cash." That's hard-boiled Wall Street cynicism that obviously not apply to all stocks for all companies, but his comments rang true at the time; selling junk to greater fools sure looked like the game to me in 1999.

Where are we now in the latest bubble cycle? At the moment, things are so extreme in private equity I've had senior guys at major private equity firms here in Boston tell me that the debt markets are "out of control" and they see major trouble coming. The term "distressed debt" is on the lips in private equity fund managers these days.

Hedge funds, that is, USIP (http://www.itulip.com/glossary.htm#U)s? The VCs guys I know express loathing–tinged with no small amount of jealousy–for hedge fund managers, fully expecting these cowboys to not only blow themselves up but take the financial markets down with them.

Actually, the opposite is happening. There is zero mystery in the rally in the stock and bond markets. It's being driven by money flowing out of high risk, high yield hedge funds and back into more traditional, safer, and lower yielding equities and bonds.

Yes, the Fed knows perfectly well that these are bubbles, but changed their policy in the mid 1990s after the Greenspan Fed wrecked the bond market in an attempt to "prick the bubble in the equity markets" (see The Bubble Cycle is Replacing the Business Cycle (http://www.alwayson-network.com/comments.php?id=P9189_0_4_0_C)). Given that the bond market is capitalized at many, many times the size of the stock market, that's a big "oops."

The lesson that the Greenspan Fed took from that experience was that the Fed is better off standing by and letting asset bubbles happen, then first playing Fire Dept. then Water Works Dept. after they collapse. The resulting liquidity is expressed in new asset bubbles. The post 1994 "hands-off" Fed approach also fit right into Greenspan's Ayn Rand-esque views, too.

The Fed now has zero confidence that it can constructively end bubbles, will never admit when they are happening, and is–in my opinion–overly confident in its ability to clean up each bubble without the unintended consequence of creating an even more severe bubble leading to an even bigger collapse.

Think of the Bubble Cycle as a kind of harmonic oscillation. Each oscillation grows in amplitude until, finally, the circuit burns out. Maybe that will happen (Ka-Poom) in this cycle or maybe not.

We are stuck in the bubble cycle. As I said back in 1999, it's Greenspan's world, we just live in it. Now it's Ben's world, and he's got the goat job (http://www.itulip.com/forums/showthread.php?t=466) that new Fed chairmen are given. We have no choice but to play these bubbles, and that has been the case since the mid 1970s when the US started running trade deficits and the US dollar became the bonar (http://www.itulip.com/forums/../glossary.htm#B).

The bubble cycles will continue until they end. No one knows when or how, but my money is on Ka-Poom as the process. The next cycle of asset bubble collapse and reflation may be the one that wrecks the current international currency order, the bonar will lose its status as the world's reserve currency, and the world's central banks will have to work out a new system. But then I thought that about the end of the end of the stock market bubble, so maybe there's one more cycle left in it.

I often remind people that there was a time during the 1997-1998 currency crisis when many industry people and central bankers were thinking "This is it. It's over." Greenspan at that moment was telling Congress the US should return to the gold standard–I'm not making this up. That's a good indication of the depths of dispair that prevailed at the time. But the system didn't fail, not that time, and compared to the 1997-1998 currency crisis, the stock market crash of 2000 was a relative non-event in terms of the continuation of the system that's producing these asset bubbles.

In any case, there's a fine line between playing bubble oscillations and hedging the failure of the circuit itself. You can make money playing the oscillations, but if the system fails, we're all poor.

The next real crisis will be a currency crisis that tests the system once again, as during 1997/1998. Maybe the system will hold up again or maybe not.

A vicious Black Swan (http://www.edge.org/documents/archive/edge136.html) is out there, but no one can say when or where it will arrive.
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jk
10-10-06, 04:17 PM
eric, a question: you've said you're in pm's and cash. you've also said you expect the next pop to be a currency crisis. my assumption is that the currency crisis will be a steep drop in the dollar. but i'm also assuming that when you say cash you mean U.S. dollars. so why not pm's and currencies, or pm's and bear funds, or pm's and inverse junk bonds, etc?

why "cash" if you expect the demise of king dollar?

FRED
10-10-06, 04:59 PM
eric, a question: you've said you're in pm's and cash. you've also said you expect the next pop to be a currency crisis. my assumption is that the currency crisis will be a steep drop in the dollar. but i'm also assuming that when you say cash you mean U.S. dollars. so why not pm's and currencies, or pm's and bear funds, or pm's and inverse junk bonds, etc?

why "cash" if you expect the demise of king dollar?
An excellent question. When I say "cash" I mean: money market funds in a brokerage account, ready to be put to work on a variety of timing-sensitive trades, including short plays and negative index funds. Soon, some money comes out of 13 wk t-bills in a treasury-direct account, and into euro ETFs.

Speaking of bear funds, this one didn't do so well during the last market downturn...

BEARX (http://finance.yahoo.com/q/bc?s=BEARX&t=my&l=on&z=m&q=l&c=)

Better...

PBRCX (http://finance.yahoo.com/q/bc?s=PBRCX&t=my&l=on&z=m&q=l&c=)

What's your favorite bear fund?

p.s. Meant to post that as me, EJ. I'm "Fred" today. In case everyone hasn't already figured this out, "Fred" is a virtual person, one of several iTulip people with administrator access to the site. We borrowed the name from the Fed's economic database system, "Federal Reserve Economic Data" or FRED.

Jeff
10-10-06, 05:07 PM
Lordy, but cash is King. I'm with Eric in very liquid, very safe, very short term US bonar denominated assets, so as to be able the get the hell out of dodge when the feces hits the oscillator. I can live on what money markets are paying these days, which is nice, but I have a balloon coming in the summer and expect to get more defensive- I like the government debt of commodity producing nations.

I like the Loonie for some of the worst case scenarios. In any imaginable future, why wouldn't you want more oil, timber, wheat, livestock and fresh water than you can consume?

Betting against the bonar is tempting, but in the short term, it's what your bills are paid in. Last year should be cautionary for bonar shorters.

EJ
10-10-06, 07:53 PM
:eek: Geek Warning: Level 5

Then there is harmonic oscillation.

"Previously in Lesson 4 (http://www.glenbrook.k12.il.us/GBSSCI/PHYS/Class/sound/u11l4c.html), it was mentioned that when an object is forced into resonance vibrations (http://www.glenbrook.k12.il.us/GBSSCI/PHYS/Class/sound/u11l4b.html#resonance) at one of its natural frequencies, it vibrates in a manner such that a standing wave pattern is formed within the object. Whether it be a guitar sting, a Chladni plate (http://www.glenbrook.k12.il.us/GBSSCI/PHYS/Class/sound/u11l4c.html#chladni), or the air column enclosed within a trombone, the vibrating medium vibrates in such a way that a standing wave pattern results. Each natural frequency which an object or instrument produces has its own characteristic vibrational mode or standing wave pattern. These patterns are only created within the object or instrument at specific frequencies of vibration; these frequencies are known as harmonic frequencies, or merely harmonics. At any frequency other than a harmonic frequency, the resulting disturbance of the medium is irregular and non-repeating." The Nature of a Sound Wave (http://www.glenbrook.k12.il.us/GBSSCI/PHYS/Class/sound/u11l4d.html)


bridgefallingdown


What you are seeing above is a bridge getting hit by a wind that, due to a flaw in the bridge, caused a section of the bridge to oscillate at its resonance frequency. The speed, direction, and constancy of the wind set off the harmonic oscillation. This possibility was not considered in the design. The bridge oscillated until it finally came apart. Amazingly, for hours.

There are claims that business cycles are economic oscillations. (http://en.ccer.edu.cn/download/652-2.doc)

I claim that the Bubble Cycle has Replaced the Business Cycle (http://www.alwayson-network.com/comments.php?id=P9189_0_4_0_C).

Can Bubble Cycles have resonance frequencies, and can certain conditions cause them to oscillate until the system that supports them comes apart, like the bridge in the wind (ala Ka-Poom Theory)?

Getting back to the bridge, an unexpected condition of the speed, direction, and constancy of the wind occurred, a classic vicious Black Swan event for a bridge. Or was it a repeatable event that may have the same result for any bridge? No matter. Subsequently, the design flaw for these conditions for this bridge were corrected, and also applied to every bridge built thereafter. No other bridge since then suffered the same fate.

Was that because unique conditions that caused that event never happened again or because every bridge is now "correctly" designed for conditions that occur often?

So it is with economics and markets.
It is of the utmost importance to realize this: given the actual facts which it was then possible for either businessman or economists to observe, those diagnoses -- or even the prognosis that, with the existing structure of debt, those facts plus a drastic fall in price level would cause major trouble but that nothing else would -- were not simply wrong. What nobody saw, though some people may have felt it, was that those fundamental data from which diagnoses and prognoses were made, were themselves in a state of flux and that they would be swamped by the torrents of a process of readjustment corresponding in magnitude to the extent of the industrial revolution of the preceding 30 years. People, for the most part, stood their ground firmly. But that ground itself was about to give way.

Joseph A. Schumpeter -- Business Cycles, 1939 (http://www.itulip.com/depression.htm)

Jim Nickerson
10-11-06, 02:00 AM
An excellent question. When I say "cash" I mean: money market funds in a brokerage account, ready to be put to work on a variety of timing-sensitive trades, including short plays and negative index funds. Soon, some money comes out of 13 wk t-bills in a treasury-direct account, and into euro ETFs.

Speaking of bear funds, this one didn't do so well during the last market downturn...

BEARX (http://finance.yahoo.com/q/bc?s=BEARX&t=my&l=on&z=m&q=l&c=)

Better...

PBRCX (http://finance.yahoo.com/q/bc?s=PBRCX&t=my&l=on&z=m&q=l&c=)

What's your favorite bear fund?

p.s. Meant to post that as me, EJ. I'm "Fred" today. In case everyone hasn't already figured this out, "Fred" is a virtual person, one of several iTulip people with administrator access to the site. We borrowed the name from the Fed's economic database system, "Federal Reserve Economic Data" or FRED.

EJ, I was sure Fred was a person, I once asked him but got no reply.

I have been in some bear funds, and I have been getting my butt kicked way too much. I am about 80% capitulated and keep looking for a down day of a little significance to try to sell into and be totally out, but it isn't happening so far.

I personally am not bullish, but I believe the market is behaving bullishly despite all the reasons I read it should not be going up. Perhaps it will keep going up until I am 100% out of my bear funds.

Some while back here on iTulip, John Serrapere predicted a significant market drop, which if I remember correctly, and I may not, it didn't drop that much--which is okay and doesn't truly reflect poorly on Mr. Serrapere. I believe in his first contribution, one of the things he mentioned in quite a detailed presentation was the behavior of the TNX-BAA bond spreads. Since reading that I have tracked those data.

I've tried to put a graph in here that shows the TNX-BAA spread along with the SPX since 12/31/99 until 10/5/06, and I am not getting it to work, so perhaps http://0302.netclime.net/1_5/1612136/1160543918_27625/TNX_BAA_Spreads_1005.tif will show the graph. Hopefully, if anyone wants to look at it, it will appear.

What it shows with the spreads (the red line) is that they were as low or even lower at the end of Jan 2000 than they are now, and for whatever were the reasons, the increase in spreads took off like a rocket, temporarily peaking in the third week of May 2000. Despite the SPX almost equalling its late Jan. 2000 high on 9/1/2000, I think it is correct to say the Nasday, RUT, and NDX had had their last hurrahs around the end of the first quarter 2000, and after May 2000 the uptrend in spreads kept going, with one significant correction until the bottom in October, 2002 at which time the spread peaked.

Despite all the reasons the markets perhaps should not be going up now they are, and the TNX-BAA spread is not showing any signficant risk premium (I think that is correct term). Even during the recent SPX retreat into mid-June little happened to the spreads.

I'm not of the opinion anything dramatic is about to get underway to the downside in the equity markets for a while, but I can guarantee anyone, they should ask: What do I know? Zip, but nevertheless, I offer the observation.

Edit: the graph came up for me, hopefully it will for others. If not perhaps Bart might have something similar in his collection of data and graphs.

EJ
10-11-06, 10:57 AM
EJ, I was sure Fred was a person, I once asked him but got no reply.

If Fred were one person, "he" would be part man, part woman; Russian, Scottish, Chinese, and Mexican; Jewish, Buddist, Atheist, and Catholic; know PHP, HTML, economics, finance, operations, tax law, accounting, and how to cook a mean mapo tofu; and be awake 24/7 ;)


I have been in some bear funds, and I have been getting my butt kicked way too much. I am about 80% capitulated and keep looking for a down day of a little significance to try to sell into and be totally out, but it isn't happening so far.

I personally am not bullish, but I believe the market is behaving bullishly despite all the reasons I read it should not be going up. Perhaps it will keep going up until I am 100% out of my bear funds.

Some while back here on iTulip, John Serrapere predicted a significant market drop, which if I remember correctly, and I may not, it didn't drop that much--which is okay and doesn't truly reflect poorly on Mr. Serrapere. I believe in his first contribution, one of the things he mentioned in quite a detailed presentation was the behavior of the TNX-BAA bond spreads. Since reading that I have tracked those data.

My point on BEARX is that it did quite poorly during the 2000 - 2001 stock market downturn and I suspect it may again in the next. I'd told folks here I was buying into negative index funds back in May and warned I planned not to hold, to dump it when I saw the market turn back up. Even the best timing on USPIX gave you a modest 18% ride. At 15, it's looking cheap again.


I've tried to put a graph in here that shows the TNX-BAA spread along with the SPX since 12/31/99 until 10/5/06, and I am not getting it to work, so perhaps http://0302.netclime.net/1_5/1612136/1160543918_27625/TNX_BAA_Spreads_1005.tif will show the graph. Hopefully, if anyone wants to look at it, it will appear.

Here's your chart, shrunk down a bit. You can post such images directly using image tags "".


http://www.itulip.com/images/SPBaa.png



What it shows with the spreads (the red line) is that they were as low or even lower at the end of Jan 2000 than they are now, and for whatever were the reasons, the increase in spreads took off like a rocket, temporarily peaking in the third week of May 2000. Despite the SPX almost equalling its late Jan. 2000 high on 9/1/2000, I think it is correct to say the Nasday, RUT, and NDX had had their last hurrahs around the end of the first quarter 2000, and after May 2000 the uptrend in spreads kept going, with one significant correction until the bottom in October, 2002 at which time the spread peaked.

Despite all the reasons the markets perhaps should not be going up now they are, and the TNX-BAA spread is not showing any signficant risk premium (I think that is correct term). Even during the recent SPX retreat into mid-June little happened to the spreads.

I'm not of the opinion anything dramatic is about to get underway to the downside in the equity markets for a while, but I can guarantee anyone, they should ask: What do I know? Zip, but nevertheless, I offer the observation.

Edit: the graph came up for me, hopefully it will for others. If not perhaps Bart might have something similar in his collection of data and graphs.

An unexpected geopolitical development is the most likely trigger for the next market panic.

jk
10-11-06, 04:59 PM
i just came across the note below, which someone sent in to bill fleckenstein and was published on his web site. it seemed a propos of amaranth and hedge funds.



In regard to the naked option selling I think I might have an interesting insight. In 2004-05 I was studying a graduate degree in London. One of my Professors used to work for several Banks in Europe as a trader/investor. He is quiet a character. He liked beer and heavy metal. He said he lost his job at Bank of America when the division he was in invested 2 Billon with D.E. Shaw and the hedge fund lost half and that is why he was teaching now.

Anway, he now researches the skewness and kurtosis of investment returns and stuff like that. He told us in class of a friend of his who researched the returns from selling options. It gave a nice steady average monthly return with minium variance until disater struck and you lost 50%(maybe more). His friend found historically it took 5-7 years until the 50% loss occured. So his friend started up a hedge fund that sold naked options (after the 2000 bear market). The friend figures that he will make 2% management fees & 20% of the profits over five years or so, and then the fund will get closed down because of bad performance. In the mean time his friend will have collected between 10-20 million (maybe more) in fees and can then live off the interest for the rest of his live and not work anymore. His point was that his friend was shrewd and the investors were stupid because they just looked at the average return and variance, which was low until disasture struck. So beware of quants who are >unethincal or don't understand that life is not log normally distributed.

jk
10-11-06, 06:59 PM
and here's another little item i came across on brad delong's blog, related tothe question of bubble popping.



October 10, 2006

Why Isn't the Lower Tail of the Future Priced?

Bob Rubin scares Felix Salmon:

RGE - Bob Rubin, Ultrabear (http://www.rgemonitor.com/blog/economonitor/151110): Robert Rubin had a long conversation with Citigroup economist Kim Schoenholtz on September 7, which has now been transcribed and released as a special report from Citi's Global Economic and Market Analysis group. Rubin's pretty downbeat about both the global economy and global markets, which he thinks are sticking their collective heads in the sand:

Most people seem to think that the problem is somewhere down the road. I think the markets are remarkably complacent.
Even economists, who are generally more bearish than markets, aren't necessarily bearish enough, says Rubin:

It's curious to me that economists, with an exception here or there, are as sanguine as they seem to be. They talk about a cooling off or a soft landing or whatever it may be, but generally seem to attach very low probabilities to really serious adverse developments. Most of the people I know in the national security world, and there are many seem deeply troubled about a variety of matters: nuclear proliferation, Islamic radicalism, the endgame in Iraq, instability in countries that mean a great deal to us in the Middle East, what's going to happen in Pakistan, and many other issues as well. And the markets do not reflect this.
He also doesn't think the IMF or anybody else will be able to prevent any kind of unstable global rebalancing:

I don't think there's a mechanism for international policy coordination. I really don't. It's a very good question actually that has come up in a lot of conversations. I may be wrong, but based on my experience, I would say that there's no mechanism for international policy coordination. There's a pretty good mechanism for telling a small poor developing country what to do. But there's no policy mechanism for bringing together the countries that really matter in the global economy.
To all of which there can only be one reaction: Sell! Sell now!
The lower tail--both in its economic and political aspects--is still ferocious and scary. But it is still the lower tail. And I can understand why finance professionals would rather not price it at all than price it into their forecasts and so run a high probability of lagging their peers' performance.



and a comment by bill fleckenstein on the original robert rubin piece:

I suspect that when the history books are written on this particular moment in time, people will look back and shake their heads in wonderment, at how the market could have done what it did. Just as anyone would think, looking back to the autumn of 1973 or any other inflection point: Wow, how could market operators have been so blind? Well, that's what the madness of crowd is all about: always wrong at the inflection points, but driving you nuts as you try to exploit the opportunity.

EJ
10-11-06, 11:44 PM
USPIX (neg 2x beta to NASDAQ) and USPUX are trading near historic lows.

Perfect trades for USPIX (rear view mirror):

Hold ~3.5 months
Buy 1/16/01 29
Sell 4/1/01 77

Hold ~4 months
Buy 5/21/01 37
Sell 9/17/01 95

Hold ~10 months
Buy 12/31/02 34
Sell 9/30/02 95

Appears best to get in before the down-draft, get out before the bounce. Not a buy and hold.

Jim Nickerson
10-12-06, 02:39 AM
USPIX (neg 2x beta to NASDAQ) and USPUX are trading near historic lows.

Perfect trades for USPIX (rear view mirror):

Hold ~3.5 months
Buy 1/16/01 29
Sell 4/1/01 77

Hold ~4 months
Buy 5/21/01 37
Sell 9/17/01 95

Hold ~10 months
Buy 12/31/02 34
Sell 9/30/02 95

Appears best to get in before the down-draft, get out before the bounce. Not a buy and hold.

Is USPUX typo? bigcharts.com shows "Uzbekistan Sum"

To me the only question is whether the NDX (-200% short = USPIX) and RUT (-200% short = UCPIX) are really topping out now?

Now neither appear on MACD's to have topped out.

jk
10-12-06, 09:54 AM
USPIX (neg 2x beta to NASDAQ) and USPUX are trading near historic lows.

Perfect trades for USPIX (rear view mirror):

Hold ~3.5 months
Buy 1/16/01 29
Sell 4/1/01 77

Hold ~4 months
Buy 5/21/01 37
Sell 9/17/01 95

Hold ~10 months
Buy 12/31/02 34
Sell 9/30/02 95

Appears best to get in before the down-draft, get out before the bounce. Not a buy and hold.
isn't it better to short futures or short index etf's, [if necessary on margin]? the problem with the negative mutual funds is the "friction" produced by small price movements. these are insignificant if your timing is perfect, but whose timing is perfect? what happens is that on small movements of the index down, your mutual fund holding gets a bit larger. then if the index moves back to baseline, you take the loss on the larger holding. repeat ad infinitum and you can lose everything while the underlying index meanders with small gains and losses.

true shorts don't have this problem. if the index goes down, the value of your holding gets smaller while the cash you've made is accrued elsewhere. if you want to limit your risk you can buy puts on either the futures or the index etfs.

EJ
10-12-06, 10:03 AM
jk, Agree that shorting ETFs is now a better approach, which may go a long way toward explaining the NAV drain on many neg index funds.

Jim, USPIX (http://finance.yahoo.com/charts#chart1:symbol=uspix;range=5y;indicator=volu me;charttype=line;crosshair=on;logscale=on;source= )