A Triple-Threat in the Markets Makes Short ETFs Popular

June 26, 2008

by Tom Lydon

Is there are triple crisis threatening to hurt the economy, Wall Street and exchange traded funds (ETFs)?

Martin D. Weiss for Money And Markets reports that he warned us one week ago about a severe U.S. recession, surging inflation and high chances of a Wall Street meltdown. Now, he says, there’s been some news that confirms his warning:

• Deepening U.S. recession: Vehicle sales are anticipated to drop off, and dealer lots are already overloaded with gas-guzzling SUVs they can’t sell. S&P has also put Ford, GM and Chrysler on credit watch negative.
• Airline bankruptcy: More than 20 airlines worldwide have been hit, and the top 10 U.S. airlines are expected to post pre-tax losses at $18 billion this year and next.
• Surging inflation: For May, producer prices jumped 7.2%. Import prices were up 17.8%, the biggest ever recorded.
• Bond insurance disaster materializes: Another wave of bank losses, and write-downs are sure to come, exceeding the losses we’ve seen from the current housing/credit crisis. The finances of many states and local governments are financed through this industry, and Moody’s has just downgraded the credit rating of both MBIA and Ambac.
• Stocks suffer: The financial sector has been hurting especially badly, and it wasn’t helped by Monday’s news that a recent upgrade for the sector was in error.

It’s no wonder that some short ETFs have been popular with investors this year. Some of the strongest performers include:

• ProShares UltraShort Financials (SKF ). up 41.1% year-to-date
• ProShares UltraShort Health Care (RXD ). up 30.8% year-to-date
• Rydex Inverse 2x S&P 500 (RSW ). up 18.3% year-to-date

The Federal Reserve decided to leave interest rates unchanged for the time being on Wednesday, but we’re not out of the woods. Until the economy is on sure footing, short ETFs can be an option for investors looking to keep generating returns while the markets decide which way they’d like to go.

SSGA ETFs Are Turning Japanese

June 22, 2008

by Tom Lydon

State Street Global Advisors is reaching across the Pacific to try their luck in Japan, starting with a gold-focused exchange traded fund (ETF).

By the end of 2008, SSGA plans to list some of their U.S. ETFs on a Japanese exchange, reports Risa Maeda and Yuka Obayashi for Guardian.

This month, State Street is cross-listing its gold ETF in Tokyo, in an attempt to attract the mid-sized investor.

Six of the provider’s funds are available over-the-counter in Japan, including the S&P 500 SPDR (IVV ). SPDR Gold Shares (GLD ) will list on the Tokyo exchange as of June 30th. Japanese institutional investors are the key market for the yen-dominated gold shares ETF.

When the Bears Come Out, the Short ETFs Aren’t Far Behind

June 12, 2008

by Tom Lydon

Are you feeling a bit bearish on your exchange traded fund (ETF) bets because of the market turmoil? You’re not alone.

Some of the strongest funds in trading yesterday were the shorts, including ProShares UltraShort Semiconductors (SSG ). ProShares UltraShort Financials (SKF ) and ProShares UltraShort FTSE/Xinhua China 25 (FXP ) .

Indie Research points out that this is not the first time the mood has soured on Wall Street, but the difference this time around is that investors can now make broad, bearish bets with ETFs. One can sell short any of the ETFs they want, or investors can buy shares of any of the short or ultrashort funds available.

Short ETFs:

• UltraShort QQQ ProShares (QID ). up 4.7% year-to-date
• PowerShares DB US Dollar Index Bearish (UDN ). up 4.8% year-to-date

UltraShort ETFs:

• UltraShort Russell 2000 ProShares (TWM ). up 1.4% year-to-date
• UltraShort S&P 500 ProShares (SDS ). up 11.1% year-to-date
• UltraShort Financials ProShares (SKF ). up 24.9% year-to-date

Rydex is the latest provider to get into the inverse game. with the launch of some new ETFs meant to short the market.

Read the disclosure. as Tom Lydon is a board member of Rydex Funds.