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April 02, 2009 – Comments (14) | RELATED TICKERS: FAS , S , CAM

Khan Academy has unwittingly convinced me to deploy a good bit of risk capital into FAS, the 3x financial bear ETF provided by Direxion. In fact, I may put my entire Roth IRA into it. Why? Well, I know a little about politics. And when a bad plan comes along, politicians usually go for it. And what's a worse plan than taking taxpayer dollars and Fed loans and giving them to irresponsible bankers?

So the combined odds of this not passing, or of it passing in a form that gyps shareholders, or of bank CEO's managing to kill shareholders despite this sweet deal, or a collapse of the derivatives markets crushing the leveraged ETF's faster than we anticipate, together constitute about 50%, more or less. So FAS has about a 50% chance of suffering a big hit in the short term. On the other side of the coin, it's almost a 50% chance that FAS will do better than triple in a couple of months as people figure out just how much "Tiny" Tim Geithner is shoveling into the banks' coffers and FAS cashes in their C, BAC, JPM, and MS call options.

Could get wiped out, but if I don't make some serious dough in my Roth, it won't be worth anything anyway by the time I'm allowed to take the interest out (which is the only part with a chance of being large enough to be useful after the hyperinflation we're in for from 2011-20??).

14 Comments – Post Your Own

#1) On April 02, 2009 at 9:58 PM, bigpeach (25.96) wrote:

This is a very bad idea. I would strongly encourage you not to do something like this. If you don't understand how these work, and I'm making that assumption since you're considering holding it for months, and you think FAS is the bear ETF (FAZ is the bear, FAS is the bull), please read up. 

 

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#2) On April 02, 2009 at 10:05 PM, glennezz (< 20) wrote:

true dat bigpeach

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#3) On April 02, 2009 at 10:05 PM, glennezz (< 20) wrote:

true dat bigpeach

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#4) On April 02, 2009 at 10:07 PM, Donnernv (< 20) wrote:

Don't do this!  It's a terrible idea.  Just Google them to find out why they are awful for the long term.  At best, these are daytrading vehicles.

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#5) On April 02, 2009 at 10:12 PM, RVAspeculator (29.32) wrote:

See my leveraged ETF tracking CAPS portfolio where all I did is short all the levered ETF's for a good warning sign.

In the longer run these are ALL headed to zero.

http://caps.fool.com/player/ultrasuck.aspx

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#6) On April 02, 2009 at 11:02 PM, walt373 (99.84) wrote:

You should short FAS instead of buying FAZ, if you have that much conviction that financials are going to zero. Just don't buy a leveraged ETF. If you like money, that is.

http://news.morningstar.com/articlenet/article.aspx?id=271892

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#7) On April 02, 2009 at 11:20 PM, motleyanimal (60.08) wrote:

I'm shorting FAZ to the ground. How many times does the government have to tell you that the major banks will not be allowed to fail?

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#8) On April 02, 2009 at 11:36 PM, throwerw (29.40) wrote:

april fools was yesterday

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#9) On April 03, 2009 at 4:44 AM, FleaBagger (28.28) wrote:

Mental typo. 3x Bull. It's kind of obvious that that's what I was thinking if you look at the context.

Yeah, I'm going to ride this one to a dectuple, and the good news it probably won't take months. I mean, check out the video for yourself if you don't think it will be easy for banks to steal money from the treasury to enrich the CEO's (and, hopefully, the shareholders, and the investors in leveraged, derivative-based ETF's).

http://www.youtube.com/watch?v=n-arbfLTCtI&feature=PlayList&p=4EF8BA0ADAAA1B05&index=1

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#10) On April 03, 2009 at 5:04 AM, FleaBagger (28.28) wrote:

Walt373 -

Puts for 3x ETF's are really expensive. The timing is harder than just buying the opposite ETF outright.

RVA -

Why should I care where FAS is headed in the longer run? If the derivatives market doesn't collapse, and bank shares skyrocket at least half as quickly as I expect them to, FAS will provide a hefty return in just a few weeks, if not days.

All -

You seem unfamiliar with the idea of calculated risk. Everything (including inaction) is extremely risky at this point, with an irresponsible, constitution-despising government going around throwing money at failed enterprises and getting the money from the weak and lobbyless. The way I'm managing that risk is by taking a big flier on the government's pet project.

Follow-up on the Khan Academy video -

In case you had a hard time understanding why the video made me think banks are a great speculation right now, let me point out something that the video failed to state explicitly: the equity portion of banks that is repeatedly called "$40" in the video is the stock, mainly common stock, and they have been reduced in price to the equivalent of $2 or $3 or less. So if they lose only 7% of the value of their toxic assets, their shareholder equity will increase in value 10-15x.

A 3x leveraged ETF, even after costs and tracking error, should return 20-40x in such a case. If you buy FAS puts now, watch out. You could lose 100% of your investment in days.

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#11) On April 09, 2009 at 11:13 AM, FleaBagger (28.28) wrote:

Who's laughing now? Me! I'm the one who's laughing!

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#12) On April 10, 2009 at 12:38 PM, FleaBagger (28.28) wrote:

FYI, FAS closed at 8.71 Thursday (the last trading day of this past week). My cost basis, including trading costs, is between 6.38 and 6.39. That was Monday, April 3.

I'll be watching the financials, but I'm not selling yet.

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#13) On April 13, 2009 at 10:49 AM, FleaBagger (28.28) wrote:

FAS reached 9.58 in Monday morning trading, and as of 10:44AM, was at 9.18.

O ye of little faith...

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#14) On April 14, 2009 at 12:04 AM, FleaBagger (28.28) wrote:

To all the people I've been taunting about FAS, an update: I've sold most (but not all) of my FAS Monday afternoon, realizing a >40% gain, plus a handful of FAS shares that are basically free. If FAS goes to 50, I'll have another huge gain on my hands. If FAS goes to 0, I'll still have my original big gain.

I preceptualize that none of you ever again doubt the power of poor gov't policy to enrich the few.

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