Re: SSO
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Leveraged ETFs should NEVER be used for buy and hold portfolios. These ETFs capture twice the DAILY movement of the S&P 500. However, they come nowhere near capturing twice the long-term movement of the S&P 500. With leveraged ETFs, you massively increase your risk without a corresponding increase in return. These ETFs are instruments for traders, not index funds on steroids.
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what about leveraged TIPS or ST US treasuries? do they work the same way?
i figured they would provide an easier way to generate leverage than the alternative which takes way more work and knowledge.
further, why don't 2x daily moveemnts = 2x annual movements? it seems to follow from logic that if every single day you generate 2x your daily price move, you will in effect have doubled your overall exposure.
i think of it like my leveraged S&P500 account via repos.
if you leverage an S&P500 fund exposure 2:1, you get 2x the exposure period. daily, weekly, monthely, whatever. you basically own a bit leses than 2 "funds" for a little bit more than the price of 1 (repo rate + initial money used to purchase the S&P500 allocation).
this is an example since repos are mostly used for bonds.
anyways, there was a long thread about 2x ETFs and that since they are managed there may be some isues with them hitting every daily total at 2x the S&P close.
i guess i may need to read a study or two on how these things function if you tell me that they don't match 2x the underlying.
i just don't see how if you hit the 2x exposure every day you could come out at anything other than 2x the exposure over any measured time period...
Barron
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Repo's have margin calls. That's why a lot of mortgage lenders are tanking including Thornburg (TMA) which Jimbo posted about. TMA did its short term funding with repos to leverage themselves in buying Mortgage Backed Securities/bonds (MBS). When the bottom fell out of non agency MBS they got a bunch of margin calls on their repo agreements. TMA had a fire sale of over $20 billion in MBS this week. TMA was leveraged something like 21 times on those bonds. They've significantly deleveraged which means their profits and book value will suffer considerably. I still think they'll be luck to make it but possibly. Anyway no margin calls on SSO unless ..... [img]/images/graemlins/smile.gif[/img].
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