Macro Tsimmis

intelligently hedged investment

BUY ProShares Short QQQ (PSQ), Short Dow30 (DOG), & Short S&P 500 (SH)

Posted by intelledgement on Thu, 06 May 10

We’re back short again as of the close today.

We believe that the optimism the market has reflected in the 80% surge in the S&P 500 index between 9 March 2009 and 23 April 2010 has been way overdone. While massive government intervention averted the collapse of many large financial institutions and huge stimulus programs have slowed the decline in residential real estate to a crawl and enticed the consumer to increase spending (at the expense of reducing the USA national savings rate from 5% to 3%), the so-called recovery has not produced any jobs or increase in income. What will happen when the surge of government stimulus dissipates? Meanwhile, private debt levels are still problematic and the commercial real estate situation continues to worsen.

Furthermore, US government policy continues to favor propping up the zombie banks and keeping the easy credit spigots open, and has exacerbated the strategic problem by not only failing to address the long-term structural problem of unsustainable entitlement obligations but has actually dug us deeper into the hole by focusing on so-called health insurance reform. In effect, our solution to the public and private addiction to profligate indebtedness thus far has been to vastly increase our indebtedness! While these policies have been successful in staving off “systemic risk” defaults, they will only postpone the day of reckoning.

But that is not why we are going short today in particular. We actually had been persuaded that the illusion of recovery had been so artfully contrived that the cracks in the foundation would remain hard to discern at least thru the 2010 elections. Unfortunately for the goldman behind the curtain, PIIGS happen. (That is, Portugual-Italy-Ireland-Greece-Spain, all with more or less severe sovereign debt issues.) The Eurozone political class have proven considerably less adept at implementing their own bailout in the case of Greece than USA policy makers were in 2008-09 with Fannie, Freddie, AIG, Merrill Lynch, Wachovia, Citibank, Bear Stearns, et al. As a consequence, systemic risk is up, and we are moving to protect capital here.

We are going with the Proshares Short QQQ (PSQ) ETF, whose managers “seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the NASDAQ-100 Index,” their Short DOW 30 (DOG) ETF, aimed at achieving “daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the Dow Jones Industrial Average Index,” and their Short S&P 500 (SH) ETF, which seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the S&P500® Index.”

Previous DOG/PSQ/SH-related posts:

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