Macro Tsimmis

intelligently hedged investment

Archive for August, 2011

BUY ProShares Short Russell 2000 (RWM)—Again

Posted by intelledgement on Fri, 26 Aug 11

We got the Bernanke bump we were expecting—the market is up today, although looks to be a more modest advance than we had expected. It would have been fine just to stay short here, but we will probably end up a bit ahead when we come back in at the close today (that is, the price we buy RWM at today will likely be a few cents less than what we got for the shares we sold on Tuesday).

We still expect that the most likely scenario is that The Powers That Be will manipulate the smoke and mirrors to mask the seriousness of our financial problems long enough to conduct an orderly U. S. election in 2012. However, the cracks in the wall—Eurozone sovereign debt issues, U.S. no jobs “recovery” and structural debt/demographic issues, BRICs growth slowdown, Middle East unrest, etcetera—are proliferating faster than the metaphorical wall paper can be applied and thus it is prudent to go short here (again) as a risk management tool to limit the potential damage if things fall apart sooner than we expect.

We are again utilizing the ProShares Short Russell 2000 ETF (RWM) as our vehicle of choice. Our logic is that a slow growth scenario is likely to negatively impact smaller companies more than large companies (although both will be hurt). This ETF is low on assets—$400 million where normally we prefer a minimum of $1 billion—but the robust average daily shares traded (up to 1.9 million) ensures adequate liquidity.

Previous index short-related posts:

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SELL ProShares Short Russell 2000 (RWM)

Posted by intelledgement on Tue, 23 Aug 11

We are cashing in our insurance here with a 4% one-week profit because with Europe essentially closed for business through the end of August, we believe the need for short protection here is outweighed by the risk of a temporary market surge in the face of the combination of no fresh bad news and (false) reassurances likely coming from Ben Bernanke at the Jackson Hole confab by the end of this week.

We expect to be back again by early September.

Previous index short-related posts:

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BUY ProShares Short Russell 2000 (RWM)

Posted by intelledgement on Tue, 16 Aug 11

We still expect that the most likely scenario is that The Powers That Be will manipulate the smoke and mirrors to mask the seriousness of our financial problems long enough to conduct an orderly U. S. election in 2012. However, the cracks in the wall—Eurozone sovereign debt issues, U.S. no jobs “recovery” and structural debt/demographic issues, BRICs growth slowdown, Middle East unrest, etcetera—are proliferating faster than the metaphorical wall paper can be applied and thus it is prudent to go short here as a risk management tool to limit the potential damage if things fall apart sooner than we expect.

This time we are using the ProShares Short Russell 2000 ETF (RWM) as our vehicle of choice. Our logic is that a slow growth scenario is likely to negatively impact smaller companies more than large companies (although both will be hurt). This ETF is low on assets—$400 million where normally we prefer a minimum of $1 billion—but the robust average daily shares traded (1.1 million) ensures adequate liquidity.

Previous index short-related posts:

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SELL ProShares Short S&P 500 (SH)

Posted by intelledgement on Fri, 12 Aug 11

We are cashing in our short “insurance” here at a profit. We still believe it prudent to be short, and we are planning to short the Russell 2000 instead of the S&P 500 because we feel the cyclical growth slowdown that is occurring is likely to hurt smaller companies more than larger ones. However, we may wait a few days to see how the latest European can-kicking effort goes; if the market believes there is a good chance it will “succeed,” then we may have an opportunity to get in at a significantly lower price.

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SELL Market Vectors Russia ETF (RSX)

Posted by intelledgement on Wed, 03 Aug 11

We are stepping aside here—basically at breakeven, maybe a miniscule profit—on increased risk of a significant slowdown. Russia is a close-to-pure growth play, based on their world-class exports of natural gas, oil, steel, et al. With the Chinese growth target now reduced to 7% over next five years, India and Brazil raising rates to fight inflation, the USA flirting with (at best) a double dip recession, and Europe juggling with lit firecrackers (the PIIGS plus others) any one (or more) of which could explode at any moment, we are banking our slight profit here and stepping to the sidelines to avoid the risk of a big decline. Russia, being more vulnerable to a slowdown than better integrated economies, is prone to decline more sharply under such conditions—their stock market was down 72% in 2008.

Of course that volatility works on the upside, too and when conditions improve, we expect to be back in here…likely at a lower level.

Previous RSX-related posts:

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