E! True Hollywood Story: The Rise and Fall of SKF
by ilene - August 10th, 2009 10:16 am
E! True Hollywood Story: The Rise and Fall of SKF
Courtesy of Damien Hoffman at Wall St. Cheat Sheet
This is a guest post by Joshua Brown at The Reformed Broker.
The ProShares Ultra Short Financial ETF, otherwise called SKF, has had one of the most spectacular flame-outs in market history. One minute, SKF was a superstar, raking in millions of dollars on a daily basis and dominating the most actives list. Then suddenly, the party was over.This is the E! True Hollywood Story of SKF, Star of the Credit Crisis.February 2007Baby SKF is born on a wintry day at the ProShares HQ in Bethesda, MD. Just like his inverse twin, UYG, SKF was born at $70 per share on the American Stock Exchange.
SKF: I started shorting banks like, immediately. In fact, I was ultra shorting them, predominantly through the use of swaps contracts as opposed to outright short sales. Bank of America, Citi, Goldman…you name ‘em, I was short ‘em.
July 2007SKF was in the right place at the right time from day one. In the midst of an overheating stock market, Bear Stearns came out in the middle of July with the admission that two of it’s internal sub prime hedge funds were in trouble.
SKF: This was my first big break. Even though I wasn’t short a lot of Bear stock, I knew I was onto something big. Every morning, my agents would email me clippings of mortgage-backed securities stories from the media. The rest of the bank and broker stocks started getting jittery and I was getting hooked on the volatility, big time!
February 2008SKF celebrated it’s first birthday amidst a Dow Jones that had already lost 2000 points from it’s peak. SKF was flirting with $100 per share and the momentum traders had just started showing up at it’s party.
SKF: The scene was intense, man. The StockTwits guys started tweeting about me like crazy and I was all they could talk about on the Yahoo Finance message boards. People all over the market started to hear my name. I ain’t gonna lie, it felt good. Felt like I was important. So what that Bear Stearns was about to be shuttered and that the foreclosures were starting to get rolling. I was gonna be famous!
September 2008The drizzle of financial distress has now become a tsunami as Lehman Brothers goes bankrupt and Merrill Lynch is rescued by BAC. SKF breaks above $100 per share and…
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USO Oil Fund - All of the Drops, Only Some of the Gains
by Phil - June 6th, 2009 7:57 am
USO Oil Fund - All of the Drops, Only Some of the Gains
For the past two weeks we’ve been shorting USO on and off and it’s been very entertaining.
We all know that most ETFs are a total scam as they use a system called "creation units" to deliver shares to market WITHOUT changing the net asset value of the underlying assets of the fund. Because the funds are front-loaded (or front-unloaded) with cash during the day, professional arbitrators have a field day buying or shorting the underlying stocks or commodities that the ETFs MUST buy to "square up" their positions at the end of a day. Effectively, ETFs allow professional investors to pool the money of small investors into one, easy-to-manipulate target that follows pre-defined rules they can trade against.
In the case of USO, which has always underperformed oil by a wide margin, the divergence is so bad and the flaws in the fund are so vulnerable to attack by the already manipulative NYMEX crowd, that oil expert Stephen Schork has labeled it a pyramid scheme:
So how is this like a pyramid scheme? A pyramid scheme is funded by a constant flow of dollars into the venture by new investors. The second investor knowingly and willingly pays the first investor on the assumption he will get paid by the third investor… and so on. It’s similar to a Ponzi/Madoff scheme, with the key difference, investors don’t know (or don’t want to know as long as those alleged returns keep rolling in) they are being scammed.
The USO is being funded by a proliferation of new retail investors looking to diversify into “alternative investments” (which as far as we have been able to ascertain, alternative investment is a euphemism for Las Vegas style bets on commodities by retail investors tired of watching their 401Ks drop). More importantly, these investors are obviously out of their league, i.e. taking buy-and-hold positions in a contango which raises their cost basis every month they roll into the higher priced deferred contract.
We assume they are buying the USO because they are bullish. But in a peculiar way, their actions could be helping to prevent the market from rallying. These new investors are not funding a pyramid per se, but they are helping to fund storage. That is to say, with global demand in the doldrums, the contango will persist. And, as long as it lasts, traders will continue to front-run the rolls, which in turn will exacerbate the contango,…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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