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Friday, May 22, 2009

leveraged ETFs do nothing but destroy capital

Phil's Stock World
May 22, 2009 - 10:21a
if you imagine that sequence of infinite fractional steps and apply a transaction fee to every one, you can see how these leveraged ETFs do nothing but destroy capital.  It's Direxion that collects the fees so they don't give a damn and anyone investing in these things long-term is a real sucker.  The same goes for tracking ETFs like USO that are fee heavy - over time, they will always underperform the thing they track so you could, if USO and Oil cross in price, apply the same logic to shorting USO against a long position on oil and I'm pretty sure you couldn't lose.

BAC/Oncmed - I think $10.50 should hold and I'd sell the July $10 puts for $1 and just sell some $9s for $1 too (now .65) if it keeps going down.. 

Ags/BC - They are at a difficult in-between place right now.  MOO is based on the stocks and DBA is based on the actual commodities.  DBC is similar but includes oil which, if you are going long, is better than DBA but, if you are going short, DBA is better to short as oil is too much of an upside wildcard.

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