bulls&bears issue21

8/9/2019 Bulls&Bears Issue21

1/10

BULLS& BEARSHEADLINES

Senate Passes $787B StimilusBillConsumer Conidence PlungesBusiness Inventories Sink ByMost Since 2001US Budget Gap Grows to$569BGeithner Unveils New BankRescue Plan, Markets umble

THE WEEK IN QUOTES

Saing is a good thing and paying debt is

a good thing, but not oernight.-Mark Zandi, chie economist or Econo-my.com, on Americans high saings rates,which might actually be hurting the econ-omy

Tese are huge contractions in Europe, thelargest in liing memory in most cases.-Ken Wattret, economist at BNP Paribas,on news that Germanys economy suereda record slide in the fnal quarter o 2008and that Frances shrank at its astest pacein 34 years, suggesting that already grim

orecasts or the euro-zone GDP could betoo optimistic

It could be a nightmare scenario.-Ali Al-Naimi, Saudi Arabias Oil Minis-ter, on how the push to deelop renewableenergy could jeopardize investment in con-entional uels

MARKET SUMMARY

Monday 02/09/09Aer an uneventul session hovering around breakeven levels, the major market indices ended mixed. High hopesregarding the Obama administrations bank-rescue plan were stymied this morning, aer ocials elected to delay the

proposals unveiling until uesday. Meanwhile, the U.S. Senate continued to debate the details o the economic stimu-lus package today, with lawmakers hoping to vote on the bill tomorrow. Te President continued to push or quickaction rom Capitol Hill. Te Dow ended the day just 9 points lower.

uesday 02/10/09In the days preceding reasury Secretary imothy Geithners announcement about the bad bank plan, the marketseemed enthusiastic about the prospect o restoring order to the nancial markets. However, when Geithners schemeturned out to be remarkably light on details, traders reacted with pure angst. Disappointment over this admittedlysketchy rescue plan sparked an initial triple-digit drop in the Dow, but selling pressure intensied later in the day whenthe Senate approved an $838 billion bailout bill. Now, the House and the Senate must orge a compromise, since eachapproved a dierent version o the stimulus package. Te Dow closed 382 points in the red on all this uncertainty.

Wednesday 02/11/09Te Dow closed uesday at its lowest price since Nov. 20, and so it seemed logical to assume the market would enjoya modest bounce today. As it turns out, stocks collected hesitant gains ollowing yesterdays sell-o, but a great deal ouncertainty about the g overnments nancial rescue plan eectively prevented an all-out rally. In act, investors nerves

were so rayed that equities dipped briefy into negative territory in aernoon trading. However, news that the Senateand the House o Representatives reached a tentative compromise on a $789 billion stimulus package contributed to alate-session bounce, and the Dow managed squeeze a gain o 50 points.

Tursday 02/12/09Te equities market turned lower right out o the gate this morning, shrugging o a rare bout o encouraging newsrom the Commerce Department. More specically, aer a 6-month streak o losses, U.S. retailers saw a rebound insales, exceeding economists expectations. Instead, the lingering questions surrounding the economic stimulus andbank-rescue package kept investors discouraged, and pressured a plethora o banking issues to hey intraday losses.However, the bearish sentiment plaguing the Street subsided during the last hour o trading, aer Reuters reportedthat the Obama administration is working on a program to subsidize mortgage payments or homeowners. By theclosing bell, the major market indices had erased most i not all o the days losses.

Friday 02/13/09Most stocks trended lower today, with banking-related issues blazing the trail into the red aer Citigroup and JPMor-gan Chase agreed to a weeks-long end to oreclosures. Also weighing on investors was the latest Reuters/University oMichigan consumer sentiment index, which declined by more than expected in January, underscoring the widespreadskepticism plaguing both Wall Street and Main Street. Even news that the House o Representatives passed a $787

billion stimulus package wasnt enough to pull the equities market out o negative territory. Obamas economic ad-viser warned Americans that despite the hype, the stimulus shouldnt be considered a silver bullet or the strugglingeconomy, stating that a recovery is going to take time. Te Dow nished the day 82 points lower.

FINANCIAL MARKETS

DOW 7,850.41 , - 5 .20%

NASDAQ 1,534.36, - 3 .60%

S&P 500 826.84, - 4 .81%

OIL $37.51, - $2.66

10 YR 98 24/32, - 7 6/32

EURO $1.2887

THIS WEEKS ISSUEProiles: Varley & Hester 2

Stimulus Package Passes 3

Obamas Plan: Spend! 4

Chinas Currency Strong 5

Banks Cease to Help 6

echnical Analysis 101 7

Double EFs: Volatility 8

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Stephen Hester is the CEO o Royal Bank o Scotland,a banking giant in UK. Recently, Royal Bank o Scot-land unveiled the biggest loss in British corporate his-tory, overshadowing a second government bailout orthe sector and sending its shares reeling to a 23-year low.

RBS said it would report a 2008 loss o up to 28 billionpounds ($41 billion), driven largely by a goodwill impair-ment charge related to its acquisition o parts o Dutchrival ABN Amro in 2007. he Government bailed outthe ailing giant by increasing its stake in the bank to 70%.

Beore the downturn, Hester stated that commercial realestate was set or a correction but not a massive all. his

was a clear sign o overconidence as a result o which,

RBS was caught completely o-guard by the credit crisis.Hester began his working lie at Credit Suisse, goingon to work with Abbey National. Until last year, he ranBritish Land almost without a hitch, selling o 5.8billion o older property, reducing its gearing and giv-ing it the capital or additions to its property portolio.

Although Hester seemed relatively conident in regardto the credit crisis, ater seeing the depth o it, he hasstarted taking action to prevent the bank rom a ull-collapse. He has expressed interest in cutting employee

pay. Hester is ready to cooperate by issuing bonuses

only as much as approved by tax payers. Even ater gov-ernment unding, Hester aces a huge challenge aheado him to save the ailing bank rom urther problems.

MOvERS & SHAKERS 2

vARLEY & HESTERBy Mehnt Bhatia, Carnegie Mellon Uniersity

Stephen Hester

John Varley is currently the CEO o Barclays PLC,a UK-based bank. Barclays has been one o the ewbanks that have been able to hold ground on its earn-ings as it recorded massive revenues in the ourth quarter.

Tere was a lot o negative speculation on Barclaysshares ollowing ears o nationalization o UK banks.It had been hit by ears the government may need to in-

ject more cash or nationalize more banks, despite con-rmation rom Barclays that it would post one o thebiggest prots o any bank in the world or last year.

ough capital market conditions in the ourth quarterand ears about write downs and capital prompted Bar-clays to issue a trading update stating that 2008 prots

would be well ahead o analyst consensus orecast o5.3 billion pounds, even aer writedowns. As promisedby Varley, Barclays provided a pleasant surprise to inves-tors as it produced better-than-expected earnings. Tebank said its prot dropped 14% to 6.1 billion pounds(US$9.01 billion) last year and it aced a tough year ahead.

Barclays has been hit by losses on structured products and theslowing U.K. economy, but it has raised unds privately andhas not taken taxpayer cash, unlike two o its biggest rivals.Although 2009 is expected to bring even more distressto the already crippled banking sector, Varley is de-

termined that he can lead the bank through its prob-lems. It plans to cut bonuses and raise capital rom in-

vestors to abroad to maintain stability o the bank.

John Varley


3/10

**FEATURED ARTICLE** 3

STIMULUS PACKAgE PASSES By Cara Repasky, Uniersity o Pittsburgh

In a major victory or President Barack Obama, the Houseand Senate gave nal congressional approval or sweepingeconomic-recovery legislation, marking a new milestoneor ederal intervention in the nations economy. Tehuge, $787 billion stimulus bill was pushed to the brinko nal passage on Friday night in hopes o overcomingthe worst econom-ic crisis since theGreat Depression.Not a single Re-

publican backedthe passage in theHouse on Friday,

while only sevenDemocrats joined176 Republicansin opposition, and246 voted in a-

vor. DemocraticSenator SherrordBrown few in

rom Ohio, wherehis mother diedearlier in the week,to become the de-cisive 60th vote inthe Senate to passthe bill. Te votes capped a year o extraordinary eortin the nations capital to revive the struggling economy,

which has lost more than 3.6 million jobs since December2007. A wave o home oreclosures, tightened credit, andaltering consumer demand threatens even more workers.

Administration ocials concede that they gave up someeconomic punch to secure three Republican senators votes to ensure passage. Supporters o the bill said thatit will create or preserve 3.5 million jobs. House Major-ity Leader Steny Hoyer admitted there was no guaranteeon that number, but that millions and millions o people

would be helped by the bill, as they lost their jobs and canno longer put ood on the table or their amilies. Vigor-ously disagreeing, House Republican leader, John Boehnero Ohio, dumped a copy o the 1,071-page bill on the foorin a gesture o disgust. Te bill that was about jobs, jobs,

jobs has turned into a bill thats about spending, spending,

spending, he said.

Te legislation is among the costliest ever considered inCongress. It will provide billions o dollars to aid victimso the recession through unemployment benets, ood

stamps, medical care, job retraining and more. ens o bil-lions will be devoted to the states to oset cuts they mightotherwise have made in aid to schools and local govern-ments. More than $48 billion will go to transportation

projects such as road and bridge construction, mass tran-sit, and high-speed rail. About a third o the package is

committed to taxcuts which Dem-ocrats said wouldhelp 95 percento all Americans.Much o the re-lie will be in theorm o a $400break or individ-uals and $800 orcouples. At theinsistence o the

White House, people not earn-ing enough mon-

ey to owe incometaxes will also beeligible, an at-tempt to osetthe payroll taxesthey pay.

Te economic stimulus package also includes a last-min-ute addition that restricts bonuses or top earners at rmsreceiving ederal cash, as well as those that already receivedit, to one-third o their total annual compensation. Tiscould severely crimp pay packages at big banks, where top

ocials commonly report relatively modest salaries but o-ten huge bonuses. Under the bill, bonuses can only be paidin restricted stock, which recipients couldnt cash in untilthe reasury is repaid.

President Obama is expected to sign the bill very soon de-spite concerns over the clarity o whether the value o theexecutives stock options should be included in the calcu-lation o total compensation. At the White House, thePresident said that the package is needed to ignite spend-ing by businesses and consumers and make the invest-ments necessary or lasting economic growth and prosper-

ity. But he also stressed that the legislation is only thebeginning o what will ultimately be a long and dicult

process o turning our economy around. It appears that,once again, no one is willing to to show a lot o optimismabout the uture o the United States economy.


4/10

FINANCIAL NEWS 4

OBAMAS PLAN: SPEND, SPEND, SPEND By Jordan Cole, Arizona State Uniersity

President Obama warns Congress o economic perilshould it not expedite the second stimulus packagethrough the voting process. Yet, the Chies o thenations eight biggest banks testied beore Con-gress that their respective institutions do not requireanother injection o capital.

In act, the banks recently began lending again. Mr.Obama take note: the economy has slowly begun

the process to climb out o the recession. No morespending is necessary.

Te issuance o corporatedebt is has doubled sincethe beginning o the yearcompared to the sametime period in 2008.Credit spreads on corpo-rate debt have tightenedrom an average o 6.50%

in December to 5.25% inFebruary. With an esti-mated 8-9 trillion dollarssitting on the sidelines

while the markets havestruggled, the compres-sion o credit spreads is asight or sore eyes.

Credit spreads are a keyindicator o investorscondence and their appetite or risk. As the spreadcontinues to narrow, more o the capital that fedthe markets many months ago will reenter the mar-kets; thus, giving the economy a much needed shotin the arm.

An extra $800 billion in a $14 trillion economy willdo nothing but add to the growing budget decit.In true Keynesian ashion, the current administra-tion believes that the government has the ability tobuy prosperity.

House democrats created a package that seems to bemore social policy than economic policy. Te Presi-dent seems to be a bit conused with the idea o thestimulus package as well. In a speech to the HouseDemocrats, Mr. Obama addressed the criticism that

the bill was ull o heedless spending and ails to ad-here to its broader economic intent.His response to these critics was, What do youthink a stimulus is? Tats the whole point. Re-spectully Mr. President, it is not the point. Te billsoon to arrive on the Presidents desk is 90% pub-lic policy and 10% economic policy. Te bill, oncesigned into law, will add to a growing budget decitthat equates to 12% o GDP.

In eect, the stimulusis a transer package;transerring dollarsrom upper class pock-ets to lower class pock-ets who typically spendthe money as soon asthey get it. Promotingsaving would be a more

viable option. A saved

dollar is used by banksto invest in the marketor into new businesses.

New businesses are a keydriver in the creation onew jobs. Te cronieson Capitol Hill andthe man in the WhiteHouse are not willingto take their chances.

Tey want to see this crisis end and are willing tospend until they witness an uptick in the economy.

Patience evidently is no longer a virtue. Many o thekey economic statistics that characterize the currentdownturn are eerily similar to those o previous -nancial crises. Precedent data indicate that manystatistics such as unemployment gures and equity

prices will all even urther beore recovering.

Downturns that attribute to negative economicgrowth do not last in perpetuity. In act, they only

last or approximately two years. Te consensus omany economists is that the United States enteredinto a recession in December o 2007. I historyholds true, the pain should subside by the end o the

year.


5/10

FINANCIAL NEWS 5

CHINAS CURRENCY STRONg By Daniel Sholler, Uniersity o Pennsylvania

A hot topic at the G-7 meetings in Rome on Saturday wasthe controversial strength o the Chinese yuan and the

policies the Chinese government has been using to bolsterits economy. Originally, United States reasury Secre-tary imothy Geithner pointed to manipulation as thereason or the yuans high exchange rate, but changed histune aer meeting with world leaders. Experts recognizethat while the Chinese government will by no means bestrong-armed into assisting in reviving the world crisis, the

country is a vital part othe global economy. TeG-7 released a statementapplauding Chinas at-tempts at making its cur-rency more fexible, which

will in turn continue toappreciate the yuan.

Te yuans strength hasstirred ear amongst manyChinese producers o

cheap exports. In orderto combat the growingexchange rate, individualcompanies have oereda lower exchange rate or

willing buying partners,deying the governmentscontrol over the economy.

Te yuans low volatilityrelative to the yen and the

pound has led to a restoration o lending in China in re-

cent weeks. Tey are showing growth in both the corpo-rate and household lending sectors, a substantial contrast

with the practices occurring around the world throughoutthe crisis. Te combination o a government stronghold inthe nancial sector and the activity o smaller banks with-out toxic assets have allowed the growth to occur.

Tis improvement is by no means an answer to Chinese s-cal diculties. While the lending practices are increasingthe fow o money within the country, the aorementionedhigh exchange rates that companies are battling tend todecrease exports. Companies are cutting their own ex-change rates, but a move toward American protectionismheightens the risk or Chinese manuacturers. Te recently

passed stimulus package is intended to increase Americanspending within the United States, a move that rightensmany exporters o Chinese goods.

While Geithner was noticeably tactless in his approach tocriticizing Chinese currency manipulation, it is no secretthat the Chinese government is keeping the interests o itscountry at the oreront o its policies. An upheaval o theeconomic system in China would result in social unrest;the prospect o this occurrence is worth noting. Nationsas heavily and densely populated as China require cau-tion and weariness when governing economic and social

policy.

It appears that we are see-ing two world powers ata stando over economicconcerns. However, whatare ar more interestingare the similarities arisingin their policies. Whilethe Chinese and Ameri-can markets are undoubt-edly dierent and may beheaded in entirely dier-

ent directions, the protec-tionist policies intendedto secure their respectiveeconomic health are com-

parable. Te Chinese arenot the only country con-cerned over the provisionso the stimulus package,

which ocuses the major-ity o its unding on na-tional markets. Similarly,

the Chinese yuan manipulation and national lending

practices are being used to restore the health o marketswithin China while limiting interaction with other coun-tries.

Te end result o a protectionist America and protection-ist China would be a de-globalized world economy. Tis

was the threat that many economic experts, such as theUniversity o Pennsylvanias Dirk Krueger, warned againstmonths ago. While the restoration o singular nationaleconomies is vital to the revival o the world economy, amore cohesive eort must be made to invigorate interna-tional trade. Te current economy relies heavily on suchinternationalism and the wealth o several world powershas been contingent upon their involvement in the globaleconomy. A reversion back to isolationism threatens todegenerate global markets and limit the possibilities oreconomic innovation.


6/10

FINANCIAL NEWS 6

BANKS CEASE TO ASSIST HOMEOWNERS By Wyatt Ozmore, Rutgers Uniersity

While quite recent times may have shown a short-termdrop in the rate o home oreclosures, the crisis still re-mains an integral part o our economys recession. AsPresident Obama is expected to announce an initiative oat least $50 billion to help homeowners, this alone will notsuce. With an expected 5.9 million oreclosures in thenext our years, in addition to the one million since 2006,

people will look to lenders or help.

O course, the drastic reduction in aggregate demand andthe deepening recessionshed no light on the u-ture. As unemploymentrates are rising, it be-comes more dicult, inot impossible, or themillions o people toaord homes and theirridiculous price tags.Albeit many elitists re-main rm in their views

that people should not purchase homes theycannot aord, otherexperts still see it to bein the banks best inter-ests to help our citizensin times o desperation,regardless o the prowesso an individuals or amilys nancial decisions.

Especially in recent times, banks have proven unwillingto assist in these problems through delayed and diluted

attempts. Upon more detailed analysis, several statisticshave shown to be skewed or embellished. According toSteven Preston, head o the Housing and Urban Develop-ment Department during the Bush Administration, theindustry still has not stepped up to the problem. He con-tinues to delineate how Bush ocials and banks promisedto save 400,00 amilies rom oreclosure, through theHope or Homeowners program, while in reality only 25renanced loans have been produced. Regardless o onesopinion on whether or not amilies deserve to be punishedor making bad nancial decisions, there is substantial evi-dence o cases where clients are given misleading advice.Many amilies report that they were told their house wasaordable or could be renanced.

wo main reoccurring problems are loans with beguilingintroductory rates and those that require little evidence o

the recipients income level. It is true that banks oen re-ceived large payouts rom the amilies who manage to su-er through raised interest rates, taxes, missed payments,and other additional ees. However, driving an individualor amily out o the home is not in a banks avor. It istypical or a oreclosure proceeding to cost banks approxi-mately 50% o the originally property value. Sometimeseven receiving hal o a propertys worth is considered or-tunate. Being able to resell a home is not easy in times o

high unemployment.

Democratic SenatorChristopher Dodd romConnecticut acknowl-edged these issues whenhe convened the Hom-eownership PreservationSummit in the beginningo 2007. Addressing amultitude o representa-tives rom major banks,

Dodd urged them adjustloan terms such that bor-rowers could keep therehomes and continue tomake payments, insteado stopping completely.

Its oen said that duringtimes o deeat, you truly know who is your riend. Look-ing back, homeowners probably wouldnt be very content

with Sandor Samuels, a past chie legal ocer o subprimebehemoth Countrywide Financial. When questioned

about loans with enticing introductory rates he respond-ed, We are going to keep making these loans until the lastsecond they are legal. Despite banks reporting their ini-tiatives to help and such, there still remains understand-able skepticism.

In December 2008, ederal banking regulators reportedover hal o those receiving loan modications to be delin-quent on their mortgages six months later. A more shock-ing discovery revealed that these redeault rates are so highbecause these modications oen lead to higher pay-ments. A study conducted by Alan White, a proessor at

Valparaiso University, showed that 18% o the paymentsremained the same, 47% rose, and only 35% o the casesshowed a decrease in payments. With hopes or change in2009, this country will need a lot more than a government

payout.


7/10

HIgH RISK, HIgH RETURN 7

TECHNICAL ANALYSIS 101 By Robert Sun, Carnegie Mellon Uniersity

At cocktail parties and collegiate investing clubs, stocksare oen recommended based on several common rea-sons like that it is a undamentally strong company, orthat it is undervalued, or that its uture growth willreach beyond analysts expectations. Numerous proes-sors, investors, and other expert gures heavily promoteundamental analy-sis which evaluatesa companys intrin-

sic value. Aer all,ultimately a sharerepresents partialownership in thecompany.

But in and out oWall Street, peoplemake their careersout o trading se-curities purelythrough technical

analysis. echnicalanalysis is a tech-nique o evaluatingsecurities by ana-lyzing market ac-tivity, such as pastprices and volume,to identiy patternsor uture activity.

echnical analysisis based upon three

assumptions. First, prices tend to ollow trends. Market psychology is alarge underlying actor in many technical trends. Whena trend has been established, the price o a security ismore likely to ollow the trend than run counter to it.Second, a securitys price refects all news and other ac-tors that could aect the company, including undamen-tal actors. Tereore, the need to consider a companysundamentals becomes useless and traders only needto ocus on supply and demand to analyze price move-ments. Finally, history tends to repeat itsel. Market psy-chology causes a repetitive nature o price movementsand so the market will most likely provide a consistentreaction to similar stimuli over time.

One major theme throughout technical analysis is theidea o support and resistance. echnical analysts be-

lieve that the market is a battle between sellers (supply)and buyers (demand) and the consequence is that pricesseem to hit a foor (support) and ceiling (resistance) re-quently. Tese support and resistance levels are where alot o traders are willing to buy (support) or sell (resis-tance) the stock and only when the supply, demand, and

psychology behindthe movementshave shied will

the stock nd anew support andresistance levels.

Since charts showevery price move-ment, a way to eas-ily identiy trendsis to use mov-ing averages tosmooth out move-ments. Te direc-

tion o the movingaverage shows thedirection o thetrend. However,the true powero moving aver-ages comes romits ability to pre-dict uture pricemovements. Mov-ing averages tendto act as a level o

support and resis-tance or a price. It is airly common to see skydiving orskyrocketing stocks bounce and reverse their directionaer hitting a support or resistance level. But i the pricecrosses through a movement average, it is a good signthe trend has reversed. For example, i the uptrendingprice o a security alls below the moving average, it maybe a sign that the trend is reversing.

Although commission ees makes trading uneasibleor low net-worth investors, technical analysis can stillcomplement undamental investing in a variety o ways.It can give a sense o what the market psychology o thestock is, what sorts o support and resistance levels thestock can expect to see, and what trend the stock willlikely see should it break through the moving average.


8/10

LEARNINg THE STREET 8

DOUBLE ETFS: BE WARY OF vOLATILITY By Joshua Jamner, Colby College

Many o us are amiliar with exchange traded unds(EFs). For those who are not, EFs are convenienttools that allow investors to gain portolio exposureto market indexes, benchmarks, and sectors. For ex-ample, i you wanted to trade the S&P 500, you coulddo that using a SPDR or spider (AMEX:SPY), whichaims to give investors the return o the S&P 500. A ew years ago, double EFs were introduced to the mar-ket, aiming to give investors double the daily return

o their corresponding benchmark. ProShares oersits Ultra S&P 500EF (NYSE:SSO)that gives twicethe daily returno the S&P 500and also the Ul-traShort S&P 500EF (NYSE:SDS)that seeks to returndouble the inverseo the daily peror-

mance o the S&P500. Tis amilyo unds allows investors who mightchoose not (or beunable) to trade onmargin to leverage investments. Tis allows investors with especially strong convictions to trade on thoseconvictions.On the surace, these double EFs look like a prettygood deal. Given the sentiment that markets go upover the long term, why not buy an Ultra EF and siton it or the long run, doubling the potential long-termreturn o the market? Or conversely, i you things aregoing to get worse beore they get better, why not pur-chase SDS and or every basis point the S&P 500 alls,you get a return o +2 basis points. Given the marketo the last six months, a return twice the inverse o amajor benchmark might sound like a good deal.

Beore you rush o to contact your broker, you shouldknow that these double EFs truly only make sense orday traders, and that there are signicant drawbacksto holding these EFs over any substantial period otime. Because these EFs are balanced daily, investorswho hold them over the long run can be signicantlyharmed by volatility.

o explain this, let us take a hypothetical index, call itindex XYZ, and a hypothetical double EF, let us callit XYY, which will aim to return to investors doublethe daily perormance o the XYZ index. XYZ has astarting value o 1000, and XYY 100. On the rst dayo trading, XYZ increased to 1020, a 2% gain. XYYshould deliver a 4% gain, and is now trading at 104.On the second day, XYZ decreased back to 1000, aloss o 1.96%. XYY should deliver a loss o 3.92%,

which is 4.078, meaning that the value o XYY is now99.922. While theloss o roughly eighthundredths o a per-cent might not seemlike much, repeat thecycle over and over,or multiply it by a ewthousand shares, andthe money you giveaway or no reasonbegins to add up.

As a real world example, rom December1st, 2008, through January 28th, 2009,the S&P 500 decreased

by -2.47%. SSO had a loss o -5.92%. Tis can likelybe chalked up to volatility. During the same time pe-riod, SDS, the S&P 500 Ultra Short, did not increaseby approximately 5% as some might think. Insteadits perormance was -17.14%. Tis can be seen in theattached graph.

For an investor who purchased SDS in hopes o hedg-ing their portolio against a market downturn, a per-ormance nearly 9 times worse than the associatedbenchmark likely would come as a shock. However,given the daily rebalancing, it makes perect sense.December and January were very volatile months.Te VIX index (a measure o volatility) was at lev-els higher than at any point over the past ve years(excluding October and November o 2008). Whatall o this means is that while double EFs might beuseul tools or day traders or those with a very shortterm perspective, those looking or long term returnsshould be wary o the impact o volatility on returns.


9/10

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10/10

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bulls&bears issue21

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