Are ETFs Really Safe? An Interview With Andrew Bogan

Tyler Durden's picture

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Joe Grannville's picture

After reading this blog, I just sold all my silver and gold and bought blue jeans and black beans.  I'm gonna make a killing.  I figure I'll sell the jeans and eat the beans.  I've got it made.

Thomas's picture

CEF's NAV is back to essentially even. Swapping out SLV and GLD for CEF (I did the reverse years ago) might be logical.

SwingForce's picture

Casey can Research my bowels for green shoots, have fun. Nothing is safe asshole.

jedimarkus's picture

Accenture hitting a penny on last year's flash crash was the big message that SwingForce points out here.  NOTHING IS SAFE.  it is all paper crap in fiat currency....

IQ 145's picture

 There's no reason for an ETF to exist; and there is certainly no reason for a retail investor to be involved with one. It is merely a product that has been created so that "marketing" could create a "consensus"; aka brainwashing, or advertising could take effect. Forget about the alphabet soup; don't even think about options; study the commodities futures contracts; that's where the money is made on the underlying.

Reese Bobby's picture

So you think gold futures are backed by deliverable gold?

Joe Grannville's picture

I have to respectfully disagree.  I've been long AGQ calls since December and made enough to finance Tylers Klonopin bills for eternity.

Reese Bobby's picture

I'll grant you funny.  But you own calls on forwards and futures.  That may be a poor play at some point.  But I'm glad you made a killing.  I just hope JP Morgan will be o.k.

Joe Grannville's picture

I did clean up but I'm being blatantly sarcastic.  With all the depressing shit Tyler regurgitates here daily he must be hooked up to a Prozac beer funnel. 

Joe Grannville's picture

In other words, see the dude for what he really is.  What parent gives their child a snake when they ask for a loaf of bread.  He's a spirit crusher making money off his sponsors.

Reese Bobby's picture

You lost me there.  Tyler and ZH provide education and perspective you will find nowhere else.  But good luck Prozac guy.  It sure is sunny out today!!!

Joe Grannville's picture

 "It sure is sunny out today!!!"

I like to think so too but it's NEVER sunny in Tylerville.

Read this blog for a week and you'll be jumpin' out your basement window!



Astute Investor's picture

Why is it when I click on your "name" I receive the message "Access denied - you are not authorized to access this page"?

superflyguy's picture

I look at it differently. I get the information about the real world, not the MSM painted one. That way I can prepare and decide where to put my hard earned money and where to live.

Without this site, I'd probably be like my friends, buying a $900k house which I cannot afford but it's OK because the economy is getting better and the housing market is recovering.


mkkby's picture

Thanks for your contribution, and very funny, asshole.  Go back to watching CNBC and drinking all your government issued cool aide.

tickhound's picture

For many Prozac just isn't necessary... For them, "Goldilocks", "subprime containment", and "Dow 36,000" provide similar required effects.

So, for you, "the fundamentals of the economy are sound."

Feel better, jackass?  I do. 

Manthong's picture

I've been toying with the idea of a little AGQ daily or at the edge just for excitement, but I'd like to know if anyone thinks that the big premium on PSLV really buys you anything long.

squexx's picture

If you do play the ETF game when the market finally does drop, don't play long. The underlying fundimentals of the ETF's are based on derivitives as well. Like a house of collapsing cards. Get out early and let the hogs get slaughtered when the ETF's do start to fall apart.

Id fight Gandhi's picture

I only see them as trading vessels nothing more. At that point why buy them when you can get same exposure with a deep ITM call with high delta.

Vxx ung, uco all have traded like shit. Forget leveraged ones.

ZeroPower's picture

Wrong, ETFs are the derivative, based on the underlying.

MadT's picture

"a lot of securities departed from their perceived value during the Flash Crash by very large amounts. The reasons are still not completely understood, although the SEC has made a reasonable effort to understand what happened."

bullshit to follow. no need to read more.

Kurtieboy's picture

Bottom line is any time you give your money to another party to manage, you are taking a risk.

Misean's picture

Welcome all my friends

to the show that never ends...

Just another casino game to loot the 401K's.

Paul Bogdanich's picture

"Just another casino game to loot the 401K's."


Really.  That no one could have forseen or perdicted I might add. 

MrBinkeyWhat's picture

Safety is such a relative concept. I have followed Casey Research for a while from LRC. If you really want to "feel safe" you have acquired your farm land, guns, ammo, silver, stored food,training, friends, etc...a while ago. the rest of you are "sheeple".

ceilidh_trail's picture

Farmland may not be so safe with Japan nuke fallout raining down...

Spitzer's picture


What do all of you retards think farmers have been doing for the last decade ??

Bidding up the price of farmland of course. They have just as low of interest rates as everyone else. I have seen it with my own eyes. There is land flippers just like condo flippers. The shark farm land realtors fly farmers around to view land in their helicopters.

Every since that douche Buffet said "farmland" there has been this stupid idea floating around that all the farmers some how where not subject to low interest rates.

boooyaaaah's picture

Farmers are not stupid either
They do futures regularly
They never give a sucker an even break

With this naked shorting of etfs
They will make the tide go out
All boats will fall

If you want more info on naked shooting see ostk on the
Investor village bd
And then to deep capture

The CEO of ostk, Patrick Byrne is bringing the prime brokers to trial.
For naked snorting his company's stock.

web bot's picture

Bogan says several times... "according to the theory". Could it just be that the market has realized that some of our fundamental theories about markets don't work with you inject almost $2Trillion into the system???

Greenhead's picture

I would be shocked if 1 in 1000 retail investors really had a clue about the inherent risk in the structuring of many of these products.-1

superflyguy's picture

If it was only investors... I had an argument with one financial advisor about how these products are not safe and he said that I don't understand them, lol. I really feel sorry for his clients. I do see another Lehman coming...

Jreality's picture

Does ETF stand for Easy To Fail? 

IQ 145's picture

 Actually it stands for "easy to buy"; although the letters don't work out so well. These products were created by business school graduates who were very aware of the millions of dollars in brainwashing that had already gone into forming the "American Consensus"; that everyone should be in the stock market. they knew that "everyone" had a stock trading account, and that they would buy these things, because they were traded on the Exchange; the broker can flog them over the phone, and you already have the stock trading account. Everyone "knows" that you'all lose all your money when you go into the commodities futures trading business, but ETF's are friendly and familiar; they're just stock market alphabet soup. So, basically, these products, all of which contain various layers and types of risk that you are not aware of; are "Duck Feed"; and as my friend in Chicago used to say, "If you like to peck up duck feed and quack, you must be a duck". There';s no reason to own an ETF.

ZeroPower's picture

Your argument instead is: "theres no reason to own equities" rather than any particular (or all) ETF.

For one who managed to pick the bottom at some point in 2009 with a plain vanilla long index ETF, i can assure you their accounts are indeed richer (yes, in fiat) by a fair amount.

That is the reason to own an ETF. Whether there are inherent risks to holding, of course, as with ANY single equity on any world wide market. Thats not the issue however. You can make a case for levered ones being horrible investments; you can even extend this to ETFs which, according to the blogosphere, are not backed by what they represent; but it rather naive and shortsighted to say owning a SPY or QQQ is for brainwashed suckers.

Id fight Gandhi's picture

I really wonder if slv and GLD really hold the true amount of metals they say they do.

aphlaque_duck's picture

If you read the prospectus for GLD you'll find they explicitly disclaim such representations. I forget the exact wording but basically amounts to that the gold is not guaranteed to meet standards for deliverability and if any problems are found with the assets then the losses will be borne by the shareholders. And there are many other weasel clauses which, taken as a whole, basically would allow the entire instrument to be a complete fraud leaving no recourse for the investor. I used to hold GLD for brief periods of time as my "dry powder" but now after studying the prospectus, I don't touch it.

Id fight Gandhi's picture

I remember someone on seeking alpha caught a sketchy inventory write up on one of these metal funds. I forget who or which metal but it was last year.

These are trades no replacement for physical.

Manthong's picture

It was PSLV. Sprott published arrival of metal contracted for delivery into the fund and the article used that fact to say "see, they don't have everything they make you think they do". I still would like someone in the know to lay out what, if anything, separates Sprott PSLV and PHYS from the others and justifies the premium and the latency in pricing.

IQ 145's picture

 All I can tell you is if I was in charge of it; every ounce would be leased out to some un-identifiable international entity based in Bahrain. But then, I'm not really a nice guy. Maybe they are.

CPL's picture

From my blog when I cared about it.


These are only recommendations on how to approach X3 ETF's. I cannot stress enough how important it is to maintain disciple on using them. For a day-trader, these are the equivalent of a nuclear arsenal, and are just as friendly. Treat them with care and a light touch. So a good list of general rules on nuclear ETFs is needed.

  • You don't hold them longer than a couple of hours. They move like lighting, up and down, which mean you need to be prepared to sell your position to save your ass.
  • Don't hold over night ever. As in NEVER ever. Don't. Did I mention don't do it. Nyet. Non. No. Nien! Don't do it. You will thank yourself later.
  • If you are stuck in a position, wait for the past 3 week high or low on the Russell index you are connected to. Waiting for a 52 wk high or low price point on a leveraged ETF is like waiting for a train in a ghost town, the train is never going to come. Learn how to average down and when the opportunity arrives to get the hell out, do so. (DO NOT LISTEN TO THIS POINT, LEARNED HARD WAY...)
  • Don't get greedy. Two years ago anyone of us would have given our left nut for a 5% in a day let alone a quarter. 5% on these things means you buy a deal, not buy first thing in the morning. Never buy anything or accept anything but the price that you want. If you went to a cafe and asked for a coffee and toast and they brought you a Daquiri and Red Snapper, I don't think you would be very happy. Take the same approach with a stock, you are buying yourself something, dont second guess your choice. You select your price and hold it. If you want to gain a little confidence on picking a price don't use real money to do it. Try using a simulator like to practice discipline. It's tied to the real market, except you do the trades with funny money. It's like playing with stocks with monopoly money.
  • These are based on the RIFIN.X/RIENG.X/RUJ.X/RLG.X. Not the DOW, DJIA, Or British stocks, Or Canadian beavers, Or Japanese noodles. These are US stocks in the Russell index which are sort of similar. I suggest you read up on what the Russell is before putting one penny into a leverage ETF because a lot of people make the mistake of looking at the DJIA or S&P, then getting very upset when their timing fails. Their assumptions were wrong and they end up losing their shirts.
  • Go read this entire section. Again, dont invest a penny until you finish and understand it completely. The scary thing is Direxion states that these are not long term, so gain. DON'T HOLD OVERNIGHT. I might as well state that instead of don't go long. If this rule is obeyed then you wont have to worry about going long. Going long on these is breakfast to lunch.
  • These are leveraged ETF's which means they, FAS and FAZ, ultimately lose value over time into the negatives. Again no going long! You'll be 3% poorer every week, well averaging from the inception of these things. It's called a leverage trap and there are people stuck in the hole for a couple of hundred grand because they assumed these are buy and hold stocks. Which they are not. There are X3 ETF's and are deadly to a trade account if you don't understand what you are looking at.
  • Buying these things in no way boosts the financial sector. ETFs, especially leveraged ETFs are built from dragons breath and pixie dust. I wish I were kidding but for all reasonable purposes these are the Mallobars of the trading set, however destructive. All sugar and no nutrional value other than sugar. So when you are buying an ETF, you aren't buying and selling because the rules of supply and demand. You buy and sell against the Russell. Not the other way around. Makes a huge difference in how to approach these beautiful and danagerous beasts.

This concludes our lesson in the care and treatment of your ETF. Make sure to pet it everyday, let it out at night and don't let it in until it has brought you what you want.

Id fight Gandhi's picture

Has anyone short both a long and short triple ETF and pocketed the decay successfully?

CPL's picture

I thought about it, unless you are flipping a billion dollars the numbers aren't worth any of the risk.  The leveraged decay in both profit either way.  You cannot do any DTM (Denis The Menace) trading on these.  DTM is strictly't.  Cannot STRESS ENOUGH...just no.


Although, if it's a market "happy day".  You'll make more in the bear ETF drop.  Switch direction on drops.


Shorting pays more than holding either direction but you have to play with the market movement.  Mainly because hold long against a bull or a bear, you are still working against leveraged decay.  Always let the leveraged decay play.


Dangerous thing about both directions is when the fuckers spilt the shares with zero announcement.

gordengeko's picture

Great interview ZH and thanks for posting the rules CPL.  The market not even mentioning options and volatility are hard enough to comprehend.  Now throw in triple leveraged ETF's, with options.  This whole friggn market is like a giagantic shitbomb ready to implode or it could just very well expand forever and ever, just create new shit and call it something fancy then make sarcastic etrade commercials making fun of the average retired sheep trying to trade their IRA in this scam shadow casino.

CPL's picture

Sad to say...that's pretty much the size of it.

ceilidh_trail's picture

 Nice job CPL. I wish I would have read this last summer. NEVER would have touched VXX- crappiest buy I have made in a long time...

CPL's picture

Leveraged ETF trading is dumb idea on the best of days.  You have to be completely wacked out of your mind to do it and have the reaction speed of a viper/tools that work faster than a viper to do it properly plus understand the conditions to need to make a trade in them.

Plus you have to have the ability to absorb thousands of dollars of losses in a single session.  Again.  Stop loss is a penny less on buy value and you trade in 10k blocks (trust me the fill on the x3's on the called price is instant, 1/4 of the market centers around a couple of ETF's, all of them X3's).


Again...add Insane, Fast and the ability to lose a couple of grand without flinching to the list I posted.  Longest I hold any of these is around 20 seconds to around ten minutes.  10k blocks I can jump in and out.  Plus ...god knows why...lots of dumbasses leverage an already leveraged trade by trading in margin and do the stupidiest thing ever.  They go all in.  Makes it easy to short though.


Only thing easier is using Tim Skyes Shorting the crap out of dump hole Pharma companies and shit hole Chinese dumps.

nonclaim's picture

ETF is what killed fundamentals. Knowledge of a particular company, specially what used to be low volume/obscure, is worthless since it now goes where the basket goes.

Well, if it wasn't that the sea of liquidity would have killed it anyway...

Misean's picture

Aye, the rising and roiling sea of liquidity raises all boats, capsizes them, then slams them into the rocks.

Hollywood's picture

You know what throws me for a loop every time I read about this type of thing is the whole idea of cancelled trades.  Why can't I cancel my trades?  If I set-up the trade, then I need to live with the circumstances created by my actions.  Instead, the trades are cancelled?  I know, I know this has been discussed before, but it just gets me...every time.