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On Levered ETFs, Personal Responsibility, and Having Enough Rope With Which To Hang One’s Self
This is from Stone Street Advisors
My boy Felix Salmon has a curious post up this evening,
wherein he says anyone who isn't a (professional?) day-trader should be
barred from trading levered ETFs, and that the SEC needs to protect
these people (from themselves). I like Felix, but he is seldom (as) off
the mark on anything as he is here. His post ignores both existing
regulatory practice and the - bear with me here - relatively simple
workings of levered ETFs. Allow me to explain...
Levered ETF's
like TBT (which Felix mentions) - or my two favorites, FAS and FAZ -
have embedded leverage, that is, they are designed to produce 3x (for
FAS/FAZ) the daily return of a basket of stocks/index (or the inverse
thereof, in the case of FAZ). The key word here is "daily." Daily, as
in, if the index gains 1% ON THE DAY, the levered ETF will (er, is
designed to) return 3%, and the inverse ETF -3%. EACH DAY. Not
over-time, EACH. DAY. This is spelled out in extremely plain language
in various places, for example, on the Direxion (the sponsor for the
ETF) website, under the column "daily target." The detailed page for each specific ETF, for example FAS, says in the very first paragraph:
Fund Objective
The
Financial Bull 3X ETF seeks daily investment results, before fees and
expenses, of 300% of the price performance of the Russell 1000®
Financial Services Index ("Financial Index").
This is
repeated in several other places, including the fund prospectus, and
after it became apparent retail investors had no idea what they were
getting in, various additional disclosure from brokerage firms before
executing buy orders for these securities. Still, despite the myriad
painfully clear explanations of how these securities work, retail
"investors" put their capital at-risk without doing even the most basic
and cursory "research." To many of these "investors," (3x) leveraged
ETF's are somehow supposed to produce the > daily return of the
underlying index.
I constructed an example case a few years ago to
illustrate what happens here, and how such misunderstanding causes
ignorant, naive, and frankly masochistic "investors" to potentially bet
the farm on a volatile security they do not understand. Imagine the
possible returns for the index are {+-5%, 10%}, arbitrarily assigned
over 10 trading days (two calendar weeks). Investors in a levered 3x
ETF based upon this index often imagine their returns will look like the
yellow-ish line in the below chart, while in reality, they'll look more
like the light blue line.

Even
though the underlying index has a positive return over the 10-day
period (a little over 2.5%), the 3X levered ETF has a negative return,
and if the position is sold (by choice, by fed call, it matters not),
the "investor" will end up losing money, up to almost half of their
initial investment! If investors got into the inverse ETF based upon
the same index, with the same daily returns, the yellow-ish line
represents what they'd be expecting, while again, the blue line
represents what they'd actually see:

Notice
how it is entirely possible for both the levered etf and inverse etf to
produce negative returns over multi-day holding periods. Remember,
this is when the trend over time is a slight uptick in the value of the
index with (admittedly) volatile daily returns. When markets move
generally in one direction or another - either up or down - it can have
profound effects on levered ETF's because of how they're designed. In
generally rising markets, inverse ETF's will approach zero over time
because subsequent returns are compounded on a lower-and-lower base. In
falling markets, bull leveraged ETF's will exhibit similar behavior.
If
we look at FAZ - the 3X inverse financials ETF - over the past two
years compared with the Financial Sector Spyder, XLF, when stocks -
especially financial ones - experienced a significant rally, we can see
that FAZ has decreased in value as we'd expect, with the value
approaching zero (i.e. the loss approaching 100%):

As
should be extremely obvious at this point, understanding how these
ETF's work is not rocket science, and it does not take much time/effort
to do. If you do a quick google search for "how do leveraged etfs work"
returns a large number of posts, most of which answer the question with
little ambiguity.
Let me put this as nicely as possible: You have
to be self-defeatingly ignorant/naive/lazy to trade these things
without learning about them. If you have an internet connection, you'd
actually have to go out of your way not to pick-up some basic knowledge
about how leveraged ETF's work just by sheer happenstance. The
information is EVERYWHERE, easy to find, and just as easy to understand
for anyone capable of opening a brokerage account and executing a
trade. Additionally, buy orders for these securities require express
(at some broker/dealers, from the branch-manager) approval, and must be
marked as unsolicited, i.e. brokers cannot sell clients on the idea of
buying leveraged ETFs. Clients can only buy them by their own volition,
and only after receiving an explicit disclosure warning of the
potential to lose a substantial portion of their investment.
According to Felix, though, more and more-stringent regulation is needed:
Given
how many people are clearly Doing It Wrong when it comes to TBT, I
think there’s a strong case for the SEC to step in here and take a very
hard look at TBT in particular, and levered ETFs in general. If
day-traders want to day-trade using ETFs, that’s fine — and they can
bring their own leverage, if they’re so inclined. But ETFs with embedded
leverage are clearly being bought by people who aren’t day-traders at
all, and who have no business buying these securities. It’s the SEC’s job to protect those people. It should get on the case.
Let me again put this as nicely as possible:
Bullshit.
Plain and simple. The SEC DOES
protect the very people Felix is talking about. That's why the
sponsors of these funds have to disclose how they work in prospectus
form, on their website, etc, in language that is so painfully simple
even a 5th grader can understand! The SEC can't (currently) make anyone
actually read, let alone understand the material contained therein, nor
can they require that broker/dealers make sure such is the case. You
know what that is? Because regulations assume that as mature adults,
"investors" have enough judgment to be able to read information made
available to them, and to use said information to make informed
decisions.
Felix's argument effectively says that because some
boisterous, over-confident, naive people choose to dive head-first into
the shallow end of the pool before looking down to see the 1-foot-high
letters on the edge indicating how deep the water is, we should keep
everyone but the Olympic swimmers out of the pool.
Ultimately, the
question we must ask ourselves is whether we want regulators to protect
us from predatory and unethical behavior from issuers, brokers, and
other Wall Street interests seeking to profit from illegal asymmetric
information, or do we want them to protect us from our own laziness,
naivete, and ineptitude.
If you support the former, then you
should dismiss Felix's argument as itself naive and unrealistic, and
enjoy your freedom - but not the obligation - to invest in a variety of
securities, using any strategy/approach you deem appropriate for your
situation. If the latter, just don't come whining to me when the only
thing in which you're allowed to invest is a T-bill, causing your assets
to grow at a much lower rate, and you're forced to work until you're 87
before you can afford to retire.
- advertisements -


I don't think Solz understood what he was saying himself. At the end of his life he was totally tied up in knots...not on the Goulag but on post-Goulag Russia after the wall fell!
Stone Street Advisors
You're trying to make a case for ETF's not performing like the Index they're based on. Bit of a weasel are you? In fact you're attempting to excuse they are crap for tracking an Index. Ask yourself why would any investor want something to NOT track the Index they wanted to track... and want to invest in a wobbly inaccurate piece of crap??
Were you sent titbits from the ETF Association to run this slippery Index artilce? ...just asking!
You write, "...sponsors of these funds have to disclose how they work... in language that is so painfully simple even a 5th grader can understand!"
Have a look at your chart above on how the ETF performs (pretty damn shit eh?). Here's Deustches chart on their FTSE ETF tracker (click on 'Performance Chart')
http://www.etf.db.com/UK/ENG/ETF/LU0292097234/B1WJZ39/FTSE_100_ETF.html
See how accurately their ETF tracks the Index. And over nearly 4 years not your puny 2 years. What a huge difference between your chart and Deutches ETF Index tracking chart!
So who's the 5th Grader dunce chartist. You or Deutsche?
Regards painfully easy language to follow here's ETF Securities claim, "Commodity ETCs are simple and transparent open-ended securities... are designed to accurately track the underlying commodity index or individual commodity."
Understand that? Let's hear it again, hope you can follow, "..designed to accurately track the underlying... index.."
Here's ProShares wording (changed a bit since since my last visit!), "ProShares Short Dow30 seeks daily investment results... that correspond to ...the daily performance of the Dow Jones Index."
Got that, "corresponds" (tracks) the Index. Not goes off a side road, underperforms, goes all wobbly like a jellied eel. Corresponds, are we crystal clear?
Only problem my Gold ProShares ETF didn't even trade for a day but about an hour one morning but 'somehow' lost 7% in a black hole of ETF oily maths. The actual Gold price started the night 1% above (both the ETF and Gold) from my buy price and swung to about 1.5% below on the Gold price it was supposed to track. So how did it lose 7% when the price moved 1.5% against me and in barely 2 hours trading if the price reflects trading on the day?
So while you say the words are 'very simple to follow' there are indeed, just happens you to want to choose which ones that hold firm and which ones you want to weasel out of.
ETF sellers are promoting a product that is supposed to track the index accurately, that's their words to investors plain and simple.
How stupid do you think investors are to think they'd actually invest their money in an Index tracking ETF that doesn't accurately track the Index?
Do people drive cars with rubber steering columns that slop all over the road?
So far, you are one of two people understand what Solzenhitzyn was saying.
Another fucking bankster type "warning" the public about a very useful tool to counter their theft. Don't worry, you won't find many equity "investors" here. But fucking damn, I SHALL NOT cower to own FAS a few weeks or even a month when while you thieves are telegraphing the next melt up. Likewise my long buy stop trigger is ready on FAZ to ride your ass to the ground. And I think that day is coming quite soon.
Fuck off.
Glad you decided to respond to a single merit of the arguments presented above. Instead of flinging insults, try giving that a shot next time, champ.
Glad you decided to respond to a single merit of the arguments presented above. Instead of flinging insults, try giving that a shot next time, champ.
Are the ETF industry going to take up your above 2 drunken driver charts and place that in their prospectus so that investors can simply be presented and understand what even a '5th grader could understand' how their ETF products are to track an Index?
Let's see how they flog ETF's with your representation of how an ETF does not track the underlying Index eh?
Have you sent your 2 charts to the SEC so that they can investigate how ETF's do not follow the Index they named to represent? Is the SEC on the case other than shrugging their slippery shoulders? Are the SEC showing your charts as an more accurate representation to show investors what they're getting into so everyone is not duped and cyrstal clear?
If they're going to sell non-performing kamakazi ETF's let them simply respresent (rather than misrepresent) your charts on how inept their products are then.
So there's no 'misconceptions'
No investor in their right mind would buy the Exchange Traded Fraud product you posted above, an Index tracker that didn't track the Index accurately
If you are going to speculate admit you are wrong early and be disviplined to take your loss after no more than a ten percent move against you.
He who sells and runs away gets to buy another day.
I guess Felix also thinks people should be kept out of casinos for their own good, unless they are registered, professional gamblers?
There is a big difference between Casinos defined risk (long term odds on games, which anyone can google) and Three Card Monty. For instance, you don't tell a "player" your not experienced enough to catch odds on the Craps table....cant bet come or pass, but you can play the field all day long if you like.
Um, as I explained, everyone is free to spend 2 minutes - with a simple google search, as you mentioned - to learn how levered ETF's work. The information is there, and super easy to find, yet so many people choose to ignore it...
there are simple words to explain ETF's, you're simply choosing to ignore some yourself!
there are some very good charts showing how an ETF is supposed to track an Index accurately... why are you choosing to post an example of an ETF Index tracker that does not perform accurately?
...it's the worst ETF charts I've ever seen by the way... do you think any investor would invest in that sack of shit ETF you posted if they had been simply informed that is how it would perform?
You cannot detect fraud, such as the sacks of MBS crap WS sold to 'sophisticated investors' until it underperforms, unravels and you're left with the shit in your hands. If ETF's are Exchange Traded Frauds, rather than Funds, it won't be until they blow up that 'sophisticated investors' are informed. The fraudster is always one step ahead. Investors, even 'sophisticated' ones, are always on catch-up (needs time for discovery).
...so do you think investors want to buy a car to track accurately down Dow Jones Street or Silver Surfer Road to find they've been sold a car by Deutsche, ProShares or ETF Seciurities with a rubber steering column that veers off into LaLa Land??
...who caused the "misconceptions" in your drunken inaccurate charting calling an ETF by an Indexes name and then the ETF does not track the Index it's named after accurately?
...are you peddling yet another bunch of snake oil to paint over another financiers pigs ear of rotten fraudulent crap being pumped and dumped as a silk purse?
..are you a dodgy dealer that has a dozen weasel excuses for selling lemons Stone Street Adders???
by Peak Everythingon Mon, 04/18/2011 - 15:51
#1181546
"The greatest shortcoming of the human race is our inability to understand the exponential function."
Albert Bartlett
In the immortal words of Xander Cage, "I live for this shit!". (Triple X my hero).
If FAS/Z ain't enuf firepower for you, then yes, SIGN an Options Agreement. And trade the Weekly expirations! Calls on FAZ surely must screw up the VIX readings, no?
Subliminal Messaging: Hochberg said Friday, "Officials need to get FAZed". Yeah, me too, already done that, thanX with a capital X like in DireXion.
If you're in AGQ you are making a fortune.
If you're in Bank Stocks, they can go to ZERO whereas most other stocks can't go that low. So, even tho FAS is only 50% return of UPRO from 3/16, the downside is skewed way different ( FAZ vs. SPXU ).
And another thing, if you model anything OTHER than a single day, you compound the previous days' gains much like our grandparents compounded interest in their money market accounts. Further- a 1 time smash does not help these etfs- flash crash busted no trades- what you need is a prolonged daily grind lower in indexes, each day for many days, and these things will rocket (only 1 side of course), but the wrong side can never mathematically reach ZERO.
SHHHHHHH! Don't you get it? This is the Next Act to follow the Great Ramp! If you Outlaw Guns, then only Outlaws will have Guns! (insert BANKSTERS). This is absolutely the best endorsement possible that these etfs are being studied by the people in charge of the Black Boxes.
You are missing the central point in regards to retailers in all this.
This issue has less to do with the ETF's, and more to do with the fact they are skirting margin requirements. Based on the thesis you posted, no retailer should have to sign an Margin or Options agreement right? Live and let live, the investor, per prospectus, knows the risk. Why then, do Margin or Options agreements even exist? And, why can a retailer who, defined by the broker, be told they are not funded sufficiently or sophisticated enough, to trade said instruments?
I pity the investor that would purchase VXX for example, not read the prospectus, and believe they bought a proxy for VIX.
The fact of the matter is, ETF's are turning into the wild west. Furthermore, its not some new way of protecting investors from themselves, as those types of rules are already in place. The problem is there are mixed messages being sent, hypocrisy if you will. It boils down to this, either the investor is sophisticated enough to trade with leverage or they are not.
--------------
*cut and paste* of comments I made on this issue days ago:
"Amazingly, some of these new ETF's coming to market the last 18 months are starting to make UNG look like a good investment (for those reading that is sarcasm only).
Dissecting some of the new ETF's coming to market, it is astounding the novice retailer has any money left in their account. You now even have the IMF chiming in on ETF's? seriously? ETF's are out of control, but alas, they are a big money pump for banks and brokers. At some point a clamp down will happen, but as with anything else, not until they have bilked investors for a lot of money.
A better way to address things would be to revisit the structure of IRA's 401k's in regard to margin, options and futures. Many of the ETF products available today only seem to exist to skirt margin requirements, hence, directly marketed toward novice retailers. The same retailers that would not be approved for a margin account or have an options agreement signed are trading 2X, 3X levered, synthetic, commodity, volatility, pair trade or exotic index ETF's.
How is it a Brokerage can tell an investor they don't have experience or funding to trade a covered call, but you can trade as much UNG or VXX as you like??
As with anything in the financial industry, I guess things will have to blow up before you see them do anything about it. It would be easy to say FINRA and SEC's silence is deafening, but then again, they are the ones approving and sponsoring these ETF's coming to market"
gs_
If you buy a stock on margin, per Fed reg T you have to put up 50% of the cash, with Fed call at 25%, and a few days to contribute cash (or hope the position recovers) before you're sold-out. If you buy a leveraged 3x ETF you have to put up 100% of the cash, and you can hold-onto it all the way down to zero if it goes that way (as FAZ did), or keep the position open for as long as it takes to recover to a point where you're able to recognize a loss/gain. Few if any brokerage houses will let you buy these securities on margin as far as I know, so not sure why you would have to sign a margin agreement, the risk is no greater (in terms of maximum loss) than going long options contracts, where the maximum loss is your entire investment, and only the investor, not the house or rule T dictate when/if any losses will be forced to be recognized.
Also, you seem to be under the impression that brokerage firms let anyone buy leveraged ETFs. As far as I know - and as I said twice in the post - this is not the case.
My point is, these levered products essentially have time value, just like an option, because of the way they decay either via (rollover) or (daily rebalancing) or both. I have not run across a levered or commodity ETF yet that doesn't have a negative slope over time, (that is basicly what you are laying out in your charts), whether Long or Inverse. Why wouldn't you require the investor so sign something similar to a margin or options agreement, if they cant get approved for those...dont let them trade them.
Bottom line, these ETF's are backdoor margin trading pure and simple. Why do they exist, because the investing institutions know damn well its a slow grinding churn the neophyte investor does not understand, but, only after they realize they are pissing into the wind do they walk away. I watched for 2 years retailers land on the UNG message board.......9 month later like a deer in headlights as their account had vanished, do they walk away. This, even with the help of professional traders landing there and trying to explain things. (I was lucky to have one of those people lay out the issues, long before MS Financial Media was, I am thankfull for that).
Look, I have a sizable IRA, I have levered the crap out of my account many times. That is with 2X and 3x levered as much as 90% of my account NEVER a phone call from my broker. (mind you, a position, or positions, like that would only be FOR THE DAY, or even hours, or even mins, and managed in real time to capture a move. And, most times having a hedge position on.) But, again, this is an IRA I am talking about, "a non-marginable account." Now, because i am now unemployed, and a student again, "neg-ga-tory" on having a options agreement approved with brokers, (even with a sizable account), no covered call trading.
BUT HEY.....as I illustrated, you can lever the sh*t out of your account 100% with a dysfunctionaly structured 3X leveraged ETF all day long. However, you couldn't buy a covered call when volatility is on the cheap. Don't you think that is a little hypocrisy....disingenuous to the investor at the very least?
At Scottrade, margin requirements are 60% for 2x and 90% for 3x etf.
I look at HBU.TO/ HOU.TO/HZU.TO/HZD.TO and HXD.TO
double leveraged and reliable :))
By pretending I was a day-trader for four months, I was able to "win back" everything I lost in the great melt-down with levered and inverse leveraged ETFs. With the wild swings we had those days I would buy both paired ETFS (ERX/ERY for example) and then close the losing trade as soon as a solid program-trading direction was established. At times I could close both trades simultaneously and make a profit due to inefficiencies in the pricing.
Then my broker decided I was too stupid to understand it and excluded lereraged and inverse ETFs from trading.
Salmon is crazy because anyone who plays with these things either understands how they work from the outset or finds out very quickly. Not that hard to understand.
Yes! If it goes in a one direction, multi-day swing, the winning side compounds, the losing side loses at a diminished rate each day(3% of 3% less is less than 3%, and even less the next day).
Just want to say welcome to the board. I love this place. And basically you're saying I should by buying a leveraged ETF that shorts the SmallCap600, right?
You're new here so I'm not sure this is sarc. He's saying to stay away from all short ETFs and all leveraged ETFs. They are for daytrading only, not for investing. Odds are they will steal a little from you every night.
dup
Hey fucktard - thats all good and fine but before you accuse people who will actually pay the penalty for stupidity why don't you consider railing against the corrupt elites and the SEC porn addicted assholes of the world who will transfer the losses to the public and keep the gains, never answering to anyone, paying no fines, and absolutely not - under any circumstances, go to jail. Hey, I get what you're saying and no question the "no lifeguard on duty - swim at your own risk" sign is there, but your point doesn't allow for the fact that the swimmers safety net has a hole big enough to let several very large and very predatory sharks through which they come and go as they please. Last one in is a rotten egg.
Very well put and an outstanding analogy. The products should never have been allowed to trade as they were designed to steal billions from the public. No investor reads every single line of every single prospectus. There is a belief that "price discovery" (the term used for exchanges existing) is involved and not a product structured to clip your wallet every night you put it on the bedstand. No ETFs were pink sheet offerings from bucket shops of old like First Jersey Securities. This was hight-tech robbery, all approved by the government.
How many Socrates are there in this room. Do they congratulate each other?
Unless dupe names are allowed, I registered as Socrates inside of hours of the forum change.
treemagnet, you're the fucktard here. People who don't read the prospectus deserve to lose their money -- it's that simple.
Best article I've ever read on ZH, and that's saying something.
I had an aunt and an uncle who died in relative poverty having bought a small franchise many years ago when they retired to Florida. Back then, there was no required writing in the offering of a franchise AND the salesman who pitched it to them answered all their questions. It included false projections of income as well as what their exposure was. A lawyer reviewed it and it was indeed legal...THEN.
Solzenhitzyn spoke of immoral people who think like you do, yet you call treemagnet a "fucktard" and show your ignorance by thinking everyone reads the small print that is often sent weeks after the purchase of a stock is made.
I know quite a few guys who got out of retail brokerage long before the day of $5 commissions as even they could not find the time to keep-up with what the company itself was pumping them to sell that week on the sqawk box. In one instance when a cop came in uniform and whispered in his ear to sleep tight as he'll pay for what he did to his mother's retirement account, he decided it was time to get out as this MAJOR Wall Street firm didn't care about the customer's. As was written in a book around 1940, "Where Are All The Cistomer's Yachts?", it has only gotten worse.
You think the rapist wears a Scarlet "R" on his head to let you know what is going to really happen on that date? Seems like you are the "fucktard" here, as well as the rank amateur.
Absolutely disagree. No one is forcing anyone nor are they even compelling anyone to swim in dangerous waters. In fact, look around on the Direxion website, read the FAQ:
"
Q.
Are Direxion Shares Right for You?
A.
Perhaps if you are a sophisticated, aggressive investor with:
• The willingness to accept substantial losses in short periods of time
• An understanding of the unique nature and performance characteristics of funds which seek leveraged daily investment results
• The time and attention to manage your positions frequently to respond to changing market conditions and fund performance.
Definitely not if you are a conservative investor who:
• Cannot tolerate substantial or even complete losses in short periods of time
• Is unfamiliar with the unique nature and performance characteristics of funds which seek leveraged daily investment results
• Is unable to manage your portfolio actively and make changes as market conditions and fund performance dictate.
I don't post here often, but I hope this will be one of the most insightful posts you will read here. What I am writing is not debatable, although I'm sure some will try as well as attack.
I was a Wall Street professional for 30+ years and unfortunately, I know corruption when I see it and it is SOP. I also KNOW that in almost every single situation, not the SEC, the CFTC, the AG for the Southern District, the FBI, the Congressman representing the Wall Street area, or the US senators care one bit to hear of it. To think that Mary Jo White now works for a firm shows how if they could buy top people at the CIA, everyone has a price to take on a new client. I do not accuse Ms. White of any crime, it's just that I knew someone who often had professional law-enforcement dealings with her and he is spinning in his grave to think she went to work in the belly of the beast after all the good she tried to do. Even Arthur Levitt, who denied Paulson his request for 30x or 40x leverage saying 15x was plenty, now is an advisor for GS. This all gives pause to think that perhaps taking out Elliott Spitzer when they did was not the cry of the law, but rather ridding themselves of a pebble in the shoe. As a nation, we no longer deserve to survive for we have crushed the very institutions assigned to bring justice to our society. That's why Pravda congratulated Obama for making their oligarchs look like pikers to the ones he built as the man-child runs around abusing the Constitution, contract law, and the right to govern, just to name a few points upon which he is unfit for the office. As Justice Scalia has stated, "The Constitution is dead".
Note: Looking up "The Quiet Coup" article in The Atlantic Monthly by IMF President Simon Johnson (it should be linked at the side bar, Tyler, as it is that good) would be a good idea at this time to see how we have acted like a third world nation in trouble since he took over and began to "rule on day one", as Ms. Valerie Jarret, in her little Mao fitting outfit, stated on a Sunday show prior to the inauguration. The Chicago Thugocracy is indeed blooming. And all we have done is increase our chances of a depression, which might now be an inflationary one. Bush started this ball rolling by bailing his buddies out as Paulson switched TARP's intent inside of 48 hours and overpaid for assets from his incestuous ilk.
If you had ever been involved in a franchise you would have received an Uniformed Franchise Offering Circular (UFOC) as it is REQUIRED, and SEC approved for distribution, to be delivered to potential buyers. It should have bold boxes with full disclosure as well as strong suggestions to see a lawyer and/or accountant as to your investment. Your signature will be appearing all over it, including a back page stating that you have had it in your possession for review for either 7 or 10 days. These were drawn up due to the bilking of seniors of their life savings in shady franchise deals. What we have seen with the 2x 3x funds are those same shady deals. Ah, but one might say "it was right in there to see it and YOU were a fool to play their game...you have nothing to complain about...HAHAHA...I was smarter". Yet during a time while I could stomach CNBS, I recall them touting "The Widow Maker", SRS, as a hedge against your home value (hardly a day trade I'm sure all will agree) and then on "Fast Money" whomever that woman Karen is/was she was long at $60, $50, and $40 and talking about the coming collapse of commerical real estate. Surely she didn't even know it should not be held as what is claimed to be well-know now was decidedly hidden from view as best as possible. After the reverse split it is now under $4. Now that is clearly a professional and she had no real idea that a flawed security was concocted and approved by the SEC and packaged for collapse. I use that word as one could take the underlying, buy it, and then sell either the long fund or the short fund and you were mathematically guaranteed to clean up. Yet from a price of $100 to $40, hearing that risk stated by professionals was not at all common, nor was the warning to daytrade them only head anywhere. This was nothing short of the feeding of Wall Street billions of dollars through products that should have been rejected immediately upon submission, for the SEC should be charged with protection of the markets and the public. It has done neither compared to what it would have done 25 years ago.
"But it was lawful", one might say. Well let's cut through the crap of American feigned morality and read what Solzhenitsyn said as he looked across our landscape in a 1978 address at Harvard about our legal system and how we misuse it to claim moral certitude.
http://tinyurl.com/qw988
Legalistic LifeWestern society has given itself the organization best suited to its purposes, based, I would say, on the letter of the law. The limits of human rights and righteousness are determined by a system of laws; such limits are very broad. People in the West have acquired considerable skill in using, interpreting and manipulating law, even though laws tend to be too complicated for an average person to understand without the help of an expert. Any conflict is solved according to the letter of the law and this is considered to be the supreme solution. If one is right from a legal point of view, nothing more is required, nobody may mention that one could still not be entirely right, and urge self-restraint, a willingness to renounce such legal rights, sacrifice and selfless risk: it would sound simply absurd. One almost never sees voluntary self-restraint. Everybody operates at the extreme limit of those legal frames. An oil company is legally blameless when it purchases an invention of a new type of energy in order to prevent its use. A food product manufacturer is legally blameless when he poisons his produce to make it last longer: after all, people are free not to buy it. (as in "free" not to buy a 2x 3x fund, right?)
I have spent all my life under a communist regime and I will tell you that a society without any objective legal scale is a terrible one indeed. But a society with no other scale but the legal one is not quite worthy of man either. A society which is based on the letter of the law and never reaches any higher is taking very scarce advantage of the high level of human possibilities. The letter of the law is too cold and formal to have a beneficial influence on society. Whenever the tissue of life is woven of legalistic relations, there is an atmosphere of moral mediocrity, paralyzing man's noblest impulses.
And it will be simply impossible to stand through the trials of this threatening century with only the support of a legalistic structure.
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Please read that last sentence again........"...impossible to stand..."...Solzenhitzyn, a brave man who wrote The Gulag Archipelago , saw first-hand how the human spirit was broken under Soviet interpretation of "The Law".
The New America we are seeing has been seen before:
Question: "How do you feel today"
Correct Answer: "How am I supposed to feel today?"
Kafka wrote, in his short life, of a systematic destruction of the soul by a faceless authority, leading to insanity as the state took all power and dispensed few rights. That, ladies and gentlemen, is unquestionably where this nation is headed, all under "the law".
No one ever promised "human society" would make for a planet suitable for habitation by humans.
That's not in the contract.