Bookkeeping: Closing 2 Ultrashorts to Simplify Life

Submitted By Trader Mark
We have 9 Ultrashorts as hedges and I'm going to close 2 to simplify life. I'd much rather short individual names but I cannot in the Marketocracy.com account so I've been using some imperfect hedges as substitutes.

First, is Ultrashort Consumer Services (SCC) which I never lik ed from the beginning as a short because in my "Pooring of America" scenario we will have 2 big winners in America as more of the middle class is forced to trade down - McDonald's (MCD) and Walmart (WMT) - which are the top 2 components of the index this ETF shorts against, as 15% of the holdings. Both these stocks are near 52 week highs even though technically our government reports show GDP at 3.3% ;) Somehow that does not compute... although at least McDonald's could be argued as a global play. But wait! Global stocks are being sold off since Chinese, Indians, Brazilians et al will no longer need steel, coal, oil, gas or anything as their economies crumble? Hmm, once more hedgies are selective when they want to "apply" a thesis. Anyhow, I digress.

So only when the market takes a tremenous swoon do these 2 names really fall, and hence if I'm waiting for a huge market swoon I might as well use other ETFs. We added this to the portfolio April 3rd - at the time I wrote

Now the problem with this one is twofold - #1 the top 2 components, McDonald's (MCD) and Walmart's (WMT), are actually companies I like in the "pooring of America" scenario and #2 as long as people believe a recovery is coming in 6 months the retailers can keep popping. But since the government is built to bail out corporations and ignore individuals, retailers probably won't be affected as much by socialism (other than an ill fated attempt to prop up the housing market or send us rebate checks) But I believe inflation, real wage losses, and unemployment will overwhelm socialistic government programs. And many retailers and restaurants, as I've long been sailing, will be doomed as we go to a "forced savings" program as Americans. If I could short individual names, I'd much prefer that (a whole host of restaurants and retailers pop to mind) but I am forced into this instrument since I can only use ETFs.

So after holding it for a while my assessment then has held true. This ETF is simply not built for the names I want to go after, plus each time gasoline drops 2 cents hedge funds run into retail names since that extra $1.50 a week will drive traffic to the mall. It is a false pretense in my estimation but truth does not matter in this market; only money flow. I'll have a series of articles on the problems in our retail world in due time. Bulls will ignore it and say "yes but that is backwards looking - the consumer will rebound in 6 months" Funny, they used that arguement back in January, March, June, and keep repeating it. One day they will be correct.

The other name we are cutting today is Ultrashort Technology (REW) - I am not cutting it due to any bullishness on technology but having 9 short ETFs is just too much to manage in a market that changes directions every 24 hours, or sometimes 4 times in 1 day. We started this position in January 2008 [Starting New Position Ultrashort Technology (REW)] and while some of the individual names have been (and remain) excellent shorts, I'd rather short individual names selectively as their charts break down than an index. I can't do that now, so this ETF is simply overlapping and not as powerful as shorting individual names or as useful as some of our other ETFs.

In combination we actually lost about $1000 on these 2 names combined. Once more, using some of these ETFs to hedge is like using a sledge hammer when you need a needle.

We continue to shrink in positions until clarity emerges.

No positions

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