Blogs & Comment

Circling the drain

The downward spiral of de-leveraging appears to be gathering pace. Now shares in insurance companies are tumbling. Mutual funds experienced a record exodus in September. And tremors are rippling through the hedge-fund world, most visibly in the rising wave of lockdowns, redemptions, and predatory behavior (hedge funds shorting the positions of their weaker brethren).
Paulsons bailout package diverted attention away from the deteriorating economy but now investors are getting blindsided by increasingly dismal data releases on the economy. Stocks sold off sharply today on some weak economic indicators, despite the likelihood the Paulson bailout package will soon be passed into law.
If the Paulson bailout goes through, its tempting to use any ensuring stock-market rally to increase exposure to some of the bear exchange traded funds (ETFs), of which a handy list can be found on Examples include the ProShares Short MSCI EAFE(EFZ), ProShares Short MSCI Emerging Markets(EUM), UltraShort Consumer Goods(SZK) and UltraShort S&P 500(SDS).
But dont stay too long. When the central banks start chopping their interest rates, stocks could see a good rally. Indeed, some investors may want to wait until the central banks start the chopping to get into the bear ETFs near the top of the ensuing stock rallies. In time, there will be a recovery but the forces of deflation are out front now and it will take a while for fiscal and monetary responses to catch up and wrestle them to the ground.
The list does not include all the bear ETFs in Canada. For example, the Horizons Betapro S&P/TSX Capped Financials Bear Plus(HFD) lets one double-short Canadian banks and financial companies. They have so far fallenlittle by comparison to U.S. financials, but could make up for lost time as the commodity boom winds down more.