Goodbye DMM and UMM

No surprise, when our beloved DXO was dumped earlier this year we knew what was coming. I still think this is just the tip of the iceberg. FAZ just around the corner?

FAZ/FAS have the volume. But then again so did DXO. I think DXO closed because of some limitations with the commodities regulators rather than demand. It was really popular.

You do have to worry about the long term viability of tickers such as FAZ and FAS when both of them are down for the year. There is still a group of dumb investors out there that likely bought them as a long term holding even with mainstream media warning them.

The irony is that they are losing popularity at a time when they should be gaining popularity. When the VIX was at 70 and rates were at 0, it made no sense to use leverage. Plenty of bang and no rate of return for freeing up cash. While interest rates are still at 0, at least with a VIX at 20 some folks might want to use some leverage. I always found it ironic that these products came out when there was super high volatility. Where were they when the VIX was in single digits?

I won't mention them by name, but I wish your response could be posted on some of the more popular blogs and forums as a warning to retail investors every time these tickers are mentioned. The average home player does not understand the nature of most of these etf's. And that they should really only be used as day trading tools and even then used with great care. I suspect FAZ will be toast if the financials get into trouble in 2010. Now won't that be convenient.

The interesting thing is I have heard people say they are not fully invested and have extra cash yet use tickers such as FAS/FAZ. In a 0% interest environment, I just don't get the attraction unless the trader is trying to take advantage of some arbitrage opportunity. And I can assure you the posters I read are not sophisticated enough to be playing an arbitrage opportunity.

Perhaps sometimes things can't be explained with rationale. I will admit that I had DXO in my junk long portfolio for a while rather than using USO or similar non-levered ETF. Why did I do it? Because I had a portfolio of high beta junk stocks that were less than $5 without stops. DXO was somewhere around $1.5-$2 and it fit that portfolio. Sure DXO could have gone down to $.75 and I would have lost 50%. Yet, having it priced in the $1-2 range made it fit the parameters of the junk portfolio and also made me comfortable not putting a stop on it (even though none of this made any sense). In a way I was fooling myself. Maybe others do similar things.