Thursday, September 22, 2011

Hooray for Short ETFs


For a while I was skeptical that they didn't work, but now I know that they do.

I'm not gonna nerd out too much but I had the revelation that this is one of the ways money gets sucked up to the top - hedge funds and banks have billions to throw into short positions (bet against the market) while the average joe investor and his 401k only have the means to go 1 direction (long).

So every time enough money is dumped into the system en masse via 401ks and independent stock buyers, the hedge funds use their money to initiate a precipitous decline which wipes out average joes gains (and the hedge funds collect the difference). Its the new normal, I believe. But since the average P/E ratio of the stock market has been declining for a number of years, that means people are losing faith in the system, and who knows how much longer new buyers can be suckered in.

Then again maybe people were having this exact same discussion in the 1930s.

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