TSP Inverse Fund

[burrocrat]

what needs to happen is to make them realize... we must all agree... there needs to be... we all need to... we need to demonstrate...

a. you can't make anybody realize anything.

b. nobody must do anything, let alone must agree.

c. folks generally don't like being told what they can or can't or must do. by tsp.gov or mb posters.

d. an effective cohesive voice is flexible and inclusive. despite good faith suggestions about the original wording of 'players on wall street' the decision to not consider changing the approach to something more likely to get wide buy in such as 'more freedom and choice to ift'. the decision was unilaterally made to propose a narrow short selling investing strategery vs. a wider frequency trading option. and to demand everybody must vote for some proscribed thing.

e. both the petition to the whitehouse and the exhortation for action to tsptalkers is too 'needy'.

f. it is generally not profitable to scream at the iceberg it must change its course. because the titanic is going to run it over anyways.

g. there are probably not even 100k active tsp traders, let alone 1k who would utilize a short fund option.

h. don quixote chases wimdmills. why?

i. i've found there are outside options that provide greater flexibility and timeliness than tsp.gov could ever hope to rival. why fight it?

j. tsp is for grandmas who prefer the predictability of gov bonds, not for sharks. there is not enough meat left on the bones after the fed gets done with inflationary operations.

k. i have more but they're waving me off.

 

[MrBowl]

Here's the reason I don't think this will ever happen...

The inverse funds and leveraged funds are products based on an index. They aren't really anything other than a piece of paper. I know Direxion is a company that offers them. Maybe there are more, but I only know about Direxion. When you buy a share of one of these products you aren't buying anything real, its more like a betting slip at a horse track or sports book. That's why people who think buying an inverse fund is making money off of suffering don't understand what they are talking about. There is no money created when a these shares goes down because the flip side is moving in the opposite direction. There is only the small fee that the buyers and sellers pay. Shorting is something different altogether, and there are benefits to shorting. For one, short sellers act as watch dogs and hold a companies feet to the fire (wasn't it a short seller on the Enron earnings call that asked the crucial question?). Anyway, as I understand it if we were to be able to buy into an inverse fund we would merely be buying a betting slip from a company like Direxion. Just like a sports book, they are the House and pay up if we had the winning slip. I just can't imagine the TSP board viewing these as legitimate investments to build a retirement on. The shares/game is settled at the conclusion of each trading day, which leads me to...


Here's the reason I would be very hesitant to use them...

"Direxion's 3x leveraged ETFs seek daily goals, which means that the returns of the ETFs over time should not always be expected to be a multiple of the cumulative return off the benchmark for the longer period. By holding Direxion Shares Daily leveraged ETFs for periods longer than one trading day, investors subject their gains or losses to the fund’s daily rebalancing process which can either have a positive or negative impact on investment returns over multiple trading sessions. During periods of market volatility, funds typically underperform the multiple of the fund’s beta and benchmark performance while during periods of trending market performance, funds generally outperform.[SUP][4][/SUP]These funds are intended for use only by sophisticated investors who: a) understand the risks associated with the use of leverage; b) understand the consequences of seeking daily leveraged investment results; and c) intend to actively monitor and manage their investments.
These funds are NOT intended for use by conservative investors who: a) cannot tolerate substantial losses in short periods of time; b) are unfamiliar with the unique nature and performance characteristics of funds that seek leveraged daily investment results; and c) are long-term investors who do not monitor their portfolios frequently."

What this means is that if you buy 1000 shares of long SPX X3 and 1000 shares of short SPX X3 you will not break even. You will lose. If you are wrong about the direction or if the market is flat you will lose money. If you buy inverse shares and the market is volatile for a few weeks and the S&P 500 is finally down less than 0.50% there is a chance that you may not make a dime. Since the fund settles each day the longer you stay in the more any advantage you might have thought you had is whittled away. These shares slowly erode over time. You can make money over a short period if you are right about the direction of a strong market move, either up or down, and time it just right, but if you continue to hold the shares once the move is over you will start bleeding away your profits quickly. Since 2009 the inverse funds have been destroyed, as you might imagine, and they frequently have to do reverse splits to put these shares back to respectable-looking values. Direxion is doing fine (just as sports books do) and can back up their shares because the process gives them a constant stream of income, like the vig at the sports book.

I'm sure there is someone on here that knows a lot more about this than I do and I welcome corrections to what I wrote here.

 

[Stoplight]

PtE,

At the risk of being flagged for "piling on"....

You have little "street creds", my friend ! You've belonged to the Board for a year, yet this thread appears to be the first time you've posted. Perhaps if you'd joined in the discussions, shared your knowledge, and articulated why you feel we need a leveraged fund, you would've built up a base of support.

Also, if you've been lurking even before you joined, you'd know that the limit on IFT's is, by far, the most irksome issue for many of the members here. You'd also know about the hard work others have done to try and change the TSP system (for instance, James48843).

Anyway, it's always good to see some fresh ideas, and some new "blood" posting...gets some of us old Geezers all riled up Keep it up !


Stoplight...

 

[MrBowl]

I think this is a good topic, and I thank Play the Extremes for bringing it up. I thought this would be a good forum to get down into the weeds about these products. What are they really? What are you buying if you buy into an inverse fund? Are you actually taking an authentic short position?

I think it is important that everyone know all the details of what they are buying...how the thing works, what you are buying, what affects the performance, etc. I hope someone will come on here and tell me that I'm either full of it, have it partly right, or have it all the way right.

A bigger issue that is covered in other topics is if more fund options are coming what will they be? Which ones are requested the most? Which ones are most llikely to come about? Even bigger is how to improve the TSP overall...more IFTs, eliminating or reducing the lag time, etc.