Long time reader Stephen Drone pointed us to an article from Tim Middleton dated yesterday in which Middleton says he plans to use double long ETFs because he expects a big move up in stocks. I don't think I have ever been a regular reader of his stuff and if I ever was, I haven't been for ages.
Per the article, he is putting 10% in the double long S&P 500 (SSO), 6.2% in the double long mid cap (MVV) and 6.2% in the double long small cap (SAA). His logic: "...That makes both stock and bond prices compelling right now. Ergo, I want to own a ton of both. And thanks to leveraged ETFs, I can." He mentions that sometimes these funds "misbehave," but that they would have done the trick over some period of time.
He may be right about the market or not (in terms of direction), but owning the double long funds may not work even if he is right. In 2007, which was an up year, SSO lagged the S&P 500 SPDR (SPY). The combination of up and down days will determine how a levered fund does over time, and obviously there is no way to know ahead of time. That he makes the "misbehave" comment at all would seem to imply he knows that they may not capture the effect over a longer period of time, yet he is buying them anyway.
I have picked on Middleton a couple of times before (but it haven't mentioned him since May, 2006) for a couple of different things. Everyone gets some calls wrong, so I won't rehash those, but there have been a couple of instances where he made what seemed like huge sector bets with his ETF portfolio. Big sector bets are not a bad thing in and of themselves, but I'm not positive he realizes he is making them.
Here is a post of mine from September, 2005 about his Q3 2005 result in which I address this. I may have this all wrong about Middleton, but it seems to me that if you are going to make a big sector bet in a portfolio you're writing about, you might want to explain why. People often get hurt more from not knowing they have made a big bet than the big bet itself.