Short ETFs: Time to Buy - Not Sell

| About: ProShares UltraShort (SKF)

How interesting that Jim Cramer chose the end of last week to wage war against short ETFs just a day before investors filed a class action against the financial short fund SKF.

You just know this has to be a signal to buy the offending asset class. It is a neat contrarian moment backed up by some hugely obvious market information that is not a secret to anybody: stocks are massively overvalued in a historically far too long rally, and the traditional month for crashes is October, and we are almost there.

Going short

Now I can understand the anti-short ETF case. They can point to the poor tracking record of these ETFs at certain points, their very raison d’etre. And holding these instruments for too long is not recommended because leverage costs money.

However, if I look back at the past three months most of them seem to have done a very fair job of delivering a leveraged performance to their respective index movements.

So my guess would be that if the stock market takes a big lurch down in October then these instruments are going to be among the top performers, even if a few days out or not by exactly the right percentage. It is a no-brainer that shorting stocks is the best way to make a fortune in a crash.

That makes the timing of Cramer’s outburst remarkable, and probably more a matter of linking to the court action pending than the market outlook. It is a bit like arguing over small change with a 10-ton concrete block about to drop on your head.

Contrarian view

Perhaps too a little contrarian thinking might consider the third party arranging these ETFs. With all that negative karma in the investment universe, will they not grab with both hands a clear opportunity to prove that yes, they do track market movements, and can do so fairly well and enough to deliver massive profits.

What a way to demonstrate that their product not only has legs but can run, and that it is the investors that have misunderstood them? Case dismissed!

Of course I am not a financial advisor and do not know the financial circumstances of any reader. But would it not be at least a fair point to argue that long ETFs are the ones to sell now, not the short ETFs?