ProShares UltraPro Short S&P 500 ETF (SPXU) players get ready!
U.S. Federal Reserve Chairman Ben Bernanke's latest statements put the last piece of the puzzle in place for investors wondering where the markets are headed next.
Chairman Bernanke has suggested the need for QE3 in April if unemployment persists at current levels. But that in my opinion is not the real reason for more fed money printing (I am using this term loosely to include various fed easing tools to include bond buying, asset buying, etc.,). The need for QE3 is all about Europe after Greece completes it default in March (yes, Greece is already in default). This has recently become quite clear as IMF Chief Christine Lagarde has called on world governments to commit more SDRs to the International Monetary Fund in two recent speeches.
"I am convinced that we must step up the Fund's lending capacity. The goal here is to supplement the resources Europe will be putting on the table, but also to meet the needs of "innocent bystanders" infected by contagion, anywhere in the world. A global world needs global firewalls.
In the coming years, we estimate a global potential financing need of $1 trillion. To play its part, the IMF would aim to raise up to $500 billion in additional lending resources. Right now, we are exploring options and consulting the membership."
"I am convinced that we must step up the Fund's lending capacity," she said. The goal here is to supplement the resources Europe will be putting on the table, but also to meet the needs of other countries, anywhere in the world, affected by the repercussions of the crisis, she added. Eurozone countries have already pledged to provide up to $200 billion in new financing for the IMF."
Her strategy serves a dual purpose:
1. It is an exercise in power whereby the current crisis is being used to further "legitimize" the IMF and give it unprecedented sway over the affairs of member nations.
2. It signals to the U.S. Central Bank and Chairman Ben Bernanke that more U.S. dollars will be needed to prevent the EU from imploding.
Lagarde, in her speach at Davos earlier this week, made some very telling statements to this regard, calling for "deeper integration" of European Union members finances as regards the ECB and other backstop institutions and financial oversight of member budgets.
"Lagarde also called for more risk sharing across borders in the banking system to break the feedback loop between sovereigns and banks. "In the near term, a pan-euro area facility that has the capacity to take direct stakes in banks will help break this link," she said. Further financial integration in the form of unified supervision, a single bank resolution authority, and a single deposit insurance fund is also necessary."
"The euro area also needs greater fiscal integration-it is not tenable for seventeen completely independent fiscal policies to sit alongside one monetary policy," she added. The "fiscal compact" that was agreed at the summit of European Leaders in early December 2011 needs to be complemented by some form of fiscal risk-sharing. A number of financing options are available to support such risk sharing, including the creation of euro area bonds or bills or, as proposed by the German Council of Economic Advisors, a debt redemption fund, she said."
This is merely code for accelerating the IMF's true agenda, that being to gain more control over the politics of money in Europe and the rest of the world. She is now twisting the arm of Germany's Merkel to lay off the austerity push and play ball with the money printers and the IMF. This is a complete reversal from what she was saying in September of last year when calling for more austerity.
If this were a political opinion piece, I would suggest the governments of Greece, Germany, and a few other nations should tell Lagarde and a few international bankers to take a hike, but since this about investing, we will leave that rhetoric for those that care about the sovereignty and independence of nations - political scientists and conspiracy theorists such as Ron Paul say.
What we can do with this information is make a set of educated guesses that speculators may wish to consider for the purpose of making money over the next few months.
The SPXU inverse triple leveraged ETF is sitting at an all time low as the markets have now rapidly accelerated upwards in a short three week period. In fact upward momentum has already taken out the 2012 S&P 500 year-end targets of several well-respected investment firms and appears to be headed higher.
- Morgan Stanley - 1157 (Adam Parker)
- Goldman Sachs - 1250 (David Kostan)
- UBS - 1324 (Jonathan Golub)
- Barclays Capital - 1330 (Barry Knapp)
This has been achieved with very low market participation as volume levels continue to make new lows on a monthly basis, indicating that the big money continues to sit on the sidelines. Astute speculators may wish to consider building a position in the SPXU (see fund risk disclosure below) as the S&P 500 makes a push towards the 1400 range which it could very well do prior to the March 20th deadline when Greece must repay or rollover its some $18 billion dollars worth of debt. Should bond holders and ECB bankers refuse to accept further haircuts on Greek bonds and Greece fails to meet its obligations, the markets could implode sending the S&P sharply downwards. Even if Greece meets the payment, the markets most likely will sell off prior to the deadline. Speculators may also wish to consider having having cash ready to buy into UPRO if Chairman Bernanke steps in to save the free world with QE3 in April which will then propel the markets upwards provided the rest of Europe gets the message being sent by Achilles via Hermes over on the Greek Peninsula.
Risk Disclosure for traders of SPXU
SPXU is a triple-short fund. This means that it is designed to move up or down 3x or 300% the inverse of the S&P 500 performance.
More from Yahoo.com:
"The investment seeks daily investment results, before fees and expenses, which correspond to three times (300%) the inverse (opposite) of the daily performance of the S&P 500Â®."
SPXU is a highly speculative investment. The fund designers do not recommend holding this fund for long periods of time due the compounding effects built into the underlying mechanics of the fund which can compound losses over prolonged periods of time.
Investment Alternative to SPXU: ProShares Short S&P 500 ETF (SH)
Risk averse investors may wish to consider a non-leveraged fund such as SH - ProShares Short S&P 500.
More of SH From Yahoo.com:
"This investment seeks daily investment results, before fees and expenses, which correspond to the inverse (opposite) of the daily performance of the S&P 500Â®. The fund invests in derivatives that Proshare Advisors believe should have similar daily return characteristics as the inverse of the daily return of the index. It invests typically the rest of the assets in money market instruments."
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SPXU over the next 72 hours.
Additional disclosure: The SPXU is a triple leveraged reverse ETF and should be traded only by those familiar with such funds and willing to shoulder the inherent risk. It is recommended that prior to trading in leveraged ETFs, investors and speculators should read the prospectus from the fund provider. In fast moving markets, leveraged ETFs can run against the investor if he is caught on the wrong side of the market.