With the autumn comes the brisk northern air that reminds us of the fragility of life and the strict laws of nature; lessons which most years occupy a few thousand microns of brain tissue as such trivial metaphysical notions pass under the radar of consciousness. Yet it seems that we humans subscribe to a separate reality where our man made organism known as the global economy can defy reliance on physical laws and balances among parties, contrary to the paradigm within which organisms share resources and life.

These days death is so 20th century, aging is "faux pas", and failure is completely unacceptable, thus we open up the hood and start pulling wires until we seemingly avoid these outcomes in the short run, leaving plenty of duct tape and WD-40 on the fender if anything should go wrong.

Few expect the U.S. Federal Reserve's FOMC to announce any change to the current monetary policy. The Fed Funds rate target is expected to stay at 0.25%, despite effective rates closer to 0.1%, while language will promise that purchase programs of private debt and Fannie (FNM) /Freddie (FRE) mortgage products are soon to wind down. Conditions of the "dual mandate" of low inflation and job growth, set by Bernanke earlier this year for the Fed, look to be nearing levels that would spur preemptive withdrawal of quantitative easing. The Producer Price Index (PPI) in November showed a 1.2% jump from the same month in 2008 and the household survey of employment showed improvement in the jobless rate from 10.2% to 10.0% in November.

We have maintained the position that over time sustained dollar weakness, due to low short term borrowing costs, will raise the prices of all goods and services changing hands in the U.S. We also suspect that the printing of money will dilute the value of the dollar and that that inflation will bring a second wage of hardship to consumers struggling to make payments.

Crude oil has crept gradually higher since the beginning of the year, with spot prices rising from about $35 per barrel in January to nearly $80 in recent weeks. With a sliding dollar and expectations for a strong, sustainable global economic recovery, it seemed like only a matter of time before crude jumped above $100 and the public outrage was dialed back up. But in recent weeks, crude oil prices have slumped, recently enduring a seven day losing streak that saw futures prices lose more than 5% and hit a new two-month low.

The recent weakness has caused some investors to rethink the assumption that oil is firmly entrenched on an upward path. “Supply outweighs demand by about 18-fold at a time when crude oil is finally starting to move based on supply and demand,” writes Sheena Martin. “Hardly a bullish sign for the commodity.”

Last week you could have thrown a dart at the floor of the CME and almost assuredly poked the eye out of a commodity bull. This week there's no telling who you'd maim. Blood and gore aside, the sideways pattern of the past three weeks is over, as far as crude oil is concerned. The WTI contracts for January delivery dove from $80+ to touch the $70/barrel mark on Wednesday before popping back into $71 territory; concluding the six day sell-off was nothing to shrug at.

First, we're going to look at the WTI continuous spot chart and identify some selling momentum that we haven't seen since the bottom in crude in December.

We can all remember the panic that gripped financial markets in the dissimilar fall to winter season of 2008, where hoards of cash were brought to the sidelines and even the "Oracle of Omaha" went on record claiming "cash is king". This time around cash is anything but "king", at least if it's the United States Treasury brand. The continuous Gold contract just hit 1200, the S&P 500 is near 52 week highs, there's evidence to believe in an Asian led global recovery, and the Fed is staying firm with an easy money policy for the foreseeable future. Given the aforementioned recipe, it's no wonder cash is trash and everything else is King.

But this kind of consensus thinking implores that we do a lot more homework and try to wrap our heads around the global conundrum of trends.

Unleveraged Oil and Gasoline ETFs and ETNs

• iPath S&P GSCI Crude Oil Total Return Index ETN (OIL)
• PowerShares DB Oil Fund ETF (DBO)
• PowerShares DB Crude Oil Long ETN (OLO)
• United States Gasoline Fund, LP ETF (UGA)
• United States United States Heating Oil Fund, LP ETF (UHN)
• United States Oil Fund, LP ETF (USO)
• United States 12 Month Oil Fund, LP ETF (USL)

Leveraged Long Oil ETFs and ETNs

The panelists are three SA contributor portfolio managers who use ETFs in client portfolios and write actively on new developments in the field of exchange traded funds. Here are the panelists, their credentials and a preliminary writeup from each of them with their views on leveraged ETFs:

News out of London via the Financial Times has amplified the recent calls for institutional break-ups of incredible size and scope.

Not just one but all financial institutions, once protected under the "too big to fail" sheltering efforts by governments and central banks, must now find viable core business plans to move forward. The mortgage heavy British lending giant Northern Rock, British Financier Lloyd's (LYG), and the Royal Bank of Scotland (RBS) face large divestment pressures from Tories bent on revenge and a ghostly Prime Minister Gordon Brown as England is facing debt levels near 100% of annual GDP. While the UK Government benefactor has planned a lessor degree of additional liquidity infusions into the nationalized banks and the U.S. FOMC is paring it's purchases of Fannie Mae (FNM) and Freddie Mac (FRE) assets by $25 billion dollars, the efforts are at best a day late and a dollar short.

The threat of increased regulation from the Commodities Futures Trading Commission continues to impact the ETF industry. Increased position limits are designed to reduce the impact that ETFs such as United States Natural Gas (UNG) have on the price of the commodities they are designed to track. The latest chapters in the futures regulation saga are the shuttering of PowerShares DB Crude Oil Double Long ETN (DXO) and the reconfiguration of the PowerShares DB Agriculture (DBA) and PowerShares DB Commodity (DBC) ETFs.

DXO was truly a victim of its own success. This leveraged exchange-traded note became so large that it was subject to limitations placed on its underlying components. Deutsche Bank considered the crackdown a “regulatory event” and redeemed the $407 million in outstanding notes on September 9. Its opposite, the PowerShares DB Crude Oil Double Short ETN (DTO), continues to trade.

The biggest risk of higher oil prices looks to be the latest storm brewing in the Middle East. Our contention has been that oil prices are destined to slip back to their pre-stock-bounce range once economic reality sets in and demand remains persistently low. To that end, we own a hedge against falling oil prices.

However, the likelihood of military action against Iran by either the US, Israel, or both is growing, and such action would cause oil prices to spike. Let's look at the situation and chance of an attack, and why it would put upward pressure on oil prices.

Denver-based United States Commodity Funds has launched another exchange-traded commodity product, its first to offer inverse exposure to commodity prices. The United States Short Oil Fund (DNO) began trading this week on the NYSE Arca Exchange. DNO is the sixth product from United States Commodity funds, joining products offering exposure to crude oil (USO), natural gas (UNG), 12-month oil (USL), gasoline (UGA), and heating oil (UHN).

DNO will seek to track the inverse of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the price of futures contracts on the commoidty. The fund will invest in near month futures contracts, except when the near month contract is within two weeks of expiration, in which case it will invest in the next month’s contract.

Don Dion, who covers ETFs for TheStreet.com and runs Dion Money Management, recently wrote a three part series highlighting the “10 Most Dangerous ETFs”. Dion notes that as the ETF industry continues to expand beyond “plain vanilla” funds, investors are introduced to products that can face significant liquidity issues, be subject to increased regulatory scrutiny, and carry “unprecedented risks” associated with their complex and non-traditional strategies. While I agree with most of Dion’s analysis (and certainly share his view that there are a number of complex ETFs that should be limited to the most sophisticated investors), I feel it’s necessary to defend a few of the ETFs that made the list:

Claymore/BNY Mellon Frontier Markets (FRN)

FRN invests in frontier markets, which generally refer to the least developed economies in the world. MSCI Barra (MXB), a provider of domestic and international equity indexes, analyzes 75 markets around the world on four market accessibility criteria, including: (1) openness to foreign ownership, (2) ease of capital inflows/outflows, (3) efficiency of the operational framework, and (4) stability of the institutional framework. Based on their performance in these areas, each market is slotted into one of three categories: developed, emerging, or frontier.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday September 24.

ETFs of Mass Destruction: United States Natural Gas Fund (UNG), Direxion Daily Financial Bull 3X Shares (FAS), PowerShares DB Crude Oil Double Short ETN (DTO)

By Patrick Watson

The stream of new product launches continued today with United States Short Oil Fund (DNO) on NYSE/Arca. This product’s goal is to deliver a return inverse to that of near-term crude oil futures.

United States Commodity Funds LLC has launched a new exchange-traded fund designed to provide short exposure to the crude oil market.

The United States Short Oil Fund (NYSE: DNO) aims to capture the inverse of the daily return of the front-month West Texas Intermediate crude oil futures contract, as traded on the New York Mercantile Exchange.

Gold and oil traditionally follow each other, based on confidence in the global economy and on strength in the U.S. dollar.

But since its August 24 close of $73.68, oil has trended downward. Gold, meanwhile, has been racing since about September 1. These opposing trends come amidst ongoing global recovery, weakening dollar, and diminishing retail expectations. The following chart runs from July 27 to September 11, 2009.

PowerShares DB Crude Oil Double Long ETN (DXO) became the first apparent victim of the recent CFTC activity surrounding exchange traded products. Deutsche Bank (DB) announced today (9/1/09 press release) that it will redeem all outstanding shares of DXO after the market close on September 9.

Can Demand Hold? In the previous articles of this series, I mentioned a bearish divergence forming in crude prices and a bullish divergence forming in the U.S. Dollar. These relationships, in conjunction with a fragile economy, have alluded to the reversal of crude prices.

In an attempt to overhaul the futures market, the CFTC is refining the weekly Commitment of Traders (COT) report to more accurately reflect the transparency of the market. The current program shows the weekly changes of the long and short positions of commercials (producers/end users), large non-commercials (large speculators), and non-reportable positions (small traders). The new COT report will break down positions even further into categories ranging from swap dealers, hedge funds and institutional investors, all the way to local farmers.

The changes were proposed in early July and were expected to take hold last week. However, CFTC Chairman Gensler announced that there is a delay, noting, “We want to make sure that no one has such an outsized or large position that the concentrated position might have a burden to the market place.” Prior to 2000, speculators accounted for 20% of the open interest. At that time, regulations were loosened and since then the speculative position has risen to more than 50% of the open interest. While many are welcoming the new regulations, ETF Market Intelligence believes implementation may introduce a new set on unintended consequences.