Ultra Short ETFs NOT Performing as Market Plummets

By Jennifer Bawden
February 21, 2009

I just wanted to let you know that although I am still bullish on TZA, SRS and FAZ (three ETFs shorting the market) there is some important information you need to know.

They are NOT mimicking the downside, as they should be. They should have jumped a lot higher over the last week than they have. Hopefully you bought them several weeks ago when I was pounding the table for everyone to buy.

My big concern now is not just the incompetence of those running the short funds and their inability to perform as promised, but Kramer is yelling at the top of his voice at congress insisting that they banish these short ETFs including two on my list, the SRS (Shorting the Dow Jones Real Estate Index) and FAZ (Financial Bear with three times leverage).

This means that we could wake up one day and not be able to trade them. So, sadly I suggest we keep watch for an exit point from my favorite shorting vehicles, hopefully with a decent profit.

By taking these short ETFs away from us, it certainly limits our ability to make money on market downturns.

I agree with my Contrarian Consensus editor Denise McCosh on the probability that we will see a good rally here soon. If new regulations come out prohibiting us from using the short ETFs there won’t be much left to play with except gold.

I believe that contrary to popular opinion that the dollar could still strengthen as the masses continue rushing to safety. If this happens we could still see a pull-back in gold offering a better entry point. Of course, when the new financial bailout is announced we could get that market bounce we’ve all been anticipating.

All told, my core beliefs stay the same. Too little too late. Strong deflationary pressures will continue longer term to pull the market lower, but hopefully not before we see a good bounce.

Wishing you happy trading in these treacherous times.

Jen Bawden

Jen is a best-selling author and serial social entrepreneur passionate about disruptive technologies, with a decade of experience in Homeland Security technology solutions. She is also a contributing author at Seeking Alpha, a top financial news site, and a member of several think tanks including: The Aspen Institute, TED, The National Committee on American Foreign Policy, Renaissance Weekend, Summit Series, Task Force on National & Homeland Security, & Secure the Grid Coalition.