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Lookout Below
Thus many resorted to gold, platinum or silver royalty trusts or stocks with earnings or dividends, or even Exchange Traded Funds (ETFs).
We see several serious issues with securities, including ETFs.
First, many people do not appreciate the risk of securities until it is too late.
In their excitement or fear, they may buy high and sell low. While we have been very fortunate with our public Stockcharts.com, Charts with Hearts returns up to 549% within the last year, we have decided to go to private subscription format with support because too many people do not understand or act on them.
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3251493
Second, many EFTs do not contain the physical assets. If they do, they may engage in lend lease programs that compromise true unhedged cash ownership.
Third, many leveraged or ultra ETFs eschew physicals for leveraged derivative contracts including options. This means ETFs decay over time as much as 1.3% a day.
Fourth, down the road, there may be ETF defaults related to derivative defaults. It is a fact that most derivatives are not backed by physicals, but by good faith deposits with third party exchange credit.
(The grandfather of a former colleague of ours purchased enough puts on the market in 1929 to become a billionaire back then. When he went to collect on them, the writers who sold them were out of business. Things have not changed that much in 80 years, particularly after protective regulations were removed or unenforced before the Great Panic began and certain banks and corporations have seen earnings reduced by derivative losses.)
Fifth, ETFs leveraged two or three times eventually compound losses geometrically to regress to zero, making them an unsuitable investment for buy and hold cash investors.
Six, various brokerages and banks are now banning selected ETFs and short sales for some of the above reasons.
