SEC Proposing to block leveraged ETF!

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
butricksaid
Posts: 32
Joined: Fri Nov 03, 2017 11:24 pm

Re: SEC Proposing to block leveraged ETF!

Post by butricksaid »

willthrill81 wrote: Thu Jan 30, 2020 5:35 pm Trying to protect people from themselves is a very slippery slope that basically says 'I know what you need better than you do.'
Overly bullish mindset.This can also avoid hysteria and hyper-valuation by smoothing out growth curves.
User avatar
willthrill81
Posts: 22697
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: SEC Proposing to block leveraged ETF!

Post by willthrill81 »

butricksaid wrote: Fri Jan 31, 2020 2:53 pm
willthrill81 wrote: Thu Jan 30, 2020 5:35 pm Trying to protect people from themselves is a very slippery slope that basically says 'I know what you need better than you do.'
Overly bullish mindset.This can also avoid hysteria and hyper-valuation by smoothing out growth curves.
It has nothing to do about being bullish or bearish. It's about letting adults do what they want as long as it isn't explicitly hurting others (i.e. freedom).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
butricksaid
Posts: 32
Joined: Fri Nov 03, 2017 11:24 pm

Re: SEC Proposing to block leveraged ETF!

Post by butricksaid »

willthrill81 wrote: Fri Jan 31, 2020 3:42 pm
butricksaid wrote: Fri Jan 31, 2020 2:53 pm
willthrill81 wrote: Thu Jan 30, 2020 5:35 pm Trying to protect people from themselves is a very slippery slope that basically says 'I know what you need better than you do.'
Overly bullish mindset.This can also avoid hysteria and hyper-valuation by smoothing out growth curves.
It has nothing to do about being bullish or bearish. It's about letting adults do what they want as long as it isn't explicitly hurting others (i.e. freedom).
Letting people do what is individually in their best interest can still lead to harm for the general population, a tragedy of the commons scenario.

From the way it is described, only asking individual to checkbox a risk disclosure, it seems pretty tempered. This isn't any different from forcing stock exchanges to have circuit breakers or some regulation to prevent panic selling or vicious cycles due to herd mentality. SEC doesn't want an equivalent crypto crash of 2018 to take place in the stock market by preventing things from going exponential when it should be more linearly progressing upwards.
dave_k
Posts: 406
Joined: Sat Dec 26, 2015 8:25 pm

Re: SEC Proposing to block leveraged ETF!

Post by dave_k »

butricksaid wrote: Fri Feb 07, 2020 3:30 pm
willthrill81 wrote: Fri Jan 31, 2020 3:42 pm
butricksaid wrote: Fri Jan 31, 2020 2:53 pm
willthrill81 wrote: Thu Jan 30, 2020 5:35 pm Trying to protect people from themselves is a very slippery slope that basically says 'I know what you need better than you do.'
Overly bullish mindset.This can also avoid hysteria and hyper-valuation by smoothing out growth curves.
It has nothing to do about being bullish or bearish. It's about letting adults do what they want as long as it isn't explicitly hurting others (i.e. freedom).
Letting people do what is individually in their best interest can still lead to harm for the general population, a tragedy of the commons scenario.

From the way it is described, only asking individual to checkbox a risk disclosure, it seems pretty tempered. This isn't any different from forcing stock exchanges to have circuit breakers or some regulation to prevent panic selling or vicious cycles due to herd mentality. SEC doesn't want an equivalent crypto crash of 2018 to take place in the stock market by preventing things from going exponential when it should be more linearly progressing upwards.
Leveraged funds are hardly a tragedy of the commons scenario though. I asked above if anyone could reference studies showing that allowing ordinary investors to use them has caused any significant harm, but I have yet to see anything.

A bit of a technical nitpick, since I don't think you meant it literally, but isn't the overall growth trend of the stock market expected to be exponential, not linear?
User avatar
watchnerd
Posts: 5990
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: SEC Proposing to block leveraged ETF!

Post by watchnerd »

dave_k wrote: Fri Feb 07, 2020 3:38 pm

Leveraged funds are hardly a tragedy of the commons scenario though. I asked above if anyone could reference studies showing that allowing ordinary investors to use them has caused any significant harm, but I have yet to see anything.
Perhaps you are unfamiliar with the system-wide damage that Long-Term Capital Management caused?
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP
dave_k
Posts: 406
Joined: Sat Dec 26, 2015 8:25 pm

Re: SEC Proposing to block leveraged ETF!

Post by dave_k »

watchnerd wrote: Fri Feb 07, 2020 5:02 pm
dave_k wrote: Fri Feb 07, 2020 3:38 pm

Leveraged funds are hardly a tragedy of the commons scenario though. I asked above if anyone could reference studies showing that allowing ordinary investors to use them has caused any significant harm, but I have yet to see anything.
Perhaps you are unfamiliar with the system-wide damage that Long-Term Capital Management caused?
Wasn't that a hedge fund that was not open to ordinary investors, and that was actively managed, with concentrated risks and unusually high leverage? That's not the same as a leveraged/inverse ETF that tracks an index. I'm not advocating that everyone be allowed into hedge funds.
User avatar
watchnerd
Posts: 5990
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: SEC Proposing to block leveraged ETF!

Post by watchnerd »

dave_k wrote: Fri Feb 07, 2020 5:25 pm
watchnerd wrote: Fri Feb 07, 2020 5:02 pm
dave_k wrote: Fri Feb 07, 2020 3:38 pm

Leveraged funds are hardly a tragedy of the commons scenario though. I asked above if anyone could reference studies showing that allowing ordinary investors to use them has caused any significant harm, but I have yet to see anything.
Perhaps you are unfamiliar with the system-wide damage that Long-Term Capital Management caused?
Wasn't that a hedge fund that was not open to ordinary investors, and that was actively managed, with concentrated risks and unusually high leverage? That's not the same as a leveraged/inverse ETF that tracks an index. I'm not advocating that everyone be allowed into hedge funds.
Yes.

But it was a "leveraged fund".

And it caused a massive tragedy of the commons.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP
pepys
Posts: 153
Joined: Mon Nov 12, 2018 10:34 am

Re: SEC Proposing to block leveraged ETF!

Post by pepys »

Swaps and futures help companies manage risk, keeping the economy more stable. Those of us taking the additional risk are doing a great service to the economy. Hedgefundie may be the greatest hero of our age.

All joking aside, anecdotes of negative externalities are not enough, because there are also positive externalities and potential benefits to the investors themselves. The SEC should provide an evidence-based cost benefit analysis before they force companies to write new software putting hurdles in the way of investors wanting to invest in these. Instead the proposal is so vague that it would be impossible to make one. If the hurdles are small, I doubt this is going to change anything, except waste time and resources, since they already give warnings. And if the hurdles are large, it will severely limit investors' freedom and might hurt the economy over all.
Post Reply