The almost certain failure of Tuesday’s ballot initiatives will also push the state’s borrowing needs into the stratosphere, placing a commensurate burden on taxpayers for years to come. California legislators had been planning to borrow about $13 billion in the coming fiscal year, but that figure will likely have risen to about $20 billion by Wednesday morning. Under the circumstances, what incentive would anyone have to live in California, assuming one is not trapped in a home worth less than its mortgage? Ordinarily, we might expect a huge exodus to Nevada, where property values have crashed to levels that down-and-out Californians could afford. Trouble is, the casino jobs that might otherwise lure Californians to Las Vegas and Reno have largely vanished, and the gambling industry remains in its worst funk since Bugsy Siegel took Horace Greeley’s advice to Go West, young man.
Almost as scary as California’s fiscal future is that of New York. Suffice it to say, the state’s financial problems, like those of California, are beyond remedy. We’ll take them up at a later date, but first let us say, R.I.P California.
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To Rob :
About your point with FAZ:
There is actually a very good reason for FAZ not te ever get back to the $50+ levels it had half a year ago. Really these double, and esp, triple leveraged ETF’s are loosers for anything other than ( very) short term trading.
The marketing of these insturments makes them appear as though they were no-strike puts (or calls) having no expiration.
However, one need only look at the full chart of both FAZ and FAS to see that neither fulfills that promise. Just one long downward trend.
If this was not so, one should be able to straddle them, and be in balance either way, which of course does not work. That position would decay also.
I had first thought that this was due to some type of volatility or time-decay loss being carried into the fund’s price from its held derivatives, but it is actually much simpler than that.
A paper by some Barcley’s analysts lays it out, they call this: “micro structure effect”.
Simple put, these leveraged ETFs are fated to loose money, here is why:
Imagine the underlying having high volatility, say a number of suceeding 10% up and down days.
After 4 days of up, down, up, down you would have (start at 100);
110, 99, 108.9, 98.01
You are down 1.99% after 4 days.
At two times leverage though, here is your comparative performance with the ETF:
120, 96, 115.2, 92.16
You are down 7.84% after 4 days.
That is a negative performance difference of almost 6% after only 4 days.
In real life, the vola won’t be that high, and the neg. difference would be much less, but the trend is there. The leverage causes this underperformance by magnification.
Therefore, these leveraged things really stink other than for juiced up (day) trading, and that is not even talking about the fees, which I assume are taken out of these ETFs, just as they are for GLD or SLV. GLD is at 92.16 while spot equivalent this moment is 93.86, a non-negligible -1.8%, prob. due to fee-decay.