Feds Back To Loving A Well Run Lottery

May 04, 2017

Oftentimes I walk into my local Chevron and it resembles more of a casino than a gas station. If it’s late Wednesday afternoon, and Powerball is grabbing record-jackpot headlines, the lottery ticket gamblers outnumber the gasoline customers.

Once I witnessed one man buying $250 in Powerball tickets, run by a multistate government gambling organization, and not purchasing gas or anything else. All forms of governments approve of this ability to lose money and we all accept this as free will. This is America: You can put money down at your gas station on a bet with astronomical odds of winning.

Surely the Securities and Exchange Commission knows about the $75 billion to $100 billion that Americans spend on lottery tickets sold by state governments, but that’s not a security, so that’s not the SEC’s table, so to speak. And that’s a good thing. How you spend your money is a form of free speech. The Supreme Court has ruled as such when it comes to political spending.

So Why The Rolling Eyes?

So news this week that the SEC approved an ETF issuer’s request to offer quadruple-leveraged exchange-traded products was funny to me, in a Chevron standing-in-line way. We’re talking “4X” daily exposure versus the already-listed “3X,” “2X,” 1X,” triggering rolling eyes in the financial blogosphere and Finance Twitter.

“Oh my … people could lose money with this product!” Hmmm, imagine that.

According to the Reuters story, the request to the SEC detailed two strategies to be listed on NYSE Arca, the ForceShares Daily 4X US Market Futures Long Fund, under the ticker 'UP,' and the ForceShares Daily 4X US Market Futures Short Fund, under the ticker 'DOWN.'

“'UP' is designed to deliver 400% of the daily performance of S&P 500 index futures, while 'DOWN' aims to deliver four times the inverse of that benchmark,” Reuters reported. “That means 'DOWN' could go up 8% on a day the index it tracks falls by 2%.”

Speculation Is Speculation

Outside Financial Nerdville, this doesn’t move the meter. Most American investors don’t know what an ETF is, much less an inverse/levered exchange-traded product based on futures. I think of these products as lottery tickets, but with much greater chances at winning than Powerball.

The day after the May-The-4XForceShares-Be-With-You broke, ETF issuer Direxion launched a series of new and novel leveraged funds. From our Daily ETF Watch yesterday:

Direxion has added another five ETFs offering 300% of the daily return of their underlying indexes. The five funds cover Mexico’s market and four key industries. The funds and their expense ratios are as follows:

 

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