A Triple-Threat in the Markets Makes Short ETFs Popular | ETF Trends

Is there are triple crisis threatening to hurt the economy, Wall Street and exchange traded funds (ETFs)?

Martin D. Weiss for Money And Markets reports that he warned us one week ago about a severe U.S. recession, surging inflation and high chances of a Wall Street meltdown. Now, he says, there’s been some news that confirms his warning:

  • Deepening U.S. recession: Vehicle sales are anticipated to drop off, and dealer lots are already overloaded with gas-guzzling SUVs they can’t sell. S&P has also put Ford, GM and Chrysler on "credit watch negative."
  • Airline bankruptcy: More than 20 airlines worldwide have been hit, and the top 10 U.S. airlines are expected to post pre-tax losses at $18 billion this year and next.
  • Surging inflation: For May, producer prices jumped 7.2%. Import prices were up 17.8%, the biggest ever recorded.
  • Bond insurance disaster materializes: Another wave of bank losses, and write-downs are sure to come, exceeding the losses we’ve seen from the current housing/credit crisis. The finances of many states and local governments are financed through this industry, and Moody’s has just downgraded the credit rating of both MBIA and Ambac.
  • Stocks suffer: The financial sector has been hurting especially badly, and it wasn’t helped by Monday’s news that a recent upgrade for the sector was in error.

It’s no wonder that some short ETFs have been popular with investors this year. Some of the strongest performers include:

  • ProShares UltraShort Financials (SKF), up 41.1% year-to-date
  • ProShares UltraShort Health Care (RXD), up 30.8% year-to-date
  • Rydex Inverse 2x S&P 500 (RSW), up 18.3% year-to-date

The Federal Reserve decided to leave interest rates unchanged for the time being on Wednesday, but we’re not out of the woods. Until the economy is on sure footing, short ETFs can be an option for investors looking to keep generating returns while the markets decide which way they’d like to go.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.