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Yesterday, we got a call from Brian in Colorado… he says that I understand your arguments for getting rid of the ultra short ETF’s like the SKF, but I love to trade them… so I was thinking, I know the SEC puts a limit on the amount of assets that a mutual fund can buy, this is quoting Brian, of a specific stock. You know what if they did something similar to that with the ultra short ETF’s, maybe 5% or 10% of their assets at a maximum… I think Brian is being fooled… he is being fooled by this junk as a way to hedge or even profit from the decline of the bank stocks… and it has been a horrendous decline, there should have been a way to profit from it… these didn’t work.

See the SKF is supposed to be a way to short the Dow Jones US Financials Index… with double the fire power that you would normally exert… you make twice as much money if it goes down… the darn thing doesn’t work… for anything except day trading, over the long term it really doesn’t track the inverse performance of that index at all… see if I thought there was a reason for this ETF to exist… other than trying to manipulate the market down and get around the margin rules, which regulates the amount of leverage that you can use… then I would be less inclined to encourage the SEC to do away with it now… but the fact is that I don’t see any reason… the way I see it this is just a gigantic over hyped, over marketed tool that has suckered a lot of you to think that you can hedge the bank stocks that you may own… or the stock of a bank that you may work… but anyone foolish enough to hold the SKF for a long period of time, even up here where the financials are down big, has tended to lose money… as the index dramatically underperforms what you would expect… because it exists to track only daily changes in the stocks… it rebalances every day… doesn’t work for more than one day at a time to hedge your exposure.

How bad is it… how little does it really help home gamers… alright, get this outrage… on Friday they SKF put in a new 52 week low, in fact, this was the lowest level since October of 2007... the month that the bull market peaked… the index that the SKF allows you to short with double the fire power, that is Dow Jones Financial Index, is down 67% in that period… so therefore you would think that the SKF would be up 134%, twice the decline… should have been a grand slam… it is flat… darn thing made you money… greatest short trade in history, betting against the banks ever since the no nothing rant that I gave you… and you made nothing… boy you know nothing if you trade this… I can’t believe it myself… I hate the SKF with a passion reserved for no other security that trades in this country.

This thing is just a tool for the day traders and the market manipulators who want to put pressure on the banks… its promoters have confused you about the potential performance of this diabolical device by burying its flaws in the prospectus… which nobody reads… how many people who watch Mad Money thinks that it works to hedge over the long term… what a travesty… the government won’t protect you from it… the brokers won’t protect you from it… the promoters won’t protect you from it… so it falls to us… and we are happy to warn you about this financial cancer and the need for it to be taken off the market.

Another big problem… if you think there are going to be winners and losers in a sector, and I do… then there is something fundamentally wrong with aggressively shorting a passive basket of stocks… why… because gradually the healthy companies increase in size as a percentage of the portfolio… weaker companies have gone down harder… they are now a smaller percentage… you ultimately end up shorting the best with the SKF… you are shorting JP Morgan… and I told you yesterday it is one of the very best banks out there… it is the SKF’s biggest holder… that is what you are betting against now… if you really wanted to short bank stocks you would focus on the worst ones… short them individually… not buy a basket that increasingly over weights the better banks.. the SKF just ends up doing a lot of collateral damage to a lot of undeserving bank stocks… you can’t fix it… you can’t make it better or right… but the SEC can ban it… that is the solution… that is the only solution…. it should never have been invented… it hurt you… it hurt the banks beyond what they did to themselves.

Madam Commissioner Shapiro, the SEC Commissioner, re-level the playing field… ban this product that has been used to successfully destroy the bank stocks… while at the same time costing the regular guy fortunes… because they simply never understood what these instruments do… and never will… thanks to all the promotions its inventors have spewed since this blight entered the market place.