SVXY – So Very seXY

ProShares Trust II SVXY: The Best ETF Of Our Time AKA How To Become A Billionaire Without Really Trying – Seeking Alpha.

Back in July I caught the post linked above on Seeking Alpha, one of those long-shot, inane ideas that somewhat makes sense. To boil down the article, you take a long (very long) position in SVXY in a tax deferred account shorting VIX futures. The ultimate goal, if the author’s assumptions are true is a payoff in 20-30 years will be in the billions of dollars.

Now I don’t have any inkling that an investment in SVXY will really return that much in that long of stretch. But I took up the bet/challenge/opportunity/funny-tasting-kool-aid and bought a single share in a tax deferred acccount. Unfortunately, I came in late to the game and missed the bulk of the gains for the year.

Purchase price: $102.14
Current value: $136.98 (34.11%) – as of 12/27/2013

I hope to update this annually just to give readers an idea of where the idea goes. It was only $100 that I would have wasted buying games on Steam so it won’t be missed if it all goes to hell.

Would I pin my hopes on this strategy? No. Is the long-term notion viable? Potentially – hinging on several factors:

  • You have to avoid taking action in the gut-wrenching swings. And SVXY volatility is very high meaning the price swings wildly.
  • You will, at some point, have a ginormous draw-down at some point in the future where you will question your sanity. 90% draw down? Can I stomach it?
  • If the plan is working, at some point in the future, you will most likely want to get off the vomit comet early to take what gains you have and call it a day. As the original author says: put it in a lockbox, shut the lid, lock it and open it in 20-30 years.
  • There may be a chance SVXY won’t even be around in 30 years. I predicate this on the fact that it is the inverse of UVXY. And while SVXY is riding high, UVXY is a sinking ship only occasionally useful as it bobs up in the waves but then immediately dives back down in the water and continues its descent into darkness.
  • Other long-term risks include total wipe-out of the account. A huge, sustained volatility spike could push SVXY into no man’s land of negative NAV if ProShares doesn’t pull the plug (which I assume they would do to avoid negative NAV)

 

Other thoughts:

It has been fun to watch this for 6 months and I’ve learned quite a few things. Even with all of the drag-show drama that is Washington DC, mean reversion is a bitch. I made it through “tapering”, a government shutdown, and a lot of incessant political whining and crying but SVXY pulled through quite well in the last half of the year. Had I been invested at the beginning of the year, the gains would have been significantly higher (> 100% as of this writing)

Future plans:

I plan to keep SVXY in my IRA for the long haul. I may add to the position over time but in no way am I making it the cornerstone of my retirement plan…

TL:DR

It’s funny as I’ve read many of Macro Investor’s articles and comments along the way and I find much of what he offers as sensible given the circumstances. However I’m politically a polar-opposite. And politics plays a large part in what happens with S&P volatility. It may seem odd that I’m the polar opposite in terms of politics but will still put my money where my mouth is on his idea.

Macro Investor appears to proceed from a position that everything with government is fine, except republicans and tea party people (that’s an extremely brief synopsis). I tend to proceed from the position that regardless of the political party, there will be no end to political patronage for special interests and industry within the next 20-30 years. All of the tactics that were pulled out during the financial crisis are on the table for the next time now and I fully expect them to be used in the future. So even if I lose politically (and retire with a face-palm imprint), I’ll win financially. Then I can check out and not have to think about it any longer. Or maybe I can fund a think tank and become the next Soros/Koch-brother fodder for those who don’t agree with my political ideals.

Given this set of circumstances, the continual distortion of the market by government action will continue to push the value of SVXY higher over time.  Think of it like this: if I know a horse is doped to high heaven, you can be sure I will bitch about it, but I know where to put my money. My wager here is that the horse will make it as far as I need it to go before my retirement finish line instead of dropping dead at the next turn or two… if I’m lucky.

One Dimensional Study Produces One Dimensional Result

I’m still trying to parse through this but something isn’t passing the sniff test. It’s things like:

American Enterprise Institute, the Heritage Foundation, and the Cato Institute, are among the best known conservative think tanks in the United States. [emphasis added]

That really irks me. Had the author taken the time to go to the Cato Institute’s site, they’d learn quite quickly that Cato is not a “conservative” think tank.

The second bone to pick, as  the title of the post mentions, is that this is all very much two-dimensional. While being sympathetic to a fraction of the ideals of some of these organizations, the study tends to place heavy emphasis on correlating these organizations and their entire funding towards climate change “denial”.

There’s a significant problem with this tactic – it neglects the fact that there was a significant upheaval in the conservative movement a’ la the Tea Party. There was also the election of what the right viewed as a socialist president. (Personally, I viewed it as the third – now fourth – term of Dubya’s policies). It also neglects to mention the perceived rush to push through an unpopular health care overhaul.

And as a smaller factor, add in to that the often asinine and misleading claims of climate scientists and activists hoping to instill FUD in the populace over climate change and you can bet the conservative base will respond in kind.

I have no doubt some conservatives (and maybe some libertarians) donated funding to organizations that don’t quite buy into the CAGW view of global warming. I’m sure there are some conservatives who have funded organizations who outright deny anthropogenic global warming (although I’m curious to find one that does wholesale).

However this paper fails far short of delivering any material worth the bits it takes up on the storage devices of those poor souls who read it. These failings are best summed up in the conclusion of the paper where it skips from being a half-hearted ploy to hate on those not progressive enough to outright conspiracy fodder best suited for outhouse-wipe-material.

You get:

The CCCM efforts focus on maintaining a field frame that justifies unlimited use of fossil fuels by attempting to delegitmate the science that supports the necessity of mandatory limits on carbon emissions. To accomplish this goal in the face of massive scientific evidence of anthropogenic climate change has meant the development of an active campaign to manipulate and mislead the public over the nature of climate science and the threat posed by climate change. [emphasis added]

The problem I have with papers like this is you tend to know where the author’s views come out, regardless of the science. Nothing in the paper supports this view and I don’t think the scientific community outright supports mandatory limits on carbon emissions. It may be one proposal to help reduce the perceived threat of CAGW but it’s like saying the remedy for a cold is to simply cut your nose off (without fully understanding the unintended consequences of such a thing). But the hits just keep on coming:

The available data indicates that the Koch and ExxonMobil Foundations have recently pulled back from publicly funding CCCM organizations. From 2003 to 2007, the Koch Affiliated Foundations and the ExxonMobil Foundation were heavily involved in funding CCCM organizations. But since 2008, they are no longer making publicly traceable contributions to CCCM organizations. Instead, funding has shifted to pass through untraceable sources. Coinciding with the decline in traceable funding, the amount of funding given to CCCM organizations by Donors Trust/Capital has risen dramatically.

I’d be amenable to the notion that the above is true. However the paper largely has nothing more to it other than showing, in the Koch & Exxon case, that their direct support of organizations has gone down and the Donors Trust/Capital spending has gone up. That’s the big secret. I suppose that you’re suppose to connect the dots rather than the study actually providing a relevant conclusion actually supported by more than a cursory conclusion after a really quick glance at some tables and charts.

Swapping to Google Voice and Ting

After being a Sprint subscriber for i-don’t-know-how-long, I finally made a jump to Ting. And in the process,  I was able to keep my number thanks to Google voice. The switch was surprisingly easy…

  • Set up my Google Voice account.
  • Set up an account through Ting – I didn’t set up any phones yet.
  • Went through the steps to port my number in Google Voice - Waited 24 hours for the port to complete.
  • Received notice my number was ported, my Sprint service was dead
  • Went to Ting and set up my Epic 4G with a new phone number, following the BYOD instructions for my device.
  • Went back to Google Voice and set up forwarding to my new Ting number.

Total time spent: ~1 hour actually doing something relevant. Not bad. I was a little leery of the conversion process, knowing that any hiccups could spell disaster but everything was very straight-forward and went without a hitch. I tend to lean heavy on the data side so my first stop was to find an app that allows you to talk via Google Voice over wifi instead of running calls through the cell network. My first try was with GVPhone. While the app appeared to perform fairly well, I was hit up twice with unwanted chat requests. I tend to lump this all into the spam category so it was removed within 24 hours.  I then went to Groove IP and paid $5.00 for their app. It’s a fairly simple interface with quite a few features under the hood.

Another thing I did was disable sending transcribed voicemail by text. Being on a plan such as Ting’s, text messages count and transcribed voicemail can quickly add up.  So my $72.50 Sprint plan (that includes a discount through my employer) should run be ~$30 on Ting (hopefully). Not too bad. Now lets see if I can keep hit my target phone bill this month.

This is Capitalism!

Comical:

Kelly was ready to end the interview when Pallone tried to argue that Obamacare is a “capitalist private market,” which set the TV host off.“The capitalist private market is controlled by laws, including one called Obamacare, which imposed a bunch of regulations on them with which they must now comply, sir,” Kelly said mockingly.“You can’t sell the policy if nobody is going to buy it because it’s lousy,” Pallone repeated yet again.“But 15 million people did buy it! They bought it, and they were told they can keep it and now they can’t. And I gotta go, period,” Kelly concluded.

via Megyn Kelly Was Almost at a Loss for Words After This Extremely Frustrating Obamacare Interview With Dem Rep. | Video | TheBlaze.com.

So let me get this straight – after incessant moaning about capitalism, greedy corporate execs, shrinking paychecks for the middle class, Democrats are now calling Obamacare “capitalism”. If this is capitalism, I’m not sure what the left has been bitching about.

A small donation is on the way to C4SS

I hesitate to call myself a left-libertarian. Although as I age, I find myself drifting slowly along the lazy-river of political philosophy in the direction of left-libertarianism. It isn’t too distant from right-libertarianism but the more I keep reading Roderick Long and Sheldon Richman, the more enticed I become.

After a recent Internet spat between C4SS and, in Popehat terms, a censorious asshat (CA), C4SS appears to be looking for a new web host. I just sent a small donation their way. (Allen Olson & Co.)

I was hoping that Ken White over at Popehat would get massacre the CA’s lawyer’s letter (which can be found here).