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« Our Rating of the Rating Agencies: Junk | Main | Silverado Gold Mines Limited: Up 10.49% Yesterday. »

US Financial Sector Continues To Suffer

We took a speculative short position on the US financial sector a couple of weeks ago, via an inverse ETF called Ultra Short Financials ProShares (AMEX:SKF). As an inverse ETF, this investment will go up when the US Financial sector goes down, with a leverage of 2:1. For more details on how this work, please read our article entitled “A Bet Against The Banks”.

SKF 010308

Since we bought SKF at $110.36, the financials have continued to suffer and so our investment has risen to $119.27, a gain of just over 8% in two weeks.

Do we see SKF continuing to make gains? The answer is Yes – simply because we do not see a major upswing coming in the financial sector for some time. The market will occasionally get a boost from a Ben Bernanke interest rate cut, but the success is usually short lived, and the Fed cannot cut rates forever.

Even the legendary investor Warren Buffet sees tough times ahead for financials. He recently criticized the "financial folly" that has been rampant in the market and said, “The party is over”.

We fully agree with Mr Buffet and that is why we have taken this short position via SKF. We will continue to hold SKF as it should continue to make gains whilst the US financial sector goes further into crisis.

This speculative short position is slightly different from the main focus of our investments which are in gold, silver and uranium. Therefore SKF does not feature in any of our free online portfolios but we will keep our readers updated on this investment and its progress. To subscribe to one of our FREE newsletters then please click here for more information.

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Reader Comments (3)

Instead of buying Ultra Short Financials ProShares (AMEX:SKF), prefer to buy Call options, which I do. Considering the MACD, RSI and STO, I used to buy and sell call options on SKF. Because within this period of 2 weeks, call option increased by more than 100%, while the increment in the ETF only 8% and more money required to invest.

March 1, 2008 | Unregistered CommenterShiras

Nice trade. ...and, yes. Call options are something to strongly consider

March 2, 2008 | Unregistered CommenterRich

Sounds like Big League Investors Game. I'm not playing.

March 4, 2008 | Unregistered CommenterJohn Kozon

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