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Author: TMFCogitarius Big gold star, 5000 posts Old School Fool Home Fool Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 2167  
Subject: Leveraged ETFs drive late-day volatility Date: 11/20/2011 10:07 AM
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According to 'Douglas A. Kass, a longtime Wall Street denizen who is the founder and president of Seabreeze Partners Management', leveraged exchange-traded funds are the “new weapons of mass destruction” behind 'late-day sell-offs and rallies that seem always timed perfectly to coincide with the closing bell'.

'These funds, which allow investors to bet on a certain basket of stocks, commodities or an index, are perhaps the hottest rage in investing, with some $1 trillion invested. E.T.F.’s are particularly attractive to some investors because you can bet long or short — and you can leverage your bet. And you can hop in and out within the trading day to lock in gains, just as with stocks.'

'At the end of every day, leveraged E.T.F.’s have to rebalance themselves by buying and selling millions of shares within minutes to remain properly weighted. If the E.T.F. made money that day, to remain balanced it has to reinvest the proceeds and leverage them again. In many cases, leveraged E.T.F.’s use options, swaps and index futures to keep themselves in balance.'

'“We know E.T.F.’s are the dominant factor in the marketplace,” Mr. Kass said. “In the ’70s and ’80s it was the mutual funds, in early 2000s it was the hedge funds. Now it’s the algorithms running the E.T.F.’s.”'
http://dealbook.nytimes.com/2011/10/10/volatility-thy-name-i...
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