Buy Recommendation on Proshares Ultrashort Financials

     I am recommending speculating on shares of Proshares Ultrashort Financials (symbol SKF).  Key word is “speculating”.  This is not an investment but a short-term educated guess on the financials losing value.  SKF is an ETF that uses leverage to short shares in Financial companies.    If you hold these shares past March 2012 you more than likely will be taking a loss.  They currently are selling for $71.28 per share.

     My thesis is that the European debt crisis is nowhere near over, China is starting to fall over from their own asset bubble, and the US is extremely weak.   The external pressures for the US are building.  Our number one trading partner, Canada, is in the early stages of a property bubble bursting- which typically forces economies into a severe recession, possibly a depression given the extreme debt loads of the average Canadian.  The EU block is most likely going impact US exports.    It is my thought that the changes in the EU, Canada, and China will push the US back into a shallow recession with an anemic recovery. Normally I would say that the US consumer would ignore the rest of the world and keep on spending especially since we are slowly exiting a recession.    This time I do not think it will be the case because the US consumer is still deleveraging.  The only growth in leverage is in long-term consumer goods (i.e. autos) that wear out and young people with very little current debt taking on college loans.  The heavy spenders (i.e. baby boomers) are still too tapped out to spend in mas.    This is made obvious by the paying down of the boomers weapon of choice, credit cards.  

     The boomers that have not done so are still defaulting on their underwater mortgages, albeit at a slower rate.  The banks have still not worked themselves free of this devastating blow to their balance sheets.  Now the threat of large losses from derivatives tied to the coming sovereign and municipal defaults threatens to be the knockout punch for a number of large money center banks.  Even if they can escape default their capital base will be way too shaky to write new loans, thus their revenue and profits are destined to shrink and hence my recommendation to purchase SKF.

Projection

     I am projecting that SKF will go above recent highs and test $95 per share before the end of the calendar year.  This will be followed by a quick jump to between $125 and $150 per share (possibly more).  

 

Full Disclosure

I own shares in SKF.  As of November 28^th I own or control approximately 250 shares.  I plan on starting to sell them when they exceed $95 per share.    More than likely my exit points will be in 25% chunks at $95, $120, $150, finally holding the last patch for over $200.