This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Five Dumbest Things on Wall Street: Aug. 21

SEC's Late Arrival

Wait a darn second here! Who woke up the SEC to the dangers of leveraged ETFs?

The Securities and Exchange Commission issued an investor alert Tuesday warning retail investors that leveraged and inverse exchange-traded funds are "highly complex financial products" that "can turn into a minefield for buy-and-hold investors."

Wait! You mean people can lose money in a blink by betting on leveraged ETFs? This is new?

Well, it would be new only to Rip van Winkle. While the SEC slept or studied the issue or did whatever it does, the debate over these high-powered financial instruments raged on our Web site and others for the past six months.

Last month, in the face of investor anger over outsized losses UBS (UBS) suspended purchases of leveraged and inverse ETFs for clients saying "the short-term nature of these securities is generally inconsistent with the long-term view of investing that UBS advocates when building client portfolios." Edward Jones, a St. Louis-based brokerage, and Minneapolis-based Ameriprise Financial (AMP) also halted leveraged-ETF sales a long time ago.

Meanwhile, like illegally downloaded movies, demand for these souped-up trading vehicles has only increased with every brokerage house ban and negative article.

For instance, the Direxion Daily Financial Bull 3X Shares (FAS), which seeks to return 300% of the daily performance of the Russell 1000 Financial Services Index, trades an average of 36 million shares a day, far outstripping most of the Dow 30 names. The FAS debuted in November 2008, so it's not even a year old. The ProShares Ultra Financials ETF (UYG), which debuted in February 2007 and offers two times leverage, trades a whopping 49 million shares a day.

For the record, we here at the Five Dumbest Lab believe individual investors have the right to buy leveraged ETFs once they are aware of the risks involved. Losing or making gobs of money in a very short time is the prerogative of every trader, not just institutions.

It just would have been nice for the SEC to make these risks better known before the losses grew out of hand and the class action suits started flying.

Dumb-o-meter score: 70 -- What we need is a leveraged SEC that works they times faster.

4 of 5

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,279.74 +13.75 0.08%
S&P 500 2,010.40 -0.96 -0.05%
NASDAQ 4,579.7890 -13.6380 -0.30%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs