I'm getting fxcking killed with my condo, it has dropped by 40% in the past 3 years. I want to sell, but I'm way too underwater and because of the nature of my job, I can't afford to take a hit to my credit so I can't walk away. Is there an ETF that tracks the Case Shiller home index so that I can short this to make up for some of the price loss in my home?
If you think about it, how exactly would something like this be structured into a viable investment? With a stock based etf, the etf manager can "cover" their exposure by (of course) buying the basket of stocks the ETF is supposed to mirror. If they buy futures instead, the link to cash can on average still easily and (relatively) efficiently maintained by arbitrage. With say a crude oil etf, they can do it with futures and swaps, and the link to the physical market can once again be maintained by those who are able to arbitrage the derivative against cash. There may be carrying costs that make it a bad deal, yet regardless the link does exist. How exactly could the home price - futures - etf link be maintained? I am not aware of any efficient way to do this, if at all. This means that any such vehicle will have some ungodly amount of Juice built into it in favor of the party that sets it up and will likely have poor trading characteristics.
The ETF would be a wrapper around the futures contract, and would be illiquid at first. But if the ETF took off, then futures trading would grow also, because the ETF manager's own activity would create volume that would, in turn, pull in institutional arb players.
"would create volume that would, in turn, pull in institutional arb players." Do you mean arb between the futures and etf, or futures/etf vs. cash? The futures/etf arb is not a problem, the problem is with an ETF where there is no arb (or much better) direct investment in a cash market. Without this it is an ETF based on a proposition bet on the stupid shiller index number, which means it will have even more juice siphoned out than is usually the case and in my opinion will make a lousy vehicle for hedging or speculating. I could be wrong though. Are there any popular, high volume etfs without ungodly transaction/built in costs that do not have any direct connection to a cash market?
Yes, I agree. All I'm saying is, there's some chance (1) an ETF will be created and (2) it will attract retail interest thus (3) futures volume will pick up and (4) everyone lives happily ever after... I don't think this is a likely outcome, but predicting what instruments will grow in volume is a tricky business. Who would have forseen, 10 years ago, that levered-ETFs (with all their bleed problems) would be among the most heavily traded financial instruments?
Thanks for the link, I didn't realize there were futures contracts based on the CSI. I'll have to look into it, although the volume is basically 0 from what I could tell. I googled an ETF that existed in 2009, DMM and UMM, but I guess it just stands for "DUMb", because it folded in 6 months. I guess the lack of liquidity and no underlying assets makes it too difficult to create an ETF on this.
Bottom line there is no security that can help you via some sort of hedge, and if there were it would likely be a bad idea. Keep it simple and just focus on making money.