[Infowarrior] - Another Financial WMD

[Richard Forno]

Very interesting reading; as opposed to "vanilla" stock or index options, such complicated derivatives -- in this case, ETNs --  indeed are "weapons of mass destruction" that average investors have no business being involved with, unless you truly know what you're doing & getting involved with. (And most don't)   -- rick


Credit Suisse Opened Volatility Bets to Small Investors
By Christopher Condon and Matt Robinson - Mar 30, 2012 12:00 AM ET
http://www.bloomberg.com/news/2012-03-30/credit-suisse-opened-volatility-bets-to-small-investors.html

March 30 (Bloomberg) -- Michael Gamble, a 67-year-old retiree, doubled down on a volatility exchange-traded note backed by Credit Suisse Group AG last week as it declined to a record low price. 

“When it started to fall, I bought more because I couldn’t believe how low it was going,” he said in a telephone interview. “I didn’t realize I was playing with a hand grenade.” 

Gamble, who lives in Frisco, Texas, didn’t know the product was trading at a premium to its targeted value, a rare event for ETNs, or that institutional investors were selling the notes short on a bet they would fall. The note tumbled by more than 50 percent on March 22 and March 23, costing Gamble about $20,000. 

The crash calls attention to the way many ETNs, which are more complex and risky than exchange-traded funds, open the door to markets where individual investors normally can’t venture without brokerage approval. It also may sour small investors on exchange-traded products, an industry that has grown to almost $1.2 trillion in U.S. assets because of the popularity of low- cost ETFs. 

“ETPs are one of the great success stories of marketing by creating a new name and new brand,” said Mercer Bullard, an associate professor of law at the University of Mississippi and founder of the advocacy group Fund Democracy Inc. “Now the non- fund ETPs are undermining the ETF brand.” 

< - snip - >

http://www.bloomberg.com/news/2012-03-30/credit-suisse-opened-volatility-bets-to-small-investors.html


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Just because i'm near the punchbowl doesn't mean I'm also drinking from it.