After Decade of Retail Investors Getting Systematically Wiped Out, SEC & CFTC Investigate Oil ETF USO Investor Risk Disclosure

What took them so long? And while they’re at it, they should also investigate US Natural Gas Fund UNG.

By Wolf Richter for WOLF STREET.

Finally, after watching how innumerable retail investors — enamored with betting in a convenient way on the price of US crude oil benchmark WTI — got systematically and predictably cleaned out year after year, the SEC and the CFTC are investigating certain aspects of the US Oil Fund [USO].

These types of funds don’t track the price of the commodity they claim to track, except in the very short term, and sometimes not even then. And long-term, by the way they’re structured and designed, they wipe out their buy-and-hold investors. But these funds are marketed to retail investors. This is USO from the beginning, having lost 18% per year on average since its inception (data via YCharts):

The SEC and the CFTC should also investigate the US Natural Gas Fund [UNG] which has a similar problem in not tracking the price of US natural gas over anything but the shortest period of time, and sometimes not even then, and systematically wiping out anyone sticking this into their portfolio.

These are not funds that should be marketed to retail investors – but that’s who is buying them. Experienced traders and the pros can trade the actual futures. But retail investors find futures intimidating, and so they buy these funds, and get systematically wiped out, even if the underlying commodity trades their way. The US Natural Gas Fund is even worse than USO, having lost 31% per year on average since its inception (data via YCharts):

The shares of these funds have gone through innumerable and massive reverse stock splits to keep the share price above a few dollars so that they could continue to be traded on the NYSE Arca, rather than over the counter as shares with a value or fractional pennies. Given the collapse of USO, the site is finally warning about it.

So what took US regulators so long? I don’t know either. But here are the details on the investigation into USO.

By Tsvetana Paraskova of Oilprice.com:

The U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are investigating the most popular exchange-traded fund tracking crude oil prices, the United States Oil Fund, to ascertain if the fund has managed to properly disclose to investors the risks, Bloomberg reported on Friday, citing three sources familiar with the issue.

The United States Oil Fund LP (NYSEARCA: USO), one of the most popular oil-tracking ETFs for retail investors, was said to be one of the reasons for the historic plunge in May WTI Crude futures on April 20, a day before the May contract expired on April 21.

Many retail investors were stung by the plunge at the rollover of the May futures contract, and since then, the USO fund has amended its structure, including buying longer-dated contracts instead of front-month ones.

Now, according to Bloomberg’s sources, the investigation into the USO revolves around whether the fund has properly explained to shareholders that the value of the oil fund wouldn’t necessarily track the movement in spot oil prices. The SEC and the CFTC are also looking into the fund’s change of strategy to buy crude oil futures contracts with longer expiry.

The investigation into USO are still in very early stages and may not result in any allegation of wrongdoing, Bloomberg’s sources said, while the regulators haven’t found misconduct in the actions of the United States Commodity Funds, the company managing the oil ETF.

After the crash in WTI Crude futures last month, the CFTC issued a warning last week “informing the public about the unique risks associated with certain trading vehicles that use futures contracts or other commodity interests as they make investment decisions during the COVID-19 (coronavirus) pandemic.”

The commission said in its advisory that ETFs tracking commodities “might not provide investors opportunities to “buy the dip” or profit from long-term price gains in the underlying commodity.”

“This difference is because unlike with stocks, a futures contract cannot be held indefinitely in hopes that a fallen price will recover. Futures contracts expire, and contract holders must either deliver or take delivery of the underlying asset, or close out their contracts by taking an offsetting position before the delivery date,” the CFTC said in its advisory. By Tsvetana Paraskova for Oilprice.com

The housing market faces ferocious headwinds. Read...  No, Homes Did Not Sell Like Hotcakes: “Pending Home Sales” Plunged 34% in April, a Preview of “Closed Sales” in May

Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.




  88 comments for “After Decade of Retail Investors Getting Systematically Wiped Out, SEC & CFTC Investigate Oil ETF USO Investor Risk Disclosure

  1. doug says:

    I doubt many retail investors ever visit the CFTC website.
    Like posting it in the bathroom marked ‘out of order’?

    • Dr. Dr.mike says:

      Sheep get sheared once a year.

    • Javert Chip says:

      This lack of due diligence is a primary cause of retail investor ignorance, and the resulting sheep-shearing.

      There may be other factors, but if you don’t understand house rules, you probably shouldn’t put your money on the table to play the game.

      • Bill Parviz says:

        That’s an ignorant statement to make. Do you always read everything about every company before You buy shares even stuff that are not on the news like a fund is going to close without notice. Last month or so I bought an oil fund oilu. Two days or so later they said they were closing the fund. I bought it to hold for oil recovery the next I know is they say we were closing the fund which forced me to sell oilu at loss of 20 grand. I mean nobody told me they were closing. There was no notice except one I got couple of days after I bought it and 2 days before closing the fund saying sign it from my broker. By that time I must have lost 20 grand. I just need to talk to an attorney. I am sick of these guys cheating American people.

        • Sorry to hear that, Bill. Good luck.

        • Javert Chip says:

          Bill

          Thanks for your considered opinion of my ignorance; my perception is it’s almost as valuable as your investing skill with OILU.

          Sorry to disappoint, but as a retired CFO with investment goals of making profits, I do indeed research my investment targets (I win most & lose some).

          I don’t mind experimenting with new techniques, but futures are outside my expertise and area of interest.

          Come to think of it, I’ve never hired an attorney to help me with my investing either. You are simply more sophisticated than I am.

        • Keith Matthews says:

          I bought triple leveraged Direxions symbol GUSH @ 81 cents. They modified to a 2x and did a reverse split. Came back out at 17 and change.

          Sitting at 42 now..

          Same strategy, different vehicle.

          Lucky me.

      • cas127 says:

        JC,

        If your marketing says one thing and your prospectus says another, then the argument is closer than you are making out.

        A lot of money and effort is put into crafting the marketing message. Disclaiming that message on page 121, paragraph 3, of a 350 page prospectus is not really equivalent.

        The disclaimers have gotten marginally better over the years but they still pale in comparison to the resources applied to the marketing message.

        Sooner or later one of the funds might get nailed by a non-securities law action (where disclosure, even if calculatedly buried, tends to excuse a multitude of sins).

        • Javert Chip says:

          cas127

          I didn’t mean to imply that their disclosure documentation was meaningful or even accurate; at the very least it appears (deliberately?) incomplete.

          The due diligence I was referring to was understanding if a retail product loses 31% per year since inception, it’s not an investment; it’s a charity.

    • Nick says:

      Wolf, in your research did you come across a fund that actually does a good job of tracking the price of crude?

      • Wolf Richter says:

        No. If you want to trade crude, trade the futures (but make sure you know what you’re doing). Or you can buy/short the stocks of oil companies.

        • Dave says:

          By the way, I subscribe to a trading and risk management service and they had their analysts look into USO to try and deconstruct USO to determine what was its underlying base. They weren’t able to determine how it was constructed! They said they wouldn’t touch it. This was before the USO debacle. When USOs price dropped very low many of their subscribers were asking whether is was a good idea to buy USO because it HAS to bounce.

    • Oz tucker says:

      Please investigate gasl etf
      They deliberately wiped out their investors

    • Dave says:

      The SEC is a joke! They need a cattle prod used on them to even have a chance of getting them to take action on fraud. I have dealt with them so I know.

      By the way what happens with all the money that they collect in fines? Do they pocket it for themselves. Do they give back pennies on the dollar to defrauded investors? I truly don’t know and haven’t looked into it.

      • Javert Chip says:

        Dave

        I’m not an attorney (hopefully a knowledgable attorney will also comment), but my understanding of what happens to funds raised by SEC actions is as follows:

        o SEC fines go to the US treasury

        o SEC “disgorgement of funds” is returned to wronged parties

  2. VintageVNvet says:

    Maybe a bit more education re why retail investors don’t buy into the commodities market versus the SM Wolf?
    Both are about as non communicative in general as the other for small investors, and both are really just a form of legalized gambling where the house has all the advantages, though they clearly share some of those with the institutional and ”market makers.”
    As suggested on this site, we ain’t getting anywhere until the crony and corruption part of capitalism is dealt with unto their clear and well documented demise and burial face down.

  3. Stephen says:

    After a decade of being wiped out?? Am I mistaking or does someone have a slow learning curve here?

    • Wolf Richter says:

      It’s different investors buying the shares, holding them for a year or two and losing 50% or more — with UNG more like 60% or 70% — and then selling. Wave after wave of investors. Each one losing a big chunk of money that cannot be recuperated.

      • Yaun says:

        I wonder though, with this type of investing behavior,where they can’t spend the minute to compare the ETF with the underlying asset, that if there is no USO, something else will separate them from their money. Further regulation will mean that there is another sheet added to the other 20 that they need to cross off without reading to be able to buy these in their account. Not sure this will really make much of a difference. Maybe force people to do a course teaching some fundamental value analysis would help?

        • sierra7 says:

          Yuan:
          “Buyer beware!”
          “There’s a sucker born every minute!”
          If “investors” don’t understand that the rules of the game are, “deception, deception, deception” in the “market” regime then they deserve all that they get.
          The only qual I give is that there are good investments out there; it’s just that there are just as many “deceptive” ones. also.
          Buyer beware. Otherwise don’t play.

  4. andy says:

    ETFs are great for index investing and dollar cost averaging. Kinda like investment trusts of the late 1920s.

    • Ryan the Core Trader says:

      I love ETFs and long-term invest and then take my profits. The only safe way to invest in oil prices is to hold shares in an oil company stock ETF where you own shares of the oil companies. The stock prices of oil companies moves fairly in line with the price of oil.

      Commodity, currency, inverse and leveraged ETFs are dangerous.

    • sunny129 says:

      Dollar cost averaging works great during the secular BULL mkt but NOT so in the secular Bear! May be value averaging but I am not certain!

      Index investing was great for the last 10+ years and may not be, going forward. Reversion to the mean will hurt index investing to the downside, more than other kind.

      If the stocks within the ETF go down, so will be ETFs, unless one chooses the ETFs with UNCORRELATED assets

  5. David Hall says:

    Once there was a time we thought we had passed peak oil production. Oil fields were depleted. In mid-2005 10 of the 20 top performing S&P 500 stocks were energy sector stocks. Oilfield depletion was rapid. Tech stocks had fallen with the dot com crash. People made money in coal, natural gas and petroleum stocks. Engineers flooded oil fields with water to try to force more oil out. They forced carbon dioxide into porous rock to try to bring the last drops of oil to the surface.

    Geologists estimated 30-60 percent of the original oil in place was being left behind. Eventually engineers experimented with fracking permiable rock formations again. The oil started to flow. Encouraged by early success, fracking R&D investment increased. People stopped talking about terminal oil depletion. Energy companies produced a flood of new light sweet crude and prices fell. Natural gas became common. Investors wanted investigations into why so much money was being lost.

    • Keith Matthews says:

      Whole books written with the prog/sosh politicians piling on.
      The trouble with the tragedy of the human condition was Hairold Hamm.

      Linear extrapolators are the Algores of failure. (Along with silent springers and polar bear extinguishing)

  6. James says:

    Union Oil Co. and others were deeply invested in extracting oil through the use of high temperature & pressure retorts in a small company town entirely financed by the players themselves in Parachute CO.
    I know because I was there in 1979-80. They gave up this process because it was at the time, not cost effective. Not a favorable ROI. They later sold the upper management’s houses, golf course, school etc. on the open market, now owned by Boomers.

  7. Anthony A. says:

    Investing (gambling?) in stuff you can’t figure out or just don’t know all the facts is not a great idea. Kind of like buying a variable annuity without reading the 72 pages of very fine print.

  8. DR DOOM says:

    I agree investigations should be forthwith and expanded .The mighty monsters of regulation ain’t gonna do jack shit . They might let the FBI set up a flunkie for a perp photo shot at the most. The CFTC and SEC got captured by the ones they were to regulate years ago. Nothing to see here move along citizen.

  9. Bull&Bear says:

    Please diversify with

    Stock RSP
    Gold GLD
    Bond TLT
    Cash at least $10k to $100k
    Etc

  10. Michael Engel says:

    USO is long, but the trend is down, that’s how u lose money.

  11. Phoenix_Ikki says:

    This and also inverse ETF, another dangerous way to wipe out retail investors ina very short among of time. In long term they have almost guranteee negative in return, truly an instrument for the casino

    • 2banana says:

      These should be looked at as very short term hedges. With stops.

      And you should be following it hour by hour.

      It is not a “buy and forget” investment.

    • sunny129 says:

      They always should be hedged with the opposite kind as an hedge. I hedge 3x long leveraged against 1x inverse kind of the same variety. But also have watch them like a hawk!

      They worked great during GFC ( lost NOTHING!) but not afterwards when the rules of free mkt ceased to exist, thanks to Fed! Now it is more tricky than ever! They came handy to me in March when the S&P dived 35%.

      I mix with trading/investing with other structural and strategic approaches with div paying ETFs, world wide in numerous sectors. Tech with emphasis robotics, e-commerce and net security. Now buying Corp credit ETFs and Mfunds. ( been in the mkt since ’82)

  12. Augusto says:

    Quite frankly I am sympathetic to anyone who “invests” in this type of high risk ETF. Simple greed, mixed with foolishness and you get a retail buyer of this stuff .

  13. Place the chart of USO against WTIC and you see how “well” the two correlate. They might investigate to see who was holding storage off market? And what positions had they taken? You want collusion, how about the Fed pumping corporate credit, and causing oversupply in the fracking industry? The first crude crash came in 2015, and Fed backed up rates slightly. The energy market is blatantly manipulated at every level. UNG went off the futures contract a few years ago for this reason, and for those who say gold is not manipulated my kindest guffaws, or the S&P, where a few dollars in the overnight futures market can produce a lot of movement in stocks. Some might guess we should ban the futures market? No, just get the politicians and their lackeys at the Federal Reserve out of the interest rate FUTURES, and phony deficit credit business, and the futures market is the only market you need. One buyer one seller.

    • Bobby Dents says:

      That doesn’t pump credit. The Fed tightened all during the 2017-18 reamp.

    • Wolf Richter says:

      Ambrose Bierce,

      “Place the chart of USO against WTIC and you see how “well” the two correlate.”

      OK, so now you got me going. Below is a normalized chart that shows the percentage change for USO from its inception and the percentage change for WTI spot price over the same period. USO is down 95.2% from inception (meaning a near total loss). WTI spot is down 48.4%. That’s a huge difference. Note how over the past 10 years, when the price of oil rose sharply, USO didn’t really recover. It just meandered along the flat line or went lower (click on chart to enlarge, via YCharts)

      • leo says:

        all you do it show a to me strange chart. without explanation , what use is it ? How am I to understand? and later REMEDY ?
        getting warned well after the robbery is of no use at all.

        • Javert Chip says:

          English much?

          Wolf isn’t attempting to give you a personal remedial class in “strange charts”; he’s actually responding to commentary from Ambrose Bierce.

          If you haven’t a clue about the conversation, either ask intelligent questions or STFU.

      • Yancey Ward says:

        USO invests in the further out futures than what you see in the front month driven WTIC- any waterfall decline like March/April is going to gut the ETF, wiping out all the profits made in from the normally unsteep backwardation. The chart of the WTIC tells you everything you should have expected to see before looking at the USO chart.

        The only time USO ever really was a profitable hold was in the quick run up in oil prices into the GFC- profits that were gutted in the waterfall decline of the 2008-2009.

        This ETF can only be used as hedge, not an investment. I don’t know who you investigate here- there is nothing nefarious in this performance- it is exactly what would be expected given the behavior of oil prices during the last 13 years. You make nickels for most of that 13 years except for 2007-2008, but the steep declines cost you dollars in 2008-2009, 2014-2015, and again this Spring.

      • USO has been less volatile than spot, and the two recently converged, providing some evidence that USO may actually be a better predictor of price. If you have been on the right side of this trade, short, you were better off with USO, which followed the trend. The markets on global crude vary, especially in ratio to one another, and during this period the US became an oil exporting nation, primarily to China, which manipulates their currency lower. One can rationalize the spreads.

  14. John Taylor says:

    It is kind of weird that they allow these structures To be built up and marketed to retail investors.

    People are used to a highly regulated world, where the food in the supermarket is safe to eat, the pharmaceuticals perform as marketed, and the investment products have a good chance of making money over the long term.

    As the article points out, it seems these funds are practically created to siphon off investor money to reduce the recurring costs of large swap dealers and commercial oil players in the futures market.

    • Cas127 says:

      JT,

      Parts of the macro structure in the ETF universe (what there are funds for and what there aren’t) do occasionally give off the vibe that certain ETFs classes may be more of a hedge/arbitrage for industry pros than really intended to be beneficial to civilian buyers.

      Also, the inside baseball mechanism of how ETFs arrange for theoretically continuous fair valuation (which admittedly works the vast majority of the time) also heavily, heavily relies upon insider institutional investors…who you have to wonder aren’t getting goodies in ancillary transactions with/from the ETF managers.

      In general, the ETFs have been a boon, but there are aspects of the industry that are more opaque/convoluted.

      And as Wolf points out, some ETFs make a surface retail pitch at odds with their actual operation…and it usually takes four or five yrs for this to become apparent, and then additional yrs to become widely known.

  15. NARmageddon says:

    The way I see it, the USO ETF is and was always a safe way for the oil futures market makers (the insiders) to front-run (fleece) a naive set of retail investors (the outsiders).

    The fact that USO would roll over its front-month positions into the next month position about 10-15 days before the expiration date made USO investors sitting ducks that would generally end up buying high and selling low in the futures market every month.

    I found this out the hard way at some point in 2008-2009.

    • sunny129 says:

      Those investors ignorant of CONTANGO and super contango got hurt really bad.
      There were warning articles to that effect at ZH, on the day wto went NEGATIVE. It even continued similar fashion for the next week or two. I made $ by buying short term puts and leap calls on USO. then it back to normal. it was just a short term trading opportunity.

      • Yancey Ward says:

        +1.

        I can’t figure out the complaint here- USO is perfectly open about how they try to make money, and if one doesn’t know what happens when oil goes into contango, then that is just tough sh**.

        • Cas127 says:

          For a long time, USO did not go out of its way to be clear about the time decay issue…which is at odds with its marketing.

          Disclosure halfway through a 350 page prospectus, at odds with the name and pitch of your fund…is not wonderful customer service.

        • Yancey Ward says:

          Cas, USO invest in oil futures contracts, how exactly is the risk of time decay hidden in a prospectus. All any investor had to do was see how much profit could be had by rolling over the present months’ contract into one only a handful of months into the future. Any idiot could have seen that the profits are small most of the time trading that way while the risks are enormous due to black swan events like the GFC and the present pandemic.

          And time decay isn’t that big a deal if you are only buying the contracts a few months into the future and in a commodity that is usually backwardation- the biggest problem is exactly what happened- oil cratered within a handful of weeks, wiping out the small profits made for multiple years.

          It is actually amazing the ETF didn’t go tits up. It might still happen in the next few months, but the management, to date, pulled a rabbit out of the hat.

  16. breamrod says:

    Wall Streets only real function is to fleece the public. Wolves dressed up in expensive suits. The most sociopathic place on earth!

  17. leo says:

    NOT satisfactory. Of course we think we are gambling on the price of oil. why is that naive ? I have done same on gold and silver ;why is oil different ? and how is it this apparent scam was allowed? ludicrous to say we didnt read the terms conditions.

  18. anthony hall says:

    West Texas Light dropped to below Zero and “World Health” Trump said he would buy a Gazillion Barrels for the US Strategic Reserve ; but he`s done F-All as usual. The US Frackers are being kept afloat with Printed Paper Dollars. Wall Street is a Total Fraud.

    • OSP says:

      Hang that one on the dims. Schumer called it a “bailout for big oil” and the administration’s $3B request to replenish the SPR was left out of the $2Trillion stimulus package…back of the napkin, that’s .0015% of the total stimulus. A move that was a win/win for everyone blocked by dims.

    • Fat Chewer. says:

      Tell me again about how you “buy” something that costs less than nothing. I must not have been in class that day.

  19. James says:

    Well…everyone should know that Jamie Diamond & his
    CHASE bank do in fact manipulate the Silver Futures Mkt
    along with 5 or 6 other banks, Canadian & UK & EUR; because it is so profitable both going long and short. Chase also pretty much has a corner on the physical Silver owning more than any other single entity on the planet.
    Reminiscent of the Hunt Brothers? Same deal with Gold Futures manipulation which as pointed out above was “investigated” by the CB of Trade themselves & SEC! LOL.

  20. OSP says:

    Disagree with this, Wolf.

    First, USO did a masterful job of avoiding disaster and liquidation of the ETF. Fund management had already rolled out of the front month a week before oil prices went negative and rebalanced their holdings to survive the bloodbath. These guys know what they’re doing.

    Second, some retail folks (95% of whom I’d wager never read the fund’s prospectus) got burned with the loss in their share value. Their losses would be the difference in buy vs. sell prices (if they sold). Worst case scenario those shares go to zero, limiting their loss to their original investment.

    Third, compare the above to holding the May WTI contracts that went negative – there was no limit to that downside.

    When retail investors do not perform their due diligence, it’s on them.

    caveat emptor

    I am a retail trader/investor and have held names that went to zero, also have held ETFs which were liquidated – ultimately receiving pennies on the dollar. I didn’t cry out to the regulators, just took my losses and moved on.

    Full disclosure: I held a small USO position when WTI went negative I did not sell, and added some shares prior to the reverse split. The shares have rebounded 52% since the negative-price fiasco, trading at 26.05 AH on Friday. My average share price is 32.50. Oil rarely stays down for a sustained period, so I’ll take my chances.

    • Bet says:

      XLE etf safer for oil

      • OSP says:

        Yes probably so. XLE is a bit diversified within the energy sector, USO is strictly a WTI play.

    • leo says:

      thanks for some genuine info. most of the comments on this subject are you are all idiots should have known to steer clear like their brilliant self. I got one response from one of those who chose to be gratuitously offensive for no reason I can fathom. should be banned.

  21. otishertz says:

    Perhaps they should investigate how ETF purchases and the mix of companies their managers choose, create destabilizing feedback loops and reflexivity, thereby distorting market prices and increasing market instability.

    Just kidding. Never gonna happen.

    The BOJ and Fed are buying ETFs for reason. They are a proxy to propping up markets which is now the sole central bank mandate.

    I might go so far as to say that ETFs are the largest marginal buyer in the US and as such they are setting market prices.

    I hear echoes of systematically important and too big too fail because retail investors largely abandoned managed funds for ETFs. If retail investors cash out all at once – big problems. Probably why the SPV mechanisms to purchase ETFs have been recently put in place by our privately owned money printer.

    • otishertz says:

      I have seen wide divergences intraday in the QQQ where the concentration of AAPL in their portfolio has diverged from 8-12% and screenshotted it.

      Prices are set on the margin, meaning the next incremental transaction sets the value of the entire pyramid below. That is some huge pricing power.

      If I was super evil and ran the QQQ or SPY I would get with the open market operations desk at AAPL and coordinate sales and purchases. You know, on a friendly basis for everyone’s benefit.

      • VintageVNvet says:

        BEE careful OH,,, my understanding is that similar runs have been done many times before, and, subsequently they are ”totally illegal” for us poor folks, some of whom have gone to the fed jails for 15+ years,,,
        But, OTOH, totally OK if you are a ”market maker” etc.,
        Just one more reason I have been OUT of the SM since early 1980s, but apparently some here took my place.
        Also out of commodities since 1984 for more or less the same reasons of total lack of communications of events in those days.

    • NARmageddon says:

      >> The BOJ and Fed are buying ETFs for reason.

      Fed is buying BOND, repat BIND ETFs. Don’t confuse people into thinking the Fed is buying stock ETFs. Not sure abut BoJ.

      • otishertz says:

        You are correct. Fed Bros, Inc. are buying junk bond ETFs right now.

        My point was the mechanisms and arms length SPVs that enable the Fed bankers themselves to buy bond etfs are facilities that can also pivot to buying stock ETFs on a moments notice. Just like BOJ.

        • NARmageddon says:

          Fed cannot buy stocks unless the law is changed. It is not at the discretion of the executive/government.

        • otishertz says:

          NarMageddOn,

          Consumers might think that the laws they read about in their confirmation biased social media matter in real time.

          Only thing that matters is the narrative. In order to believe the narrative, it is mandatory that you purchase a ticket to hold your point of view.

          The people selling tickets to you may not be your pals

          Our benevolent Fed has already bought bond ETFs and set up facilities to buy more ETFs of any type.

  22. Shiloh1 says:

    “A terrible thing happened. I realized I joined the wrong mob.”

    Lucky Luciano, after a tour of the NYSE.

  23. notpo says:

    Is it possible to short the oil ETFs? If so, why are more sophisticated retail traders not shorting them for humungous profits?

  24. Cobalt Programmer says:

    In mid-west, the joke is cops are minutes away when seconds matter. Now, here is SEC and their friends investigating a “probable cause” that was going on for years (or is it “decades”?). Better late than never, SEC stepped in to investigate USO and others.

    FDR was right. “to catch a crook, send a crook”. Please, send him a little early.

    • sierra7 says:

      Cobalt:
      “…. “to catch a crook, send a crook”.”
      If the historical fable is true isn’t that why Patriarch Joseph Kennedy was named head of the stock markets in his day?????……to catch a crook, send one…..LOL!

  25. Michael Engel says:

    2banana,
    1) ETFs decay in trading range.
    2) ETF collapse when the trend is against u.
    3) If the trend is your friend, B&H can work, if investor escape like a sparrow, before any major change of trend.
    4) Example : TNA, x3, small cap bull.
    Get in in with $1K 2009 @ 5. Get out after 2Y in 2011 @ 20, with $4K.
    5) Get in again @ 15 in 2012 with all $4K. Get out after 3Y in 2015 @ 40, with $10K.
    6) Get in with all $10K @35 in 2016. Get out after 1Y in 2017 @ 70 with
    with $20K.
    7) From 2009 with $1K to $20K .
    8) If investor missed and lost 50% in 2020, he still very profitable.
    9) If investor take profit at 5), save $1K and re invest only $3K instead of $4k. In 2016 his acc will be $8K. He is back again with $6K, saving another $2K, for total saving of $3K,
    11) In 2017 he has $12K from trading + $3K from saving, for a total of $15K.

  26. Thomas Wolfe says:

    Only way I’ve found to bet on a rise in oil is USL which holds a year’s worth of contracts, but even there it has some decay as each month of contracts are rolled.

    Or via XOP, a dividend paying ETF of US oil producers. Unfortunately it tends to follow ‘both’ oil and broad US stock indexes. I don’t like these types of investments where I have to be right on multiple outcomes or lose if I’m wrong on only one; as was the case last Friday when oil and USL closed green but XOP went red as the S&P sold off.

    Beside USO, markets seem made of up a great majority of poorly structured and sometimes fraudulent investments where risk greatly exceeds the potential for return. Worst of all are those that don’t track the underlying asset they claim to. Take JNUG and JDST as an example of long and short inverse levered ETN’s supposedly based on GDXJ. During the (sell everything) mid-March madness, ‘both’ fell -30% on the same day and have never recovered. I talked to one of Direxion’s reps and he just shugged his shoulders to say there were ‘market dislocations’. This was their way of saying, “If there’s money lost it won’t be their money…even if the fund fails to live up to it’s stated claim.” Not long after I received a letter stating that Direxion may even deduct gains from ‘any’ of their ETNs to make up for losses in ‘any other’ ETN. So when you think you’re betting on something like gold miners, you’re infact exposing yourself to totally unrelated losses in say oil or natural gas.

  27. Tim says:

    Oil still is going to be needed in 20 years’ time. Only if the politicians talk all at the same time will there be enough wind power.

    I guess the question will be ‘when should we have been investigating?’. We’ll have the answers on a page in 20 years time perhaps.

    Anyhoo, these ETFs. Weird opaque things. Never been attractive to me.

    Hey ho, interesting times.

  28. Doug says:

    Been a gambler since I was 14, learnt the hard way never gamble money you cannot afford to lose
    Worst bet, a Greyhound who fell over 20 yards from the winning line
    Best bet is always my next bet

  29. Island teal says:

    Oil, Ag, Au….they all have 2x and 3x ETF that bleed you over time w the decay factor if not manipulation. All are better suited for DT 😊😊

  30. Last Capitalist says:

    What about the ETF DBA (agricultural commondity index)?

  31. DanS86 says:

    So if buying USO is similar to buying futures directly, why does this ETF even exist?

  32. Dave says:

    By the way, I subscribe to a trading and risk management service and they had their analysts look into USO to try and deconstruct USO to determine what was its underlying base. They weren’t able to determine how it was constructed! They said they wouldn’t touch it. This was before the USO debacle. When USOs price dropped very low many of their subscribers were asking whether is was a good idea to buy USO because it HAS to bounce.

  33. MF says:

    The business-as-usual B.S. of oligarchs looting everyday salt-of-the-earth working people isn’t surprising. As horrible as it is, we’ve known about it for a long time and I, for one, am numb to it.

    What’s astounding is the depraved indifference of so many commenters making excuses for it on here. “Sheep” this and “buyer beware” that. What you don’t realize is you’re on the menu next. And you think you’re too smart to be fleeced. HAHAHA!

    Oh wait. Please excuse me. It’s not “looting” when billionaires do it. It’s “business acumen”. Looting is for poor people.

    • 91B20 1stCav (AUS) says:

      MF-…and the wheel of history, driven by the mighty engine of unchanging human nature, keeps on rolling…

      may we all find a better day…

    • Chris says:

      At least the sec and CFTC are now on the case. They will probably be sending out some letters to folks. That’ll show ’em.

  34. Rick says:

    Even today USO continues to make 0 sense. All oil futures contracts are down 2% across the board but USO is up?? They were frozen out of buying new contracts recently and said they would buy treasuries in their place but they are also down today. I guess no one cares or understands any of it as it trades $1 above NAV. It’s actually a perfect metaphor for Wall Street and all of its corruption and fraud.

Comments are closed.