The problem is not the Fed - the black swan problem is something completely unexpected happening overnight ... major earthquake in LA, sudden war started by a rogue state, nuclear disaster, solar flares damaging cities, tsunami on the West Coast, meteorite hitting earth, people stopping buying Treasuries overnight, perception that world is running out of oil, etc. The chance of any 1 incident happening might be 1 in 5 billion, but cumulatively, the risk might increase to, say, 1 in 15 million. If that event occurs, the stock market might drop 10% overnight, but SVXY could get nearly wiped out. That's why it's better to trade this cautiously. If I trade this and get 10% gain every 3 months, that's still enormous gains over the course of a year.
It's not fearmongering - it's the mindset that's more important. I start out with the premise that markets are inefficient, that markets and financial system are very fragile, that markets and financial system can collapse ... once I accept those premises, then I see the world in a different light. This caution served me well especially during financial panic of 2008 - I didn't lose a dime during that entire crash. When the panic reached a crescendo in 03/2009, I started buying. When things go haywire, it's unreasonably-optimistic people like you who panic like crazy who yell "the world is collapsing." Ironically, it's the skeptics who buy during the height of the panic.
Lehman almost took down the entire financial system in US, U.K, HK, Tokyo and Singapore - basically the entire global financial system. A derivatives blowup in China will ripple through entire global financial system - you don't think there's a tiny, tiny miniscule chance of this happening when banks hold trillions of dollars of derivatives?
All I know is that another collapse is coming - it could happen in 1 year, 5 years, 10 years or 100 years later, but it will happen, and by exercising caution, I hope to be out of the market during that entire time.
Let's assume that VIX continues to spike and the contango effect widens such that 30 days from now, the cash VIX is 30, Dec. VIX is 40 and Jan VIX is 50. It seems to me that under this scenario, the SVXY would not have declined by much at all, even though the VIX has skyrocketed, because of the huge contango effect. In other words, what matters most (for purposes of determining the SVXY price) is not so much the changes in the VIX price, but the changes in the Dec. and Jan. VIX relative to each other. Has anybody done a rough simulation to calculate the rough price of SVXY if the above were to occur?
$32 million in revenues which is about $130 million annualized and the company is worth $4.6 billion? And the company lost $38 million? Gimme a break. The bubble is bursting on this stock.
If not, this could go down another 50%