Clive,
RE:If AIMing the 1x Long ETF and using the Double Inverse for the Cash portion had those negative attributes, would doing the opposite reduce those effects?
This was a bad question on my part. Of course, there would be no negative compounding on the 1x Long ETF -- only on the 2x Inverse ETF. By doing the opposite, I would actually increase the negative aspects by adding the second inexact ETF. Both the 2x Long and Inverse ETFs (2x and 1x) would have this problem. It is my understanding that the 1x Inverse ETFs are not perfect reflections of the underlying ETFs; that is, they do not go down or up the exact amount that the primary ETF did each day.
So the proper question in my mind would be, Would the negative compounding be noticeable? The only legitimate comparison for the 2x Inverse (or Long) would be to what the Cash component would actually achieve--not to the 1x Long ETF. Isn't that why many of the posters are using other substitutes for Cash and even Mr. Lichello wrote about a scheme to enhance the Cash side of the equation.
I believe my suggestion would be equally neutral, but an unnecessary complication when compared to Earthpet's plan. Equally neutral because I would be AIMing the 1x Inverse ETF--not comparing it to the 1x Long ETF. AIM would treat it as a "stand alone" investment and would not recognize the inherent inexactness because it doesn't compare it to the 1x Long ETF. And more complicated because it would be turning the market upside down, similar to interpreting the VIX.
Regards,
Bob
