Comments on: MacroShares Major Metro Housing Up and Down Shares (UMM) and (DMM)

By: Macroshares housing ETF UMM and DMM close down

Macroshares housing ETF UMM and DMM close down — Tue, 05 Jan 2010 00:48:22 +0000

[...] July I wrote a longish post about two exotic ETPs – Macroshares UMM and DMM, which were a 3X leveraged ETP, for the housing market. These were similar to an oil ETP (UOY), [...]

By: Barry

Barry — Wed, 29 Jul 2009 05:48:15 +0000

I think one thing that might be lost on the author and commenters here (except for Rob K) is that for most individuals, the primary purpose of these products is risk management. Many people are *already* exposed to (excessive) real estate price risks that they should diversify away. If you’re planning on buying a house in one year and currently don’t own one, then you’re exposed to the risk of higher costs in the future. Similarly if you plan on selling in the future, and moving into a rental, you can hedge risks of declining prices. That exposure might just be too large, or not one that you want to face at all, considered as a part of your total portfolio.

By: Rob K

Rob K — Wed, 15 Jul 2009 16:24:07 +0000

good article, definitaley not for everyone, but s/b interesting to many. i watch them every day. a few points are worth noting or revisiting.
– (3x) leverage factor is applied to cumulative index performance (vs daily index performance of ETFs). this avoids the constant leverage trap for buy and hold investors, which is different for sure. But remember, PRICES of the macros will not track the 3x index change (although nav will).
- so as individuals, UMM and DMM trade at prem&disc mkt prices vs NAV (makes sense they do). the sponsors (including Shiller) claim this creates price discovery in a huge ($20tr) and inefficient mkt. they now translate umm/dmm share prices each day into “implied Future home price change”. this will actaully be interesting # to watch esp if volme grows big
- there is arb with these things – just different vs ETFs. The arb/price discipline is re the PAIR (vs umm dmm individually). see http://www.macromarkets.com/macroshares/understanding_uv.shtml
- tho I dont know how shiller-10 relates to my house, you certainly could at least hedge against future broad housing mkt declines with dmm. This might not be a bad strategy for those not smoking grn shoots or have houses in mkts w/corr to the 10 index. not w/o doing homework tho – need to understand basis betw index&exposure, hedge dur/term. possibilities. also hedge cost with dmm at a premium to NAV its sort of like an insurance premium, so you can only hedge against future prices falling BEYOND the @ 8% cum fall currently baked into the market price). no japanese garden, but cant think of a better more direct way to short housing mkt, esp if your horizon = dmm maturity short homebldrs, reits, lumber? i dontthink so (any ideas?)

By: Bob Shreve

Bob Shreve — Wed, 15 Jul 2009 11:44:00 +0000

I think these micro-niche products should have been called UMM and DMMER.

By: Gary Lucido

Gary Lucido — Wed, 15 Jul 2009 02:48:56 +0000

There are a few other nuances here that are important. The early termination triggers are significant and can explain the unusual trading of these shares – i.e. I don’t think UMM would be so low if it didn’t have a risk of terminating early. Also, it’s not enough to be correct on the direction of housing prices when buying these. You have to be more correct than everyone else buying and selling them. I discuss this a bit more here: http://blog.lucidrealty.com/2009/07/07/buying-and-selling-houses-on-the-stock-exchange/