Trader’s Narrative

If you’ve read Irrational Exhuberance, you may recall reading about Robert Shiller’s aspirations to create liquid markets to allow for hedging of real estate assets. Now, that dream is reality. Shiller’s company MacroMarkets has created two products which allow anyone with a brokerage account to trade the wider US housing market.

Although they may look like ETFs, these are really derivative constructs, so tread carefully. Technically they are an ETP or Exchange Traded Product and come with a hefty MER of 1.25%. By now, we’ve become used to double and triple leveraged ETF products. So it won’t be a stretch that the MacroShares ETPs are triple leveraged to the underlying index they track.

The MacroShares products, UMM and DMM, have been trading for 5 days, and already made a 19% move:

The MacroShares Major Metro Housing Up (UMM) and the MacroShares Major Metro Housing Down (DMM) will be tracking the S&P/Case Shiller 10-city composite index. Although you may think at first that it would only be necessary to have one product, which can be held either long or short, it is necessary to have two because of the nature of the asset.

The MacroShares don’t actually hold houses as assets, but rather short term Treasury bills. They track the value of the S&P/Case Shiller Index through a simple mechanism: they shift assets between each other to reflect the underlying changes in the index every day.
Continue reading ‘Trading The S&P/Case Shiller Home Index’