Black Swan…The Day After the $XIV Titanic

I have a lot to share in this post but I will start with how I feel.

First, I am glad that I shared my story yesterday about losing money. I do appreciate the community on this blog and Stocktwits. Hundreds of people have reached out via email to share their $XIV horror stories. I am convinced there will be class action lawsuits. While I have never taken part in one, I will do so against Credit Suisse and the ETN providers.

While I feel better for sharing, I am embarrassed. I doubt that passes.

I am also pissed.

The market did what I thought it would do when I bought $XIV at the close yesterday. We rallied very hard off the lows of last night and closed at the highs of the day.

On any other day in the history of this product, I would have made a profit selling my position this afternoon.

I was using the product for exactly the reason it was created.

I waited patiently over the months and years for a record explosion in volatility and I believed that the price I was quoted was real based on the ALREADY record move in the VIX. Not before.

Credit Suisse ripped people off (my opinion) and likely violated securities laws by not halting XIV in the after hours session on NASDAQ.

We can vote with our wallets by boycotting all Credit Suisse Cheese products.

END.OF.RANT.

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Now for some inside baseball on this subject for people that want to read on…

First a laugh from The Fly on what the Credit Suisse Cheese fine print on $VIX documents really should read:

I would read all prospectus if The Fly could write them.

Here is what the chart looked like this morning:

This is no boating accident!

Here is a chart that really explains what an outlier this is (SPY vs XIV) but also why the SEC should stop all Credit Suisse products and ETN’s immediately:

Bloomberg has a good piece on these destructive volatility products. So far $2 billion of the $8 billion is vaporized but it’s likely trillions in risk that is related to these vehicles.

Here is how Credit Suisse did all this without losing any money.

Ophir had this post mortem that is really good. The real lesson:

It’s a reminder that the real danger to a portfolio is not a bear market — we recover from those quite nicely as a nation — it’s the delirium that happens when a bull market gets totally out of control and margin is used excessively in a spurt of just a few days. And by margin, we don’t mean normal, everyday investors, we mean the institutions — even the ones we entrust to be custodians of our investments.
So that’s it. XIV likely would have done just fine after this moment in time in the market, will not be given that opportunity to recover. It has been blown out on the heels of yet another Wall Street debacle, which no one seems to even understand, yet.

Originally published at Howard Lindzon.

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