Powershares SKF is Halted

The SEC has taken the drastic step of curtailing all short-selling in 799 financial stocks. As Harvey Pitt, former chairman of the SEC, stated on CNBC this morning, this is a very drastic measure which will probably wipe some people out.

A previous also risky instrument that investors have used to short or hedge exposure to financials was through the Powershares SKF, a two-time levered short fund. This fund continued in operation during the post-Bear Stearns ban. It traded yesterday morning as high as 153, and traded post-Bear Stearns at 210. It closed yesterday at 118, and traded this morning as low as 87, which was a post-Bear Stearns low. The volatility has been extraordinary. As I warned in this article, this thing is a disaster for investors waiting to happen.

This morning, this disaster was probably realized for many. It bounced up and traded around 100 while Paulson was speaking, and then Powershares halted it. There reason is that the underwriters can no longer place the trades that underwrite it.

When and if this thing ever opens, it may trade at 20 or it may trade at 300. Who knows? I am glad that I am not in it, because I know that with this type of volatility it would be weeks before I would be able to sleep again.