Subject: N/A
From: Fred Schultz

Mar. 18, 2020

Comment on SEC Proposed Rule #S7-24-15: 

I'm against any actions you take to alter or limit investors to invest in leveraged/inverse funds for the following reasons: 
1) Any action you take against investors liberties would be deemed as politically motivated as an attempt to make markets go only in one direction that is up, the premise is naive at best. Such action/regulation will be deemed as anti-capitalistic. 
2) Any such action will have unintended consequences because the all-time and numerous rallies that led to that point were in fact short covering rallies. Without shorts/inverse funds the markets would never have achieved anywhere near those highs, you will further destabilize markets in a negative fashion, and the markets will not recover! Investors will not be able to hedge their risk, that mechanism will be gone. Also, you will destabilize the entire professional market analysis industry. 
3) Recent real time actions are proof that government intervention have unintended reverse effects. President/Secretary of Treasury announces he wants the fed chairman to lower fed funds rate, stocks further tank than treasuries bonds make an all-time high that quickly reverses despite announcement of intervention with treasury buy back. Days later (today) 30 year treasuries down as much as 24 (770 + ticks) basis points in short order from their recent all-time high. A potential crash in treasuries exacerbated by Government Intervention who failed to understand the basics that the “The Market”, not “The FED”, determines rates then the FED follows the markets. Investors are demanding higher rates not 0%, this new trend will continue. Government actions caused short term exuberance, investors quickly lost hard earned savings because bonds reversed, unintended consequences. The lesson here is better to do nothing and keep the status quo. Do not succumb to political pressure, it’ll be disastrous to the markets. 
4) The essence of capitalism is speculation/risk. Markets that achieve extreme exuberance or extreme pessimism are ripe for reversals especially after elongated periods. Markets have been kept afloat because of cheap money policies since 9/11. There is a tendency to explain away that this as an unknown or unpredictable causation such as COVID-19, yet the virus was known for months before numerous markets achieved all-time highs. There is only 1 prevailing axiom that is the fear/greed cycle, markets (Stocks, Bonds, Metals etc. etc.) achieved daily sentiment readings bulls to bears mid to upper 90%, small investors ran to brokerage firms double fisted with cash at market tops, people and headlines assumed Dow 30K, 40K (and 100K), that is the final straw, then the markets finally topped with the quickest reversal in history. The markets are yelling Deflation, go to cash (52 weeks high in the dollar), no regulation will stop the forces of the market, and it will only exacerbate it. 
In closure, the best thing you can do is not limit investor's freedom to invest. You will no longer have short covering rallies from an important bottom where knowledgeable investors who were bearish then become bullish. There will be no protection to hedge a portfolio of stocks. Further regulations will lead to a bear market of unpresented length, an unintended consequence for messing up markets with government intervention that will last decades until the regulations are finally undone. If these regulations are approved, history will record that the SEC made a blunder that had unintended consequences due the proposed regulation being adopted. Simply put, leave capitalism alone, “laissez-faire!” 

Fred Schultz