UMM/DMM Housing Derivatives in The Economist

August 22, 2009

by Scott Sambucci


There are varying opinions across the media and financial blogsphere about Macromarket’s recently launched MacroShares housing derivatives, though most of the opinions tend to be negative. There are warnings about the danger adding more speculation to the housing market and those that simply refer to these investment vehicles as the “Two Horsemen of the Apocalypse” with open criticism about the underlying pricing of these securities.

If you haven’t heard, the MacroShares exchange-trading housing derivatives provide any investor the opportunity to trade the housing market by purchasing “up” (UMM) or “down” (DMM) shares. (Here’s a more detailed explanation of how these work.)

But with all of the criticism about the wisdom of establishing such a vehicle, a recent article on the The Economist crystalizes why trading the housing market makes sense:

FIRE insurance was not given much thought until the Great Fire of London alerted people to the danger of combining dozy bakers and wooden houses. It took two world wars for life insurance to take root. Some think that the housing meltdown is poised to be a similar catalyst for derivatives that allow investors to hedge against movements in the price of residential property.

Exactly.  I’m on board.  (And I made some cash last month in my personal IRA using our market data here at Altos Research to buy UMM at 18.95 and sell at $25.70, so sure, I’m a little biased…)

Read the rest of the article on

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