A new proposed product from Macroshares will allow investors to purchase Up and Down ETF shares based on the movement of the S&P / Case-Shiller Composite Index (see WSJ article). Unlike some other similar ETFs, the proposed shares will not be backed by the physical asset, such as you might see with gold ETFs. Therefore, there will not be a specific artificial commodity bull market as the physical asset is bought to cover the demand for new shares (too bad for all those homeowners underwater). Here, the cash is put into government securities to ensure liquidity, creating a kind of zero-sum game as cash is moved from one account to another as housing prices, and the Case-Shiller index, move up and down in price. Obviously, if there is more demand for one type of share, this side of the bet is likely to trade for more than its net asset value, while the other side will trade at a discount. The zero-sum game structure also places a cap on profits since a positive move of 100 percent all but clears out the down shares, causing an automatic liquidation of shares.

While such a vehicle will get some attention given its tie in to the Case-Shiller index, not to mention offering a new and more liquid method for taking on housing exposure, it is likely that only a select set of builders and highly mobile executives on the coast who are looking to hedge their risks will find much use for this specific ETF (see article for past failed housing products). Speculators, of course, will be looking for significant daily liquidity before stepping their toes into the water. Time, and a potential housing recovery (or further bust), is probably needed before people will be encourage to bet with or against housing in this manner.