Capitalist Cop: Signs Of The Apocalypse?

January 27, 2011

Deep thoughts about ETFs—some real, one imagined.

Occasionally I think it’s a good idea for a columnist to look back at what they’ve written as well as putting their reputation on the line by making new observations. This may just be a case of cabin fever as I look out my window at a new accumulation of snow here in the Big Apple, but this seems like a good time for both.

Oscar SilverI last wrote about my lack of gold fever in a column on Oct. 28, 2010. As is usually the case when taking umbrage with gold bugs, that column aroused some vehement comment from readers. The one that sticks in my mind the most was the reader who thought me foolish to stick to the equity market while they were going to get rich with gold.

Using a couple of ETFs as surrogate—the SPDR Gold Shares (NYSEArca: GLD) for gold and the iShares S&P 500 ETF (NYSEArca: IVV) for the equity markets—let’s compare. The closing price for GLD on Oct. 28 was $131.24. It closed on Jan. 27, 2011 at $127.93 and even my poor mathematical skills can see that is a loss. IVV closed on Oct. 28 at $118.86 and on Jan. 27 at $130.49; a gain of 9.7 percent. It’s a very limited time frame I know, but I take wins where I can.

I’m currently rereading a novel I hadn’t touched since my college days back in the ’60s: Ayn Rand’s “Atlas Shrugged.” Ms. Rand, I fear, didn’t quite foresee the future exactly right; but then few of us do. The United States hasn’t fallen into the vice grip of socialism or worse, though her warnings of things being too big to fail do have a contemporary ring. While I can chide her for her prophecy deficiencies, I now have a much greater appreciation of her skills as a novelist. Which all brings me to another issue I’ve written about recently—muni bonds.

Published reports suggest Congress may attempt to find a way for states to declare bankruptcy. And states—even the little ones—are pretty big. My ETF proxy for this will be the iShares New York AMT-Free Municipal Bond Fund (NYSEArca: NYF), since my positions are exclusively in New York State bonds. On Oct. 28, NYF closed at $107.05 and, almost three months later, on Jan. 27 of this year, at $100.81.

I would care more if I traded bonds, but I hold them for the income, and in the last three months, not a bond payment has been missed. There are concerns, especially if in Ms. Rand’s novel, Congress gets to meddling, but for now, the buy-low imperative might be more relevant.

In my looking-ahead category, is now the time for a mega-yacht ETF? The New York Times reported that recently a 257-foot yacht with a helicopter pad, two Jacuzzis, an on-board movie theater and a lot of other really cool stuff sold for what they thought was a bargain price of only $100 million. If someone wanted to get in at the bottom of the yacht market, now might be the time. I’ll even suggest a ticker symbol—“RRBB”—for really, really big boat. And trust me, for cash, someone will create a yacht index for you.

Is GLD low and a buy? Is NYF a buy at these levels? Is it a sign of the apocalypse that big boats are selling at so-called bargain prices? I don’t think so. It seems more like usual market activity to me. A Cop’s first responsibility is to observe what’s going on in his beat. And, for now, everything looks pretty normal.

Oscar Silver, aka “The Capitalist Cop,” is a Brooklyn, N.Y. native. He was a financial advisor for more than 20 years.

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