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Hao Jin, LinkedIn (1 click)
Portfolio strategy, ETF investing, long-term horizon
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The 1920s and the 1990s both had stock market run ups that were linked to technological innovation and large increases in intangible capital. The dominant view in prior research is that the stock market increases of the 1920s were the result of speculation. An article published in the September 2008 issue of American Economic Review states that these increases were the results of new technology and intangible assets.

Liaquat Ahamed, author of Lords of Finance - The Bankers Who Broke the World, reveals in his book that the primary cause of the 1929 economic meltdown was the decisions taken by a small number of central bankers. Those bankers believed the greatest threat to capitalism was inflation, and the solution was to turn back the clock and return the world to the gold standard.

The table below shows the top 20 ETFs by net assets as of May 31, 2009. It also shows the percentage changes for net assets from March 31 to May 31. Within those 2 months, the SPY price increased by over 16%. However, SPY’s net assets only increased by 1.6%. SPDR Gold Shares (GLD)’s net assets increased by 11.4%, mainly because Gold price increased by 6.6% over the same period. Seems like people moved money out of SPY and into emerging markets such as EEM.

Fund Name
Ticker
Net Assets (May)
Net Assets (March)
% Change
SPDRs
SPY
63.7
62.7
1.6%
SPDR Gold Shares
GLD
35.1
31.5
11.4%
iShares MSCI Emerging Markets Index
EEM
30.8
17.0
80.8%
iShares MSCI EAFE Index
30.2
23.2
30.1%
iShares S&P 500 Index
17.7
13.0
36.6%
PowerShares QQQ
QQQQ
13.4
10.3
30.2%
iShares Barclays TIPS Bond
13.2
10.2
28.9%
iShares iBoxx $ Invest Grade Corp Bond
11.5
8.7
32.7%
Vanguard Total Stock Market ETF
10.2
7.6
33.2%
iShares Barclays Aggregate Bond
9.7
9.7
0.0%
iShares Russell 1000 Growth Index
9.4
8.0
18.1%
iShares FTSE/Xinhua China 25 Index
9.3
5.3
74.6%
iShares Russell 2000 Index
9.2
6.9
33.2%
Vanguard Emerging Markets Stock ETF
8.8
4.5
96.0%
iShares MSCI Brazil Index
8.4
3.9
115.9%
DIAMONDS Trust, Series 1
7.2
7.3
-1.2%
iShares Russell 1000 Value Index
7.1
5.8
22.1%
iShares Barclays 1-3 Year Treasury Bond
7.1
7.3
-3.0%
MidCap SPDRs
6.5
5.1
27.8%
iShares MSCI Japan Index
5.3
4.2
25.7%

Source: Yahoo Finance as of June 11, 2009

According to the World Gold Council (Source), it was estimated that all the gold ever mined totaled 161,000 tons. 19% of that is held by central banks. Annual mine production of gold over the last few years has been close to 2,500 tons and annual demand is around 3,600 tons, which includes jewelery, industry and investment.

The central bankers have powerful tools, specifically their authority to print currency and their ability to marshal their large concentrated holdings of gold. The ultimate goal for a central bank like Fed in a financial crisis is simple: to re-establish trust in financial system.

Last month both Standard & Poor's and Moody raised worries that the United States could lose its "AAA" rating. If potential US government downgrade, supply-demand and North Korea’s nuclear testing could not push Gold above $1,000/oz, I wonder whatever could?

Disclosure: I have a long position in EEM, EFA, QQQQ, SPY and TIP.

Source: What Does ETF Money Flow Tell Us About Gold?