April 21, 2008 at 2:00 pm by Tom Lydon
If a plan to eliminate the gas tax this summer goes through, what could it mean for exchange traded funds (ETFs)?
Sen. John McCain proposed ditching the tax, which would shave 18 cents per gallon off the price of gasoline between Memorial Day and Labor Day. But not everyone is convinced this is a good idea. Charles Delvalle for Howe Street says if he filled up his 17-gallon gas tank four times a month, he would save $12.24 per month. With that savings, he’d be off to the supermarket.
But Jad Mouawad for the New York Times reports that while it sounds like a good idea, it could have an opposite effect on the price of gasoline. Lower gas prices could lead to more demand, which could lead to…higher gas prices. Sounds like we’re running in circles. Isn’t consumption part of what lead to this problem in the first place?
If the plan actually passes, Delvalle suggests hedging the rising cost with the United States Oil Fund (USO), which is up 23.7% year-to-date. USO’s provider, Victoria Bay, also launched the first ETF to track gasoline futures on Feb. 28: the United States Gasoline Fund (UGA), which is up 10.7% year-to-date.
The dollar could weaken under this tax cut, as well. Hedge that with the streetTRACKS Gold Trust (GLD), up 10% year-to-date, or the iShares Silver Trust (SLV), up 20.4% year-to-date.
For full disclosure, some of Tom Lydon’s clients own shares of GLD.
April 21st, 2008 at 3:08 pm
You meant to say UGA, not UNG. UNG is natural gas. UGA is gasoline.
April 21st, 2008 at 3:18 pm
Alex,
You’re right…thanks for the catch.