Comments on: Here Comes the Commodity Index Rebalancing

By: thenewguy11

thenewguy11 — Thu, 08 Jan 2009 21:29:40 +0000

It took thirty seconds to find the rebalancing methodology for the DJ AIG index. Check out page 3.

http://www.djindexes.com/mdsidx/downloads/aig/methodology/DJ-AIG_Commodity_Index_Methodology.pdf

The idea that the index providers are manipulating commodity prices for political reasons is ridiculous, especially considering it happens every year.

By: Iconoclast421

Iconoclast421 — Thu, 08 Jan 2009 18:45:03 +0000

Commodity rebalancing wasnt really the cause of falling gas prices in 2006. It might have had some effect (10%?), but the trend was already set by the breaking of a 22 year trendline in VMT (vehicle miles traveled)

http://anythingexceptthetruth.blogspot.com/2008/10/proving-how-peak-oil-caused-financial.html

By: ben22

ben22 — Thu, 08 Jan 2009 04:13:25 +0000

Barry,

This is really good stuff, thank you.

By: AGG

AGG — Thu, 08 Jan 2009 03:24:48 +0000

“Doesn’t it make sense to rebalance your winners and losers overtime?”
The infuence a given commodity has on an index should not be based on what a great investment it is but should reflect an accurate portrait of its’ contribution to the overall economy. For example, when silver was no longer a product required in photography due to charged coupled devices and computers, this reduction in importance merited a rebalancing. If a type of heavy water (H2O where the Hydrogen atoms are made of the isotope Deuterium) is found to power clean engines efficiently, then Deuterium not only becomes a profitable investment but it merits rebalancing as a “commodity” because it is replacing oil at least as an energy source. Under normal conditions, supply and demand (Mr. Copper has a phd in economics) NO rebalancing should occur. If tomorrow someone can produce gold as cheap as copper, that would merit a rebalancing because gold is a better electrical conducter and a superior source for water pipes and plumbing in general. The way they jacked around with corn because of the oil mania is criminal. It was pure greed and has caused a lot of hunger. But that’s another subject. Anyway, I do believe oil merits a smaller presence in the index because every country and his brother is getting into the wind and current energy ball game.

By: AGG

AGG — Thu, 08 Jan 2009 03:03:48 +0000

Barry,
I think we’re in for a serious attempt by the Government to corrupt our concept of the value of certain commodities. They’ve already corrupted the hell out of the value of stocks. Their power to tax has replaced gold as the “intrinsic” backing of the dollar. So we are left with the unsaid message: If you have control all the force, you can force people to cow tow to any wealth destroying fantasy you push on them.
Hold on to your wallets, folks.

By: AGG

AGG — Thu, 08 Jan 2009 02:51:24 +0000

“(I do not buy the conspiracy theories, but I am aware of them).”
Why not?
Conspiracy is merely the gaming of a system used by many for the benefit of the few.
Conspiracy becomes fraud when profit is achieved from said gaming.
The commodities index graph with this (_—”’) pattern is good for chumps (investors).
This pattern (””–..’.-.) is bad for business.
This isn’t hard. There is no integrity in the system so conspiracy and fraud are the norm.
Machiavelli is their god and he said that men are ruled more by appearances than reality.

Now I’m aware of the sporadic outbreak of honesty and integrity and I DO buy them.

By: thegreendragon

thegreendragon — Thu, 08 Jan 2009 02:50:27 +0000

It does makes sense if all the ceneral bank are going to make a coordinated move to sell Gold!! Bermoneky stated it in his House testimony. The last thing the US empire can do is allow the purchasing power of the dollar to go down–how would it rule the world. Plus, are whole monetary and financial system is based on inflation (IE the world) of course oil is going up–Petro-Dollars

By: ndmaster

ndmaster — Wed, 07 Jan 2009 15:58:53 +0000

Don’t know about the GSCI, but DJAIG explicitly states that they will rebalance the same time every year. A rebalance forces buying low and selling high. WHat’s wrong with that?

By: Renting in Mass

Renting in Mass — Wed, 07 Jan 2009 15:32:31 +0000

If I wanted to undermine the Obama administration’s ability to help the economy with stimulus spending, I would tweak the price of oil. I don’t know if that’s what is happening here. It’s not like the outgoing administration has any ideological reasons for wanting to show that stimulus spending doesn’t work…

By: Andy Tabbo

Andy Tabbo — Wed, 07 Jan 2009 15:11:38 +0000

I’m not sure I agree with those conclusions Barry. The fact is that GOLD has radically outperformed energy on this last big DUMP. Doesn’t it make sense to rebalance your winners and losers overtime? GOLD is dramatically overvalued v. oil, and I actually think it makes sense to rebalance it a little.

Also, the reason they got rid of the gasoline component to the GSCI a few years ago was due to the Spec change from RFG to the gasoline component, RBOB. The Rbob contract was extremely small and untested. There was no size there at all. So, it would have been irresponsible for the GSCI to stay in the RBOB in the beginning of that contract’s life.