The Myth of Market Manipulation

[SD Wild/OBG]

This monthly chart below is the Raw Industrial Materials Index comprised of 22 commodities NOT traded on any exchange anywhere, such as iron ore, sulpheric acid, silk, tallow, rubber, etc.

http://www.crbtrader.com/ data.asp? pa...ncelstudy=&a=M

Compare it to the monthly chart below of the index comprised of commodities that DO get traded on a futures exchange....

http://www.crbtrader.com/ data.asp? pa...ncelstudy=&a=M

If I believed the impossible, that is that gamblers can change the shape of a monthly commodity chart, then I'd be forced to conclude that Index Funds are suppressing commodity prices. Its a theory that makes some sense, until one realizes that specs can't hold spot positions after First Notice Day. Once a contract is in delivery, its just physical buyers n sellers in the game.

While its true that every countrry with a trade deficit defaults on its debt with inflation, the bottom chart shows this isn't happening just yet.

An economic recovery can't happen without cheap commodities. Because we consumed all the worlds easy iron ore, phospherous fert, and oil last century, flow rates of such stuff will drop ever lower this century. Forget about the old growth model.

[SD Wild/OBG]

Whoops! I put this thread tegether using only my Droid cell phone, bear with me plz... the links to the two charts above are,

1) http://www.crbtrader.com/data.asp?page=chart&sym=BVY00&domain=crb&studies=Volume;&cancelstudy=&a=M

TThis first chart is of stuff NOT traded on futures exchange.

2) http://www.crbtrader.com/data.asp?page=chart&sym=CRY00&domain=crb&studies=Volume;&cancelstudy=&a=M

This 2nd Chart is of ccommodities that ARE listed on futures exchange.

[zman343]

You make a good point but I could counter that each of those commodities in the raw industrials index is linked to a commodity that is traded.  Also cotton is in the raw index, which is traded and at its highest price in over 100 years.

In markets where you basically have just users and end users, you get more volatility.  You can still have manipulation in pure cash markets.

But also we are not comparing apples to apples.  Where would prices of these commodities be if they were traded?  Just like where would the prices of traded commodities be if they weren't traded?  Both hypothetical questions.

[SD Wild/OBG]

My guess is that scrap iron would be far cheaper today if it was traded. Hangover effect of spooked producers. Ultimately though, spot shortages would occur and fundamentals would send it through the roof.

Cotton is also in the 2nd chart. Its not helping that chart's lackluster performance.

The other 21 commodities in the raw material index are not listed on a futures exchange, they are all doing well thanks to resource constraints.

[hardnox604008]

Hi SD/OBG,

This is a good topic in its own right although I would say that my post below about the judge's comments on CFTC administrative law is more about run of the mill manipulation and fraud than about the index issue. And without question those became endemic in virtually all public markets during the Clinton And George II admins.

On indexers, I do know that we simply don't need them, never did. The only legitimate public purpose of non-hedgers in the market is to provide liquidity to the legitimate hedgers. Long only players by definition can't do that.

The other thing is the risk to legitimate interests when all the money swings one way (sell the dollar, buy anything) kind of trade. Shareholders of Verasun or the farmers who lost big and may lose bigger on that deal are an example of the sort on unnecessary carnage to legitimate production that ensues when it comes apart.

On the non-exchange traded items I'm thinking that is as much a monetary phenomenon as anything- as I'd suggest is the price of oil or corn also. However I'm not really prepared to try to connedct the dots on that- might think about it over the weekend and see if there's anything that might be worthy of discussion.

Best, h

[SD Wild/OBG]

Thnx for the reply Noxie! I understand your manipulation thread is on a seperate subject, my only thoughts there are that the best regulation is a good ol fashioned blood-letting. Losing$ $ is a great way detterant. When gov't gets involved, folks think safety. The bubble blows bigger, and the taxpayer picks up the tab.

As always, Lassaiz-Faire is the answer.

PPersonally, I learned to avoid brainy money schemes. The hard way. My punishment for malinvestment a few years back is why Im successful today.

I'm touring WI. So much nicer now than it was a few years ago when I lived in WI in my car...

[hardnox604008]

Hi SD,

I would agree but these are very confusing times. Well intentioned folks are being used to play the anti-regulation theme on behalf of people who won by rigging the game.

A rigged market is not a free market.

We've witnessed a massive failure of government but a large portion of it was the failure of government to enforce the laws that were in force as money interests captured the regulatory process.

To have reasonable oversight of bnaking and financial interests isn't socialism- it is merely a basic matter of self-preservation.

Best, h

[Palouser]

Couldn't agree more!

[zman343]

Along the lines of manipulation, I was reading a few articles the other day about Ordos, China.  A new town built to hold over a million people with all the amenities you would want.  Alot of the property is sold but almost nobody lives there and it is essentially a ghost town.  Most of the property was bought as an investment to cash in on the hot real estate market (bubble???).  Supposedly there are many other towns like this that were built and are in the same state, empty.

It's no wonder China is showing huge growth rates and burning through commodities when they are building all of this excess capacity in real estate, alot of which will never be used.  I think this is going to end badly just like it did here.  If you want to read more into it just Google Ordos, China (you might already know about it anyway).

[Palouser]

You need to do more research into that situation. Try and find a nonpolitical site. Or maybe Snopes.