Priming the Pump

Scratch a financial conspiracy and you'll discover Goldman-Citibank underneath...

Running on Empty by Rob Kirby

"While I “welcome” cheaper gas just as much as the next guy, I also like to get my head around the reason[s] for precipitous price movements – particularly in prices of commodities that have such a profound influence in my life. After all, it’s often said that knowledge is empowering, isn’t it?

One person who did not “miss it” was Bill King – he of the King Report fame. Not only did Mr. King “not miss it,” he quickly understood the implications of the content of the article, namely that,

Goldman Sachs [on July 12] tweaked the composition of their “benchmark” Goldman Sachs Commodity Index [GSCI].

Prior to Goldman's revision of the Goldman Sachs Commodity Index in July, unleaded gas accounted for 8.45% (dollar weighting) of the GSCI. Now unleaded gas is only 2.30%.

So What’s Wrong With This?

As Bill King points out,

“Goldman's changes probably induced arbs, commercial hedgers, and other traders to sell September and October unleaded gasoline future contracts to avoid possible (settlement, delivery, etc.) problems.

September futures expired in August; October contracts expire September 29. So unleaded gasoline prices collapsed in August and September.”

I would like to “restate” what Mr. King said: What this means folks, is that hedge funds and institutional money that “TRACKS THE INDEX” were FORCED TO SELL 75% of their gasoline futures to conform with the reconstituted GSCI. And if anyone hasn’t noticed the timing of the price of the gasoline price collapse…just in time for November’s Mid Term Elections!

So don’t be fooled into believing that potential energy shortages have “magically been solved.” In all likelihood – much of the recent decline in the price of gasoline we have all “welcomed” has been the result of paper tricks being played on what amounts to a wealthy flock of sheep.

But in the meantime, filler up!"

Oh, and by the way: 42% of Americans believe the fall in gas prices is just political maneuvering.

Comments

[Paula]

So how does this work exactly? Do hedge funds and whatever invest in various commodities in the ratios listed in the Goldman-Sachs index? Why would Goldman-Sachs' tweaking that number force anyone to sell anything?

[b]

How does that explain the drop in crude?

[Steven Lagavulin]

Here's the way I understand it:

It's sort of a domino effect really. Certain fund companies will buy the GSCI index outright, some will use the GSCI as a "benchmark" for their own portfolio holdings, and many others will simply trade the GSCI index futures. In this respect it's a very popular index, I might add. So when Goldman decides to "jiggle" the holdings in the index a bit, it forces pure and benchmark players to follow their lead, and this in turn entices the futures traders to align themselves with the new trend as well.

Now a LOT of money is being moved merely by the whim of Goldman Sachs, but really this is all about TIMING. The "coincidence theory" is that the decision to adjust the index was timed to correspond with the beginning of a correction period--to make sure the correction had a solid "umph" behind it. The lack of hurricane activity ("Generals always fight the LAST war" as they say), the slowdown in the economy and the end of the summer driving season all had traders itchy to go short anyway...

Goldman is brilliant at this kind of thing. Robert Rubin, who was Clinton's Sec. of Treasury, came from a Senior Partner position at Goldman (he served at Citigroup as well I'm pretty sure, not to mention the NYSE Board). I can't even remember how many times the Clinton administation "influenced" the markets with precisely-timed announcements. I'm convinced Rubin--even more than Greenspan--was the string-puller behind much of the stock market run-up in the late '90's.

[Paula]

...fund companies will buy the GSCI index outright...

This would mean then that fund companies holding GSCI index shares do not actually sell anything themselves, but rather Goldman-Sachs sells their own holdings in unleaded gas, and it is reflected in the holdings of these fund companies. Is that correct?

...some will use the GSCI as a "benchmark" for their own portfolio holdings...

These companies would sell their unleaded gas holdings to match Goldman-Sachs, is that correct?

...many others will simply trade the GSCI index futures...

What exactly is "a future" ?

This is where I get hung up on finance. So little of it seems to refer to actual, tangible things I can hold in my hand, or pick up at the store. When people start talking about futures and derivatives and things like this, it blows my head apart because as far as I can tell, they're discussing things that don't actually exist. How is this not fraud?

I sometimes wonder if I couldn't get away with selling Allegheny Futures, where people buy pieces of paper that I printed out on my inkjet printer that say "the Allegheny Mountains will see mining and housing development in the next 10 years." And by the mystery that makes other pieces of financial paper worth money, these would be worth something too and people would buy them for... I dunno, $100 each... and I could get rich.

Then maybe I could print out some pieces of paper that say "the Allegheny Mountains will NOT see mining and housing development in the next 10 years." And I could sell those too, and get rich either way.

Is that how finance works? I've tried learning this myself but all the finance information I can find is written in impenetrable language from some paradigm that has no apparent correlation to 3D.

Sorry to vent... I just feel that understanding this stuff is extremely important but impossible for those of us who lack advanced degrees in the subject.

Paula,

Futures are like a bet on what the future price of a stock or commodity will be.

The Wikipedia has some "deciphered" text on stocks & futures that might help you.

http://en.wikipedia.org/wiki/Stock
http://en.wikipedia.org/wiki/Equity_derivative

[auntiegrav]

Paula, I'm with you on that. It's fraud. The financial wizards are like the physicists that say you can't understand physics unless you understand 80 years of calculus. In reality, they are using math tricks to hide the fact that, like the IRS, they don't understand their own systems enough to explain it succinctly. (or that when they DO explain it, it is obviously ridiculous, so they don't explain it, and they accuse anyone who does of being anti-Semitic or some such nonsense)
Unfortunately, the problem is exponentially multiplied when you consider the banking situation, where the banks loan each other money based on money they don't have, at percentages of deception that are impossible to substantiate in a real economy. ( http://www.freedomtofascism.com )
http://www.normeconomics.com
It's all lies. Buried in marketing, disguised as religion, protected by nationalism.
If you want change, keep it in your pocket.

[Baby Peanut]

I added a few words in [] to help this paragraph make better sense:

US controls price of crude oil

In fact, only the US can control the price of oil. This May, when the Bush administration gave the order to suspend [filling] its strategic oil inventory, the price of oil fell under the control of the government. According to the author's statistics and analysis, the [rate at which the] US strategic oil inventory [is filled] keeps [a] positive correlation with the price of WTI [which is] stable with a correlation coefficient of 0.87. In the author's opinion, the purpose of suspending [the filling of] the oil inventory is to control oil prices. Furthermore, in July, when the price of crude oil price reached a new high, the US government claimed it would use its strategic oil inventory to restrain the price if necessary. After that, oil prices began to fall.

[oilfield equipment]

its the the investors making go up and down. They will but then short it and making a ton of money while we suffer.