"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Tuesday, November 5, 2013

Dow Jones - UBS Commodity Index Rebalancing

Each year the sponsors/originators of the various commodity sector indices announce a reweighting or rebalancing of their respective commodity index. This is done for assorted reasons but for whatever the reason, those index funds that benchmark to these things, must adjust their portfolio at the onset of the New Year in order to bring them into line with the new weightings.

The Dow Jones/UBS Commodity Index has announced that the target weighting of both gold and silver will be increased in the 2014 index. Silver's new weighting will be 4.1% compared to its current 3.9%. WTI Crude will be lowered to 8.5% from the current 9.2%.

Gold, surprisingly enough, will be raised to 11.5% (the largest weighting) from this year's 10.8%.

I am still looking for the Goldman Sachs Commodity Index reweighting and will try to note the changes in the precious metals, if any.

This will bring in some buying after the first of the year of both gold and silver futures contracts. While this is purely a technical development, it will tend to have a very short term impact on the metals.

I might add that this is not at all friendly towards crude oil which is already seeing large selling pressure.

A lot can happen between now and then, but I did want to note this.

As of today, the commodity complex as a whole is experiencing another strong bout of selling as the Dollar is moving a bit higher and traders continue to have their doubts about the longevity of the "no tapering" policy.

As has been the case, the equity markets could seemingly care less about much of anything. Dips continue to be bought as that bubble grows larger and larger. It really is mind-boggling to me to see this drug-induced march higher and higher in the US equity markets. The disconnect between the US stock market and what is occurring all across Main Street is something to behold. There still does not seem to be any sign that the mania is about to end anytime soon.


  1. as always, good letter Dan; btw, is everyone out there as sick as I am of taper talk? swb in sparks

  2. Sorry if the timing is bad (no pun intended) but here are a couple of interesting articles regarding the discussion between Arnie & Concord in the last post. They describe the massive flow of physical gold from west to east.

    . Link 1
    Link 2

  3. Thanks Dan - also found it interesting that Nat Gas is also to be scaled back nearly 1% for 2014. one has to wonder if the 20,000 contract Dec futures sell order in NG discussed in the market watch article today had anything to do with "this".

    Here are the new weights for 2014 compared to 2013:

    2014 2013 Change
    Brent Crude Oil 6.51% 5.79% 0.72%
    Gold 11.53% 10.82% 0.71%
    Silver 4.14% 3.90% 0.24%
    Copper 7.51% 7.28% 0.23%
    Heating Oil 3.72% 3.52% 0.20%
    Soybeans 5.68% 5.49% 0.19%
    Unleaded Gasoline 3.62% 3.46% 0.16%
    Corn 7.20% 7.05% 0.14%
    Soybean Oil 2.83% 2.74% 0.09%
    Soybean Meal 2.68% 2.61% 0.08%
    Sugar 3.96% 3.88% 0.07%
    Live Cattle 3.27% 3.28% -0.01%
    Lean Hogs 1.87% 1.90% -0.03%
    Wheat 3.34% 3.43% -0.09%
    HRW Wheat 1.21% 1.32% -0.11%
    Coffee 2.32% 2.44% -0.12%
    Cotton 1.58% 1.77% -0.19%
    Nickel 2.05% 2.24% -0.19%
    Aluminum 4.72% 4.91% -0.19%
    Zinc 2.31% 2.52% -0.21%
    WTI Crude Oil 8.49% 9.21% -0.72%
    Natural Gas 9.45% 10.42% -0.98%

  4. Even if the Fed maintains the same level of asset purchases at $80 billion a month, or increases it, deflation will play out regardless due to sequestration and automatic spending cuts. The banks are not lending because the consumer has run out of good collateral so all of the money printed by the fed is not hitting the street. Dan has put plenty of charts on the velocity of money which is at all time lows. Since 2008, the government spending has been the avenue for newly printed currency to hit the streets. Govt. spending makes a huge % of corporate profits and these spending cuts will put an end to huge corporate profits and cause the stock market to crash. I believe we need to make the cuts to ultimately stop going further into debt, I am just trying to say that cuts are always painful in the short run. I will still hold onto Gold and buy more at these levels bc deflation causes defaults. During deflation tax revenue declines which causes govt debt to rise automatically.

  5. Hilarous. Now that gold has been beaten to a pulp, they can now cut back crude oil from the weighting so that the mighty U.S. consumer will get more of a break via a reduction in CPI increases in many inflation indexes.

    Ergo, Yellen will really be able to step on the gas next year, which in turn will send retail stocks to the moon and gold and oil prices even lower.

    Amazing how that works, eh??

  6. Mark

    Yep, I intend to ride this ridiculous stock mania and I hope I am smart enough to get out before the whole charade collapses.

    The doomsayers are right Mark, their timing is bad but...this will end in tears.

    1. Dean, do you have criteria, or just a feel, or both? Not a loaded question, just curious how one goes about this...

  7. The CAPE (cyclically adjusted PE) of Schiller is very high.
    I don't know what will be the event.
    I don't know when it will come.
    But I'm pretty sure we'll see another krach on the SP, Dow, etc...in the years to come, QE or no QE.
    Being long out there means imho to be cautious and very reactive if things turn wrong.

  8. This is no stock-mania. It is a manipulated market with the intention to keep it rising. That is a different thing, and indeed on the chart it looks different.

    1. Manipulated or not, imho the end result will be the same.
      Only probably with more way to go down when it starts.

    2. I wanted to point out, that all the anger about mkts going the "wrong" way does not help. I was in that state quite often in my life. This time I am not infected. I am not Gold long any more since 1470 (1550 minus 5%).

      I stayed quite neutral since then. So I could watch how the community here is reacting.
      There is no justice in the mkts. Before, there were the natural effects of an economical mechanism. So one could speculate on phenomenons to come. That looked like justice. But. e.g. for a mine worker in Africa, it was not.

      It doesn't help to bring words from the Holy Bible when having a trading issue.
      If the bible had looked after men on earth, the Romans wouldn't have burned the Christians, neither the Spanish the Indians, nor the (holy!) church the women, nor the nazis the jews.
      (Burning human beings ALIVE, not crashing a trader's account..)

      There are a lot of good quotes for such a situation:
      "Markets can remain irrational a lot longer than you and I can remain solvent." (J M Keynes)
      "If a man is wrong, the only thing he can do to be right is to turn his position." (J Livermore)

      I like this (Dan's) community very much. But when the Fed and the Blankfeins of the world have decided to trade Gold from the short side, you can't count on justice.

    3. completely agree with you.
      "It doesn't help to bring words from the Holy Bible when having a trading issue."
      That's a quote worth Livermore's :)

  9. - downards move 1805 - 1180
    - upwards retracement, 38% Fibonacci to 1420
    - downwards retracement, 62% Fibonacci to 1275
    - upwards retracement, 62% Fibonacci to 1365
    - downwards retracement 50% Fibonacci 1305

    And now i a range between the 38% (1319) and 50% (1305).

    The market keeps coiling, lower volatility, looking for an equilibrium price.
    The limits are for now 1305-1365.
    I'm going back to sleep until something sudden happens.

  10. Talk about another "mania"

    Bitcoin just hit another fresh, new, world record high of $270.

    That's up from $70 earlier this year.

    Who needs physical assets like gold and oil when you can have electronic digits instead?


    1. I heard the Chinese are actually trying to diversify from the dollar in many ways...if they are into bitcoins, maybe it explains a bit? :)

    2. Mark

      I have been telling people that to save money they should use plastic as opposed to metal for coinage.
      They often react by laughing and saying "that would mean our money would be worthless"
      Really?.. very interesting reaction.

    3. I think the problem is we expect too much of the poor $USD. It works just fine as a medium of exchange but it sucks as a store of value. The path is clear, the debtors hold sway and these $USD's (debts) will continue to be inflated away. QE is (in part) a response to a lack of demand for this terrible store of value. As the petrodollar wanes the demand for the USD as a medium of exchange/unit of account also wanes. What have the cental banks of the world been accumulating as a store of value (reserve) in place of the USD?

  11. Hey MARK,

  12. Good one Wolf !

    Now don't be too hard on Tesla, it's forward P/E is only 139, hardly of any concern when many of the other glam stocks are 200 +, of course it's current P/E is -77 ? yikes, back up the truck Martha !!

    1. If tesla was not subsidized by government credits of over 10000 dollars what would its price be?

    2. Concord

      If not for QE and the Bernanke put on equities, what would the price of the whole market be?
      No doubt the DOW would still be sub 10K

  13. Check out the absolutely stunning move in AOL the last few days.

    No doubt that every fund manager on the planet is dumping gold and related investments, taking the tax losses, and using the proceeds to "dryhump" anything and everything that is on the "Biggest % Gainers" or "New 52-Week Highs" lists on their screens.

    LOL, what a casino, the stock market keeps getting stronger, not weaker, as many naysayers still sitting on the sidelines are now being forced to jump into the pool.

  14. Hey Mark

    You are right on about the Casino analogy.
    You are also no doubt correct that the stock market is strong and will continue to climb to heights that we will not believe.
    Both highs and lows will go to extremes due to the Fed printing press.

    Inflation and fear of holding Government debt will send money stampeding into equities. Another Bernanke bubble, just wait till Old Yeller gets in and really starts goosing the markets.

    1. Casino analogy: House always comes out ahead over time.

  15. Correct..Md. just a casino till collapse. Mark was peddling tsla earlier. No infrastructure, and once the coal fired plants are eliminated you can charge your car for $100 a day, but you don't have to waste precious time stopping for that smelly combatants..gas. LOL

  16. But there are lots more glam stocks...to come. Mel Brooks said it best..they have to keep their phoney baloney jobs. Mark GIVE us some more lib picks so we can short after the rocket.

  17. Gold is holding that eerie head and shoulders pattern and really tickling that neckline. Jobs numbers Friday will get it to pop, either up or down. 130K jobs expected. Make it or break it moment.

  18. Who in their right mind would bet long against the manipulation machine. Run up before Friday...then TIMBERRRRRRRT

    1. That's a good guess Wolf. 130K is not hard to beat, perfect opportunity to run it up then short the hell out of it.

  19. The market is rigged. I might take a flyer today and sell Friday

    1. In my own conspiratorial opinion :-) I think the market is getting prepared for the TWTR IPO and should we see some crazy news overnight to jolt the market it could even cause TWTR to delay their IPO like FB did so many times.

      Other than that for the precious metals traders you need to take a serious look at PALLADIUM. This might be a better investment than GOLD. Those of you who know more than I do can shed some more light on that subject.


    2. it is a very thin and dangerous mkt that no serious $ gets into; in"00 it went to +$1000 and 3 yrs later was $150.Leave it alone;

  20. Today's market....http://www.zerohedge.com/news/2013-11-06/chart-day-bernanke-has-officially-created-bizarro-market

  21. Wolf

    Excellent link, and also 100% true.
    We do indeed live in a bizzaro investing world where good news is bad and bad news is good.
    Hence QE to infinity, all this taper talk is laughable. If they ever end QE..and they will someday...the crash will be spectacular.
    I just hope I will be out of the equity market when that happens.

  22. Venezuela stock market and BitCoin now receiving all the "Hot Money" as a result of the $1 trillion/year printing campaign by the Fed, + additional printing by ECB, BoJ, etc.

    Gold is being left in the dust as a dead asset for now.

    I'm going to be looking for some spectacular meltups in other equity markets over the next couple of years.

  23. MARK,
    please WE need short targets

  24. Wolf

    Be careful ! Only short the market if we get good fundamental economic news.
    Do not short anything with a P/E over 200 with no yield and relies on disposable income from the unemployed/underemployed ! these are Ben's fav's LOL

  25. A new job appeared on wall street. Market meltdown suicide rooftop diving judges needed. There will be plenty of contestants lining the rooftops of the major banks. Special arrangements for hedge executives also will be appearing. Unfortunately the millennium 1929 divers will not be available for consulting as none survived the competition in 1929. This may be a one time going out of business deal so sign up soon.

  26. MARK. You can only be a contestant. Not qualified to judge.

  27. Hey Wolf

    Here ya go!

  28. One of Mark's favorites just got crushed Whole Foods. It seems to me earnings are beat because of the corrupt low bars they give for these companies. Revenues are always lower as business is not good and outlooks are always given out as negative because they want an easy target for the next quarter. I bought some GE today and I should have my head examined.

  29. Concord

    I wouldn't sweat it. There are good solid companies that offer good value with dividends.
    Not every stock is in a bubble, even some of the gold bug doomers list investments other than gold that are safe to be in and will offer good return. Even in the dreaded economic collapse life will go on, people will eat, drive cars, watch movies and go to work.
    GE has a very wide manufacturing base, they make a lot of things that are needed on a day to day basis.

  30. Thanks Dean,
    I just think so much of what is going on seems like some say here a Ponzi scheme and getting out unless very adroit is never simple. Greed motivated me to hold my gold positions when I knew something was wrong in Feb.and March and before I knew it I was trapped. It happens and we( I don't mean you I mean me) who are not disciplined traders are at risk.

  31. Concord

    I am in the exact position you are in my friend. I am no skilled trader and I also got trapped in my gold position.
    How could we possibly know how long and deep this correction would be? It has surprised even the most savvy. Just look at the list of names who are in the same situation as us, some of these people are even billionaires.
    I like Rick Rule's attitude, " Every Bear market is followed by a Bull market, you have gone through the pain, you may as well hang on for the gain"
    Even Martin Armstrong has stated that Gold will have it's day, just not quite yet.
    I have really beat myself up over not selling when the market started to correct but then again no one, not even Armstrong sounded a bell telling everyone to get out.
    I do own some general equities and I am struggling with the exit point, when do you get out? on any correction that is 5% or more?
    Any suggestions?

    1. first of all Concord, mark is just a letter writer with his whole goal in life is to piss you guys off, which he is wildly successtul at; his ignorance in the Venezuelan situarion is a strong tell; Armstrong is another donkey that knows everything about nothing and nothing about everything; come on, how can anyone forecast a million mkts all at once and not even have spellcheck? joke; cassandras and polyannas all over the place, because no letter writer can get your subscription if he says he does not know; good luck pal, and sell the Yen; steve in sparks, and always bet AGAINST the dice

  32. Funny how there are manias going on everywhere.

    Spec housing, commercial real estate, agricultural land, common stocks.

    Vintage cars and motorcycles, baseball cards, artwork, wines

    BitCoins and other "alternate digital currencies"

    Virtually EVERYTHING is melting up except natural resources and precious metals.

  33. White Wolf:

    Whole Foods after hours price of $58 is still WAY UP over the $22 from 3 years ago.

    Compare that with any big cap gold miner.

    Heh, if you had shorted the gold miners the last 2 - 3 years you would be knee deep in booze and hookers in your luxury Toronto townhouse overlooking the city lights, LOL.....

  34. Mark

    If any of us who visit this site were that smart...we wouldn't be visiting this site!

  35. Mark

    2-3 years from now we may be saying the same thing about those who shorted the DOW, S&P or the QQQ's right now.
    Anyone here got the balls to go whole hog short on any of these right now?

    Cause that's the kind of nut it takes to make those kinds of calls.

    Would if the DOW corrected to 14.5k right now...would you short it at that point or go long ?...would if it kept dropping...13.5, 13, 12.5. At what point would you buy or sell? what if the daily drops were only 20-30 points or even 5 points? what then?
    All the while this is happening Martin Armstrong is continually adjusting his targets but still declaring it's a bull market and to be patient? every week his computer kicks out a turning point from which a rally will take place until you find yourself at a 50% loss...what then?
    Warren Buffet declares the market is at a generational buy point..you buy..it continues to drop despite continually improving economic data..what then?

    A lot of questions eh? any easy answers?

  36. Gold is in sleep mode...but with volatility decreasing, when everyone is asleep, that's when we'll (at last!) see a new violent move and trend.

    Meanwhile, yes, Bitcoins went up like 1500% in one single year!! and despite july's correction, up 500% during the last 4 months only!!
    For those who like volatility, be my guest, buy Bitcoins.

    Mark, love your comments, so as you seem to be a supporter of Bitcoins as well, I have 2 simple questions for you inside the chart here attached.
    Please could you simply answer them by Yes or No?
    Thanks a lot for your time,


  37. Dan -

    Favor. Can you explain what happened this morning to gold and silver. There were huge knee jerk reactions both up and down. And the moves were greatly exaggerated.



    1. Go watch this video and you'll know how it works you just won't know how to work it:
      Federal Reserve and Wall Street Casino

    2. imho you see how an algo works in a range market. Just pushing up quick and strong to start all stop losses above 1320 area, and then BOOM, shoot strong in the other direction, wash, rince, repeat. Those are modern algo traps imho aimed at shooting stop losses and pook Kitco News try to find justification through news lool :
      "Gold Gets Initial Boost on Surprise ECB Rate Cut, But Strong U.S. GDP Data, Rally in U.S. Dollar Quickly Pressure Prices"

      I guess now that stop losses were destroyed both above and down the range (1305-1322), we are going to get back to sleep, robots having made the money intraday.
      Conclusion : don't trade, be in position, or put close stop losses in a market which has no trend. You are going to get hammered by algos like this.
      Or maybe I see algos everywhere? I should have a break, then :)

    3. Hi Hubert; Tight stops are for yesterday's mkts; Nowadays, they are just numbers for the daily hosing operations orchestrated by our hft thieves; I like sleeping at nite and that's why I only position these mkts nowadays; btw, still think Euro goes higher? Mario and Christine are trying to out-lie their American and Japanese and Brit counterparts it looks like to me; never see 1.38 again! take care and stay loose; sparks

  38. Steve right on. Precision nowadays.

  39. Today's market is all about Twitter (TWTR). In fact the market is now expressly driven by the continual never ending advancements in technology. This is more than the "DOT COM BUBBLE" ever could imagine! And it's only getting started. Will TWTR be the next $1,000 stock? By then AAPL, GOOG, CMG, PCLN, and NFLX will catch up to BRK/A.

    That was a nice HFT ALGORITHM DEMONSTRATION this morning on the GOLD and SILVER market sector.

  40. Hilarious how more QE sends stocks screaming higher and gold and oil plunging.

    EXACTLY the way Ben Bernanke wants it.


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