Skip to main content

Taking another look at the CRB index

I've mentioned before that I feel it's essential for us, as investors and market observers, to learn more about the makeup of the various commodity indexes (see, "Double Down on Commodities?").

For anyone who'd like to know more about the ins and outs of the construction of these leading indexes, with specific emphasis on the CRB, see Adam Hamilton's excellent recent article on the, "Continuous Commodity CRB".

Hamilton writes that many investors and onlookers have been misled into a bearish stance on commodities because of the recent correction in the CRB index. After all, a technical breakdown in the price chart of a leading index, such as the one that occured last summer in the CRB, is bound to be interpreted as bearish indicator.

However, changes in that index led Hamilton to believe that the price movements in the overall average did not actually constitute a bearish secular signal for commodities, but in fact were merely reflecting the recent poor performance of the new, oil-heavy index.

When prices are rising fast, bullish theories abound to explain them. Remember all the New Era bullish theories surrounding the NASDAQ in late 1999 and early 2000? And when prices are falling fast, bearish theories gain traction and prominence. If the CRB had been strong rather than weak over the last six months, almost none of the bearish theories so popular today would even exist. Prices drive explanations.

Well, believe it or not, the CRB actually really was strong over the last six months! All the bearish theories based on the cratering CRB are founded on nothing more than an illusion. Every single bearish theory you've heard lately that draws strength and credibility from the falling CRB is simply not valid. An epic misunderstanding, or deception depending on your perspective, has just taken place. The CRB is not as it seems.

Read on for the full explanation of how today's CRB differs from those that have come before it.

I've really enjoyed looking over Hamilton's articles in the past. His public articles for Zeal Intelligence (many of which are archived over at Safehaven.com) are an excellent source of information on investing and commodities, and I think we'll learn a lot from these most recent articles on the weighting and configuration of the commodity indexes.

Popular posts from this blog

Nasdaq credit rating junked.

S&P cut Nasdaq's credit rating to junk status citing debt burdens and its questionable strategy to buy a controlling interest in the London Stock Exchange. Financial Times reported that the exchange's counterparty credit & bank loan rating were lowered fromm BBB- (lowest investment grade rating) to BB+. The change will increase Nasdaq's borrowing costs should it wish to pursue aquisition targets. For an earlier look at the exchange consolidation trend that brought about Nasdaq's push for a stake in the LSE, please see "Exchange fever" .

Clean Money - John Rubino: Book review

Clean Money by John Rubino 274 pages. Hoboken, New Jersey John Wiley & Sons. 2009. 1st Edition. The bouyant stock market environment of the past several years is gone, and the financial wreckage of 2008 is still sharp in our minds as a new year starts to unfold. Given the recent across-the-board-declines in global stock markets (and most asset classes) that have left many investors shell-shocked, you might wonder if there is any good reason to consider the merits of a hot new investment theme, such as clean energy. However, we shouldn't be too hasty to write off all future stock investments. After all, the market declines of 2008 may continue into 2009, but they may also leave interesting investment opportunities in their wake. Which brings us to the subject of this review. John Rubino, author and editor of GreenStockInvesting.com , recently released a new book on renewable energy and clean-tech investing entitled, Clean Money: Picking Winners in the Green Tech Boom . In Clean ...

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4. ...