We’ve mentioned the role Goldman Sachs has played in energy prices last year. They have been accused of manipulating GSCI for trading gains, political advantage, etc. When Oil first dropped, I doubted there was any political manipulation until I could see a market mechanism. It turns out the GSCI was that mechanism.
Now, GS has decided to get rid of the index. From an S&P Press Release:
Standard & Poor’s will acquire the market leading Goldman Sachs Commodity Index (“GSCI”) and two equity index families from the Goldman Sachs, the two companies announced today. Terms of the transaction were not disclosed.
The GSCI, created in 1991, currently includes 24 commodities and is designed to provide investors with a reliable and publicly available benchmark for investment performance in the commodity markets.
The clear commodity index leader, the GSCI has an estimated $60 billion in institutional investor funds tracking it, the majority of that coming through over-the-counter derivatives transactions.
After a brief transition period, the index will be renamed the S&P GSCI Commodity Index. (emphasis added)
Hmmm, I wonder when the honchos over at GS decided "we no longer have a need for that index?"
I guess Goldman Sachs naked attempts at manipulating commodity prices, indirectly the equity markets, and possibly even the mid-term elections is now past its "Sell-By" date. I cannot say there was much of a public relations backlash — a smallish NYTimes article, and the slings and arrows from a few outraged bloggers. But that was pretty much it.
The suspect timing of the unscheduled GSCI rebalancing last July left one to consider to possibilities: that GS is either a collective of naive dolts, or they were blatantly attempting to manipulate the outcome of the mid-term elections. The public clearly thought there was price manipulation going on; they weren’t fooled. And the appointment of their Chairman Hank Paulson to Treasury Secretary just before these changes must have been just one of those serendipitous coincidences.
The changes in the GSCI led to a subsequent sell off in the gasoline futures market. After a 5 year run in energy prices, there was a 30% drop in the price of oil after their rebalancing — and during the 2 months prior to the election. Another lucky coincidence!
Another fortuitous coincidence: GS had a blockbuster quarter following the ramp of the markets.
There were enough conflicts of interest in place that the markets — and maybe even GS itsef — are better off with the index in the hands of a more neutral 3rd party . . .
Update February 13, 2007 4:32pm
A friend notes that following article form 2005:
The Seats of Power
Goldman Sachs rules the Street with smarts and tough tactics. But has it gone too far with the Big Board deal?
Hat tip: Naked Shorts
Standard & Poor’s To Acquire Goldman Sachs’ GSCI
Press release Feb. 6 2007