A Global Basket Full of Commodities

02/07/2013 8:00 am EST


Doug Fabian

Editor, Successful ETF Investing, ETF Trader's Edge, Weekly ETF Report, and ETFU.com

Doug Fabian of Successful Investing uses a new tool, the Fabian 5, to monitor global trends.

I recently introduced my subscribers to a new set of tools awe are using to help determine where the market is and what the latest trends in the global economy are telling us.

We call this new tool the Fabian 5, and it consists of a collection of five exchange traded funds (ETFs), each of which represents a sector of the market whose movement will tell us how traders and investors view the world.

We handpicked these ETFs because, observed as a whole, we can use them to quickly discern what forces are most influencing markets. The ETFs that comprise the Fabian 5 will tell us if central bank and government spending policies are leading us down the path toward inflation or deflation. They also will tell us when inflation fears become heightened and when deflation fears are dominant.

As we begin 2013, I remain of the opinion that the forces of inflation and deflation continue to battle it out. The Fed and government want inflation to monetize our way out of debt, but the massive debt out there cannot be tackled without a huge increase in economic growth. Until such growth occurs, the world will remain awash in debt—and that will continue to represent a big drag on the global economy.

This month, we are making an adjustment to the Fabian 5 by replacing one of its components with another ETF that I think is much more reflective of the overall trend in inflation in both the energy space and the broader commodities sector.

The new fund in the Fabian 5 is the Greenhaven Continuous Commodity Index (GCC), a broad-based commodity ETF that is unique because it equally allocates the same amount of exposure to 17 different commodities. In essence, GCC is a basket of diverse commodities, including wheat, soybeans, coffee, hogs, copper, silver, platinum, gold, and oil.

I think this fund is a better gauge of the commodities space than the fund we are replacing, which is the iPath S&P GSCI Crude Oil TR Index ETN (OIL). I am of the opinion that technology, especially here in the United States, is going to make us less dependent on foreign oil.

Also, with a slowing global economy and rising oil production, the price of oil is likely to be less indicative of global inflation than the broader-based GCC.

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