Correlation Economics Backup

Silver ( PSLV , SLV ) is one of the most thermally and electrically conductive materials on this world. Silver is also the best light reflecting element. Silver is being used for war equipment like aircraft and tank engines , automobiles , electrical connections , guns , torpedoes , radiator connections , rockets , warheads , submarines . In fact, silver is essential during wartime periods. Silver-Investor.com points out: "Notice that in a wartime period, silver use increases dramatically. In the nearly 63 years since that review was issued, no substitute has been found in nature for silver and its fantastic characteristics. Many revolutionary uses for silver were discovered as a consequence of war industry research, and what was true in 1942 is truer still today. A modern war machine MUST have silver to function at peak efficiency. Aerospace and jet aircraft technology could not exist without silver, nor could missiles and satellites. Countries which don't have adequate silve...

In the last week of August, Marc Faber gave a signal that all is not well in China . He points out that the Chinese statistics of 7% growth are inflated to the upside. There is a big chance for a hard landing to come in China because many statistics point to a significant slowing of the Chinese economy. For example, in July, industrial production declined sharply (Chart 1). Chart 1: China Industrial Production (yoy) It is very important to know that commodity prices are completely dependent on the growth of China as China is the biggest consumer of commodities in the world. If for example, the U.S. slows down 10%, it would be completely meaningless and wouldn't have any influence on the price of commodities. The reason is that the U.S. GDP consists for 80% of services, which don't use any commodities (Figure 1), while China's GDP consists only for 44% of services (Figure 2). So all eyes should be on China for the commodity investor. Figure 1: Composition of U.S. GDP Figure ...

Got Gold Report has put out another report:  http://www.youtube.com/watch?v=PjkDiavXLTg Interesting to know is that the LCNS for gold is moving upwards again, indicating a higher price for gold (and silver) in the future. Chart 1: Gold LCNS (Got Gold Report) Silver is doing even better (Chart 2). Chart 2: Silver LCNS (Got Gold Report)

Another correlation to add to our list: Positive correlation between AUD/USD Vs. Iron Ore price. =>  http://brazilianbubble.com/chart-the-correlation-between-iron-ore-price-and-the-australian-dollar/ Very important correlation to trade on. If you see a disparity like this: You can bet that either iron ore prices will go up, or the Australian dollar will go down. So you can just put your money in both bets, you always win. Reasoning? If you bet the iron ore price goes up and you bet the Australian dollar goes down you will at least get it right for one of the two. It can't be that the gap widens in the correlation, the gap always narrows to the equilibrium point. If iron ore prices do go down, you will at least make money on the Australian dollar plunging. I call this the power of trading on correlation disparity.

Just a note to myself. Eric Sprott has got supply and demand numbers for gold out : http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/8/24_Sprott_-_We_Are_Staring_At_Chaos_%26_Collapse_In_Front_Of_Us.html Gold Supply = 4000 tons/annum Gold Demand = 6500 tons/annum Gold Lease = 2500 tons/annum We'll just have to find out what these numbers mean...

Keith Fitz-Gerald talks about Japan in this interview with Chris Martenson. The problem in Japan is its enormous government debt, which is 250% of GDP. Its population is very old, 30% of the population is going to die by 2050 and there are very few newborns. He expects the yen to fall due to these dire prospects (200 USD/yen), but notes that the only reason why the yen (and the dollar) are so strong these days is because these two currency markets are the only markets big enough to absorb all this safety haven liquidity (listen at 28:00). More so, Europe has been the event that made investors flee in Japan and the U.S., giving them a little more time to kick the can.

5 months after I wrote the article about the Euro Vs. the USD , it looks like the USD has won the match against the euro. Since April 2012, the euro has lost 5% against the USD. Let's look at what has changed in those months. Following list gives the most important indicators for the future of a currency: Current account balance of the country Total national debt of the country Inflation rate Interest rate If the current account balance of the country is positive, a country will export more than it imports. As the population of the country exports more, they will receive more foreign money. This money will then be converted into their own currency, which is then spent or put in their banks. As the foreign money is converted into the money of the country's population their own currency will appreciate in value. The larger the national debt of the country, the more expensive it will be to sell debt to foreigners. The government will then be obliged to monetize this debt to keep i...

I have found many correlations since I started blogging in January 2012. I'm really surprised at the amount of correlations I found. So I wanted to summarize all correlations in this post. Positive correlations mean that if one goes up, the other goes up too. Negative correlations mean that if one goes up, the other goes down. Positive correlations: 1) Silver premium Vs. Silver Price  2) Baltic Dry Vs. Industrial Commodities 3) Baltic Dry Vs. Copper 4) Copper Vs. S&P 5) Oil Vs. Dow Jones 6) Agriculture Price Vs. Health of Economy 7) Agriculture Vs. Fertilizer Price  8) CRB Index Vs. Commodity prices (oil, agriculture, metals) 9) MZM velocity Vs. Inflation 10) MZM velocity Vs. 10 year U.S. treasury yield 11) Case-Shiller Index Vs. Housing Market Index 12) Capacity Utilization Vs. Inflation 13) Rhodium Price Vs. Automotive Industry 14) Housing Price Vs. Rise of Wages 15) O-metrix Score Vs. Stock Value 16) Outlay Spending Vs. Hyperinflation 17) Gold Money Index Vs. Gold Price...

I live in Belgium and follow the real estate market closely. I said previously that Belgium's housing is in a housing bubble . Now that prediction starts to come true. We already knew that in the first quarter, real estate was dropping . Today we have new numbers and we see that Flanders is continuing with its drop in apartment prices. Also construction site costs are falling. Goldman Sachs is saying Belgium real estate is 60% overvalued. That means prices are still to fall 40% in the future. We already see how the sales are doing, not good (Chart 1). Chart 1: Home Sales in Belgium

To add more credence to the importance of interest rates on the assets of the federal reserve (and the banks) I will point to this article of Scott Minerd: The Faustian Bargain . He says that it only takes a rise of 1% in interest rates to render the fed insolvent. "Now, a 100 basis-point increase in interest rates would cause the market value of the Federal Reserve’s assets to fall by about 8% or approximately $200 billion which would leave the Federal Reserve with a capital deficit of $150 billion, rendering it insolvent under Generally Accepted Accounting Principles (GAAP)." So I wasn't talking BS when I said interest rates are very important for the assets of the federal reserve and the bank's balance sheet. When interest rates rise, bad things happen. Another thing to point out is that during high inflation (Table 1: purple blocks), bonds are the worst investment as bonds won't act well in inflationary times. Farmland, gold and silver on the other hand are g...

I came across an interesting Zerohedge article about the odds of QE3. In that article they point out that QE3 odds are based on unemployment rate and non-farm payroll numbers, which will be released in about two weeks. Table 1: Zerohedge's odds table for QE3 Actually, I think this table is redundant because a rise in payrolls (Chart 1) always accompanies a decline in unemployment rate. We will need the chart of the working-age population (Chart 2) to perform the analysis. I will tell you the details, in this article . Chart 1: Non-farm payrolls Chart 2: Working-age Population in the U.S.

As U.S. treasury yields ( TBT , TLT ) are starting to spike upwards, investors should pay more attention to this new trend. To help investors monitor U.S. treasury yields I'll point out another interesting correlation between U.S. debt held by foreigners and U.S. bond yields. We will see they are inversely correlated. If foreigners sell U.S. bonds, bond yields will go up. The total public debt consists of two components: 1) Debt held by the public which is $US 11.177 trillion today. 2) Intragovernmental debt which is $US 4.783 trillion today. The sum of these two is almost $US 16 trillion. The debt held by the public is increasing very rapidly, while the intragovernmental debt is stable. Of these two components, the first one can be held by foreigners. To see the foreign holdings you can go to this site: Treasury.gov . Table 1: Foreign holdings of U.S. treasuries Avondale Asset Management has recently updated the percentage debt that foreigners held on in April 2012. They put up ch...

At long last, Marc Faber showed up again on a conference. This time it's the Middle East Hedge Funds World Conference 2012. Enjoy!

Just by having heated (and uncomfortable) discussions with seekingalpha commenters I learn new things. This is what you get when you write financial articles without any financial background. But there are positive things coming from discussions. Today I found a very nice interactive chart to follow the Federal Reserve's balance sheet (Chart 1). You can play with the interactive chart here: http://clevelandfed.org/research/data/credit_easing/index.cfm Chart 1: Detailed Federal Reserve Balance Sheet And what's very interesting is that the federal reserve has massively increased their treasury holdings. It's no wonder that bond yields are going down in the market. It won't be long when the federal reserve's balance sheet consists only of treasuries and mortgage backed securities, which are the most risky assets in the world.

Bloomberg reported on 20 August 2012 that banks are stepping up their U.S. treasury buying . As deposits increased 3.3% to $US 8.88 trillion in the two months ended July 31 2012, business lending rose 0.7% to $US 7.11 trillion, Federal Reserve data show. This inherently means that banks aren't lending money to the private sector, but are lending their money to the U.S. government. Peter Schiff pointed this out on the Peter Schiff Show of 20 August 2012. Banks bought $US 136.4 billion in bonds (TLT) already this year, pushing their holdings to $US 1.84 trillion. Let's take a snapshot of the debt maturities in 2011 and 2012 and quickly compare them (Chart 1 and  Chart 2: U.S. treasury debt by Year of Maturity (2012)  ) (I talked about debt maturities in this article ). Chart 1: U.S. treasury debt by Year of Maturity (2011) Chart 3: 10 year U.S. treasury yield  You can immediately see that short term debt has doubled in 1 year time. The biggest buyers of these treasu...

Just a few weeks after I turned bullish on silver , articles are sprouting out of nowhere about silver inventories being historically low . http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/8/17_Expect_Major_Silver_Price_Spike_As_COMEX_Inventories_Decline.html However, I see signs of a temporary weakness in silver. 1) The silver stocks at the CME aren't actually going down anymore. They are going upwards (Chart 1). Chart 1: Silver Stocks CME 2) The silver lease rates are actually going down, instead of going up. Historically, when silver lease rates plunge, the price of silver will go down a few months later. Chart 2: Silver Lease Rate Conclusion: I would be wary about the price of silver. If this trend continues this way, look out below!

Nothing special has been reported in Chinese U.S. treasury holdings. The amount of U.S. treasuries held by China are almost unchanged at $US 1.164 trillion. http://www.china.org.cn/video/2012-08/16/content_26252410.htm Chart 1: Chinese U.S. treasury holdings

Good news for inflationists! Capacity utilization for July 2012 came in at 79.3 (up from 78.9 a month ago), which is the highest number since April 2008. That also means we are nearing the danger zone of 80. Once we get above 80, you can bet that we will get high inflation after a few months from now. All different industries were higher in capacity utilization with the mining industry posting an astounding 90.4 capacity utilization rate in July 2012, up from 89.5 a month ago. There is absolutely no indication that precious metals won't go higher in the future. Chart 1: Capacity Utilization

This is very important news. It seems that more and more ponzi schemes are showing themselves. Gerald Celente already lost in the millions when he bought paper gold (which was to be delivered in physical a few months later). Now Amber Gold isn't going to pay back their customers as reported by Zerohedge . It's reported that 7000 people lost their money and may not ever get it back, or only a percentage of it. I recommend everyone to start asking for physical delivery of gold, because this is going to worsen in the future. Only pay cash when you get your piece of physical gold in your hand. On another note, Soros and Paulson increased their positions in GLD yet again . Soros more than doubled his position compared to a few months ago.

Over the last few years after the 2008 crisis, I want to give a performance update for the Dow Jones vis a vis the Shanghai Stock Exchange. The Dow Jones has gone up 50% after the 2008 stock market plunge (Chart 1), while the Shanghai Stock Exchange has gone up first, but essentially lost all of its gains in the period between 2010 and 2012 (Chart 2). Indeed, many economists have pointed out that the U.S. stock market has outperformed almost every market in the world. Marc Faber pointed this out in a recent interview on Bloomberg Radio . Chart 1: Dow Jones Industrial Average Chart 2: Shanghai Stock Exchange Composite Index I want to analyze this further. How can there be such disparity? It can't be the exchange rate between the USD and the CNY, because the Chinese yuan has only gone up 5% against the USD between 2008 and 2012. So what are the reasons? Let's take a look at the basic market metrics: P/E, dividends, book value in the full version of this article .

China Gold Imports have dropped another 10% from the previous month. Although we see decreasing demand from China for gold, China says it will keep buying more this year as the precious metals market is set to grow throughout the second half of this year. Analysts say physical demand is still strong. Chart 1: China gold imports from Hong Kong Instead, China is buying more and more U.S. treasuries. Chart 2: China U.S. treasury holdings

On Monday 6th of August, the Financial Times leaked the news that the silver manipulation probe is likely to be dropped by the CFTC. It turned out that this news was premature. One of the 5 CFTC commissioners, Bart Chilton, said on 08 August 2012 that the investigation will continue as silver manipulation did occur. The silver manipulation probe was initiated in 2008 following a number of allegation of silver manipulation. Bart Chilton already found evidence of silver manipulation in 2010 and intends to search for additional evidence of this manipulation of the silver price. How this all connects to the CFTC's LCNS numbers of July 2012, you can find out here . Chart 1: LCNS Positions

Charts do tell us something.  For example, when we plot the GDP of the top 20 countries in the world in a nice stacked area chart, we can clearly see that no other country than China has significant positive GDP growth. At this growth pace, it will only take 5 more years before China becomes the largest economy of the world on a country by country basis. Yes, only 5 years! Because GDP growth may be denominated in percentage terms (which seem to be constant), but those percentage terms accumulate each year to the principal number. Just imagine this event happening... Chart 1: GDP of top 20 countries

A little update on the decoupling experiment I started 2 months ago . I wanted to see if the S&P could decline together with a decline in U.S. bonds and the U.S. dollar. This would mean each graph (red, green, blue) on chart 1 would go down. It hasn't started doing that yet. What I did want to take note of is the big decline in U.S. bonds (green graph). On Friday 3 August, 10 year U.S. bond yields spiked to a 1.563% yield. This is almost a 10 basispoints rise in yield. Probably people are worried about the massive U.S. debt, which went to a record 15.933 trillion dollars from 14.8 trillion dollars a few weeks earlier. The debt ceiling of 16.3 trillion (to be heightened to 16.7 trillion) is near. I predict this debt will go up even faster because no QE3 has been implemented, which means yields will go up and as a consequence interest payments on debt will go up as well. Chart 1: Monitoring of decoubling USD vs. bonds vs. stocks

In a previous article I pointed out how bright the future is for silver. For example, one of my predictions is slowly coming to fruition. Chart 1 shows how the total silver stock (green dots) is starting to decline, indicating signs of increasing silver demand (or decreasing supply). Even the registered silver (blue dots) has started to decline just recently. Chart 1: CME Silver Stock The silver price has been forming a base around $US 27/ounce in the latest months (Chart 2). Chart 2: Silver Price As a result of this positive development in silver, several mining companies have shown Merger and Acquisition (M&A) activity in the silver sector. I'll discuss companies like Pan American Silver Corporation, High River Gold, Liberty Silver Corp., RX gold and silver, U.S. Silver, Vista gold, Endeavour Silver and Kinross Gold. To read the article go here .