Correlation Economics Backup

If you recall this correlation, I would run for the hills if you are invested in the S&P. It will surely come down with the 7% plunge in durable goods orders.

Following the news on July 30, 2013, that Russia’s OAO Uralkali was abandoning Belarusian Potash Co., a joint venture with rival Belaruskali of Belarus, the whole potash industry's stock market fell around 20%. Two cartels, Canpotex (PotashCorp, Mosaic and Intrepid) and BPC (Uralkali and Belaruskali), which control 40% and 30% of the potash market, would split up into three cartels: Canpotex, Uralkali and Belaruskali. Uralkali said it would be focusing on production volume, which means they would sell more potash following the breakup of the cartel. As a result the capacity will grow on this news. The question is, how should investors play this news? Should they buy the dip in potash stocks or sell out? Today, a month after this news, we already see that potash prices have fallen 5% just recently. Prices  for spot shipments of the crop nutrient from Port Metro Vancouver recently slipped $20 (U.S.) to less than $400 a tonne, while there are preliminary signs of market softness ...

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The World Gold Council sent out another report for Q2 2013 here . As expected, we saw large ETF outflows both from GLD and other ETF's, which led to a decrease in investment demand (Chart 9). But the decrease in investment demand was countered by an increase in jewelry demand, especially from India and China. We now see that the ETF's have finally stopped selling their gold into the market, so I expect that Q3 2013 will be more positive on the demand side. On Chart 2 you can see that ETF's have large outflows, but this is countered by growing physical demand. On the supply side we see that mining supply has increased, but recycling of gold has decreased, due to the fact that people won't sell their gold at these low prices. I expect mining supply to come down significantly in the next quarter due to the fact that mines have been shut down, workers have been laid off, funding was subdued... So the overall picture is that the gold price is especially dependent on the dema...

Looks like the media is telling us that the GLD trust physical gold holdings are rising and giving a boost to the precious metals prices. I don't believe it until I see it. When I make the chart, I see that we are bottoming out (red chart), but by no means we are really seeing a pick up in GLD trust physical gold holdings yet. We will have to wait for a longer time frame to confirm this uptrend. I need to admit that the red chart is bottoming out though. Maybe the selling of the GLD trust units has exhausted itself. Chart 1: GLD Trust As for silver, we really start to see an uptrend here: Chart 2: SLV Trust Conclusion: Silver is the most undervalued of the two precious metals.

As I always said, Peter would be a perfect Stand-Up Comedian. And here we have it...

Just another update. Gold Lease Rates are at an all time high again: Chart 1: Gold Lease Rate COMEX registered gold has once declined to even lower levels. J.P. Morgan unloaded its registered gold. Total registered gold at COMEX now stands at: 875713 troy ounces. We are nearing the bottom. Chart 2: COMEX gold

The trade deficit numbers are out for June 2013 and have been very positive. Due to an oil boom, the trade deficit shrank 22% from around $44 billion in January 2013 to $34 billion in June 2013. As you can see on Chart 1, the decrease in deficit was due to an increase in exports (red chart) and a decrease in imports (blue chart). This looks very promising, but I want to show that not all is well if you look into the details. Chart 1: Import Vs. Export Let's look deeper into these import and export numbers. Chart 2 gives the breakdown of the export numbers. The largest segments are "machinery and transport equipment", "chemicals and related products" "mineral fuels and lubricants" and "re-exports". Chart 2: Exports January 2013 Chart 3 gives the breakdown of the import numbers. The largest segments are 'machinery and transport equipment", "mineral fuels and lubricants", "miscellaneous manufactured articles". Chart ...

In June 2013, the gold imports from Hong Kong to China were essentially flat. The summer isn't a good period for gold either, so this is pretty normal. But anyway, gross and net imports are still at an all time high, compared to history (see chart 2). And what's also interesting is that the ratio between net imports and gross imports are at an all time high too: 89%. China wants to keep all its gold.

Whenever the government raises taxes or when corporate profits rise, tax revenue will rise with it (blue chart). But this has implications, if tax revenues rise, this will deplete the personal savings of the people. The red chart shows the personal savings rate (%). There is a negative correlation to be found here. It shows us that higher tax revenues always lead to lower personal savings rates and vice versa. From this correlation we can deduct one thing. There is a limit to raising tax revenues. If the personal savings rate gets to 0%, there is no more margin to increase taxes. At this moment the personal savings rate is 4.4% and is almost at a historic low. Contrast this to the savings rate of China, which is 50%. Also note that tax revenues have been declining as a percentage of GDP. This means that corporate earnings growth isn't keeping up with GDP growth at a constant rate of taxation. To read more about this correlation go to this article .

If you want to know what gold backwardation means, read this article of James Turk. Very interesting. Let's say we have two currencies A (euro) and B (USD). Then the following is true: - A's interest rate < B's interest rate - A is in contango against B - A's value rises going into the future - Higher interest rates means a higher risk of debasement of the currency. Now let's look at two other currencies A (USD) and B (gold): - USD's interest rate < gold's interest rate (lease rate) - USD is in contango against gold (or gold is in backwardation) - USD's value rises going into the future (or gold's value declines going into the future = negative GOFO) - Higher interest rates means a higher risk of debasement of the currency. Now gold's interest rate is higher than the USD's interest rate. Which means gold has a higher risk of debasement than the USD. This is virtually impossible because gold cannot be debased. Which means something has ...