Correlation Economics Backup

Sometimes, if I don't have any ideas anymore what to buy, I use the stock screener . What you want to do is filter on 4 attributes: market cap, P/E, dividend yield and percentage change. 1) Market Cap: do not choose small companies as they are mostly fraudulent or don't have sustainable earnings. Don't choose big companies because these are not volatile enough to get fast profits from. I'd filter between 200 million and 4 billion. 2) P/E ratio: choose the companies with the lowest P/E ratio, these companies are dirt cheap while still having earnings. Cheap is below P/E of 5. But do not choose below P/E of 2 because those are mostly companies that are going bankrupt or have bad growth. 3) Dividend yield: always choose companies that have dividends, because these companies have real earnings and can prove they have sustainable earnings to reward investors. The higher the better of course, but don't push it above 7% as those companies probably don't have the money ...

In another blog post I said the leverage of paper gold to physical gold at the COMEX was at record highs, but now we get another new record high. Open interest was 397590 or 39759000 ounces in total. Registered stock is 590816 ounces (which is an all time low). That's a leverage of 39759000/590816 = 67. This is up from the last time when it was 56. I wonder when it will break. COMEX gold stock Leverage in Gold Increasingly more people try to short gold down, but it seems they are not really succeeding lately. If people really start buying it, they won't find it as everything went to Asia.

In this article I'll show you why I think Bitcoin is a bubble, contrary to the bullish mentality we see today around Bitcoins. I don't know how high it will go, but I'd stay away from it. Remember the most important rule in spotting a bubble: "90% of the move comes in the last 10% of the time". In a year, Bitcoin soared from 12 USD/bitcoin to 1000 USD/bitcoin. In total we have a rise of 1000 - 12 = 988 USD/bitcoin. 10% of 1 year = a little over 1 month. The price was 180 USD/bitcoin a month earlier. So in the last month, bitcoin soared from 180 USD/bitcoin to 1000 USD/bitcoin. That's a 820 USD/bitcoin increase in the last 10% of the time frame of 1 year. 820 USD/bitcoin is also almost 90% of 1000 USD/bitcoin. So in theory: "90% of the move (820 USD/bitcoin) comes in the last 10% of the time (one month)." Which means, the bubble should now burst if I'm right... Bitcoin Price Moreover, as silver and gold continue their downward spiral, bitcoin cont...

We finally crossed the line where 1 Bitcoin costs the same as an ounce of gold. What would you prefer? This: or this: I'm not sure anymore... But be aware. We had Bitcoin (2008), then we had Namecoin (18-Apr-2011), Litecoin (7-Oct-2011) and now we have Peercoin 12-Aug-2012 and Primecoin (7-Jul-2013) and Feathercoin (16-Apr-2013) and Novacoin (9-Feb-2013) and......etc.... If everyone invents new coins, there is only so much money that people can use to buy these coins. At some point we will get a crash in the value of these coins as more and more coins come out of nowhere. See a list of all coins here: http://coinmarketcap.com/ To show you why I think Bitcoin is a bubble I took the cryptocurrencies with the highest market cap in this table. You can see that we first had Bitcoin in 2009 and as we progress, more and more competing cryptocurrencies arose. It gives us this chart: More and more "bitcoins" emerge out of nowhere and that's why I think we will see Bitcoins imp...

Marc Faber talks about gold demand in Asia and has a special interest for platinum. Marc also says: "Gold miners are the only sector in the market that are very cheap."

What I like about Eric Sprott's letter to the World Gold Council are his numbers about the supply and demand in gold. In that letter he said that demand far exceeds supply at this moment. See second column in table below.  Demand is 5184 tonnes and supply is 4403 tonnes. If mine supply increases by 3% it would mean nothing compared to the increased demand from China. Eric explains why demand is far more important than supply But Eric's numbers haven't accounted for the increased demand from China and the decreased ETF outflows nowadays. If we take the current numbers I believe the Chinese gold demand could be in the 1560 tonnes and the ETF outflows could have halved to 450 tonnes based on the flattening slope in the GLD ETF . That would give supply of 3936 tonnes and demand of 5670 tonnes. That's a deficit of 1734 tonnes, which means the gold price should go up. On the supply side we need to watch what the mines produce, because that's a big part of the supply. ET...

While the physical gold outflows of the ETF's of GLD continue (Chart 1) and those from the COMEX stay flat (Chart 2) (because they can't afford to lose anymore physical gold), all this physical gold is bought by Asia as net imports and gross imports rose to record highs (Charts 3, 4, 5). Chart 1: GLD Outflows Chart 2: COMEX Gold Outflows (blue) Chart 3: China Gross Gold Imports Chart 4: China Net Gold Imports Chart 5: Ratio Net to Gross gold imports

As silver continues its downward spiral, bitcoin continues surging. At this rate, we have a $20 billion silver market (above ground silver) and a $10 billion bitcoin market.  At some point very soon, the bitcoin market will overtake the silver market. It's very easy, it could be that silver goes down to $10/ounce and bitcoin just stays where it is at $1000/bitcoin and then we're there. You can physically buy up every ounce of silver in this world with bitcoins, by just going to this site for example:  http://bitcoincommodities.com/ Eventually the bitcoin people need to do something with their bitcoins. Why not buy up the silver market? Silver Price Bitcoin Market Capitalization

In June 2013 , the World Gold Council (WGC) published a guidance note on the all-in sustaining cash cost metric for gold mining companies. This way, investors can have a better evaluation on the real cost of mining gold. This metric adds additional costs which reflect the varying costs of producing gold over the life-cycle of a mine. To name a few: by-product cash costs, sustaining capital, corporate general and administrative expenses, and exploration costs. We calculate all-in sustaining costs as the sum of total cash costs (net of byproduct credits), sustaining capital expense, corporate, general and administrative expense (net of stock option expense) and exploration expense. There is one flaw in this system though. These all-in costs only include additional all-in sustaining costs and do not include CAPEX for projects. If we would include these project costs, we would get an astounding $1784/ounce  in 2012 for the bigger gold mining companies. Nevertheless, it's...

This guy, Dr. Berninger is cool. Listen to what he has to say about QE and bubbles. Especially the second video.

Yesterday's attack in the precious metals sparked a record premium at the SGE. We got a new record of 6.73%.  Not so much in gold... But even so, I'm sure that the $1200/ounce gold will be a level where central banks are very happy to take it from precious metal sellers.  It's amazing how the silver and gold premium charts differ from each other, it means that silver is in much higher demand than gold.

One of the more interesting stories this week has been reported by Bloomberg . The People's Bank of China is said to stop increasing its foreign currency reserves. What implications will this have? I believe that we'll see the start of a U.S. dollar collapse. Look what Peter has to say about this: Chart 1: PBOC Balance Sheet All these years, the Chinese bank had increased their balance sheet up to $3.66 trillion of which $1.3 trillion are U.S. treasuries (Chart 1). This is almost half of the PBOC's balance sheet. Other assets include U.S. agencies, U.S. corporate debt, U.S. equities and other non-U.S. assets (Chart 2). Chart 2: PBOC's U.S. Asset Composition If the PBOC is going to stop the purchases of foreign currency reserves, this means that they will stop buying the assets above and mainly stop buying U.S. treasuries. That's what it all comes down to. This also means that their excess of U.S. dollars will need to be converted to other assets like the yuan, or ev...

From Kingworldnews : According to Austrian Business Cycle Theory the prices of capital goods (= asset price inflation) increase first in the course of an inflationary process, while consumer price inflation (= rising consumer prices) only ensues later. The asset price inflation that is currently in train can be identified by a multitude of symptoms. Prices for antiques, expensive wines, vintage cars, but also real estate and especially stocks recently increased strongly. This quote is actually a very interesting one, because it can be added to our collection of correlations. Whenever you look at the trend in art, stocks, real estate (capital goods), you can predict the CPI. Because capital goods asset prices will always increase first and when this money flows into the economy, the CPI will increase afterwards. Note that art, stocks are not included in the CPI, that's why the CPI doesn't show inflation yet. Peter Schiff has explained this too in one of his radio shows. He say...

Remember the rule: "90% of the move comes in the last 10% of the time". In a year, Bitcoin soared from 12 USD/bitcoin to 1000 USD/bitcoin. In total we have a rise of 1000 - 12 = 988 USD/bitcoin. 10% of 1 year = a little over 1 month. The price was 180 USD/bitcoin a month earlier. So in the last month, bitcoin soared from 180 USD/bitcoin to 1000 USD/bitcoin. That's a 820 USD/bitcoin increase in the last 10% of the time frame of 1 year. 820 USD/bitcoin is also almost 90% of 1000 USD/bitcoin. So technically: "90% of the move (820 USD/bitcoin) comes in the last 10% of the time (one month)." Which means, the bubble should now burst if the theory is right... The problem is, I think this time is different with Bitcoin.

Weeble posted an interesting question, which I don't know the answer to, but I can guess: Albert, I always find your blog very educational. I am interested in what you think of the following. It seems to me to be a big deal but nobody is commenting on it. Will it cause more bullion to come in to the market short term or will the increase in transparency show the weakness in the system? Thanks. http://uk.reuters.com/article/2013/11/07/uk-lme-warehouses-idUKBRE9A611O20131107 So basically the LME shortens the warehousing queues by decreasing waiting time duration to 100 days (July 2013) and now to 50 days (November 2013). Beginning from April next year. I'm not an expert on LME warehousing. But what I've read is that traders think it will make prices of commodities go down , because all that supply goes into the market and it would become less attractive for warehousing companies to bid for metal. On the other hand, this change in plans means lower warehouse levels and that wi...

If you know that India is the second largest buyer of gold in the world, you would guess that India matters (Chart 1). Chart 1: Consumer Gold Demand per Country Now look at the premiums these Indians are paying for physical gold (Chart 2). The premium is currently 22%. So there is this disparity between the U.S. gold price (blue chart) and the Indian gold price (yellow chart). The question is: "Which one is most likely the equilibrium price?". Chart 2: Indian Gold Premium As we all know that India is a much larger player in the gold market than the U.S. (on the physical side), we should come to the conclusion that the Indian gold price is more likely to be the equilibrium. Indians will never stop buying gold. This implies that the gold price should already be at (1270+ (1270*22%)) = $1550/ounce instead of the current $1270/ounce. Meanwhile, at Shanghai we see ever increasing silver premiums. Chart 3: Shanghai SGE silver premium

I read about a very unusual correlation at Zerohedge . Apparently, there is a similarity between the employment to population ratio  (red graph) and the Potemkin Rally  (blue graph). (The Potemkin Rally graph measures the ratio between the stock market and the Fed's Balance Sheet.) There are implications if this correlation is true. It means that when the U.S. government prints money (otherwise known as QE), the blue graph goes down (in a scenario where the stock market flattens out). If the blue graph goes down, the red graph goes down too, which means the unemployment rate goes up. This means we are venturing into a paradox. It means that we get to a stage where money printing makes the unemployment rate go up instead of down. Janet Yellen's QE won't help employment. But the alternative is equally bad. Not to print money could make the stock market crash, which will also result in a declining blue chart. So we are now stuck between a rock and a hard place.

Just an update on something very interesting in the silver market. We already know the U.S. Mint is selling a lot of silver, but this is also visible in the premiums. It occurred to me that we are seeing rising premiums again in some miners. And we see the same thing at some bullion dealers, we are approaching new highs. Not so much in junk silver. But take a look at this. I first thought it was a miscalculation, but I checked it thoroughly. It was reality. In Shanghai we saw a major jump in silver premiums. It will be interesting to see what the future will bring.

In the Bitcoin world, more and more people are using this virtual currency. Chart 1 gives the amount of transactions a day and it's booming. If you really think more and more users are going to use Bitcoin, you will know that this chart 1 is going up. Chart 1: Bitcoin: Transactions Per Day When more people use Bitcoin, while there is a finite supply (Chart 3), of course the price of Bitcoin will go up (Chart 2). 1 Bitcoin costs around $400. Chart 2: Bitcoin: Market Price Chart 3: Bitcoin: Amount of Bitcoins in Circulation With that increase in market price of 1 Bitcoin, the market cap is now $4 billion. Which is still a very small number compared to how big our world is. So I believe there is still a lot of upside. Chart 4: Bitcoin: Market Capitalization As long as the governments don't interfere, I believe the market of Bitcoin will continue to grow as more and more users pile into this virtual world (Chart 5). Chart 5 gives the amount of Bitcoin addresses, which is more or le...