Correlation Economics Backup

When recessions hit, we historically see a conversion of full-time workers into part-time workers. This is visible in the recession of 2008-2009. The increase in part-time workers is also visible in the chart below, which shows how many hours people work per week. We see that the average weekly hours dropped in the 2008-2009 recession and it is starting to drop in 2014. This means that a new recession is in the making in 2014. The key is to predict recessions by looking at the increase in part-time employment. When Obamacare rolls out in 2014, we will continue to see a shift to part-time employment as employers will fire full-time workers (>30 hours/week) and hire part-time workers (<30 hours/week) to avoid paying for Obamacare. Finally, part-time workers are a leading indicator for a recession as they are fired first.

Just wanted to point to an article that documents the very complex theory of Chinese Commodity Financing Deals (CCFD), which started in 2012. Basically, China manipulated the paper price of gold down to create excessive physical gold demand we saw in 2013. China is the culprit and it's my job to get this out in the media. This is the only reason how gold prices didn't go up while physical gold demand was up. You would think when China unwinds, won't this excessive physical demand slow down and send prices lower? The article apparently says that prices will go lower for copper and other commodities, but not for gold. So, when China collapses and needs to unwind all of these trades, they will have to buy the paper price again which will send gold higher, back to the 2012 level. The opposite happens with the copper price, which will go lower. Another very important conclusion is, when China collapses, then China won't be able to do these CCFD's anymore, which will mea...

Jberni1 has a new prediction ready. He sees a black swan event coming and a falling knife will happen in the stock market. And he's pretty good at predicting things, I follow this guy's predictions all the time. A falling knife can occur when the stock market fails to follow the exponential curve upwards. So we should monitor this critical point. This is obviously a bubble alert that I'm giving here. (remember my call on the bitcoin bubble) NASDAQ

The latest Peter Schiff Show with guest Jim Rickards was a nice one. In this interview Jim Rickards says that some insiders at Goldman Sachs' are actually bullish on gold. They are actually disagreeing with their own research where they are calling for gold to go to $1000/ounce.

If someone tries to say that everyone is into gold, you can show this chart and say that gold is still very small compared to other financial assets.

As predicted here , I knew that China gold imports from Hong Kong had to rise to replenish the lunar New Year buying at the SGE. So February 2014 gold imports were up massively, especially net imports went up 30%. If you look at these charts, especially the second one, how can you expect the gold price to go to $1000/ounce? This is impossible. When the gold price was $1000/ounce in 2009, Chinese demand was tiny, now the Chinese demand is multiples of what it was in 2009, at the same gold price.

It begins. This week, India allowed 5 private sector banks to import gold. The Reserve Bank of India (RBI) has allowed gold imports by HDFC Bank ( HDBK.NS ), Axis Bank ( AXBK.NS ), Kotak Mahindra Bank ( KTKM.NS ), IndusInd Bank ( INBK.NS ) and Yes Bank ( YESB.NS ), officials at the respective banks told Reuters. This is major news because this will double the amount of gold imports to India from the current level. As you know, Indian gold imports were flat in 2013 due to the tax imposed on gold imports in August 2013 . Imports have been sharply down more than 50% ever since. But now that these 5 Indian banks are allowed to import gold, we expect the Indian gold import number to double again to its previous levels. Indian Gold Imports Monthly India Gold Trade ( Koos Jansen: In Gold We Trust ) Premiums have soared to more than 20%. But I expect these premiums to come back down to the 10% level as imports double from the current level. India Gold Premium Will India become the largest go...

If there are important free charts floating around, I like to save them.

This January and February 2014, Chinese power consumption has been declining month over month. I guess the up move has been broken. We could see continued weakness in industrial commodities and emerging markets as predicted by people like Marc Faber. I think it's time to kiss Chinese GDP growth goodbye.

Very curious correlation.  As you know: Lease Rate = LIBOR - GOFO And a negative GOFO means there is stress in the gold market. A negative GOFO means that the Lease Rate is high. So stress in the gold market is associated with a high lease rate. Whenever the gold price goes up though, the stress in the gold market will go away and the lease rate will go down. Lately I see that the GOFO rates are turning positive and rising again, which makes the lease rate go down. The gold lease rate is topping out. If we look at history, we will at least see a $2000/ounce gold price somewhere in the next two years if lease rates go back to the 2012 lows.

Interesting article that says that it isn't actually Belgium that is buying the U.S. debt. Belgium is actually just an offshore account for foreigners to buy U.S. debt via the banking system. For what I know, the Fed could even be buying its own U.S. bonds via Belgium. If this is true, then the Fed isn't tapering at all if you count the numbers... Because why is base money supply (red chart) growing at an even higher pace? Creditor Name: Belgium Amount of U.S. Debt Owned (January 2013): $143.5 billion Percent of U.S. Public Debt (January 2013): 1.24 percent We know what you're thinking: Belgium ? Really? The gross domestic product (GDP) of this small European nation tucked between France, Germany and the Netherlands ranks No. 32 in the world, behind Nigeria and Malaysia [source: CIA World Factbook ]. So why is Belgium one of the top 10 purchasers of U.S. debt? The secret is something called "custodial bias" [source: U.S. Treasury ]. Belgium has made a name for it...

The FRED site has created some cool charts with their newest update. Now you can hover on the chart and see the exact data numbers. You can also zoom in by dragging the chart. But this will only work with Google Chrome and Firefox. Who uses Internet Explorer anyway.

I find it a little worrying for precious metals investors that the premiums in gold and silver are so low. I would refrain from buying gold at this particular moment, wait for the dip. Silver coin premiums are down.  Junk silver is down.  Shanghai silver premiums are down.  Shanghai gold premiums are negative.  Gold coin premiums have been falling.

As you know, I keep a page with all discovered correlations here : http://katchum.blogspot.be/2013/03/update-list-of-discovered-correlations.html And today I have found my 100th positive correlation. Let's celebrate! 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 18)  Stock...

From the first FOMC meeting lead by Janet Yellen, we noticed one important statement: "The Fed Funds Rate will be kept low when inflation stays at this low level." Thus, we chart the Fed Funds Rate against the CPI and get this result. There is a strong correlation between the Fed Funds Rate and the inflation rate (CPI). So we expect that an increase in interest rates will only happen when inflation starts to rise. The unemployment rate is not on the radar anymore. Notice that historically the Fed Funds Rate is higher than the inflation rate (positive real interest rate (above 0%)), but today the Fed Funds Rate is lower than the inflation rate (negative real interest rate (below 0%))

It is interesting to monitor how the public and private debt curves are trending. Since the crisis of 2008, total credit market debt as a % of GDP has been going down for the first time since history. Private debt was in a debt deleveraging mode (blue graph), while the Federal Reserve's public debt was in a debt expansion mode (red graph). If we look at the nominal value of debt, we can see that since 2014, total, private and public debt are all growing again, resuming exponential expansion.

Agriculture prices have been going up since the beginning of 2014 and I think that if this trend continues, we will see demand going up for potash, which is used for agriculture. The chart below monitors the food prices. You can see the recent surge in 2014. Many foods went up like coffee, sugar, even wheat. RJA agriculture If we chart the agriculture index RJA against the largest potash producer Potash Corp., then we get this. Food (RJA) Vs. Potash (POT) We see a correlation here between food prices and potash prices. Food prices are obviously a leading indicator for potash sales and as a consequence we can say that higher food prices will push up potash prices. So if you want to bet on higher potash prices (because of the recent surge in food prices), then you should buy the potash companies like Yara International, Potash Corp. or Allana Potash.

Thanks to Econoblogger Martin I was reminded that today we have another update on the U.S. foreign debt holders and surprise surprise. Belgium keeps on buying more than $50 billion of U.S. debt, much more than any other country is doing now. If Belgium keeps buying like this, it will hold even more debt than China in a year or so. I'm just wondering where they get the money from. Foreign U.S. debt holders Look how much they bought, starting from November 2013. U.S. debt held by Belgium I have no idea why they are doing this. That the ECB would buy U.S. treasuries to get the euro down, maybe. But why is Belgium buying so much U.S. treasuries? $50 billion accounts for 10% of Belgium GDP. Can they support this? We see Belgium's own public debt has been rising since the crisis. Instead of using the money for servicing its own debt, they buy U.S. debt. Debt to GDP Belgium Let's look at Belgium's treasury yields. The 10 year is at 2.2%, which is below the 2.7% of U.S. Nothing...

Just to document a video on Allana Potash, a stock I believe has upside potential.

If you want ideas which investment to make in the coming months, I would expect a decline in the Japanese stock market. First, we note that the 10 year Japanese bond yield at 0.6% is pretty competitive against the dividend yields of Japanese stocks at 1.8% (Chart 1). So stocks aren't such good value anymore compared to a year ago when dividend yields were at 2.8% compared to a 10 year treasury yield of 0.7%. Moreover, the P/E ratio of Japanese stocks is currently at 13, which isn't particularly cheap. Chart 1: Japan: Dividend yield Vs. Treasury Yield Secondly, I have written extensively about the dire fiscal situation in Japan. Japan has a current account deficit, is printing money to stimulate their economy and more and more of its interest payments on Japanese debt is financed by less tax revenue. Obviously, this won't be bullish for Japanese stocks. But most importantly, recent numbers on the consumer confidence in Japan, point to a decline in the stock market for the c...

A very important development is happening today in China. One after another company in China is defaulting on its debt. Marc Faber quotes: "We have a gigantic credit bubble here in China." Example: Zhejiang Xingrun Real Estate Co real estate developer defaults . Chinese bank defaults . What this does to the yuan is obvious, the yuan is declining. If it manages to go above 6.2 USD/CNY, you can expect large problems as the China carry trade will halt and many people invested in Chinese structured products will be in the dumps. Marc Faber confirms this in the next video. He expects Chinese GDP growth to slow 50% from 8% to 4%. You would think that when the yuan drops, Chinese can't buy that much gold anymore, but Marc Faber has another view on this. The yuan could drop and as a result Chinese gold demand could actually go up due to people protecting themselves from inflation (and defaults) in China.

If you haven't noticed yet, the Gold ETF (GLD) has seen an inflow since the bottom in the gold price. So basically the supply of physical gold going out of GLD is now turning into a demand for physical gold going into GLD. This will be a bullish event for the gold price. Although Western people are now buying physical gold once again, the Chinese have backed off in buying as the premiums in Shanghai are now 0%. So the East and the West keep each other in balance...

I have updated this page for monitoring the U.S. debt held by foreigners. We know that when foreigners sell U.S. treasury debt, then we will see either a decline in the U.S. dollar or a rise in interest rates on treasuries. We are seeing now a decline in the U.S. dollar. Indeed, we have seen a massive drop of debt held by foreigners in the custodial accounts. The following chart gets updated weekly, so this is the most important chart to monitor. Knowing that foreigners have started selling their U.S. treasuries, the U.S. dollar will have a high probability of breaking down now to 70. We are currently at 79. So prepare to see even worse to come.

Talking about a big shift in the copper contango curve. Last week we saw a huge drop in the copper price along with a huge shift of the copper contango curve upwards. I believe the copper price still has room to drop further from this stage. This will also not be bullish for equities. But when looking at the COT reports, I see a lot of commercial longs, so we will be nearing a bottom soon. For more info on the copper contango theory, go here .

For a whole week I went on a "business trip" (actually a cruise) to Dubai. It's not recommended for people who like to have a healthy lifestyle because you can eat and drink at will till you burst and it's all for free. I tried to restrict myself from eating too much but the food was too appealing. Anyway, there is a lot to see in Dubai, the temperature in March is pretty ok at around 28 °C. The first day we went to Abu Dhabi and went to see the Sheikh Zayed Grand Mosque. For me this was the highlight of the trip. Next on I went to see the Emirates Palace Hotel, probably one of the most luxurious hotels I've ever seen and I have seen many hotels. They even have a gold ATM machine inside the hotel. You would think Abu Dhabi is a rich capital of the Arab Emirates and a nice place to live in, but what I've seen there in Abu Dhabi is worrisome. You have to know that Abu Dhabi was transformed from an empty desert. And that's what I saw, empty deserts with lots ...