Correlation Economics Backup

Corporate earnings are a leading indicator for jobs growth. We saw a gap in 1999 and 2016 between profits and jobs growth and the result was a quick deterioration in employment. So we expect sluggish employment in the years to come.

A peculiar correlation has come up between the CNY and the S&P. Whenever China devalues its currency, it seems that the S&P will drop a few weeks later. Here is a close up: The yuan is a leading indicator. So watch what the chinese are doing and you will know what the stock market will do.

I attended the Merk Webinar today and here is a summary of what I picked up. - Japan's government bonds are being crowded out by central banks. - VIX has been coming down, which signals overcomplacency. - Terrorism has increased bets on Brexit. - Elections can have effect: e.g. trade wars which will be negative for deficit countries like U.S. - U.S. dollar will weaken on trade wars. - Margin debt is peaking. - Chinese yuan is leading indicator for S&P. - Bearish Japanese yen.

Correlation Economics is going live with the Stock Screener Technique. I will post live podcasts on my channel here, maintain a "Stock Screener" portfolio and prove that this technique works! (if it turns out it doesn't work, I'll probably try something else) Remember  my post on KYN ,  SIMO ,  TAICY ,  TYG ,  EWZ ,  XIN , GIMB , ARG ? All have been doing well. ARG has given a handsome dividend of 4%/year while appreciating 10%, I'm amazed how well this stock screener idea works. I'm still keeping this stock in my portfolio as it is undervalued and can continue to rise, but let's go to another stock for our readers. Track record 8-0.Time to move on. 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 ch...

Remember  my post on KYN ,  SIMO ,  TAICY ,  TYG ,  EWZ ,  XIN , GIMB , ARG ? All have been doing well. ARG has given a handsome dividend of 4%/year while appreciating 10%, I'm amazed how well this stock screener idea works. I'm still keeping this stock in my portfolio as it is undervalued and can continue to rise, but let's go to another stock for our readers. Track record 8-0.Time to move on. 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 b...

The ECB cut interest rates to -0.04%.   This is a real problem for banks as their profit margins get squeezed. Banks will not gain a lot of money when they can't lend at normal rates. On top of that, some European countries like Belgium have a minimum deposit interest rate that needs to be paid to customers like us (0.11%). So banks get less money from loans but still need to pay depositors 0.11% interest. Another problem is that depositors will think: "Hmm I can't earn any money on my deposits, so I'll take the cash out of the bank." And if we ultimately see negative deposit rates, people will certainly take their cash out of the banks. That's why it's very important to see what the deposits are doing. I created a chart of the deposits of Euro Area Residents, to be found here . I had expected that when the ECB cut interest rates below zero since 2014, that we would see a deposit flight happening. But we actually see more deposits on the banks. Very counte...

It seems like Japanese, Swiss, European people are saving more when we have negative interest rate policy. Why are people saving money when their money yields nothing? The fact is that the higher the interest rate, the more you save as it gives nice returns on the bank. But when the interest rate hits 0%, weird things happen. Suddenly people start to save more due to uncertainty (in physical cash of course). No normal person will buy stocks because banks will collapse as they see their deposits go up in smoke. No normal person will buy bonds at negative interest. And no person will leave their cash in the bank. See chart below. This is how I see the equation.

Gold ETF holdings have been on a tear this year, just as we saw inflows in GLD. But when you compare it to a year ago, the holdings are still flat, see below. So there is a lot of upside still to come.