Correlation Economics Backup

As fiscal year 2013 passes by we note that the interest payments as a percentage of tax revenue has declined over the past year (Chart 1: red line). The number came in at 13% and wasn't due to a decrease in interest payments. Chart 1: Interest Payments  As a matter of fact, the interest payments went up this year due to higher debt and higher interest rates (Charts 2 and 3). Chart 2: U.S. Debt Vs. Interest Payments Chart 3: 10 Year U.S. Bond Yield Vs. Interest Payments The reason why we see a decline in the interest payment to tax revenue ratio is because of the huge increase in tax revenues the government received this year (Chart 4). Chart 4: U.S. Government Tax Revenue This was all due to a tax increase at the start of 2013 (Chart 5: blue line), which plunged the savings rate (Chart 5: red line) of households. Chart 5: Tax Revenue Vs. Savings Rate All in all a pretty positive year for the U.S. budget. The question is, what can we expect from the coming year? The projected tax re...

There is a correlation between consumer sentiment and the forward P/E ratio on the S&P 500. Investors will be willing to pay increasing multiples if they are confident that the future streams of earnings are sustainable and forecastable. If we know that forward earnings are a measure of how confident investors are to buy stocks compared to the earnings of the stocks, then we know that the forward P/E ratio is correlated to the S&P 500 itself. By deduction, the consumer sentiment index is correlated to the S&P 500. The consumer index (blue chart) is a leading indicator for economic trends so if we see a drop in the blue chart, the red chart (S&P 500) will go down a few months later.

There is this talk whether Bitcoin can become a reserve currency. Remember, I said earlier  that Bitcoin needed to be $2880/Bitcoin to be on par with the silver market. We're now at $300/Bitcoin, so there is still a long way to go. Bitcoin Market Cap Gold Price But nevertheless, a nice run upwards compared to the ill-forgotten gold ... I'm wondering why gold didn't go up. Or is there no correlation at all? In fact, while Bitcoin soared, gold went down.

Registered gold at COMEX hit a new record low of 640551 troy ounces (blue chart). It's not long anymore before a default happens just like what happened with the London Gold Pool in 1968. Manipulating the price will never ever work forever. Once this blows up, we will see a continued rise in gold. Moreover, the leverage of eligible gold to registered gold went to a record high of 10.1. Open interest was 390369. Which is 36036900 ounces. Notice that open interest (speculation) is not falling, while physical gold stocks are falling. This is unsustainable. If we divide this number by the registered stock, then we get 36036900 / 640551 = 56. This is a record high.

The latest contango report shows that China has a copper deficit: CONTANGO WATCH: Copper's almost 0.90 percent narrowing has brought its current cost in line with its historical average. The move comes on the back of a price drop of more than $50 for the November and December contracts from last week, which ranges up past $75 near the back end of the curve. Earlier this month, Reuters reported on an expected surplus that has yet to appear. China could be the culprit. Mineweb reported that despite warehouse numbers that would indicate a current surplus, French bank Natixis believes China is actually in a copper deficit based on anecdotal evidence of Chinese destocking. "If, as our models suggest, Chinese destocking accounted for around 300,000 tons of copper early this year, measures of consumption based on end-user demand rather than apparent demand would give us a deficit for the year if anything from 60,000 to 225,000 tonnes," Natixis said.  As you can see here, we ha...

As I pointed out earlier here, the debt slope has gone up dramatically. More evidence can be found in this updated chart of U.S. public debt. The debt just went up $70 billion in one day to $17.156 billion.It is going to a point that the U.S. government is now implementing legislation to tap the intragovernmental debt from the social security funds to magically reduce debt . That's right, they are taking your money to pay down debt.

For a vegetarian in Hong Kong, which better place is there to go to other than the Po Lin Monastery. This is the last day of my trip, time to get to work.