Returning to Gibson’s Paradox

The orthodox description of the mechanism of changes in the price of gold was written by Robert Barsky and Larry Summers in their famous 1988 paper, “Gibson’s Paradox and the Gold Standard“. I lack the intellectual standing to refute it, but I would like to suggest that this description may now be insufficient in light of price action over the last 40 years. Read more »


Are we due for a Leeb oil shock this summer?

If you read my previous post about Myanmar, Iran, and Romney-Paul, and I can’t imagine why you would, you are probably wondering why I glued them all together.

No particular reason, but there is something that might bind them together. Namely, the price of oil this year.

There is a possibility of a Leeb oil shock in the summer, and that tends to have important political consequences. It is not easy to predict, but the possibility does exist.  Read more »

Political Round-up: Myanmar, Iran, and Romney

Some articles I found interesting and my commentary on them….

First, “Burma’s Punk Scene Fights Repression Underground“.

I have become a regular reader of Der Spiegel, and this article caught my eye for a few reasons. It reports on the difficulty of being a punk in Burma. Or at least being in the punk scene. Nobody will ever suspect me of being sympathetic to that genre or subculture or whatever it is, but I think that both the existence of that scene there and suggests the extreme fragility of this move towards democracy. Read more »

Natural gas

Yesterday, I attempted to write a post about natural gas, but I never felt like I could establish any really solid relationships beyond the post-crisis conditions. Perhaps some of those more recent relationships will form the basis of some future consideration, but I would like for most of my thoughts about intermarket relationships to tend toward longer-term trends rather than to the temporary. Kevin Klombies’s bold thesis about bonds and commodities presented in the IMRA today and the connection to natural gas encouraged me to strike out once again for oil’s less famous cousin. Read more »

Dow/copper: Markets at critical stage

I’d like to revisit the view of markets that we concluded with on Thursday but from a slightly different angle this time. I believe this will confirm our previous (although possibly erroneous) conclusions and give us some additional insight into what we may be in for, or at least what we should be looking for if things do not go the way we expect. A kind of theoretical exit strategy, if you will.

First off, while writing the previous post, I postulated a handful of relationships that time did not permit me to cross-check either historically or ‘mathematically’, for lack of a better term. Read more »

Dow/platinum ratio and other goodies

I would like to draw together everything we have talked about this week in order to update the picture as we found it at the beginning of the week and to practice looking at markets with as synthetic an outlook as possible. Let’s call it ‘intermarket synthesis’, or what might be more accurate, ‘putting all your eggs in one basket’. First of all, let’s talk about the stock market and the Dow/gold ratio. Read more »

Isaac Newton, lunar cycles, and the bond market

When I left off my last post, it appeared that ratios such as gold/platinum and gold/oil among others, such as silver/oil, had both a concurrent negative correlation and yet a positive forward correlation (by 16 months or so) with yields. If that is the case, however, then yields themselves would have, by extension, a positive correlation concurrently with themselves (obviously) and a negative correlation sixteen months out. Read more »

Platinum/gold and bonds

I had decided after making yesterday’s summary to push on to other questions involving relatively peripheral metals such as aluminum, platinum, palladium, etc, and then other parts of the energy sector, before getting on to agriculture, and so on, but going back over my notes from earlier in the year, I came across a rather innocuous-looking equation that I perhaps should have paid closer attention to: platinum/gold = oil/gold. Read more »

Where do we stand now?

The last post was especially exhausting, and I thought it might be a good time to try and take what we know or suspect or have irresponsibly and groundlessly asserted in the face of obvious fact and see what it has to say about where we are now. This is also a good way of deciding where we should focus our research next.

Let’s start with bonds.

According to the methods we have been postulating recently, it would seem most likely that long-term yields are on the verge—probably sometime in the late summer or perhaps early fall—of pivoting to the upside, although they could make new lows in the meantime. Read more »

Oil/gold, oil, and yields—and who invented the yield curve spread, anyway?

Building on our argument yesterday, that the gold/oil ratio can be used to predict 10-year treasury rates sixteen months in advance (although silver/oil is probably a much better tool), we would like to explore some of them implications of that conclusion.

For one, if everything we have said is more or less true, then the gold/oil ratio can be used to forecast treasury rates, while the oil/gold ratio can be used to forecast the Dow/gold ratio, which is shadowed by the P/E ratio, and the P/E ratio is just the inverse of EPS. In other words, gold/oil had been ‘pushing’ interest rates down throughout the ’80s, ’90s, and 2000s, up until the financial collapse, when the gold/oil ratio jumped to its third highest level in twenty years. At the same time, in the guise of the oil/gold ratio and its peculiar relationship with Dow/gold and P/E ratios, etc, it began pushing EPS higher beginning in 2000, for the first time in decades. Read more »