Archive for August, 2011|Monthly archive page

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. Continue reading

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. Continue reading

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. Continue reading

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. Continue reading

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. Continue reading

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. Continue reading

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. Continue reading

The oil/gold ratio does it again!

There are many reasons to be dissatisfied with my commodities system from yesterday, but the most important one is that it does not even pretend to address the questions I had laid out for any such system when I started going on about commodities, namely how to explain the behavior of the all-knowing but utterly mysterious oil/gold ratio.

The peculiar relationship between precious metal/industrial commodity ratios, such as gold/copper and especially silver/oil, and interest rates that we mentioned yesterday has been especially difficult and irksome. To repeat, these ratios appear to have a long-term positive correlation but a negative short-term or intermediate correlation. As a proxy for gold/copper and silver/oil, I used the gold/oil ratio, simply because that is the one I have data for. Continue reading

Commodities Complex

In my last post, I said I would try to confront the problems presented by the similarities and differences between the gold/copper ratio and the silver/oil ratio, especially considering that we believed we had found an excellent way to model gold/copper, and yet silver/oil, despite its multiple similarities, never quite seemed to fit into anything. Moreover, any partial solutions that suggested themselves often seemed to violate other relationships that we had modeled and appeared more satisfactory, especially those involving the oil/copper ratio, which seems to be somewhere between the dollar/yield ratio and the yield curve spread. Continue reading

Rambling interlude: Gibson’s paradox and the way to the silver/oil ratio

Yesterday we commented on what we believe is a variation of Gibson’s Paradox expressed in the formula copper/yield=gold/dollar.

These are charts from Friday. Continue reading