Dust flux, Vostok ice core

Dust flux, Vostok ice core
Two dimensional phase space reconstruction of dust flux from the Vostok core over the period 186-4 ka using the time derivative method. Dust flux on the x-axis, rate of change is on the y-axis. From Gipp (2001).

Monday, April 21, 2014

Housing bubble reflation

Time for our annual look at the Case-Shiller index (data here - link to the excel file on housing data is about 2/3 of the way down the page). I have calculated the yearly index values from the average of the four quarterly index values where present, and used only the annual index values from the beginning of the data set.

Below we see the phase space portrait (four year lag) since 1894 (annual).

The housing bubble is being reinflated. The projected future trajectory of the system has been deflected away from the big area of stability (1896-1915 and 1948-1999) back towards the bubble that followed Y2K.

Sadly, it is likely to be wasted, as there is no area of stability to occupy. The most likely scenario is another bubble like the last one; one that makes people rich and excited for a brief time.

Maybe they are hoping to create an area of stability if they can force the market to a desired level and hold it there. It might work. But maintaining a false equilibrium in a self-organizing system is like maintaining the balance of a bathtub on top of a broomstick by pouring increasing volumes of water into the tub. From a distance.

Here is the quarterly chart.

It's Yellen's move. Just a couple of quick pointers--for reasons of geometry, any area of stability has to lie along the y=x line; and a move down to the 112 level on the y-axis is baked in the cake for first quarter of 2016. Whether the curve will approach the plotted point for the first quarter of 2003 or some other point will be up to you.

Friday, April 18, 2014

Are Kitco gold experts contrary indicators?

In response to recent debate, we ask the titular question (data originally from this IKN post).

I don't think so, although there is a very slight trend to that effect.

To test the idea, we plot the Kitco bearish and bullish opinion percentages against the performance of GLD the following week.

First up--the bulls.

I've plotted it the same way as the last time, although perhaps an argument can be made that I should switch the axes. There is a slight negative correlation, which would favour Otto's assertion that the experts are contrary indicators. But with r = -0.113, it is a weak correlation. By comparison, the correlation between bullish opinions and the previous week's performance of GLD was above 0.7.

And now the bears . . .

This time there is a weak positive correlation (r = 0.17), which favours the contrary indicator idea (high numbers of bears are followed by higher gold price)

At least since the beginning of September, 2013 (at which point gold was about $100 higher than at present).

Then I tried increasing the difference--maybe those Kitco experts are contrary indicators for GLD behaviour farther in the future.

If we compare the performance of GLD two weeks after the experts' prognostications (i.e., GLD's performance during the second week, not over the entire two week period), we get a reasonable correlation (r^2 = 0.21) - but this seems to suggest that you could bet along with the experts as long as you delay a week. So the current bullish posture favours a gold decline not this coming week, but the week after.

Given that r^2 was about 0.5 for the lagging indicator, that is still the favoured hypothesis. So given Kitco's bearish stance, your best bet is still to go back in time a week and short gold.

It does occur to me that a longer series, that covers a period where gold was performing well over a sustained period, may give a different result.

Tuesday, April 15, 2014

You may have what it takes to be a Kitco gold expert!

I know you've always dreamed of it. But you are probably asking yourself . .  how could I ever develop the wisdom and insight to be a Kitco gold expert? It must take years . . . no, decades . . . of intense study to develop the necessary mental acuity.

Anyway, Otto at the IKN blog claims that the Kitco gold experts are as useful as monkeys with darts. I say they are less useful. Let's investigate, using the table of data helpfully posted at the above link.

The shotgun approach to gold forecasting

The red dots are a scatterplot of % of bearish experts vs the weekly performance of GLD; the blue dots are % bullish experts vs weekly performance. It looks like monkeys with a dartboard.

But when we compare the expert consensus against the previous week's behaviour of GLD, we see a different pattern. On the week following a falling price in GLD, most of Kitco's experts are bearish. When GLD rises, most of Kitco's experts become bullish the following week.

Kitco's experts are a lagging indicator.

If you want to make use of them in your investment planning, you should first invent a time machine . . .

Sunday, April 13, 2014

Gold stocks down more than gold

It's a bit surprising. Gold isn't doing all that badly, but the stocks are really down. In the past, this has usually been followed by a hammering of the gold price. Falling gold stocks has historically been an accurate indicator of falling gold price in the past, and will continue to be until the time it isn't. Is that time this time? I'd bet against it, because I haven't sold all mine yet. I'll let you know the moment it happens.

I think that the market is worried that gold could perform like it did last April, and there aren't enough other buyers to take up the slack.