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Ivan Kitov's  Instablog

Ivan Kitov
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I am a Doctor of Physics and Mathematics, Lead Researcher at the Institute for the Geospheres' Dynamics, Russian Academy of Sciences. Founding member of the Society for the Study of Economic Inequality Published three monographs in economics and finances: Deterministic mechanics of pricing... More
My company:
Stock Market Science
My blog:
Economics as Classical Mechanics
My book:
Deterministic mechanics of pricing
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  • CPI And Core CPI. A Half-Year Report

    We have been routinely reporting on the difference between the headline and core consumer price indices (NYSEARCA:CPI) since 2008. Figure 1 illustrates our general finding that this difference can be well approximated by a set of linear trends. The last trend likely finished in 2009. That's why we expected a new trend to evolve since 2010 into the late 2010s.

    The U.S. Bureau of Labor Statistics has reported the estimates of various consumer price indices for August 2012. Figure 2 shows the predicted trend and the actual difference since 2010. The difference was fluctuating around zero between June 2011 and January 2012 and then showed a turn to the predicted trend. Essentially, the zero difference suggests that the core and headline CPI are practically equal and evolve at the same monthly rate, i.e. the joint price index of energy and food has been following the price index of all other good and services (the core CPI) one-to-one.

    Currently, the price index of energy slowly falls together with oil price. We expect them to fall deeper and thus the headline CPI to decelerate a bit together with energy. If the core CPI will retain its current cohesion with the headline CPI, we will have a period of very low inflation in all goods and services less energy and food.

    (click to enlarge)

    Figure 1. Two trends in the difference between the headline and core CPI.

    (click to enlarge)

    Figure 2. The evolution of the difference between the core and headline CPI since 2002.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Oct 04 8:53 AM | Link | Comment!
  • Oil Price Predictions For 2012 And 2013: Likely To Fall

    This is a revision to our oil price prediction as based on the difference between the overall PPI and the index of crude oil. Figure 1 compares our previous prediction in May 2011 with actual oil price in 2011 and 2012. In August 2011, the predicted price was a bit higher than the measured one. We expected the price to fall by approximately $5 per month to the level of ~$70 by December 2011. In reality, the price reflected from the high bound of the expected price (dashed line) and grew during the end of 2011. This effect reflects the high level of price volatility during short time intervals. Since February 2012, the price has been returning to the expected price range which expresses the slow fall through 2016, with the uncertainty bounds for the long-term trend in oil price shown in Figure 1. The level of oil price in 2016 is expected between $30 and $60 per barrel.

    Here we confirm the oil price trend and its bounds. Red squares show our prediction of oil price through February 2013. Despite local fluctuations, the trend is negative and will bring the price to $45 (±$15) per barrel in 2016.

    (click to enlarge)

    Figure 1. The evolution of oil price since 2001 as estimated from the difference of the overall PPI and the PPI of crude petroleum.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: commodities
    Oct 04 5:27 AM | Link | Comment!
  • 10% Return Since May, But Time To Halt

    In April 2012, we predicted a drop in the S&P 500 to the level of 1300 by the end of May. Figure 1 shows the predicted behavior in April and May 2012, with the predicted segment shown by red line. We expected that the path observed in the previous rally would be repeated with the bottom points coinciding. When this prediction realized, I invested, say, one unit at the average price 1320. The expected exit level was 1500 in October 2013.

    (click to enlarge)

    Figure 1. The original S&P 500 curve (black line) and that shifted forward to match the 2009 trough (blue line). Red line -expected fall in the S&P 500: from 1400 in March to 1300 in May.

    Figure 2 shows the evolution of the S&P 500 monthly closing price since May 2012. The current level (September 14th) is above 1465 with the overall return of 10% during the past 4 months. One can see that the observed level is far above the expected one and the level, when repeating the blue curve, may have a small correction in December. Both these observations make me think that the time to exit and capitalize is approaching. I'll definitely sell at 1500 or by the end of October. Bonds are looking more and more attractive as a safe haven till the new S&P 500 rally due in spring 2013.

    (click to enlarge)

    Figure 2. Same as in Figure 1 with an extension between May and August.

    Disclosure: I am long SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Sep 17 9:44 AM | Link | Comment!
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