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Katchum
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Albert Sung is the author of Correlation Economics, monitoring breaking economic news on a day to day basis. He started investing in 2008 because of the economic crisis and holds a masters degree in chemical engineering. Previously, he worked several years as a process engineer at Ashland, a... More
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Correlation Economics
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  • India Gold Demand Surges

    As predicted here and here, India shows signs of doubling its gold imports.

    I said India would at least add 30 tons a month and we got exactly 30 tons added in March. I think India is set to overtake China demand again.

    (click to enlarge)

    In Gold We Trust Koos Jansen

    Tags: GLD
    Jun 13 3:14 AM | Link | Comment!
  • Smart Money Index: Prepare For A Crash

    A very helpful index to predict what the Dow Jones is going to do is the Smart Money Flow Index. Just follow the smart money and the Dow Jones will correct itself to the smart money index. The only problem I have is that this SMFI index is not free of charge...

    (click to enlarge)

    Smart Money Flow Index

    The Smart Money Flow Index SMFI has long been one of the best kept secrets of Wall Street. Everybody knows the importance of a closing price and other last hour indicators like the Closing Tick, which we publish daily on our portal.

    The Smart Money Flow Index is therefore calculated according to a special formula by taking the action of the Dow in two time periods: the first 30 minutes and the last hour. The first 30 minutes represent emotional buying, driven by greed and fear of the crowd based on good and bad news. There is also a lot of buying on market orders and short covering at the opening. Smart money waits until the end and they very often test the market before by shorting heavily just to see how the market reacts. Then they move in the big way.

    These heavy hitters also have the best possible information available to them and they do have the edge on all the other market participants. It is a clear buy signal if the Dow falls to a new low which is not confirmed by the SMFI. But whenever the Dow makes a high which is not confirmed by the SMFI there is trouble ahead (Chart below). Watching this indicator is like being on a plane and see the pilots jumping off with parachutes. This magnificent indicator has called every major top and bottom.

    Another index is the SMI index. The basic formula for SMI is:

    Today's SMI reading = yesterday's SMI - opening gain or loss + last hour change

    For example, the SMI closed yesterday at 10000. During the first 30 minutes of today's trading, the DJIA has gained a total of 100 points. During the final hour, the DJIA has lost 80 points. So, today's SMI is 10000 - 100 + -80 = 9820.

    So basically, when you see people buy at the opening and sell into the close, you should become bearish.

    Here's my own fabricated Smart Money Index. Entirely free of charge. This Smart Money Index is a leading indicator for what the Dow Jones will do after a few months time.

    What I did is look at the average, opening and the closing prices of the Dow Jones historical numbers and compared them to the previous close. The Dow Jones historical prices can be found here: stooq.com/q/d/?s=^dji

    My Formula:

    SMI = previous closing price - (opening price- previous close) + (closing price - average price)

    (click to enlarge)

    Correlation Economics: SMI Index

    As you can see, the bubble in 2000 can be predicted with my formula. And the bottom of 2009 can also be predicted. In 2014, we see that the red curve is flattening out while the blue curve is still going straight upwards, which means we are in bubble territory now.

    I can't get enough of this Smart Money Index, so I made one for the NASDAQ.

    As you can see, the NASDAQ bubble of 2000 is very visible here. The smart money was leaving the NASDAQ years before the bubble burst. Today, we also see that the smart money has already left the building (red chart going down).

    (click to enlarge)

    Let's do the same for gold.

    I have the feeling that the Smart Money Index for gold isn't that useful to predict the gold price. But when looking at the chart I see that gold is pretty flat at this moment. I don't expect any large moves yet.

    (click to enlarge)

    So follow the Smart Money!

    Tags: DIA, QQQX, GLD
    Jun 12 2:47 PM | Link | 2 Comments
  • Predicting GDP With The Trade Deficit Numbers

    We recently got the trade deficit numbers and it widened the last month. Peter Schiff notices that GDP is influenced by the trade surplus/deficit. He says that GDP will drop when the trade deficit widens. This is very useful because trade deficit numbers are monthly, while GDP numbers are quarterly measures. I will upload a little clip later on. But I think this theory is faulty, because there are other things to consider.

    So I looked up the definition of GDP:

    GDP (NYSE:Y) is the sum of consumption (NYSE:C), investment (NYSE:I), government spending (NYSE:G) and net exports (X - M).

    Y = C + I + G + (X − M)

    Here is a description of each GDP component:

    • C (consumption) is normally the largest GDP component in the economy, consisting of private (household final consumption expenditure) in the economy. These personal expenditures fall under one of the following categories: durable goods, non-durable goods, and services. Examples include food, rent, jewelry, gasoline, and medical expenses but does not include the purchase of new housing.
    • I (investment) includes, for instance, business investment in equipment, but does not include exchanges of existing assets. Examples include construction of a new mine, purchase of software, or purchase of machinery and equipment for a factory. Spending by households (not government) on new houses is also included in investment. In contrast to its colloquial meaning, "investment" in GDP does not mean purchases of financial products. Buying financial products is classed as 'saving', as opposed to investment. This avoids double-counting: if one buys shares in a company, and the company uses the money received to buy plant, equipment, etc., the amount will be counted toward GDP when the company spends the money on those things; to also count it when one gives it to the company would be to count two times an amount that only corresponds to one group of products. Buying bonds or stocks is a swapping of deeds, a transfer of claims on future production, not directly an expenditure on products.
    • G (government spending) is the sum of government expenditures on final goods and services. It includes salaries of public servants, purchases of weapons for the military and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits.
    • X (exports) represents gross exports. GDP captures the amount a country produces, including goods and services produced for other nations' consumption, therefore exports are added.
    • M (imports) represents gross imports. Imports are subtracted since imported goods will be included in the terms G, I, or C, and must be deducted to avoid counting foreignsupply as domestic.

    So this basically means that if we have a bigger trade deficit (or X-M becomes smaller), then the GDP will drop. Correct.

    The question is, by how much? Looks like the X-M part isn't that big (only 3%). But it does give an indication...

    So I don't expect the trade deficit to be an accurate measure to predict GDP. What is more important are the durable goods and we know about the durable goods orders metric. Let's look at the durable goods orders.

    (click to enlarge)

    Something amazing can be found between durable goods and the trade deficit.

    Whenever the trade deficit widens (red chart goes down), then the durable goods orders go up (blue chart goes up). This means that GDP could increase, if the trade deficit widens. Very weird right, but it's reality. Because Americans buy things via imports and thereby the trade deficit gets worse.

    (click to enlarge)

    Conclusion, if the trade deficit widens, GDP growth will probably accelerate and the stock market will go up (not down). So you can predict the GDP with the trade deficit.

    Jun 05 2:55 AM | Link | Comment!
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