It’s not so clear why, but the ISM Manufacturing PMI leads the ISM Services PMI. This means that the ISM Manufacturing PMI is more important as a leading indicator.
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The Consequences of a Fed Rate Hike
The Federal Reserve will have its next FOMC meeting on 15-16 December 2015. The financial markets are speculating that Janet Yellen will finally allow a rate hike to take place. This is based on good employment data, especially the ADP jobs report that came out this week. Firms contributed a better than expected 217,000 positions for the month of November 2015. Also, with the unemployment rate at 5%, the Federal Reserve would lose credibility if it didn’t raise rates now. I think the Federal Reserve won’t increase rates (or just a small increase) because a multitude of other macro indicators (ISM manufacturing PMI, Junk bonds, commodities, Baltic Dry Index, …) are deteriorating. But let’s analyze what the consequences would be for the global economy when the Federal Reserve were to increase interest rates significantly.
The Perfect Economic Storm Is Here – Mike Maloney At Silver Summit 2015
Sharing this video of Mike Maloney.
COMEX Stock Paper Gold Leverage Hits New All Time High
Does this paper gold leverage look healthy to you?
Eligible to registered gold hits leverage of 46.
There’s virtually no registered gold anymore in the vaults, HSBC and JP Morgan took all their registered gold out.
COMEX, can you default already?
Gold Repatriation is Accelerating
The new numbers for October are out and we can see that gold repatriation from the Federal Reserve Bank of New York is accelerating again.
What Happened to Dr. Copper?
Resource investors are much aware of the recent carnage in commodities like copper, zinc, aluminum, oil, gold, silver. In fact, the global natural resource index has hit a multi year low together with an all time low for the Baltic Dry Index, which measures freight and transportation costs.
What’s even more stunning is that we see this weakness two months before the seasonally weak first quarter of 2016. So more weakness is about to come. The economies that are the most hit are the resource based economies like Canada, Australia, China, Brazil, Russia, Mexico and other emerging markets. These countries are hit so hard, people are giving them a new nickname: “submerging markets”.
To give an idea of the severity of the state of the resource sector, we can take a look at what percentage of the total market cap is still invested in resources (see chart below from Deutsche Bank). We can see that resources have almost become irrelevant in our society (15% of total market cap), going back to the low of the Nasdaq bubble in 2000.
With all of this in mind, we wonder why there is this glaringly obvious discrepancy between copper and the stock market (see chart below from StockCharts). It seems that this correlation has been broken. Many investors view the price of copper as one of the best indicators of global economic activity.
Go here to read the analysis.
Managed Money Shorts Gold and Silver
The gold and silver price may have hit a new low as predicted due to lower premiums and bad COT reports (managed money shorts were very low). But today I have better news.
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According to the COT report the managed money shorts have all come back again and will support a higher price. So it is a good time to buy precious metals right now.
SGE withdrawals are robust, so there is Chinese demand although not too much. U.S. Mint sales are robust but not as high as in Q3. Premiums at APMEX are given below.
Premiums are back at their historic average, but still elevated.
Premiums in China are very high for silver, but not so high for gold.
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Silver deficit to continue in 2015
A new report shows that silver is still in deficit. This will support silver prices.
Gold Supply and Demand Q3 2015
A new gold supply and demand report is out from the World Gold Council for Q3 2015.
Demand has been very high in Q3 2015 at 1120.9 tonnes. Supply has declined year over year to 1100 tonnes. This created a rise in the gold price in Q3.
Demand will be subdued in Q4 because investors already bought their share in Q3.
Supply decreased due to lower mining production and lower recycling of gold. The majority of increase in supply was due to net producer hedging, which basically means that miners sell their future production to bullion dealers in exchange for cash. Bullion dealers get their cash from central banks who sell their gold into the market. So the bullion dealer actually borrows gold from the central bank and will return it in the future, when the mine produces it.
Of course, mines selling production now or selling production in the future has no net increase in supply eventually. A mine can only sell so much gold as its capacity allows. So basically, supply is drying up if we don’t take into account net producer hedging.
Working Age Vs. Consumer Price Index
Working Age has effects on the P/E ratio as described here, but also has an effect on the inflation rate.
Yardeni describes this perfectly here. Younger people simply spend more than older people and contribute more to GDP and inflation. If we plot the percentage of younger people in society against the inflation rate we have a very nice correlation.
Yardeni describes this perfectly here. Younger people simply spend more than older people and contribute more to GDP and inflation. If we plot the percentage of younger people in society against the inflation rate we have a very nice correlation.
This explains why Japan had a deflationary environment for so many years due to its low fertility rates. Knowing this, we now can expect inflation to go back up in China because they just announced an end to the one child policy this month in 2015. But this inflation will only come when these babies start to work.
Bonus chart:
Correlation Economics (Backup) 
