Chapwood Index

I read about this alternate calculation on the Consumer Price Index (CPI) for inflation: http://www.chapwoodindex.com/

This is how they calculate it and apparently the CPI is around 9% at this moment:

Financial experts at Chapwood Investments, LLC have spent the past 4 years engaged in groundbreaking research that uncovers the real cost of living percentage increase for every major metropolitan area in the United States.

Numerous organizations have struggled to reveal inaccuracies in the government Consumer Price Index (CPI) methodology by calculating alternative inflation rates.

No one, until now, has ever attempted to objectively determine the real cost of living percentage increase without the influence of the flawed government model.

Over two years, we collected data from friends and associates across the country on over 4,000 items to see what they spent money on in their daily lives. We then narrowed these items down to the top 500 most frequently used and relevant items. Those items became the basis of the Chapwood Index.

Every six months, we take the precise price for the same item quarter by quarter and calculate the increase or decrease, then developed a weighted index based on price. These items include basically everything that most Americans consumer during the course of their lives.

Misery Index Vs. Forward P/E Ratio Vs. Gold

The misery index is the sum of the unemployment rate and the inflation rate. It can be very useful to predict the forward P/E ratio (price/expected earnings). The misery index has been falling since 2010 till 2015.

The lower the misery index (blue chart), the higher the P/E ratio (red chart), which means stocks get valued higher. A low misery index might explain why in 2014, stock prices were valued that high.

Another correlation is that between the misery index and gold. The more misery, the higher the gold price.

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Smart Money Index Update

I’m pretty sure this is why the stock markets are crashing. Let’s look at the NASDAQ Smart Money Index.

The smart money (red chart) is leaving, while the sheeple (blue chart) are buying. Soon the sheeple will realize the door is shut.

Retail Sales Vs. Consumer Price Index

The retail sales report is a monthly economic indicator compiled and released by the Census Bureau and the Department of Commerce. It gives a monthly aggregated measure of sales of retail goods. So basically it gives the sales figure of what people bought the previous month.

If retail sales go up, it means people either bought more things, or prices went up for their goods or a combination of both. But I think retail sales are a good indicator of inflation.

The chart below clearly illustrates that retail sales are a leading indicator for the consumer price index, so everyone should monitor the retail sales numbers to get an idea on inflation.

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Smart Money Index: NASDAQ and gold version

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).

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.

Smart Money Index (Correlation Economics)

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: http://stooq.com/q/d/?s=^dji

My Formula:
SMI = previous closing price – (opening price- previous close) + (closing price – average price)

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.

So follow the Smart Money!

Smart Money Flow Index Vs. Dow Jones

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…

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.

Federal Funds Rate Vs. Consumer Price Index

From the first FOMC meeting lead by Janet Yellen, we noticed one important statement:

“The Fed Funds Rate will be kept low when inflation stays at this low level.”

Thus, we chart the Fed Funds Rate against the CPI and get this result.

There is a strong correlation between the Fed Funds Rate and the inflation rate (CPI).

So we expect that an increase in interest rates will only happen when inflation starts to rise. The unemployment rate is not on the radar anymore.

Notice that historically the Fed Funds Rate is higher than the inflation rate (positive real interest rate (above 0%)), but today the Fed Funds Rate is lower than the inflation rate (negative real interest rate (below 0%))

Monitoring Debt Held by Foreigners

I have updated this page for monitoring the U.S. debt held by foreigners. We know that when foreigners sell U.S. treasury debt, then we will see either a decline in the U.S. dollar or a rise in interest rates on treasuries. We are seeing now a decline in the U.S. dollar.

Indeed, we have seen a massive drop of debt held by foreigners in the custodial accounts.

The following chart gets updated weekly, so this is the most important chart to monitor.

Knowing that foreigners have started selling their U.S. treasuries, the U.S. dollar will have a high probability of breaking down now to 70. We are currently at 79. So prepare to see even worse to come.

Consumer Sentiment Index Vs. S&P 500

There is a correlation between consumer sentiment and the forward P/E ratio on the S&P 500. Investors will be willing to pay increasing multiples if they are confident that the future streams of earnings are sustainable and forecastable.

If we know that forward earnings are a measure of how confident investors are to buy stocks compared to the earnings of the stocks, then we know that the forward P/E ratio is correlated to the S&P 500 itself. By deduction, the consumer sentiment index is correlated to the S&P 500.

The consumer index (blue chart) is a leading indicator for economic trends so if we see a drop in the blue chart, the red chart (S&P 500) will go down a few months later.

Consumer Sentiment Vs. S&P 500