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  • #21
  • Jun 5, 2019 2:42am Jun 5, 2019 2:42am
Copper Correlations

I thought these were very interesting correlations. They go from 2004 up until the end of May 2019. Copper and Crude are more tightly correlated than I thought!

Copper vs Crude Oil
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Copper vs Industrials Commodity Index
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Copper vs 10-yr bond yield
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Copper vs Emerging Markets MSCI Index
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Copper vs Gold
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Copper vs China MSCI Stock Index
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We must learn who is gold, and who is gold plated
EventsTrader Live All Time Return: 54.4%
  • #22
  • Jun 5, 2019 9:21am Jun 5, 2019 9:21am
Quoting Ef5
... The next global recession is probably <2yrs away and things are going to get very dicey for the central banks. Even in a favorable scenario for the global economy, there's going to be a major money supply expansion which should be very bullish for gold.
I only HOPE it will be that far away. I am concerned it may be a bit closer. It appears to me that politicians are now using central bank policy (or pressure if you see it that way) to effect economic change in their favor instead of just improving the economy. Trump is trying to do this, but is also pressuring the central bank to keep interest rates low. Same think with Obama except he had now clue how the economy works, "...you didn't build that, you had help..."

My biggest concern (for the future) is that when the next bust cycle hits, all the central banks are out of ammunition. Each country will be forced to either go negative interest, which could really tank their economies, or anchor their currency to some commodity. Gold would seem to be the obvious choice, but I could also see countries anchoring their currencies to Oil as well.
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  • #23
  • Jun 5, 2019 11:24am Jun 5, 2019 11:24am
Quoting EventsTrader
Copper vs Crude Oil {image}
Global growth expectations are big factor for Copper and Crude prices so it makes sense there is a good correlation between them. What's really interesting is how copper went down in sympathy with crude during the oil crash in 2014/2015.

Quoting EventsTrader
Copper vs Industrials Commodity Index {image}
Where did you get data for the CRB Raw Industrials Price Index? This is one of Ed Yardeni's favorite indicators, but I couldn't find the data for it anywhere.
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #24
  • Jun 5, 2019 11:48am Jun 5, 2019 11:48am
Quoting DonPato
My biggest concern (for the future) is that when the next bust cycle hits, all the central banks are out of ammunition. Each country will be forced to either go negative interest, which could really tank their economies, or anchor their currency to some commodity. Gold would seem to be the obvious choice, but I could also see countries anchoring their currencies to Oil as well.
Central banks will have to get more creative in the next recession. I think the next step for the Fed might be making ETF purchases like the BoJ has done.

What concerns me most is what will happen with the Eurozone. Parts of Europe have really struggled even during good times. I was in Greece 3 years ago and couldn't believe how economically depressed it was. I knew it was bad, but it's different when you see Athens in person. During the next recession southern Europe will probably need more than the ECB can offer. Compared to other central banks, the ECB is more constrained with what they can do and they would likely face legal challenges if they tried anything too creative... It is easy to see how the Eurozone might not make it through in one piece, although I hope they do.
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #25
  • Edited 4:12pm Jun 5, 2019 2:53pm | Edited 4:12pm
Quoting Ef5
...During the next recession southern Europe will probably need more than the ECB can offer. Compared to other central banks, the ECB is more constrained with what they can do and they would likely face legal challenges if they tried anything too creative... It is easy to see how the Eurozone might not make it through in one piece, although I hope they do.
I'm pretty sure it won't be limited to just Europe. If certain politicians have their way the US will completely devalue their currency until Gold is the only thing worth more than toilet paper. I really dislike politicians, so I'll just leave it at that...but the old saying comes to mind, "absolute power corrupts absolutely".

As well this quote comes to mind:
"You are a den of vipers. I intend to rout you out and by the Eternal God I will rout you out. If the people only understood the rank injustice of our money and banking system, there would be a revolution before morning." ~ Andrew Jackson

This he spoke to what was at that time the central bank, and he succeeded in his quest. As a side note he was the last US President to completely pay off all US debt and leave his successor with a zero balance sheet AND a balanced budget.
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  • #26
  • Jun 5, 2019 11:31pm Jun 5, 2019 11:31pm
Quoting DonPato
I really dislike politicians
You and me both Don.

That's some interesting info about Andrew Jackson, thanks for sharing.
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #27
  • Jun 6, 2019 1:10am Jun 6, 2019 1:10am
Quoting Ef5
Where did you get data for the CRB Raw Industrials Price Index? This is one of Ed Yardeni's favorite indicators, but I couldn't find the data for it anywhere.
One site which I use to see longer term charts is http://www.chartsrus.com/
  • #28
  • Jun 6, 2019 2:29am Jun 6, 2019 2:29am
Quoting Ef5
Where did you get data for the CRB Raw Industrials Price Index? This is one of Ed Yardeni's favorite indicators, but I couldn't find the data for it anywhere.
That's exactly who it's from. The former Chief Investment Strategist of Deutsche Bank himself. I found a pdf online that contained the charts.
We must learn who is gold, and who is gold plated
EventsTrader Live All Time Return: 54.4%
  • #29
  • Jun 6, 2019 11:27am Jun 6, 2019 11:27am
Quoting EventsTrader
{quote} That's exactly who it's from. The former Chief Investment Strategist of Deutsche Bank himself. I found a pdf online that contained the charts.
Ah ok, gotcha. His PDFs are nice but you can't get the raw data unfortunately.

I was just reading about his 'Boom Bust Barometer' over the weekend. The formula for it is:

BBB = CRB Raw Industrial Price Index / Initial Unemployment Claims


It tracks the S&P 500 remarkably well and can be used for confirmation of moves. The only problem is the data for this is difficult to get.
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #30
  • Edited Jun 7, 2019 7:56am Jun 6, 2019 10:09pm | Edited Jun 7, 2019 7:56am
Quoting Ef5
The St. Louis Fed is one of the best data sources out there. They claim to have 566,000 data series and you can download all of into Excel.
Nice. A little weekend work...... Need to buy one those expensive new Mac Pro computers they announced this week with a massive screen to view all those tables and crunch all those sources :-)
If in doubt, paddle out!
  • #31
  • Jun 6, 2019 10:31pm Jun 6, 2019 10:31pm
Quoting SurfsUp
{quote} Nice. A little weekend work...... Need to buy one those expensive new Mac Pro computers they announced this week with a massive screen view all those tables and crunch all those sources :-)
Not a bad suggestion, but I'm probably going to join the ThinkPad cult once my current laptop dies.
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #32
  • Jun 6, 2019 10:44pm Jun 6, 2019 10:44pm
Sorry for skipping out on posting a new metals study last night! I was busy creating an indicator that compares the CBOE's VIX index against their SKEW index. The idea was if the SKEW rises without the VIX it could mean traders are preparing for a big move while the market as a whole is complacent. Based on what I saw though, the idea doesn't have much merit to it.

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A lot of studies don't work out and it's just part of the game. I still think there's some potential to use VIX and SKEW in conjunction with one another, but I haven't figured out the right recipe.

Time permitting, I'm going to try to get a seasonal chart up tonight for silver.
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #33
  • Jun 14, 2019 12:16am Jun 14, 2019 12:16am
Tonight I discovered Thinkorswim has seasonality charts which ties right in to the charts I was making. Here's what they show for the most commonly traded metals:

Gold
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Silver
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Platinum
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Palladium
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Copper
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That sure was a lot quicker than creating charts in Excel! Gotta love Thinkorswim, it's the best platform I know of for analysis.
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #34
  • Jun 20, 2019 12:40am Jun 20, 2019 12:40am
I'm working on an economic model that would illustrate where we're at now versus previous business cycles. I believe past cycles serve as an excellent guide for the future and is my primary guiding light towards investing. Based on all the data I keep track of I have a good idea of where were at in the business cycle, but what I'm striving to do is demonstrate it quantitatively. I plan to look at several different time series that encompass a variety of key economic factors and compare the data historically to where we're at now.

In order to accomplish this, the first step is to find reliable data that is representative of the business cycle. There are many different choices, but in my experience few economic indicators add value. To further complicate things, data changes over time so it needs to be normalized for all time periods. For example, the Fed Funds Rate at 10% in 1980 would affect the economy very differently than 10% in 2019. The raw interest rate isn't useful without additional context like the inflation rate.

With that said, I'm going to work on a list of indicators that might be useful. Note that this is biased towards the US. The reason is that the US tends to drive the world economy and commodities are usually priced in USD.

Under Consideration

1. 10y-2y spread: This should serve as a rough gauge as to how accomodative the Fed is.
2. Unemployment Rate - Natural Rate spread: The spread between the Unemployment Rate and the Nature Rate of Unemployment should roughly show how much slack there is in the economy.
3. Existing Home Sales / Population: Housing has a huge impact on the economy so ideally. Dividing Existing Home Sales by the US population should give some insight into how strong housing has been over time. Housing Starts and New Home Sales are also good candidates, as well as working age US Population.
4. ISM PMIs: Should serve as a good indicator of growth and won't need to be adjusted over time.
5. UMich Consumer Sentiment: Leads economic growth iirc. Also won't need to be adjusted over time.
6. Oil y/y price change: Oil has a history of impacting the economy and like it or not it's a still a significant factor.
7. Inflation: Obviously important, but difficult to measure. CPI or PCE is likely best for, but then it will need to be adjusted in a way that's to be determined.
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #35
  • Jul 11, 2019 10:23pm Jul 11, 2019 10:23pm
Quoting Ef5
I'm working on an economic model that would illustrate where we're at now versus previous business cycles. I believe past cycles serve as an excellent guide for the future and is my primary guiding light towards investing. Based on all the data I keep track of I have a good idea of where were at in the business cycle, but what I'm striving to do is demonstrate it quantitatively. I plan to look at several different time series that encompass a variety of key economic factors and compare the data historically to where we're at now. In order to accomplish...
This is easily a 30 hour project so I'm going to have to put it on hold, just too busy at the moment.
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #36
  • Jul 11, 2019 10:48pm Jul 11, 2019 10:48pm
(For this post, you need a decent understanding of options greeks to follow. If you don't then I suggest reading up on it here. If you want a more in depth understanding of options I highly recommend purchasing this book.)

I see there's been a lot of attention lately to the impact of options gamma exposure on the S&P. My understanding is the price point at which has the highest gamma exposure attracts the S&P like a magnet and there seems to be empirical evidence supporting it. I saw someone created a GEX index which tracks gamma exposure and it looks interesting:

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I'm guessing this works because exposure changes throughout the day and then exposures are hedged in the final hour or so of trading on the NYSE. If that's the case, we might be able to put together a useful intraday strategy.

Why am I saying all this about gamma exposure on the S&P on a metals site? Well, many of us are instrument agnostic but more importantly the underlying reason it works on the S&P is likely also applicable to metals. Even if it isn't applicable to metals, the S&P moving could move the metals market through stat arb trades.

I think I'll take a stab at creating an indicator for this. I'm considering two possibilities:

  1. Aggregate gamma exposure to SPY, ES, or SPX.
  2. Today's change in gamma exposure to the instruments in 1.

In either case, I'd take the full options chain and calculate gamma at each strike then weight it to see where it falls for the whole chain. Think VWAP, it would be similar to that. Options skew may also be a factor, but we'll see.

While I'm at it I'll probably also calculate Max Pain since it could be found with the same set of numbers.

Self-sufficiency is the greatest of all wealth. - Epicurus
  • #37
  • Jul 12, 2019 3:17pm Jul 12, 2019 3:17pm
Quoting Ef5
Today's change in gamma exposure to the instruments in 1.
This seemed promising, but after sending a bunch of data to excel and crunching numbers for about an hour I discovered there was no gamma change from yesterday to today (unless my data was bad.) Will give #1 a try, not super optimistic though. This is tough to calculate!
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #38
  • Jul 12, 2019 3:39pm Jul 12, 2019 3:39pm
I explored #1 and came back with some results, but the gammas are all 0 or .01 for atm options. When they're uniform like that the results are basically in line with open interest. What you get is more of a max pain type of calculation which isn't what I set out for, but could be useful anyway. I'll probably look into this more next week, but putting the gamma exposure project on hold since I currently don't see a path forward on it. This may be due to my own lack of understanding so I may find another valuable way of interpreting the data later.
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #39
  • Jul 24, 2019 9:34pm Jul 24, 2019 9:34pm
Downloaded R tonight and looking forward to playing with it.

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Its funny how it started off as an academic tool and now its become part of the industry standard set of tools for data science. I've heard enough good things about it now to where I think I should give it a try.
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #40
  • Jul 25, 2019 12:35pm Jul 25, 2019 12:35pm
Quoting Ef5
Downloaded R tonight and looking forward to playing with it. Its funny how it started off as an academic tool and now its become part of the industry standard set of tools for data science. I've heard enough good things about it now to where I think I should give it a try.
Curious to hear how you are planning to use it. From what I see in the marketplace, it is a valuable skill to have for sure!
If in doubt, paddle out!
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