New GDP Calculation taking effect

If you recall my article on the newly invented way of calculating GDP, well we are at that point now.

Today, the new GDP numbers (including legal bills, art, music, theatre and imaginary pension funds) were in effect. Real GDP grew 1.7% on an annualized basis in the second quarter of 2013.

As you can see, the old nominal GDP numbers (red chart) and the new nominal GDP numbers (green chart) are about 3% different from each other. 

Nominal GDP

With these new numbers in place, my zero hour debt chart is being reformed to this.

You can see the large drop there, meaning that debt has actually dropped due to the debt limit.

Zero Hour Debt

Second, with these new GDP numbers, the debt to GDP ratio has declined by 3%. It isn't 105% anymore, but is now 105/(100+3) = 102%.

Good work in fudging the numbers, Ben.

(also note that stocks are now seemingly 3% less overvalued)

COMEX stock touches new lows

And we have new lows this week. Total gold stock goes to 6989165 troy ounces.

Single Family Housing Starts Vs. Unemployment Rate

One of the key metrics for the health in the housing market are the "privately owned housing starts". "Housing starts" are an economic indicator that reflect the number of privately owned new houses (technically housing units) on which construction has been started in a given period. Usually, a decline in the "housing starts" leads to the start of a recession. 

The "housing starts" are a leading indicator for the unemployment rate. Both metrics are inversely correlated. When the "housing starts" drop, the unemployment rate will rise with a lag of about 1 to 2 years.

Because of the fact that the "housing starts" are a leading indicator, this is a very important metric to predict the unemployment rate. As a consequence, the "housing starts" are also a predictor of real GDP, capacity utilization, the stock market index and the consumer price index (CPI).

U.S. housing starts are correlated to housing prices (yoy).

Canada housing vs housing prices (yoy).

 

Housing starts are inversely correlated to housing inventory.

Correlation: Employment-Population Ratio Vs. Real GDP per Capita

I like statistics that can't be fudged by the government and this is one of them: The Civilian Employment-Population Ratio. This measure is one of the best to evaluate the labor market. Each time when this ratio declines, we enter a recession. So this is a very good gauge in predicting bad periods in the overall economy.

A high ratio (above 70%) means that a lot of people are employed and this will result in a high GDP per capita. A low ratio (under 50%) is considered bad for GDP.

If we take a look at the percentage change per annum, we see that the trend for the real GDP per capita growth rate is down (blue chart). So real GDP isn't improving and this translates into a declining employment-population ratio (red chart).

As Karl Denninger explains, the amount of employed people as a percentage of the population hasn't improved since 2008. So the economy hasn't recovered a lot.

Copper goes into backwardation

As gold went into backwardation, now also copper starts going into backwardation.

We should see some upside in copper following this move into backwardation. But as opposed to gold, backwardation in copper isn't a good sign for the copper price. Meaning, if we see too much backwardation in copper (red curve making a bottom), you should expect a top in the copper price.

COMEX less than 1 million ounces physical gold left

We're getting closer to the zero line...

At this pace we will have the unthinkable "event" at the end of this month.

Consumer Price Index: The effect of a rise in oil prices

With crude oil going back over $106/barrel (which is a 20% increase from $90/barrel), let's see how the CPI would do.

As you know, the consumer price index consists mostly of housing (42%), then second comes transportation (17%) and last comes food (15%).

The crude oil is part of the transportation segment. One third of the transportation segment is motor fuel or 5% of the CPI.

So if oil prices go up 20%, the CPI will only go up 20% x 5% = 1%. 

More importantly, housing determines a major part of the CPI.  Half of the housing segment consists of Owners’ equivalent rent of residences which is basically the amount of rent you would pay for staying in the house. This depends on the housing prices. 10% of the housing segment is fuel and utilities. So if oil goes up 20%, the housing segment will go up 10% x 20% = 2%. And the CPI would go up 2% x 40% = 1%.

CPI

So basically, if oil prices go up 20%, the CPI at least goes up 2% from the fuel in the housing and transportation segments (if all else stays equal). The other segments will of course be influenced too by rising oil prices, but to a lesser extent.

So that's the significance of the oil price on the CPI.

Red Alert: Gold Forward Rates Turn Negative

As I told before, the only parameter that is going to dictate gold lease rates, is the GOFO rate, because the Federal Reserve will always keep the fed funds rate at zero, which means the LIBOR rate will stay at zero. 

The GOFO rate though, is dependant on the demand and supply mechanics of gold. And today we have the first time that the GOFO rate actually turned negative, which is officially a backwardation in gold. Since the 2008 crisis hit us, the GOFO rate has never been negative, so this is a premiere. As a matter of fact, we have never seen a negative GOFO rate in a decade or more. (except for those few days in 2008 which are ignorable)

Once such events happen, we will see a huge shortage coming in gold.

Chart 1: LBMA GOFO rate turns negative

And the subsequent rise in lease rates:

The True Jobs Numbers

Just a reminder to those who thought the jobs numbers on Friday were positive.

See the blue line (and just recently also the grey line).

Federal Reserve: To Taper or not to Taper

There is all this talk about "tapering". Will the Federal Reserve taper or not taper, that's the question. To find the answer, we need to take a look at the U.S. national debt.

This is really a weird sight, do we really have an actual debt ceiling? Aren't we going to raise the debt ceiling? U.S. public debt has been growing at almost $200 billion a month and has been staying flat just recently.

Chart 1: U.S. Public Debt

Since May 19, 2013, the debt ceiling has been stuck at $16.735 trillion and this ceiling has been in place for almost 2 months as chart 1 suggests. The treasury says that they would be able to pay all the bills until October by enacting extraordinary measures from May 20 till August 2.

In all, the Treasury has the following measures available to it:

• Suspend the investments of the Thrift Savings Plan G Fund (otherwise rolled over or reinvested daily, such investments totaled $130 billion in Treasury securities as of May 31, 2013);
• Suspend investments of the Exchange Stabilization Fund (otherwise rolled over daily, such investments totaled $23 billion as of May 31, 2013);
• Suspend the issuance of new securities to the Civil Service Retirement and Disability Fund and Postal Service Retiree Health Benefits Fund (totaling an estimated $79 billion on June 30, 2013, and about $2 billion each subsequent month);
• Redeem early securities held by the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund equal in value to expected benefit payments (valued at about $6 billion per month);
• Suspend the issuance of new State and Local Government Series (SLGS) securities and savings bonds (between $4 billion and $17 billion in SLGS securities and less than $1 billion in savings bonds are issued each month); and
• Replace Treasury securities subject to the debt limit with debt issued by the Federal Financing Bank, which is not subject to the limit (up to $8 billion).

And due to higher tax revenues at the start of 2013, we see that interest payments on government debt weren't a problem. In fact, the interest payments as a percentage of tax revenue has been declining since 2013 (Chart 2).

Chart 2: Interest payments as a % of tax revenue

Though, there is one parameter that was not anticipated and that is the effect of higher interest rates and higher mortgage rates.

Read the analysis here.

Registered gold at COMEX at all time lows

A 30% drop in registered gold at the Brink's vault and a 15% drop in registered gold at Scotia Mocatta marks a huge total drop of more than 200000 ounces of gold at the COMEX.

We are on course for a total sell out in physical gold at the COMEX at the end of the summer. We also see this in the spiking gold lease rates and lower gold forward rates.

It is going to be interesting. What happens when the blue line intersects with zero? Any predictions?

China Gold Imports Edging Upwards in May 2013

The gold imports in May 2013 were a bit disappointing again, gross imports didn't budge much.

But the net imports surged to 106 tonnes in May 2013, meaning that China kept all the imports from Hong Kong. The ratio of net imports to gross imports is 83%.

But it's still a positive development for the gold market, net imports continue to trend higher.

Correlation: Mortgage Rates Vs. Mortgage Applications Vs. Pending Home Sales

Just discovered another correlation on Zero Hedge. If mortgage rates go up, lending becomes more difficult, so people stop applying for new mortgages. This means there is a negative correlation between mortgage rates and mortgage applications.

When mortgage applications go down, not a lot of homes will be sold. This means that home sales will go down. As suggested by the following chart, there is a correlation here between mortgage applications and pending home sales. In fact, mortgage rates/mortgage applications are a leading indicator for pending home sales as presented in this Zerohedge article.

If it's true that interest rates and mortgage rates will go up, you can bet that we will have another housing crisis. Home sales go down. All those homes will be coming onto the market, while nobody wants them.

Shanghai Gold Premium Hit Another Record High

Almost each day marks another record high in Shanghai gold premiums to London spot price. We have hit 3% premiums.

They are really gobbling up the gold, that I can say.

Chart 1: Shanghai Gold Premium