Using Correlations to Predict Markets: Review & Discussion
Several months ago, I posted the original idea (see related) when I thought that markets were preparing for major asset rotation. Instead, it seems that we only got a preview of the real thing. Meaning, that Bitcoin had a major selloff right around the time of the first post, but it wasn't severe enough to drastically shift the major asset classes.
Right now, I feel a similar type of paradigm shift is coming, so I wanted to review some key points that I've gathered since monitoring this correlation study. The major takeaways are listed in the top part of the chart and the updates to what the correlations with Gold could mean for each asset class are shown in the bottom sections, respectively.
In my opinion, not much has changed regarding the future direction of the various asset types, with the exception of USD. I think that as of today, inflation will get its recognition as a potential destroyer of wealth and will lead to mass exodus from risk assets. The reasons for this are too many to include and are beyond the scope of this post. The main point of this is that I believe that due to the bizarre and artificial economic landscape painted by the Fed, that inflation will be viewed as a harbinger for risk assets, before it is considered an "invisible tax" on the USD, which would lead to broader questions concerning its purchasing power.
The reason for mentioning this inflation belief is that we find ourselves in a unique situation whereby there are only two main asset types that are "undervalued": 1) USD, 2) Gold. Ironically, these two things should be polar opposites; yet it is now undeniably true (based on recent correlation studies), that the two move in tandem when correlated, and have been such more often than not over the past several years.
Lastly, I would strongly recommend keeping tabs on USD/Gold corr going forward, since it can really help to find true direction when financial markets unravel.
-Pig/USD
TVC:GOLD
TVC:SPX
TVC:DXY
CURRENCYCOM:OIL_CRUDE
BITSTAMP:BTCUSD
Right now, I feel a similar type of paradigm shift is coming, so I wanted to review some key points that I've gathered since monitoring this correlation study. The major takeaways are listed in the top part of the chart and the updates to what the correlations with Gold could mean for each asset class are shown in the bottom sections, respectively.
In my opinion, not much has changed regarding the future direction of the various asset types, with the exception of USD. I think that as of today, inflation will get its recognition as a potential destroyer of wealth and will lead to mass exodus from risk assets. The reasons for this are too many to include and are beyond the scope of this post. The main point of this is that I believe that due to the bizarre and artificial economic landscape painted by the Fed, that inflation will be viewed as a harbinger for risk assets, before it is considered an "invisible tax" on the USD, which would lead to broader questions concerning its purchasing power.
The reason for mentioning this inflation belief is that we find ourselves in a unique situation whereby there are only two main asset types that are "undervalued": 1) USD, 2) Gold. Ironically, these two things should be polar opposites; yet it is now undeniably true (based on recent correlation studies), that the two move in tandem when correlated, and have been such more often than not over the past several years.
Lastly, I would strongly recommend keeping tabs on USD/Gold corr going forward, since it can really help to find true direction when financial markets unravel.
-Pig/USD
TVC:GOLD
TVC:SPX
TVC:DXY
CURRENCYCOM:OIL_CRUDE
BITSTAMP:BTCUSD
