Financial Apocalypse: Which Straw Will Break the Camel's Back?

-


 


Our metaphorical straws a.k.a. factors

  • DXY (USD) Index
  • SP500 Equities Index
  • HY OAS (high yield corporate junk bonds)
  • KRE (US small regional banks credit liquidity)
  • USD/JPY (Yen carry trade unwind proxy indicator)
  • Real yields (TIPS -Treasury Inflation Protected Security)
Tools and techniques: Kalman Filter, Student-t Copula, GARCH, Monte Carlo Simulation

Run the animated GIF. It shows DXY  will most probably break first. Followed by SP500.
Impact on Gold: DXY breaks down = Gold 6.5% up. SP500 tanks= Gold initally down by 4.1% then  rapidly recovers to surge to new high. .To watch out for : SP500 and HY OAS breaking down together. HY OAS stands for high yield option adjusted spreads i.e. premiums on high risk corporate bonds rated as Junk. Recent bankruptcies: DISH-DBS, Saks Global, First Brands, United Site Services, Office Properties Income Trust. 


When will it happen?

I can't model 'jumps' in the movements of the factors caused by Trumpian tweets, Iran and Houthis and oil prices and such things. As well as new moves by Treasury Secretary Scott Bessent or by Kevin Warsh at  FOMC 27-28 Oct  Meeting on rates. But based on current momentum and volatility, Gold is positive for 20 days ahead and even more positive for 60 days ahead. See the animated Gold fan charts below. 






Comments

Post a Comment

Popular posts from this blog

Markov Regime Switching Model for Risk‑On/Risk‑Off Dashboards of Stock Indices

-
Image
Knowing the market’s current risk state is foundational for portfolio decisions. Basic Markov chain models are a good starting point, but they fall short on three realities of financial data. Using as case study China's CSI300 Index, here’s how our model resolves each one and delivers a robust, reproducible Risk‑On/Risk‑Off signal. 1) Beyond “memoryless”: markets have persistence and aging Problem: Standard Markov chains assume memorylessness—the next state depends only on the current state, not on how long we’ve been there. Markets don’t behave that way; regimes “age” and persistence changes with time. Our solution: We use a hidden semi‑Markov model (HSMM) with explicit duration modeling. Each regime has a duration distribution (e.g., Negative Binomial), and transitions are allowed to depend on time spent in the state. This breaks the memoryless assumption, curbs flicker, and captures realistic regime persistence. 2) Heavy‑tailed, skewed returns are the norm—not Gaussian Problem: ...
Read more

Spot Silver Forecast for 27 Oct to 21 Nov 2025

-
Image
 A big Thank You to EODHD.com for the data without which this post could not have been written. The Close of Silver (XAGUSD) as of Friday 24 Oct 2025 is 48.62.The 21 business days ahead forecast for spot investment grade Silver bullion is summarized thus:  10% chance of going below 48.32 50% chance of being 54.33 10% chance of being above 60.80 Methodology We prefer to apply probabilistic quantile forecasting due to the highly unstable situation as the MAGA Man keeps changing his policies almost daily, and even just the words he uses generates  asymetric shocks to the model that renders straight forecasts useless.  Model input variables:  10yr Treasury yield US Dollar Index Spot Gold price S&P500 US Unemployment Rate Methodology Methodology summary (plain-language bullets) Data we used Daily end-of-day prices from EODHD for Silver (XAGUSD) and Gold (XAUUSD). Macro/market context series (Dollar Index, 10-year Treasury yield, S&P 500, unemployment). We rei...
Read more