Measuring Inverse Correlation

There is a consistent inverse correlation of GBN.V shares with the long dated treasury price. You can see it visuallly over the long term, but the mathematical proof says a little different. Since at least December, 2005 the inverse correlation of GBN.V shares with the $USB has become very strong. In terms of numbers, the inverse correlation of GBN.V shares with the $USB is as strong as the sometimes inverse correlation of $Gold with $USD.

In 2005, the Asset Backed Commercial Paper collapse was the first derivatives market failure localised in Canada. In that time, the Conservatives were voted in on a minority government. What happened in the aftermath was further deregulation of the derivatives market allowing the same types of trading that you would find internationally. This also re-inflated the housing bubble in Canada.

But it also gave great advantage to commercial traders betting on the failure of mining ventures. Brent Cook will pound the table relentlessly on just how improbable mining ventures are. This is why he is given such wide media exposure. Instead of focussing on how improbable mining ventures are, he should be focussing on which ventures would make suitable investments. But this is how he makes his money.

This is also strong proof that, since at least 2005, commercial traders have been doubling down on their bets, selling the miners and buying up long-dated treasury futures. Thus, there are presumably highly leveraged positions held against GBN.V share price declines.

Through derivatives markets, you can first sell shares in a miner that you don't own, at the same time as having the money coming into the shares tied to a credit default swap in long dated treasuries, with no stated time limit for delivery. The trading will be done using an industry standard trading software. So when the bond price is up, GBN.V shares are down, regardless of whatever news is released.

There is a complete absence of buyers in the shares, though on the daily chart for $USB, the correlation shows that the intense downward pressure on the stock is moderating somewhat. It also shows that the technical low was in August, though downward pressure on the stock continued in the face of chronically firm bond prices.

Ross Clark is calling for a possible min 20-point decline in the long-dated treasury market, should certain technical aspects be satisfied. A decline of 20 points is commensurate with the long term trend line.

How does GBN.V get out from under this handicap? It's really very, very simple. Pay dividends.

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stockcharts.com

Ref: stockcharts.com article on correlations

-F6