donderdag 29 maart 2012

Farmers: An Endangered Species

In China, those working in primary industries like agriculture accounted for 40 percent of total labor force at the end of 2010, in comparison with 70 percent in 1978 (Chart 1).
Chart 1: Chinese employment by industry
Since 1990 the percentage of farmers in China has been declining over time, resulting in a shortage in food supply.

The same declining trend in farmers was also visible for the U.S. (Chart 2). Agriculture employment accounted for 40% in 1900 and dropped to 2% in 2000.

Chart 2: U.S. farm population and rural population as share of population

Today, China's agriculture employment stands at 40% and will likely continue to drop due to industrialization. China will follow this similar path as the U.S. did from 1900 up till today.

The amount of farmers in China is declining, but production is still increasing at a fast pace due to industrialization (Chart 3).

Chart 3: Agricultural Production in China
From year 2000 though, China is facing a water shortage due to depletion of aquifers and this poses a big problem for agricultural production growth. Since then on for example, China became a net importer of grain.

Meanwhile, the Chinese population is expected to grow 0,5 % per annum. For India the growth rate is 1% per annum. If production doesn't keep up with population growth, food prices will inevitably spike upwards.
Chart 4: Population Growth
P.S.: some funny stuff is happening in the United Kingdom. Gasoline is spiking upwards and this will of course have consequences on the food prices too.

woensdag 28 maart 2012

Rare Earths bottoming out?

Attention! Rare earths are bottoming out. After a long decline for about a year, many rare earth metals noted green numbers for the first time. Also some rare earth metal stocks like Molycorp (MCP) have been bottoming out.

Molycorp (MCP)
BrotherJohn at Youtube has also noticed this trend change: Brother John's analysis about Rare Earth Metals
Noting China is manipulating Rare Earths and that prices should be rising much higher for ex-China countries to import these rare earth metals.

Here are some price charts of Neodymium, Terbium, Europium, DysprosiumYttrium. It looks like they are about to bottom out.

zondag 25 maart 2012

Replacing US treasuries by EU treasuries

In March 2012, the U.S. government bond yields shot up, meaning that people are selling U.S. government bonds. So where did they place that money?

Investors have transferred that money to Eurozone treasuries because a looming default has been averted by the ECB. The ECB printed a trillion euros in a few months time to help Greece, Italy and Spain. This stabilized the Eurozone government debt securities so investors are now more keen to shift their money into Eurozone debt.

To see my analysis, go here: Traders converting U.S. bonds into Eurozone bonds

What if Oil Prices Double?

Today we are concerned about peak oil because global demand in oil and gas is increasing 3% a year while production is decreasing 3% a year. There have been tensions with Iran trying to shut down the Strait of Hormuz, which will affect 35% of seaborne traded oil. The Obama administration is already concerned itself about oil prices and is now focusing on increasing the drilling rate of oil domestically.

The fact is that the U.S. imports of oil have skyrocketed. 30 years ago the United States imported 28% of its oil, while today, oil imports were over 60% in 2008 but have come down to 49% in 2010. Most of those imports are coming from Canada, the country with the third highest oil reserves on the world after Venezuela and Saudi Arabia.

If oil prices were to double, there are a few things to think about.

Please go to my analysis here to find out: Benefiting from $US 200 dollar oil.

Tungsten in gold bar

Tungsten gold bar

Be wary about fraud in physical gold!

Tungsten is only $US 50/kg while gold is a thousand times more expensive: $US 50000/kg.

donderdag 22 maart 2012


Since October of last year the NASDAQ has been greatly outperforming the gold miners (GDX). The NASDAQ went up 25%, while the gold miners went down 20%.

That's a huge disparity and it can't last for long.

Gold miners VS. NASDAQ

P/E ratio of the 10 biggest gold miners

Gold miners have been hit hard because of an anticipated drop in gold prices due to bad technicals, lack of quantitative easing, slowing economy in China, overal bearish analysts. Let's see how cheap these gold miners are.

The 10 biggest gold miners by market capitalization are the following with their (forward) P/E ratios:

Market Cap ($US billion) P/E forward P/E

Barrick Gold (ABX) 43 9,64 7,15
      Goldcorp (GG) 35,6 20 12,77

Newmont Mining (NEM) 26 53 9

Newcrest Mining (NCM) 22,5 20 12

Anglogold Ashanti (AU) 14,3 10 7,3

Yamana Gold (AUY) 11,5 21 10

Kinross Gold (KGC) 11,4 15 8,33

Gold Fields (GFI) 10 10 7

Eldorado Gold (EGO) 7 22,5 13,8

Polyus Gold (POLG) 7 13 13

To see my analysis go to: Gold Miners: A Buying Opportunity

dinsdag 20 maart 2012

Silver During War Times

As the U.S. is on the verge of war against Iran, they are rallying their troops and their laser weapons. All these high-tech weapons need one ingredient and that is silver. Historically, whenever there is a war crisis, silver surges. That's a fact, simply because silver is used in bombs, torpedoes, airplanes, radars, coatings, guns, shells and ships. And during war times precious metals go up, so silver gets a boost twice: as crisis money and as war commodity.

I urge everyone to be aware of this by reading this article: War & Silver.

maandag 19 maart 2012

Peter Schiff: Market Outlook 18 March 2012

The U.S. is not recovering. Watch this market outlook by Peter Schiff!

Europe is doing well

Eurozone current account surplus was $US 6 billion in January 2012, its highest level since 2007.

I already talked about the euro being much stronger than the USD in this article. Looks like my predictions are coming true. The euro also surged 0.5% earlier. And yesterday it surged 1%. It's now almost back at ratio 1.33.

And it will continue going up in my opinion.

David Morgan and Eric Sprott

What luck did we encounter here, when both silver gurus are put together discussing about silver.

Don't miss this Financial Sense Newshour of 17 March 2012 with David Morgan and Eric Sprott.

zondag 18 maart 2012

Euro could replace USD as Reserve Currency in 2020

These days, we need to be wary about the U.S. dollar losing reserve currency status. That's why I started to monitor the Global Foreign Exchange Holdings. The data is provided by the IMF and can be accessed here.

If we plot a chart over time, it seems that the USD is losing its status as a reserve currency. Althought the trend of the USD as a reserve currency is negative, it still accounts for 60% of global foreign exchange holdings around the world. The euro on the other hand is increasingly gaining popularity (See Chart 1). If the trend continues like this, the euro could become the reserve currency by 2020.

To see my analysis, go here: Euro to replace USD as reserve currency by 2020

zaterdag 17 maart 2012

Chris Martenson talks about Japan

Chris Martenson talks about Japan:

Marc Faber with Chris Martenson

Don't miss this interview with Marc Faber.

Marc Faber tells us that government bonds are the most risky assets in the world. He advises you to own gold and silver, just to protect yourself against a black swan event, where the financial system collapses.

vrijdag 16 maart 2012

Capacity Utilization makes me Bearish on Gold

In my previous post about capacity utilization rates (which can be found here), I warned about a peak in capacity utilization. On 16 March 2012, the capacity utilization was released to be 78.7%, down from 78.8%. Although a minor decrease, it is the first time in two years that the capacity utilization drops (Chart 1). This has an impact on gold, see the analysis of the technicals here: February capacity utilization indicating a drop in gold prices

woensdag 14 maart 2012

Dissecting the US deficit

When we talk about deficits, we need to differentiate between current account deficits and budget deficits. 

Current account deficits comprise following balances of payments between foreign countries and has been pretty steady in negative territory for the United States (around $US 500 billion deficit):
  • Net Trade in Goods 
  • Net Trade in Services 
  • Net Income from overseas assets 
  • Net Transfers 
The budget deficit on the other hand is the difference between government tax revenues and government spending (social security, pensions, medicare,...) and has been exploding since 2008.

Here lies the real problem: The government deficit, which was released to be a record $US 220 billion in February 2012 alone.

=> Let's take a closer look at its subparts: federal, local, state deficits (link to data), in this analysis: Dissecting the US deficit.

Total government budget (Local, State, Federal):
Total Government Spending - Revenues

Peter Schiff on Capitalism between China and America

I like debates and what's better than to see Peter Schiff debate about China VS America. Enjoy!

Watch the last part and see how Peter promotes his new book.

"The Real Crash: America's Coming Bankruptcy---How to Save Yourself and Your Country"

China Does Capitalism Better Than America from Intelligence Squared U.S. Debates on

Gold technicals not looking good

If we look at the 8-Year gold chart, we can see that the blue line 60-day moving average is crossing the green line 200-day moving average.

If we take into account history (2008), we can conclude that the correction in gold could still last a few months, which is in line with the prediction of Marc Faber on the gold price.

Jim Rogers told us recently, he would buy gold under $US 1600/ounce. I concur with that view. So I wouldn't buy gold right away at this time. I would wait till gold goes under $US 1600/ounce.

Gold 8 Year chart

maandag 12 maart 2012

A look at the balance sheet of the big 4

Let's take a look at the balance sheets of the four biggest economies of this world (Europe, USA, China, Japan) and discuss their effect on stocks and precious metals. Although the USA and Europe have the biggest GDP of the four economies of this world, surprisingly, China has the biggest balance sheet of them all, with a whopping $US 4.5 trillion balance sheet. Second comes Europe with a balance sheet of $US 4 trillion. Then comes the USA with a balance sheet of $US 2.9 trillion. And last but not least, Japan with a balance sheet of $US 2 trillion.

To read the analysis, go to: A look at the balance sheet of the big 4 economies

zondag 11 maart 2012

Bretton Woods Sytem: Gold should be at $US 203000/ounce

If we would be going back to the Bretton Woods System of 1944, Mike Maloney calculated that the gold price should be at $US 20000/ounce based on foreign central banks only. To calculate this, you divide total amounts of dollars at central banks by the total ounces of gold at the treasury.

James Turk uses a similar Gold Money Index:
Central Bank Foreign Exchange Reserves/Central Bank Gold Reserves = Fair Price of Gold
And his calculations go to a price of gold of $US 11000/ounce.

But we do not live in a world of solely central banks. If we now take into account not only central banks, but also government debt, personal household debt, corporate debt, financials, etc..., we get a very different picture.

Let's calculate what the gold price should have been in 2008:
Total credit: 14.4 government debt + 11.9 household debt + 8.8 Corporate debt + 8.5 financial debt = $US 43.6 trillion in 2008. (See chart 1)
Total ounces of gold in US treasury (2008): 261.5 million ounces of gold

Total credit divided by ounces of gold at the treasury (2008) = 43.6 trillion/261.5 million = $US 167000/ounce

Chart 1: US Total Credit Market Debt as % of GDP

So basically  the gold price should have been $US 167000/ounce if we went back to the Bretton Woods System in 2008. Since 2008, the gold reserves at the US treasury haven't increased one bit. But today Mike Maloney calculated his version of the gold price.

Mike Maloney calculated everything in it (all dollars convertible into gold), then the gold price should be at $US 203000/ounce (see second video). Which is total credit divided by the number of ounces of gold at the treasury.

So basically we went from $US 167000/ounce to $US 203000/ounce from 2008 to 2012. That's a huge amount of money printing, while the gold at the US treasury hasn't increased one bit.

Conclusion: there is still a boatload of upside in the gold price (GLD) (PHYS) and the silver price (SLV) (PSLV).

Here is the interview of GBI (Gold Bullion International) on 5 March 2012.

Shadowstats: Hyperinflation in 2014

It's important to watch to get the real picture of the economy. 
This interview with John Williams from 20 January 2012 tells us that 2014 is the year for hyperinflation.

Unemployment rates are not getting better as the federal reserve says (8% unemployment), but it's getting worse (23% unemployment)
Unemployment Rate

Inflation is much worse than the federal reserve is saying. It isn't 3% (which is already bad), but it is 10%. Notable here is that inflation isn't as bad yet as in the 1980's where inflation was 15%. So there is still room for gold to explode to higher levels.

Consumer Inflation

As you can see on this GDP chart we didn't have any real growth since a decade, which means zero hour has already started.

GDP growth inflation adjusted

zaterdag 10 maart 2012

China: Turning US Treasuries Into Hard Assets

A month ago I indicated in this article that China is massively buying copper. It seems that this trend hasn't stopped yet, and it won't stop anytime soon. The LME copper warehouse stocks level has been trending down since late last year (Chart 1), which incidentally coincided with China decreasing its margin requirements on banks, which I discussed in this article.

Today, China posted one of the largest deficits in their history, to see why this is, go to: China converting US treasuries into hard assets.

vrijdag 9 maart 2012

Euro VS US Dollar

There has been a lot of talk about Greece and how the euro is going to collapse. To debunk this myth, I want to give some statistics. This article is a thesis on why it's better to own the euro than the US dollar in my perspective. The only reason why the USD is so strong is because it's the reserve currency of the world. 

There are many reasons why a currency goes up or down. Following list gives the most important ones:
  • Current account balance of the country
  • Total national debt of the country
  • Inflation rate
  • Interest rate
To see this analysis, go to: Euro VS USD

woensdag 7 maart 2012

Natural Gas Market between West and East

Natural gas prices around the world, in contrast to oil prices, do not have the same price level. For example, natural gas prices in Russia (Chart 1) have been steadily going up in price since 2010 (almost up 100%), while natural gas prices in the United States (Chart 2) have been going down since 2010 (almost down 50%).

Natural Gas Russia
Chart 1: Natural Gas Price (Russia) US dollars/1000 cubic metres of gas

Natural Gas US
Chart 2: Natural Gas Price (U.S.) US dollars/1000 cubic metres of gas

To illustrate how this can affect domestic natural gas companies we will compare the biggest natural gas producers of Russia and the United States in valuation and price level. These companies are Gazprom (OGZPY) and Chesapeake Energy (CHK) respectively (Chart 3).

Chart 3: Comparison between Gazprom (OGZPY) and Chesapeake Energy (CHK)
Since 2010, Gazprom has outperformed Chesapeake Energy by 15% and will continue to do so if the price trends of natural gas in Russia and the United States keep going their way.

Gazprom's net sales grew 31% and net income grew 41% from 2010 to 2011, while Chesapeake Energy's natural gas and oil sales were stagnant and net income available to common stockholders even dropped 20% from 2010 to 2011.

This is again, evidence that Gazprom will outperform Chesapeake Energy if this trend in natural gas prices continues onwards.

dinsdag 6 maart 2012

Marc Faber bullish on Vietnam

As I already stated here Marc Faber once again confirms that Vietnam is a good place to invest in now. Emerging markets have bottomed out.

Marc Faber bullish on Vietnam

maandag 5 maart 2012

Zero Hour Debt in 2013

Let's give an update on the Zero Hour Debt chart, which basically tells us that the economy will get into stagflation and later on in hyperinflation. The reasoning behind this is that we will need an unlimited amount of  debt to have growth in the economy. If we don't print money, we will have negative nominal GDP and this is what the federal reserve is terrified of, because when the economy contracts, the whole system collapses (cfr. Chris Martenson's Crash Course). I highly recommend everyone to watch Chris Martenson's Crash Course on his website.

The chart below has been produced by another Seekingalpha contributor on August 2011 and goes to 2009. We are now in 2012 and it's time to update the chart.

To see the latest on Zero Hour Debt, go to: Zero Hour Debt in 2013

zaterdag 3 maart 2012

Greece rating finally cut to junk

Today Moody's finally cut Greece to the C rating. And C is the lowest rating there is.

This is their definition of ratings:

  • Aaa Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk.
  • Aa Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
  • A Obligations rated A are considered upper-medium grade and are subject to low credit risk.
  • Baa Obligations rated Baa are subject to moderate credit risk. They are considered medium grade and as such may possess certain speculative characteristics.
  • Ba Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk.
  • B Obligations rated B are considered speculative and are subject to high credit risk.
  • Caa Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.
  • Ca Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
  • C Obligations rated C are the lowest rated class and are typically in default, with little prospect for recovery of principal or interest.

So finally we are at the point that we are saved from all the BS from at least 1 rating agency Moody's, as C is the lowest rating. We are all fed up with these meaningless rating cuts from these redundant rating firms. Greece is bankrupt, case closed...

We still have Fitch (credit rating C, still to be downgraded to D), Standard and Poor's (sovereign rating: SD selective default, still to be downgraded to D (full default on due date)). If these two eventually downgrade Greece again, life will finally go on without this redundant, meaningless news.

Meanwhile, Greece's 10 year government bond yields continue to move up. If we do know they are going to default at least by 90%. Then yields are still much too low at this stage.:

Greece 10 Yr Government Bond Yields (%)

vrijdag 2 maart 2012

Vietnam: A Growth Story

Ever since the Van Eck ETF Market Vectors Vietnam (VNM) went public on 14 August 2009, the stock price fell 23% to date due to slowing global economic conditions. There are two big reasons why this happened. To read my analysis go here: Vietnam: A Growth Story
Market Vectors Vietnam ETF (VNM)