vrijdag 27 juni 2014

Bank Deposit Vs. Interest Rate

There is a very interesting correlation between bank deposits and the deposit interest rates that I haven't noticed yet.

Whenever yields are low, be it that the government lowers interest rates or imposes taxes on deposits. The result is that people will flee out of bank deposits and move their money either into equities or gold. Or anything else for that matter. This is because investors are searching for yield on investment. If interest rates are low, they will find a better use for their money than putting it in a bank.

Take Spain for example. Ever since the treasury yields peaked out in 2012, the same happened in the bank deposits in Spain.
Spain 10 Year Yield
As you can see here, the peak in Spain deposits (green chart) can also be found in 2012.
Eurozone deposits

Spain's tax on deposits

Today I read about the new tax on Spanish bank deposits.

I wonder how fast the deposit outflows will accelerate in Spain's case, because the trend is not good. See the precipitous decline in Spanish deposits (green). I'm waiting for the May 2014 numbers to come out soon.

I also think the negative rate from the ECB will have its effects soon.

Actually, a tax on deposits is just the same as negative interest rates. It all comes to your money being routed to the government either through inflation or through taxes...

Eurozone deposits

woensdag 25 juni 2014

Gold Price Disconnected from Central Bank Balance Sheets

With this correlation between central bank balance sheets Vs. gold in our minds, we can confidently say that gold will have to move to $2000/ounce in a hurry to balance out all the money printing in this world.

Central Banks Vs. Gold Price
To help you monitor the balance sheet expansion, you can check this chart daily. Look how Japan is almost winning the race from Europe.

Stock market overextended

When GDP growth gets consistently revised downwards while the stock market goes up every day, we get an overextended TMC/GDP ratio at 121.3%. Yes, we are in a stock market bubble. The question is, when will it pop? Keep your finger on the sell button.

First it was 0.1% GDP growth, then it was -0.1%, then it was -1% and suddenly today they reported -2.9% GDP growth. Incompetent people...

donderdag 19 juni 2014

Avino Silver Tripling Its Production

Do you remember my call on Avino Silver? Well, today Avino Silver made new highs, surging more than 60% in just two weeks.

The near term catalyst is that it has everything set to triple its production in the second half of this year. I expect at least a cash flow of $40 million, which means the market cap of this company will at least double from here. While this is happening, the silver price is now even surging as shorts are covering their managed money short positions, which I talked about here. And more of those silver short positions are still to be covered...

So basically we have 2 catalysts for Avino Silver. I predict that Avino Silver will shoot past $3/share in a few months.

dinsdag 17 juni 2014

Inflation expectation is rising

The latest CPI numbers are out and we see that yoy inflation rates are now at 2%. I expect inflation to go higher in the future, because I see that the capacity utilization rate for May 2014 has been up to 79.1 for the total industry.

For mining, the capacity utilization rate even goes to 91, the highest in decades. I guess the mining industry is working at near full capacity and that's good for commodities to go higher.

Remember, when the CPI goes up and bond yields drop, gold goes higher. And that's exactly what is happening now. Bond yields are lower and CPI is higher.

vrijdag 13 juni 2014

Stock Screener: Take Three: Tai Cheung Holdings

Remember my post on KYN and my post on SIMO? The stock has gone up 6% and the other stock has gone up 15% since we bought it and now it is time to move on.

Track record 2-0.

If I don't have any ideas anymore what to buy, I use the stock screener.

What you want to do is filter on 4 attributes: market cap, P/E, dividend yield and percentage change.

1) Market Cap: do not choose small companies as they are mostly fraudulent or don't have sustainable earnings. Don't choose big companies because these are not volatile enough to get fast profits from. I'd filter between 200 million and 4 billion.

2) P/E ratio: choose the companies with the lowest P/E ratio, these companies are dirt cheap while still having earnings. Cheap is below P/E of 5. But do not choose below P/E of 2 because those are mostly companies that are going bankrupt or have bad growth.

3) Dividend yield: always choose companies that have dividends, because these companies have real earnings and can prove they have sustainable earnings to reward investors. The higher the better of course, but don't push it above 7% as those companies probably don't have the money to pay out dividends on a regular basis. I'd go for companies with dividends between 3% and 7%.

4) Volatility: don't choose companies that are so volatile. Maximum year over year change should be between the 20% range.

We use the exact same parameters as above.

And we find that there are some candidates in the real estate sector. Everybody is bearish real estate in China, but that's a contrarian indicator to me:

- Xinyuan Real Estate Co., Ltd. (ADR) is Chinese real estate, and we know that there is a risk to invest in Chinese real estate, so I wouldn't choose for this investment. I would rather look at Hong Kong.

- Tai Cheung Holdings has a pretty nice and stable dividend of 5%, which you won't get in U.S. treasuries. Hong Kong real estate will continue to flourish. I see this holding is investing in Tuen Mun, which is a place many mainland Chinese people buy real estate in, because it is very near China. It is also below book value. Good candidate so I will choose it. Look for the symbol:

HKG:0088 or TAICY.

Let's keep this stock screener thing going and see if this isn't the easiest way to make money! (without even knowing what the company is doing)

India Gold Demand Surges

As predicted here and here, India shows signs of doubling its gold imports.

I said India would at least add 30 tons a month and we got exactly 30 tons added in March. I think India is set to overtake China demand again.

In Gold We Trust Koos Jansen

donderdag 12 juni 2014

Smart Money Index: NASDAQ and gold version

I can't get enough of this Smart Money Index, so I made one for the NASDAQ.

As you can see, the NASDAQ bubble of 2000 is very visible here. The smart money was leaving the NASDAQ years before the bubble burst. Today, we also see that the smart money has already left the building (red chart going down).

Let's do the same for gold.

I  have the feeling that the Smart Money Index for gold isn't that useful to predict the gold price. But when looking at the chart I see that gold is pretty flat at this moment. I don't expect any large moves yet.

Smart Money Index (Correlation Economics)

Here's my own fabricated Smart Money Index. Entirely free of charge. This Smart Money Index is a leading indicator for what the Dow Jones will do after a few months time.

What I did is look at the average, opening and the closing prices of the Dow Jones historical numbers and compared them to the previous close. The Dow Jones historical prices can be found here: http://stooq.com/q/d/?s=^dji

My Formula:
SMI = previous closing price - (opening price- previous close) + (closing price - average price)

Correlation Economics: SMI Index
As you can see, the bubble in 2000 can be predicted with my formula. And the bottom of 2009 can also be predicted. In 2014, we see that the red curve is flattening out while the blue curve is still going straight upwards, which means we are in bubble territory now.

So follow the Smart Money!

Smart Money Flow Index Vs. Dow Jones

A very helpful index to predict what the Dow Jones is going to do is the Smart Money Flow Index. Just follow the smart money and the Dow Jones will correct itself to the smart money index. The only problem I have is that this SMFI index is not free of charge...

Smart Money Flow Index

The Smart Money Flow Index (SMFI) has long been one of the best kept secrets of Wall Street. Everybody knows the importance of a closing price and other last hour indicators like the Closing Tick, which we publish daily on our portal.
The Smart Money Flow Index is therefore calculated according to a special formula by taking the action of the Dow in two time periods: the first 30 minutes and the last hour. The first 30 minutes represent emotional buying, driven by greed and fear of the crowd based on good and bad news. There is also a lot of buying on market orders and short covering at the opening. Smart money waits until the end and they very often test the market before by shorting heavily just to see how the market reacts. Then they move in the big way.

These heavy hitters also have the best possible information available to them and they do have the edge on all the other market participants. It is a clear buy signal if the Dow falls to a new low which is not confirmed by the SMFI. But whenever the Dow makes a high which is not confirmed by the SMFI there is trouble ahead (Chart below). Watching this indicator is like being on a plane and see the pilots jumping off with parachutes. This magnificent indicator has called every major top and bottom.

Another index is the SMI index. The basic formula for SMI is:

Today's SMI reading = yesterday's SMI – opening gain or loss + last hour change

For example, the SMI closed yesterday at 10000. During the first 30 minutes of today's trading, the DJIA has gained a total of 100 points. During the final hour, the DJIA has lost 80 points. So, today's SMI is 10000 – 100 + -80 = 9820.

So basically, when you see people buy at the opening and sell into the close, you should become bearish.

woensdag 11 juni 2014

From palladium to platinum

As predicted, palladium has broken out now.

I wouldn't jump on this mania, but instead look at another opportunity. Because similar to palladium, now platinum is setting up for an ascending triangle pattern.

Because remember, the target of this rally is given below. Never buy higher than the height of the wedge.:

dinsdag 10 juni 2014

Mike Maloney: Death of the Dollar

Mike has a little update on his presentation on the death of the dollar. (1 June 2014: Vancouver)

vrijdag 6 juni 2014

Managed Money Short Positioning Gold/Silver

This page is created to monitor the managed money short positions in gold and silver on a weekly basis.

Whenever the managed money short positions are high, this will mark a bottom in gold and silver price. If a subsequent short covering happens, the price of gold and silver will spike upwards.

Each week a COT report is available here:

Managed Money Short Positions Gold/Silver

To follow up on this post, I have started to monitor the managed money short positions every week for gold and silver because it's very interesting to see what is happening.

As gold and silver were smashed down last week because technical resistance was broken, we see that the short positions have increased this week (red lines go up).

For silver, the short positions are now so high, it doesn't even fit on the graph of the Got Gold Report.
For gold the short positions are at the peak again.

If gold ever shoots up (due to the ECB money printing), the short covering in gold will be strong, but the short covering in silver would be unimaginable.

Here are the historic values from Got Gold Report:

20140601 MM Short

Numbers can be found here: http://www.cftc.gov/dea/futures/other_lf.htm

donderdag 5 juni 2014

Peter Schiff Sarcasm on Deflation: Falling Consumer Prices in Sweden

Peter mocks with lower gasoline prices in Sweden. Lower oil prices are not a bad thing, but a good thing. Remember, falling prices are only good for consumer goods, but bad for investments.

Negative ECB Deposit Rates

As predicted here, the ECB finally did it. Now we enter the twilight zone, keep your eyes on the bank deposit outflows to higher yielding assets.

GDP Vs. Trade Balance

The trade balance numbers are given monthly, so they can be a good indication on how the GDP numbers will pan out as they are quarterly numbers.

We can predict the GDP numbers by looking at the trade balance numbers. Whenever the trade balance goes into deficit, the GDP growth actually accelerates. This is because people will import more to consume more (more consumption is more deficit). A big part of GDP is mostly based on consumption.

For more info on this, go here.

Predicting GDP with the Trade Deficit

We recently got the trade deficit numbers and it widened the last month. Peter Schiff notices that GDP is influenced by the trade surplus/deficit. He says that GDP will drop when the trade deficit widens. This is very useful because trade deficit numbers are monthly, while GDP numbers are quarterly measures. But I think this theory is faulty, because there are other things to consider.

So I looked up the definition of GDP:

GDP (Y) is the sum of consumption (C), investment (I), government spending (G) and net exports (X – M).

Y = C + I + G + (X − M)

Here is a description of each GDP component:
  • C (consumption) is normally the largest GDP component in the economy, consisting of private (household final consumption expenditure) in the economy. These personal expenditures fall under one of the following categories: durable goods, non-durable goods, and services. Examples include food, rent, jewelry, gasoline, and medical expenses but does not include the purchase of new housing. 
  • I (investment) includes, for instance, business investment in equipment, but does not include exchanges of existing assets. Examples include construction of a new mine, purchase of software, or purchase of machinery and equipment for a factory. Spending by households (not government) on new houses is also included in investment. In contrast to its colloquial meaning, "investment" in GDP does not mean purchases of financial products. Buying financial products is classed as 'saving', as opposed to investment. This avoids double-counting: if one buys shares in a company, and the company uses the money received to buy plant, equipment, etc., the amount will be counted toward GDP when the company spends the money on those things; to also count it when one gives it to the company would be to count two times an amount that only corresponds to one group of products. Buying bonds or stocks is a swapping of deeds, a transfer of claims on future production, not directly an expenditure on products. 
  • G (government spending) is the sum of government expenditures on final goods and services. It includes salaries of public servants, purchases of weapons for the military and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits
  • X (exports) represents gross exports. GDP captures the amount a country produces, including goods and services produced for other nations' consumption, therefore exports are added. 
  • M (imports) represents gross imports. Imports are subtracted since imported goods will be included in the terms G, I, or C, and must be deducted to avoid counting foreignsupply as domestic.
So this basically means that if we have a bigger trade deficit (or X-M becomes smaller), then the GDP will drop. Correct.

The question is, by how much? Looks like the X-M part isn't that big (only 3%). But it does give an indication...

So I don't expect the trade deficit to be an accurate measure to predict GDP. What is more important are the durable goods and we know about the durable goods orders metric. Let's look at the durable goods orders.

Something amazing can be found between durable goods and the trade deficit.
Whenever the trade deficit widens (red chart goes down), then the durable goods orders go up (blue chart goes up). This means that GDP could increase, if the trade deficit widens. Very weird right, but it's reality. Because Americans buy things via imports and thereby the trade deficit gets worse.

Conclusion, if the trade deficit widens, GDP growth will probably accelerate and the stock market will go up (not down). So you can predict the GDP with the trade deficit.