ECB's LTRO I and LTRO II didn't work

On Zerohedge, the article of the ECB deposit facility sparked my attention. Apparently, banks are depositing their money into the ECB at an alarming rate (Chart 1).

Since the crisis of 2008, this deposit facility had risen a lot (250 billion euro), but has only recently skyrocketed to more than 800 billion euro.

This deposit facility at the ECB is a macro-economic indicator of market tension residing at the European banks. It is seen as a "safe haven" during economic turmoil in Europe. The higher this ECB deposit facility rises, the more banks favour the safety of the ECB deposit over higher returns in the interbank market. It shows that banks aren't lending to each other and also shows that appetite for European government bonds is declining.

Even though banks borrowed 489 billion euro (LTRO I) and 529.5 billion euros (LTRO II) in loans (at 1% lending rate) from the ECB, a lot of that money just went back into the ECB deposit facility at 0.25%. This means that banks are actually opting to lose money due to fear of a eurozone break-up.

To read the full analysis on this matter go to: The European Central Bank's LTRO Isn't Working Out.

Velocity of MZM slowing down

In one of my previous articles I monitored the velocity of MZM, to see if treasuries were likely to go up or down. The new numbers of velocity of MZM are out today at 1.434 (Q1 2012), down from 1.451 (Q4 2011). To see what this means for your portfolio, go to: Velocity of MZM going down.

Peter Schiff with Allan Meltzer at the Atlantic Economy Summit

Zero Hour Debt: Updated Chart for March 2012

On Zerohedge, I saw an update on the GDP to Debt growth ratio. This reminded me to update the Zero Hour Debt chart. So I added a few data points I got from these two sites:

GDP: http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm 

Total Public Debt: http://www.treasurydirect.gov/NP/BPDLogin?application=np

Chart 1: Zero Hour Debt

Conclusion: we are still on the way to cross the zero hour debt line in 2014.

Spain's unemployment is alarming

Today in the news, Spain's unemployment came in at 24.4% (Chart 1), with youth unemployment at 50.5% in February 2012. At the same time Spain's credit rating was downgraded by Standard & Poor's from A to BBB+.

Chart 1: Spain Unemployment

It's not looking well for Spain, the 5th largest country in Europe. Surprisingly, the bond market stayed flat after the downgrade of Spain (Chart 2).

Chart 2: Spain 10 Yr government bond yield

Will Europe Break Up?

Lately, there have been more and more articles popping up about a Eurozone break-up. Let's objectively analyze if this concern is validated. To make it easier for me I'll consider the PIIGS (Portugal, Ireland, Italy, Greece, Spain) to be southern Europe.

The different aspects I will look into are the following:

1. Unemployment Rate
2. Bond Yields
3. GDP
4. Debt
5. Inflation Rate
6. Current Account
7. Government Budget

To see my analysis, go to my article: Will Europe Break Up?

Europe is in Recession

If you haven't noticed yet, Europe is now again contracting. GDP has been negative since 2012 (Chart 1). And the PMI is also contracting, which means the negative GDP will become even more negative going forward.

Europe is going into a depression, and this time it's for real, just like in 2008.

Chart 1: Europe PMI and GDP

Meanwhile, nothing problematic has been reported in the United States. The PMI there is still above 50 (53.4). US GDP is still projected to grow in the future. But I suspect that America won't be immune to the European collapse.

Marc Faber And the Australian/Chinese Real Estate Market

In this article I want to present the status of the real estate and commodity market in Asia, with its implications on the global economy.

On "The Money and Wealth Show", Marc Faber has been talking about movements in the real estate and commodity markets. He talks about similarities between the Great Depression and the current crisis.

Marc Faber notes: "Eventually the financial system will cease to exist." Suggesting we will at some point go to a barter system. This barter system has already showed up in Greece at this moment. He also mentions that Australia's housing market is in the process of deteriorating (Chart 1).

To see the whole analysis, go to: Marc Faber on the Australian/Chinese Real Estate Market.

Silver Institute Publishes Results for 2011

The Silver Institute published its demand-supply results for silver during 2011. Notable is that we are contracting from 2010, but we are still much higher than we were in 2008.

Interestingly, industrial demand fell over the whole line, even investment demand. But demand for coins skyrocketed upwards with a 20% increase from the previous year 2010. You know who buys coins? Yes, the common Joe Six-pack. We are all aware of the coming collapse and people are preparing for it.

Chart 1: Silver Demand

Silver Warehouse Stock CME At 10 year high, or is it?

According to the CME, silver stocks at warehouses hit a 10 year high this week. This seems to be bad news for silver investors, but I will present a different picture on this. Brother John pointed out already that stockpiles are at record lows in one of his silver updates and I'll present a more detailed analysis about this in the following article: CME Silver Stocks at an all time high, or are they?.

From Zerohedge:

For those who aren’t familiar with the terminology, the registered category of COMEX warehouse bullion stocks generally refers to gold and silver bars against which COMEX warehouse receipts are outstanding. The COMEX publishes these stocks on a daily basis and they can be found here: Silver | Gold. The registered category is the total pool of gold and silver available at any time to meet delivery requirements under expiring futures contracts or to establish initial futures contract positions through a transaction called exchange-for-physicals (I’ll explain this another time). It is important to realize, however, that many parties holding COMEX gold and silver in registered form have no intention of making their holdings available for delivery. By this I mean that such parties are neither (1) holding a short futures position against the warehouse receipt nor (2) willing to sell their registered metal (warehouse receipts) to a party with a short futures position. Indeed, a substantial portion of those holding registered metal would have acquired the COMEX warehouse receipts by holding long futures positions for delivery. In other words, these registered stocks are held for investment and not for commercial purposes.

In comparison, the eligible category of COMEX warehouse bullion stocks generally refers to bullion held in the warehouses that meets the specifications of an acceptable COMEX bar (proper weight, size, purity and refiner) but does not have a COMEX warehouse receipt issued against it. For example, an investor might purchase several 1,000 oz. bars of silver from a dealer and then deliver the bars for allocated storage at a COMEX warehouse. This is a private arrangement and has nothing to do with the COMEX. Unless these bars are officially registered (the easiest way to do this is through the aforementioned exchange-for-physicals), they will remain in the eligible category until withdrawn from the warehouse by the investor. Thus, the appropriate way to treat eligible COMEX warehouse bullion stocks is that they represent metal that could potentially be registered at some point in the future but cannot presently be used to make delivery under a short futures contract.

Note that Zerohedge says: Eligible silver has NOTHING to do with COMEX!

Silver Lease Rates Jump To One Year High (and then fall back to where they were previously)

Recently, the long term silver (PSLV) (SLV) lease rates jumped to a one year high since May 2011 (Chart 1).

On 17 April 2012, the one year lease rate was 1.05%, the 6 month lease rate was 0.73%, the 3 month lease rate was 0.47% and the 1 month lease rate was -0.26%.

It is notable that the 1 month lease rate didn't increase as much as the longer term lease rates. Another interesting point is that the long term lease rates almost doubled in a very short period, indicating scarcity in silver metal liquidity.  According to the London Bullion Market Association’s over-the-counter guide published on its website: “Heavy forward selling activity or a decrease in the supply of liquidity will push down forward swap rates and lead to upward pressure on lease rates.” What happened today is very bullish for the silver price.

Chart 1: Silver Lease Rates

I already wrote about gold lease rates in this previous article, pointing out that high lease rates are an omen of easing price manipulation by bullion banks like J.P. Morgan and HSBC. When silver lease rates go up, it means that we can expect an increase in the silver price in the next few months.


It has to be said that silver lease rates are still below their all time high of 2% in 2008, but it's especially the sharpness of the increase that's notable.


The expiry date for the CME May silver options is 25 April 2011. Mostly, the price movements near options expiry dates are in declining mode just before the options expiry. This way call options are made worthless. After the expiry date, we could have a huge boost in silver price fueled by this increase in lease rates.


Edit:

Apparently it was a mistake from Kitco's chart. The real silver lease rates are given here:

Table 1: Real Silver lease Rates

Well, too good to be true...

David Morgan Lecture: Metals Conference 16 March 2011

Enjoy this old video from 16 March 2011 by David Morgan. Maybe you'll learn something you didn't know yet.

Capacity Utilization for March: 78.6%

Capacity Utilization in March was 78.6% for the total industry, which is 0.1% lower than the previous month (Chart 1). I expected a bigger decline, but was surprised that it fell so little. Maybe there is hope that it will go up in the future, which is good for gold. To see my analysis on gold, go to my article: Capacity Utilization for March 2012.

Marc Faber on the Financial Survival Network

Let's listen to Marc Faber's view on the Western Economies. He advises us to finally think about what to do when there is a complete credit collapse. You need to buy real assets.

Banks And Their Exposure to the PIIGS

In the news of today, Spain has been in the center spot of attention. Spanish bond yields have been rising quickly and financials have seen weakness in their share price. In this article I want to see which banks have the most exposure to Spain and to the PIIGS in general.

During the stress tests of July 2011 the exposure of 90 banks to the PIIGS countries' government debt was released by the European Banking Authority (EBA).

To find out which banks are exposed to the PIIGS and which banks to avoid, please go to my article here:
Analyzing bank exposure to the PIIGS

Employment Deteriorating for the PIIGS

Since the crisis of 2008, the unemployment rate for the PIIGS has been increasing rapidly. As a consequence, lately investors are putting their hard earned money in more healthy countries like Switzerland and Germany.

Go HERE to read a more in depth analysis on this matter.

U.S. Budget Deficit Worsens

I previously dissected the U.S. deficit HERE. Citing that the U.S. budget deficit is increasing at enormous speeds.

Today, reported on Bloomberg, the U.S. budget deficit widened to almost 200 billion in March. Extrapolation brings us to more than 2 trillion in budget deficits in 2012 compared to 1.4 trillion in budget deficits in 2011.

That's a 40% increase in budget deficit year over year. Hyperinflation is on the horizon.

Link: http://www.bloomberg.com/news/2012-04-11/u-s-budget-deficit-widened-to-198-2-billion-in-march.html

China Gold Imports from Hong Kong

In December of last year there was a big concern that China would stop importing gold due to lack of demand. This was derived from the fact that gold imports from Hong Kong to China dropped 62% in December 2011. As a consequence, the gold price plunged from $US 1700/ounce to under $US 1600/ounce.

Lately though, the gold imports from Hong Kong to China have stabilized around 40 tonnes/month (Chart 1). This drop of 62% seems to be huge, but when we look at the long term chart the picture is entirely different.

Go HERE to read the entire article.

Copper VS. S&P

Let's bring to mind the amazing correlation between the price of copper and the S&P. When copper rises, the S&P rises and vice versa.

Financials will always be vulnerable and could crash like in 2008, bringing down copper. But don't forget Ben Bernanke. I predict he will initiate QE3 when the stock market falls 10%.

Chart 1: Copper VS. S&P

Sprott PSLV and PHYS premium fall to a record low

Today we record the lowest premium for the Sprott physical silver and Sprott physical gold trust, indicating a disinterest in gold and silver.

The premium for PHYS fell to a record low of 2.33% (Chart 2). The premium for PSLV fell to a record low of 5.86% (Chart 1).

(and if nobody wants it, it's time to buy it)

Chart 1: PSLV Premium (%) (blue) VS Price (USD) (orange)

Chart 2: PHYS Premium (%) (blue) VS Price (USD) (orange)

Marc Faber on the Alex Jones Channel

Another status update on the economy with Marc Faber.

Silver Anomaly

Interesting Silver Glitch. Probably nothing.

Silver Anomaly

Meanwhile we have the dream scenario of every gold bug.

Oil Down 1%
                        =>    Gold Mines Soar
Gold Up 1%

Copper Inventories Rising

With the China PMI indicating a contraction in GDP growth (of which I talked about HERE), another sign has emerged of China slowing down.

The LME Copper Warehouse Stocks Level has started a trend change and is actually rising (Chart 1). This build in inventories is probably indicating a slowing down the economy. A part of this build is due to Chinese markets staying shut for a public holiday on Wednesday 4 April 2012: Qing Ming Festival (清明节). Shanghai reopened on Thursday.

To see my analysis on this trend change go to Copper Demand and the Importance of China.

Central Banks "Leasing" Gold

When short term gold lease rate turned negative in the second part of 2011 (Chart 1), we started to see price manipulation in the gold market. Each time the gold lease rate started to spike downwards, we saw a big decline in the gold (GLD) (PHYS) and silver (SLV) (PSLV) price afterwards. Low gold lease rates mean that lenders want to lend out their gold at all prices. High gold lease rates mean just the opposite, you will have to find more profitable investments to put that leased gold into use.

Why did gold prices go down and how does this connect to central banks leasing gold? What are Eric Sprott, Mike Maloney and Reginald H. Howe's take on this?

Find out by reading my article:
Rising Gold Lease Rates Indicating Easing of Price Manipulation.

Eric Sprott

Mike Maloney

Financial Sense Newshour: Marc Faber

Today we have an update from Marc Faber. 

Cyclical stocks are doing miserably: commodities, gold, silver. While equities have been going up, that's where people are putting their money now.

When oil prices would spike, the economy could dive. But Marc Faber says that Ben Bernanke would flood the money with even more money. So it's unlikely that markets will go down. He sees oil prices as a tax on the consumer.

So we get a weakening economy, but with rising equity prices.

For gold, Marc expects a further correction to the 1500 $US/ounce level.

The reason why gold mines went down is because governments want a share of these mines. Exploration companies have zero cash flow and many gold mines have gold only as a by product, while the other part of their revenue, namely industrial metals like copper, are weak.

Another Correlation: Interest Rates and P/E Ratios of Gold Mines

In the Peter Schiff Show on the 5th of April, Peter talked about how low the P/E ratios of the gold mines are, compared to the interest rate. He said: "the lower the interest rates are, the higher P/E ratios will be".

This correlation is intuitively correct. As the interest rate is low, you won't get any return by putting your money in treasuries or in the bank. So where do you put your money, if not in cash and bonds? You will put your money in the stock market where you get a higher return. That's why stocks will have a higher valuation and consequently a higher price. A higher price will result in a higher P/E ratio. Conversely, when interest rates are high, the P/E ratio will be low.

For example: if the interest rate were 15% like in year 1981, investors will likely put their money in bonds with a 15% return per annum, rather than putting their money in risky stocks.

To show this correlation I will give historical evidence and show why Gold Miners are very cheap.
Go here to check out my analysis.

Peter Schiff's Lecture

We don't get many lectures from Peter Schiff, so enjoy this one to the fullest!

A Look at the Balance Sheets of the U.S. Banks

During the financial collapse of 2008, the problem of the banks was their balance sheet. Banks were highly leveraged compared to their equity. On average, the assets held by the banks was 10 times their equity. This means that a 10% decrease in asset value at constant liability levels could bankrupt the whole company.

The first problem was debt (liabilities on the balance sheets) and the solution was deleveraging. Banks needed to reduce the size of their assets and reduce the size of their liabilities. The second problem was liquidity and the solution was increasing reserve ratios. This article will summarize and analyze what happened during these 3 years after the financial collapse in 2008.

Purchasing Manager Index: U.S. VS Eurozone

As I learned how the PMI correlates with GDP Growth Rate in my previous article, I wanted to see how the U.S. and the Eurozone are doing (Chart 1). It looks like the Eurozone is starting to contract, while the U.S. is still increasing in GDP growth speed.

A pretty big divergence is going on and it started all in late 2011. Remember that? The period where the ECB printed trillions of euros in a few months?

It's obvious that printing money doesn't help the economy and this contraction is the absolute evidence of that.

Chart 1: U.S. VS Eurozone PMI

Believe China or HSBC?

Today on Zerohedge, I learnt that the official China PMI was 53.1 in March 2012, while the HSBC China PMI was 48.3. This has been the second highest divergence since 2008. I wonder why this big difference is occuring and who is to believe. China or HSBC?

To find out, go to: Divergence in China PMI.

Chart 1: China PMI VS HSBC PMI

Investing In Gold & Copper in the Philippines

Investors have been losing interest in gold mining stocks over the last year. I pointed out in my previous article that gold mining stocks are now a bargain at these levels. In this article I will shed light on investment opportunities in the Philippines.

The reason why I chose this country is because I like its fundamentals. The Philippines are one of the most mineralized countries in the world and ranks first in proven mineral resources in South-East Asia (Figure 1). It ranks in the top 5 in gold, nickel, copper and chromite reserves. Its two greatest gold and copper deposits are Tampakan (Indophil Resources (IRN) ) and King-King (St. Augustine Gold & Copper  Ltd. (SAU) ). The production growth in the Philippines is enormous. The country is now 2nd in global mining production just after Russia.

To see why these 2 companies are a good bet go to: M&A Activity in the Philippines.

Figure 1: Mining Exploration Activity in the Philippines