Junk Silver Premiums Diverge

A recent phenomenon has occured. Junk silver premiums have gone lower to 15% while silver eagle premiums stayed at 50%. Considering the fact that junk silver is bought for its content, I think this metric is more reliable to predict the silver price. Junk silver demand is a real proxy for silver bullion demand. 

Powell to buy Junk Bonds

The Federal Reserve has started buying corporate junk bonds (BB- and up).

The composition of the bond market is the following. So basically, the Fed can buy the whole corporate bond market now.

This will support the corporate bond market and probably push the S&P 500 higher.

Corporate bond yields will fall back down for corporate bonds rated BB- and higher.

Oil Price Vs. CCC Bonds

The energy junk bond market accounts for 13% of CCC rated bonds. This is why when oil goes down, the junk bond sector will get a hit. Oil and banks are interconnected in this way.

Junk Bond Market Forecasts a Looming Stock Market Crash

There is a particular debt market that is very interesting to watch and that is the junk bond market. We call these bonds "junk bonds" because the debt is issued by corporations that do not have high credit ratings and they need to pay higher interest rates.

The reason why we need to monitor this market is the following. The high yield debt market is a leading indicator for the direction of the stock market. Whenever investors leave the junk bond market, yields will spike upwards and the price of these bonds will decline in value. This will lead to less borrowing and consequently lead to less spending. What we then see is a stock market crash with typically a delay of a few months (see chart below from FRED). You can clearly see that the stock market (red chart) is overdue for a correction as the high yield bond market (blue chart) is declining in value.

Read the full analysis here.

Junk Silver Premium: 42%

 Rising higher...

 

Junk silver premium at new high APMEX

I kid you not, junk silver premiums are showing that physical silver is in shortage.

30% premium now, the highest since I monitored it. If this quickly goes to 50%, would you say the bottom is in?

http://www.apmex.com/product/24/90-silver-coins-1-000-face-value-bag

Crude Oil Vs. Junk Bonds

Energy junk bonds comprise 15% of the total junk bond market. So that is a big chunk and naturally we would find some correlation between these two.

As you can see, the trend is there, but not too pronounced. But lately, after 2008, the energy junk bond market (lead by the oil price) is leading the total junk bond market lower. So plunging oil prices have negative consequences on junk bonds. And lower junk bond prices will eventually lead to a stock market crash.

Conclusion: declining oil prices and higher stock markets are impossible.

For more info, go here.

Junk Bonds Vs. Stock Market

There is a correlation between junk bonds and the stock market. The junk bond market is a leading indicator for the stock market. Whenever junk bonds decline in value (yields go up), stocks will follow the decline. In 2007, junk bonds started their collapse, one year later in 2008, the stock market crashed.

This is why we need to keep an eye on high yield debt (blue chart). Since the second half of 2014, this high yield debt has collapsed. Soon, the stock market (red chart) will follow.

Silver/Gold Premium Charts

I'm going to dedicate this page to monitor Silver/Gold Premium Charts. You can go to this page by clicking on the favorites link at the top of the page.

I will monitor the silver premiums from First Majestic Silver, APMEX silver coins, APMEX junk silver and Shanghai silver/gold premiums (accessed here).

Due to the smash in precious metals, we have higher premiums once again, but not at record highs. If you analyze it further, you will see that the trend in premiums is continuously pushing higher, stress is certainly building up at this stage.

 

I found a new site where you can view the Shanghai gold premiums and it's shooting up. This means the gold market is very tight in China.