Month: November 2012

Copper Contango and How to Use it to Your Advantage

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After several data points about copper contango (red dots) and copper price (blue dots) I’m beginning to think that these two curves always go opposite ways.

So how do we use these charts to our advantage? I think this: when the red dots go up high (steep contango), it means a bottom should be forming on the copper price (e.g. June 2012 and today). That means the copper price should go up in the future from now. When the red dots are very low (steep backwardation) (e.g. May 2012) you will know that the copper price will go down.
There is science behind this, but we don’t need to think about that, we just use correlations to make investment decisions. 
That also means, if copper goes up, the stock market will go up. How odd that may sound…
Chart 1: Copper Contango

Drop of 1 million physical ounces of silver COMEX

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Another nice data point. I reported a while ago that 3.6 million troy ounces were taken out of COMEX.

Now, a month later we see another 1 million troy ounces taken out from Scotia Mocatta depository.
It is getting more and more interesting… why are they pulling out their physical silver I wonder (Chart 1).

Chart 1: Silver Stock COMEX

On the other hand, nothing special to report at the gold stock (Chart 2).

Chart 2: Gold Stock COMEX

Bullish on Precious Metals

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One very good indicator for higher precious metals prices is the lease rate.

As I predicted here, it was time to buy gold and silver. And now it’s completely obvious that they will do good as lease rates are steadily increasing. I doubled my position in silver.

Chart 1: Gold Lease Rates

I wish I could show the silver lease rates, but Kitco is cheating on us, their chart only shows a flat line…

Chart 2: Silver Lease Rates (flat lines since 2 November 2012)

But all we need is the gold lease rate and then just extrapolate it to silver lease rates.

Yet another day of decoupling

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Today is another day of decoupling:

USD/EUR: -0.2%
U.S. bonds: -2%
Stocks: -0.5%
It’s getting more obvious day by day.

Chart 1: Monitoring of Decoupling

Intermezzo:
I also got news from our Belgian government today that wages will be frozen for 2 years and minimum wages would go up by 150 dollars/month.

This will have impact:
1) minimum wage earners will get fired
2) efficiency at work will go down because there is no reason to work hard with frozen wages
3) people will search for another job to get higher wages

We have the worst government ever…

Foreign Investors Continue to Buy U.S. Treasuries

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It is expected: foreigners continued to increase their positions in U.S. treasuries. Foreign holdings of U.S. debt hit $5.46 trillion from $5.292 trillion the previous quarter (Chart 1). That’s an increase of 3%.

$16.28 trillion in debt is now partly in the hands of foreigners. The percentage = 5.46/16.28 =  33.5% (Chart 2).
As long as foreigners are willing to hold U.S. debt, there is no problem at all…

One word of caution though, the interest on this debt will be sucked out of the U.S. economy and go to the foreigners.

Chart 1: Federal Debt Held by Foreigners
Chart 2: Federal Debt Held by Foreigners

China increased their U.S. treasury holdings to $1.156 trillion in September 2012 (Chart 3).

Chart 3: China U.S. treasury holdings

Fiscal Cliff: Savings Rate to go into Negative Territory

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The fiscal cliff which is right in front of us will arrive on January 1st, 2013. The most important change will be the expiration of the Bush tax cuts. Each citizen of the U.S. will have a tax hike starting next year. The result will be a decline in savings rate. Tax rate can be said to affect the savings inversely both in the personal and corporate levels. It means that in the cases when the tax rate increases, the rate of savings may fall while with decrease in the tax rate, the savings may increase.

Overall, the personal income tax rate will go up 3% with the exception of the lowest and highest income earners who will have a whopping 5% tax increase. This tax increase will therefore reduce the disposable income of each and every person and business in the U.S.

So what does this mean in simple numbers? If I earn 3000 dollars and I am taxed 33%, I will have 2000 dollars of disposable income. If I save only 3% of my disposable income (see chart 1). I am saving 60 dollars. If now the taxes on my personal income go up 3%, I will need to hand over 90 dollars to the government. My disposable income will be 1910 dollars. This means I’m going underwater: 60-90 = -30.

Chart 1: Personal Savings Rate
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