Correlation: Bitcoin Vs. Silver

Since the crisis in Cyprus erupted a few weeks ago, Bitcoin has made new highs on fear of the deposit debacle in Cypriot banking system. Now that Bitcoin has made new all time highs, I’m suggesting to diversify these gains into silver (SLV).

Max Keiser points out that there is a relationship between silver and bitcoin. Bitcoin and silver are a natural hedge against each other, because both are hard currencies. If one of them goes up too much, the other will eventually follow. So if Bitcoin goes up too much (which is happening right now), you should switch some of that Bitcoin money into silver as Max suggests.

Max Keiser: “Silver is the natural hedge of Bitcoin.” (Starts at 3:18)

To read on, go here.

U.S. bonds hit 8 month low

U.S. bonds have finally broken down and from here on it’s only going downwards as resistance is broken.

The funny thing is that Ben Bernanke has shot himself in the foot by telling everyone he’s going to stop buying bonds at the end of 2013. The result, everyone flees U.S. bonds today. I guess Jim Rogers’ call for a collapse in bonds was a hit right on the head of the nail.

Chart 1: 10 year U.S. bonds

The even odder thing we saw today is that the U.S. dollar went up 1% against the euro which is very contradictory. Normally the U.S. dollar goes down when the bond market goes down as seen in this correlation. So I think this is a temporary phenomenon. U.S. dollar strength won’t last long with a weak bond market. Max Keiser is even predicting the end of the U.S. dollar in 2013. I think he’s onto something.

If the Federal Reserve really were to stop buying U.S. bonds, bond yields would spike, mortgage rates would spike. The debt burden would increase tremendously with higher yields, which will bring interest payments much higher. If interest payments go higher, the budget deficit will increase when social security, defense, health care, education and pension spending isn’t cut. Higher budget deficits asks for higher taxes to reign in the budget deficits and that will make stocks decline. That would lead to a start of a depression era.

You would think that the U.S. dollar would strengthen, but how can a currency strengthen with an exponentially higher debt burden and higher interest payments? It can’t. First, the bond holders need to lose big before a recovery can even start. The only true safe haven will be precious metals.