Europe Vs. America

Investors are focused too much on the U.S., while they are totally ignoring what is happening in Europe. What they are missing is that Europe’s economy is actually improving.

 I believe the euro will be heading north soon due to improving current account surplus and industrial production. European stock markets will fare better due to higher GDP growth, manufacturing PMI, consumer sentiment and retail sales. An improving employment picture in Europe will boost the overall economy.

To read the analysis go here.

U.S. Mint gold and silver sales exploding

You know what the difference is between oil and gold?

Oil demand growth is slowing down, while gold/silver demand growth is accelerating.
Oil supply is growing, while gold/silver supply is coming down.

The best proxy is the U.S. Mint sales numbers.

Look how gold sales are spiking. We’re hitting sales levels not seen since 2008.

 

Premiums are rising.

Silver on the other hand is not doing as well as evidence in the ratio silver to gold sold.

U.S. Debt Hits $18 Trillion

And here we are, the U.S. debt has almost reached the 18 trillion number.

Say goodbye to $17 trillion.

And debt and gold always go together.

The real picture beneath the strong jobs numbers

We recently got news about the outstanding jobs numbers. The U.S. economy added 248000 jobs in September 2014 and the unemployment rate dropped to 5.9% (see chart below from FRED). The correlation between the unemployment rate and the Fed funds rate suggests that an interest rate hike will soon happen in 2015. But here is why that can’t happen.

If we look deeper, we see that most of these added jobs are in the category of 55-69. This tells me more and more older people are applying for jobs because they are forced to do so due to a decrease in living standards. Moreover, the labor force participation rate has been falling. The correlation between the labor force participation rate and unemployment rate paints a different picture to me. Normally, when the labor force participation rate drops, the unemployment rate would go up, but this is not the case. So something fundamental must have happened after 2008. I believe it’s due to discouraged workers giving up and leaving the labor force.

Wages aren’t going up, which means there is no inflationary pressure yet. This tells me there is no reason for the Federal Reserve to increase interest rates soon, especially when the U.S. dollar index has soared almost 10% in 3 months.

On top of that, we got a lot of bad economic news this week, which suggests the Federal Reserve will be reluctant to step on the brakes.

Read all of it here.

Belgium’s appetite for U.S. bonds is waning

Looks like Belgium has stopped buying U.S. treasuries.

Who is Mysterious Belgium Buyer of U.S. Debt: Jim Rickards and Peter Schiff’s take

Jim Rickards says that the ECB could be buying the U.S. debt via Belgium with money from the U.S. Federal Reserve. The Federal Reserve would print U.S. dollars, gives them to the ECB, that goes through Euroclear and they buy the U.S. treasuries anonymously on the books of Belgium. Watch this extremely interesting video below.

Also Peter Schiff suspects, via his radio show, that it’s the ECB buying U.S. debt via Belgium. He doesn’t suspect it’s the Federal Reserve itself, because that would destroy their credibility of tapering QE.

What is clear is that this is not likely the government of Belgium, or private Belgian capital, that is doing the buying. The numbers are just too large. This is particularly true in the First Quarter of 2014 when the buying averaged a stunning $41.5 billion per month (January was the biggest month with $54 billion). In all likelihood, the only European buyer with a wallet that big would be the European Central Bank (ECB) itself.

GDP Growth Rate Vs. 10 Year U.S. Treasury Bond Yield

The 10 year treasury bond yield can be viewed as the fixed-income market’s assessment of current nominal GDP growth on a year to year basis.

So from the chart below: GDP growth (red) should correlate to the 10 year U.S. bond yield (blue).

By monitoring the 10 year U.S. bond yield, you should have a good view on U.S. nominal GDP growth.

Long Term GOFO Rate Hits New Low

If you really think that gold is going to crash, I need to point out one thing and that’s the GOFO rate.

Recently, the 12 month GOFO rate has hit a new low we have never seen since 1989.

Let’s zoom in to 2009-2014: We have a new solid low here.

So not only the short term GOFO rates (1 month to 3 months) are negative now, also the long term GOFO rates are hitting new lows. So there is a tremendous stress building in the gold market. Historically negative GOFO rates are bottoms in the gold price.

This makes me very bullish in gold at this moment. Because gold lease rates are now much higher than the interest rates/bond yields. This indicates to me that the bond market is about to collapse, bond yields will be going higher, because gold lease rates cannot be higher than the corresponding bond yields. Either bond yields will be going up, or gold has to go up. It’s one of the two.

On another note, we see that the Federal Reserve tapering, is actually just talk. Because some entity is buying U.S. bonds via Belgium at a rate of 30-40 billion USD a month, which is exactly how much tapering we have had. The Federal Reserve is throwing sand in our eyes, don’t be fooled. They are propping up the U.S. bond market, artificially lowering the bond yields below the gold lease rates.

U.S. debt held by Belgium (Billion USD)

Why Belgium is Buying so Much U.S. Bonds

Interesting article that says that it isn’t actually Belgium that is buying the U.S. debt. Belgium is actually just an offshore account for foreigners to buy U.S. debt via the banking system.

For what I know, the Fed could even be buying its own U.S. bonds via Belgium.
If this is true, then the Fed isn’t tapering at all if you count the numbers…

Because why is base money supply (red chart) growing at an even higher pace?

Creditor Name: Belgium

Amount of U.S. Debt Owned (January 2013): $143.5 billion

Percent of U.S. Public Debt (January 2013): 1.24 percent

We know what you’re thinking: Belgium? Really? The gross domestic product (GDP) of this small European nation tucked between France, Germany and the Netherlands ranks No. 32 in the world, behind Nigeria and Malaysia [source: CIA World Factbook]. So why is Belgium one of the top 10 purchasers of U.S. debt?

The secret is something called “custodial bias” [source: U.S. Treasury]. Belgium has made a name for itself as one of Europe’s most vibrant international banking centers. Like Switzerland, bank accounts in Belgium historically offered a high degree of secrecy, although that changed in 2011 when the Belgian government began disclosing account information to improve tax transparency [source: Hyslop]. Still, Belgium offers big tax breaks for foreign companies that create Belgian subsidiaries and benefits for investors who choose Belgium for offshore accounts [source: Henley].

Belgium’s status as a tax haven makes it a popular place to buy U.S. debt, even if the investors aren’t from Belgium. The U.S. Treasury tracks purchases of U.S. debt by geographic origin, not the specific nationality of the buyer [source: U.S. Treasury]. This is where custodial bias distorts the debt figures. Belgium is a custodian (or holder) of U.S. debt from investors living in nearby France and Germany or as far away as China and Japan. How much of that debt is owned by actual Belgians is difficult to tell.

We’ll talk more about custodial bias with our next entry: teeny tiny Luxembourg.

Belgium Buys Another Load of U.S. Treasuries

Thanks to Econoblogger Martin I was reminded that today we have another update on the U.S. foreign debt holders and surprise surprise. Belgium keeps on buying more than $50 billion of U.S. debt, much more than any other country is doing now. If Belgium keeps buying like this, it will hold even more debt than China in a year or so. I’m just wondering where they get the money from.

Foreign U.S. debt holders

Look how much they bought, starting from November 2013.

U.S. debt held by Belgium

I have no idea why they are doing this. That the ECB would buy U.S. treasuries to get the euro down, maybe. But why is Belgium buying so much U.S. treasuries? $50 billion accounts for 10% of Belgium GDP. Can they support this?

We see Belgium’s own public debt has been rising since the crisis. Instead of using the money for servicing its own debt, they buy U.S. debt.

Debt to GDP Belgium

Let’s look at Belgium’s treasury yields. The 10 year is at 2.2%, which is below the 2.7% of U.S. Nothing much to see here, but look what happens in November 2013. Yields on U.S. treasuries are going up. Do you remember what happened then?

Yes, the Chinese came out saying they will stop buying U.S. debt. So who goes to the rescue? Belgium.

Belgium 10 Year Yield

U.S. 10 Year Yield

Probably Belgium is the heart of Europe as Europe started from Belgium. These European people want to support the U.S.

But actually, I think being in U.S. treasuries isn’t such a bad idea at this moment. When stocks collapse, U.S. treasuries are pretty safe.What I’m worried about though, is that the U.S. dollar is now starting to collapse. The dollar cash index is moving towards 70, when Belgium holds all of these U.S. treasuries, it will realize losses on the U.S. dollar currency value. A 10% loss in currency value, means at least a $30 billion dollar loss for Belgium and I heard that they even bought U.S. treasuries that the Russians dumped in March 2014. These are dangerous things to do.

For more info, here is a link to Zerohedge.