Analyzing Federal Debt held by Foreigners

As U.S. treasury yields (TBT, TLT) are starting to spike upwards, investors should pay more attention to this new trend. To help investors monitor U.S. treasury yields I'll point out another interesting correlation between U.S. debt held by foreigners and U.S. bond yields. We will see they are inversely correlated. If foreigners sell U.S. bonds, bond yields will go up.

The total public debt consists of two components:

1) Debt held by the public which is $US 11.177 trillion today.
2) Intragovernmental debt which is $US 4.783 trillion today.

The sum of these two is almost $US 16 trillion. The debt held by the public is increasing very rapidly, while the intragovernmental debt is stable.
Of these two components, the first one can be held by foreigners.

To see the foreign holdings you can go to this site: Treasury.gov.

Table 1: Foreign holdings of U.S. treasuries

Avondale Asset Management has recently updated the percentage debt that foreigners held on in April 2012. They put up chart 1: Percentage of Publicly Traded Federal Debt Held by Foreigners.

Chart 1: Percentage of Publicly Traded Federal Debt Held by Foreigners

To read the full analysis, go here.

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Marc Faber: Middle East Conference 2012

At long last, Marc Faber showed up again on a conference. This time it's the Middle East Hedge Funds World Conference 2012.

Enjoy!

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A Detailed Federal Reserve Balance Sheet

Just by having heated (and uncomfortable) discussions with seekingalpha commenters I learn new things. This is what you get when you write financial articles without any financial background.

But there are positive things coming from discussions.
Today I found a very nice interactive chart to follow the Federal Reserve's balance sheet (Chart 1).
You can play with the interactive chart here:
http://clevelandfed.org/research/data/credit_easing/index.cfm

Chart 1: Detailed Federal Reserve Balance Sheet

And what's very interesting is that the federal reserve has massively increased their treasury holdings. It's no wonder that bond yields are going down in the market. It won't be long when the federal reserve's balance sheet consists only of treasuries and mortgage backed securities, which are the most risky assets in the world.

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The Simplified Bank Stress Test

Bloomberg reported on 20 August 2012 that banks are stepping up their U.S. treasury buying. As deposits increased 3.3% to $US 8.88 trillion in the two months ended July 31 2012, business lending rose 0.7% to $US 7.11 trillion, Federal Reserve data show. This inherently means that banks aren't lending money to the private sector, but are lending their money to the U.S. government. Peter Schiff pointed this out on the Peter Schiff Show of 20 August 2012. Banks bought $US 136.4 billion in bonds (TLT) already this year, pushing their holdings to $US 1.84 trillion.

Let's take a snapshot of the debt maturities in 2011 and 2012 and quickly compare them (Chart 1 and  Chart 2: U.S. treasury debt by Year of Maturity (2012) ) (I talked about debt maturities in this article).

Chart 1: U.S. treasury debt by Year of Maturity (2011)

Chart 3: 10 year U.S. treasury yield 

You can immediately see that short term debt has doubled in 1 year time. The biggest buyers of these treasuries were the federal reserve, domestic investors, banks, emerging markets like Japan and China. It's no wonder that bond yields have gone down with all this buying of U.S. treasuries. But these yields have started to rise sharply just recently, topping 1.85% for the 10 year U.S. treasuries (Chart 3).

If you want to know what impact this will have on the banks, go read the full version of this article.

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Silver Inventories at CME and Lease Rates

Just a few weeks after I turned bullish on silver, articles are sprouting out of nowhere about silver inventories being historically low.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/8/17_Expect_Major_Silver_Price_Spike_As_COMEX_Inventories_Decline.html

However, I see signs of a temporary weakness in silver.

1) The silver stocks at the CME aren't actually going down anymore. They are going upwards (Chart 1).

Chart 1: Silver Stocks CME

2) The silver lease rates are actually going down, instead of going up. Historically, when silver lease rates plunge, the price of silver will go down a few months later.

Chart 2: Silver Lease Rate

Conclusion: I would be wary about the price of silver. If this trend continues this way, look out below!

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China U.S. Treasury Holdings Steady in June 2012

Nothing special has been reported in Chinese U.S. treasury holdings. The amount of U.S. treasuries held by China are almost unchanged at $US 1.164 trillion.

http://www.china.org.cn/video/2012-08/16/content_26252410.htm

Chart 1: Chinese U.S. treasury holdings

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Capacity Utilization highest since April 2008

Good news for inflationists!

Capacity utilization for July 2012 came in at 79.3 (up from 78.9 a month ago), which is the highest number since April 2008. That also means we are nearing the danger zone of 80. Once we get above 80, you can bet that we will get high inflation after a few months from now.

All different industries were higher in capacity utilization with the mining industry posting an astounding 90.4 capacity utilization rate in July 2012, up from 89.5 a month ago.

There is absolutely no indication that precious metals won't go higher in the future.

Chart 1: Capacity Utilization

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