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htmortimer

htmortimer
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  • Credit Deflation And Gold [View article]
    The Wall Street Journal late last week reported that
    China has itself reported out its central bank’s gold
    holdings as of the end of June: 53.32 million troy ounces,
    up 57% from the last time the Bank reported the same
    back in ’09. As the IMF now reports, the US continues to
    hold the world’s largest reserves of gold: 261.5 million
    troy ounces, with Germany, Italy and France 2nd, 3rd and
    4th.
    Jul 20, 2015. 10:14 AM | Likes Like |Link to Comment
  • Credit Deflation And Gold [View article]
    Most people see gold primarily as a hedge against inflation and are inclined to sell gold when the risk of inflation seems low or the greater risk appears to be deflation. The reality is that in a deflation debt becomes suspect and gold becomes a safe haven.
    It is equally true that devaluing a currency against gold (assuming a gold exchange standard exists) also serves to get rid of excess debt. Indeed, that's what the US did as explained above on several occasions (as did Great Britain as well).
    It is also worth noting that being the largest holder of gold, the US has the most to gain from a return to a gold exchange standard.
    Jul 17, 2015. 11:22 AM | Likes Like |Link to Comment
  • Greece Bailout Agreement Adds To GLD Selling Pressure [View article]
    Not really; the US has the ability to print dollars to pay off its debt, while Greece cannot print Euros.
    With respect to the currency, I expect that the dollar will be rising vs. other currencies because of the $9 trillion or so that has been borrowed and converted into other currencies (e.g., dollar mortgages in Hungary). This represents a gigantic short position against the dollar that will need to be covered.
    Jul 17, 2015. 08:52 AM | Likes Like |Link to Comment
  • Greece Bailout Agreement Adds To GLD Selling Pressure [View article]
    I would note that US debt is well over 100% of GDP. Your numbers do not include the US Treasury debt owned by the Social Security Trust. It is often excluded on the theory that it is "owed to ourselves". The fact is that it is a debt of the Government owed to all of the payers into the trust and really reflects the borrowing of money that has been spent. Eventually, it will need to be repaid when outflows from the Trust exceed inflows.
    Jul 15, 2015. 10:50 AM | Likes Like |Link to Comment
  • Greece Bailout Agreement Adds To GLD Selling Pressure [View article]
    If you think that Greece will be able to pay any of their debts or meet the conditions imposed on them, I think that you have either gone through the looking glass or are somewhere in la la land. Just meeting a primary surplus in 2015 will prove to be impossible.
    But that is not really the issue and anybody whose gold investment turns on whether or not Greece blows up is misguided. Greece only illustrates the problem that the world economy faces: excessive quantities of debt that can neither be repaid nor serviced at "normal" interest rates. Even in the US, growing your debt faster than you grow GDP eventually takes you to a very bad place.
    Right now storm clouds are forming everywhere:China, Japan, Russia, etc. Puerto Rico and Greece are indeed minor in the scheme of things. Remember Penn Square Bank? That was a small unheard of bank that took down Continental Illinois (the 7th largest US bank at the time). Why? Because their involvement with Continental Illinois caused them to lose a significant part of their short term funding.
    That's how these things start; never with something obvious. For my part, I find it hard to see how we will avoid the storm that invariably follows the creation of excess debt and that is the reason to own gold, not to try to make a few bucks off of a $100 move.
    Jul 14, 2015. 06:10 PM | 10 Likes Like |Link to Comment
  • When Does Greece Actually Get Scary? [View article]
    I think that the contagion from a Greek default is going to be worse than expected. The European Banking system holds a massive amount of Greek debt and then there are the Target 2 balances of which little is said. The Target 2 claims of the Bundesbank on the ECB system were €515bn as of January 31 and most of these were from Greece. These amounts are in addition to Greece's other borrowings. So long as all members of the EU are solvent T-2 balances net out to zero. Not so however if someone defaults and leaves the system. Even for Germany €400-500 bn is not something of no consequence.
    After that we have an unknown amount of credit derivatives that will be triggered by a default. Bottom line, Grexit will have consequences that are likely to be far reaching and remain to be seen.
    Jun 29, 2015. 01:41 PM | Likes Like |Link to Comment
  • Gold Is Heading Lower [View article]
    It is pretty clear to me that we are going to have either inflation or deflation in the near future. That's what happens when you have debt service requirements that cannot be met, as is the case now. I believe that the outcome will be deflationary, but either way the outcome will be good for gold. Until one of those two scenarios actually occurs, it is likely that the recent ups and downs will continue. The move that i am expecting will take gold to at least $5,000 per ounce and perhaps as high as $12,000 per ounce. Let's keep in mind that at $12,000 per ounce would restore central bank gold reserves (as a % of total reserves) to where they were in the late '50s and early '60s.
    Jun 8, 2015. 10:02 AM | 1 Like Like |Link to Comment
  • Why The Economist Is Wrong On Gold [View article]
    A good article, worthy of a couple of comments. The first is that gold functions as money when debt (and currencies are debt) do longer functions as money (store of value, medium of exchange, etc.). The second is that we cannot look at gold just in US dollars; if we go beyond the dollar, we will note that gold is rising in terms of other currencies - notably the Euro and the Yen - and that tells us something about those currencies as well as the demand for gold. It is also interesting to note that European governments are trying to reduce the use of cash in their economies (presumably, in an effort to increase tax collections). That, however, serves to reduce currency role as a medium of exchange and its usefulness as money. These are all factors which are serving to enhance the value of gold. Ultimately, as Venezuela has just discovered, gold is money which is accepted as collateral (or payments for goods and services) when cash isn't.
    May 25, 2015. 11:04 AM | 5 Likes Like |Link to Comment
  • A Scary Thought About U.S. Employment [View article]
    It doesn't appear to anybody that dollars are debt or that $9 trillion dollars have been borrowed by foreign borrowers and turned into local currency. Just the debt service on these loans provides significant support for the dollar in the currency markets. Indeed it is really a gigantic short against the dollar and that may come to bite borrowers and lenders alike.
    May 10, 2015. 10:41 AM | 2 Likes Like |Link to Comment
  • The FOMC And U.S. GDP Could Bring Up GLD [View article]
    I think that we are entering the end game. The problem is simple - the world has too much debt, which is impeding economic progress. The Greek case may be extreme, but it showcases the issue.
    When you have too much debt you can devalue your currency through inflation to get rid if debt; if you can't create inflation you must devalue your currency against gold to get rid of debt. History history tells us that those are the only two possible courses of action to address too much debt.
    Tinkering by the world's central banks will continue to be ineffective. I predict a return to the gold standard when the deflationary collapse occurs.
    Apr 28, 2015. 05:26 PM | 1 Like Like |Link to Comment
  • Case For GLD Bullishness: FOMC Induced Inflation Uncertainty [View article]
    It should be pretty clear by now that inflation is not in the cards any time soon. The vast money printing exercises undertaken in the US, Japan and now the EU are pretty dispositive. The winds of deflation are simply too strong.
    That, of course, is good for gold. Why? Because the problem is and continues to be too much debt and if we cannot inflate our way out of it then the forces of deflation will do the job for us.
    Unfortunately, history tells us what that means for our financial system and why gold will become valuable relative to paper IOUs.
    Mar 21, 2015. 04:42 PM | Likes Like |Link to Comment
  • Will The Fed Spike The Gold Price? [View article]
    It would appear that the only significant difference between the two of us is timing. In this regard, financial crises typically don't play out over time; usually there is a trigger - a seemingly random event like the Lehman failure - that causes liquidity to dry up. From thereon the crisis spreads like a wildfire.
    Right now, there are any number of potential triggers out there -Greece being the most prominent. My guess is that the storm will come from Europe because its banking system is far more leveraged than ours and contains mountains of sovereign debt which continues to be treated as risk free and requires no capital to carry.
    Whatever it turns out to be the vast majority of investors will remain unprepared as is always the case when a crisis hits.
    Mar 16, 2015. 09:30 AM | Likes Like |Link to Comment
  • Will The Fed Spike The Gold Price? [View article]
    I am not a trader, so my perspective is more macro than micro. That being said, I must disagree with your view that a rising dollar will have a negative impact on the price of gold.
    Before coming to that conclusion, you must first figure out the impact of a rising dollar on things other than gold. In this regard, I would note that $9 trillion (no typo, it starts with a T) US dollars (not their equivalent) have been borrowed by borrowers in non-dollar economies. I would also note that, in the past year, the dollar index has risen approximately 25% (from 80 to 100). That means that the debt service on all these obligations has increased by 25%. That is a very serious problem and it is likely that a meaningful number of these loans are going to default.
    These defaults are not likely to be inconsequential. $9 trillion is a very big number - roughly equivalent to the GDP of China and only the GDP of the US and the EU exceeds $9 trillion.
    The result, in my opinion, will be the breaking up of the financial markets as we know them and in the process a flight into dollars (which will exacerbate the problem) and into gold.
    Mar 15, 2015. 10:42 AM | 6 Likes Like |Link to Comment
  • Gold - The Oversold Commodity That Is Worth Picking Up [View article]
    We, along with the rest of the world, are tipping into deflation as the result of an excess of debt and a major financial crisis looms ahead. I suspect that its onset will only be determined in retrospect and that it could have already begun.
    However, until it becomes more apparent or until we have a "Lehman" moment, the price of gold is likely to fluctuate. Once the crisis becomes apparent, both gold and the dollar will soar. Why? Because in a deflation cash becomes more valuable relative to the goods and services that it can buy and in the case of the US dollar, there is presently a roughly $9 trillion short in the dollar (consisting of the dollars borrowed by or invested in non-dollar economies). In the case of gold, it will soar as a result of bankruptcies (which will make all debt suspect).
    That is the real reason for owning gold.
    Mar 9, 2015. 11:04 AM | 1 Like Like |Link to Comment
  • GLD Bearish As Greece Kowtows To The European Commission [View article]
    For Germany, that's a big number: 16% of their GDP. I am not sure how they survive that hit other than by the extend and pretend game.

    On the other hand, I agree that the US stock market is overvalued - as are the rest of the world's markets. That is the unsurprising consequence of low interest rates and their application to discounted cash flows. At current levels even small interest rate increases have a huge impact on present values.
    Mar 1, 2015. 09:31 AM | 1 Like Like |Link to Comment
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