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htmortimer

htmortimer
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  • Gold- Buffett And Morgan Stanley Agree [View article]
    If indeed the world economy picks up steam gold will do poorly; all we know right now is that the market sentiment favors that analysis. The other things that we also know now is that we and the rest of the world have accumulated mountains of debt that cannot be paid off and that when debt rises faster than income it eventually becomes bankrupt. Where we are in that process is hard to discern - principally because the process of debt creation depends on liquidity - something that disappears very rapidly when confidence wanes. And that, to paraphrase Warren Buffet, is when we see who is not wearing bathing suits. Then, those who own some gold will be seen to be wearing scuba gear.
    Jan 31 11:07 AM | 1 Like Like |Link to Comment
  • Harry Dent: How To Prosper In The Coming Downturn [View article]
    History shows that gold is always strong in a deflation. That is because deflation makes debt more expensive to repay, causing large numbers of defaults. Because gold is not someone else's liability is what makes it attractive. Additionally, most depressions occur because of an excess of debt and deflation is one way to get rid of debt - by bankrupting it away. In fact, often the policy response to deflation is to devalue the currency against gold (as was done in the last US depression) as this too (under a gold standard) is another way to reduce debt. It is my view that the best (and least costly) way out of the current predicament would be to return to a gold standard. For the US, that would be a big win as we have the most gold.
    Jan 21 10:06 AM | 1 Like Like |Link to Comment
  • The SPDR Gold Trust Vs. The Sprott Physical Gold Trust [View article]
    The point on taxation tells everything: with GLD you have a direct interest in gold and are taxed on that basis; with Sprott you have an indirect interest in the underlying gold because you own shares in a corporate entity. In return you get a better tax deal when you sell.
    Nov 26 09:30 AM | 1 Like Like |Link to Comment
  • Gold Trust ETF Falling As Expected [View article]
    I agree, but the issue is at what rate. It doesn't take a (historically) very high rate to absorb virtually all of the government's tax revenues.
    Nov 6 09:34 AM | Likes Like |Link to Comment
  • Gold Trust ETF Falling As Expected [View article]
    I am not a trader and do not buy and sell on the basis of short term moves. The only reason to hold gold today is because there is a high probability that the developed world is not able to repay the debt that it has incurred in the last decade. Not only is it unable to repay existing debt, but must incur additional debt to function. We are thus hostage to the market and the interest rates it charges for the refinancing of existing debt and the funding of new debt.
    If you believe in the tooth fairy, then you will believe that the developed world's central banks will be able to fund both the new debt and the refinancing of the existing debt at low interest rates. In that case you must also believe that taxation is no longer needed as the governments only need to fund themselves through their central banks at low interest rates. I would like to think that you would find the latter statement to be absurd.
    Plan A, of course is to approach the debt problem by trying to inflate it away. Unfortunately, this is not working anywhere in spite of Herculean efforts to do so; in fact the growth of debt has outpaced the rate of inflation since the last crisis, so we are actually going backward in out attempt to inflate debt away.
    Plan B, unfortunately, is not discussed (other than behind closed doors among the central banks because that plan used deflation to extinguish debt and does so with bankruptcy (both corporate and sovereign).
    Unless you have a Plan C, those are the only two choices and both cases are deleterious to your financial health. In a deflation, not all debt will default, but all debt (corporate and sovereign) will become suspect and fall in value. In an inflation, debt will lose value in real terms and in nominal terms with rising interest rates; and in both cases equity values will suffer because neither environment is friendly. In a deflation, prices will fall and in inflation costs will rise, potting profits at risk in both cases.
    Both cases, however, are beneficial to gold. Gold has always been a good hedge in inflationary times and in deflationary times it will offer a safe haven because it is not someone else's liability.
    Nov 5 02:00 PM | 6 Likes Like |Link to Comment
  • Gold Is A Slam Dunk Sell [View article]
    This is a copy of my comment on another recent comment.

    There are umpteen approaches to analyze gold as an investment and none of them make sense. There are only two conditions under which gold will be a good investment and that is runaway inflation (such as we had in the early 1980's and in deflation in which falling prices cause massive debt defaults. Neither of these phenomena are subject to traditional analysis, value or otherwise. Those who think we are in the midst of a temporary hiccup and that things will return to normal should not invest in gold. Those are circumstances under which gold will fall in value and that is well demonstrated in the history of money. Those who think that all is not well and that deflation or runaway inflation is a risk should invest in gold in amounts that reflect how concerned they are about that risk.
    It's as simple as that.
    Oct 10 08:26 PM | Likes Like |Link to Comment
  • Which Side Of Goldman Sachs Is Right About Gold? [View article]
    There may be too many comments already for another to have any impact. That being said, there are umpteen approaches to analyze gold as an investment and none of them make sense. There are only two conditions under which gold will be a good investment and that is runaway inflation (such as we had in the early 1980's and in deflation in which falling prices cause massive debt defaults. Neither of these phenomena are subject to traditional analysis, value or otherwise. Those who think we are in the midst of a temporary hiccup and that things will return to normal should not invest in gold. Those are circumstances under which gold will fall in value and that is well demonstrated in the history of money. Those who think that all is not well and that deflation or runaway inflation is a risk should invest in gold in amounts that reflect how concerned they are about that risk.
    Oct 10 08:23 PM | Likes Like |Link to Comment
  • Ron Paul Has It Totally Backwards, Gold Isn't Going To Explode Higher [View article]
    It would be nice if we could do away with gold, but until politicians are no longer able to debase their currencies for political and other policy ends, we will need to find something that introduces discipline into the system if currency is to be a store of value, one of the important attributes of money.
    If you look at the history of money from the beginning of time you will see endless schemes to debase it and all have failed. One of the most interesting occurred just prior to the French Revolution, when the perennially broke French State decided to confiscate all church lands and use them to back a new currency, the Assignat. Since the church lands were finite, this, it was thought, would restore confidence in the currency, and indeed it did - until it was discovered that even this new wealth was insufficient to satisfy the state's needs and untold new Assignats (also backed by the same confiscated lands) were printed. It wasn't long before this was discovered and the Assignats soon became worthless. The next chapter was the Revolution.
    During all of these periods of currency debasement, ownership of gold served to protect one's wealth.
    One can argue as to whether another such economic crisis is at hand or not, but you cannot argue that if it, is one should not buy gold.
    Aug 26 10:21 AM | 1 Like Like |Link to Comment
  • Ron Paul Has It Totally Backwards, Gold Isn't Going To Explode Higher [View article]
    All these comments demonstrate why we have vigorous and healthy markets; sellers can't sell without buyers and buyers can't buy without sellers. I think that sometimes people for get that there are two sides to every transaction.
    That being said, there have been times when it has been profitable to hold gold and times when it has not. Unlike equities which depend on earnings (and sentiment) and bonds which depend on interest rates, gold depends on the perceived soundness of money (and debt - which is what money is).
    Those who think that we have sound money now should eschew gold and those who think otherwise should embrace it.
    Aug 24 09:06 AM | Likes Like |Link to Comment
  • Ron Paul Has It Totally Backwards, Gold Isn't Going To Explode Higher [View article]
    You can't talk about quantity and ignore price; there is always a price at which a commodity can be obtained. If we wished to return to the 1980's (when gold made up approximately 50% of central bank reserves) you could do so by raising the price of gold to approximately $11,000 per ounce. In fact, that is roughly the price that would be needed to return to a gold standard.
    Aug 22 09:49 AM | Likes Like |Link to Comment
  • Ron Paul Has It Totally Backwards, Gold Isn't Going To Explode Higher [View article]
    The point is that the Great Depression was all about excessive debt levels. The Gold Standard was not responsible for the high debt levels and the best way to reduce them was to devalue the dollar against gold. Usually, excessive debt levels are reduced through inflation, but sometimes that doesn't work and you get deflation instead. The results are the same, but deflation is far more painful and harder to reverse.
    As a separate point, there is no such thing as a balance of payments deficit (that's why it is called a balance). I think that you are referring to a trade deficit which is offset by money flows to achieve a balance. So long as the money flows remain available, the trade deficit doesn't have an impact.
    Aug 19 09:35 AM | Likes Like |Link to Comment
  • Ron Paul Has It Totally Backwards, Gold Isn't Going To Explode Higher [View article]
    I think that a more correct answer would be that under a gold standard, some countries tie their currency to gold (offering to buy it or sell it at a fixed rate). Other countries will need to periodically devalue (or revalue, which is pretty much unheard of) to maintain their competitiveness.
    If the quantities of currency were fixed (like the quantity of gold) or did not increase by more than marginal amounts (like gold), floating exchange rates would be fine.
    The real problem lies with the central banks. They have been increasing their asset bases at rates that boggle the mind. Recall that their assets (International Monetary Reserves or IMRs) can consist only of foreign currencies, gold and Special Drawing Rights; gold and SDR's have remained constant so all of the increase has been in holdings of foreign currencies.
    From 1968 to 1980 IMRs increased at an average annual rate of 22.7%; from 2000 to date, IMRs have been increasing at an average rate of 13.7%. Obviously, these rates of growth considerably exceed growth in world GDP and that is a real problem because the bulk of the IMRs are (unlike gold) debt and thus someone else's liability (which probably cannot be paid).
    In my view, the only way out is to reduce these debts by devaluing all currencies against gold.
    Aug 19 09:24 AM | Likes Like |Link to Comment
  • Ron Paul Has It Totally Backwards, Gold Isn't Going To Explode Higher [View article]
    You make two statements that we can agree on:"Ron Paul isn't an expert in economics" and "I'm not an expert in gold".

    The rest of the article strikes me as very muddled. For instance, you state "If rates are going higher, it will be due to natural market forces attempting to reach a market equilibrium. Those natural forces would be a stronger growing economy and an increase in demand for capital." Is that how you would analyze the record high rates in the early 1980s? I think not.

    Or, "...strict adherence to the gold standard both during the 19th century and Great Depression was most likely a major contributing factor to the depth, length and severity of those depressions." I am not sure how you reached that conclusion, but I would note that one of the important steps that FDR took to address the depression was to devalue the dollar against gold (i.e. raise the price of gold). I would add that that worked pretty well until Nixon took the US off the gold standard in 1971. That left everyone to create currency at will (and at an accelerating rate). I would argue that this will end badly. Right now the US (along with the rest of the developed world) is creating debt faster than they are creating GDP and that ALWAYS ends badly.

    Or,"Ron Paul believes that the Federal Reserve is responsible for destroying 98% of the value of the US Dollar." We can argue as to whether or not the Fed was responsible for the destruction of the value of the dollar or not, but it cannot be said that the cumulative inflation since 1913 (the year the Fed was created) was not 2,260% or that it would take $23.60 dollars to equal $1 in 2013 (based on CPI). Unfortunately, one of the attributes of sound money is its ability to serve as a store of value and the dollar hasn't done so well in that regard and, I would add, far, far less well than gold. In 1971, gold was worth $35 an ounce; 42 years later it is worth $1377, a 3,834% increase. I doubt that you have been so fortunate in your investment results.
    Aug 17 05:08 PM | 2 Likes Like |Link to Comment
  • What Do Declining COMEX Inventories Signify? [View article]
    GLD does not own derivatives; rather, they own physical gold in fairly large "baskets". If you own a "basket" you can always take delivery; if you own less than a basket you get cash. All of the gold they hold is stored in ware housed and regularly inventoried and anybody can access the inventory which shows the place of storage and the identification numbers on each bar of gold. That's way beyond anything that the Fed is willing to do with their gold and one may speculate as to why this is the case.
    Aug 8 03:34 PM | 1 Like Like |Link to Comment
  • What Do Declining COMEX Inventories Signify? [View article]
    I am surprised to disagree with this author as he, invariably - in my opinion - gets it right. What may be happening and what I believe is happening is that people are becoming increasingly wary of lending their gold in the fear that they may not get it back and do not want cash settlement.
    The big problem with a cash settlement is the determination of the cash amount to be paid, a calculation that does not necessarily (actually is not likely to) provide enough cash to purchase the gold in the spot market. Indeed, were that the case, the exchange would always be able to simply use the cash settlement (that they would have paid to settle the contract) to buy gold in the spot market. The fact that they are unwilling to do so tells us that they are concerned that the cash settlement amount might not be sufficient to purchase as much bullion as the investor "owned" in the futures market. To the extent that the investor, like Kyle Bass, is not indifferent between a cash settlement and a physical settlement, this will push up the spot price of the metal.
    This is why declining quantities of registered gold is significant.
    Aug 8 03:29 PM | 1 Like Like |Link to Comment
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