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htmortimer

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  • Manufacturing PMI Deflation Shock For SPDR Gold Trust ETF [View article]
    If you are right about deflation, then you are wrong about gold. It is my view that deflation remains as a significant risk and with deflation comes bankruptcies - which are the market's way of getting rid of excess debt. That will push people to hold cash (to take advantage of declining prices) and gold (because it is liquid and not someone else's debt). In addition, history shows that deflations are generally followed by a return to sound money, which is achieved by devaluing the currency against gold.
    Dec 3, 2014. 12:50 PM | 1 Like Like |Link to Comment
  • GLD - On Inflation And Econo-Watch [View article]
    While I agree with Fishfryer (above), I do not see inflation as an issue. The real issue is deflation and if (and as) we tip int it (as Europe appears to be doing) both gold and the dollar will soar. That's because deflation is the bane of creditors as it makes debt more expensive to repay, causing large amounts of debt to default.
    What we are waiting for is a trigger event and I believe that it will come from either Europe of Japan and in either case will involve illiquidity of the banking system.
    Nov 22, 2014. 05:09 PM | 3 Likes Like |Link to Comment
  • What Is Next For GLD? [View article]
    The only important issue is whether or not the developed world is tipping into deflation. I would argue that it is, but we are not there yet and when we are it will be too late to act.
    The problem is the mountains of debt - public and private - that cannot be repaid, only rolled over. The central banks have outdone themselves in trying to create some inflation to reduce this burden and have been unsuccessful despite the trillions of dollars (and Euros and Yen) that have been injected into the monetary system. That leaves only deflation to get rid of the excess debt.
    That, of course, is an environment in which both cash and gold will see significant increases in value. Cash will become valuable because of declining prices and gold will become valuable because it is not someone else's debt - and in a
    deflation, all debt becomes suspect.
    Nov 21, 2014. 10:59 AM | 4 Likes Like |Link to Comment
  • The FOMC Pushes Down GLD [View article]
    I agree that there is little inflation but the danger is not inflation it is deflation. Europe is already showing signs of deflation and Japan can't shake the deflation that has plagued them for a decade.
    The problem strikes me as both simple and straight forward. The developed world in as well the emerging markets have incurred an excessive amount of debt that not only cannot be repaid, but cannot be serviced at "normal" interest rate levels.
    There's nothing new here; societies have become over-indebted throughout history. So far, there are only two known ways of solving this problem: creating a level of inflation that reduces its value and experiencing a deflation that removes the excess debt through bankruptcy.
    Currently, the inflation route has not been too promising given the trillions of dollars of "printed" money that has been created and when that plan fails deflation takes hold.
    The good news is that gold (along with cash) always performs well in a deflation (particularly as it is a liquid asset that is not someone's debt) and is often the solution to restarting and restoring the economy. Indeed, that's what FDR did (revalue gold) to combat deflation in the '30s as have many leaders in similar circumstances throughout history.
    Nov 1, 2014. 06:29 PM | 2 Likes Like |Link to Comment
  • Gold Is Against The Ropes [View article]
    Who knows what the value of the assets are that secure the debt; Lehman found out the hard way a few years ago. Much of the "security" consists of relatively illiquid assets, not to mention that much of the debt is unsecured. Sovereign debt is all unsecured and demonstrably cannot be repaid. If it can't be refinanced, then it will default.
    Oct 6, 2014. 08:30 AM | 2 Likes Like |Link to Comment
  • Gold Is Against The Ropes [View article]
    A great and thoughtful article which brought a great book to mind: "Extraordinary Popular Delusions and the Madness of Crowds" written by Charles Mackay in 1856 (?) which should be required reading for all investors as its lessons are as valid today as they were when the book was written.
    I hold (and do not trade) gold because I believe that the global financial system has passed a point of no return with mountains of debt that can never be repaid. It is my view that it is only a matter of time before enough people realize that this debt is greatly overvalued to start running for the exits, at which point liquidity will evaporate and that will collapse the international banking system. If I am correct, then whatever happens to the price of gold in the interim doesn't really matter.
    Oct 5, 2014. 04:56 PM | 3 Likes Like |Link to Comment
  • GLD - Why Gold Has No Footing [View article]
    I believe that those who anticipate runaway inflation and a weak dollar are wrong. I believe that the great danger is quite the opposite: deflation. I also believe that few, other than central bankers who clearly fear deflation more than anything else, have given much thought to this as a possible outcome and they should.
    In a deflation, cash becomes king and strong currencies get stronger as people anticipate lower prices. Once this gets going, repaying debts becomes increasingly onerous and defaults multiply. In such an environment, the obligations of others become suspect. People search for assets other than obligations of others and in this environment gold becomes attractive because of its liquidity.
    That is the real argument for holding gold.
    Sep 28, 2014. 08:56 PM | Likes Like |Link to Comment
  • Gold Headed Lower As Strong Dollar, Higher Interest Rates Loom [View article]
    Deflation is all about defaulting debt. It is not a new phenomenon, but one that is neither well understood nor appreciated today, probably because the last one was so long ago. It reminds me of the '70's when nobody (except Volker and Friedman)could understand why it was happening. Some espoused cost push and others demand pull. As it turned out it was a monetary phenomenon and was stopped dead with high interest rates. Unfortunately, low interest rates do not stop deflation; in fact nobody knows what stops deflation. I think the it just burns itself out - and, not incidentally, destroys the debt that was burdening the economy. It's not pleasant medicine, but it works.
    Sep 18, 2014. 06:18 PM | 1 Like Like |Link to Comment
  • Gold Headed Lower As Strong Dollar, Higher Interest Rates Loom [View article]
    It is possible (and I think likely) that deflation is what lies ahead and a stronger dollar is consistent with that view. That is because in a deflation cash increases in value based on the expected declines in the prices of goods and services. The big problem with deflation is that debt service becomes more onerous and, as a result, causes an increase in debt defaults. That, in turn, causes people to invest in assets that are not someone's debt and gold is, among other things, just that. Indeed, economic history shows that to be the case.
    Right now, investors think of gold as a hedge against inflation - as it was in the late '70's and early '80's - but now it is a hedge against the ravages of deflation.
    Sep 16, 2014. 08:19 PM | 1 Like Like |Link to Comment
  • Are There Any 'New' Catalysts To Cause Gold To Rally? [View article]
    The problem, as I see it is one of excess debt and excess debt is debt that can never be repaid. When there is excess debt, the usual reaction is to reduce its value through inflation. If that doesn't work, Mr. Market steps in and causes debt to default by refusing to refinance it. That process reduces the excess debt just as surely as inflation, but also causes a depression. The correct response to that is to devalue (depreciate is the correct word) the currency, but that is often difficult to do when everyone is trying to do the same thing. If you have a lot of gold as we do, then you can devalue against gold and those without gold cannot follow.
    My view is that the forces at work now will force us to return to a gold standard.
    Jun 7, 2014. 12:54 PM | Likes Like |Link to Comment
  • Are There Any 'New' Catalysts To Cause Gold To Rally? [View article]
    As you no doubt know, "money" is created by both the Fed and the banking system. Recently, the Fed has been creating like crazy and the banks have been destroying like crazy. As you also probably know, most of the "money" in the system is the result of bank lending and not Fed "printing". I would add that you can't look at the money supply without looking at velocity (which is near all time lows). Bottom line, there is no inflation now because there is little net money creation. That's why i believe deflation is more likely than inflation.
    Jun 3, 2014. 08:56 AM | Likes Like |Link to Comment
  • Are There Any 'New' Catalysts To Cause Gold To Rally? [View article]
    I beg to disagree. Two things happen in a deflation: the currency strengthens and gold rises - indeed in every deflation that I am aware of devaluation of the currency against gold was used as the way out of deflation. Indeed, devaluation used to refer to changing the gold value of the currency. Changing the value against other currencies was called depreciation.
    The reasons are simple: As prices fall currency buys more goods and services; debt becomes suspect as it is defaulting and gold is not someone else's debt.
    Jun 2, 2014. 11:53 AM | 1 Like Like |Link to Comment
  • Are There Any 'New' Catalysts To Cause Gold To Rally? [View article]
    The only reason for a sustained rise in gold will come from the financial markets and it will come in the form of an economic crisis. Stuff like what is going on in the Ukraine is not going to do it. Either we will have massive inflation or, in my opinion, more likely deflation. Either will send gold skyrocketing. The rest is just noise. The underlying issue is excessive levels of debt and the only way to reduce them is through inflation or deflation. Right now, we are waiting for "the straw that breaks the camel's back".
    Jun 1, 2014. 12:35 PM | 1 Like Like |Link to Comment
  • Do We Need A Catalyst For The Next Big Drop In Gold? [View article]
    I think that the correct question is what catalyst will make gold go up; two come to mind: inflation and deflation.

    Events, like Crimea, the Ukraine etc. are not likely to have long term interest. If you look over history, you will see that the real drivers behind gold prices are significant economic events. If the economies of the free world are functioning well even significant political events don't have much of an impact.

    To the extent that you are not concerned about the levels of debt in the free world, I can see no reason to hold gold; to the extent that you are then gold should be in your portfolio as insurance.
    May 18, 2014. 10:30 AM | Likes Like |Link to Comment
  • GLD: A Very Dangerous Set Up [View article]
    A study of history will show that there are periods of substantial appreciation against currency and long periods when it does not appreciate (and may fall) against currencies. Typically, the appreciation comes when a currency is no longer a store of value (e.g. during an inflation). The trick is to understanding the macroeconomics of the period. I would say that it is the only liquid asset that is not someone else's liability.
    May 5, 2014. 05:29 PM | 1 Like Like |Link to Comment
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