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Mark Humphrey

Mark Humphrey
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  • 'The U.S. Is Broke' [View article]
    The government is different from the rest of us, because government workers and the political class all use coercion to achieve whatever they think they're supposed to be doing. The rest of us do not resort to force in the process of earning a living or achieving other goals and if we did, we'd probably wind up in court. But for the political class that is the government, such behavior is routine and unremarkable.

    It's good that most people don't resort to force, imitating government agencies and players, because civilization requires peaceful cooperation based on the natural harmony of interests that obtains when reasonable people are free to choose. If the rest of us ran around stealing and worse, society would collapse. Who would pay then for the extravagance and vice that characterizes big government spending?

    With that said, it is true that, in the broadest sense, (most) people get the government they deserve. Ours is predatory in many respects, because people approve of programs that they think enable them to live, or accumulate riches, at the expense of others. And there are plenty of psychopaths who crave the power to impose their vision for humanity by the force of the state. So when people become corrupt, the government they sanction reflects their ethos.
    Apr 16, 2015. 06:38 PM | 2 Likes Like |Link to Comment
  • The Housing Market: Myth Vs. Reality [View article]
    Home builder shorts are a good bet on a steadily deteriorating economy that at some point will fall into a recession. They're also a bet on a general stock market decline, which will not only pull down all stocks, but will reduce demand from home buyers. Meanwhile, as Dave points out, builder PEs, debt and inventory levels are higher than in 2006!

    House prices have been bid to artificial heights by huge Fed intervention and a shadow inventory withheld from the market. As this thing rolls over, the shadow inventory will grow once again. At some point, banks will have to unload defaulted homes for reasons that can't be evaded forever.

    When the stock market drops, it will crash amidst angst and chaos. Home builders will be in danger of bankruptcy.
    Apr 12, 2015. 10:34 PM | 1 Like Like |Link to Comment
  • The Housing Market: Myth Vs. Reality [View article]
    Thiazole, regarding your comment above disparaging Dave's advice, I have a question. Did you foresee and act on the idea in 2007 that the housing boom was headed for a huge bust?

    I'll bet Dave did.
    Apr 12, 2015. 10:21 PM | 2 Likes Like |Link to Comment
  • The Housing Market: Myth Vs. Reality [View article]
    It's supply and demand on the way up, and also on the way back down.

    Your comment reminds me of an investment banker in the late eighties who was peddling Japanese real estate. I told him it was a bubble headed for a bust. He responded, by way of rebuttal, "Supply and demand".
    Apr 12, 2015. 10:18 PM | 2 Likes Like |Link to Comment
  • The Housing Market: Myth Vs. Reality [View article]
    "As for the Fed 'pumping up' anything, this is largely a myth."

    Have you checked stock, bond and real estate prices since 2009?
    Apr 12, 2015. 10:15 PM | 4 Likes Like |Link to Comment
  • The Housing Market: Myth Vs. Reality [View article]
    Dave, thanks for your masterful review of the disintegrating fundamentals of today's house markets. You described how the market has been shocked by Fed intervention into a dead cat bounce, while home ownership rates continue to fall.

    "But p/e ratios now are higher than they were for the builder stocks in 2005/2006. Debt and inventory levels are also higher now for most builders than they were when the bubble peaked. This is especially true in relation unit sales levels, which are about one-third of what they were at the peak."

    Wow. Glad I'm short.
    Apr 12, 2015. 10:11 PM | 1 Like Like |Link to Comment
  • 'The U.S. Is Broke' [View article]
    Ok, Shareholders Unite! is correct about this. The government's not broke and not going to be. So we can all keep paying big taxes and be cheerful about the Fed's inflating away what's left of the dollar.

    Meanwhile, though certainly not broke and never gonna be, Social Security is running a 45 billion deficit this year. Of course, in the great scheme of Keynesian Planning, 45 B's chump change--plenty more where that came from. It's more than possible--meaning inevitable--that the 45 B red ink in the great FDR legacy program, borrowed from Germany's Bismark, is headed for default, due to ever worsening demographics and 5th grade arithmetic. But "default"--that's the D word, never to be uttered in polite company.

    Medicare, according to my 5th grade math skills, is much larger than social security. It too is headed for "default", but only in the sense that bills presented will not get paid. Otherwise, it's A-OK: government workers will keep their jobs, and politicians can keep spending and reelecting. Really, all that's required is to consult Keynes or Samuelson or Krugman. They'll tell us the great welfare-warfare state is healthy and destined to live forever, and enough with all this mean spirited talk.

    Because wise Keynesians know they can print money to pay all the bills, and meanwhile, even impose new programs, forever! They can pour other people's money around like free water and the cows will keep milking, the milk will keep flowing, and no problem! Like no problems so far, right?

    Yes, there is a problem. Printing money impoverishes business and households, for reasons I won't bother to elaborate. At some point, we'll get a huge financial crisis that might get away from the Fed and cause toppling dominoes and monetary deflation, that usher in a depression. Or, the Keynesians that own the Fed might devise a scheme to force banks to lend via negative rates on reserves, thereby causing a huge wave of credit expansion and soaring wholesale and consumer prices. Either way, the default of the federal government will happen and the welfare-warfare state will get toppled--together with lots of Keynesian "economists" who don't think and couldn't if they had to.
    Apr 9, 2015. 05:04 PM | 5 Likes Like |Link to Comment
  • IBM's Internet Of Things Initiative Illustrates Its Bind [View article]
    I got lucky and shorted IBM over $190. I'd read an analysis stating their business was becoming obsolete due to the cloud, and they were eating their seed corn with dividends and buy backs that they borrowed to fund. The analysis was by the fellow that ran money for Soros. Also, tangible book is and was negative. Also their growth market was China--headed into the ditch--with big exposure to Europe. And they've managed to accumulate a fair amount of debt.

    So that's the extent of most of what I've known--certainly not much. So I got lucky.

    I'm guessing they're headed for real trouble, if we're on the cusp of a recession, as weakening indicators suggest (to me). We've had 6 years of turgid recovery and every boom ends in bust. So the boom's aged and the bust's getting closer.

    Nothing is forever and no company continues as a going enterprise indefinitely. Maybe this is a good time to bail, although I'm hoping for a rally back to 180, which would close the big gap on the price chart.
    Apr 8, 2015. 09:22 PM | Likes Like |Link to Comment
  • Understanding Fluctuations In The High Yield Bond Market And The Impact On The S&P [View article]
    Real estate demand and prices appear to be slowly topping out, while oil and a host of other commodities have fallen. That spells trouble ahead, or seems to, because it is consistent with a looming recession.

    The false boom spurred by central bank money pumping and fractional reserve bank credit expansion only runs on increasing rates of money supply growth. When the money supply first undergoes a big acceleration, revenues of capital intensive ventures ramp up in response to suppressed interest rates and burgeoning supplies of new money. But costs have to rise also, with a historical lag.

    When money growth stops increasing, revenue growth among boom industries slows and becomes stagnant, even as costs--based on past money printing--keep going up. So margins deteriorate. This causes capital intensive firms to pull back, restricting somewhat purchases of inputs needed to make what they sell, and canceling or postponing expansion plans. So revenues in the capital goods sector decline more again, which leads to sector losses and the recession.

    The behavior of commodity price declines and the possibility that the real estate sector is rolling over are both consistent with this theme. So is the decline in wholesale buying and factory orders. Meanwhile, money supply growth has declined a lot from 2009, when it peaked at about 16% to roughly 8.5% today.

    Money supply growth was lower--around 7.5%--but bank lending increased which inflates checking account money. Now the question stands: will credit expansion take over promoting money growth from the Fed, which has temporarily chosen to stand aside? Or is the increase in bank lending a temporary response to funding inventory growth in the midst of stagnant sales growth throughout the economy?

    My guess is the latter--we're tilted toward a recession. In which case the behavior of high yield bonds is instructive and stocks are at risk. Incidentally, if a recession is approaching, the dollar's big bull market is probably coming to an end soon, if it hasn't already.
    Mar 22, 2015. 02:38 PM | Likes Like |Link to Comment
  • How Scary Is The Bond Market? [View article]
    Well, you haven't addressed the problems I raised concerning contradictions in the definition.

    You choose not to think about this, but people who think value truth and understanding will see the problems.
    Mar 21, 2015. 01:50 AM | Likes Like |Link to Comment
  • How Scary Is The Bond Market? [View article]
    So again, you define inflation as "rising prices". Deflation as "falling prices". So by this "definition", which by the way is subjective, we have inflation and deflation at the same time. Some prices rising, some falling. This is incoherent.

    Today, "deflation" means, in the vaguest way, not only "falling prices", but economic weakness. This is why the Fed and its fans all worry about the alleged "danger" of "deflation" and the imaginary Keynesian "liquidity trap" that endless money printing is supposed to prevent. Therefore, summarizing, "deflation" is defined by contemporary economists and their followers as falling prices due to economic weakness.

    But this "definition" is wrapped around ANOTHER CONTRADICTION, from US economic history. In the 19th century, economic progress was blasting along, output was increasing by leaps and bounds most years, and yet....prices were gently falling, year after year.

    So great and growing PROSPERITY was joined with generally FALLING PRICES that endowed Americans with rising real incomes and wages. Is this "deflation"? IF it IS deflation by your definition, then it is so by virtue of the fact that prices generally fell, year after year, for decades. But then "deflation" as popularly defined is incorrect, since this historical event was characterized by economic prosperity, not depression. But if the experience in the 19th century US was NOT deflation, then deflation as currently "defined" is incorrect, because prices were falling!

    In short, the definition of deflation used by contemporary economists is false, doesn't describe the essence of deflation. There can be falling prices because of economic weakness, as the demand for money to hold goes up, i.e. as velocity falls. There can be falling prices because of growing productivity, in which output expands faster than the money supply expands. There can be falling commodity prices versus rising stock prices; consumer prices that rise for several years and then stop rising or even fall briefly, depending on the ARBITRARY MEANS of constructing various consumer and wholesale price indexes used by bureaucrats in the Department of Labor. Which do we have in these and endless other cases of mixed price signals: inflation or deflation. Or both at once?

    (The arbitrariness of the construction of price indexes, none of which can ever faithfully represent billions of prices paid by billions of people---this is one more reason that defining inflation-deflation by price behavior is arbitrary, and therefore non-objective.)

    To anyone willing to think honestly about this, contemporary definitions of inflation and deflation are false. They're false, because they do not identify the distinguishing characteristic of the concepts. They can't identify the distinguishing characteristic of the two concepts, because contemporary economics is hopelessly confused about the consequences of inflation.

    Inflation is an increase in the supply of money; deflation is a decrease in the supply of money. Both events produce specific and understandable effects, only one of which--and not the most important--is rising or falling prices. There is no contradiction inherent in this definition--none.

    People will reject this reasoning, not because it isn't sound, but because they don't want to have to rethink comforting suppositions about economic theory and the bankruptcy of Keynesian doctrine. In fact, that's why tempers will tantrum and and insults will fly over what ought to be a reasonable discussion about contradictions that never get acknowledged by the economics guild. But that's a subject for another day.
    Mar 21, 2015. 12:36 AM | Likes Like |Link to Comment
  • How Scary Is The Bond Market? [View article]
    But that definition is subjective: "too little". How to measure too little versus enough? Definitions are supposed to be objective--an objective description of the defining characteristics of an entity.

    Moreover, your definition lacks precision. "..too little money chasing too many goods"...for what? too little and too many for what objective, exactly?

    Similarly, the popular definition of "inflation", rising prices, is wrong. Some prices rise and other prices fall. Is that "inflation"? Stock prices rise and oil prices slump: deflation or inflation?

    Properly defined, deflation is a contraction in the supply of transactions money. Inflation is an expansion in the supply of money.

    The consequences of inflation include, but are not restricted to, generally rising prices. Other consequences include false wealth destroying booms, capital consumption and fictitious earnings.

    The consequences of deflation include falling prices across the board and other effects, including a wrenching economic adjustment, a depression, provided the deflation was proceeded by inflation.

    The popular fuzzy non-definitions of these terms reflect widespread confusion about economics. I'm not out to reprimand anyone about this, but it's a peeve of mine.
    Mar 20, 2015. 03:04 PM | Likes Like |Link to Comment
  • How Scary Is The Bond Market? [View article]
    Well then, define "deflation" please.
    Mar 19, 2015. 11:54 PM | Likes Like |Link to Comment
  • How Scary Is The Bond Market? [View article]
    How can you have "global deflation" when the supply of money around the world is rising? In the US, M1 has doubled since 2008!

    Obviously, some prices can fall and others rise, when the economy is stagnant, as in the US and other developed countries today. Singling out the prices that have fallen, and terming this "deflation" is incoherent. Deflation used in this sense is a concept without a definition.

    If we ever get deflation, it will be a contraction in the supply of money, not stagnation associated with monetary inflation. If we get actual deflation, you won't need to write about it. Everyone will know, because the world will sink into a cataclysmic depression accompanied by falling prices across the board.
    Mar 18, 2015. 08:10 PM | Likes Like |Link to Comment
  • 'The U.S. Is Broke' [View article]
    It doesn't take much intelligence to understand that the US government is broke and that a huge default is coming.

    Growth in entitlements and pensions will accelerate as boomers retire. So galloping government spending will force much higher, year after year, two elements of state funding: on-the-books borrowing, to pay for the checks they issue; and money printing, to pay the growing portion of spending that can't be covered by tax receipts.

    Meanwhile, the economy will inevitably stagnate and decline, because of the choke hold the federal government imposes on enterprise. Welfare-warfare spending directly eats up scarce capital goods as it balloons consumption, so productive output falls. Falling saving-investment-output makes for falling real incomes (Say's Law) and declining tax receipts. Money printing also bloats consumption and erodes saving/capital formation, in various ways.

    So the economy will flounder and shrink, even as entitlements soar. It's not possible for the growing debt and promises to be paid, other than pennies on the dollar. As they inflate the money supply, they'll further damage what remains of productive activity and prices and interest rates will rise. This trend will threaten the entire financial system--there are no mortgages in Banana Republics--so the Fed will be forced one day to end its money printing.

    Then the default will commence, both as to entitlement promises and on-the-books debt.

    There is a solution to this terrible mess: slash government powers and spending by 98%; junk the Federal Reserve System; and sell off Federal lands to private buyers, who will put those land assets to productive use.

    Anyone with common sense willing to think about this could easily get that Americans would prosper. Dedicated Keynesians don't care about freedom and prosperity for Americans. They want power over other people and unquestioning obediance.
    Mar 18, 2015. 07:57 PM | 1 Like Like |Link to Comment