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Mark Humphrey

Mark Humphrey
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  • Are Central Banks Panicking? [View article]
    I dislike the common usage of "deflation", which is based on misconceptions about economics. Japan is cited as being trapped in deflation, because in the past couple decades, consumer prices occasionally dipped slightly into negative territory, though more often rose.

    The reason for Japan's (past) modest rate of price increases is that its M1 money supply has grown very modestly over the years, despite fevered BOJ efforts to inflate the monetary base. As a semi-capitalist economy, Japan's productivity has outstripped monetary inflation, leading to comparatively flat prices.

    In case anyone doesn't get this, flat or declining prices are a good thing, for anyone who eats, drives or requires more than air and sunlight to live. But Keynesian doctrine holds stable prices threaten "deflation", which simply means flagging consumption. For Keynesians imagine that consumption drives production, rather than the reverse.

    Deflation has an objective meaning, which is a contraction in the supply of money. What threatens deflation is the Keynesian prescription of constant monetary inflation, that causes titanic accumulation of debts that can't be paid, ubiquitous malinvestment, and silent consumption of capital goods. Money printing necessarily causes wealth destruction amidst debt formation, which threatens a monstrous financial crises soon, once again.

    When crisis arrives, thanks entirely to Keynesian crazies, we may get uncontrollable monetary deflation. I hope not.

    The way out is to junk the central banks, and phase in a free market monetary regime, probably similar to the gold coin standard of 19th century America.

    Keynesian doctrine, imposed by the state, completely dominates economic thinking. That's why America and most of the world are sailing into depression.
    Nov 22 03:48 PM | 1 Like Like |Link to Comment
  • It's Way Too Early To Write The Obituary Of Abeconomics [View article]
    Anyone who imagines that currency depreciation is the key to producing wealth is ignorant of and oblivious to reality.

    Monetary inflation destroys capital, as recipients of the new paper take goods out of the pool of production without replenishing production.

    It destroys capital through the "wealth effect", as households are lured into consuming rather than saving.

    It destroys capital by pumping up fictitious earnings, so that payment of taxes and dividends devours business wealth.

    It destroys capital through the inevitable cycle of destructive inflationary booms and busts, featuring massive mal-investment.

    It destroys capital by sending interest rates into the basement, so that interest income, once a major source of saving, evaporates.

    Keynesians are dismissive of the necessity of capital accumulation to economic progress, despite lip service to the contrary, because they believe consumption powers the economy. The height of ignorance is believing that consumption begets production, rather than the other way around.

    Japan is headed for a great tragedy.
    Nov 22 02:22 PM | 3 Likes Like |Link to Comment
  • Frontier Markets, With A Focus On Mongolia [View article]
    This is an illiquid penny stock with big exposure to China. I don't know if the hedge idea would work--I'm probably going for it--but the fact Mongolia Growth Group is selling below book doesn't reassure me. We all know the stock can get hit very hard if China sails into a crisis (which seems likely--look at the huge and prolonged slowdown in money supply growth rates, that is likely to usher in a bust there, even if they start inflating again soon.)

    In any case, whatever Mongolia Growth Group's prospects over the next two years, eventually I believe it will be worth much more. I wouldn't count on anything building from a road show, personally. I hope he concentrates instead on smart acquisitions and development, which he's good at.

    Meanwhile, long term puts on the USDCNY might work as a speculation.
    Nov 22 01:09 AM | Likes Like |Link to Comment
  • Are You Preparing For $10,000 Gold? [View article]
    This is an interesting article.

    I know nothing of Elliott Wave theory, except I'm skeptical, since I don't understand why it would be predictive. All I understand is support-resistance levels and a few classic chart patterns, all of which are suggestive, but not predictive.

    My take is to look for opportunities for big price changes in an asset, based on some understanding I have of future events that most other investors do not share. With a basic investment idea in mind, I then look at price charts, sentiment, divergences, etc. to get a feel for the state of investment demand in the immediate future. In my understanding, charts alone can't predict much about the future, since investor psychology changes with prices and in response to new events. But I want any small edge I can get in dealing with the unavoidable uncertainty that characterizes the short term.

    This article is interesting, naturally, because I agree with its basic outlook. I'm guessing after a rally soon, gold and probably the miners will fall to new lows. I hope to capitalize on any such decline, probably but not certainly, before year's end. I think we're getting pretty close to the bottom in gold and the peak in stocks. I think gold will increase 5 or 10 to 1, before the bull runs its course. I have assumed gold stocks will rise at least 1,000%.

    Since I'm no follower of Elliott Wave, I thought this congruence of outlooks was interesting. It is always encouraging to have one's views more or less affirmed by a successful trader.

    Thanks for the article.
    Nov 17 10:24 PM | 1 Like Like |Link to Comment
  • Gold Is On Trial And The Verdict Is Just A Few Days Away [View article]
    A global economy in severe distress is more likely to lift demand for gold than suppress it. Gold has an anti-complacency factor that motivates holders to hold, or to buy. When the economy disintegrates, counter parties always stagger or topple, which makes gold a safe haven.

    So the idea that gold is destined to drop until the dollar peaks, or until the next round of QE takes off, is not necessarily true. Complacency and trust in the notion that the central bankers have everything under control will crumble as signs of serious economic weakness appear. Which can happen suddenly.

    It's also possible that looming economic problems in Asia will pump gold demand from their investors, as they seek an alternative to real estate and stocks. The disintegration in Asia pushes the world in the direction of recession.

    It doesn't seem plausible that frightened western gold bugs will capitulate in a grand washout, at this point. Gold is the most hated asset among western investors, and the last three years have ushered many weak holders out of the market. I suspect there aren't many weak holders left to sell.

    On the other hand, the gold price short term is guesswork. If stocks were to power higher month after month, despite the end of QE and the five year slowdown in the rate of increase in M1, then the dollar would also rise in concert. Gold would get hammered even more than it has already.

    But we're near the end of the bull market in stocks, even without an immediate recession. When stocks get slammed, gold will rise and gold shorts will accelerate the process.

    So I'm guessing there may be some more downside, which, if it occurs, I'll try to capitalize on. But I don't think anyone knows at what point the market will stage a big turn.
    Nov 17 04:54 PM | Likes Like |Link to Comment
  • Frontier Markets, With A Focus On Mongolia [View article]
    I read the Economist article, that strikes me as realistic, rather than alarmist. Those guys can't resist printing money to fund Nirvana, which causes growing problems. It's so obvious to anyone who can think: don't print money.

    So it's no mystery why the currency is in tatters and why MGG suffers on account of currency depreciation. Harris Kupperman was crowing about the 8% mortgage fiasco a year ago, apparently not much worried about who had to pay for huge subsidies. Now we know the answer: MGG and other companies.

    I think tough times are in store for MGG for the next couple years, because the world seems to be nearing a recession. China, Japan and Asia are on the cusp; the US could tip over with not much warning sometime in the next 18 months, reflecting the five year slowdown in the growth rate of narrowly defined transactions money. Of course, I don't know this; I'm making a guess.

    Since China's headed into the soup, and Japan is dedicated to destroying its currency, it seems probable that the renminbi is likely to take a dive. China competes with Japan for export markets, so as the yen falls and China sinks deeper, renminbi depreciation is an obvious "solution" to politicians who "think" based on the range of the moment.

    So I'm looking into buying puts on renminbi to hedge my holding of MGG. I don't know if this is a good idea yet.
    Nov 17 12:31 PM | Likes Like |Link to Comment
  • Stability In Renminbi Offers An XXL Profit Opportunity [View article]
    You've got a good idea with puts on renmimbi selling cheap. I have a position in Mongolian Growth Group that will get hammered hard when China falls. So this may be a good hedge idea to investigate.

    The big issue discussions of currency trends overlook these days is purchasing power parity. Knowing what PPP is for the yen, for example, would greatly limit risk in shorting the yen. Since the more currency prices deviate from PPP, the stronger the market forces become that pull the currency price back to PPP.

    I started a project making a PPP estimate for the yen, but got hung up on statistical anomalies in International Financial Statistics, an IMF publication. I should resume this project this winter, I think.

    Thanks for your articles.
    Nov 15 11:24 PM | 1 Like Like |Link to Comment
  • D.R. Horton's Latest Quarter: Trouble Brewing Beneath The Surface [View article]
    "...so rigid in their beliefs that they can't change their thesis when the facts change."

    What facts have changed?

    Estimating the timing and speed of a house market rollover is necessarily approximate. The broader point is Americans can't afford more expensive or much more housing, because they can't afford today's house prices. As everyone knows, first time buyers have been reduced, both in numbers and impact on the house markets. Meanwhile, price sensitive investors have been leaving the scene, because the one time opportunity afforded by the downturn in prices has been eliminated.

    So looking ahead, what will boom new home demand while the existing homes market stagnates and slowly weakens? Improving prospects for home builders requires increasing real incomes, which are not increasing.

    Even with no recession in sight, there are macro risks for home builders. The most obvious risk, barring recession, is of rising interest rates. Everyone knows that this would cause serious problems for builders, leveraged as they are to speculation and growth.

    So the disagreements tend to reduce to one issue: are income prospects improving for house buyers, or deteriorating (due to capital destruction caused by rampant monetary inflation).

    Housing bears tend to see big macro problems looming, problems that are not understood or anticipated by most investors. Housing bulls tend to expect a return to economic normalcy, as the easy money recovery chugs onward. The difference mostly reflects opposing ideas about economics.
    Nov 15 09:38 PM | 1 Like Like |Link to Comment
  • Continental Resources' Harold Hamm - Not The First Billionaire Energy CEO To Boldly Remove His Hedges [View article]
    Everyone has known that the supply of oil has been increasing somewhat, due to the fracking and horizontal revolutions in the US and the return of production in Iraq and other middle eastern countries. I would think slightly rising supply would have been reflected in the oil price.

    This leads me to think the cause of the drop in oil has been weakening growth around the world, in China and Asia, Europe, South America and even the US.

    This also makes me wonder if the oil price drop is a signal of further US weakening that will lead into a recession before long.
    Nov 14 11:25 PM | Likes Like |Link to Comment
  • Republican Election Sweep Ties Fed's Hands, Stocks In Trouble [View instapost]
    At some point, probably within 6 months, stocks will get hit hard and public panic will ensue. Republicans in DC will not oppose the next round of Fed QE, whatever their rhetoric to the contrary in the past. To oppose rampant monetary inflation is to be seen as causing the next depression, which is what we'll get as soon as the Fed halts monetary inflating for very long.

    I'm not arguing for monetary inflation, rather that Republicans value their power more than truth and integrity. So it always is with people in politics.

    Republicans lie about plenty that is important, while Dems lie about everything, as a matter of principle.

    I voted for Republicans in this election.
    Nov 14 04:02 PM | Likes Like |Link to Comment
  • The 'Real' Reason Gold Will See $5000 [View article]
    You don't need huge amounts of statistics and a mainframe computer to track causation. In fact, it isn't possible to understand causation in economics and investing by reference to statistics, because statistical series are selected, put together, based on some idea, true or false, of causation.

    Price charts show the past; they can't provide more than highly tentative hints about the immediate price future. People forget that prices are the outcome of many millions of decisions made by people who often don't know what they'll do until they impulsively do it. The notion that the charts contain profound wisdom is nonsense. When one looks at a chart to decipher future price trends, one already has in mind the trend and then searches for confirmation in the charts.

    Fundamental thematic investing, in contrast, is based on anticipating a big change in demand or supply of some asset, based on facts already known to the analyst. In the case of gold, one such fact is that endless and uncontrolled money pumping necessarily leads to rising prices, and therefore deteriorating fiat currency utility. That's not difficult to grasp, but it's an out of favor idea these days that many ignore or misunderstand.

    If there is a dominant investment theme these days, it is the constancy of rampant money pumping by central banks around the world. It's not difficult to figure out that most investors at some point will stampede into gold to protect themselves from the consequences of mad hatter money printing.

    I don't have to study cycles to grasp that, for the present, gold is weak and that investment demand in western nations is low. Gold has fallen since 2011, because it rose without pause for a decade, rising 600%. The drop in gold mirrors the growing conviction that the Fed knows how to manage the economy successfully, that money printing miraculously grows wealth from thin air, and that therefore stocks will prosper virtually without end. Who needs gold?

    The end of gold's bear market will come fairly soon, because when stocks get clocked, confidence in the fed will wane, as they panic and flood the system will more confetti. Then mass psychology will change, almost overnight and gold will resume its bull trend.
    Nov 4 12:47 PM | Likes Like |Link to Comment
  • The 'Real' Reason Gold Will See $5000 [View article]
    Avi smirks at the Uninstructed, who concern themselves with causation in the world, for the purpose of understanding and anticipating changes in the price of gold and other investment assets. These people, the Instructed sneer, are "bugs", given to crawling mindlessly over hordes of shiny metal.

    The Instructed "know" that causation is myth; ideas and understanding are bunk. What matters is faith: in numerology, in "cycles", in other worldly hocus pocus.

    It doesn't seem to occur to Avi that one cannot prove the validity of a cycle or numerology by making predictions and then waiting to see if they're borne out. If he does know this, it doesn't give him pause. Why? Perhaps he feels incapable of explaining causation of big themes, which involves understanding complexity and uncertainty. Perhaps he hopes to eliminate uncertainty with gimmicks that promise unreasonable certainty.

    It is possible to make good guesses that anticipate large price changes, based on understanding economics and broad investment themes. When thinkers explain why large price trends will eventually happen, their understanding is not refuted by delays or retrenchments. The delays and retrenchments are caused by secondary factors, but the primary trend remains intact as long as the ideas that explain it are sound.

    If the primary trend fails, without room for doubt, then good ideas will explain what changed in the world, contrary to the ideas used to explain the primary trend.

    How then does one know if ideas are good or bad in thematic investing? By the soundness of the thinking, of the reasoning, offered in support of a proposed theme.

    Experimenting can't prove the validity of an idea in economics or investing, because, in contrast to a lab experiment in the physical sciences, there are far too many variables. One can only form an idea about broad future trends based on understanding and then pay attention to the theme.
    Nov 3 04:28 PM | 1 Like Like |Link to Comment
  • Could Amazon.com Have As Many As 1 Million Fire Phones Sitting In Storage? [View article]
    We might get another speculative run in stock averages, based on Q.E. from Japan.

    In the US, when the Fed buys (monetizes) bonds, it does so through primary dealers, that are non-banks owned by banks. When the Fed buys assets from non-banks, the purchase increases the supply of checking account money in the system, dollar for dollar. In contrast to U.S. commercial banks, non banks cannot place the sale receipts into excess reserves, because they don't maintain accounts with the Fed. So every bond purchase by the Fed instantly increases the supply of checking account money.

    However, when the BOJ monetizes bonds, it buys them directly from the commercial banks. The commercial banks have been depositing receipts from such bond sales into reserve accounts with the BOJ, rather than lending or investing them. In fact, the commercial banks there are steadily contracting credit to the private sector. I read that over the past year, the M1 money supply has only expanded by about 4% despite all the hoopla.

    The reason Japanese QE could run our stock markets higher, is because the yen is an attractive carry trade for financiers, in that interest rates there are at rock bottom and the yen is falling. So if they borrow yen from the reserve laden Japanese commercial banks, that newly created money will end up outside Japan, in places such as US stocks.

    Anyway, bringing this finally back to Amazon, if our stock market rips higher for a while on the Japanese fiasco, Amazon and other unraveling stories might get a lift. I think I'd add to my short if the stock hits $330.

    Since we're all entitled to occasional guesswork, mine is that Amazon falls apart when US stocks hit the wall. I'm also guessing we're not far from that juncture, despite the possibility that new money pumped out by the Japanese bank system could lift US stocks for a little while.
    Nov 2 02:51 PM | 1 Like Like |Link to Comment
  • Is Gold's Knockout Punch Coming? [View article]
    At some point, perhaps after we get through the next recession, or maybe sooner, long term rates will climb relentlessly. This will probably happen as the realization grows among investors that the so-called recovery consists of debt-ridden mal-investment in response to money printing. They'll realize that if they stop outrageous money printing, even as prices rise persistently, we'll slide into a depression.

    When this happens, T bond rates will soar amidst rising prices and a falling US dollar. Gold soared in the seventies when interest rates were high and rising. It will do so again before too long.
    Nov 1 03:08 PM | Likes Like |Link to Comment
  • Is Gold's Knockout Punch Coming? [View article]
    Whatever his lack of trading skills, Mr. Schiff is right about gold's long term prospects. I think Mr. DeLegge and others sneer at Peter Schiff, because they don't understand the bull market argument for gold. I make this claim with due respect for Mr. DeLegge's considerable trading expertise.

    My guess is that gold bears have difficulty accepting the bull argument for gold, because they're emotionally committed to false economics. Perhaps they hug orthodox economics, which is based on bankrupt Keynesian-ism, because they don't feel qualified to question and think carefully about ideas. I sense they believe that ideas are unimportant and really a waste of time. At least, that's the feeling I get, whether I'm right or wrong about this.

    The argument for gold's eventual and dramatic rise is strictly based on economic theory. The theory holds that endless money printing inevitably causes currency depreciation, which silently destroys capital investment even as it wrecks the store of value essential to the utility of any money.

    Gold is a kind of money that over the ages has been selected through the market process. Although governments have outlawed gold as legal tender nearly everywhere, it still attracts holders looking for precious metal and store of value reliability that paper currencies can't provide. This is particularly true in these days of insane and ruthless money pumping by central banks that has ushered in the latter days of the fiat money regime.

    The future is guaranteed to bring withering inflation and frightening busts. The inflation will eventually cause American and European investors to search for a safe store of value in a world of anemic or risky yields and chronically depreciating currencies. The busts will threaten various kinds of deposits as big institutions get toppled. Gold, however, is safe; it is an asset that is not simultaneously the liability of some heavily indebted counter party.

    Asian and Indian investors know this. American investors dislike gold, because to them it represents a threat to the absurd notion that the Fed and the federal government have "everything under control."

    We're definitely near the end of falling gold prices. Miners--literally the most hated investment in America--will have a huge rally when gold resumes its uptrend. I'm betting on that.
    Oct 31 02:47 AM | 8 Likes Like |Link to Comment
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