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Mark Humphrey

Mark Humphrey
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  • Can Gold Drop Below $1000? [View article]
    gelstretch, thanks for the suggestion. I'll have to find out what a debit spread is. I don't know options, but I need to figure out how to better limit risk, given huge potential for macro trouble.
    Apr 8 09:00 PM | Likes Like |Link to Comment
  • Can Gold Drop Below $1000? [View article]
    Quantum Profit, I don't want to start a big verbal brawl, but the fundamentals did not fail in the gold and silver markets. At the gold peak in early 2011, the supply of transactions money peaked too, at the same time. Michael Pollaro's favored money supply construct in Forbes online (my favorite too, as it happens) of TMS (True Money Supply) is the proper money concept. It excludes from counting components that are not money, that other M's include; and TMS includes in counting items of money that the M's exclude.

    My point is that using a proper measure of the money supply, gold peaked at the same time as TMS growth. But gold's demand is sensitive to accelerating increases in the supply of money, which is part of the reason it exploded from its low of $250 in 2000. Money supply growth exploded shortly after--the market was anticipating such an acceleration; and money supply growth decelerated starting at the time of gold's peak in beginning 2011. The transactions money supply growth continues to decline today, or at least is not speeding up.

    Possibly gold is anticipating another acceleration in money supply growth in the months and year or two ahead. There are clear reasons to expect a money supply acceleration in the US and Asia. The reasons tie into faltering and potentially slumping growth in the US and China, for which Fed ideologues have one universal cure-all.

    Gold investors in the US are aware of money supply trends; it's the basis for their bullishness. Chinese gold accumulators may not think this way, but when recession threatens, one can assume they want alternatives to crumbling real estate prices and drooping Chinese stocks.

    Most investors assume that the Fed's dramatic increase of the monetary base equates to monetary inflation, which they think should bull gold. But the increase in the monetary base has not translated into commensurate increases in the supply of transactions money.

    I don't claim to know if gold will have another downswing, before it marches higher. But if you and Avi can figure this out, more power to you.
    Apr 8 08:52 PM | 1 Like Like |Link to Comment
  • Final Estimate For Q1 2014 Revenue Growth [View article]
    Good article. I assume that most investors are unaware of the
    approaching revenue growth slump steming from the factors you've described. That's a helpful tactical advantage for increasing my short position a little.

    An aside: could you recommend a software program for creating economic and financial graphics from disparate data sources? I want to gauge sentiment indicators against security or commodity price indexes, economic stuff, securities stuff and so forth. I thought you might know.

    Thanks for your many excellent articles.
    Apr 8 08:13 PM | Likes Like |Link to Comment
  • Kocherlakota: FOMC moving too fast on taper [View news story]
    Help me understand. Aside from the obvious fact that the Fed is never, ever going to stop pumping trillions into new bank reserves, how could they possibly engineer a rise in the federal funds rate, supposedly in 2015? There are a trillion or so in excess reserves. So banks don't need to brorrow fed funds to meet reserve requirements. So the interest rate on fed funds, based on nearly zero demand, is nearly zero. If the Fed wants to administer a .5% fed funds rate, up from .25% today, then banks will stop borrowing and lending Fed funds altogether. It would be a meaningless interest rate that would no doubt cause other unforseen distortions.
    Apr 8 04:46 PM | Likes Like |Link to Comment
  • Can Gold Drop Below $1000? [View article]
    I don't intend any disrespect to EW or other technicians. I think short term moves in prices are, most of the time, unknowable. There are exceptions when particular setups ocur that seem quite probable, but these are unusual.

    I've been accumulating miners to a fairly hefty position (for me). Thankfully, some at prices below today's, but some well above. Last night, I had an ephipany of sorts, and decided that whatever the bullish case for gold, based on economic analysis, I'm over exposed to miners.

    So I cut back some today and more tomorrow. If the gold miners I sell move up without me, it's okay; I'm not selling at a loss. But if gold lurches into another down leg, I want to survive. Gold itself can't go bankrupt due to low prices, so I'm happy owning it. But miners are more risky and exposed to adversity. So I'm taking miner chips off the table.

    The reason I worry about a lurch lower is not only the length of the previous bull market--12 years--but also the slowing trend in money supply growth over the past four years. I happen to prefer using the TMS concept of money tracking published by Michael Pollaro in Forbes on-line. TMS excludes non-monetary components, such as certificate of deposits; yet includes stuff that the M's exclude that I think are money. So I like the TMS measure. It peaked following 2008 at a growth rate of 17.2% at the start of 2010. Today, four years later, the TMS is expanding at a rate of about 8%, a sizeable drop. Over this period, from 17.2% the rate shrank over the following year to about 12% before running back up to 14%+ at the beginning of 2011. At that point, the rate of TMS expansion steadily declined to its slower rate today.

    Even though the monetary base exploded by 400% since 2008, and continues to climb rapidly, TMS has less than doubled. Even though it is still expanding, the rate is declining; it's peak rate at the start of 2011 happens to coincide with the peak in the gold price. My guess is gold won't rebound strongly, until 1) TMS accelerates, or 2) the market anticipates that money supply growth is about to accelerate.

    So I'm cautious and pulling chips off the table, and for another reason as well. This will sound half baked. I worry about the possibility of a derivatives-banking crisis that blows up during a generlized slump, here and in Asia and Europe. We tend to assume that in a slump, the Fed will gallop to the rescue in time. But it's possible that the fed won't do enough soon enough to head of a panic that gathers momentum and finally contracts the money supply. Without permission from the monetary authorities.

    The reason I'm worried is mostly that I'm paranoid; but also, the fact that the peak money supply growth rate follwing the 2000 recession was over 20%. The peak growth follwing 2008 was about 17% and the rate has declined despite big oscillations for four years. The economy is suffering from decumulation of capital due to past episodes of inflating, taxing, regulating, and spending-borrowing. So it's more fragile. Therefore, as the growth rate of money declines, we're more likely to roll over into recession.

    To sustain the wealth destroying boom, the growth rate of 20%+ should have been topped this cycle. In other words, to prevent the wheels from flying off, money supply expansion must accelerate. But since 2000, after stripping away wild ups and downs, it has been de-celerating.

    That scares me. Since I don't know what the future holds and since I think monetary deflation is possible in principle, I think the miners are vulnerable to bankruptcy. If this happens, and I'm not saying it will, then after the deflation of money rolls across the landscape, the Fed will drop it from helicopters or drones and gold will soar again. I don't know if the miners would survive a deflation.

    So I want fewer miners in smaller quantities. Later, it may be too late to reduce my exposure. Gold, I'm happy to hold.
    Apr 7 08:44 PM | 1 Like Like |Link to Comment
  • U.S. Real Estate - All The News Is Bad [View article]
    There is no sure-fire, easy to look up, way to understand economics. The subject is fraught with controversy, because it is closely connected to politics. What I have to say is baeed on free market economic analysis, which is out of favor due to dominance of Keynesian doctrine everywhere.

    The dollar's devaluation is caused by supply and demand. The US central bank is dedicated to the systematic expansion of the money supply. Sometimes they engineer very rapid increases and other times decelerate; almost never does the money supply actually contract, even for a few months. So as the money supply increases, each dollar is worth less and so buys less.

    Real estate prices have been elevated above fundamental values for decades in the US, due to constant inflating of the money supply. The reason is buyers have been subsidized with artificially low interest rates and easy mortgages through GSA's like fanny mae and freddie mac, FHA loans, and so on. Mortgage interest rates have also been depressed artifically by the central bank buying trillions of mortgages to keep rates down. So real estate prices have been continually bid up due to inflation of the money supply and the supression-subsidization of mortgage rates. Because RE prices have mostly increased for many decades, buyers usually anticipate higher RE prices ahead, as though this were a law of nature.

    But there are fundamental changes afoot that could reduce real estate prices in the future. Real incomes are stagnating and declining across the country, which reduces effective demand from qualified buyers. Mortgage rates are low today, but are likely to rise. In fact, probably we're nearing the juncture at which rates will rise before too long, or the economy will slump back into recession.

    If rates rise, effective demand for real estate declines and prices slump. On the other hand, if rates do not rise, the reason is very likely to be another recession. Rates are likely to rise, because government deficits and money printing both increase profit margins throughout the eonomy (in ways that are unsustainable). Artificially high profit margins versus artifically low interest rates encourage borrowing by businesses, which tends to drive interest rates higher.

    I happen to believe that we're unlikely to see a substantial drop in real estate prices until the next recession. Others think a substantial drop is imminent, because Wall Street investment demand is drooping and first time buyers are unable to step up to the plate.

    For rental investment, it seems to me that the best approach is to buy whatever returns in excess of 10% net, or wait. My two bits.
    Mar 31 06:34 PM | 2 Likes Like |Link to Comment
  • IMF Deal Will Break Ukraine, Harm Global Stability [View article]
    Thanks Distressed Debt Investor for the helpful comment.
    Mar 30 04:27 PM | Likes Like |Link to Comment
  • IMF Deal Will Break Ukraine, Harm Global Stability [View article]
    Thank you for this interesting article.

    If the Ukrainian government or civil war combatants steal gas from pipelines delivering Gazprom gas to the EU, what can the Russian state do? Are the choices simply shut off the gas flow or invade/consolidate parts of the Ukraine? Are there other realistic possibilities that could send gas from Russia to the EU?

    Incidentally, not that it much matters, but what entities, political or commercial, "own" the pipelines?

    There is a solution to the problems in the Ukraine, but they won't recognize it as such. They could free up their markets, abolish legal restrictions to enterprise (including punitive taxation), while ending various and sundry subsidies. But the Ukrainians don't trust individual freedom, which they no doubt think of as exploitative. So they will suffer collectively for a long time. That's tragic.
    Mar 29 08:59 PM | 1 Like Like |Link to Comment
  • Rates Up, Fear Down: Washington Crossing Advisors Say 'Stay Away From Gold' [View article]
    Robert, there is a fallacy built into your view of gold. The fallacy is that gold is merely a pretty commodity that hidebound investors hoard, fearfully and irrationally.

    This is a fallacy, because gold is money. Its status and use as money has nothing to do with central bank buying, or official sanction, or legislation. Gold is money because people around the world have long prefered it, in spite of official displeasure.

    People don't use gold, mostly, as transactions money today, because that use has been outlawed. So they use it as a store of value, an essential monetary function that fiat currencies can never provide.

    Fiat currencies are in the later stages of destruction. This is because central banks are joined at the hip to spendthrift and bankrupt governments. Both institutions favor endless and ruthless money printing. The governments want money printing to pay for runaway spending and borrowing. The central bankers want money printing to "stimulate" false inflationary booms, in accordance with textbook Keynesian economics; and to bail out big banks when the bust arrives.

    So the supply continues to increase, at accelerating rates. This guarantees not only higher stock prices (until the next bust), but sooner or later much higher producer and consumer prices. Not to mention wholesale economic carnage, as the money printing leads to the consumption of capital.

    Ever rising prices will eventually lead to falling demand for depreciating dollars in the future. The fact that non-investment prices have not yet tripled, like stock prices, changes nothing. Prices are almost guaranteed to rise rudely at some point. When they do, people from around the world will respond to fiat money inflation by seeking an alternative store of value.

    Gold is the ideal store of value, because it has played this monetary role throughout history. That's because it is a "precious metal". Its above ground supply is tiny, compared to the demand that will explode as the fiat currency destruction advances.

    The idea that if gold goes down, then Keynesians and central planners have everything under control....well that idea is about to hit the skids. Keynesian central planners are deluded ideologues, and anti-gold bugs unfortunately share many of their delusions.
    Mar 29 01:36 AM | 6 Likes Like |Link to Comment
  • Blood In The Streets, It's Time To Buy Russia [View article]
    I see that political risk is a big deal; look at mines in Mexico that are targeted for trouble.

    But re gazprom and petrochemicals in general in the Russian situation, what's the source of outsized risk in this particular sector? Europe needs what gazprom sells and all the talk about US exporting gas to Europe is far fetched. What am I missing here? Thanks.
    Mar 28 03:59 PM | Likes Like |Link to Comment
  • Blood In The Streets, It's Time To Buy Russia [View article]
    I like your idea and I've had a limit order in for a few days to buy gazprom. Why not as opposed to the etf? Thanks.
    Mar 28 02:43 PM | Likes Like |Link to Comment
  • Forget Fleckenstein And 'Bearology,' Buy Stocks Now [View article]
    Morgan, no offense, but I suspect you don't understand Fleckenstein. But rather than quote Fleckenstein or risk misrepresenting him myself, I'll tell you why I like his outlook. Based on what I think.

    The economy has been hollowed out, having sustained long term damage from endless inflating, regulatory burdens, government spending that can never be reined in, heavy taxation, and so forth. The long term problem can be summarized under the heading: Capital Consumption. It is revealed indirectly by chronic joblessness, stagnant to falling real wages-incomes, and anemic investment in actual, real producer goods by business.

    The market for stocks and real estate has been bid way up over the last five years, but not because it's morning in America. The Fed's money pumping has pushed stocks and real estate up, simply because the first recipients of the money invest it vehicles they expect to gain from the gush of new money. There is nothing wrong with betting on this basis.

    But there's trouble ahead for stocks and real estate, because both markets are disconnected for the present from reality. For stocks, earnings-cash flow are real, except reported earnings are necessarily exaggerated by the consequences of money printing. Asset prices have soared, including of basic depreciable business assets, so depreciation/amortization is understated. Therefore, firms have no choice but to pay real taxes on fictitious profits, that after tax sometimes translate to (real) losses. Of course, the fiction built into earnings reports can't be reflected in studies of PE ratios. And in any event, after tax GAAP earnings are historically low compared to stock prices.

    Please don't bother to refute this last statement, because although I do think pe's are high, I'm too busy to spend time digging out charts and studies to back up my claim. Not that this particular point is unimportant.

    Anyway, stocks are elevated, apparently based on the idea that the economy is perking along on the pathway to "recovery", and with low interest rates guaranteed until after we've all become wealthy. But interest rates have been suppressed artificially by the money pumping. Either we're tilted toward a recession now--when it hits, it happens quickly--or the false inflationary boom has further to run. If we're nearing a recession, stocks are at risk. If we're not, then odds favor substantially higher long term rates. Neither possibility is reflected in today's stock prices. Either possibility is likely soon--this year.

    Meaning, we're well past the sweet spot in the Fed's money pumping mania. It's not that they'll stop printing--they'll U turn when stocks get hit hard. But the popular perception that money printing solves our problems is about to fall apart, as soon as the Fed tosses the Taper aside in a big hurry and presses pedal to the metal. Stock and bond investors will worry about why another crazy episode of money pumping is needed, if everything is really under control.

    I didn't reference any quantitative numbers to back up my theme, but I could. Here is just one. The TMS, a good measure of transactions money published by Michael Pollaro in Forbes on-line, has declined in its RATE OF INCREASE from 14% at the start of '11, to 8% today. This downward tendency is likely to be supported by the Taper--for as long as the Fed hangs in there. Falling rates of money growth over 3.25 years is significant and a red flag for stocks.

    Good luck with your efforts.
    Mar 28 12:10 AM | 1 Like Like |Link to Comment
  • The $127 Billion Market Asteroid [View article]
    Thanks to Paulo for another insightful article.

    Actually, available supply did increase in gold last year, thanks to the Bank of England. They sold about 1,000 tons, during which the price fell about $200.00. This supply driven drop encouraged another outflow from ETFs of 1200 or so tons. China bought the extra supply.

    Personally, I am grateful for anti-gold ideologues at the BOE and other central banks. They provide opportunity to buy gold at lower prices, that in a couple of years will probably be history.

    It might be the taper is taking its toll on stocks, since the market leaders, as Paulo has pointed out, are getting hit fairly hard. But I'm guessing the correction, when it comes, now or later, won't be brief or minor league. I think it will be a scary, gathering force that will make the Fed do a U-turn. I'm guessing the U turn will come after significant damage, not before; they've got this idea that the recovery is perking along, so tapering is therefore safe.

    When the Fed does its about face, they'll engineer another breathtaking, mad hatters' rally. Will that be a failing rally? If China tips into the soup, the renimbi will fall, as leveraged speculators rush to liquidate to pay off yen loans. If property prices are dropping, stocks are drooping, Chinese savers worried about the renimbi might buy more gold.
    Mar 26 09:21 PM | 2 Likes Like |Link to Comment
  • February Existing Home Sales Data Shows Accelerating Housing Market Contraction [View article]
    Tol sells big new homes to wealthy buyers. I'm wondering if the company might get hammered, assuming affluent buyers are smart enough to pull back when troubles brew. The troubles I refer to consist mainly of a stock market that's headed for a big fall--on the order of 25% or so--and interest rates that want to go up more than decline.

    Does this make sense?
    Mar 26 12:25 AM | 1 Like Like |Link to Comment
  • Detailed Case To Short The S&P 500: This Time Isn't Different [View article]
    A basic reason productivity cannot be measured directly is that there are hundreds of billions of kinds of goods and products and services of which no one can keep track. If the money supply were unchanged, then rising output would lead to falling prices, year after year. More and more goods would be transacted with the same number of dollars, with the result that each dollar would buy more goods each year.

    Falling prices would benefit workers with rising real incomes, though how much incomes and wages rose could be guessed at but not identified. Similarly, the increased volume of endless varieties of goods could only be guessed--never established. Even if monetary totals of sales could somehow be tabulated accurately, there would be no direct way to estimate and compare hours worked and products-services produced.

    So the idea that productivity is measureable is nonsense, even though government-Fed statistics cause people to assume otherwise.

    Since productivity is not directly measureable, one must pay attention to a larger issue. Namely, whether or not capital is being used up (or wasted) faster than businesses replace those depleting capital goods. To replace what they use or malinvest, businesses must achieve real earnings after taxes, not fictitious earnings after taxes. Then they must set aside earned wealth and invest it in real producer goods to completely replace and offset the silent ever-present consumption-deterioating of physical assets.

    One never reads about this issue, because economics is owned by Keynesians at present. Keynesians believe that consumer spending leads to the formation and accumulation of wealth, rather than the reverse. As such, they can't conceive of the pivotal role played by saving and investment. They pay lip service to saving (and "investment"), even as they decry the supposedly harmful effects of saving, which they describe as "leakage" from consumer spending. To Keynesians, consumer spending--including all the consumption entalied in every aspect of government spending--is the Holy Grail. They believe capital spending is a response to consumer spending, which is false. Capital spending arises from saving, which arises from derral of consumption.

    I point this out, because it bears directly on the issue of why capital is being consumed, productivity is falling, and incomes and wages going slowly downhill in real terms. This sounds like a wacko theory, only because famous publications and economists never discuss it. It doesn't get discussed, ebcause of profound misceonceptions embedded in Keynesianism, courtesy of which we have enjoyed bubbles and crashes and a disintegrating economy.
    Mar 25 01:07 AM | 1 Like Like |Link to Comment