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Mark Humphrey

Mark Humphrey
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  • 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
  • I Want Book Value: Annaly's Weakness Is Not The Dividend [View article]
    They should not buy shares to try to boost book value. They need to conserve cash and pay dividends. The only effective way to lift book is to make the assets more valuable by generating income. Financial engineering will only ruin a good company with smart management.
    Mar 16, 2015. 09:48 PM | 2 Likes Like |Link to Comment
  • Why I'm Buying Up Coal Stocks [View article]
    OK, stop, Paul TD. It's enough. This is not about your selfish insistence of thinking for yourself; it's bigger than all of us. It's about merging with consensus to become One with all of humanity. Hug:)

    Oh oh: More heartburn for warmers.
    Mar 12, 2015. 02:58 PM | 1 Like Like |Link to Comment
  • Retail Sales Slammed Again - Time To Short AMZN [View instapost]
    Dave, I read your report and it's helpful. Thanks.

    In your analysis of declining "free cash flow", you wrote it has been falling "over the last 3 years". That should read, the last 3 quarters, I think.

    I boosted my short about 15% today, not perfect timing, but at a price higher--I hope--than after they report. I've also read they've got troubles looming with tax liability in Europe and--if I recall correctly, also the US. In Europe especially, they've got a voracious appetite for taxes, so they're probably going to lose their tax case. If this is accurate, the tax problems could act as another catalyst to send the stock down. In addition to the big operating deficit that may be looming.
    Mar 12, 2015. 02:40 PM | Likes Like |Link to Comment
  • Gold Is On Life Support: 5 Reasons Gold Is Going Lower [View article]
    The Fed is trapped, right now.

    They have ramped up bank reserves since 2008 by 500%, base money that in the future will fund a tremendous credit expansion and ruinous price inflation. They inflated the monetary base, because they "had to" bail out the big banks (staggered by losses from the previous inflationary boom). The Big Idea from the Fed is: we're chugging toward normal recovery.

    Investors mostly buy this, so they buy stocks. They believe everything's OK: the Fed has their back, and it knows what to do. Everything's under control, and progressing about as planned by the monetary politburo.

    If the economy really were healing under the Fed program of radical monetary debasement, the Fed would not be trapped. But the economy is not healing; it is being hollowed out--capital is getting consumed, silently and without headlines.

    When the economy rolls over, as it will soon, the false narrative about Morning in America (and Ben, Thank You!!) will evaporate in about one week. Since everyone is heavily long in a crowded trade, when investors realize the Fed's program has failed, they'll be exposed to panicked markets.

    The markets will panic, because an imminent recession isn't part of the Fed's program. They'll figure out that if the economy is rolling over after a 500% ballooning of the monetary base, that much more such money pumping is in store with little hope of stable prices or prosperity.

    All of the basics for this development are in place. Investors haven't figured it out yet. So the Fed is trapped.
    Mar 10, 2015. 12:14 AM | 2 Likes Like |Link to Comment
  • Gold Is On Life Support: 5 Reasons Gold Is Going Lower [View article]
    As gold's price has dropped for a few years and stuttered around 1100 to 1200, bearish articles about gold seem to have gradually increased. But the time to sell something short is when it's high and demand is hot, not when it's much lower and the hot money has long departed.

    At some time, not too far in the future, the dynamics of demand for gold will shift suddenly. This isn't a brave prediction; it seems fairly obvious.

    The hypothetical shift will happen when US markets get stress tested by fears of recession and fears of a downward spiral in stocks. Since there are lots of signs the US economy is slowly rolling over, as commodities slump and real estate demand gently drops, it will be difficult for the Fed to lift short term interest rates. If they do, they'll have to reverse course in a hurry, after a minimal increase, because the stock market will swoon and the economy will act up.

    Then, as some famous smart guys have opined, investors will realize--all in about one week--that the Fed is trapped, since they'll have to resume destructive monetary debasement with a vengeance. And this, after all the official cheer leading about normal recovery underway.

    If the Fed is trapped--it is already, but investors don't get this--stocks will suffer, the dollar will fall sharply, and gold will get wings. It's likely this broad shift in psychology will occur quickly. Gold is a scarce commodity that could ramp higher overnight, once any such shift takes place.

    Meanwhile, maybe gold is headed for $1,100 or just possibly as low as $1,000. Or not. But it's a good bet that upside potential is much bigger than downside risk.
    Mar 9, 2015. 06:48 PM | 3 Likes Like |Link to Comment
  • Why I'm Buying Up Coal Stocks [View article]
    I not an anarchist; I'm an advocate of minimal government, a nightwatchman government.

    Theft, including by taxation, is wrong. Taxation is wrong, despite majority vote, or Congressional approval, or huzzahs from the politicians on the Supreme Court. For the moral character of an action is not altered by the identity of the actor.

    "It is how science tries its best to give humankind the best and most objective information possible." No it isn't, because the "peer reviewed research" you admire is virtually all government "directed" research: funded with tax money, subjected to the perverse incentives of political herding, and organized around the principle of promoting political ends. Anyone who looks up to "peer reviewed research, when the peers are all agents of the state, bought and paid for, is sleepwalking.

    Please recall the peer reviewed research regarding biological evolution in the Soviet Union, which endorsed the strange ideas of Stalin's favorite, Lysenko. In the USSR, criticism of state approved "science" was prohibited. In the USA, it is still permitted, although critics and dissenters are punished and sometimes even persecuted in various ways.

    I don't mind being lumped in with Faked Moon Landing adherents. The photos on NASA's website were obviously shot in a studio. I don't know if they landed anyone on the Moon and don't care.

    But please do not lump me together with anarchists, who are lost in space.
    Mar 2, 2015. 08:23 PM | Likes Like |Link to Comment
  • January New Home Sales: Small Bounce To Be Followed By Bigger Decline [View article]
    Thanks for a good article Dave. Insightful analysis, as always.
    Mar 2, 2015. 07:55 PM | 1 Like Like |Link to Comment
  • Why Amazon's Recent Sales Deceleration Is Not The Full Story [View article]
    The claim that amazon's revenue growth is understated by its accounting for 3P sales is flawed, I think. The hypothetical 90% of 3P sales that Amazon excludes from its revenue is actually revenue to its clients, not to Amazon. If Amazon were to include 100% of revenues generated in behalf of its clients in Amazon's revenue total, then that total would be grossly exaggerated.

    Stock brokerages could also hype their revenues, by posting gross stock sales as "revenues", rather than commissions. Are revenues-growth of stock brokerage houses thereby understated?

    Amazon's revenue growth is slowing and the behemoth cannot make money. Wait til the next recession reduces revenues further, and until Fed money pumping eventually results in soaring merchandize prices. Then Amazon's losses will threaten the company's future.
    Mar 2, 2015. 07:43 PM | 6 Likes Like |Link to Comment