E.D.Hart's Comments

Three Solid Investment Themes

Fri, 29 May 2009 20:58:09 -0400

Regarding our current maelstrom, I hear a lot of comparisons to the 30s, and also to Wiemar Germany, as well as to Japan in the 90's.

Less often stated until very recently is the comparison of our malady to the US in the 70's and its stagflation--lower growth, and higher inflation. Is it just me, or does it seem more likely than not that we will have some level of lower growth and higher inflation going forward, although we know not the extent to which.

Therefore, it might be prudent to position ones portfolio toward those plays that worked in the 70's---energy, gold, and oil service stocks.

I agree with Dr. Leeb and his three themes--inflation protection (gold/silver), energy, and international diversification. This seems to be just common sense. But not necessarily commonly believed.

7 Signs of an Economic Bottom

Wed, 25 Feb 2009 23:05:55 -0500

A couple of points: there is no country in the world with lazzi-faire capitalism. Neither did Adam Smith advocate for it, as the concept of lazzi-fare was after S
Smith, not part of his theories.

As for evolution: there is little logical connection between what happens in the natural world, and ethical theories of right and wrong. The fact that chimps wage war on other tribes of chimps, or that some bears eat the cubs of sows to re impregnate the mother, or that some animals engage in homosexual sex has no bearing on what SHOULD be the case for humans. (Slavery makes sense under evolutionary ethics).

Finally, if socialism means redistribution of wealth then we have a socialized military, socialized education, and a socialized police force. Also, if socialism means the redistribution of wealth then some of the richest people on the planet are the largest socialists: Gates, Buffet, Soros for example advocate for paying taxes to pay for programs like education that help build our nation. THe uberr rich are the biggest socialists by the aforementioned definition.

A country that lived by evolutionary rules--this would be called anarchy.

Cramer's Lightning Round - Johnson & Johnson 'Is' America

Wed, 25 Feb 2009 17:08:54 -0500

Why does Cramer even have a job? Are we so shallow as a nation that investing requires an entertainment channel? Wait, never mind, I know the answer to that one.

Bearish on SLW--because gold is the metal of choice? This isnt logical--gold and silver are highly correlated (although silver is clearly more of an industrial metal) . Both benefit from investment demand.

The total gold market is around 3 trillion, and the total silver market is around 14 billion. Guess which one moves the farthest to incremental investment demand?

SLW is also very undervalued, with little debt, and low operational risk.
Long: SLW

Waiting for Inflation? It May Take Awhile

Wed, 25 Feb 2009 16:26:17 -0500

There is much truth in your article, but I think that a previous response has a good point--its not just money supply but money supply plus velocity. When velocity picks up, inflation should pick up

Also, because Japanese debt bubble popped during a time of booming markets elsewhere...Japans experience may not be the best analogy. Todays debt crisis is global ---and global liquidity is being ramped up simultaneously.

Finally, I think you may have the causal relationship reversed between slack and liquidity:
"Looking further into the relationship we find that output gaps lead to disinflation and when the economy is producing more than potential estimates, inflation follows."
It seems more likely that falling money supply leads to output gaps, and that aggregate money supply growth plus velocity acceleration (inflation) leads to a pickup in economic activity.

Correlation is not causation.

Why Citi's Failure Costs More than Saving It Does

Wed, 25 Feb 2009 15:45:55 -0500

An analogy is that it costs less put out the fire of a burning building than it does to let it burn to the ground.

GM we might let fail because failure of GM wont start a global bonfire.

Letting Citi fail is akin to letting a citiblock burn to the ground and then spread to other blocks, throughout the cirty...except in this case the city is global banking and credit institutions.

The government is not communist...they are trying to prevent this fire from spreading further than it already has. Let them fail sounds great, and makes great sound bites...and is ideologically consistent with free market capitalism...but it is utterly pragmatic.

If my neighbors kid is playing with matches under his porch and the kid sets the house on fire...by golly I want to help put that fire out even though this might be a moral hazard issue (darn that kid..lets teach that family a lesson!!!)

Enlightened self interest if nothing else compels me to do whatever it takes to put out that fire...if I think my house could catch fire too.

Gold: How Long Will the Bull Market Last?

Wed, 25 Feb 2009 02:54:36 -0500

The media constantly cite the $2200 or so that gold may return to on an inflation adjusted basis...but this is using a bogus government supplied cpi index that vastly under reports inflation. Realistically, using constant methodology in inflation calculation, gold will return to 4200 and beyond. I believe that the author may be on to something since prices often over shoot on the down side and the upside.
Long physical gold, and long UXG.

Silver Trust Adds 420 Tonnes to Its Stash

Wed, 25 Feb 2009 02:37:25 -0500

Silver dropped today because it was a hedge against market uncertainty--as confidence and buying returned to the markets, some of that money drained out of silver. For me, Im long silver and silver stocks and wait until DOW 6000 until I begin to put money back to work in traditional blue chips.
Long silver, Long SLW.

Does Friday's CPI Report Mark an Inflection Point?

Mon, 23 Feb 2009 13:23:54 -0500

In the future there is a real risk that the price of crude will be priced in gold, as well as dollars. There will be those cocuntries that find it too volatile and risky to hold dollars to pay for imports of critical materails, and begin to funnel more of there reserves and trade balances into gold for the sake of trade. This can be done with gold backed derivitives and need not entail direct deleivery of gold.

As a consequence, the dollar runs the risk of plummeting anew. Yes folks, no one knows what the future holds, but surely this is a risk to consider. Then we will be staring at higher rates and higher inflation--stagflation is indeed a real threat.

Producer Price Inflation Is Not Dead

Mon, 23 Feb 2009 13:14:18 -0500

TIPS for inflation protection relies on official government inflation numbers which are not accurate indicators of true inflation. I wouldn't trust the government to issue a bond to protect me from inflation that gov. has created...would you?

A better bet would be some of the MLP's that raise rates at % higher than inflation. Yes, more volatility, but higher returns are baked in. Nothing is risk free, not even TIPS, but I like my chance better with GDX, and MLPs for long term inflation protection.

Richard Russell: Bear Market Remains in Force

Mon, 23 Feb 2009 13:01:02 -0500

Jimbo,
Thanks for responding--as a proud teacher, libertarian, and history/literature buff, I can tell you with absolute confidence gained from experience that sarcasm is a very offensive weapon (both senses of the word intended) .

Mark Twain, Shakespeare, et. al. Sarcasm is great stuff. I fully expect to get way more negative hits than positive, but so what? It actually puts the other person on the defensive---and every so often stimulated more thinking than a straight argument.

So, there you go, I couldn't disagree more. I abhor hypocrisy, and sarcasm seems one way to get people to think about it where they wouldn't otherwise.

Rick Santelli's Rant: A Response

Mon, 23 Feb 2009 12:49:05 -0500

How many of you want higher taxes in the future to pay for Iraq Fiasco? its the same argument...we pay for war through higher taxes down the road...where were the howls of protest from the right about helping the iraqis have a better lifem and freedom at the cost of 2-3 trillion dollars. Where was Ricks protest? Its the same thing...big conservative government and big liberal government leads down the same road. Id like the conservatives to come clean and admit that some of them have been a big part of the problem---and look honestly at how to handle thee problems we have. About Iraq, people say, well were there, we shouldnt look back-we need to move forward. Doesnt the same thinking apply with the fiancial crisis? We are here, lets move forward, it does no good to point fingers (except to learn from our mistakes). Im a small government libertarian, but if you ask me, Rick is a Hypocrit with a capital H.

No Gold Bubble

Mon, 23 Feb 2009 12:32:02 -0500

I agree with most of what you say, except the part about silver. I expect slver to rally more than gold as economic activity picks up minimally. Silver does indeed have monetary characteristics.

Gold: The Investment Bedrock of Monetary Systems

Sun, 22 Feb 2009 22:21:11 -0500

Well done, I agreed with 99% of what you said, and it was convincing and well researched. Nice article proving the benefits of owning gold and shares of companies that mine it.

Richard Russell: Bear Market Remains in Force

Sun, 22 Feb 2009 22:01:59 -0500

It is best to keep most political discussion out of economic discussion...but because the current crisis is partly the result of politicians...lets go hunting for people to blame. (also because of some previous posts)

1) Obama the Socialist---this is a good one. Wasnt it the bailout of Wallstreet banks (socialsm) proposed by the other guy that was in that big house for 8 years?

2) Taxes = bad = confiscation= socialism. This is some good critical thinking. So when we fight two wars, one of them unnessary, triple the nations balance sheet debt, and cut taxes, this is smart money management right? Taxes are bad, but debt that drives up taxes in the future is good? Taxes are bad, but massive war spending, medicare spending, and wall street bailout spending is good?

I dont know, but it almost seems like taxes and spending are, like somehow, ahhh, related.....

3) The best course of action would be no taxes--then we could default on our debts, and go back to bartering, hunter gathering, and anarchy---the only real freedom. Ill be happy then because their wont be evil taxes and evil government.

4) Clearly the answers are keep lowering taxes, until you run out of ideas (oops, aready there) keep talking about the F word ()"Freedom" as a patriotic slogan rather than a real idea--so its citizens cant see the wizard behind the curtain reducing our real freedoms--such as the GREAT PAtriotic act, FISA reform, and the necessary and oh so useful wiretapping against our citizens. Clearly there should only be one political party--the Republicans who are the nations vanguards of freedom and democracy.

5) Please do no critical thinking when reading or listening to political ideas, just go with whatever is consistent with the winning ideology and the current zeitgeist. Then we can get back to blaming and self righteousness, instead of all this problem solving that is currently going on, messy though it may be.

Yamana Gold: Finding Value

Tue, 17 Feb 2009 17:08:01 -0500

AUY carries a lot of future value for its copper in the ground.

Investors Staying Away from Banks; Gold Attempts to Break Downtrend

Sun, 08 Feb 2009 20:34:59 -0500

Wow, Ive seen that chart before Chris, but it is good to be reminded of what can happen--twenty years of flat to falling markets.

Now that weve likely seen the end of (or nearly so) falling interest rates, the next decade or so looks like we may have in store higher rates and higher inflation (after defaltionary hurricane has passed). Currently, by some accounts we have negative interest rates.

Gold does well when interst rates are below or close to inflation, and the threat of you principal being erroded is greater than the reward of the interest paid.

The 1970s were good for gold because inflation was above interest rates much of the time, until Volker broke inflations back.

1980s through 2000 (roughly) interest rates were falling along with inflation. It didnt pay to hold gold as equities did well, and interest bearing bonds did better than inflation.

Going forward this is likely to be reversed --equities and bonds will likely falter and gold will outperform again for ten years or longer.
Just a thought. IMHO.

Is It Time to Buy Gold?

Fri, 05 Dec 2008 19:03:35 -0500

Gold is not an investment? I guess it depends on who you talk to. My gold broker made 4.5 million dollars last year not investing in gold, just buying and selling it as you would stocks. Stocks are not really investments either because they typically are not held for long time periods. (sarcasm intended).

We are in a unique period of history--this global crisis is occurring everywhere and governments everywhere are responding the same--increasing moeny supply, and decreasing rates.

Nothing is certain in this life. There is no doubt we are headed for some deflation. But throguout history goverments have used inflation to monetize debt and keep their hold on power.

A bet on long term, sustained deflation is a bet that governments will act in ways that don't serve their interests.

Consumers Buy Into Disinflation

Fri, 14 Nov 2008 19:12:14 -0500

On the contrary--wages can fall, or stagnate, and inflation can accelerate. All it takes is an increase in the money supply through credit and fractiional banking.

See the 1970's.

Also, it is possible to have rising wages and falling prices, or relatively low inflation. With rising productivity faster than the money supply increasing.

Wage growth can be greater than or lesser than the rate of the increase in prices.

First Fuel, Now Metals - Forecasts Lowered

Sat, 01 Nov 2008 16:12:14 -0400

Consider the phrase "redistribution of wealth". What does it mean?

Here in Alaska, the GOP is the predominant party. Something like 70% voted Bush lin 2004. Also heavy libertarian base. You'd think that those ideals would manifest themselves in being against "redistribution of wealth". Well we are and we are not. We are in theory, and in ideology, and whenever our taxes go to someone elses project. Such as when we resent the poor, the unemployed, the uneducated....these people should not get our wealth, that much is clear. Why should they? They didnt work for it, and it encourages them to be lazy. So, we are aghast at our taxes used to reditribute wealth to the undeserving.

But, our new rock star govenor, Sarah "Marerick" Palin has sucessfully stood up to oil companies (translation: she raised taxes on them) and she successfully increased this years dividend to include a supplemental $1200 dividend, in addition to the regular $2000 dividend (amounts are rounded).

Its not just hypocrisy, its pandering, buying votes, dishonesty, and utter nonsense to say that the GOP is against the redistribtution of wealth. (at least in Alaska).

True story, I am not making this up as Dave Barry says: My family received $9600 from the state of Alaska this year just for being a resident. Money was redistributed from the oil compnaies to the residents, no matter what the need.

Palin is a fine socialist.

What they should say in the Lower 48, if they were honest is that: "we are agaisnt the redistribution of wealth to those we decide are not politically to our advantage to reward." Or, we are against the redistribution of wealth to those we decide don't vote heavily for our canidates" or "we are against redistribution of wealth for those we decide are undeserving, and for redistirbution of wealth to those we believe are deserving."

Oh, and by the way, those who are deserving are those who need a bailout--those job creating and upstanding bankers who currently are a little short. We can redistribute some wealth to them, thats ok, because they are deserving.

See?

And please dont respond that it isn't a bailout of taxpyers dollars because the governement will be paid back, and probably make a profit to boot. (as a Barrons editorial has recently claimed ). After all is said and done the best economists are predicting a 1.5 trillion price tag--for all costs from the current crisis. Some of that costs will be recouped, but not all...

and thats redistribution baby.

What the Hedge Funds' Bad September Could Mean for Markets

Fri, 03 Oct 2008 21:43:02 -0400

Reasearch Published by Morningstar demonstrates that "on the whole, hedge funds do statistically even with the universe of long only mutual funds" before fees, after fees of course, on average, they are losers, relative to long only mutual funds.

I sense a reality check

Post-Bailout Investing: The Big Picture

Fri, 03 Oct 2008 21:29:13 -0400

Thanks Chris, great stuff.

Gold May Not Be Just Another Commodity Anymore

Wed, 17 Sep 2008 18:30:45 -0400

Lets compare those who held cash from 1980 to those who held gold from then on to today.

Gold outperformed the US dollar.

Thats not religious thinking, thats two types of money--with gold performing better than the fiat currency.

Risk Management in Trending Markets

Sun, 27 Jul 2008 23:44:28 -0400

I wish all SA writers were as lucid and straightforward. Excellent article.

The Dead Cat Returns to Earth

Fri, 25 Jul 2008 23:33:35 -0400

Regarding Socialism: America is the only country where socialism is for the rich, not the poor.

News Flash: Major Market Turns Aren't Announced In Advance

Thu, 24 Jul 2008 23:59:32 -0400

I looked at a 10 year chart of Intel (INTC) and GE (GE) and you see about a 0% return over the decade, from two world class firms.

Or, if you prefer, look at a chart of the NIKKEI from 1988 to present.
A twenty year bear market that has not recovered.

True, dividends added some, but the 50% decline of the dollar puts the GE and Intel investor in the red, after subtracting for inflation, after a decade.

The point, you say? No one predicted that, back in 1998, two premier, world class companies would fail to produce positive returns in ten years.

No one predicted in 1988 that the Nikkei would lose more than 2/3 of its value and not recover in two decades.

Many, many, many predicted that the recovery of the NIKKEI was imminent, or that the recovery of Intel and GE was imminent. These stories were written weekly, for years.

Bear markets descend a wall of hope.

Furthermore, a lot of what I see passed of as financial analysis is hopeful thinking, and nothing more.

Question: If inflation is rising, and interest rate will be much higher in a year, and global wealth funds are gradually de-dollarizing their assets--what effect will this have on the earnings power of banks as capital becomes more expensive, and ARMS reset at higher rates?

We are looking at 10 to 15 years of global credit contraction.

I should add that I am an optimist, by nature.

A Fed Rate Hike Won't Solve the Current Crisis

Thu, 24 Jul 2008 23:41:11 -0400

I have to agree that inflation is what destroys wealth. Few benefit, most suffer, especially the poor and the struggling middle class. The wealthy are usually adept at avoiding the worst inflation better than the rest.

There are benefits to everything, including cancer and war. But that doesn't make them desirable or something we would hope for.

If This Comes True, You'll Be Glad You Own Gold & Silver

Mon, 21 Jul 2008 17:30:03 -0400

The British were the greatest Empire the world had ever seen up to that point, with unassailable naval power, and the greatest economic power to boot.

Hence the saying, "the Sun never sets on the British Empire".

It was common knowledge of all, and nearly universally believed that the British Pound Sterling would reign supreme over the new millennium of the 20th Century, as it had in the 19th Century.

It was simply inconceivable to the Brits and their trading partners that the Sterling wouldn't be the reserve currency of the world for at least another 1000 years.

Until, the dollar came along and replaced it.

Oops, never mind.

Those who hold their wealth in dollars are at risk of repeating this awful history.

Why not diversify your currency exposure?

Confirmatory Bias and Oil Investing

Thu, 17 Jul 2008 23:00:49 -0400

I spoke with the oil economist of the Alaska state government back in 2004 and he said oil wouldn't hold above $50, and he gave me a list of reasons why--including demand destruction.

His only job was to predict oil prices.

His confirmation bias was obvious in retrospect, but not at the time.

Peak oil is a theory that has proven true in the US, as well as lesser oil producing countries-- a plateau was reached, and then decline.

People now are applying the theory to the world as a whole, which is not outlandish.

The most emotional arguments that I hear are not from the peak oil theorists, but from everyday folks, and everyday news channels that oil is cheap and abundant, but oil companies are reaping obscene profits, and greedy manipulators are stealing Americas wealth.

Guess which side appears to have the higher level of confirmation bias?

The Ongoing Challenge of Inflation Momentum

Tue, 15 Jul 2008 16:30:55 -0400

This commnet is curious to me: "Nonetheless, if you've owned commodities for some time, it's a good time to start thinking about rebalancing from winners to losers on an asset class level. No, we're not sure that bottoms in stocks, junk and REITs are imminent, but if you have a long-term horizon you could do a lot worse by starting tobuy, albeit cautiously and with an eye on time diversifying purchases over the coming months and perhaps even years."

It seems to me that if inflation is accelerating, which is the main premise of this article, that you could do a lot worse than letting your winners run in commodities, and cutting your losses in financials and bonds.

It seems to me that we can only see interest rates go up from here, after the election. Who wants to cut exposure to the only asset class that is outperforming in a rising inflationary environment?

Rebalancing asset class exposure should not be done blindly, or as automatic process of so called "risk reduction", but only in response to ecess valuation, and changing economic fundamentals.

Housing: Barron's Calls a Bottom

Sun, 13 Jul 2008 23:21:19 -0400

What happens to the cost of mortgages when the interest rates catch up with the real inflation rate? And ARM's re-set?

Real estate falls...

You can believe the Barrons piece if you beleive that inflation is coming down and interests rates are not headed appreciably higher.

But we are in a huge housing bear market, and we are at a very low point in the rate rising cycle.

The capitulation ( low point) will come when interest rates are 10-15%.

Say in 5-10 years.