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You were killed by your own banks

Richard Daughty
...the angriest guy in economics
The Mogambo Guru
January 4, 2006

- I was, as I do every year, trying to get really stinking drunk after Christmas, trying to forget the bitter disappointment of Santa, who, as usual, brought me NOTHING that was on my list, including the stuff at the freaking TOP of the list, like a young and beautiful trophy wife who begs me not to hate her because she is rich, no frozen pizzas loaded with pork products, no flame throwers or armaments of any kind. I was still, unfortunately, still sober enough to be shocked when I saw that Total Fed Credit expanded by a whopping $9.2 billion last week, and my face drained of blood when I saw that Currency in Circulation jumped by an incredible $8.2 billion last week, too. Gulp.

Through bleary eyes I noted that the Required Reserves at the banks fell to an astonishingly low $41.8 billion. Being at the end of the year, perhaps it is customary to look back and see what bank reserves were a year ago. Hmmmm. It looks like it averaged about the same $41.8 billion! Now let's take a look at the assets and liabilities of the banks, against which these reserves are supposed to provide a cushion against loans going bad and depositors wanting their money back and The Mogambo cashing bad checks all over town. Hmmmm. I see that in Loans and Leases alone, the banks are up almost $2 trillion! About 50% more! In one year!

And savings deposits (which is the few paltry dollars that that we somehow managed to keep away from the luxuriating "family", all the time with their incessant whining "We're cold and hungry! We're cold and hungry! Waaa waaa waaa!" like I am supposed to, I guess, go out and spend precious money on food and heat, like I am some kind of Mister Moneybags or something), is up a cool trillion dollars in the last year, too. And yet, rubbing my forehead in a vain attempt to comprehend the situation, against all of this trillions of dollars of vastly increased risk exposure and liability, Required Reserves have not increased so much as a lousy dime? Nada? Zipola? It just goes to prove that The Mogambo was right when he said that financial crises are always caused by banks, the greedy, grubby and gangrenous banks, getting themselves in trouble by acting irresponsibly and allowing others to act irresponsibly, too, and ruining everyone and everything else in the process.

Speaking of banks ruining everything, thanks to ContraryInvestor.com we now have the Office of the Comptroller of the Currency noting that "But it's at the top of the credit cycle where stresses and weaknesses typically appear, so what we are seeing today should not surprise anyone." I jump to my feet and shout, "Not to anyone who has ever read history!"

Ignoring me, the Comptroller goes on "One of the striking findings in our 2005 underwriting survey was the breadth and extent to which banks had relaxed their lending standards."

There it is again! Banks acting stupid! And it is everywhere, as he alludes when he says "The trend toward increased credit risk is visible across the portfolio and across the country" he says, but "it really stands out in two product areas. The first is commercial real estate; the second, residential first mortgages."

Were you going to ask me how bizarre that is? Well, he says that "By some estimates, interest-only products constituted approximately 50 percent of all mortgage originations last year." Half of new mortgages make no payments towards the loan principal? Their debt never decreases? Hahaha! Idiots!

And it gets worse! "In the first half of 2005," he goes on to say, "IOs started to decline in favor of payment-option ARMs, which, according to one source, comprised half of new mortgage originations." Half of new mortgages are the kind where you wake up one morning and you say to yourself, "You know what? I think I'll use my mortgage payment to go to the mall and buy myself something nice! To hell with the house payment!" Now, when I try that crap, the bank comes all unglued and they call me on the phone and get all rude and demanding their money, which I obviously don't have because I went to the mall, as I just explained earlier in the paragraph, and they icily reply that they don't have time to read any of my damned paragraphs and they want their money, and we go around and around, and I end up paying them their damned money and we are enemies forever after.

But these new "payment optional" guys try that, and the bank gleefully says "Hey! No problem-o! We'll just add the missed payment to your mortgage balance!" They go deeper into debt! Gaahhh! I'm screaming in fear!

To add insult to injury, he says that "roughly every other mortgage these days is also a 'piggyback' or reduced documentation mortgage, which points to another development that concerns us: the trend toward 'layering' of multiple risks." To show you the stupidity of this, ask anyone who has ever loaned The Mogambo any money or thing of tangible value because they relied on my self-reported ability to repay the loan! Hahaha! Suckers! I even told them I had a job! Hahahaha! And they believed me! Hahahaha!

Ahhh! It felt good to laugh like that! But I am again sobered when I realize that this kind of rampant monetary inflation bodes ill, although it was, in a fit of Mogambo philosophical insouciance (MPI), in the larger picture, just a fitting end to a bizarre, bizarre year in the world of fiat money, omnipotent central banks and huge, huge, expensive, expensive governments. And, to tell you the truth, it would have surprised the hell out of me if the banks had NOT gone to such extremes.

- I got a lot of mail about medicinal silver, and how I ought to cool down my silver fever, to the extent that I now stop total strangers on the street to harangue them about getting rid of those stupid kids and put their money into silver, like this one here from Dave, who says, "Silver ions in the body combine with chloride (as in sodium-chloride or hydro-chloric acid (i.e. chlorine ion)) to form silver-chloride, an insoluble silver salt, and whose antibiotic action is not nearly as effective as elemental silver. What is wanted, therefore, is not ionic silver, but some other form." Well, so far, he has lost me completely, and I personally don't care, as what I am really interested in, right now, is making a little money on this silver thing.

But instead of telling me what I want to hear, he goes on to say "It is interesting to note that silver is classified as a toxic heavy metal. While it is an important trace mineral in human health (in wee small doses), getting too much of it can be a real problem. This is not an argument against using it, only in using too much of it." Memo to Dave; what I want is an argument for using WAAAYYY too much of it, which will increase demand, which will cause the price to rise, which is the whole freaking point of my interest in silver.

Then, to show you a neat little analogy, he first writes, "The idea that science & medicine are turning to silver now is a testament to the degree to which they are becoming hyper-alarmed at the resistance shown by microbes to pharmaceutical antibiotics." Then he amusingly says "The resistance is not as high as that shown by our private central bank to the private (ownership & use) of precious metals as a store of purchasing power."

Well, to be fair, the central banks are NOT interested in whether or not WE use gold to store purchasing power. For one thing, they can create money out of thin air, so what in the hell do they care about gold? And for another thing, they are not real bankers. If they WERE real bankers, they would know that their creating constantly more credit and money is insane, and they would be buying gold for themselves. That they are not doing this only proves that they are mere banking poseurs, out to make a fast buck and stick the government with the mess when it all explodes, as that is the New, Yet Timelessly Stupid, American Way.

As a further explanation of this silver thing, the F. family writes "It is precisely NOT the silver ions (electrically charged single atoms) that are desirable or effective. It is nano-particles of silver (small clusters of silver atoms) that have recently been demonstrated to be so effective. It is only the new techniques of nano-engineering that have made the production of these clusters possible."

Again, the blank look of dumbfounded non-comprehension and disinterest on my stupid Mogambo face (SMF) face alerts them to the fact that I have no idea what in the hell they are talking about and couldn't care less. Thankfully, they distill it to its essence: "Silver ions: BAD. Nano-particles (clusters) GOOD" Ahhh! At last something I can understand!

- Two questions seem to plague the minds of the two pathetic guys who read the MoGu, and I pity them that their drab, miserable lives are so devoid of interest that they would waste it by reading the idiotic Mogambo Guru newsletter. First they want to know "Is there something mentally wrong with you or something?" This is an easy one; Yes. Secondly, they worry about buying gold like I recommend, only to then have the government confiscate gold again, like that commie bastard FDR did in 1934, and then they will feel like coming over here and punching my lights out because they are ruined, and now their families are as hateful and vengeful as mine.

To them I say "Relax, mate!" in my new fake Australian accent that I hope will trick the bill collector the next time he calls, and I say this for two very good reasons (VGR). The first one is 1) by the time you get within range of the Mogambo Bunker Of Impregnable Defensive Posture (MBOIDP), police forensics experts will probably testify at the autopsy that they are sure you never felt a thing. Secondly, which I will cleverly signify with the numeral 2, 2) the total of the world's above-ground gold is a few trillion stinking dollars. The total amount of gold held by Americans is only around a trillion or so. Chicken feed! Hell, the damned Federal Government, alone, budgets itself to spend more than that much in one lousy year (OLY)! So confiscate gold? Hahaha! For what? Why in the hell would they do that?

Furthermore, since they have to pay you for the gold, which entails creating money, they would be much better off by just giving somebody the damned money, instead of going through all the hassle of not only giving people the money, but going through the additional expensive process of collecting gold and transporting gold and storing gold and guarding gold and accounting for gold.

But we Americans are increasingly alone in this "gold is a barbaric relic and only lunatics and idiots like The Mogambo are stupid enough to buy gold" world, as we read in an article by Sean Brodrick in the Red-Hot Canadian Small-Caps newsletter, who writes "The reopening of China's gold market to investment after 50 years of Communist suppression is one of the great forces driving gold today. So, it comes as good news that China is planning to loosen its import/export laws on gold."

So why in the hell should you care about Chinese import-export laws on gold? Well, I was just waiting for you to ask that, because I have this terrific answer! It's all about how a third of the world's population is being encouraged to buy gold, the same third of the world population that has a tradition of 3,000 years of historically high regard for gold, and how that means that the Chinese are going to be buying a LOT of freaking gold, and how supply, even today, is not enough to satisfy current demand except by central bank dis-hoarding, and how that means that gold will necessarily rise mightily in price, and then people who have gold will be rich rich rich! And I even had this fabulous tagline at the end where I say "The future of gold is golden!" whereupon I expected you to spontaneously break into wild applause with lots of cheering. But before I could gather my notes together or even open my mouth to speak, Mr. Brodrick jumps up like a little showoff and says "Since China already consumes more gold than it produces, this couldn't be more bullish for gold, in my view", which was, although brief, far better than the confused little speech I had prepared. So I sat down in a grumpy huff, and was in a bad mood for a long, long time.

So what are these new Chinese laws on gold? Real snippy-like because I am still sulking, I say "Ask Mister Expert over there!" Mr. Brodrick hears this and says "The People's Bank of China has recently published a draft of new rules which would allow any company with more than $3.6 million in capital to start a gold trading firm."

But this is not only about China, as Mr. Brodrick goes on to say "Meanwhile, in India, the Forward Markets Commission (FMC) said it would allow both foreign institutional investors and mutual funds to begin trading bullion futures at national commodity exchanges."

I guess Jas Jain heard us speaking about India, and he says "The Indian financial system will definitely collapse because of its bankers, who are desperately pushing debt for higher current profits, a common disease around the world but worse in India. Ignorance about the future consequences of debt-driven consumption is mind-boggling. Indian banks and governments will collapse one after another and there will be massive riots. Indians will pay the price for badly copying Americans."

Well, that's pretty damned spooky to have a nation with nuclear weapons be in that kind of shape, but as spooky as that is, if you recall, we were actually talking about gold. And in an odd way, he WAS talking about gold, as he goes on to say "Safety should be your number one concern in the coming years of the collapse of the current world economic and political order. The world could not have had two more ignorant and dangerous men in power than Bush and Bernanke." Man, I heard that loud and clear!

What is the one thing, the one sure thing, the one guaranteed thing that all people, of all generations, in all nations, in all of history have turned to when their governments destroyed their money and the world was on the brink of the "collapse of the current world economic and political order?" The Mogambo smiles as he says "Harken to me, my darling dudes and dudettes. Gold! Got gold? Get gold!"

Maybe that is why gold is on such a tear here lately. And speaking of gold, on Tuesday the gold lease rates exploded from another of their weird "singularities" into this big sudden spray of spread (which is hard to say five times quickly), where nearer rates were low and longer rates were high again, all spread out so neatly. Weird!

Thanks to Barb at 321Gold.com, we got a link to Neftegaz.ru, which is some kind of Russian site (although it is in English, so naturally I am suspicious as hell) that had an article headlined" Russian Gold Reserves Increased by $50bn" In the body of the text, we find out that "The Central Bank of Russia official said Monday that Russia's gold and foreign currency reserves have reached $173 billion" and that the "reserves have increased by $50 billion since the start of the year and would have grown by $70 billion if not for foreign debt payments."

We learn that inflation is going to increase a LOT in Russia, as we read that "The increase in gold and currency reserves has expanded the monetary base by 24%, whereas money supply has increased 40%, according to the bank official." With monetary inflation like this, price inflation in Russia (which is already 10.4%), is going to get a lot worse.

And speaking of Russia, apparently Putin, the President of Russia, cut off the gas to the Ukraine or something, just in time for winter, and there are all these serious explanations about politics, and revenge, and side-taking, and deal-making, and alliance-cementing, and blah blah blah. They are all wrong. It is about money. Everything is always about money.

Thanks to SafeHaven.com we linked to Kommersant.com, another Russian business daily, also in English, also suspicious, where we read the headline "Bank of Russia Will Re-Evaluate Gold" by Dmitry Ladygin. Hmmm! Interesting!

However, the reality is a lot more prosaic, and the Russian central bank is merely going to change the way they account for their gold holdings "Instead of previous fixed prices, the CB will start to appraise the precious metal according its own quotes, which are close to the market price." Mr. Ladygin, or Comrade Ladygin or whatever in the hell they call themselves, writes "For the first glance, it looks logical-currently the gold in state coffers is appraised by the CB fro $300 per ounce. The same quotes were in the market in 2002. Since that time, the price for gold went up by 1.7 times. For instance, yesterday prices for the gold on world market were $520 - $524 per ounce."

But the reporter sees something more than that afoot, and writes that "However, it looks like in reality the Central Bank (CB) is getting ready to buy massive amounts of gold, and the market prices will allow the bank to avoid accounting mistakes."

As grubby speculator trash, my sensitive Mogambo big-move detector (SMBMD) is going "beep beep beep! Beep beep beep!" I rush over to the printer, and the computer printout says that the salient point in all of that was "the Central Bank is getting ready to buy massive amounts of gold." Now, holding that thought in your mind, think about that basic cornerstone of economics, the demand/supply dynamic, and you will realize that a vastly increased demand, encountering a relatively static supply, is equilibrated by a higher price! I love this economics stuff!

- On Mises.com we read an essay by Stefan M.I. Karlsson, who is, he says, an economist "currently working in Sweden." He writes "The enduring legacy of the Greenspan era will be the large-scale confiscations of wealth and economic imbalances - all of it blamed on others." Hahaha! Exactly! Scapegoats will be found! And this is a cheap Mogambo lesson to foreigners (CMLTF); you are perfect scapegoats, and an easy target.

- You don't know my buddy Phil S., and so you probably think you don't owe him a thing. But if you are still a Young Mogambo Larva (YML), then you do, as he sent a graph from Ian McAvity's DELIBERATIONS on World Markets, which is, I assume part of Deliberations Research, Inc. Well, I don't want to go into all of that convoluted ownership/cross holding/ tax-angle mess, and so instead we will first concentrate on the work ethic of these guys, as the graph was dated 12/25/05, which means that these guys worked Christmas to get this information to you! What a nice bunch of people!

But it is more than some voluminous workaholic output, and Phil himself (who knows about these things) says "In my opinion, Ian's conception of the Dow/Gold Ratio years ago established the most important long-term guideline picture ever for critical investor awareness and successful planning."

But it is that graph itself that you obviously want to know about, as it is your Mogambo Guaranteed Path To Financial Bliss (MGPTFB). Anyway, it shows, finally getting to the damned point, the ratio of the DJI-Dow index/gold price index ratio plotted back to 1900, which was (as I finally determined after some tricky work with a calculator) 106 years ago.

What is so immediately interesting, so, riveting, so arresting is that the pattern is so regular, so perfectly saw-toothed, that it looks so fake. I mean, this is the Holy Grail of graphs, the kind that you desperately want because it is so reliable (but cannot find) when you want to speculate from a technical-analysis perspective and use it to make one hell of a lot of money with very little work and no heavy lifting. If only I could come up with a perfectly reliable indicator that would show, unambiguously, that once an identified trend is set in place (up or down), it just keeps chug chug chugging along, with you riding it the whole way. With such a graph, even a complete idiot like me could easily make a fortune!

Well, hold onto your hats, my little Mogambo buckaroos (LMB), because, in a nutshell, here it is! Here is the fabled "true path to an embarrassment of riches via technical analysis", because in 106 years there have been only three high points in the ratio, occurring in 1929 (18 ounces of gold to buy the DJI); 1966 (28 ounces of gold) and 1999 (about 43 ounces). There have been three lows in the ratio, too, and they were in 1900 (less than 2 ounces of gold), 1932 (2 ounces), and 1980 (one ounce).

And the beauty is that the path from low to high was, for all intents and purposes, never reversed until that final climactic moment, years and years hence, when the high (or low) was reached . Interestingly, it takes 25-40 years to go from low to high (stock market rising, gold falling), but only between 5-10 to go from high to low (stock market falling, gold rising).

Okay, now I assume that you are as retarded as I am, and that is why we always stupidly sit and scratch our empty heads, make funny faces at each other and giggle, covering up the fact that we don't know what in the hell these people are even talking about. But even new-born babies can plainly see that this graph clearly shows that during, ummm, the next 5 years (or so) the ratio will continuously fall to 1 again, meaning that one ounce of gold will cost the same price as buying one share of each of the companies in the Dow Jones Industrial Average, just like Richard Russell, of the Dow Theory Letter, says it will. Five years! So jump up out of your seats, contact the people who run your retirement plan and yell into the phone "The Mogambo was right! We're freaking doomed! Put everything into gold, immediately, if not sooner!"

Now, not being a whiz at math, I am still able to recognize that for the Dow/gold ratio to fall from 43 to 1, either gold has to go up (a lot!), or the stock market has to come down (a lot!), or both. More excitedly, we see that since 1999, it's done both, so the trend is already set. For the next five years or so, expect the exact same thing, but with increasing volatility, until the ratio again drops to 1. The graph shows that everybody who followed the lead of this graph for the last 106 years made a big freaking pot load of money.

Mark Lundeen has a ratio that he says is tops, too, and it so impressed Bill Murphy of LeMetropole that Mr. Murphy sent it out. His is the "currency in circulation" to gold ratio, or rather the, as he puts it, "indexed gold / indexed CinC"

He explains "Broadly speaking, when an economy's money supply expands at a rate slower than the goods and services produced, aggregate prices fall. When an economy's money supply expands at the same rate as the goods as services being produced, aggregate prices are stable. When an economy's money supply expands at a rate faster than the goods as services produced, aggregate prices rise. The Gold / CinC Ratio displays the relationship between the price of gold and US Currency in Circulation from January 1920 to the present. The logic behind The Ratio is compelling - if the Federal Reserve continues to create money and credit in unlimited quantities, gold's ability to revalue itself upwards in US dollar terms is also unlimited, given sufficient time."

Since I am tired of waving my hand in the air hoping in vain that he would call on me, I finally resort to the famous Mogambo Loud Aside (MLA) technique, where I stand up, turn around, and loudly ask a guy sitting in the back of the room "I wonder when the hell he is going to show me how to make money on this stuff, instead of giving me a damned headache with all of this Mister Math Whiz crap?"

Apparently, my subtly clever little ploy worked, as Mr. Lundeen immediately goes on to say that to get to the upper end of the historical range of this ratio "would require the price of gold to rise up to $5,200 an ounce." Whee!

Mr. Lundeen also sent along a witticism by Art Rolnick, Chief Economist for the Minneapolis Federal Reserve Bank, who supposedly said, "We make money the old fashioned way. We print it." I assume that this is supposed to be funny, but it mostly just makes me mad as hell, and the more I think about it the madder I get, until, suddenly, I usually lash out in a Mogambo Furious Rage (MFR), so it is best that I don't think about it..

- Hugo Salinas Price, big shot banker and the force behind the move to re-monetize silver in Mexico, writes that he accidentally read the Mogambo Guru newsletter and he still feels unclean from the experience. But the one thing that he did NOT hate in my whole newsletter was the thing about silver, and he says "The Mexican silver peso, of which 458 million were coined from 1920-1945, contained 12 g. of pure silver. At $8.88 US per ounce, that coin contains $3.42 US of silver. At $10.77 pesos to the dollar, that's $36.90 pesos worth of silver in those coins - still available. BUT, the actual price is really $36,900 pesos, because by sleight of hand, three zeros were knocked off all peso prices in 1993."

So, as I read this, and I'm thinking two things to myself: Firstly, if he thinks I am such an idiot, then why in the hell would he read my stupid newsletter in the first damned place? So who is REALLY the big stupid moron jerkface halfwit clown butthead around here? Smiling smugly to myself, I casually go on to my second point, which is, chronologically, secondly, "Who the hell cares about silver, OR Mexico, OR their stupid money, pesos or something, unless it has something to do with the price of some yummy tacos, or maybe a burrito, which it obviously does NOT? So screw it!"

He politely waits for me to finish my disrespectful little diatribe, and then you can almost hear the contempt in his voice as he says to me "So, since your august government is inflating in the very best Latin American tradition, you will soon have the very same Latin American effects: $8,000 Dollars for an ounce of silver, $40,000 dollars for an ounce of gold - ANY price is credible."

Oh, crap! Now, too late, I finally understand what he was talking about, and I look stupid again, just like he said I did. Crap.

Marc Faber is walking by and hears us talking about the price of gold, and while there is no telling how high gold could go, he is sure it WILL go up, as he is "convinced that the US Fed's monetary policies will lead to exponentially widening wealth inequity and impoverish the majority of US households, which will then lead to social strife, protectionism, war, and the breakdown of the capitalistic system." That's exactly what I think, too, although I stop myself from saying so out loud, as I am STILL getting hate mail from the last damned time I favorably compared myself to Mr. Faber.

So, instead, my legal staff informs me that I am allowed to say that I think that this bad stuff will happen because that is exactly what has happened every other time in history when some idiot government did these kinds of monetary and fiscal insanities, especially with the collusion of a central bank in control of all the other banks, and doubly especially with fractional reserve banking that has, currently, an essentially zero required reserve, meaning unlimited multiplication of every dollar in every bank, and triply especially with a fiat currency that can be created, literally at will, and spewed into the economy. And thus I am on solid legal ground when I say that both Mr. Faber and I agree with the entire corpus of the world's economic history, and although this does not necessarily mean he agrees with me, he actually does, and there is nothing he OR his snotty lawyers can do about it!

He says an ounce of gold could be worth a lot of money, and casually throws out the random figures "$36,000, $40,000 or $100,000" per ounce, although there is no knowing how bad things are going to get.

And speaking of fiat currencies and central banks, Robert McHugh of SafeHaven.com writes "For the past two weeks, the Fed added $93.5 billion to the money supply, a 24.0 percent annual clip. Over the past 6 weeks it is up $192.9 billion, a 16.7 percent Banana Republic hyperinflationary pace. Should be a fascinating storm in 2006."

- I was listening to the Stevie Wonder song "Superstition", and the words "When you believe in things you can't understand, then you suffer" rang in my ears as the perfect metaphor for the idiots in Congress, and in the universities, and in the banks, and in the economics profession, and the American people, who are all looking at the Federal Reserve creating all of this avalanche of money and credit, year after year, and us going deeper and deeper into un-payable debt, year after year, yet we all stand here with snot running down our chins and saying "Well, duuuhhhh! Umm, the bank says that we can get wealthy and, ummm, prosperous by going into debt to buy consumer goods! And then printing the money to pay the debts! Duuhhh! Sounds good to me!"

Well, it might sound good to those morons, but it does not sound good to everyone, as the essay "Doomsday for the Greenback" by Mike Whitney on OpEdNews.com clarifies. He says that "The greenback is the greatest swindle in human history; a worthless scrap of paper buried beneath a mountain of debt. It is only through the skillful mix of politics, diplomacy, and brute force that the grand deception is maintained. As America's fortunes grow more tenuous, the probability of attacks on the dollar will increase exponentially. Even now, nations are conspiring to knock the dollar from its towering summit and introduce a more equitable system."

- John Makin at aei.org reports, for all you budding econometricians out there, that the marginal propensity to spend out of wealth (the wealth effect) is 5%, or, as he says "about 5 percent of an increase in net wealth is spent by households." Now, being the curious type, you naturally want to know if there is also a corresponding marginal propensity to NOT spend in response to a FALL in wealth? I assume there is, so I will answer "Yes, there is."

He also reports that according to ICI, " In 2004, $2.1 trillion (or 70%) of retirement account mutual fund assets were invested in stock funds." Trying to show off a little, I put these two together because they are so handy; if there is a 10% fall in the stock market, then $210 billion in wealth will go poof? And that will engender a 10% percent fall in spending? I get the ten percent because the current extra 5% of spending caused by the marginal propensity to spend out of wealth will be gone, PLUS another 5% decrease in spending due to the marginal propensity to NOT spend out of loss of wealth, producing an additive 10%, roughly. And even roughly, this should be enough to scare the living hell out of you, economy-wise.

- Bud Conrad @ Financial Sense reports that things are getting strange in the gold trading pits. "Since the beginning of December, there has been a big jump in delivery notices by long speculators They now have 19,372 contracts (or 1,937,200 ounces) of gold called upon. This represents 42% of the registered gold in COMEX warehouses. (It was 38%)." So it looks like more people are deciding to take their gold home with them. This is added demand, which makes prices go up!

He goes on "The silver story is even more surprising The silver situation is even more extreme than the gold with the number of delivery contracts 8 times what they were in October. Delivery is now at 56% of registered ounces." Remember what I just said about how rising demand corresponds with prices going up?

Tom B. has been poking around, and writes that "the GLD ETF has added a huge amount of gold into the trust. For the four trading days last week it averaged a daily addition of 5.417 tonnes. If you take the 2004 world gold production numbers of 2478 tonnes and divide it by 365, the daily production was 6.789 tonnes. So, this one gold investment vehicle is now physically taking 80% of world daily gold production off the market place and storing it in a vault. Sounds like we're heading for a supply/demand crunch to me."

And there are weird goings-on at Comex, says Rob Kirby on FreeMarketNews.com, who writes "What is it that the Bank of Nova Scotia knows about gold that has required them [or their customers] taking ownership of approximately 1/6th of the world's most visible supply of gold in less than one month? Could it be, that investors who are amassing large stocks of precious metals through Scotia [and others] at COMEX - they intend to withdraw the physical [lock, stock and barrel] in the very near future - and suddenly there will be none? Investors should be aware that some serious accumulation is in fact occurring in the precious metals arena. Could this be foreshadowing another big move in the market?"

And then you look at how the price of gold has been zooming lately, and you slap yourself on the forehead and say to yourself "This supply/demand thing is everywhere!" Now, if you had earned the Investment Acumen merit badge as part of your regular Mogambo Scouting activities, you would see how you will be able to make a lot of money by buying gold and silver at these bargain-basement prices, and then you could buy all the damned merit badges you wanted, especially from all those guys who earned the badge but didn't do anything, and now it is too late, and from now on they will call me MISTER Mogambo instead of "Crudball", which I never liked anyway.

- As the denouement of all of the horrendous creation of money and credit unwinds into inflation and deflation and ruination and weeping and crying and screaming and The Mogambo standing at the street corner intersection, yelling at motorists stopped at the traffic light "Hahaha! You were killed by your own banks, you stupid morons!", you will increasingly see bizarre episodes like the New York City transit workers going on strike for more money, although their present pay and benefit package is already much bigger than the majority of people who ride the damned public transportation.

And to show you the seamy, sordid and lawless underbelly of the horror known as the modern unionized government worker, they went on strike, even though it was illegal. And because of the weird, socialist way that New York is, not only did they NOT get fired, as they should have, but their extortion worked! They got a boost in pay! And a promise of nice series of hefty boosts in their fabulous futures, too!

And let's not forget the budding blooming of the nascent "raise the minimum wage" campaign. Thus, inflation in costs means inflation in prices, as businesses have to raise their prices to pay for the increased labor costs. Thus, prices rise even further, canceling out the paltry gains in buying power provided by the raises, but also making life a lot harder for everybody else, especially those who do not even have jobs, which increases demand for government money and services, which means tax increases and/or more borrowing, and the creation of a more bizarre, distorted, mal-invested economy. We're freaking doomed.


***Mogambo sez: Although the Hulbert Digest did not report it, the performance of the Mogambo Guru newsletter would have been at the top of the heap again this year, seeing as how I have been consistently screeching about precious metals and commodities (especially oil)for the entire time, which are two of the top three big winners (the other being some foreign stocks), according to the Lipper Indexes. And to make it easy on you and the Hulbert Digest people, my top picks for THIS year are the same two categories, with a big old Mogambo emphasis (BOME) on gold, silver and oil.

Jan 4, 2006
Richard Daughty

email: RichardSmithGroup@verizon.net
Daughty Archives
Provided as a courtesy of Agora Publishing and The Daily Reckoning

Richard Daughty is general partner and C.O.O. for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise the better to heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications.

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