To the few truly unfortunates in this world whose lives are so completely pathetic that they actually noticed that there has been no Mogambo Guru for the last couple of weeks, I pity you. The explanation for the absence is simplicity itself; they are all out to get me.
To make sure that everybody had a nice holiday, the Treasury released billions of dollars in actual cash, foreign central banks bought up American debt, and the Treasury issued a humongous clot of new debt, the size of which is so huge that I dare not look at it with the naked eye. Earlier, and I shudder to think of it, I had gotten a glimpse of it as I was scanning some other number, and the impact from that brief fleeting peripheral vision glance caused my heart to - urk! - momentarily seize up. So naturally I am afraid that if I look directly at the heights to which Official Government Debt has grown I will turn to stone, just like what happens when you look at a Gorgon, of which Medusa was one, she of the hideous hair of snakes, and whom Perecles was supposed to slay or something, and I think the Three Stooges were somehow involved, but, then again, Greek mythology was never my long suit.
So we will wait just a few moments here while my wife comes to look at the number for me, and I suggest taking a few deep breaths of pure oxygen in preparation - inhale exhale inhale exhale - and here she comes, and she snatches the paper rudely out of my hand and, adjusting her glasses, starts off by saying "Six trillion," which I already knew it was probably in the six trillion range somewhere, so my heart rate is about eighty-five now. Then she goes on to say "Nine hundred and...," and I breathe a little easier, as it did not break the seven trillion dollar milestone. Already I have almost stopped paying attention out of relief and lack of emergency, and then she said, and I remember it like it was yesterday, she said, real fast, "Ninety billion dollars!"
I am proud to say that the computer-like brain of the Mogambo sprang immediately into action, and as soon as I regained consciousness I instantly demanded that the surprised paramedic take that damn cardiac needle out of my chest and his hand off my wife's thigh, and to immediately unhook all of these damn lines and tubes and wires, and then I asked her to repeat that number, and I wrote it down as she repeated it. $6,990 billion dollars!
Almost immediately, Barb, over at 321gold, sent me an e-mail to keep me current on the state of the national debts, as her site keeps tabs on the official debt level, as she figures that I would be interested in the fact that the national debt has now officially soared over $7 gazillion, I mean trillion, but when you are talking about money in mountains that big it really makes no difference whether it is gazillions or trillions, as numbers that big are too huge to be comprehensible, and when you think about them you get dizzy, and then you get a headache, and pretty soon you're real grouchy, and then your conversational skills subset is reduced to snarling "What in the hell are YOU looking at, scumbag?" But either way, seven gazillion or seven trillion, it is a lot of money, roughly comparable to what it would take in plastic surgery and personality transplants to make me appear to be almost human, and then paying somebody to be nice to me so that I could get used to how that feels.
As the news about the debt is toxic to the hyper-excitable type of person, like me, it was not surprising that I had excruciating pains shooting through my chest, which felt like it was in a vise being squeezed, my breath was coming in ragged gasps, and that my left arm was hanging limp and useless at my side when I read the news that the debt soared to over $7 gazillion. I mean, trillion.
As for the cash released, I assume that the majority of the continual issuance is to give to Iraqis and Afghanis and CIA operatives, so that they could spend their way to happiness, as seems to be the course chosen by American democracy, since we are now in the business of forcing democracy down the throats of the world. And buddy, I'm telling you that spending your way to Nirvana takes cash. And lots of it. And if you don't believe me, ask my wife, who is absolutely sure that she is NOT in Nirvana, and the reason for that unfortunate circumstance is that she lacks the cash to achieve it, and she never tires of telling me how she feels about that, so she is somewhat of an expert on the topic of how much cash it takes to achieve happiness.
To help us out, foreign central banks, of course, continue to underwrite the profligacy of we Americans, or us Americans, I'm not sure which, and they salted away at the Fed another $6 billion in the latest week, roughly twenty billion in the last month. And those are, lest we forget, dollars. Lots and lots of dollars.
And while I am sure that twenty billion a month doesn't seem like that much to a big shot like you, but to the rest of us chumps out here in the real world who are walking down the street minding our own business and wondering if that foul smell is us or something that we have stepped in and hoping that it isn't, it is a lot of money. But perhaps in the big scheme of things, given the huge money supply on the globe, what's another twenty billion? Chump change!
But it adds up. And here I am reminded of a joke from a joke book about the kid who shot his mother and father for twenty-five cents. The judge asked him why he would do such a thing, and the kid replied, "You know how it is, judge. Two bits here. Two bits there. It adds up."
The joke is, I admit, tasteless, and it comes from a book that I had when I was a teenager entitled "Truly Tasteless Jokes." Given my fascination with that tacky tome, as evidenced by my being able to remember the title after all these years, it is, I think, a clue as to why I am the way that I am, but hoity-toity mental health professionals won't even discuss it, preferring to stick to their recommended regimen of massive electroshock therapy and solitary confinement under heavy sedation someplace far, far away, dumped in somebody else's lap where none of them have to deal with me ever again, and there is my wife shouting "Amen, brother! You're outta here, you little bastard!" and I am yelling "I object! I object!" and even the court reporter is telling me to sit down and shut up, and I can see that THIS confinement hearing isn't going to go any better than any of the other ones.
But the essential truth is that the kid is right; two bits here and two bits there DOES add up, and not just in a good way, but in a bad way too, if there are actually two negative bits here and two negative bits there, which means you are four bits in the hole. And to demonstrate this profundity I take a piece of chalk and draw a number line all the way across the blackboard, and selecting the midpoint of that line, I label it "You are here," and I proceed to prove that debt becomes negative income, that time and space curve back on themselves, and that evil beings from another planet have taken over all the government jobs and are actively working to destroy mankind in general, and me in particular.
The money supply as measured by the famous M's continue to disappoint and cause consternation amongst guys that cannot fathom them to start with, like me, but who have some gut-level idea that they must mean something, and that the supply of money going down must have some untoward significance, even though we have no idea what in the hell it could possibly be. But it can't be good, as you never hear of an economics lecture on the topic "The benefits of a falling money supply."
But foreign nationals, as compared to their central banks, must be a little more on the ball, as the dollar sold off again, as it has been doing for quite a while now, which obviously means that they are not interested in owning dollars or things that dollars can buy. Those foreign guys are such sneaky little copycats, and that is why we sneer in contempt and disrespect for all foreigners and their strange ideas and odd habits and bizarre customs and incomprehensible laws and the funny way they dress and their stupid little accents when they comically try and speak English. And as for getting out of dollars and dollar assets, I again snort in contempt at them, both collectively and individually, as we genius Americans have been waaayyyyy ahead of them in that regard, because we don't care about the dollar either, and are only interested in shiny baubles and fattening foods and things that make us feel good, and that is why we are up to our fat ears in them, and why we happily give them every dollar we can get our hands on in exchange for amusing doodads, and that also explains why the aforementioned foreigners are up to their ears in dollars, as that is what we use to pay for the shiny baubles. And now who are the big chumps? They are! I laugh at those snotty foreign devils - Hahahaha! - who all smell funny, who actually live in foreign countries, and talk in some strange foreign language or another that I can't understand a word they say, and they often wear funny hats, too.
Speaking of foreign nationals, there is progress afoot to legitimize illegal aliens here in the USA so that businesses do not have to pay higher wages to attract Americans to take the jobs, which they don't want, because they pay so little. In this way, businesses will not have to charge higher prices to make up for the higher wages.
And thus - thus! - we transfer the downside of inflation, which is defined here as rising consumer prices, onto the backs of desperate poor people so as to create a new class of poor people here in America. How special! And this also keeps the employment figures up, and if you are George Bush, this seems like good news, and just in time for the election.
And why won't Americans, like that worthless layabout son of yours who is at this very moment stretched out on the couch watching TV instead of looking for a job, take the jobs that these illegal aliens are taking? Because of inflation, the same inflation that you have been told does not exist, and Ben Bernanke says is too low, and it has driven the price of things so high that, even working, you can't afford to buy them. So why bother?
I am sure that the government is pleased with themselves that the stock market and the housing market and the bond markets all held up through December 31, so that a lot of tax revenue will be due to the government. Lord knows they need it and they want it. It would have been so unseemly for those markets to fall to their true worth and then have the hapless investors turn right around and deduct a bunch of those losses on their tax returns.
The Daily Reckoning website opines, "Already, even with the lowest interest rates in 4 decades, Americans' debt-service ratio is at historic highs. And, at least in Silicon Valley, as many as 68% of all mortgages are adjustable rate. The average mortgage rate currently is only 5.8%."
This behavior would make sense, even knowing that future interest rates would be higher, IF the borrower banked that savings, namely the difference between the monthly payments on a higher fixed-rate and the lower adjustable-rate. This way, he would make some interest on the money that he WOULD have spent per month, but is not spending, and then, when the interest rate changes, he can just close out the savings account and pay down a huge chunk of cash to the mortgage company, bringing down the amount to be re-financed.
But I am pretty sure that many people took the lower adjustable rate, and, even knowing that rates would increase in the future, spent the savings! That's the kind of mindless and insatiable greed that made America great!
"Japan's central bank committed around 10 trillion yen ($93 billion) this year to currency intervention operations, " observes Strategic Investment editor Dan Denning, " [and still] the dollar fell 10% against the yen in 2003. $93 billion is a lot of cash to start throwing around in your currency fight. Let's say Japan and China together buy up 40% of the NEW U.S. debt (about what they own now)," Dan continues. "That still leaves US$270 billion in new bonds the U.S. government would like the rest of the world to buy at between 4% and 5% interest. Will the government sell US$270 worth of new bonds next year? Probably. But you have to wonder how 'safe' a 4% yield is when you're losing 10% a year on the currency conversion alone."
To Dan I say, "Relax! You worry too much! Remember that these are foreigners, who make movies which actually seem to be in a foreign language or something, so how smart can they be?" I mean, look at them buying US debt at record low rates now! And they have been losing money on simmering inflation and taking the currency translation whack for years! So do you really think that these stupid foreign jerks, who drive their ugly little cars with their wimpy little horns - Beep! Beep! - are suddenly going to finally wise up, after all this time, and say to themselves "Whoa! This can't be right!"
Kurt Richebcher wades into the same thing when he writes, "Yet the Asian countries, ex Japan, have a second reason to run a surplus with the United States. It is the main source of the high-powered money of their banking systems. As their central banks are buying gargantuan amounts of surplus dollars, they create liquid reserves for their banks that foster the lending boom to their domestic producers. Vastly excessive reserve growth is creating vastly excessive money and credit growth, stimulating and financing an unprecedented investment boom, similar to that in Japan in the late 1980's."
And here is where I pause and think, and scratch my head in puzzlement, and all that thinking makes by brain hurt, and so I naturally stop thinking, but keep scratching, and pretty soon I am thinking about why I am scratching my head so much, but don't I remember reading something, somewhere, that what Dr. Richebcher calls a "vastly excessive money and credit growth, stimulating and financing an unprecedented investment boom" is something bad? Where did I read that? Oh yeah! I remember now! I read it in damn near every economics-related thing I have read in the last few decades! But it must have somehow escaped the attention of these idiot foreigners, who are so backwards that some of them even drive on the left side of the road, so how bright can they be when they can't even tell left from right, for crying out loud? And since Mother Nature, whom should more precisely be called Cruel Taskmistress With A Whip In One Hand And A Bazooka In The Other Who Will Kick Your Butt Every Time You Step Out Of Line, eliminates the stupid from the gene pool, you must assume that Japan is doomed. And parenthetically, the Japanese on their tiny little island making the mistake of committing horrifying cruelty and unbelievable barbarism in China, which is a huuuuuuge country with a national characteristic of veneration of the past and, I assume, revenge, proves that they do not truly think truly strategically.
Speaking of Kurt Richebcher, and as rational, thinking human beings we should be not only speaking of him but quoting him - at length! - to friends and family and co-workers and the clerk at the grocery store and even total strangers, is also the main guy exposing the fraud of hedonic (as in "feel good" I assume, and if there is one thing I know it is hedonism, especially the part about how much it costs) government calculation, as when he writes "Computer investment soared by $93.1 billion, of which $81.6 billion came from the hedonic spin. Each additional dollar spent on computers in the real GDP accounts during the year translated into eight additional 'chained' dollars, accounting, by the way, for 26% of real GDP in this time. The difference between the two measures of business computer investments is exploding." So, putting words in his mouth, not only is there a fraud, but it is getting more fraudulent as time passes, which we signify by showing a short video clip of a calendar with its pages being torn off, and then the pages are thrown into a wastebasket, scorned and rejected by everyone, which pretty much sums up my whole life, and I don't want to get into that right now, but I can feel that it will come exploding out in a torrent of raw, crippling emotional pain one day real soon, and the only way I can keep it from destroying my life is for you to send me some money, as I could use it right about now. Or even tomorrow. Whenever you can get around to it. Preferably now, of course.
But anyway, Dr. Richebcher continues, "As we have explained many times, these particular dollars are fictitious dollars that nobody has paid and nobody received. Obviously, such dollars inherently add nothing to profits. Putting it briefly and bluntly: The trumpeted brisk rebound in U.S. business capital investment is another bullish mirage lacking any serious substance."
And that is why he is a respected economist and international big shot and I am merely a sad and lonely little man poking around in the dumpster behind the WalMart, as I would never have thought to use the phrase "bullish mirage lacking any serious substance." The only phrase that comes to mind is "A lie! A big, fat, disgusting lie, told by disgusting, corrupt people, whose crimes - Nay! Calumny! - are such that it behooves the society to rise as one and to grab weapons like this M-16 here and snap in a full clip of high-powered ammo like this and go around shooting at all the houses that are owned by people who have been mean to me in the past, which is everyone as far as I can tell, and here is what I think of that weather vane, Mr. Brown!" and then I pull the trigger and blow that weather vane to smithereens, and in that dramatic way I poetically, because not all poems are written with a pen, show my displeasure with my government lying to me. Especially since it involves such a transparent lie that any third grade kid can see through it at a glance, and so they have insulted my intelligence, and thus my new civil right of having things not make me upset is violated. And thus they owe me! So what am I doing in this courtroom? This is a travesty of justice! Anyway, this is essentially my whole line of defense that I am going to use when my case gets to trial.
But win or lose, the important point is that hedonic measurement is exposed for what it is, and that it was most ardently exposed by Kurt Richebcher, and remember that there is an umlaut in there, which I do not use because I can't easily find an umlaut on my computer, and if he doesn't like it then he can just come over here and spit on me and call me names and express his displeasure about my horrific lack of personal hygiene and how he is revolted to even be near me, which I hope he doesn't do because I get enough of that at home.
But I bring it up as my way of helping the word get out, and maybe one day when some government yahoo is spewing this stuff, someone in the audience will yell out "Liar! Richebcher with an umlaut in there someplace has exposed that hedonic measuring crap, and the Mogambo helped to spread the word! All hail Mogambo!" And then everyone will join in, saying "All hail Mogambo! All hail Mogambo! Let's send him a few bucks because he sure could use the money," and then maybe someone will, and then I will be in the envious position of making money by doing a good deed, and that would be real nice, too.
Doug Noland, who is a regular fount of statistics that can make your stomach churn and your EKG machine to start frantically beeping, writes that Tom Sullivan and Christine Richard of the Dow Jones wires reported "Low interest rates and a recovering economy fueled a record $4.938 (up 25% y/y) trillion in global private sector bond sales for 2003." Calculating, because you know how I love to play with a calculator even though I have no idea what in the hell I am doing, by dividing the new census estimate of 290 million people in American, that works out to a tidy $17,938 per man, woman and child in the USA, even though it is global issuance of debt, and there are more people on the globe than us Americans, although none of them are as important as we Americans. "The numbers include issuance of corporate debt, federal agency debt, taxable municipal bonds, debt backed by mortgages and debt backed by assets such as credit card receivables and home equity loans. By comparison, issuance in 2002 totaled $3.938 trillion."
I notice that your hands got sweaty at that news, and I am wondering how you will take the news that "State and local governments borrowed a record $379.1 billion to close budget gaps at low interest rates... Total municipal bond issuance rose 6.5 percent from a record $355.9 billion in 2002." Closing budget gaps by borrowing. How scary.
Now I pull out the big stuff, and I quote Doug, and don't tell him that I called him by his first name, but I spend so much time reading his stuff that I feel as if I know him, although he never sends me so much as a birthday card, the little snot, "As for 2003, the debt issuance and market return numbers speak for themselves. Global markets experienced history's greatest liquidity surge and reflation. Asset inflation - both real and financial - was powerful and all-encompassing. Speculation and inflation were vigorous and indiscriminate. Debt and equity markets were stoked by an unprecedented surge in dollar liquidity and renewed speculation, along with a massive short squeeze. The upshot was a market abnormality with virtually all boats being lifted. Credit market speculation was unleashed to play the world. Unprecedented mortgage Credit growth and leveraged speculation fostered excessive dollar liquidity, while the faltering dollar played an instrumental role in the flood of global liquidity. It has had the look and feel of an historic 'blow-off,' yet it is being dangerously extrapolated into the future." When we look beneath all that sugar-coating, I get the impression, nothing that I can actually put my finger on, that he sees a bad moon rising.
Speaking of states, California's Governor Schwarzenegger has cut spending across the board. It will avail him naught, for it is exactly the same, in effect, as a tax increase.
I say this surprising statement because a tax increase reduces income by taking it away. And all state spending is somebody else's income, and now he is taking THAT away. So, in the final analysis, somebody is getting their income cut. And add in the damage done when they realize that a goodly part of the tax revenue they are receiving is because the state spending filtered through to produce taxable sales and income. And now, aggregate income is going to be down, keeping the fiscal balance of California in bad shape.
So the net effect of cutting spending is the same as a tax increase. And this is why I say, in a voice that is both unnecessarily loud and shrill and which may explain why nobody will get on an elevator with me even though there is always lots of room, that there is no easy way out of a credit and money-fueled boom. Cutting taxes won't do it. Cutting spending won't do it. And that is why, and this is the important part and you can be sure that it is on the mid-term exam, it is so damnably necessary that you NOT get into a excess money and credit-fueled boom in the first place.
That is why, and you knew I was going to bring up the Constitution thing sooner or later, so wipe that surprised look off of your face, the Founding Fathers wrote into the Constitution that money shall only be silver and gold, and there was no provision for a central bank. We ignored them and their legally-binding advice, and now we are going to pay the price for our outrageous and inexcusable stupidity. Or, more precisely, the outrageous and inexcusable stupidity of FDR, whom I fondly refer to as a filthy commie bastard, who did it, and the Supreme Court, which allowed it.
Dan Denning is a real bright guy, and I am not, and that is probably why he is the editor of Strategic Investment, and I am not, although I make up for it by also having a lot of interesting but serious character flaws, which would also explain the difference between our two circumstances.
But he shows his smarts by saying something that I do not understand, and never will be able to understand, even though I am sure that any fourth-grade kid could write a doctoral thesis on it, but he says "The fate of the American stock market is now linked with the dollar. And as the dollar falls, so, too, will most (though not all) stock prices."
Now, in completing my FBI Profile, I am proud to be one of those loudmouth fringe lunatics, and if you read the reports you will find out who is also an ARMED loudmouth fringe lunatic, and so say it with a smile, who thinks that stock prices have almost nothing to do with anything, including the dollar, and that people, domestic and foreign people, any people, including strange visitors from a distant planet from a galaxy far, far away, will cheerfully buy them with all their spare cash, and put their retirement accounts, and make sport of them every day of the week. And I am absolutely sure that if the dollar crashed to literally zero tomorrow, that the talking-heads on TV would be screaming that stocks would be screaming bargains, and that people would buy them, if they had the money, and if they don't have it, they will borrow some against the equity in their houses to buy the stocks.
He also laments that "America is the most hated nation on Earth," as I have often keened about, as I really liked the idea of us Americans wearing the white hats and rescuing the damsels in distress and being champions of the underdogs all the rest of that "Truth, Justice and the American Way" folklore. He goes on to ask, "How could it be that less than 15 years after the collapse of the Soviet Union, America has replaced the USSR as the Evil Empire?" The room grows quiet as the Mogambo clears his throat and raises his hand to be recognized. Immediately, everybody else raises their hands, too, asking to be excused, and the more desperate audience members bolt for the exits.
Too late, as I begin with my usual monotone. "I will endeavor to answer that one, Mr. Denning," I say. "It all started when the Earth cooled, and one-celled creatures appeared in the primordial sea, and to make a long story short, time passed, and we arrived at today. And as my latest attempt to produce powerful productivity in my every word and deed, as I am The Mogambo, I will now simultaneously cloak myself in jingoistic claptrap and note that there are thirteen stars on the American flag, and thirteen original colonies, and the answer is likewise thirteen words long. The Clintons, the Democrat Party, Bush, and Alan Greenspan at the Federal Reserve." The audience was, to put it mildly, stunned. It was a milestone in profundity and productivity, and the Mogambo sits back down, and with a big, silly smile of smug satisfaction on his face.
You are probably asking yourself, "So what? How can I, personally, make a lot of money on this information, so that I can quit my horrible job and have a lot of money to travel around showing off how much money I have, by spending it on toys and the consuming the best of everything in a fit of greedy, glorious gluttony?" Well, I was going to call him up and ask him, but before I finished dialing the phone, he provided the answer to that very question. "What America was to the 19th century, China is to the 21st. A great global force of production and falling prices has risen in China. It is the world's largest producer of goods. It will soon become one of the world's largest consumers of commodities. These two developments will mean the continued decline of American manufacturing and a tremendous bull market in," and here I pause for dramatic emphasis, "commodities for U.S. investors."
I am assuming that you are like me and your ears actually twisted around on your head, like an alert dog hearing a can of dog food being opened, when he uttered the phrase "tremendous bull market in commodities for U.S. investors." Now, substitute "grubby, greedy speculator in search of obscenely bloated profits and involving no heavy lifting" (or, better yet, the shorter term "you") for the term "U.S. investors." Now, substitute "gigantic, unbelievably huge gobs of free money" for the bland term "bull market," and you will see how, once you strip away all of the fuzziness, he was actually saying "Tremendous, gigantic, unbelievably huge gobs of money in commodities for you, a grubby, greedy little speculator who is interested only in amassing inconceivable amounts of wealth so that he can unleash a vicious revenge on a cruel and unforgiving world, and produce some gut-wrenching levels of envy in the neighbors that hate you almost as much as you loath them." Well, I just threw that last part in there, but it adds a certain realism to the whole thing.
Mr. Denning also predicts, "A new era of trade wars." Now the effects of trade wars is to impoverish one set of people while enriching another set, which, oddly enough, ends up impoverishing them both.
On a paranoid level, and there are those who think that I cannot get more paranoid, as I am already setting new records ever day, he says "Look for an increase in terrorist activity as the terror network attacks American resolve."
If you have been in a cave for the last couple of years and so you have not noticed the meteoric rise in gold, he reminds you where people go when the things like the above really get cooking. "Sometime in the next two years a big move in gold is coming." Now, this is the second or third time in the last week that somebody has pointed out the relevance of the next two years as pertains to gold. The back-of-the-envelope average is gold doubling in price in two years, tripling in five. Already it is selling at the highest price in fifteen years.
Now you may be one of those hard-headed people that thinks that maybe Mr. Denning is too pessimistic, and how could he know any of these things? Search me. In his defense, I will note two things: 1) he is smart enough to refuse to have absolutely anything to do with me, so that puts him one up on everybody else who has ever made the mistake of taking my call, or responding to an e-mail, or a fax, or a letter, or a telegram, or even coming out of their house late at night and asking me to stop rummaging around in his trash cans, and 2) he has closed his essay with the profound investment genius of billionaire investor George Soros, who offered the immortal advice, "Find The Trend Whose Premise Is False - Then Bet Against It."
And when you do, you will, once again, find gold is a perfect investment.
And you don't have to listen to me. BBC News reports that the Vietnamese, of whom I know almost nothing except that they are an Asian people of some kind, kicked France's butt and then America's butt in the Fifties and Sixties and Seventies, and me and the missus sometimes go out for Vietnamese food which is very good, not too heavy on the sauces, are stepping up their purchase of gold by another ten tonnes per year. The title of the article was "Vietnam Plans Gold Buying Spree." So the Vietnamese, and remember that these are determined people from a tiny little country who had enough smarts to be beat up two of the biggest superpowers in the world, are diversifying out of dollars and into gold, and you gotta respect the acumen of guys who can use a few bamboo sticks and surplus AK-47's to whip a superpower to a standstill.
Marc Faber, one of the true big-brained hotshots of the economics world, has written, "I remain convinced that the present 'strong' recovery phase in the US economy won't last for long, as it is totally artificial. There are simply too many imbalances in the system, as reflected by a record low national saving rate, record household debts, and record trade and current account deficits, for this recovery to lead to sustainable strong growth that would justify the present stock valuations."
I'm not sure if Martin Weiss of the Safe Money Report personally knows Mr. Faber, but they are obviously on the same page as Mr. Weiss writes, "If you bought the average Nasdaq stock right now, you'd have to wait a full 140 years - until the year 2144 - before the companies could produce net profits that add up to the amount you invested."
Even Bob Wood of KMA writes, "But there are other things that keep me bearish that are much simpler and easier to understand. Like how the greatest investors of our time like Buffett, Soros, Rogers, Templeton and Grantham are for the most part out of this market. Why are the bulls telling us to rush in the front door as the people that know their businesses better than anyone are scrambling out the back doors? If the greatest investors of our time are out of the market, why are we in it?"
And Mr. Faber is right, and if you care to go and look at any book on economics, and I wish you would because I am too stinking lazy to get up and do it myself, you will note that no author of any book has ever, and I emphasize "ever," related any of these imbalances as the start of something wonderful. To the contrary, they are always listed as precipitating factors that caused calamity.
He goes on to quote Joseph
Schumpeter: "Our analysis leads us to believe that recovery
is sound only if it does come from itself. For any revival which
is merely due to artificial stimulus leaves part of the work
of depression undone and adds, to an undigested remnant of maladjustments,
new maladjustments of its own."
"Noteworthy is that US consumers have increased their spending for an unprecedented 47 quarters in a row (the last downturn was in the fourth quarter of 1991) and more recently, consumer spending rose largely as a result of higher borrowings. Private sector saving, private sector investment, household consumption, government spending, government revenues, capital flows, and trade balance all react upon one another - often in surprising fashion. We live in a complex system: each piece tends to function as both symptom and cause."
Which is exactly what I have been saying all this time, namely that all things are connected to all things, and all things necessarily influence all other things, but when I bring this salient point up, I am sure that this Bernstein guy will easily prove that he has been saying it for longer than I have, and that I am just a lackluster copycat who has never had an original thought in my whole life, and then it will escalate into a lot of name-calling and screaming and threats, and then our wives will be drawn into it, and then they will start fighting with each other with lots of hair-pulling and scratching out of eyes, and then me and Bernstein will open a few beers and a can of peanuts and watch them go at it, maybe making a few side bets, and then everybody will get either tired or drunk and then we will just all go home, tired and exhausted, leaving it unresolved.
He also dryly notes that US household sector debt to net worth is at an all-time high, and he quotes Merrill Lynch's chief North American economist, David Rosenberg, as saying "The amount of leverage relative to the size of the consumer balance sheets has never been as large as it is today."
To elaborate on this interesting factoid, he notes that "In fact, since 2001, real wages and salaries have declined (they declined by 0.2% in the 12 months ended September 2003)." So, adding it all up, debts are up and means of paying them are going down. And, once again, I admit to a complete lack of education, as I have never heard of a successful economy that had record-setting debts that steadily increased, coupled with falling real incomes with which to pay the debts.
Then Mr. Faber says something that I have been screaming about, namely, "I may add that the decline in real wages and salaries was far worse than official figures would suggest, because the US government has been purposely understating inflation figures by a wide margin." I am impressed by the way he refrained from screaming it at the top of his lungs that the government is a lying bunch of corrupt weenies and that they are all out to get us, but Mr. Faber is obviously too classy of guy to steal my thunder. But my anecdotal evidence is that prices are rising a hell of a lot more than official releases state, and I note that an issue of Barron's went to four bucks a pop, up from $3.50, which is, percentage-wise, ummm, let's see if I can remember how to calculate this, either 14.3% or 1,984,643.67%.
Mr. Faber goes on to say "This highly artificial recovery is, in our opinion, not sustainable for very much longer, although we should all realize that the Fed is fully aware that asset prices must, under no circumstances, be allowed to decline. In fact, the Fed will try to make them appreciate even further through highly expansionary monetary policies." And this is why the stock market was almost guaranteed not to go down before December 31, and, sure enough, it didn't.
In a remarkably similar vein, not enough to be spooky, but close, we have the Daily Reckoning people saying, "Greenspan acknowledged that he might have raised rates to prick the bubble. But that would have meant a real correction rather than a phony one. A falling stock market would 'bring the whole economy down with it,' warned Greenspan."
Now as far as I am concerned, no truer words were ever spoken, and that is why Mr. Faber and the DR people are so fearless as to say it, as the retirements of everybody is now tied to the stock market, the wealth effect is now tied to the stock market, interest rates are now tied to the stock market, most of the buying and selling in America is directly related to buying and selling of stocks, a huge fraction of the entire US economy is the buying and selling of stocks, and a huge, humongous wad of tax revenues to the government are a result of gains in the stock market, and in fact everything economic and financial is now tied to the stock market.
Or, as Stephen Roach at Morgan Stanley puts it, "The ascendancy of asset markets has resulted in a significant shift in the mix of America's internally generated economic fuel - away from earned income toward the wealth effects derived from investments in stocks, bonds, and property."
This explains why the government is so anxious to keep Americans enamored with the stock market, and why Eliot Spitzer got a $1.4 billion settlement from America's top 10 brokerage firms, but not a single person, in those firms, not one, faced criminal charges or admitted any responsibility whatsoever. So now acting criminally is now just a small fine, which is the same as buying a license to steal. And it is even better than a license, since if you don't get caught you get to keep the money, and if you do get caught, then all you have to do is buy the license! And so you can be sure that there is nobody out there "cleaning up his act."
So you can see why the Fed is so anxious to, as they so cleverly put it "prevent deflation," which means, literally, "prevent stock prices from ever going down, no matter how many frauds we have to commit, how many lies we have to tell, or how despicably we have to act." And while I am talking about acting despicably, I am sure that you recognize that this is the perfect opening to rag on Ben Bernanke, but to show you that hanging around with classy guys will rub off on you, I will not do it. Although I want to, and usually take any opportunity to do so ("Hey, neighbor! Taking out the ol' trash, eh? That reminds me! Ben Bernanke of the Fed is a real piece of trash!") and he so desperately deserves it, but I will take this one opportunity to act like a normal human being and just let it go by, even though it really gripes my butt to do so, and secretly in the back of my mind, I am making a mental note to rag on him TWICE as soon as I get another opportunity.
And as bad as it is here, you can only imagine the pressure being brought to bear by foreign governments and investors, who are up to their armpits in US assets, who are probably becoming aware that the stink is not their own armpits, but the US assets that are piled up to that point, and which ARE starting to stink.
Jay Shaft, writing on the website AxisofLogic.com "How much worse can it get? When will mainstream America wake up?" sounds just like me, so much so, in fact, that I quickly ran through a few court transcripts and psychiatrist reports to see if I have ever used the name Jay Shaft as an alias. Nope. But apparently he is a real guy and not another of those multiple personalities of mine that keep popping up. Even though he sounds like me, I secretly dread that he is more handsome than me, and probably taller and has gobs and gobs of thick, wavy hair that has Hollywood starlets panting, and probably even has a neighbor, or even several neighbors, that are NOT suing him in court, although, as I said, he sounds exactly like me.
But he said something that I have noticed too. He writes, "I had an amusing conversation with a so-called 'normal' American the other day. I was presenting him with the current figures on how bad it really is on all the issues he mentioned, and he acted like it was something he had never heard before. I realized that maybe he never has heard how bad it has gotten, and maybe he didn't want to hear it. His shock and anger were immediate and vitriolic in nature. He denounced me as a liar, and claimed I was making these things up out of thin air."
"The fact that most of the figures and facts I gave him were from US government agencies and the newest reports did not even slow him down in his attacks. I repeatedly pointed out that the facts were coming from his oh so loved government and he almost physically attacked me. I even showed him the printed reports from various agencies and he accused me of fabricating them completely."
I'm not sure who coined the term "Americanus boobus," which can be defined as "Moron living in a dream world," but this is its spoor.
"These people seem to be totally oblivious to the fact that homelessness has risen by 40-50% on a nationwide level and that poverty has reached an all time high. They don't know that the US is last in education levels among first world countries, that the deficit is greater than ever in recorded history, that the unemployment rate keeps climbing despite Bush claiming otherwise, or all the other grim facts of life in America."
I, personally, put it down as the grim result of a thing that he touched on, namely "The US is last in education levels among first world countries." Last. Dead last. By a long shot. We even had to adjust downward ("norm") the SAT scores because the American students, the kids who are supposed to be so bright and make so much money and can support us in our old age, can't even pass the dumbed-down SAT's anymore.
And I am here to tell you, and you can tell by the way I am ferociously grasping you by your lapels and screaming in your face and how my eyes are bugging out in fear and anger, that a rising poverty level is never a good sign, and is always a precursor to something ugly, usually reminiscent of the French Revolution, and I am sure you know how well that turned out. And why is poverty increasing? Because prices are rising faster than wages. To keep wages from rising, we have taken the bizarre path of letting illegal aliens come here and take the rotten jobs at those starvation wages, so in this clever way THEY will be poor, and they can't do anything about it, because we can deport them! Hahahaha! I'll bet that if those French jerks had thought of importing Mexican illegal aliens to do all the work for starvation wages, they wouldn't have had the French Revolution! It's just another example of how we Americans are smarter than everybody else!
A woman was recently attacked by a mountain lion, and all the on-lookers could do is throw rocks at the predator as it dragged her away by the head. If only one of them had taken the ordinary precaution of having a handgun, perhaps something in a large caliber semiautomatic with an oversized clip and a feather-touch trigger, then everything would have been fine. But noooOOooo! You can bet that if the Mogambo was there, the air would still be tinged with the acrid smell of burnt gunpowder, the landscape would be knee-deep in spent shell casings, and all that would be left of that damn mountain lion would be a few scraps of fur that were too small to even perform DNA tests on.
This distressing episode is also the natural progression from passing laws to protect predators while eliminating the natural food source of the mountain lions, and then the predators get hungry and desperate. The bottom line is that that poor woman was killed not by a mountain lion merely trying to stay alive, as do all animals, but by the defenseless unarmed jackasses and tree-hugging wimps who think that nature will respond to their kindness with kindness, although most of the animals in the world that comprise "nature" probably think we taste like chicken for all we know.
In keeping with that, there is now a pesticide-resistant mosquito, just as there are antibiotic-resistant germs, all thanks to the overuse of pesticides and antibiotics that wipes out the susceptible variants, but lets those with evolutionarily-enhanced resistance live and multiply, and so we have produced super-bugs.
Humans are such jerks, who can spell "evolution" and can wax eloquent about "survival of the fittest," but have no idea what in the hell it means, and always act surprised when forcefully reminded.
If you want a job of the future, then learn to speak Chinese, as there will be plenty of Asian tourists traveling to the USA in the coming years and decades, as the worthlessness of the US dollar will make America into a cheap vacation paradise. And there are lots and lots of Chinese, so even a small percentage of them coming to Disney is a huge wad of people.
David Callahan writing in the Jan 8 edition of the Christian Science Monitor, intones "Barely a third of households hold more than $5,000 in stock. Most Americans have more debt on their credit cards than money in their mutual funds."
Does this imply that the average American owes more on his/her/their credit cards than he/she/they has/have in his/her/their retirement account/accounts? He doesn't say.
Anyway, to this hypothetical average American I guffaw in contempt, and if you have ever seen me guffaw then you know I am deadly serious here.
My latest escapade with the microwave and the car made me aware of accrual accounting, and so I sat down and figured up that if I have to replace all my appliances and consumer goods every six years, on average, then two cars, two computers, the air conditioner, the stove, the refrigerator, the dish washer, the washer and dryer, three TV's, the stereo, the video games, not to mention the lawn mower and painting the house and all the rest of that constellation of stuff that defines "American standard of living," then it comes to about $60,000, and that means that I have to spend ten grand a year, and those are after-tax dollars, just to achieve standstill. No wonder there is so much borrowing!
And this brings up a point from a reader, who asks if I have any tips for people who are NOT rich. And I say yes, I have. Spend less than you make, stay out of debt, and invest wisely, and then one day you will be rich, unlike the majority of your neighbors, who spend more than they make, assume un-payable debt load, and will one day be very, very poor.
The International Monetary Fund, and I will refrain from calling them a bunch of low-IQ commie bastards only because I have said it so many time before, has waded into the financial state of the US, and, of course, has bad advice to generously dole out to us. Apparently they figure that we are too stupid to notice the parlous effects of their advice to other countries all these years, and that we will sit still for them lecturing to us, the guys who are the primary funding source of the IMF.
Anyway, it only goes to show that the IMF losers are seriously behind the times, as they are still wailing about how high government borrowing needs will "crowd out" private borrowing and drive interest rates up and blah blah blah. This logical argument had some validity back in the olden days when the US dollar was gold, or backed by gold, or had some relationship to gold, and so therefore the money supply was more or less fixed. So, therefore, higher borrowing by government meant that there was, ipso facto, less money available to be borrowed by everyone else.
Those days are long gone, and Ben Bernanke and his printing press can merely print up as many dollars as anybody wants. Therefore, there can never again be such a phenomenon as the dreaded "crowding out effect."
The Wall Street Journal is no big fan of the IMF either, although their economic acumen is highly suspect, as when they write in the January 9 editorial "The IMF Votes Dean" that "As long as the Federal Reserve maintains a firm hand on the monetary tiller and a watch on the dollar's value...then the earnings from US growth and investment should be more than able to repay any accumulating debt." Huh? What in the hell is THAT supposed to mean?
For one thing, right off the bat, the Fed does NOT have a "firm hand on the monetary tiller," and are instead recklessly producing money and credit at breakneck speed to keep all the bubbles from popping. Secondly, they are obviously NOT keeping "a watch on the dollar's value," either, as hardly a day goes by that the dollar is not worth less and less.
And even if the Fed WAS doing both of these things, what have they got to do with "earnings from US growth and investment" that are supposed to produce some glut of money to "repay any accumulating debt?" One does not necessarily follow another.
This particular idiocy is an extension of the New Age fallacy that all that matters is interest rates, interest rates, interest rates, and the logical extension that if interest rates are low enough then economic vigor always follows, as night follows day, and as insults predictably follow my pathetic attempts to be clever. The WSJ may believe it, and the Fed may believe it, and the economic twits at Princeton may believe it, and all the economists in the USA that you can gather together into a gaggle may believe it, and if you are familiar with geese and geese-related terms you will no doubt notice that "gaggle" refers to geese, which are renowned for their group herding behavior, and I use this goose-related metaphor to characterize the stupefying uniformity, and even more stupefyingly wrongness, of the laughable opinions of economists in the USA, but economic growth and economic health does NOT automatically flow from lower interest rates.
Although one would think that at least once in the last fourteen years, maybe out of sheer boredom or something, that somebody at the WSJ, or someone at the Fed, or maybe one pinhead graduate students at Princeton, or any thousands of so-called economists wandering aimlessly around the halls and offices of America, dazed and drooling on themselves in contemplation of the basic fact that they have no idea what they are talking about as evidenced by their egregious performance, would have noticed that Japan has exposed that lie, as they have kept interest rates at almost zero the whole time, and without any apparent beneficial effect.
And here in the good old USA, interest rates have been pounded down and down and down for year after year after year, to levels seen only a few times in the last century and always then in response to emergency situations, to little effect, except to 1) make debt levels monstrously bigger to prevent 2) the debt bubble from imploding until some later date. Ugh.
---Mogambo Sez: This afternoon I watched Alan Greenspan address the German Bundesbank. He admits that we have problems, but they are all manageable if we remain, and I quote, "flexible," which is Fed-speak for "Acting like idiots and doing things that are suicidal in the long run, and which no serious student of economics has ever espoused in the entire history of economics, because if they had, then everybody would have laughed at their laughable incompetence and somebody would have thumped them on the head and it would have hurt." Now I am feeling ill and more scared than ever, and expect the Germans to rise in indignation and declare war on us to keep us from breeding.
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The Mogambo Guru Lives!
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.
"Financial Reckoning Day: Surviving the Soft Depression of the 21st Century"
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