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Take your damn shoes off! Shoes off! Shoes off!

Richard Daughty
...the angriest guy in economics
The Mogambo Guru
email: scgcjs@gte.net
February 3, 2005

- The heavy lifting this week was done by the banks, which soaked up $26 billion in government debt (!), and a little help from foreign central banks, which absorbed $3.8 billion of US debt themselves. The Treasury, always ready to spend us into the poorhouse, sold oodles of fresh US debt last week, bringing us up to, as of today, $7.627 trillion in debt.

Rubbing my eyes in disbelief, corporate bonds again went up in price and down in yield, to another new record! This was at the exact same time as fresh evidence of rising inflationary pressures is spooking me out, as the Gross Domestic Price Deflator bumped up to 2%, and the Employment Cost Index also went up.

Total Fed Credit, that mystical place which is the Fount From Which Magical Money Appears As If By Magic Which Is Then Compounded By The Banks Via The Fraud of Fractional Banking (FFWMMAAIBMWITCBTBVTFOFB ) is actually not expanding at it's usual, out-of-control clip. Whether or not this is the start of something big or is just a random wiggle in the chart, I don't know. But if it IS a change, then look out below! As usual, and you technically-oriented people have already noticed, it again coincides exactly with the performance of the stock market this month.

- I recently read somewhere, by some moron, that the reserves at the banks still constitute about 10% of liabilities. Hahahaha! In 1997, liabilities in the banks were about $2.5 trillion, and reserves were $45 billion. Today, liabilities are $4.7 trillion, and reserves are $43 billion! Hahahaha! Liabilities almost doubled, and reserves actually went down! Hahahaha! Central banking at its finest!

- The Daily Reckoning.com site was talking about a coin show that they went to, and there was a lot of activity in ancient coins, the kind you find when you "explore old Roman dwellings with metal detectors." Then they go on to say "More importantly, we saw evidence of a bear market in the dollar. Why? Because everyone there was from Europe!" Apparently, most everybody was from Europe! These foreign devils were all saying the same thing, namely, "With low interest rates in Europe, and such a horrible dollar, they all come over here looking for bargains."

And that brings up a tasty tidbit from Bernard von NotHaus' terrific book "The Liberty Dollar Solution to the Federal Reserve ", which is actually a terrible title because the whole first half of the book is packed, top to bottom, margin to margin, with what really smart people have said for centuries about fiat currencies, central banks, fractional reserve banking systems, and all of the horrors that happened when people tried to use any of them. But the point is when he notes that in 1921 Germany was required to pay reparations to the winners of WWI, but that "Germany was barred from selling its goods at a fair market price and soon started printing paper money. Prices began to rise immediately. Germany became a bargain basement for anyone with US dollars, pounds or any other hard currency backed by gold and silver." Now the US is a bargain basement area, and that is why you are seeing so many foreigners over here buying stuff.

But the Weimar situation is similar in the USA today. While we are not required to pay war reparations to anybody (as far as I know, although we seem intent on giving tons and tons of money to countries all over the globe!), we are printing money with the same reckless abandon. And perhaps that explains why the Europeans are viewing the USA as such a bargain, since the dollar is so cheap, although still overvalued.

And it is destined to get worse and worse. For one reason, let's take a look at another entry in Mr. NotHaus' book, where we read that "When Julius Caesar came to power, a third of the people of Rome were on the public dole." Another similarity! The Romans were obliged to print money to keep these people supplied with "bread and circuses", as the popular expression goes, and ditto the buttheads in the Congress, who feel that they are obliged to keep providing free stuff to the legions of Americans on the dole, which I define as "somebody getting money from the government." And when you count them up, I am sure that is a LOT higher than some piddly third of the population.

But as far as rare coins are concerned, I admit that my interest in them is minimal, and I don't own a single one. But I am a speculator of sorts, and have loss carry-forwards on my tax return to prove it! But as a speculator, my Mogambo Speculator Juices (MSJ) get flowing when I hear that there is increasing buying pressure in a market that is strictly limited in size, and especially one that involves buying gold at these low prices. And I stand up on the couch to say "gold is a bargain at these prices, because when the dollar really starts falling, you are going to see gold selling at literal multiples of the current price! And don't get me started on the merits of speculating in silver, which will almost certainly achieve a bigger percentage gain than gold!" Sadly, the message would have been more powerful, perhaps even memorable, if my wife had not started screaming "If you're going to stand on the couch, take your damned shoes off, you big stupid moron! Take your damn shoes off! Shoes off! Shoes off!" So finally I just got down off the damn couch so she would just shut the hell up, but the magical Mogambo moment (MMM) was, alas, ruined.

- I know you get tired of me turning on the Mogambo Siren And Neighborhood Audio Alert System (MSANAAS). A much more dignified approach is taken by Comstock Partners, who say that "The Commercials, often called the 'smart money,' have amassed a rather substantial net-short position in S&P 500 futures contracts. They have placed their biggest bet against the stock market in recent memory. The stock market is setting up for a significant decline beginning early this year and continuing into 2006."

I hit the "pause" button, and I direct your attention to the word "significant." Then I draw the camera back a little bit, and direct your attention to the phrase "significant decline", which is a little more interesting. And pulling the camera back a little farther, I now direct you to expand your vision and contemplate the significance of "significant decline beginning early this year."

If you are like me, you ran to the calendar, and were struck by the fact that we are in the aforementioned "early" part of the "year," thus qualifying this temporal moment in the space-time continuum as where the "beginning" is supposed to be! We are here!

Comstock Partners has an opinion about that, too. "Early 2000 marked the end of an 18-year secular bull market similar to those from 1921-to-1929 and 1949-to-1966. Each of these periods was followed by multi-year secular bear markets." And what does the phrase "multi-year", as in "multi-year bear markets", mean to you? Hint: twenty to thirty years.

Besides the cyclical nature of things, the cycles are remarkably similar in many ways. I know what you are thinking. You are asking yourself, "Hmmmm! How interesting! I wonder what he means?" Well, I could, of course, explain in my long-winded, pedantic way that everybody hates, and that probably explains why I have no friends, and even if I had any friends they would soon learn that being long-winded and pedantic is the LEAST of my many problems But I won't. Instead, I will motion with a wave of my hand for these Comstock guys to go on, and they say "The peaks of the bull markets were featured by high valuations, excessive speculation, investor euphoria, and a belief that markets had reached a permanent new level of high valuations (a new era)."

I was going to stand up and put in my two cents about the high valuations of today's stock market, but those Comstock guys continued, "The S&P 500 is selling at 21 times trailing reported earnings with a skimpy dividend yield of 1.8%. Investor sentiment is frothy while equity mutual funds maintain historically low levels of cash as a percent of assets. At the same time the Fed has now raised rates at each of last five meetings with a sixth one likely soon...The federal fiscal policy that created a strong tail-wind for the market over last two years is now in the process of reversing and becoming a head-wind instead."

- George Ure's UrbanSurvival.com site made mention of the sudden seeming increase in earthquake activity, and how this is evidence that the earth's plates are in motion. And there are other anomalies lately, such as solar flares, Florida's astonishing string of four hurricanes in a single month, and lots of other things. For a change, Elvis is not involved, as far as I can tell, and UFO activity is still relatively quiescent, which I gather from waiting in the line at the grocery store and reading the covers of the periodicals on the rack, where I can also learn to reduce my fat, awaken the youthful spirit that dwells in all of us, put zip back into my love life, and achieve miraculous changes in my appearance, at home and in my spare time, using a Secret Oriental Blend Of Herbs And Spices. Plus, Nostradamus is still popular, although that guy never has anything good to say about anything.

For example, I hang my head in shame to admit that I put two bucks a week into playing the lottery. It's always the same routine. I buy the ticket on Saturday. I spend the rest of the day thinking of all the things I will buy when I win, and the wave of revenge that I will unleash upon a cruel and uncaring world that has crushed my spirit. Then, when I don't win, I record this as proof that they are out to get me. But this week I matched three numbers, and it paid five bucks! And there is nothing in Nostradamus about THAT! So to hell with him!

These are all bad things, and they depress the popular mood. At least my wife's mood is depressed here lately, and she has been sighing a lot, and when I ask her what is the matter, she merely sighs again, and with a listless voice she replies, "I guess I'm just getting bored with making every moment of your life into a living hell" which I think is real good news for a change, at least for me! But when the broad social mood changes, according to Robert Prechter's Elliott Wave Theory, the market changes along with it. Ergo, when the social mood darkens, as it is now, the market darkens.

Perhaps the social mood has something to do with, and I am just throwing this out for discussion here, money, since everything is always about the money (EIAATM). According to the Commerce Department, the U.S. economy grew at 3.1 percent, at an annual rate, in the final quarter last year. I like this next part: The economy grew at "its slowest since the beginning of 2003 as the country's trade performance deteriorated and inflation picked up." If that is NOT the definition of stagflation (a stagnating economy and rising price inflation), then what the hell is?

The report also showed that our exports of goods and services fell at the steepest rate in two years during the same fourth quarter, while imports rose. Buying more and selling less! Wow!

But it is not economic stagnation that bothers me. If everything, including prices, stayed the same, then no one would be worse off. But in my Usual Mogambo Hysterical Way (UMHW) I screech that inflation (which is bad anytime) is made worse when the economy is not expanding enough to increase wages.

And, of course, speaking of money, we eventually get around to wages, and wages, the Labor Department report showed, grew the least in almost six years during the same doleful fourth quarter, as wages rose a meager an 2.5 percent over the past year , which happens to be the smallest increase on record. Compare that to a 3.3 % overall increase in prices for the year!

The lower end of the income scale actually had a fall of 1.7% in their wages, even without the inflation. WITH inflation, they are getting whacked. But the poor always are the first to feel the pain of inflation. Or, as reader George C. so aptly expressed it, "Our society is in a dwindling spiral".

But it is not just me and George! Mark M. Rostenko of The Sovereign Strategist is talking about the same thing when he says, "I find it fascinating that with all the disposable income this steamy fireball of a recovery is generating, household debt stood at 115.3% of disposable personal income in the third quarter of 2004. That's an all-time high for that figure. Funny that Americans, with a hyper-abundance of disposable income, are borrowing to make ends meet." And the reason is that they aren't making any more money than they were! They are making less real, inflation-adjusted, income!

Doug Noland characterizes it as "Wages and salaries rose 0.4 percent in the quarter, the smallest increase since the first three months of 1999. The 2.4 percent increase for the year was the smallest in more than two decades of record keeping."

He goes on to note that "The employment cost index rose 0.7 percent from October through December after a 0.9 percent increase in the third quarter. Costs were up 3.7 percent for the year after rising 3.8 percent in 2003, led by surging benefits such as health care."

But at least we may not have to listen to Alan Greenspan running his fat mouth about how inflation is low, because the Personal Consumption Expenditures, which is his favorite indicator of inflation (probably because it excludes pesky things like food and energy), went up at a 1.6 percent annual rate in the fourth quarter. This is, to quote the article "nearly twice the 0.9 percent advance posted in the third quarter." It almost doubled! Doubled!

Hey! Get Alan Greenspan on the phone! Tell them that Them Mogambo wants to speak to him in sharply critical tones about how he has been so blind to the inflation that has been coming all this time, and it is now REALLY showing up, because this fresh evidence of inflation is in his FAVORITE indicator. And because it is now showing up in that indicator, then it must REALLY be raging!

- Representatives of countries are having a wonderful time in Davos, Switzerland, for the World Economic Forum, which is, as characterized by Bret Stephens of the Wall Street Journal, "the world's premier gathering for rapacious plutocrats, neoliberal globalizers and assorted hangers-on." Commenting on the goings-on, Reuters reports that Germany has backed Britain's proposal for the International Monetary Fund (IMF) to write off debts of poor countries by selling or revaluing part of its gold reserves. Hey, wait a minute! These are the same morons who keep telling us that they and their central bank idiocies have it all under control! So why don't they just print the damn money and give it to the poor countries? They can do it! They have been printing up excess money and credit for forty freaking years in a row! And now, NOW, they are suddenly averse to printing up a little more currency? What in the hell is going on here?

Of course, the clownish British finance minister Gordon Brown, **arch-knothead, came up with the idea. **[Editor's note: See this fabulous old poster, All Mouth and No Trousers.] His words were "The first proposal of 2005 must be to deal with this historic problem of unpayable debt, the multilateral debt." What he means is that some countries owe Britain and Germany a lot of money because the selfsame Britain and Germany made a bunch of bad loans that only an idiot would make, required that the borrowers buy stuff from them to propel their exports, and now that the goods and services are used up to no avail, they are going to get predictably stiffed. But instead, they want ME to get stiffed! If you run into the Gordon Brown character, tell him that The Mogambo thinks that the first order of business is to find out how yet another group of nations got into yet another problem of borrowing too much money, and they ought to examine the scene of the crime to detect the fingerprints of that perennial failure, that loathsome commie organization, the IMF.

- The Iraqi elections were held, and people were elected. Now that it is all over, we have to listen to jerks bloviating about how democracy is some wonderful thing and how Bush is going to lead America to wage war on anybody who stands in the way. Perhaps it is too late to read the essay on LewRockwell.com entitled "What's the Argument for Democracy?" by David Gordon. He opines that, "Though it is easy to characterize democracy, recent political theory has been marked by a conspicuous omission. Virtually no argument is ever offered to support the desirability of representative democracy, and the little that is available seems distressingly weak. Why ought democracy to be either instituted or promoted, let alone exported, as a recent book by Joshua Muravchik (Exporting Democracy) advocates? One would think that as important a question as that of the best political system would have generated an enormous literature. In point of fact, most writing on the subject simply takes for granted the desirability of democracy and inquires how existing democracies may be improved. The issue of whether democracy is a 'good thing' is not thought worth raising."

As a case in point, the Soldier's Training Manual, issued on November 30, 1928, defines democracy as "A government of the masses. Authority is derived through mass meeting or any other form of direct expression. Results in mobocracy. Attitude toward property is communistic, negating property rights. Attitude toward law is that the will of the people shall regulate, where it be based upon deliberation, or governed by passion, prejudice and impulse, without restraint or regard to consequences. Results in demagogism, license, agitation, discontent and anarchy."

Harry Browne, at the Financial News Network, FMNN.com, has a few good words to say about this, too. "George Bush proclaimed his desire for world domination - to have the power and the right to decide who is good and who is bad, who shall live and who shall die, what form of government will exist in each nation." The operational phrase is, as far as I can gather, "world domination."

- For those of you who were apprehensive about America fiddling with DNA and the human genome, again the Mogambo was proved to be right when he said "If America does not want to do the research, there are plenty of others who will. And while we may not choose to lead in the effort, we will merely buy the results from other nations who do not have such a priggish, moralistic view about such things." As proof, according to the National Geographic News, "Chinese scientists have succeeded in creating a part human, part animal hybrid."

But we are not exclusively backward, as the scientists at the Mayo Clinic have created pigs whose "veins flow with human blood, and Stanford University is considering an experiment that would create mice that have human brains.

- Richard Russell, of Dow Theory Letters, has apparently been taking the pulse of The Mogambo, and says "There's something 'sick' about this market, and it's hard to put my finger on it. It's probably that the whole country is leveraged with debts and deficits, the entire US is a bubble waiting to burst, and the smart guys know it and the big money knows it. Ultimately, ALL bubbles burst, and I'm very much afraid the Fed has turned these United States into the biggest bubble economy the world has ever seen. Which, in the end, is the true rationale for holding gold. Sorry to say it, but that's the way I see it". Me, too, Mr. Russell! Me, too!

- John Mauldin, Millennium, quoting from George Muzea's book called "The Vital Few vs. the Trivial Many," provides us with a bit of market lore when they write, "When there is a divergence between insider selling and public opinion (thus the Vital Few vs. the Trivial Many) it is an indication of major and intermediate tops and bottoms. What we are still seeing today is a very bullish public and insider selling - not a good sign."

This becomes clearer when Mr. Mauldin notes, "The Leuthold Group notes that in January, usually, there is a net inflow into the market. "But this year, January is not only shaping up to be a month of net redemptions, but record net redemptions."

Mr. Mauldin anticipates your next query. "My thoughts? I think we drift down from here with a last gasp rally later in the early spring, then into an ugly summer, much as last year, with a late year rally after tax loss selling by institutions (mostly mutual funds), which must sell by October 31st, if they are to balance their gains. Will the rally recover to new highs? It did last year, but I think the economy will be seen as weaker in the winter of 2005. Thus I expect the market to be lower at the end of the year. We do not see the resumption of a real bear market until a recession is peering around the corner at us.

- Alan Abelson, in his Up and Down Wall Street column in Barron's,presents a chart by Ed Hyman and the ISI Group that divides existing house prices by the median family income. Sure enough, there is a bubble, a big one, or better yet BIG ONE, and what is more, there has never been a real estate bubble like this since 1970 (which is as far back as the chart goes).

- I have started getting mail from people who are alarmed at the way that George Orwell's Big Brother is taking over, and especially the new RFID device, which is nothing more than a tiny, tiny, eensy-weensy electronic device that will respond to an electronic query by transmitting its own identification number, thus identifying itself.

And if you have that RFID on you, then you are identified. How? If your money has an RFID, and if every piece of your clothing has an RFID in it, and your driver's license and all your other identification and credit cards have RFIDs in them, and if that new copy of "Hot and Horny Hotrod Honeys" has an RFID in it, then it will be impossible to keep anything secret.

But this can work for our advantage! Suppose I'm driving down the street where one of my many enemies live, which is almost any street in America as far as I can tell. I turn on my Mogambo RFID Hunter And Tracker System (MRFIDHATS) and see who he is spending time with (as they all have RFID's on them somewhere, too) and how much money he has in his pocket. Then I merely track him around for a few weeks, and sooner or later he is going to do something that I can use against him to make HIS life into a living hell for a change! Hahahaha!

And it does not even have to be the government, because you can bet your sweet keester that right now there is somebody out there who is designing and building something similar to the MRFIDHATS (although I won't see a lousy dime of royalties, and my lawsuit will drag on and on in court, and then we'll settle out of court for a nice settlement, probably a large pizza with everything, which is all I wanted in the first place until a lawyer got involved, the bastards!). But this is not about my legal problems, nor is it about my other problems, namely crippling emotional baggage that, in a normal world, would easily qualify me for a Handicapped Parking sticker for my car. No, I am here today to inform you that our privacies are doomed, and the days when you could get away with things, secret things, dirty things, fun things, forbidden things, delicious things, dangerous things, ("Anything, Jack, anything!") is over. Anybody with an MRFIDHATS and a lot of time on their hands can find out anything and everything about you. So, say hello to the New Virtuousness, or be ready to pay! Oh, Brave New World, indeed!

- JP Morgan Chase, as quoted in the Financial Times, estimates that global government bond supply in 2005 will be $2.320 trillion, which works out to a figure that is up two-thirds from 2001. Which will, since nobody has that much money laying around (well, may YOU, since you are such a brilliant hotshot and that is why you make the big money), the money will be produced by the world's central banks, which will make prices rise in a general inflation. Some things never change.

- Adam Hamilton, of Zeal Intelligence, writes that the dollar is turning into something as worthless as the Mogambo, which, according to my wife, has less than zero value, and everybody would be better of without me hanging around the living room and stinking up the place. He writes, "From July 2001 to December 2004 it has fallen by an amazing 33% bear to date. It is appalling that the average American who pays no attention to these things has no idea that the international purchasing power of his income and wealth has been cut by a third in only the past few years."

- In his article, "Gold Bugs Need a Dose of Humility," Joel Bainerman writes that the complaint of gold bugs, namely that the fate of fiat currencies (they all go to zero worth), is not guaranteed, and he presents some valid points about how The Mogambo is a big, fat idiot for being such a gold bug, although he did not actually refer to me by name, but I could tell that is what he was thinking. He writes, "It is not a given that 'all the fiat currencies will eventually collapse', and I hand you the Swiss franc, the Canadian dollar - the Australian dollar - and the English pound as fine examples. All might go up and down - but I can't remember the last time any of them 'collapsed' in the past 100 years." Three currencies, out of all of the world's currencies, including the hundreds and hundreds that HAVE collapsed, have not yet collapsed, and this is proof, he thinks, that fiat currencies do not collapse? Hahahaha! And the Swiss franc IS backed by gold, which explains a lot of why it hasn't collapsed, and don't get me started on how the Chinese are buying up Australia and Canada and pumping scads of money into those economies!

But the problem is not that currencies arbitrarily collapse for some unexplained reason. It is that the inflation caused by the irresponsible over-issuance makes them go down, and down, and down, in purchasing power. And every single one of the world's long experiment with fiat currencies has gone down in purchasing power, as do they all, until one day the word "collapse" seems appropriate. And if you don't believe me, then ask anyone who has put some of these collapsed and/or devalued currencies under their mattresses, and ask them how much purchasing power they have lost! Then ask the guy who put gold under his mattress and then, SAT-like, compare and contrast!

Eric Fry, in his Rude Awakening column at DailyReckoning.com, writes " gold's $4 drop yesterday reminds us of the risks of owning the yellow metal. On the other hand, the dollar's 40% drop over the last three years reminds us of the risks of owning the alternative." Hahaha! Well put!

In a similar vein, Sprott Asset Management Chief Investment Strategist John Embry is on record, loud and clear, that gold will hit at least $800 per ounce as "paper money is going to hell in a handcart." Embry said he believes even a $1,000/oz gold price may be conservative.

And he is pretty adamant in his belief that the gold market is being manipulated. Mr. Embry said "it would be extremely naive to believe that clandestine intervention is not occurring today." To that, he opines, "It appears that central banks are unwilling to allow the gold price to repudiate their excessively loose monetary policies. Near as we can determine, they have pumped as many as 500 million ounces into the market over the last 10 or 12 years."

Apparently the Turks are not on the same page as Mr. Bainerman, either, as Mr. Embry reports that imports of gold into Turkey were up 129% year-over-year.

And apparently there are more than Turks in the market, as Mr. Embry also said that bullion dealers in New York cannot keep up with physical demand in Switzerland, and that "all the world's gold refineries are running full out trying to keep up with overall demand. This is very important because physical off take is the key to breaking the stranglehold that the Comex paper traders have maintained on the gold price to date. Their recent machinations are providing physical buyers with cheap gold and they can't believe their good fortune."

He sums up with, "The only things you have to know to believe in gold at this juncture is that paper money is going to hell in a handcart, thus fuelling investment demand for gold, there is already an enormous gap between gold demand and mine supply that has been filled by central bank gold, and the central banks soon will not be able to fill that role. That equation adds up to dramatically higher gold prices."

- Jeff Ferguson "Is a Secular Bear Market Inevitable?" He defines a short term cycle as something that lasts 2 to 4 years, as opposed to a secular (30 to 40 year) cycle. Now, I see cycles in everything, such invisible FBI guys riding around my house on their invisible bicycles, which is not exactly the same thing, and I can also see invisible government helicopters hovering over my house, and over YOUR house, too, but don't tell them that I tipped you off.

But he writes, "Contrary to a common belief, equities didn't simply move sideways through the 1970's before moving to new highs with the great bull market starting in 1982. This illusion is caused by the inflation which plagued the period. Deflating the S&P 500 with the CPI reveals that the market peaked in 1969, not 1973, before falling 64% over the subsequent 13 years, ultimately bottoming in 1982." I will pause there to let the significance of that seep into our brains, as I am not sure that I comprehend the full significance, although there are several rude audience members who can't restrain themselves, and who blurt out that I am such an idiot that I can't comprehend the significance of a twist-off bottle cap, which is probably true, but beside the point. But if they had privatized Social Security in 1969, how would you feel to see that your retirement lost 64% in buying power, as you got poorer and poorer, until 1982? In effect, you can afford to buy slightly more than a THIRD of the basket of stuff you could have bought in 1969!

But it gets worse than that! He goes on to say, still adjusting things for inflation, "Stock prices failed to exceed the 1969 peak until 1993, 24 years later, and didn't move convincingly through the 1969 level until 1995." That's 26 freaking years in a row that you failed to break even in the stock market, i.e. before the 1969 level was reached. And how long will it be before the guys who bought at the exact bottom actually make a profit? Don't ask.

I know what you are thinking "Wow! The Mogambo was right! When adjusted for inflation, stocks bite the big one (BTBO) from time to time, like all the other investments BTBO from time to time!" If you were really thinking and not sitting there on the couch sucking down another beer and probably more than a little drunk, if not (like me) sloshed and sloppy, then you would think to yourself "Hmmm! Let me see! The Mogambo was right that there are long periods of time when stock are NOT going to increase your actual, inflation-adjusted wealth! And right now the stock market is still waaayyyYYYYyyyy higher than it has been, and is very, very expensive, and so is this really the best place to be putting my money right now?"

But can it get worse than that? Yes. I close my big blue Mogambo eyes (BBME) and I concentrate, concentrate, concentrate, and I am tapping into your brain, probing your subconscious, and I can tell that you are asking yourself, "How can it get worse than that?" Well, for instance, I could come over there and try to borrow your barbeque grill, and then keep in your face until you just give me the damn thing just to get rid of me. I am sure you agree that would be worse! But the authors were probably not referring to that. And sure enough, they go on to say, "At this point the weary, and rather aged, investor still faced capital gains taxes on a phantom 300% gain wholly due to inflation. Covering this tax liability likely extended the true recovery period to within shouting distance of the bear market in stocks beginning in 2000, the most recent peak in equity markets."

So, net of inflation, and net of taxes, the investing dudes and dudettes in 1969 NEVER actually showed a profit from their investing in the stock market! And the two authors did not even mention the fees and commissions and costs that their hypothetical investor would have had to pay to the greedy, grubby financial services industry all these years, nickel-and-diming you to death, including "inactivity fees" which you have to pay because you don't do enough trading to suit the guys who charge you fees for that trading. And, depending where you live, they neglected to deduct state taxes on the gains, and/or the value of the holdings! What a racket! And they call this "investing"" Hahahaha!

And now we are talking about putting Social Security money into privatization? The Mogambo tilts his head back and roars, which sounded a lot like "hahahahaha!" only with more spittle and an unmistakable undertone of contempt.

But of course the privatization of Social Security, or some tamer variant, will be passed, or they will simply increase taxes, or reduce benefits, or all three, as there is no other way. We are here with a gigantic, bankrupt system, strictly attributable to the stupidity of Congressional boneheads, which not only ratified FDR's New Deal idiocies in the 30's, but kept expanding them, year after year after year, letting more and more people gobble money from the Social Security fund, and increasing increasing increasing benefits for current beneficiaries. And when that predictably caused shortfalls, they increased the Social Security tax, adding the Medicare surtax, and then spending spending spending the resultant Social Security Trust Fund surpluses. And now here we are again. The Congress that we have now is more stupid, arrogant and corrupt than any other in the history of Congress, the Leftist morons on the Supreme Court have destroyed the Constitution by letting them do it, and a brain-damaged Federal Reserve has provided every dime of financing for the whole enchilada and destroyed the dollar for their efforts. Since nothing has changed, except to get worse, I am sure that taxes are going to be increased. Again. And again. And again. Ugh.

***** The Mogambo Sez: Too many forces are in play, and like any system with too many variables, unintended consequences will erupt. And it will be bad news all around.

Feb 2, 2005
Richard Daughty
email: scgcjs@gte.net

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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