 The Writing on the Wall
Richard Daughty
The Mogambo Guru
February 6, 2004
(01/29/04)
-->
Read Mogambo Sez click <--
The biggest news in the monetary
arena last week was that foreigners buying up US debt not only
hit another huge record, but the $22 billion one-week increase
in custody holdings at the Fed was also, as far as I can tell
from memory because you know I am not going to do any research
or real work, a new record, too!
Apparently I am not the only
one who is taking an interest in this, as the big-brained dudes
at Capital Insight estimate that the Japanese have created so
much damn money in the last nine quarters, which I figure was
probably all created to buy up US dollars to keep the yen from
getting stronger, that they have produced a mountain of money
that exceeds all the money produced in the previous, so they
report, fifty quarters, "stretching back to when the late-80's
bubble was at its height." Now that's a lot of money, and
roughly equal to what I spend on pornography and Cheez-Doodles
in a whole month! This has also produced the odd occurrence that
Japanese banks are now so awash in money that they are trying
to get rid of the damn stuff by loaning it to each other in the
overnight market, at negative interest rates! Literally paying
people to borrow money from you! To which I say "Hey, dudes!
Pay ME to hold onto your money!"
This is beyond unbelievable
to me, but then again I am the sort that sees an airplane weighing
several tons fly through the air, and I have a hard time believing
that, too. Perhaps it is part of the secret deals that the White
House are rumored to be making, as Cheney and other administration
hotshots are careening around the globe, apparently bribing foreign
governments to do things that no sane government would do, of
which this is probably only one minor example. And in return,
we are either giving them money outright, or promising to help
them when the Chinese juggernaut rises to its feet and starts
terrorizing the globe. Or both. Probably both, and other things
besides. Things that would probably make me plotz if I only knew.
Today, January 27, is Mozart's
birthday. But this newsletter will not be published until some
later date, and so by the time you are reading this, it is too
late to schedule any festivities. And now I can almost hear you
slapping yourself on the forehead and saying to yourself "Idiot!
How could you fail to celebrate the birthday of the greatest
composer the world has ever known, a man so gifted that all others
are eclipsed? What the hell is wrong with me?"
Well, I don't know what is
wrong with you, but as regards Mozart's birthday, there is nothing
wrong with the Mogambo, who is taking Mrs. Mogambo out for German
food in celebration, and be forewarned that there is an unsuspecting
wienerschnitzel out there whose rope is about to run out.
And in case you didn't make
the connection, Mozart beings with a "Mo" and Mogambo
begins with a "Mo," too, a highly significant happenstance
that I never noticed until the paragraph above, when I saw them
both printed out. But now I am actually overcome with the cosmic
ramifications of that, and all of a sudden I am strutting around
like I am hot stuff. Go Mo!
The Leading, Coincident and
Lagging Indicators came out. A big fanfare is being trumpeted
about the Leading Indicator, and about how it is up, and how
this is all wonderful news, and how this means you ought to buy
some more stocks, and start slapping your friends on the back
in your merry excitement, and exclaiming how things will be great
from now on because you will soon be able to buy Viagra by the
truckload. But notice by 1) the ominous, dark and foreboding
music in the soundtrack and 2) the way I am leaning up close
to your ear to whisper in some dark, conspiratorial way, that
nobody mentions the Coincident and Lagging Indicators.
Let me broadly define what
these three indicators are. The Leading Indicator is, once you
congeal the constituent items into a gooey, uniform blob, future
profits. The Coincident Indicator is, again summarizing, current
conditions. And the Lagging Indicator is essentially costs and
inventory burden.
Now, with that handy definition
under our belt, let's put down that comic book where Archie is
about to hit on Veronica again, and take a fresh look at the
Leading Indicator, and we notice that the future profits indicator,
and I am tempted to substitute the phrase The Big Enchilada for
the bland term "future profits," was up by a measly
0.1. Whoopee. Big deal. From 114.2 to 114.3. I yawn with excitement.
Now I personally have no idea how the literal number 114.2 or
114.3 was generated, but I am pretty sure that an increase of
0.1 is not very much at all.
Moving along smartly, we next
concentrate on the Coincident Indicator, now known as current
conditions, and we note with alarm that it was down 0.6, from
116.3 to 115.7. Oops. That nasty old Current Indicator seems
to be signaling something adverse in The Here And Now.
The Lagging Indicator, AKA
costs, was, and I am just going to blurt it out because you are
strong enough to take it, up 1.9 points, from 97.0 to 98.9. Wow!
So the biggest increase in the indicators was costs! And, if
I remember Finance 101, which I don't because it seems so long,
long ago, but it seems to me that there was a series of equations
that proved that higher costs (HC) have a nasty habit of turning
into higher prices (HP), because if higher costs (HC) instead
turned into lower profits (LP), then the manager's job (MG) turned
into days filled with lingering unemployment and career death
(LU&CD), and that somebody new (SN) has the old manager's
job (OMJ), and this new person (NP) with the old manager's job
(OMJ) will work like hell (24-7) to get some higher profits (HP),
and the fastest way (FW) to do that is to increase prices (IP)
as soon as possible (PDQ). And higher prices (HP) is the very
definition of price inflation (PI) which the Federal Reserve
(FR) says does not exist, so somebody has their head stuck up
their fat wazoo (FW).
So the next guy who tells you
that inflation is tame, and that it will remain tame for the
rest of your life and the lives of your children and grandchildren,
is a liar, like one of those boneheads from the Federal Reserve,
who are so fond of intoning those very sentiments in a soothing,
hypnotic way, like an Indian fakir trying to entrance a cobra
by playing some weird kind of clarinet or something, all designed
to prevent you from noticing that every waking moment of your
pathetic life you are seeing prices going up and up.
Now I gotta correct an error.
The news in the last MoGu about the government defaulting on
a lot of bonds turned out to be not true, and so I passed on
some bad information and outright lies, and so I'm sorry. But
I had seen a reference to it on the news channel, as it sped
across that little ticker at the bottom of the screen, and I
was shocked to see it, and waited and waited for it to come back
around, or the on-screen talking-head to refer to it, but nothing
ever happened, and so I figured that I had made a mistake. Then,
the next day, I read the same news from an on-line source, and
so I naturally figured it was true. And to tell you the truth,
the idea of the government of the United States acting irresponsibly
is not that much of a news tip to me, and so defaulting on a
bunch of ratty bonds and screwing over a bunch of people is nothing
totally unexpected. But the guy who was mostly instrumental in
spreading that bit of misinformation, and whose face is as red
as a beet, and I feel sorry for him because he accidentally slipped
up, and now he feels terrible about getting suckered, also issued
a retraction. And so now I am doing it, too, although I feel
no guilt whatsoever, and I am printing a retraction only to prove
that I can learn from my mistakes, even though I did not make
any mistake, and haven't learned anything, so this whole thing
is actually just a gigantic waste of time, which also describes
my whole pathetic life, but let's not get into that right now.
In my defense, I rise to my
feet and, doing my best imitation of a Southern lawyer and curling
my thumbs under my suspenders, I face the jury and begin my summation.
"Ladies and gentlemen of the jury - and may I add that I
have never seen such a good-looking and intelligent jury in all
my days before the bar? - I ask you: would you ask a dog to wash
your car? Of course not! And likewise," and here I pause
and with a smile on my lips, and wink at the jury to let them
in on the joke, "anybody who relies on the Mogambo to do
fact-checking, perform due-diligence or work of any kind, get
his facts straight, act like a decent human being, bathe regularly,
not grunt while eating, or even give a damn about what you think
and don't think, is making a huuuuuuugggge mistake, roughly on
a par with my wife marrying me." To which I say, under my
breath, "Chumps!"
It is budget season here in
Florida, and we are having as much fun as anybody. The new state
budget is a cool $55.4 billion dollars, which is up 2.6% over
last year, attended by a lot of borrowing from here and there.
The idea that inflation is tame is again put to rest, as government
spending rising like this is pure inflation in government spending.
This $55.4 billion is the amount
being spent on behalf of the paltry 16 million people who live
here, and that comes to, and wait a minute while I try and divide
one number by the other, $3,462.50 per man, woman and child in
the state. So for a family of four, which is you, your spouse,
and those two adorable children of yours who are each adorable
enough to star in a Gerber commercial on TV, that comes to a
hefty, and let me multiply this on my calculator, and you will
notice my intense concentration is causing beads of sweat to
glisten on my manly brow as I punch in the numbers and operators,
$13,850. A year.
Now, I realize that to a real
big shot like you, $13,850 a year is chump change in your family's
budget, and you probably spend more than that much per month
on maintenance on your matching, color-coordinated Ferrari convertibles.
But to a loser like me, and my loser family, and our loser income,
and all our loser friends and neighbors, all of us standing by
the side of the road waving our "Will work for food"
signs at you as you speed by, happily yammering on your cell
phone to your other big-shot friends, that's a nice piece of
change.
And that brings up two important
questions. 1) where does the state get that money, and 2) can
we get some of that money, too? The second question is very easy
to answer; "no." But the first question is almost as
easy, only more involved. If it were the federal government running
this abomination, then they could print it up. Now that's easy!
But the states are not allowed
to do that! They have to actually get it from somebody. Who?
The state has to get it from the wallets of the aforementioned
"every man, woman and child," in one form or another.
They can either 1) tax these people directly, or they can 2)
tax businesses, and then the businesses will simply recoup the
money by charging higher prices, with the effect that, again,
the man, woman and two children are paying the tax when they
go shopping. At the end of the day, the 16 million men, women
and children each pay $3,462.50 to the state per year.
The third option of the state
getting money, namely sending masked intruders to crash down
the door to your house and robbing you blind, is not far away.
But as of yet, they still aren't allowed to do it. Although I
would not be surprised to discover that those exact powers are
embedded somewhere in the Patriot Act. Not surprised at all.
Because, and correct me if
I am wrong, but I am not, that the final consumer pays the cost
of everything. And by everything I mean the labor and raw materials
and capital and, of course, the taxes that the producers pay.
And the men ("me"), women ("my wife"), and
children ("Never saw any of them before in my life, Officer")
of the state ARE the final consumers we are referring to. And
they, or we, or us, will pay every damn dime, in one way or the
other, and in cash. Always in cash. And always more and more
cash, too.
The President of the United
States had his State of the Union address, and he is urging Congress
to "act to address rapidly rising health care costs,"
as if there is anything that they can do, except to make health
care costs higher and more onerous. What they can do, of course,
is try and change who pays for the health care.
And, as another Big Wonderful
Plan, Bush wants to spend big federal dollars on educational
re-training of America's workers? Which will, theoretically give
them the skills they need to compete in this modern world? Huh?
Like what? I want a list of those valuable skills, as I cannot
fathom what in the hell those jobs could be, in the aggregate.
In my personal case, of course, perhaps a little training on
how to use a fork or spoon, instead of just cramming handfuls
of food into my mouth, might ultimately increase my employability.
But other than addressing my woeful lack of basic social skills,
name something, anything, that you can learn to do that can't
be done cheaper by some worker in India, or China, or Mexico,
or, or, or, and here is where the Mogambo shows remarkable productivity,
the kind that makes Alan Greenspan so deliriously happy: Instead
of reciting the whole list of all the countries in the world
who have laborers who will work for less than Americans demand,
I will concisely summarize with the short phrase, "Damn
near every country on the globe."
So that brings me back to the
original question, which is; what is this magical education and
re-training that is supposed to alleviate our plight? Nobody
ever says. Even Alan Greenspan is sure that jobs will be created
in the future, but he can't think of what they could be.
Well, most of you came here
today to hear what I have to say about the Bush plan to allow
you to get a tax credit for health insurance. My initial response:
Wow! It is the kind of irresponsible two-fisted giveaway that
I laughingly suggested, in a previous MoGu, that they do. I never
actually thought they would do it!
Under the old plan, which is
the current plan, you get to deduct your health insurance premiums
from income. As an aside, it looks like the premiums are 100%
deductible this year, which means you don't pay tax on the money
you spent. You still pay the damn premiums, of course, it is
just that you don't pay income tax on it, too. Example; if you
pay six grand year for health insurance, you do not pay tax on
the money. Total out-of-pocket: $6,000. Last year, for you historians
out there, you got to deduct only half the premiums from income,
and you paid income tax on the rest. Total out-of-pocket last
year; the $6,000 in premiums, and, at a 25% tax rate, another
$750 in income taxes on the other $3,000, for a total of $6,750.
The new plan, the Bush plan,
the tax credit plan, is better yet. The new example works like
this: if you pay six grand a year for health insurance, you get
back the money (currently estimated to be a maximum of $3,000)
by claiming a tax credit! This tax credit section is at the end
of the 1040 Income Tax Return, not the beginning! This is a big
difference! So, the credit comes AFTER you have figured out how
much tax you owe, and you deduct your premiums from that figure!
Wow!
So, the example is now; total
premiums are $6,000 per year. Total-out-of-pocket: $3,000, thanks
to a $3,000 tax credit. Of course, this assumes that you have
$3,000 of taxes due. If you don't, then you are a piece of trash,
and you don't get the full deduction, and why should I care about
you, you pathetic loser?
And as the benefit gradually
escalates through the coming years, because dispensing higher
and higher government benefits is what the government sees at
its duty nowadays, ("Working for America by bankrupting
us all through the wonders of communism and re-distribution of
income!") it will surely go to a 100% credit, which is,
at the bottom line, free health insurance! You pay the premiums,
and when you file your taxes, you get it all back!
So perhaps this answers my
original question: What are these jobs that we are supposed to
re-train to do? Health care workers and income tax form filler-outers.
John Mauldin is familiar to
anybody who reads economic commentary, and he has written another
fine essay entitled, "The Supercycle of Debt- America's
Growing Burden." "Debt and the dollar," he says,
"employment and interest rates, the U.S. economy and world
trade, money supply and inflation/deflation, taxes, deficits,
commodity prices, politics, war, regulation plus a host of other
variables. They are all related in a very complex and dynamic
fashion. Changing one of them may change each of the others in
often unpredictable ways, which in turn affect all the others."
Which is exactly right. And
he could have gone on to say "And then every minute, of
every hour, of every day, they are all interacting in the new,
strange, unpredictable ways, and each is affecting all the others
all over again, and being affected themselves, and it all goes
round and round and round, until the Mogambo is quite dizzy and
has to sit down until the nausea has passed. And then you gotta
ask yourself, 'Am I so stupid that I will give any credence whatsoever
to somebody who says he is forecasting things five years out?'
"
A peal of scornful laughter
rings out, and the audience turns and looks to see who had uttered
such an unearthly laughter, and they immediately gasp in recognition
of my cape, and sword, and my mask made of the shirt of my dear,
dead brother. I laugh again - hahaha! - and say "I, and
remember that I am the Mogambo, say no! Not only no, but hell
no!"
Then I turn, and with the point
of my sword scratch an "M" into the wall, leap through
the open window, and ride out of sight, into the night, with
a hearty "Hi, ho, Mogambo!" And the next time somebody
says that they are forecasting economics five years out, I want
you to look at the "M" scratched into the wall, and
remember that scornful laughter of the Mogambo.
Edward Chancellor is guy who
wrote a book called "Devil Take the Hindmost: A History
of Financial Speculation," which I did not read and, I admit,
never even heard of, but I can tell you that the gist of it is
that it ended in tears and suffering for a lot of people. And
I'll even go so far as to bet that you even figured that part
out from the title, because when the Devil is involved, things
almost never have a happy ending. Anyway, he who wrote an interesting
article on Prudent Bear entitled "Inefficient Market: The
Stock Market's Yin and Yang," which I did read.
He says, "The function
of the bear market should be to reverse the forces that became
excessive in the preceding bull market. This requires that the
overvaluation of shares should give way to fair value or even
undervaluation. After a great stock market bubble, the cult of
stock market investment is normally followed by revulsion of
stocks." Didja get that part about the "cult?"
To illustrate the yin-yang
thing, he goes on to say, "The appetite for debt, whether
corporate or consumer, which accompanies every bull market, is
normally replaced by debt aversion. Optimism and confidence about
the future are followed by pessimism and uncertainty. During
the bull market, leading businessmen are treated with great reverence
and acquire vast fortunes, often at the expense of others. In
the bear market, the senior executive becomes merely a drab apparatchik,
his compensation shrinking along with the pretensions of office.
The rectitude and prudence of the bear market are the mirror
image of the corruption and profligacy that are evident in the
bull market."
To which I say, the fact that
we haven't seen any of that means that we have not entered into
a bear market yet, even though if I had waited a lousy minute
I would have realized that he was going to say the exact same
thing, but I never even gave him the chance.
"Although the recent bear
market lasted many months, it failed to perform even its primary
function, that of driving equity valuations back to fair value.
According to Andrew Smithers, the US stock market remains between
60 and 80 per cent overvalued, as measured on the basis of both
replacement costs and cyclically adjusted earnings." I figure
much more than that, as the replacement cost of an entire US
factory, but using Chinese labor and material and real estate,
is probably less than fifty bucks, according to popular wisdom.
He quotes Jeremy Grantham,
he of Grantham Mayo Van Otterloo, who says that the stock market
today is "...the greatest sucker's rally in history. He
argues that a bear market rally has four typical characteristics.
First, it starts from a position where values are not particularly
low. Secondly, leadership of the market reverts back to the favoured
stocks of the prior bull market. Thirdly, the rally is sharp
and has a speculative flavour. Fourthly, investors are over-confident
because their hearts have not been completely broken by the previous
market low. In Grantham's view, the stock market rally that commenced
last March meets all of these conditions." In short, you
ain't seen nothing yet, as regards the stock market hitting new
lows.
But people are buying stocks
like they never heard any of this stuff before. Perhaps part
of this can be explained by James Montier, a strategist at Dresdner
Kleinwort Wasserstein, who suggests that perhaps 30% of the companies
in the S&P 500 are currently manipulating their reported
earnings.
The Mogambo snarls, suggesting
in a non-verbal manner that 100% of the companies in the S&P
500 are manipulating their earnings, because I cannot believe
that any one of them would pass up such a golden opportunity
to make themselves look good, and thus make their stock prices
rise. And especially considering that costs are rising, in some
cases at double-digit rates, and expenses are rising, often a
double-digit rates, but incomes and sales are not, but are sometimes
falling, often at double-digit rates, which all implies a charming
symmetry, although the ramifications are ugly. And yet, and this
is the part where I violently shake my head in disbelief, like
a Golden Retriever after he has emerged from the water, and my
ears are likewise going "flappa flappa flappa," these
companies are all "hitting their numbers" with each
release of an earnings report! Something sure as hell is happening,
and, as usual, I have no idea what it is.
Saw a blurb on CNN that "The
average manufacturer's suggested retail price of cars and light
trucks bought last month was $30,481, up 2 percent from the average
sticker price in November and 4.6 percent higher than a year
earlier." The prices actually paid were less, net of negotiations
and rebates and dealer incentives and all the rest of that stuff,
as they always are.
But note that sticker prices
are up 4.6% y/y. So how it is that cars can be up 4.6% in one
year, and yet the Fed yahoos can wipe the spittle from their
lips and say, in that stupefied monotone that is highly indicative
of their depth of understanding of economics, that there is no
inflation?
Speaking of cars, I pass along
the advice recently given to me by the service manager of a car
dealership, when he advised me to emulate his actions, which
is to trade in the car for a new one as soon as it reaches about
30,00 miles. The reason? It costs so damn much to repair one
that you are better off getting rid of it before it needs repairs!
We had gotten into that edifying
conversation when I went to complain that I had to have another
front end on my car, at $1,400, when only a year and a half ago
I had to have the same thing done. So I was somewhat upset that
he is, in effect, telling me that I will have to pony up a cool
thousand dollars a year from now on, just on that one item.
But it makes you wonder how
it is that none of this shows up in the Consumer Price Index.
Oh, yeah! Now I remember! Because the Consumer Price Index is
compiled by a bunch of clueless, lying weenies!
Sean Corrigan, one of the main
guys at Capital Insight, a consultancy, wrote an interesting
piece he called "Currency Wars." He writes, "Where
Greenspan is wrong - foolishly, hubristically, perilously wrong
- is in his assumption that the hegemony exercised today in the
US by big government, legal vulturism, organized labor, corporatist
militarism, and Marxist miseducation over entrepreneurship has
left the economy with enough of this essential flexibility. The
US may someday find itself unable to cope with the frictions
and stresses of rapidly changing circumstances with which it
inevitably will be confronted."
In short, the government is
going to have to get us into a war to distract us drooling proletariat
boobs from our own tragic circumstances, and to appeal to us
to put our personal miseries aside and bear these burdens in
the name of patriotism. Just like always.
A recent headline of LA Times
was "Low-Pay Sectors Dominate U.S. and State Job Growth."
Although I did not go there and read the article itself, as they
required me to register and divulge information about myself,
and you know how I feel about that, I think that the headline
says it all.
And the jobs in the low-pay
sectors are being filled by, more and more, illegal aliens.
There was an interesting tidbit
in the Wall Street Journal about mortgage rates, and it seems
that the banks are actively pushing Adjustable Rate Mortgages,
and more than 25% of home buyers are opting for this type of
mortgage. Suckers! What makes it so interesting is that this
is at the same time as interest rates are at the bottom of the
range of mortgage rates for the last few thousand years, and
therefore there is almost no chance that rates will do anything
other than go up. The banks clearly see the writing on the wall,
and borrowers don't.
There was also the interesting
fact that according to a senior economist at Merrill Lynch, Americans
saved $27 billion last year in lower mortgage payments. Most
of the money, according to some facts I can't recite by some
guy whose name I can't remember in an article that I can't recall
on a date that escapes my recollection, a lot of that money went
into the stock market, propelling the markets higher and back
into the range of "preposterously overvalued."
And then we sit back in our
chairs and wonder why the rest of the world has such a low opinion
of us.
Doug Noland writes that "We
remain in the heart of a major disintermediation out of low-yielding
money fund deposits and into securities." This is the witty
encapsulation of people taking their money out of the bank, buying
an overpriced house, which causes other people to notice and
want to get in on the action and who then go out and buy an overpriced
house, which makes the original house go up in value, and which
allows the owner to go down to the bank to take out a home equity
loan to buy overpriced stocks.
If these were isolated guys,
then no damage would be done. But when an entire country is involved
in it, then it is more than an amusing observation. It is a crisis
in the making.
And it isn't even confined
to these idiots. The mindless spiral of housing prices causes
the perceived value of all the surrounding houses to go up, which
makes their property taxes go up. And so the people living in
those houses find that they end the year with less disposable
income from the higher taxes.
Lou Dobbs, talking head commentator
who was brought back out of retirement because he has that warm
and avuncular way about him, has decided that we need tariffs
on imports. Why? Many people, it seems, would like to "buy
American," but can't find things made in America. This is,
according to this Dobbs guy who ought to put his tail between
his legs and slink back into retirement, horrible.
And why can't people find things
"made in America" to buy? Because of price. Things
made in America are too damned expensive, what with crushing
regulatory burdens of government, bankrupting levels of liability
insurance occasioned by the out-of-control legal system where
people are actually suing, and winning, because they are not
happy with the downside of acting like irresponsible brain-dead
morons. And probably many other things to, but they all come
down to, and you might want to write this down, because of the
money. Everything nowadays is about the money. It's always about
the money.
So therefore foreign companies
can undercut American producers, with one hand behind their backs.
And the result of the fight in the arena of business warfare
is that the American companies are beaten to death, and that
is why nothing is made in America anymore.
So what to do? Well, to the
Leftist Losers and their fellow-traveler commie buddies, the
solution is tariffs. The idea is simplicity itself; If you can
make foreign imports expensive, then American businesses can
compete on a "level playing field." And you know what?
It will work! It will work great! Suddenly, you will see lots
and lots of American companies, employing American workers, making
extremely expensive things to sell, the same things that used
to be sold by foreigners at much cheaper prices!
I can see a wave of hands as
each and every one of you has their hand up in the air, all competing
for my attention, hoping that I will call on you to explain what
is so horribly, horribly wrong with this stupid idea I even turn
around and write on the blackboard, "What is wrong with
this stupid idea?"
The correct answer is "Because
it leads, as it is designed to do, to higher prices. And no theory
of economics has ever postulated that economic vitality can be
achieved by having prices go higher. Bad things happen when prices
go higher! It is called inflation!"
Well, up until a couple of
years ago, this was correct. It was only until the arrival of
Ben Bernanke, an insane, horrible little man sent from Hell,
well maybe not Hell literally, but you know what I mean, that
anyone dared to advance a theory that inflation was good, and
that we ought to actually try and reach some target of inflation!
By printing money! Trying to create price inflation through the
time-honored tradition of printing money! This is insane!
But we were talking about inflation.
I walk over to the video equipment and rewind back to where I
abruptly changed the subject, and then I relive that whole moment,
and I am instantly galvanized. " Yes!" I scream. "Wake
up people! You will not like inflation! Nobody likes inflation!
It means that unless your income also rises as fast as prices,
and I laugh like a demented hyena - owwwwww, ow ow owwwwwwww
wow wow wow wow! - at the idea, as the aggregate 'you' in America
is NOT going to have wages rise as fast as prices. And forgive
me for my brutal honesty here, but I can state with some conviction
that the majority of you are already so overpaid that the idea
of paying you more is absolutely ludicrous. So if that sounds
like you, then don't be making plans for a higher income to offset
the higher prices."
Especially now that so damn
many people rely on government checks every month. They are soon
going to be screeching, and their lobbyists are going to be screeching,
and their relatives are going to be screeching, and editorials
in the newspaper are going to be screeching, and all the Leftists
are going to be screeching, and all the people who are going
to be hit up for money by these people are going to be screeching,
about how they are, pause for dramatic effect, suffering. Suffering!
And you know what? They WILL be suffering! And why are they suffering?
Because, and watch my lips, people, because their incomes will
NOT be increasing as fast prices, and they will suffer a falling
standard of living!
And they do not want a falling
standard of living! Nobody wants a falling standard of living!
And why are they suffering a falling standard of living? Because
prices went up, and they can only afford to buy less stuff, because
their incomes didn't go up as fast and they simply RUN OUT OF
MONEY!
So, tariffs make things cost
more. I call this the TMTCM Principle. And here is the Lou Dobbs,
looking you right in the eye and telling you that your retired
parents, and the sick, and the infirm, and everybody else in
America who depends on a government check, and most everybody
else, too, is going to suffer a fall in their standard of living.
And every month all of us will still spend all of our money,
but we will be able to buy less and less stuff. And this horrid
little twerp is all for it, and recommends that exact course
of action.
To hell with Lou Dobbs.
He can count on the support
of Charles Schumer, Leftist Loser Democrat in Congress, who is
from New York, is reported to be pushing for a 27.5% tariff on
Chinese imports. I shake my head in weary resignation. I have
made my feelings plain about the execrable Charles Schumer many
times in the past, and about the New York jackasses who elected
this laughable clown to Congress, so I will not expand on that
theme. But it is not surprising to hear that this Schumer character
is proposing such a stupid and horrible idea, as he is, like
I said, a Democrat, and Democrats have nothing but stupid and
horrible ideas, because all their ideas are the same idea, namely
for the government to do more things, which always turn out to
be, to continue a theme, stupid and horrible.
And now we have reached the
end game of the stupid and the horrible, and you will notice
how the phrase "stupid and horrible" keeps popping
up, so you know it must be true, as we have Congress and the
Federal Reserve and the media and White House all trying to force
prices higher while holding incomes low, which is the exact OPPOSITE
of what government should want for the people! The exact, one
hundred and eighty-degree opposite! Stupid and horrible.
Saw Gregory Mankiw, the chairman
of the economic think tank inside the White House, when he appeared
on TV, and I can now tell you, without any doubt whatsoever,
that we are doomed. Lotsa happy talk, lotsa evading direct questions
by changing the subject, and all the rest of it. He also reiterated
the standard evasive reply that he doesn't discuss the dollar,
which is really rich, and that only the Treasury department is
allowed to discuss the dollar, and in the whole Treasury Department
only John Snow, the Secretary of the Treasury, is allowed to
discuss the dollar, which he does not do, except to explain that
he likes the dollar, and some of his best friends are dollars,
and which is only one of the many, many reasons why government
officials in general deserve no respect whatsoever, and this
guy Mankiw in particular deserves even less.
And then, within a matter of
days, Bush comes out with a whole raft of new tax credit proposals.
In other words, the government just giving money to people. If
this is the level of genius we can expect from Mankiw and his
pals, then it proves that what I said was true: we are doomed.
The San Francisco Chronicle
had an interesting article by Kenneth Harney entitled "New
Loan Program With No Down Payments," and it went over this
latest and greatest idea of the White House, and if you have
been keeping up with the caliber of ideas from the Bush White
House, then you are well aware that when I say "latest and
greatest" that I was trying to be funny, if laughing through
your tears is ever funny. He writes, "What do you say to
zero down on your first home purchase? And how about rolling
your closing fees into the mortgage itself, giving you a home
loan that costs you nothing out of pocket up front? That intriguing
offer could become a standard, government-backed option for an
estimated 150,000 or more first-time home buyers if Congress
approves a new zero-down program to be proposed in President
Bush's federal budget. No-down-payment mortgages could go as
high as $290,000 in high-cost markets on the East and West coasts.
The new program would essentially allow home buyers to come to
the table with no cash whatsoever."
Let me get this straight: The
price of houses is so damn high, thanks to the Fed creating a
bubble in houses, that people can't afford them. So one would
think, and of course I am just throwing out some ideas here,
that the first order of business would be to bring down the demand
for houses, right? Wrong! The new idea, the Bush idea, the Congressional
idea, is to bankroll poor people so that they can buy houses
that they cannot afford, so as to keep the price of houses up!
And not only up, but climbing! And then everybody gets to borrow
this increased equity, and use the money to buy stocks! Which
keeps the stock market up!
But don't stop reading now,
because it gets better and better! "Besides low- and zero-down-payment
options, the FHA allows applicants to have higher household debt
ratios: monthly housing payments can go to 29 percent of monthly
household income, and total monthly debt can go to 41 percent
of monthly household income."
So poor people are encouraged
to be house-rich and food-poor, as about half of what they bring
in per month will go toward paying for the house, up until they
default, as they will, because this is just the kind of idiocy
that cannot last. That is why we had the lower allowable debt
ratios in the first place, jerks! They were set at those lower
ratios to keep poor people from going into default on their mortgages,
which they always do, because all their income is being spent
on the house, and any financial upset results in bankruptcy!
But now, NOW, in 2004, in the same year as the Presidential election,
now we are increasing them? I scream - agggghhhhhhhh! - in my
anguish!
Perhaps you are wondering why
in the hell any elected yahoo would ever stumble in their stupor
up to a microphone and utter a few incoherent syllables about
favoring such a plan, and I really like that "stumble in
their stupor" thing. To shed a little light on that, Dan
Denning, the big poobah at Strategic Investment, wrote an interesting
little essay entitled, "Fear and the Mortgage Bubble."
In it he writes, well, not actually, and I am doing a little
reading between the lines, that it is about the money. Because
all things are always about the money. "According the most
recent data, defined benefit private pension plans have $1.5
trillion in assets." So the whole size of the defined benefit
retirement plan universe, which is only those plans that are
funded by big, big companies like Ford and General Motors, is
$1.5 trillion. "Agency securities (the bonds issued by Fannie
Mae and Freddie Mac) make up 11% of those assets held outright
($186 billion agency bonds). Agency securities are the third-largest
single asset type held by private pension funds with defined
benefit plans. Corporate and foreign bonds are next at $232 billion.
And corporate equities come in first at $681 billion, or nearly
42% of total assets."
Now take a recent essay from
those incandescently brilliant guys over at Capital-Insight.
They posted the witty blurb entitled "Too Stupid to Die
Broke." The crux of the matter is that, by their calculations
which involves subtracting the fixed investment in their homes
from their mortgage balances, the $334 billion that American
homeowners have withdrawn out of their equity in the last few
years is more money than the equity accumulated in the previous
46 years of people paying down their mortgages!
So overpriced houses, and overpriced
bonds, and overpriced shares comprise what is humorously known
as "a retirement plan!" Hahahaha! And equity withdrawals
has been so profligate that there has been no net repayment of
mortgages for 46 years? Hahahaha! No wonder the government and
the Fed are acting so bizarre, as regards these new ideas about
house buying! Hahahaha! Look what they have allowed to happen
on their watch! Hahahaha! This is preposterous! Hahahahaha!
Mr. Denning is not amused by
my burst of levity, and continues "What is NOT disclosed
in these numbers is the dollar value of agency assets held by
publicly traded corporations - which make corporate bonds and
equities vulnerable to the direction of the mortgage market.
And so the bottom line is, pension exposure to mortgage debt
is undoubtedly larger than what you see here." Now it all
becomes a little clearer why the government is doing what they
are doing, eh?
Marshall Auerback is one of
those brainy-types that are scattered here and there in the landscape
of economics, and has penned something that should be required
reading for the members of the Federal Reserve, since that group
of august weenies has apparently never heard that debt can be
stultifying. Mr. Auerback writes, "The expansion of credit
is an increase in debt. When debt levels are low, a credit expansion
which increases debt does not leave a legacy which later suffocates
demand, since the resulting still low level of debt is not yet
a problem." I stick my big fat nose in here to note that
this explains why an expansion in credit, to foster and increase
in debt loads, can be a good thing. But existing debt levels
have to be low to start with. Obviously peeved that I have interrupted,
he goes on, "But when debt levels are very high, the increases
in debt created by credit expansion soon act as a burden on demand."
Ignoring the glare from Mr. Auerback at interrupting again, I
want to show how he has made it obvious that high levels of debt
are, as he said, a "burden on demand." If I already
owe a large sum of money, am I more, or less, likely to borrow
MORE damn money to buy some other shiny doodad or gimcrack? Getting
back on track, he goes on to say "It follows from the above
that, as the level of debt relative to income rises, it should
take larger expansions of credit to achieve any given percentage
increase in demand, since the now high and climbing debt burden
acts as a countervailing force to depress demand."
And the higher the debt burden
is, the higher the depressing of demand. And that is, which I
gather from looking out the window, where we are today. Ugh.
---Mogambo Sez: To show you that there are poets amongst
us, as we slop around in the fetid swamp of economics and are
always disgusted at how it makes our feet stink, Barb at 321gold sent me a little present
last week, and the poetry was how she wrapped it. Her cryptic
note was "The wrapping paper is real U.S currency - just
practicing!" Fabulous! How clever!
Anybody who recognizes that
the currency is being debased to the point where it is worthless
enough to wrap presents with, and then actually does exactly
that as a symbolic gesture, ought to be honored for her charming
wit. To show you that I am just the kind of guy to do that, I
bow deeply from the waist and chant "We're not worthy! We're
not worthy!"
Richard Daughty
January 29, 2004
Copyright ©
2000-2004 Agora Publishing, Inc. All rights reserved.
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.
The Daily Reckoning
"Financial
Reckoning Day: Surviving the Soft Depression of the 21st Century"
by Bill Bonner
and Addison Wiggin.
You can buy
it
online from Amazon.
____________
321gold Inc
|
