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Dear Diary, Today The Mogambo says...

Richard Daughty
...the angriest guy in economics
The Mogambo Guru
Archives
March 17, 2005

- A lot of things scare me nowadays, and the two biggest things I fear are 1) that my wife wants to go on the Jerry Springer show to tell me something, and 2) that the US Treasury issued $49 billion in new debt, which they did, in ten lousy days. Annualized, this rate of issuance runs to $1.78 trillion, which is, by strange coincidence, the exact amount of money it would take to buy enough tranquilizers to make me NOT scared of this, or hearing Jerry Springer say to me, "Come on out, Mogambo, and hear what your wife wants to tell you, you worthless little bastard!" and as I walk to the stage I can hear the audience chanting "Bas-tard! Bas-tard!" and I will instinctively know that THIS is not going to be good, either.

Foreign banks only plopped $1.6 billion into their custody holdings at the Fed. This may have something to do with how they want to "diversify" their holding of foreign reserves, as many of them have hinted in the last few weeks. This means that they do not want to hold more dollars, but what else is there? The world is awash in the things, they are accumulating more of them at the rate of $660 billion a year in trade deficits, and there are more dollars and dollar-denominated assets sloshing around the globe than practically all the other currencies combined! They want to diversify? Into what? And how?

But when you take a look at the chart of the dollar, one is hard-pressed to come up with a bullish case, and that means that the value of the dollar will continue to go down, which means that oil will continue to go up, which means that oil equities are going to go up, and that means that (if you believe in cost-push inflation) that the price of everything is going to go up because the cost of energy has gone up, and that means that
gold should go up, and silver should go up, and uranium should go up as one country after another looks at their predicted energy consumption and discovers that only nuclear power has the necessary most-bang-for-the-buck to even try and pull it off.

For the bulls, the bad news is that Total Fed Credit, that original source of magical money-from-thin-air, is down by $7.2 billion this week. The amount of credit being created by the Fed is surprisingly muted here lately. If this keeps up, you can kiss the stock market and capital gains goodbye, as an economy as bizarre, as large, as expensive, as government-centered, and as malignant as this one cannot exist without more and more money being created all the time, and at ever-greater rates. So this change in credit-creation is so potentially important that you might want to make a note of this in your diaries, "Dear Diary, Today The Mogambo says to keep an eye on Total Fed Credit, and if it does not start shooting to the moon soon, then we can all kiss our butts goodbye. P.S. I saw David in the hallway at school today. He is so cute!!!!! I hope he asks me to the prom!!!!!"

Perhaps this "cute David" thing is what alarms Jim Shepherd, of the Shepherd Investment Strategist. Or maybe it is the strange goings-on with Fed Credit. I don't know. But something sure has him spooked, as he has a new flier out that says, simply, "Huge Crash Near." I could not have said it better!

- This is a bad time of year for me, as my infrequent big bills all hit at once, and when combined with the monthly bills, hits me like a sledgehammer between the eyes, Well, auto insurance; up. Health insurance; up. Monthly bills; up. Food; up. To the sharp-eyed detectives among us, after a while you recognize a pattern. And for those of us who are not so gifted as to be able to recognize patterns, here is the answer. The pattern is that things are going up in price.

And, in fact, they have been going up in price for quite awhile now. Years, in fact. And every time you pay the higher prices, you vaguely recognize that things are a little more expensive these days. But you chuckle knowingly to yourself-- heh heh -- and accept that "a little the inflation is one of those things that you can't do anything about." And month after month, prices keep going up some more. More and more. Always more and more! And then one day, perhaps a day like today, and in fact a day that was EXACTLY like today, because it WAS today, I went over the tipping point, and all the years and years of prices hitting five, ten, fifteen percent per year increases has finally, one day, produced a number on a bill that is so large that instead of writing the check, I rush to the window, fling it open, and shout "I'm mad as hell and I'm not going to take it anymore!" And then everybody realizes that I stole that line from the Howard Beale character in the movie "Network" and that proves that everyone was right, and I AM incapable of demonstrating originality or any real creativity, and thus I am actually handicapped by more than just looking funny and smelling bad . I'm creativity impaired, too! I'm a Creativity-Impaired American! But when you go down to try and get one of those fabulous Handicapped Parking stickers for your car so that you can get one of those choice parking spots, they laugh at you and say "no!" Just like that! No!

Then if you ask them did they know about how the Federal Reserve is creating more and more money and credit, and how the government is going more and more into debt, and how this is going to create an inflationary firestorm that will more than decimate the world's wealth, they admit, "No, we did not know that" and so I shout "Ha! That proves you are imbeciles!" which was, apparently, the wrong thing to say because somebody called security and things got, for me, real ugly, and real fast. So this proves that their reaction to inflation was anger. Anger and uniformed security personnel. Well, their whole reaction to inflation was anger and uniformed security personnel and pepper spray.

But pepper spray making my eyes water and forcing me to gasp for breath does not change the fact that the universal reaction to inflation is rage AND outrage, which both contain the word "rage", so right off the bat you get a good idea of the tenor of the situation.

You watch, helpless, as prices rise faster than your after-tax, after-benefits, after-deductions, net net net take-home wages, that pitiful little bit that is left after everybody has had their chance to chew the guts out of your paycheck, like ravenous vultures. This brings up your homework assignment for tonight. I want you to perform a spreadsheet analysis that assumes that your income is slashed by five percent. You must now make cuts in discretionary spending to balance your budget. Detail these cuts in spending to achieve a balanced budget under the new paradigm of lower purchasing power.

Then, for the next year, take another five percent loss of income. Again detail the cuts to achieve a balanced budget. Then the third year, take another five percent loss of income. Detail those spending cuts, too. And the fourth and the fifth and the sixth year do the same thing. And then you notice, which I call The Mogambo Moment Of Enlightenment (TMMOE), that the price of inflation is measured in the aggregate price of happiness lost. And the sheer tonnage of lost happiness accumulates, year after year, as prices rise year after year, and it adds up and up, and pretty soon you realize that life ain't fun anymore, and all your money goes to pay for necessities, and they, as I said, ain't fun.

- "Europe's House Prices Create a Puzzle for the ECB" is an article by Matthew Lynn. He writes, "Three countries recorded house-price increases of at least 10 percent in 2004: France, Spain and Ireland. Several others showed appreciation that could be described as robust by any historical standards: In Belgium, Denmark, Sweden, Finland, Portugal and Italy, property prices rose 5 percent to 8 percent. There is no mystery about what is driving house prices up across most of Europe: the lowest interest rates in six decades."

And how do you miraculously get low interest rates at a time of increasing demand for large amounts of credit, credit in such abundance that bubbles are created? You use a central bank that is under the control of guys who actually believe, and I know that you find this as hard to understand as I do, that while our problems are caused by too much of everything and insufficient capacity to pay for everything, necessitating debt, that the solution to the problem of too much debt is more of the same freaking thing! This is insane! Borrowing your way out of debt? Actually going into more debt as a cure to relieve the miseries of too much debt? This is beyond insane! The next thing I know I am running down the street, screaming like a madman, "We're doomed!"

These idiots in charge of the central banks acknowledge that every government in all of history, in every corner of the globe, all wanted to find a way to spend more money. Everybody wants to spend as much money as they want. There has never been a government that wanted to spend less money. But they all succumbed to the siren call of deficit-spending to one degree or another, and after awhile they suffered for it. And then, in the past, as their desperation mounted, countries and their indebted monarchs tried spinning
gold out of hay, raising geese that could lay golden eggs, capturing unicorns, experimenting with alchemy to turn lead into gold, etc. They all failed, and in the end the governments ultimately turned to robbing somebody, either their own citizens or the citizens of other countries, to get what they needed.

The crucial difference is that today, with fiat un-backed currencies, central bankers and equally low-IQ governments actually believe that the remedy for too much money and credit and debt, is MORE money and credit and debt! Look! Look at me! Look at how my eyes are open wide in stunned disbelief as my brain refuses to comprehend that grown adults, whose educational specialty is actually economics, could think such lunacy! They believe that there is, literally, no end to the amount of debt you can owe? And there is no price to be paid for it? Wow!

- An interesting thing came across my desk, entitled, "Last Will and Testament Of Jesse Franklin Cornish." I excitedly read the thing to see if he left The Mogambo a few bucks, but, alas, he did not. But he did say a lot of the things that I routinely screech about, and so, without further ado, here are some excerpted words of wisdom from a guy, presumably, on his deathbed. "My generation found a way to lead the good life by borrowing from yours. We have lived out the last thirty years in a credit 'dream world' of luxury and affluence and monetized the massive debt by offering the next two generations as collateral. The material wealth I leave to you will not even begin to pay your share of the bill we ran up during your lifetime and it will haunt you and cause you to ask, 'How could my dad do this?'

"Please know it was not what I did, but rather, what I failed to do. I just didn't bother to get personally involved in the affairs of government at any level. I filled my days to earn large sums of dollars and spent too may nights celebrating when I did. Like millions of others, I stood by as inept elected officials bought votes with your money and changed America from a capitalistic, free enterprise nation to a land ever-approaching mandated socialism." But this is nothing new, beyond giving The Mogambo an opening to give a heap of contempt and disrespect on socialist, communist, collectivist, statist stupid bastards in government (especially the ones from Massachusetts).

But then he goes on to say that if you think that you are going to "invest" over a long period of time for the purpose of showing gains and accumulating wealth, you are wrong wrong wrong. He correctly says "The conventional investments I planned for your future failed the break-even point years ago. Savings, common stocks, and money funds were tied to the shrinking dollar and eroded away with inflation and taxes, just as they will when this economy turns around to monetize the most massive debt in history."

This "monetizing" thing he refers to is where the government creates money and buys the debt with the money, and then it takes the debt down to the basement and throws it in the furnace, and then they all shake hands and congratulate themselves on how smart they are. Net result; less debt, but lots more money supply, which will eventually find its way into prices, and prices will unfortunately rise until all of the money is used in paying prices.

He goes on to write to his children, "Over the past 15 years, most of my income was taken away in taxes to finance the enormous bureaucracy that now has a strangle hold on every aspect of our economy." He is right there, too! While only 22 million people work directly for governments, there are about three times that many people whose incomes come from performing activities under government contracts. Ergo, about half of the working people in America get paid by a government!

And if you really want to know what I think, I think that if there is a multiplier for this kind of thing, and if it is like all multipliers, then it is about 5, and thus government money pays for 110 million jobs, or 79% of the whole freaking job market!

Already, over 45% of all spending is by government, and, not surprisingly, about 50% of income is paid to governments, in the form of taxes or fees, according to mwHodges.com and his Grandfather Report.

And I saw another article, this one by Helen Huntley, who is the Times Personal Finance Editor for my hometown Leftist rag of a newspaper, the St. Petersburg Times, about how different asset classes perform over time. Her article in last Sunday's paper was entitled "Despite history, stocks are no sure bet" which made me sit up and go "Huh? Here is a newspaper writer who is not perpetually optimistic on stocks? Wow! How refreshingly novel!" But in the article's sub-head, she reveals herself as she writes "Over the long run, stocks have produced a 7.1% return after inflation. But there is no crystal ball - or guarantee." Her table shows that stocks return 10.43% annually, calculated before inflation? Wow! Her bond return was, before inflation, 5.44%? Hahahaha! What world is she living in? What is the annual return of stocks since the bubbles burst in 2000? When is the last time you saw any bond in America yielding 5.44%? Hahahaha! 5.44%!

I consider these kinds of returns as, searching for the perfect phrase, wildly optimistic. Even if you accept at face value these kinds of incredible gains, most of that "gain" contains the anomaly of the explosive, insane run-up in stock prices since 1982, when tax-advantaged retirement plans were being authorized by Congress, and then in the 90's when everybody really started getting in on the bubble.

Don't believe me? Then take a look at stock prices for the whole century, and notice how tprices only went ballistic in the last couple of decades or so. If the last two decades of the SP500 had kept on the same trend with the first 80 years, then the annual nominal returns would have been down in the 5% range or less. And after deducting for inflation and taxes on the gains, you would have been freaking lucky to have broken even, because most people would have LOST real, inflation-adjusted buying power! Which only proves that The Mogambo was right all along: Most people will not increase their wealth in the stock market, as it is impossible. At best, the majority will break even, in terms of buying power. Some will lose a lot. In reality, most will lose some, and many will lose a lot.

And how about bonds? Forget it. As for the near term concerning bonds, I will turn the podium over to Martin Weiss of the Safe Money Report, who goes out on a big limb and declares "Greenspan Is Between A Rock And A Hard Place - No Matter What He Decides Next Week, Bonds Will Plunge." Both a time and a direction! Gutsy call!

- Thanks to Richard Schlessel, I now have a
silver round ounce of pure silver that has a picture of Alan Greenspan engraved on it, encircled by the phrase "The Mogambo was right! I am an idiot!" Hahaha! On the reverse side, it has the phrase "We don't need no stinkin' Federal Reserve Notes." Hahahaha!

- Tom Dyson of Daily Reckoning has taken a look at a lot of this stuff, and got to wondering about the fundamentals of stock valuation. "We grabbed A Modern Approach to Graham and Dodd Investing by Thomas P. Au. It's not hard to argue that equities are fundamentally overvalued. On almost any measure ­ dividend yield, p/e ratio, discounted cash flow valuations ­ the major indices are massively overvalued in relation to historical precedents.

"With the Dow at 10,787 in 2000, the author calculated IV to be 3,036, valuing the Dow at a 255% premium to its underlying investment value. The message is simple. A simple reversion to fair value would cut the Dow in half, and then some. It may seem unlikely, but who are we to argue with history...?"

Yow! No wonder Bush is so hot to get Social Security contributions into the stock and market! A big shot of fresh money, especially in a constant, never-ending stream, can do wonders to stock prices. Well, in the short run, anyway. And sometimes in the intermediate run, too. But never in the long run. And the proof is simplicity itself: If it was possible, someone would have succeeded at it before now.

And let me assure you that even if it DOES succeed in the short run, there is nothing in their precious little theory that says that prices will not increase, and it completely ignores the stark, ugly reality that prices WILL increase faster than incomes.

And if you want a REAL important Mogambo lesson in economics (RIMLIE), it is that when prices are increasing faster than incomes, then standards of living have to go down, and when standards of living go down far enough, people get real grumpy.

So no wonder Bush is trying so hard to get Social Security money into the stock market indeed! But I can tell you, with all the steely-eyed conviction that The Mogambo can muster, that the Congress will pass something that will have the effect of forcing taxpayer money into the stock market, and into the bond market, too. And I loudly say, with the entire weight of economic history of the entire world on my side, that I know this because the government, our government, like all governments, will stop at nothing. Absolutely nothing.

And while even their own precious theory says nothing about the ruinous resultant inflation, the government actually lies to you about how bad inflation is! This corruption is part of the "price" that one (meaning you) must pay for "flexibility" in the conduct of monetary policy, which is the catchphrase mantra that they use to justify their idiocy. The Federal Reserve, which is just a damn private banking corporation, has so abused its power that that the dollar has suffered a 98% loss of value since they took over in 1913. And now we are sitting on the biggest set of not one (stock market), or two (bond market) or three (real estate market) or four (size of government) of the most egregiously overvalued bubbles in history, but we have them all at the same time! Gaaahhhh!

My voice now probably sounds strange to you, but that can be easily explained, as I am now in lockdown mode here in the Mogambo Impregnable Fortress Of Fear (MIFOF), as a strange chill came over me when my tiny little mind absorbed the enormity of what I just said.

And here is that glorious moment in Mogambo history (GMIMH) where theory meets practice. My prices are rising faster than my income, and I am real, real grumpy.

And if you want a real- world example of how things really work, ask the pretty little secretary who is behind on the rent for a third month in a row, about the remedies that the slimy little pervert of a landlord suggests. For now, the landlord is satisfied with the transfer of computer technology and weapons. And fairly soon the pretty little secretary starts relying on bigger and bigger transfers of technology and weapons, and keeps spending the rent money.

Then, one day, the lecherous landlord has all the computers and technology and weapons that he needs, and starts casting his lecherous eye over her willowy figure, outlined in that flimsy negligee by the full moon shining through the open windows. He was licking his lips and wringing his hands in eager anticipation of the coming debauchery, whereupon Lance, home from the Marines, bursts into the room, picks me up by the seat of my pants and throws me out of the window! The same window, mind you, that just a few sentences ago I was reveling in the radiance! Like this is my fault or something!

- On the front page of the Wall Street Journal last Wednesday in the Business and Finance section, we read that Fannie Mae has to fix certain "deficiencies" in their accounting practices, including, and I love this, "The new requirements include policies banning falsified signatures on journal entries and limiting employee's ability to alter databases."

My Mogambo mind immediately looks to turn this to advantage! I say, in that manly way that I have, "Hey! Look! You are allowed to falsify signatures until you get caught, and then they merely say you have to write a policy that you can't do that anymore! And you can alter the data, too! And when you get caught, they merely tell you that you have to write a policy that you can't do that anymore!"

- The government of France recently issued 50-year debt. Fifty years! Some mental defective bought that debt, and has locked in some of the lowest yields in history for the next fifty freaking years! Naturally, Germany and the UK are looking at the free gift, and you can bet your sweet butt that all the rest of them are looking at that, too, and saying "We can issue 50-year debt at yields that will certainly prove to be the low of the next fifty years? Wow! P.T. Barnum was right! There IS a sucker born every minute!" And then they will laugh.

- When Alan Greenspan took office in 1987, the national debt stood at $2.3 trillion. Now it is over $7.4 trillion. John Myers of Outstanding Investments never says it in so many words, but that is a LOT of money. But he does allow that "Currently Uncle Sam is carrying around a debt of $7.4 trillion. It is almost impossible to really understand just how big $7,400 billion is. But to put it into some perspective consider the following about America's federal debt: It is twice the value of all the oil beneath the sands of Sandi Arabia. It is larger than the combined GDP of Germany, France, England and Canada. It is 15 times more than the value of all the
gold that has ever been mined since the dawn of mankind."

This is all thanks for Alan Greenspan and the Federal Reserve. Bill Fleckenstein calls Alan Greenspan "The most incompetent and irresponsible Fed chairman in the history of the world." I say the same thing, only with more obscenities and at a higher volume.

- Michael Berry was looking at the price of
silver, and he notes that "Historically, for hundreds of years, their prices traded in a tight band around 16 to 1 (16 pounces of silver for each ounce of gold). The current value of the ratio is 59.7." Mogambo note: This is one of those six-sigma events, probably having something to do wit the manipulation of the silver market as alleged by Ted Butler, and there is obviously going to be lots and lots of money made as the ratio corrects back to the mean. The only question is, when? I look at my watch. I look at what is happening. I look at silver. I look at my watch again. I don't know when. But I keep looking at my watch, which is a clue to my gut feeling.

- Robert Prechter, of the Elliott Wave, notes that the housing bubble may be rolling over. "January brought the first wave of mark-downs. The median sale price on new U.S. homes plunged 13%, from $229,700 to $199,400. The decline is the largest one-month fall in the history of the data, which goes back to 1963. Total new home purchases dropped 9.2% from the level of December, while existing home sales were down 9.5%."

Even Alan Abelson, of the Up & Down Wall Street column in Barron's, quotes Phillippa Dunne and Doug Henwood of the Liscio Report, who note that housing is slowing up here lately. "The construction sector may follow" they opine.

A look at bank portfolios of mortgages they hold, however, shows that they are still hitting new records, so the bubble may not quite be popped. But when prices are this high in relation to income growth and GDP growth, it doesn't take an over-active imagination to see goblins in every shadow.

And it is not like the labor market is going to improve and give everybody a new, high-paying job. In fact, the wags at the DailyReckoning.com site looked at the employment numbers and wrote "The fastest growing categories are administration, health care, construction, real estate, and restaurants. Many of the new jobs, in other words, involve building houses for people and serving them dinner. Nearly all of them are related to consumption... and practically none of them help ease America's trade deficit. Nor do they help Americans out of their holes of debt. Just the contrary - it is as if Americans had been put to work digging themselves deeper!" Hahahaha!

And how big is this hole that we are digging for ourselves? They go on to say "Total consumer credit in America is at 305% of GDP. A bigger hole has never been dug."

They note that today, Americans routinely spend 5% more than they make, as "That is the implication of a $600 billion current account deficit in a $12 trillion economy." This is also the number that Warren Buffet came up with.

And it is not just the crappy type of jobs and the level of debt. But worse, the purchasing power of the dollar is going down! The Daily Reckoning people also have a few choice words to say about that, too. "Americans are getting poorer. They don't realize it. No newspaper tells them. No politician dares even to whisper the truth. No Fed economist proposes a remedy. Still, real wages are less today than they were a year ago... and no higher than they were at the bottom of the recession in November 2001. Worse, unmentioned in the 'real' calculation is the cost of housing."

- Marshall Auerback of Prudent Bear writes prophetically with, "Given the parlous state of America's national finances, it is clear why Tokyo, with its huge repository of savings, is being brought in effectively to help underwrite this policy (although why the Japanese have gone along so compliantly, other than a longstanding historic rivalry with China, is less clear). With these 3 global behemoths engaged in an increasingly fraught competition over an increasingly scarce resource, it is clear that the global economy will pay a higher price for oil, not only in dollar terms, but also in blood for every additional gallon of oil which we seek to consume. The great game has truly begun."

- An essay posted at Speculative-Investor.com by Steven Saville opines that "we are now a few years into a secular bear market that will last at least 10 years and take the Dow/
gold ratio back to near the bottom of its long-term channel." In fact, the chart suggests that the bulk of the downside in the Dow relative to gold is yet to come. This does not, of course, mean that the Dow will experience a large decline in nominal dollar terms, although the most likely way for the secular trend to reach its ultimate target would be via weakness in the Dow alongside strength in gold."

He figures we are now "a few years into a secular bear market that will last at least 10 years and take the Dow/
gold ratio back to near the bottom of its long-term channel. In fact, the chart suggests that the bulk of the downside in the Dow relative to gold is yet to come. This does not, of course, mean that the Dow will experience a large decline in nominal dollar terms, although the most likely way for the secular trend to reach its ultimate target would be via weakness in the Dow alongside strength in gold."

Either way,
gold goes up, and that is all you really need to know.

- The Fed's Beige Book noted that inflation is still "well-behaved" and then, abruptly changing lanes without signaling, goes right on to say that manufacturers in a number of districts are "finding it increasingly easy to pass along price increases", including increasing costs of higher oil and other commodity prices. The Beige Book also noted that retailers say that while prices were "generally flat or up modestly", but that businesses are getting hit with "rising input costs", of which one is, of course, labor, and the report said that more and more businesses were, indeed, seeing "Sharp increases in benefit costs, particularly health insurance."

And with crude oil rising to over $55 a barrel and a gallon of gasoline hitting new highs, you will see more benign-sounding "rising input costs."

And it is not only other Americans who are noticing, as the Financial Times had an article actually entitled "US Industry Passing On Higher Costs" by Andrew Balls.

He says the same thing, and adds another complaint. "US manufacturers are finding it easier to pass on higher energy and other raw material costs to their customers, and companies are finding it harder to hire skilled workers, a Federal Reserve report said." Again with the education thing and how our American kids are the most ignorant, of all the developed countries!

- M.A. Nystrom at Financial Sense Online talks about, and this is my take on it, how the rich get richer and the poor get poorer. Which is bad enough, but there is another downside to that. "Since the rich save more money than the poor, the concentration of wealth in fewer hands increases savings and decreases consumption. As demand drops, and economic growth fails to keep pace with growth in the labor force, unemployment rises. But when wealth becomes concentrated, the number of less affluent people increases, as well as their borrowing needs. These less affluent people, who now make up the majority, have fewer assets and are thus less credit worthy. Even in such an environment, BANKS CANNOT AFFORD TO BE CHOOSY -- they must make loans in order to stay 'competitive' with their peers and simply to stay in business. As the concentration of wealth rises, the number of unhealthy banks with shaky loans also rises in a dangerous spiral, INCREASING THE POSSIBILITY OF SYSTEMIC FAILURE." Notice the use of capital letters!

- Now here is something REALLY spooky, especially if you are holding any US debt. The heads of the Risk Unit at Moody's Investor Services testified to the House Ways and Means Committee "What we have concluded at Moody's is that almost every country will default on its pensions. Including the U.S." This apparently was taken from a March 8 release entitled "What We Know Now".

Please notice that there is no mention of The Mogambo saying the same thing, which he has been, and you can bring in that surprised cashier at Kentucky Fried as a witness, who will verify, under oath, my claim. But you don't see ME getting quoted in some fancy-schmancy testimony. Oh, noooOOooo! Or even treated with a little respect, as I am rudely shoved into position in the lineup, and bright, merciless lights are shone into my eyes, and I can hear some smarmy little policemen saying, "Now, ma'am, look closely at these suspects, all of them probably guilty of something. Doesn't number one, the one on the left, look exactly like the guy who was screaming into your face about monetary policy? Sure he does! That is the guy who was hitting you on the head with a loaf of French bread and bellowing about how the Federal Reserve is killing your money!"

It was at this moment that I leap forward and admit that it was I, The Mogambo, who was indeed whacking her over the head with the loaf of bread because she is an economics doofus, and she deserved to be punished for her inexcusable ignorance! But I say "I strongly object to being referred to as 'number one', when I have a name, and that name is (pause for dramatic effect) The Mogambo!" A woman screams! Pandemonium erupts! People are shouting! Doors are slamming! Immediately, I reach for my sword so that I could carve the letter M on the wall ("The Mogambo was here!") and I noticed that I don't have a sword, and I am trying to gouge an M in the wall with my shoe, and it is not working, and after awhile I get real tired, and then I quit and sit down, huffing and puffing, and the whole moment was ruined. So I'm kind of bitter about that, too.

- The sun has changed its polarity, as it periodically does. The bad new is that the relationship between the sun's polarity and the earth's polarity is now altered. This is alarming to The Mogambo, who has seen far too much Discovery Channel, and Nova, and the History Channel, and who has also seen Star Wars, and there are lessons to be gleaned from it all. Synthesizing, these are ripples in the Force, and you will notice that when Jedi knights sensed distortions in the Force, they always took it seriously and got ready for battle.

Steve Quayle on his website had a report from the India Times, which said "The tectonic plate movements, especially under the oceans, have gone up by many times." They go on to say "It is evident that the tectonic movements have gone up by several folds in the last nine months." Furthermore, "Many researchers are now concerned about these developments. They are saying the probability of a mega or multiple mega volcanoes is very high now. According to some there is 74,000 year cycle of mega volcanoes and that is due in 2012."

In a possibly related story, George Ure of UrbanSurvival.com notes that "Barring a late season weather miracle, snowpack in the Pacific Northwest is running at around 4% of normal. Already, the Columbia River, source of both hydro power and irrigation water is far below normal levels. This means in all likelihood there will be very little - if any - northwest power to sell to hungry southwest states including California. There will also be a shortage of water for agriculture."

I bring these things up because I never see a documentary or movie on TV that shows a newspaper headline that says something like "Super-volcano to destroy world! Everyone is dying of thirst and hunger! Dow goes up!"

This is the kind of thing that produces stupefaction in The Mogambo, and I do not know what to say. By this point I am in total lockdown in the Mogambo Bunker, alarm systems set to "loud", locks set to "100% security", fire control systems set to the extreme position called "Hail of lead" and trigger sensitivity is set to "hair". I know that these cosmic changes are not a good things, but how much of a bad thing are they?

Some, like me, have postulated that this magnetic tug on the earth's core is at the heart of the seeming increase in earthquakes and weather patterns, and some of us (me, again) use this as the basis of my latest "Repent, sinners! The end is near!" rant. And that postulate is now accepted as fact, now that Chaos Theory has shown that even the faintest flap of the wings of the most obscure butterfly in the most inaccessible region of an Amazon forest can tip the scales of probability as to whether it will rain in Chicago five days later. And when you have this gigantic flipping of the polarity of the sun, which is a million times bigger than the earth, so we are talking one big freaking butterfly effect! And this huge freaking butterfly effect is bigger than Mothra, and that damn Mothra was so big that I've seen movies where it almost ate Tokyo a few times, because even cannon fire just bounces off of it, and it could spew flames and laser beams out of its mouth, too! And now I'm talking bigger and deadlier than THAT!

So it is a foregone conclusion, according to Chaos Theory, that SOMETHING will happen, and in all probability, a LOT of things will happen.

- From Reuters we read "The United States posted a record $113.94 billion budget deficit in February, above most Wall Street forecasts, as higher government receipts were not enough to cover a spending increase. The government took in $100.87 billion in February, nearly $9 billion more than a year ago, but outlays rose more than $26 billion, causing the budget gap to stretch."

As bad as that is, in Doug Noland's Credit Bubble Bulletin column on the Prudent Bear.com site he reports that "The Goldman Sachs Commodities index increased 2.3%, increasing year-to-date gains to 20.4%. Commodities price gains were broad-based, with the CRB index surging 4.1%. The CRB is up 12.2% already this year." This year? This year? This is only the middle of March, for crying out loud, which is far, far, farrrRRRrrrr too early to talk about things like 12% inflation "so far, this year"!

- I got an email joke entitled "Typical computer help center" showing a room full of computers and a monkey manning each work station, actually looking like they are working at being real on-line customer-support help.

And I think that this is a great moment in measuring how much a guy is underpaid or overpaid, and in fact I suggest that you refer to this as the Mogambo Monkey Measurement Metric (MMMM), which is a length of time it would take to train a monkey to do a job. For instance, you could easily train a monkey to do Alan Greenspan's job as chairman of the Federal Reserve, as all he does is wave his hand in the air and create more money and credit, as if that is the answer to everything. Obviously, Alan Greenspan is grossly overpaid.

And I bring this up because I hear Disney is looking for a new CEO, and perhaps I could provide some guidance on proper compensation.

- Reader Carol F. has identified a new psychiatric disorder, this one "attention to deficits disorder -- the malady of paying no attention to serious, raging budget and trade deficits while claiming that all is well." Hahahaha!

- Speaking of inflation in commodities, Steve Sjuggerud reports one of those weird things that make your mind go "boing!" He writes, "A penny now costs two cents to produce!" Going back to the U.S. Mint's last annual report, dated September 30, 2003, he notes that back then "It cost the U.S. government 3.8 cents to produce a nickel and 0.98 cents to produce a penny." So the government was still making money on making money, showing a small profit. But it may be too early to celebrate just yet, as he goes on to say "We haven't heard from the Mint since then, but metals prices have nearly doubled. By my quick math, as of this morning's metal prices, it would cost 1.7 cents to produce a penny and 7.2 cents to produce a nickel today" Hahahaha! It costs more than a nickel to make a nickel? And it costs more than a penny to make a penny? Hahahaha! Talk about your basic monetary mismanagement!

He suggests that we could go into business buying coins from the Mint at face value, melting them down, and selling the raw materials back to the Mint at a profit. "We buy freshly minted pennies and nickels for 1 cent and 5 cents respectively, melt them down, and then sell the metal back to the mint for 1.7 cents and 7 cents. It's the perfect business." Hahahaha! Yes, it is! And this is just ONE of the weird things that happens as inflation destroys the purchasing power of your money.

He admits that they would never let you get away with that. But he does ask a relevant question, as we watch the literal destruction of our money, "You do own
gold coins by now, right?"

- I got suggestions that I ought to comment on the surprising way that the idea of Mexico adopting a
silver coin has been making its way through the government. Relax and forget about it. There is no way in hell that a government or a central bank, especially a Mexican one, is going to willingly give up the power of creating money out of thin air or submit to the healthful, intelligent strictures of metallic money.

Ugh.

**** The Mogambo Sez: Chuck Prince, chief executive of Citigroup, said: "The possibility of a liquidity bubble around the world concerns me. A very cautionary thing is that it feels like the world is changing and traditional indices may not give a complete picture." To this I say, "Hahaha! Wrong-o!" This gives a very complete picture, as it is nothing more than the death scene played out in the last pages of the ABCT, (Austrian Business Cycle Theory), where the mal-investments paid for by the excess money and credit has to be reversed. Perhaps the picture would be more complete by the addition of a caption that reads "We're freaking doomed, you morons!"

Richard Daughty

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


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

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