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Each day I wake up more scared than the day before

Richard Daughty
...the angriest guy in economics
The Mogambo Guru
March 24, 2004

The Fed reversed course, and pumped up $7.4 billion in new Fed Credit, probably just for a little fun, and to give everybody up and down the line something to do.

For all the apparently head-fake hoopla about how the Japanese were supposedly re-thinking their strategy of buying gigantic mountains of dollars to weaken their own currency and thus make it possible to keep buying their exports are artificially-cheap prices, foreign central banks still managed to increase their Custody holdings at the Fed by another $8.5 billion last week. So buying of US debt, so we can continue to fund our irresponsible buying sprees, is coming from somewhere.

Which is good, I guess, because the mortgage markets went bananas again, and money had to come from somewhere to allow buyers to line up around the block for the privilege of bidding up the prices of houses. We Americans have been conditioned not to do any thinking, or reading, or acquire any real education other than to learn to

1) trust the government, because

2) the government is the source of all things good and

3) everything will always be fine and everyone will always be happy if the government is allowed to spend enough money.

Ergo, houses escalate in price, as there are more buyers than sellers. This is my candidate for the Most Stupid Thing That People Did During The Bubble Decades. I mean, investing in dot-com stocks and losing everything is one thing, because you still had your house, and in a real pinch you could plant a big garden in the backyard and raise chickens or something, and if things got really bad then you could eat the dog and sell the children, and sneak over to the neighbors' houses and try and steal some food from them, or their money, or their valuables, or their kids, so that you could trade them for your own kids back, assuming that you wanted your own kids back, although if your kids are like mine then maybe you are in the mood for a for a change.

But there the buyers are, lined up around the block somewhere, jostling each other for the chance to bid up the price of a house that they cannot afford to buy, at the exact wrong time in history to make that kind of a long-shot pay off. It is probably the fabled end-of-the-bubble blow-off, and it is happening right in front of our eyes. And if it is NOT the fabled end-of-the-bubble blow-off, then it SHOULD be, because it looks exactly like one!

I am, I am sorry to say, compiling my quarterly report to Zorg, the Space Quadrant High Commander of this sector of the galaxy, and I am now going to share with you some of the things that I am sending to him about this housing mania.

I begin with the standard introduction, "Oh, mighty Zorg, omniscient and wise ruler before whom the very stars supplicate themselves, hear my humble report." Then I get into the meat of the issue:

1) Prices are at historical highs, and are also at the end of a long series of setting new records.

2) Prices are a record-setting multiple of the buyer's incomes.

3) This is at a time when interest rates are insanely, abnormally, fraudulently low, manipulated to negative real, inflation-adjusted rates, and believe me when I say that this is weird, with a capital "W." How weird? Well, I have run the numbers through the Mogambo Mega-computer, and after lots of whirring and clicking and humming and sparks flying and the smell of burning insulation permeating the air, the answer comes out that the probability of this interest rate environment lasting far enough into the future to make this real estate gamble pay off is the exact same, as in "out to twenty-five decimal places exact same," as the chances of me ever looking or acting normal ever again, assuming that there was a time when I DID act or look normal, and there are several conflicting reports about that.

For those who are not familiar with The Mogambo, this statistic probably seems irrelevant, and you should be so lucky. So let me try another example. This probability is so unlikely (Audience yells out "How unlikely, Mogambo?") that it is in the range that is graphically shown as waaaaaaaayyyy out there on the tippy-tip tail ends of the bell-curve, the kind where the probability tables in the back of the book have left off, having surpassed 0.00001 long, long ago.

For you gamblers, my next example uses that popular card game, poker. In particular, two-handed 5-card draw poker. Imagine your thrilled excitement as you look at your cards, and your bloodshot eyes open wide, and your heart is pounding as you peer at the most beautiful straight flush to the king that you have ever seen. What are the chances of that one other guy in the game is holding a straight flush to the ace? THAT is the kind of probability that we are talking about.

For you value-seeking shoppers out there it is the proverbial "Can't lose, or double your money-back" guarantee.

I mean, there is no chance, zero chance, zip chance, squat chance, no-way-in-hell chance that rates in the future will NOT be higher, and probably LOTS higher, and maybe even lots AND lots higher that that, because that unspeakable interest-rate horror is the inescapable result of fostering inflation, as the Fed and the Congress are working to achieve, even as we speak! They are actually trying to, and this is the part that my brain refuses to believe, cause inflation! And it is working, as every indicator of inflation and pipeline inflation are all pointing up!

I am going to the Homeland Security Department computer and clicking on the Patriot Act subroutine program-- click! --and accessing the video surveillance feed-- click! --that the government has installed to monitor your activities in case you start getting uppity, to verify that your mouth is hanging open in stunned stupefaction, and your eyes are fearful and glassy at the revelation. And yet, these new house buyers are drooling all over themselves and dragging their knuckles along the ground as they troop into a mortgage originator and are, after all that, perversely opting for an adjustable-rate loan? Knowing that interest rates are going to rise? My answer is a scream of primordial outrage that seems to have no end, but it eventually does, as my wife finally yells out "Shut up that damn screaming or I'll give you something to scream about, you irritating little twit! So don't make me come up there!"

And then, amazingly enough, you turn right around and ask me, "Mogambo, why are you so negative on the combined intelligence and honesty of Americans and their government, which causes you to cower in your steel-reinforced concrete bunker and cry like a wussy little baby?" Well, for one thing, I am NOT cowering. Well, I wouldn't be, if I could get some mortar emplacements installed around the periphery of my house, but you would not believe the hassle of trying to get a permit to install this simple, basic home-defense item! It's like the Building and Zoning Department never heard of the Second Amendment or something!

Anyway, back to our discussion, which is not really a discussion but is just me talking and you trying to ignore me and just nervously sliding my groceries past the scanner and yelling at the bag boy to hurry up so that I will get the hell out of here, let's get on with our list of things that house buyers are ignoring.

4) There are record deficits in almost every layer of government in the country, thus state and local taxes are sure to be raised.

5) Real-inflation-adjusted incomes are still falling after decades of declining real incomes. And if you also adjust for the increase in total taxes paid to all the different layers of tax-levying authorities, the real, net-of-taxes, inflation-adjusted and cost-of-government adjusted-incomes are hitting the bottom of the barrel.

6) We are at the tail-end end of a long, long series of booms, most of which have not busted yet.

But now, as I look back on that list, I am sure that when my report hits the desk of the Supreme Overlord of this galaxy sector, I am going to be called before the Supreme Inter-Galactic Tribunal of Planets to explain how it is that Earth people, and American and British people in particular, are buying houses at incredible prices, and buying more taxes, and buying more government, and buying more things, and buying more debt, and borrowing to "invest" in speculative assets of every stripe. And when the hearings are all over, and it comes down to the Vote of Infinite Finality, the one where they decide whether or not to destroy this planet and all the people on it as an exercise in planetary husbandry and improving the breeding stock of the cosmos by eliminating the races of congenital idiots that spring up from time to time out here in the dark, deserted fringes of the universe,

I am pretty sure that it will be a unanimous Thumbs Down. And if you are at all familiar with your television version of Roman history and the whole gladiator thing, I certainly don't have to explain the significance of that. - The CPI increased by 0.3% in February, and the news flash was slipped to me under the door of the Mogambo Bunker, as I had been dreading the announcement. One of these days we are going to see not only inflation, but roaring price inflation, that is guaranteed by all the monetary inflation. The Associated Press tried to find a little silver lining in the news, and reported that "The increase in the Consumer Price Index marked a slowdown from the 0.5 percent jump registered in January." Ain't dat nice?

Then they all apparently went to lunch and got real drunk and bought some mind-altering drugs from some guy on the street named Carl on the way back to their offices, and this allowed them to continue in Greenspan-speak. I can imagine that they spoke with slurred voices, swaying unsteadily on their feet, their pupils alternating between dilated and constricted, as they said that "Excluding energy and food costs, 'core' consumer prices rose by just 0.2 percent in February for the second month in a row. That suggested the prices for many goods and services were fairly stable." See? If inflation is the same for two months in a row, no matter how much higher prices are, then prices are stable? Wow! See how simple this stuff is when you're the government and you can't be fired for saying something so stupid that you would slap your kid if they dared insult your intelligence like that?

Of course, they included the obligatory corroboration that "Federal Reserve Chairman Alan Greenspan and his colleagues said inflation is not a problem for the economy." What they meant to say is that Greenspan and his colleagues said that disguising and lying about inflation is not a problem for the economy, because it is not a problem for them, and they figure that they ARE the economy! So, no problem! But you can't pick up a newspaper or hear the news or listen to one of your irritating neighbors whining about the high cost of things, or how they'd like their lawnmower back that I borrowed but have not returned, or something. It's always something. But yet, almost at the same time, we have this Greenspan person telling us that prices are not going up! It makes you crazy at the cognitive dissonance, when supposedly educated and trustworthy people are telling you that what you are seeing with your own eyes is not happening right in front of your own eyes!

On the same day last week, crude oil went over $38 a barrel, and commodities are zooming in price,
gold is jumping $4.50, so it looks like these are examples of things that are NOT "stable" in price.

Similarly, the Economist magazine notes that their dollar-based index of commodities has risen by 28% since January 2003. The yen-based inflation is right behind it, at 17%, followed by the sterling index at about 12%, and then by the euro-based index, at 10%. The lynx-eyed among you will no doubt notice that in every single instance the inflation in commodities was in double-digits.

Then, and I hope you are sitting down for this and have an IV inserted into you arm that is dripping some kind of powerful tranquilizer into your veins by the quart, the long-awaited PPI came out, and the guy who delivered it to me must have glanced at the page and noticed that it said that prices were up strongly. It doesn't take a genius to realize how that kind of news is going to affect me, so he just tied it to a rock and heaved toward the Bunker de la Mogambo. It hit the door with a thud and lay there on the ground. I fired off a few bursts from the Mogambo Machinegun System (MMS) to suppress any incipient hostile activity, and I quickly opened the door to the Mogambo Fortress of Solitude and snatched the report up off the ground and ran back inside. Quickly slamming the door shut, throwing all the locks and activating the Mogambo Monitoring and Surveillance System (MM&SS) into Full-On mode, I gobbled down a few nitroglycerin pills as a wise precaution, and then leisurely read that prices were up for the month, and by 0.6%. In March, the Philly Fed's prices paid component surged 9.7 points to 53.4. The 'prices received' subindex climbed 3.7 points to 22.6. Both are at the highest levels in nine-years. My immediate reaction was an involuntary tightening of my trigger finger as I staggered about clutching my heart, and then, according to expert testimony, was enveloped in a confluence of outrage, fear, and panic in doses that were, according to sensitive instruments developed specifically for the purpose, off the charts!

Of course, there was the rush by government wonks and the stupid class of people in America, which is the class known as "American economists," who all decided that prices going up did not mean that prices went up, and even if they did, then it is okay, and it is nothing to get worried about, and that it actually meant that this was the perfect time to buy some stocks or bonds or houses or something.

The next day, in the WSJ column "Ahead of the tape," by Aaron Lucchetti, we read that "The big question for bond investors is whether factories and other 'producers' will eventually pass on some these small, but growing, price increases to consumers." Then we are treated to the opinion of an American economist, namely Michael Ryan of UBS Financial Services, who thinks that maybe these producers will not be able to pass along those price increases to consumers. He says that while there is a historical tendency for consumer prices to rise following producer prices rising, "It doesn't always transfer."

"Historical tendency." I like that.

Well, I am here to tell you and Mr. Ryan that rising producer prices rising are always paid by somebody. Either the consumer pays them, or the stockholders pay them in the form of reduced profits. Either way, somebody pays, and they take the whack to the head.

Christina Wise of Investors Business Daily wrote a column entitled "PPI Rose 0.6% in Jan; Prices Up in Pipeline," and it shows that she is on the same page as the Mogambo, too, as she writes, "Others see inflation ahead, saying eventually higher production prices will be passed on to consumers."

David Littmann, chief economist at Comerica Bank, pretty much agrees with me and Christina's un-referenced 'others", and says "All commodity prices are up and I think that's a worrisome sign because these wholesale prices do precede CPI. There's no nice way of toning it down. It presages a great deal higher inflation next year."

So, will producers be able to pass along the higher prices? I am here to tell you that there are very few stockholders that are going to let the executive management staff sit around on their fat keesters, soaking up gigantic loads of perks and benefits and stock options, while the income of the stockholders goes down, all because the company is absorbing higher costs. Those managers who are still around next year at this time will have figured out some way, some ingenious way, some desperate way, to increase the prices that consumers pay. And if you want REAL "historical precedent," this is it.

Marshall Auerback, one of the really smart guys of the world whom I would love to see wrestle Alan Greenspan to the ground and make him squeal like a monkey, has written another of his stellar articles for the Prudent Bear website. He has entitled his new screed "Argentina Should Hold Firm (But It Probably Won't)."

He is referring to Argentina being the primary recipient of IMF largesse, and how they are telling the IMF, translated into Mogambo-speak, "We have no intention of paying those filthy capitalist swine bondholders what we owe them unless they are willing to take ten cents on the dollar. But if you give us another big bunch of money, measured in billions of dollars, we will make token payments on some of our overdue loans, and maybe invite you over for lunch and say some nice things, all of which are lies."

But Mr. Auerback has taken the bankrupting situation in Argentina and extrapolated to other countries who are just as big a bunch of debt-addled dirtbags, namely us. "We have made the point before, but if ever there was a party in desperate need of a traditional IMF style makeover, it is the United States of America. The convenient focus on Argentina helps to distract attention from the broader issue of American economic policy and its role in fomenting the kind of financial fragility that has wrought so much damage to Argentina and the rest of the emerging world."

Mr. Auerback seemingly looks down from Mount Olympus and sees things as they really are, and has noticed that the supreme economic ignorance ("We're all Keynesians now!") of the Federal Reserve system has infected everything it has touched, and lots of things that it has not touched, all over the globe. "Argentina's current dispute with its creditors is symptomatic of this broader problem of an American policy that seeks to deal with credit bubbles by creating new ones and bailing out the architects of the old ones (the so-called 'moral hazard' problem). Under the guidance of Washington, the IMF has organised bailouts, the effects of which tend to minimise the costs of write-downs to the Western lenders, whilst extracting huge social costs in the country that was the original recipient of these loans. Debt amortisations and interest payments remain high and the emerging market governments are forced to dig deep into their pockets, forcing taxpayers to pay up, without receiving any of the corresponding benefits of foreign investment."

Cutting to the chase, he remarks that "Ironically, the US has become a foreign capital debt junkie, suffering from virtually the identical affliction to that of Argentina in the terminal stages of its illness." "Given the stakes, we have no doubt that greater pressure will ultimately be brought to bear on Argentina, and the 'great game' will continue for a while longer," he says. "But this will prove self-defeating. Governments and 'neutral' multilateral organisations bent on sheltering their constituents from the adverse consequences of their own market actions, such as the IMF, will continue to 'socialise' the losses of these private market participants. The self-correcting and self-purging mechanisms of markets will thereby be thwarted yet again. Risk perceptions will be further skewed as losses are bailed out at the public trough. In turn, rational economic agents will re-learn the now predominant lesson to expect more government bailouts, which will perversely encourage greater speculative behaviour leading to even more overvalued asset markets, excess indebtedness and ultimately to greater instability and crisis."

In short, it will get worse and worse until it collapses under the sheer deadweight tonnage of lies, frauds and economic stupidities.

In a disturbingly familiar vein, an essay entitled "Argentina's Paper Money Mire" by Grant M. Nulle on the Mises.com site is equally dismal. "For every dollar (or foreign currency equivalent) worth of defaulted bonds held, Argentina will exchange it for a new bond with a face value worth approximately a quarter, bearing a coupon of one to two percent and maturity of 20 to 40 years. Put succinctly, Buenos Aires has demanded a write-down of approximately 92% of the obligations' net present value. Compensating lenders beyond these terms would not come at 'the suffering and hunger of the Argentine people,' according to President Kirchner."

Mr. Nulle then pinpoints the exact source of the misery in Argentina. "The twin financial scourges of fractional reserve banking and a central bank-abetted fiat currency pervaded the Argentine economy, making a boom and bust possible." Plus, he also identifies, as does Mr. Auerback, the culpability of the IMF. "The Fund was instrumental in engendering Argentina's present woes through lax oversight and an implicit bailout guarantee, which was actualized when Buenos Aires's fiscal fiasco became insurmountable."

In other words, this international organization lends contributions supplied by governments, especially the US government and its agent the Fed, whose quotas are met via the involuntary confiscation of property (taxation), to recipient states in order that the beneficiaries continue to service public debts to private lenders, also a nefarious compact that entails violating the property rights of a third party. This facet of the international financial architecture is nothing more than systematic pilfering."

Richard Russell, the savant behind the Dow Theory Letters, was profiled in this week's Barron's, and as usual he displays his talents for discerning the future and how to make a buck from the knowledge. He says that we are looking forward to the "one of the worst bear markets in history." Part of it will be that he figures that the US dollar will lose about half its value. Half! So as bad as oil at $38 a barrel seems, we are looking at a theoretical $76 a barrel when the dollar's purchasing power is halved. And four bucks a gallon at the pump.

He also looks at
gold with a loving eye, as do all thinking people, and as does all paranoid and fearful people like me, and proclaims that gold is "cheap as dirt." If you are so thick-headed that you will not listen to the Mogambo or Richard Russell, perhaps you will attend to an essay entitled "Gold Today, Gone Tomorrow" on WorldNetDaily, by Kevin DeMeritt, president of Lear Financial. He writes "In the shorter term, Merrill Lynch believes that gold's rise will top $500 an ounce this year. But Barron's topped Merrill's prediction: That financial publication recently included a prediction that gold's rise could exceed $800 an ounce." Both of these are for gold's price THIS YEAR! Since you are not anticipating dying this year, I assume that you are also interested in the future price of gold, too. In that case, the sky's probably the limit, although you will go a long time before you see anybody quoting the Mogambo saying as much.

The megalithic, economy-destroying cancer of Big Government is the huge flywheel that is keeping the economy putt-putt-putting along. If it had not been for this huge inertia effect, the economy would surely have crashed years and years ago. That is why government is still growing, although if you had a wart on your face that was growing as large as the government you would not be so complacent about it.

I read the essay "Everything You Wanted To Know About Interest Rates" by Craig Harris, of Harris Capital Management, on the 321gold site. "In spite of the fact that the actual cure for some of the current economic problems is for the government and public to save and reduce debt, exactly the opposite incentive has been introduced for the simple reason that the modern financial system has evolved to rely on ever increasing levels of debt and inflation to sustain itself."

And the next time you are in the library, sidle on over to the Economics section and try and find a book that explains HOW a financial system based on "increasing levels of debt and inflation" could possibly work. Or find an example in all of history where such a thing worked in the past.

And don't try and take the easy way out and call David Tice, manager of the Prudent Global Income Fund, for his opinion about that. He says "This is not a run-of-the-mill problem where the currency corrects 25 percent and then stabilizes. We have an economy that's very dependent upon ever-increasing amounts of debt. Given that, we think the dollar can decline substantially more from here."

And if you don't think that a declining purchasing power of the dollar is a bad thing, tell me how you like the price of gasoline these days, which is caused, in great part, by the decline in the dollar.

Gary North, reports that Reagan gave a speech on October 27, 1964, in which he said "We have $15 billion in
gold in our treasury -- we don't own an ounce." Gary says, "As for the gold, it may be gone. Nobody outside of the Federal Reserve System knows for sure. There are indications that it was lent to European central banks, which in turn lent it to commercial bullion banks, which in turn sold it and bought government bonds. If so, the gold isn't coming back.

And that is why the banks are all huffing and puffing and coming up with new agreements to continue selling
gold: the weenies who leased and then sold the gold need to have gold falling in price or they go under. And they will go under owing plenty big bucks to the banks.

I am glad that the United Nations' Oil For Food Program has, once again, revealed the U.N. for what it is; a snake pit of horrible, lying, corrupt and contemptible people. And I take this as my cue to climb on my soapbox and demand that the United Nations be torn to the ground and those nice comfy chairs be distributed to the poor unfortunates of this world whose chairs are not so plush and cushy, namely me. The U.N. was, after all, where the horrid Madeline Albright, whose contemporaries referred to her as "Madeline Not-All-That-Bright," did nothing of note but run her mouth before she was installed at the NYSE to participate in THAT filthy, corrupt little hole. And we all know how well THAT worked out.

As a gratuitous insult, how in the hell can we be so stupid as to let our of computer operating systems and programs be software based? Obviously Microsoft must be guilty of massive, systemic corruption, as there is no other way to explain how our computers are operated by software, which randomly quits working and seizes up the computer, is prone to constant corruption by outsiders, and is, in a word, a total failure.

In the old days, the programs and everything was built into the chip, and therefore incapable of permanent corruption.

The Grandfather Report is one of those sites where you only go if you are thinking about NOT sticking your head in the gas oven and want a little push to get you to kill yourself and get it over with, writes "Total Debt in America is now over $37 Trillion, or $129,513 per man, woman and child." This number "excludes the huge un-funded contingent liabilities of social security, government pensions and Medicare."

"2003 debt of $37 trillion was 437% of national income; the debt ratio in 1957 was 186%. If 2003 debt had been at the 1957 ratio said debt would have been $15.5 trillion, not $37 trillion - - indicating excess debt in America today of $21 trillion. Stated differently, in 1957 there was $1.86 in debt for each dollar of national income, but in 2002 there was $4.14 of debt for each dollar of national income."

He then asks "2 great questions: Can the production of debt forever replace the production of goods? Can Americans forever borrow their way to prosperity?" My brain instantly snapped to full attention, as this is an easy question! Maybe I could score a couple of points for class participation! But before I could even raise my hand to answer it, he answers it himself: "One answer: NO WAY!!"

"Inflation or deflation? How about just 'Flation'?" ask Alex Wallenstein. He doesn't give you the black-or-white, yes-or-no answer, but merely says, "What we will end up with is simply the worst of both worlds."

"Nobody is going to 'win' this deflation vs. inflation debate. We will all suffer. There will be wide-spread 'flation' all over the place, and nobody will care whether this 'flation' is of the 'in' or the 'de' flavor."

"There will be only one way to survive this with your wealth position more or less intact: having a good amount of real money stocked up somewhere within reach - and trying whatever you can to get your family, friends and neighbors to do the same. (Good luck on that one!)


Richard J. Greene in an editorial at gold-eagle.com entitled "Fiat Money Systems" was featured on the 321gold site. "There has been an unprecedented amount of debt and credit extended, far in excess of anything we have seen in prior fiat money systems, and the eventual result will be defaults, deflation, and depression. There will also be an accelerating redistribution of wealth, most surely to result in social unrest." "Joe Six-pack, who represents the masses, has been sucked in by the lure of easy, unearned consumption. He is totally uneducated in economic matters, trusts his government, and is dangerously over-exposed financially as is the entire nation." He sounds as dyspeptic as the Mogambo, but I am hopeful that you will not hold that against him.

Then he made the big mistake of looking at history, the very thing that cause me to lose my mind, although it was Father Time that caused me to lose my good looks. He writes "A brief perusal of history will show that when a nation went on a
gold standard it was the beginning of a very long period of that nation thriving. When a country went to a fiat currency there was a period, as long or longer than 30 years, in which it thrived even more. However, during that period of prosperity on a fiat currency, excesses began to build. Once they have built up to extreme levels, it is a very dangerous time. When levels of debt become too excessive, an increasing amount of the rewards of production; profits, must go to servicing debt. When the servicing of debt consumes all of the profits of production, it finally consumes production itself."

He then sums up his historical travels by saying, "If you look at history, you will understand which will win, and you should move to protect yourself as the mountains of credit and paper money, gravitate to their true value. BUY
GOLD AND SILVER!" Note the way that he has used all capital letters to indicate emphasis, which is a lot classier than when I grab you by the lapels of your coat and scream in your face and beg you to do that very thing.

Mark Rostenko, of the Sovereign Strategist, writes "After a spectacular rise in the S&P 500, signs of a major market top are rapidly falling into place. While many have heralded the rally as the emergence of a new bull market, history indicates that such large reactions are part and parcel of secular bear markets."

He notes that "Nobel Laureate Vernon Smith coined the term 'echo bubble' to describe such typical post-bubble activity. When a market bubble bursts, it is generally followed by a secondary bubble, an 'echo bubble' -- during which market psychology matches the extremes of sentiment displayed in the first bubble. Typically, markets do not find a genuine bear market bottom until after the echo bubble pops."

"In major bear markets, counter-trend reactions that retrace between 1/3 and 2/3 of the preceding decline are common." In looking at the current situation of the stock market, if Mr. Smith is right, the counter-reaction must be drawing to a close.

Throwing my stupid two cents into the mix, I note that the index averages have all penetrated their 90-moving averages to the downside, and are boring down to the 200-day moving averages. And as any chartist will tell you, that is a bad sign.

The clever wags at the Daily Reckoning "The Fed's low rates have underwritten a huge boom in debt all over the globe. Assets backed by debt, especially real estate, bubbled-up all over again. House prices, as a percentage of personal incomes, are at the highest levels ever -- in the U.S., Australia, Ireland, the Netherlands, Spain and Britain." This disconcerting fact may be behind the Economist magazine's warning that the real estate market is heading for a bust, particularly a 20% drop in prices. And not only in YOUR neighborhood, either, but, and this is the scary part, all over the place, or, as they put it, "the first global property bust in history."

And it gets worse, as the DR people noted that "While there are about $30 trillion worth of stocks in the world, the property market is estimated at about $50 trillion. Much of it is heavily mortgaged. And in the UK, for example, rental income often doesn't even cover mortgage payments, let alone upkeep and other costs."

So while a stock market crash would be catastrophic, the crash of the housing boom would be, hmmm, I see that I have already used the word "catastrophic" so I am going to use the word, cataclysmic, which is similar, which is only fitting, since they are both grossly overvalued and oversubscribed, and both owe their very existence to the damnable Federal Reserve.

The Economist magazine breathlessly report that the global economy has had its most "stable decade in history" according to two guys, Bill Martin of UBS Global Asset Management and Robert Rowthorn of Cambridge University, who are two guys who seem to have a smattering of knowledge about economics and a lot of extra time on their hands. What these two guys did was measure GDP according to prices received, and took a look at the volatility in the changes in GDP aka prices! Hahaha!

Apparently these two witless dudes did not notice that GDP is now measured in prices that are subject to subsequent adjustment, via the foul Boskin Commission template of adjusting inflation so as to not show inflation, and the idea of hedonic measurement of prices to show growth out of thin air! Where in the hell have these two guys been? Oh, I forgot: They work for a brokerage and a university. That explains it for me.


---Mogambo Sez: Each day I wake up more scared than the day before.

March 24, 2004
Richard Daughty

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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