Captain's Log, Stardate 6501
...the angriest guy in economics
June 15, 2004
Well, the big G-8 meeting came and went, and from the few press
reports it was all low-key, and they talked about how awful it
was about Iraq, and how the Stanley Cup was a lot of fun, and
they told a few jokes (for example, "How many central bankers
does it take to change a light bulb?" The answer is "None,
because he can lower interest rates, and so that ought to fix
the damn light bulb, since they believe that lowering interest
rates can cure anything, including your damn stinking light bulb,
and how dare you question anything we central bankers do, you
little pipsqueak, because we have enough money and power to squash
you like a bug just by snapping our fingers, and don't you forget
it.") And they all got all caught up on the gossip, and
ate like kings while trying to slip Viagra pills into each other's
food when they weren't looking, and then they spent the rest
of the time conspiring to harass the Mogambo because if I do
win the election and become the President of the United States,
then I will undoubtedly fulfill Campaign Promise #362, "Round
up all the central bankers and lock them into a farmhouse in
Waco, Texas, and send Janet Reno to arrest them."
The other big news of the week, at least for me, was of a political
nature, and it was where the Bush White House argued that the
President has powers that can nullify any law or treaty at his
discretion, especially as it pertains to torturing terrorist
prisoners. Putting the awesome mental powers of the Mogambo into
action, I tune into the vibes of the cosmos, and am starting
to get a real good idea why the Democrats are so worked up about
getting rid of Bush.
On Tuesday Greenspan testified before a Congressional panel,
and we were treated to Charles Schumer demonstrating why 1) he
should not be allowed to hold office and 2) why New Yorkers should
never be trusted, as they are the ones who elected this blathering
lunatic to office. But he asked if Greenspan didn't agree with
him that a budget deficit will harm "the recovery."
News flash to Schumer: everybody knows that budget deficits WILL
stimulate an economy! Everybody fully agrees that budget deficits
will stimulate an economy! It has to! How could it NOT make an
economy rev up? Watch my lips, doofus: "Money is being created
out of thin air and is spent! And spending, especially higher
spending, is the very definition of what a economy does!"
Jeez! What a moron!
The only bone of contention concerns the aftereffects. Will the
eventual pain of inflation be worth the immediate pleasure? I
say no, only because it never is, and I have too little imagination
to believe that now, for the first time ever, it would work out
for the best.
Doug Noland got back from vacation, and thanks to him leaving
for two weeks and not ferreting out any more horrendous economic
idiocies as concerns debt and inflation, both monetary and price,
gave my heart a chance to heal itself. The air smelled sweeter!
The birdies in the lush, green trees sang with a new beauty!
The sun seemed to shine with a bright glow, and all was tranquility
But now (insert dark and gloomy soundtrack) he is back! He's
baaaaaaaaccckkkk! Normally, my response would be "Run for
your lives!" But I have hopefully stayed one step ahead
of this Noland guy, and I have had defibrillating wires surgically
implanted into my chest, and so, of course, I am now feeling
really cocky, and I figure I'm more than ready for this Noland
guy. Plus, the terminal ends of the wires look like nipple rings,
and so I am hoping that if I DO succumb to the panic attack and
have to be rushed to the hospital, then maybe the nurses will
see them as I lay on the table, and they will say to themselves
"Hey! This old guy has nipple rings! That is soooooooo cool!
Let's save this one!"
So I thought I could do it. But I was wrong. Like a sledgehammer
hitting me between the eyes, he starts off with "Total Non-Financial
Credit expanded at a seasonally-adjusted annual rate of $1.927
Trillion during the quarter. Examining seasonally-adjusted data,
Federal Government debt expanded at an 11.6% rate, State & Local
9.6%, the Household sector 10.9%, and Business 4.1%. One can
only be discouraged by the continuing surge in non-productive
Did he say "discouraged?" Who is this Noland guy that
he can look Death in the face and say he was "discouraged"?
I'd give anything to be only discouraged! If I was only discouraged,
then maybe I could sleep and not have to be strapped down every
night to the bed with these big leather things with buckles,
and the next thing I know it is 2 a.m. and my wife and angry,
sleepless neighbors are cramming rags into my mouth to try to
muffle my screaming of raw, primordial fear.
Captain's Log, Stardate 6501 mark 3, I can feel the defibrillator
emitting a whole series of little buzzes, and my left eye twitches,
which Mr. Noland ignores, and he goes on to say, "The Household
sector increased debt at a record annualized $1.008 Trillion."
Bzzz! My eye twitches. "Total Mortgage debt increased $251.3
billion ($1.01 Trillion annualized), or 10.7%, to $9.618 Trillion."
Bzzz! My eye AND my hand twitch. "Total Mortgage debt was
up $1.04 Trillion over the past year (12.1%), with growth of
24% over two years and 83% over the past 25 quarters (since the
beginning of 1998)." Bzzz! Bzzz! Bzzz!
I'm flopping on the floor! This is insane! I heroically pull
myself up onto one elbow, look deeply into your soul, and say
"Look into my bloodshot eyes so that you can comprehend
my cosmic intensity, and attend my words, my little grasshopper!
There are only 138 million people in the damn country who have
jobs! Look at me when I am talking to you! And sit up straight!
I said that there are only 138 million people in the country
who have jobs! And about one of out six of them, 17%, works directly
for a government! If you were as handy with a calculator as I
am, then you, too, could have impressed people by determining
that that annualized householder debt increase comes to $7,304.35
for every last worker in the country, including government workers,
and notice that I have figured it right down to the cent! To
the very penny!
Of course, this is after rounding off the number of employed
people to the nearest million or so, which is a cheap statistical
trick that the government is fond of doing. And since it is obviously
so popular with everybody, then maybe if I do it, too, then I
will be popular too! And maybe then I will get invited to parties!
And maybe finally find a friend who won't turn me in for the
reward! And maybe I can finally get a real life of my own that
does not revolve around court dates, or mental health professionals
talking about how vivisection might reveal some important clues
about what the hell is wrong with me.
But I am not here to talk about my problems. The crucial bit
of information is that, on average, everybody who has a job will
go farther into debt by another $7,304.35, and I again included
the thirty-one cents for you obsessive-compulsives out there.
"Household Mortgage debt expanded at an 11.4% rate during
the first quarter ($819bn annualized), 26% over two years and
85% over 25 quarters. Since the beginning of 1998, Total Mortgage
debt has increased from 65% to 85% of GDP."
By this time the little defibrillator was buzzing continuously
- Bzzzz! Bzzzz! Bzzzzzzzzzzzzzzzz! - and my nipple rings were
glowing red-hot from the sheer amperage. Suddenly, my eyes would
not obey my brain, which was screaming "Look away! Don't
look at it! Look away!" Like a man in a trance, I remember
reading "Foreign sources accumulated U.S financial assets
at a stunning pace during the quarter, expanding a record $423
billion (not annualized!) to $8.43 Trillion (a 21% growth rate)."
One of the big mysteries to me is why Alan Greenspan, a guy who
wrote a defense of gold as money, and at the same time writes
a classic denunciation of fiat currency, and yet he does what
he does. It makes no sense. I am not the only one who has pondered
this enigma. Many theories have been propounded, including one
vicious rumor that I tried to get started, in which I postulate
that Alan is some kind of robot who is married to another cyborg
robot, named, I think, Andrea Mitchell, and who is, in real life,
a shrill Leftist harpy from waayyyyy back, who regularly hangs
out with other robot Leftists who are trying to turn our government,
Frankenstein-like, into a brain-dead communist cannibal that
eats the guts out of an economy. Okay, I admit that was veering
off onto a tangent.
But remember that the history of space, from one end of the cosmos
to the other, is full of examples of some poor, pathetic planet
that was destroyed by idiotic central bank monetary policy after
the Starship Enterprise and that horrid Captain Kirk visited
them. And that is why they are, in turn, using central bankers
to destroy the Earth, instead of using laser ray-guns, which
ends up burning things and making a big mess. And laser ray-guns
aren't cheap, either.
But talking about robots taking over the government is not what
we are here to talk about, but I will admit is what we seem to
always END our meetings by talking about. No, today we are going
to talk about an alternative theory that I particularly like.
It concerns the total extinction of all life forms on earth.
These Mass Extinction things seem to happen with some periodicity,
and the one beneath Yellowstone National Park is now due, as
are several others scattered around the globe.
In case you missed this, let me bring you up to speed. Under
Yellowstone National Park is a supervolcano, which is, if memory
serves, fifty miles long and ten miles wide. When this humongous
thing blew up in the past, and it has several times with a frightening
predictable periodicity, it has wiped out, like, 95% of the life
forms on the planet when it exploded and covered the planet with
dust, which blocked out the sun and smothered things on the ground,
for ten years or so.
So if YOU knew that the Yellowstone supervolcano was going to
erupt in a few days, weeks, months or years, what kind of monetary
policy would YOU follow? I know that you know that I know that
you know where I am going with this. But getting away from Alan
Greenspan and the Theory Of When A Mass Extinction Is Imminent,
Committing Economic Suicide Is A Reasonable Course Of Action,
the good news is that you can now easily live through a mass
extinction. A Mass Extinction may kill every other living thing
on the planet, but it need not kill you. Mass Extinctions are
no longer fatal! All you need is about 700 MRE's (Meals Ready
to Eat, the kind that the Army uses) per person per year, all
safely tucked away somewhere, and a nice, deep well to get water.
So, figuring about ten years for the effects of the Mass Extinction
to die down enough so that sunlight can strike the ground again,
you need 7,000 MRE's per person.
However, surviving such a thing is the theme of some Twilight
Zone episodes, and I'm sure you know how those turned out!
On the Mises site they have included a quote by Murray Rothbard,
who was one of the biggest of the brains in the circles of theoretical
Austrian School economics, who wrote of "The Myths of Reaganomics"
He said, "The greater the amount of inflation generated
by the federal government, the higher will be the GNP."
This is because GNP, and GDP, too, for that matter, count prices
as the measure of GDP. It ain't how MANY widgets you make, it's
how MUCH they sell for.
So that is why GDP is rising; the lying government jackasses
don't tell you that all this fabulous "growth" in the
economy is not growth at all. It is inflation. Oh, they COULD
adjust GDP by the GDP deflator, but then their whole reason for
being, and collecting paychecks, and securing their places in
Hell for their despicable lying and hypocrisy, is to, as their
job description implies as far as I can tell, 1) lie to the People
to make the government look good, and 2) call Security if the
Mogambo ever gets into the building again.
For example, consider Mogambo Manufacturing, a company that makes
widgets. We make a hundred widgets a year, and we charge a dollar
apiece for them. Total company income: $100. What is the company
worth? Well, suppose you are a skin-flint, and say that you will
only pay two times sales. So, using the metric, we multiply the
$100 in sales times two and we get, and wait a minute while I
check the figures again, oops, wait, let's see, multiply, no,
that's not right, well anyway just round off the whole things
and say the company is worth $200.
Now suppose that inflation comes zooming in, and now we are charging
$1,000 per widget. We are still making only 100 widgets a year,
but now our sales are $100,000. What is the company worth NOW?
From Bloomberg we learn "Walt Disney Co. and three French
banks agreed to bail out Euro Disney SCA for the second time
in a decade in a package that prevents Europe's biggest theme
park operator from defaulting on $2.9 billion of debt."
It makes you wonder how stupid these three French banks are,
as this clueless Disney crew have never made a profit, and have
had to be bailed out twice in ten years. And yet, and I hope
you are sitting down for this, these French banks gave them MORE
money! More! And then the French turn right around and wonder
why nobody gives them any respect.
To show the complete idiocy of Disney, they even tried raising
prices! Brilliant! Nobody wants to come as it is, so they decide
"Let's make it more expensive! Maybe they will flock to
our Disney park if we make it more expensive!" Alas, it
was not to be. The article does go on to say "Higher admission
prices and spending per visitor boosted theme-park revenue by
6 percent in the first half ended March 31. Total sales were
unchanged at 474 million euros." So, fewer people came,
but the ones that did, spent more money.
This sets us up for some gratuitous sarcasm. I curl back my lip
in a sneer, and my honeyed voice drips malevolent venom as I
say "I am sure that these fleeced theme-park visitors are
already busily making plans to return for another shearing."
Story of the Fed Is the Story of a Crime" by George
F. Smith on the Strike-the-Root site, as it reviews the latest,
fourth edition of "The Creature From Jekyll Island"
by G. Edward Griffin. "The American people, of course, have
been handed a thoroughly scrubbed version of the Fed: It exists
to stabilize the economy and protect the public. Never mind the
crashes in ' 21 and '29, the Great Depression from '29 to '39,
recessions in '53, '57, ' 69, '75 and '81, another crash in '87,
a bear market in 2000 that wiped out $7 trillion in stock market
wealth by 2003, and constant inflation eating
away 95% of the buying power of the dollar."
You don't have to be the Mogambo to realize that this record
of the Federal Reserve is one of abject failure, and it is simple
deduction to realize that Alan Greenspan should not be appointed
to another term.
As if almost on cue, a butt-covering tissue of lies and distortions
by the Fed president of the Chicago Fed Bank, Michael Moscow,
appeared in the Tuesday Wall Street Journal, entitled "The
He starts out with the asinine assertion that "Over the
last three years, the Federal Reserve's accommodative monetary
policy has supported both of our primary goals of maximum sustainable
growth and prices stability." Price stability? How can price
inflation that is already 50% above the EU ceiling, and rising,
be considered "stable"?
Then, in the very next sentence, the following garbage comes
out of his mouth, "Not only did it provide useful stimulus
to real economic growth, it helped prevent inflation from falling
to undesirably low levels." My eyes bug out of my head!
For one thing, there is no such thing as inflation "falling
to undesirably low levels." Inflation should be zero or
In fact, the ultimate beneficial economic scenario is when prices
are gently falling, NOT rising, and in this way all of the people
on the lower end of the economic scale would achieve a rising
standard of living, as would everybody else. Everyone could consume
more things with the same amount of money. Then there would be
no calls for a higher minimum wage, poverty levels would drop,
the Mogambo would stop screaming about how the coming inflation
will make you so miserable that you will curse your own mother
for having given you birth, and everything would be fine.
This mealy-mouthed moron Moscow goes on to say that inflation
is lower than many people have predicted, and he wonders why.
And then he goes on to say that "The Federal Reserve Board's
staff's inflation forecasts have performed better that those
of professional forecasters over the last 20 years. Perhaps this
is because Fed forecasts are informed by a wide range of economic
indicators, a variety of analyses, a healthy dose of anecdotal
information, and judgment." He did not mention the REAL
reason, which is outright lying, which is, in actuality, the
ONLY reason that inflation is reported to be as low as it is.
Actual price inflation is roaring, and yet this clueless lying
weasel gets away with such transparent lying that one can only
shake one's head and conclude that Americans are idiots, and
the Federal Reserve is a clot of lying, deceptive and corrupt
jackasses who refuse to admit that they screwed things up royally.
As an example, John Hathaway of Tocqueville Asset Management
was interviewed by Aaron Task in the article "Gold Maven Unbowed By Fed Speak" on thestreet.com, and he says. "Average
new car prices have risen by 308% since 1979 in actual dollars,
but only by 71% according to the hedonically adjusted CPI."
But the Fed is not the only culprit. Oh, no! The Fed merely made
financing available for the governments. A Los Angeles Times
article "States Feeling Less Pinched, But Budget Belts Still
Tight" illustrates the complete corruption of government
in general and the chuckle-headed Leftist morons in particular
whom the incompetent American electorate votes into office, term
after term after term. After paragraph after paragraph of how
states have been cutting expenses and inflicting misery on everybody
in a desperate attempt to balance their budgets, we get to the
end where it says "State spending will inch up, on average,
2.8% next year, according to the National Association of State
Budget Officers." Inch up? Inch?
Ceri Shepherd, "Oil, the Finite Resource" on Financial
Sense.com "Another important point to grasp is that oil
is priced in dollars. As part of Alan Greenspan's efforts to
fight what was, and in my opinion still is, a very serious economic
situation, he has chosen a policy that has sacrificed the dollar
which is down already by about 35%. If the dollar has approximately
35% less international purchasing power and oil is priced in
dollars, would it not be fair to assume that oil, a tangible
commodity, should rise by at least 35%?" Yes it does...
and I smile that you realize this. He goes on to say "The
Europeans and Japanese have not seen very large oil price increases
because there currencies have not been debased as much as the
Nevertheless, he says "As Adam Hamilton of Zeal recently
pointed out as part of his excellent series of weekly essays,
oil, even in dollar denominated terms, by historic inflation
adjusted standards at present is certainly not expensive."
This would certainly be true if incomes had increased as fast
as the dollar has depreciated and prices have risen. But, they
have not. To the contrary, inflation-adjusted incomes of us proletariat
boobs out here have been falling for decades, and after adjusting
for the constant increases in taxes and fees that every layer
of government has been socking us with, our real incomes, the
kind where you go to the bank and cash your pathetic paycheck
and the teller snickers in sneering contempt as she slides a
couple of singles, some nickels and a few dimes across the counter,
have literally plummeted.
Therefore, the price of oil strictly adjusted for inflation may
not be, as he says, expensive in the big, two-dimensional macro
picture, but for those of us whose incomes, mine for instance,
have NOT increased in lockstep with inflation because we are
mentally unstable and are already getting paid far more than
we are worth, gasoline IS very expensive, and I am certainly
not in the mood to listen to any crap about how I ought to compare
my current situation with some distant time in ancient history
when health insurance was affordable and property taxes were
much lower and the sheer suffocating size and cost of a grasping,
cancerously-large system of governments was not eating out my
substance, which is a phrase I picked up from guys who were writing
during the American Revolution, the one where we, the people,
stood up and grabbed our rocket-propelled grenade launchers,
loaded up our armored personnel carriers and went to war against
the nasty British, who were abusing us by taxing us at the horrific
rate of less than 1 lousy percent. 1%! We fought to the death
because of a 1% tax! Nowadays, total economy-wide taxation is
greater than 50% of total income!
The phenomenon that will bring this whole mess down is a story
that I call "The Little Red Hen Who Was Behind On Her Credit
Card Payments And Ran Out Of Money." The Little Red Hen
owed a lot of money to the Rooster, and one day she doesn't have
any money to pay. She tries selling a few things from around
the house to make ends meet, and then another day comes when
she again doesn't have any money to make a payment, and as she
was heading out to pawn the last of her treasures, namely a portrait
of Elvis lovingly rendered in day-glo paint on black velvet,
to get a few bucks to put towards the Rooster MasterCard, she
realizes "Wait a minute! This is stupid! If I sell my stuff
to pay people back, I will not have my stuff anymore! A better
plan would be to tell everybody to go to hell, and just not pay
them! That way, I get to keep all my stuff!" And that is
what the Little Red Hen does.
And the Rooster to whom she owed the money is also noticing that
he is having to sell some of his stuff to pay the Cat, from whom
he borrowed money, and then HE wakes up a 3 a.m. in the morning
and scares the hell out of his wife and says "Wait a minute!
This is stupid! If I sell stuff to pay people back, I will not
have my stuff. A better plan would be to tell everybody to go
to hell, and just not pay them! That way, I get to keep all my
stuff!" And that is what the Rooster does.
And then the Cat sees that he is not making as much money, and
is selling some of his stuff to pay the Dog, from whom he had
borrowed money. And then one day as he is lying in the sun catching
a little nap, he suddenly sits upright - boing! - and says to
himself "Wait a minute! This is stupid! If I sell my stuff
to pay people back, I will not have my stuff. A better plan would
be to tell everybody to go to hell, and just not pay them! That
way, I get to keep all my stuff!" And that's what the Cat
Well, I won't take you through the rest of the story, but I'll
bet you can see how I am going to bore you to tears about how
the Cat owes the Dog, who owes the Cow, who owes the Bull, who
owes Farmer, who owes the Bank, who owes the Depositors, who
is taking his money out of the bank and investing it in gold coins and powerful, large-caliber weapons, and
he gets so hungry from all of this heavy work, hauling sacks
of gold coins around and storing cases of
ammunition, that he kills the Little Red Hen, who started the
whole thing, and cooks up a mess of tasty and crispy fried chicken.
Speaking of gold, David
Morgan addresses the whole point of having gold
as money, and says "The discipline that precious metals
puts on the money creators is normally shaken off at some point
and then the issuing of worthless paper 'notes' takes over, leading
to either an inflationary depression or a debt-liquidating depression."
This is demonstrably true, as evidenced by 4,000 years of various
government knotheads trying, and trying, and trying to make a
fiat currency work. It never has worked. And every effort to
make it work has, as Mr. Morgan so elegantly put it, ended in
an inflationary depression or a debt-liquidating depression.
As part of your SAT's, mark number 31 as "true" that
"True or false: The common denominator of the paragraph
is the word 'depression.'"
Robert B. Gordon on FinancialSense.com, in an essay entitled
"Suggestions on Building a Serious Portfolio," he has
looked at this very issue and says "Neophyte investors should
go to a large library and read the exciting books about previous
market crashes from London in 1720 to Tokyo in 1989. From all
these amazing stories, we learn the same truth, namely, that
every one of these manias was followed by a major economic depression."
What he did not mention, probably because he does not want to
alarm you, was that there usually was a war or two in there somewhere,
too, as the brain-dead population wanted strong "leaders"
to fix the problems, and they finally resorted to trying to fix
their problems by taxing the neighbors through what is, essentially,
a 100% estate tax, namely by killing them all and taking their
stuff. If they won, sometimes it would work for awhile. If they
lost, well, they were doomed anyway.
So you can probably surmise why the Mighty Mogambo bows his head
in resignation and regards this war in Iraq as just the latest
example of this.
Jim Willie CB at FinancialSense.com wrote a scathing essay entitled
of the Crack-Up Boom," and I suggest that you go there
and read it for yourself so that you can get the full effect
of his ill-disguised contempt. He is looking, as I look, at the
inflation that is blazing away in the economy. He writes "Across
the spectrum, from production to raw material to energy to intermediate
products to food, costs are rising almost out of control. These
items are not so much rising in price, as the US Dollar is declining
in value." He notes that the government figures for inflation
are, in my words, so ludicrous, so comically and blatantly false,
that he says "One must qualify as an utter moron to accept
the CPI at any number under 7%. My personal claim is simple.
The CPI is three times what is publicly reported, no less."
But he reports that "Back on Main Street, those who must
get through the day with their families and homes, those who
must operate an ongoing concern business, we see clearly through
the false façade of farcical fortifications in financial
markets." And I include this particular sentence of his
because I just gotta stand and salute that long, luscious alliterative
phrase. Although, looking at all those "f" words makes
me think of a few choice "f" words of my own, and I
grit my teeth trying not to have what I call a "Tourette's
Syndrome episode (TSE)".
The "crack-up boom" he refers to is what Ludwig Mises
originally referred to in 1949, when he said "Once public
opinion is convinced that the increase in the quantity of money
will continue and never come to an end, and that consequently
the prices of all commodities will not cease to rise, everybody
becomes eager to buy as much as possible and restrict his cash
holdings to minimum size If the credit expansion is not stopped
in time, the boom turns to crack-up boom: the flight into real
values begins, and the whole monetary system founders."
Then he notes that "The Austrians warn of severe consequences
in the end game of fiat money, identified by accelerated monetary
expansion and currency competition."
And then he chillingly reminds us what is meant by "severe
consequences" and lays it out for that someone as dimwitted
as The Mogambo can't miss it. "History is clear. No intentional
inflation initiative has ever succeeded without horrible economic
and financial market damage."
He then goes on to list "Anecdotes and Tales" which
are actual vignettes of real people and businesses who are being
destroyed by inflation caused by Alan Greenspan and the central
Eric Fry is another one of the witty and smart people over at
the DailyReckoning.com website who won't have anything to do
with me but who really knows this economics business, and he
writes extremely well, too. As an example of each, I demonstrate
productivity out the wazoo when I select a single sentence of
his, namely "The growing trade deficit testifies to the
stupidity of managing an economy by mismanaging its currency."
President Mugabe of Zimbabwe, having grown bored with merely
stealing the farms of the prosperous farmers to give to himself
and his friends, has decided to totally abolish the private ownership
of land, and to nationalize all the farms. Tip o' the day to
the people of Zimbabwe: write out your wills, dudes, because
you are doomed. The communist idea of communal property has never
worked, and it will not work for you either. Additionally, you
might be interested to know that history is highly instructive
as to your future, as the lessons of communism are splashed all
over the pages of history.
I am not sure that you Zimbabwe people are real big on history
books, so I will clue you in with the Executive Summary version.
You will suffer progressively more and more, and then finally,
as the final act of desperation and despair, where the threat
of death by violence is preferable to the threat of imminent
death by starvation and disease, there will be some bloody uprising
of one sort or another, and lots and lots people will die, and
you will appeal to the Western nations to put you on welfare,
which will be too little too late, and which will only prolong
your misery, and then one day, after a lifetime of misery and
deprivation, you will die a miserable, lonely death.
Magnus Ekervik wrote "Where
Is The Horror?" on the 321gold website, and he has a
theory. "I think the FED directly or indirectly via US banks
are liquefying the two Government Sponsored Enterprises, Fannie
Mae and Freddie Mac. I think a severe shock is about to hit the
financial markets in the form of a GSE collapse."
Well, I think that a severe collapse is happening to the insurance
business, too. I say this purely from an anecdotal perspective,
in that my homeowner's insurance ballooned up by the legal limit
of 42% for the third year in a row! But one has to wonder how
is it even possible that an insurance company would NOT raise
premiums when its investment choices are limited to 1) getting
low interest income, or, 2) getting zero return on stocks, which
ain't done squat for a few years in row. They ain't made no money,
but their record of payout claims were right on track. And who
caused this collapse in interest rates that has decimated the
balance sheets of insurance companies? Alan Greenspan, Federal
Reserve Chairman From Hell (AG,FRCFH).
John P Hussman, Hussman Funds wrote "The
Cicada Dance," an essay that notes the odd parallel
between cicadas and bear markets. "One of the interesting
things about the cicadas is the complicated way the species survives.
Depending on the type, they emerge every 13 or 17 years
both prime numbers so that any regularly occurring predator
on a shorter cycle will not be present with any consistency.
And they come out in such numbers that it's impossible for predators
to eat them all. In short, the cicadas survive because they have
inherent defense mechanisms built into their existence."
This is imminently more practical than evolving into giant monsters
that have flames shooting from their eyes and lasers that shoot
out of their mouths, and who all have this inherent hatred for
the city of Tokyo for some reason. And while we are speaking
of it, I don't know why the people of Tokyo don't just abandon
the cursed city and go someplace else, and let Godzilla, and
Mothra, and Rodan, and Gamera, and all the rest of the rampaging
monsters who regularly attack Tokyo, just have the damn place.
"The financial markets have their own species like that
the secular bear. Secular bears emerge at a point of extreme
overvaluation and have historically survived about 17 years until
the markets reach a point of durable undervaluation. Between
those points is a series of 'cyclical' bull and bear markets,
with the characteristic that each successive bear market ends
at a lower level of valuation in terms of price/earnings, price/book,
price/revenue and other fundamental measures."
He also reveals an interesting factoid that "The peak-to-peak
growth rate of S&P 500 earnings across market cycles has
been remarkably consistent at about 6% annually regardless of
whether one looks at the past 10, 20, 50 or 100 years. All of
which explains why valuation arguments based on present year-over-year
inflation rates or 10-year Treasury yields are so painfully vapid."
He goes on to say "The Market Climate in stocks remains
characterized by unusually unfavorable valuations and unfavorable
market action. As usual, that's not a forecast, and it's important
to keep in mind that we align ourselves with the prevailing Market
Climate rather than make any attempt at prediction."
Suddenly, the Mogambo springs out from behind the curtain, and
the surprised Mr. Hussman is soon overwhelmed by the Mogambo,
the Caped Marvel. "Step aside, Mr. Hussman, you wimp!"
cries the Mogambo. "You are a pathetic Earthling, a weakling
who dares not make a prediction, but I, the Mogambo, am strong
and manly! I dare, yes, I dare to make a prediction!" The
crowd is hushed, except for Mr. Hussman who is loudly wondering
who in the hell I am and who in the hell do I THINK I am, which
are two entirely different things, and I snatch the microphone
from the podium. Bending low and bringing my cape over my face,
the drummer clicks his sticks together three times, the band
hits the intro, and I come in on the downbeat with "You're
go-onna cry, cry, cry, cry, baaabyyyyy."
In case you were wondering why in the world people would be buying
stocks at a time like this, the answer is quite complicated,
but it boils down to the fact that we are idiots. I know you
don't believe me, perhaps you will listen to Stateline.org's
essay "High School Exit Exams Set Low Bar" by Eric
Kelderman "Achieve Inc., a bipartisan, nonprofit education
organization formed by governors and prominent business leaders,
analyzed public high school graduation exams in Florida, Maryland,
Massachusetts, New Jersey, Ohio and Texas. Students in those
states make up a quarter of the nation's high school students
and half of U.S. students who must take exit exams to earn a
"Math tests required for high school diplomas in those six
states measure what students in other countries are learning
in seventh and eighth grades, Achieve concluded."
"The study also found that English exit exams in those states
cover material that most U.S. students should have covered by
10th grade or earlier. Standards for passing both the mathematics
and English tests are 'only a fraction' of what colleges and
employers expect, according to the analysis."
Ned Schmidt of Value View Gold has taken a look at how gold correlates with the money supply. Theoretically,
as the money supply grows, the value of the dollar should fall,
and the price of gold should rise. Does it? He writes "From
January 1998 to the present, the R2 was 77%. What does that mean?
R2 tells us how much of the variance of the U.S. dollar price
of Gold can be explained by the variance of
the U.S. money supply. What does that mean? Well, it tells us
how much of the wiggles in Gold's
price are caused by wiggles in the money supply." And I
am sure that you are aware that a correlation of 77% is pretty
But as high as that is, he writes "The relationship has
strengthened. From January 1999 to the present, the R2 was 85%."
And since he is not here to fill you in on the details, the money
supply is exploding to the upside, and with a correlation of
85%, gold will soon be heading up, too.
James Turk, in his terrific article "The Coming Revaluation
Of The Yuan," he writes "The Chinese have been reducing
the quantity of dollars in their foreign exchange reserves. Why?
It may to an extent be prudent diversification out of the dollar
into stronger currencies like the euro, sterling or yen. But
the reduction in dollar holdings may also be in preparation for
a revaluation of the yuan to the dollar. The Chinese are good
traders, and their strategy of dumping dollars before their revaluation
makes good sense from a trading point of view. Anything they
dump now can be bought back after their revaluation with less
yuan, 57% less yuan if the purchasing power disparity of The
Economist is to be eliminated."
Peter Schiff of Europac is as alarmed as anybody about the latest
trade deficit report. "The trade deficit represents goods
that Americas cannot afford to buy from the world, but which
were nevertheless supplied to them on credit. The fact that in
April Americans could only sell $93.9 billion worth of goods
in exchange for the $142.3 billion of goods purchased means that
the difference ($48.3 billion) had to be bought on credit, i.e.
paying for them with U.S. dollars instead of goods."
---Mogambo Sez: It just keeps getting weirder and weirder,
and I just keep getting weirder and weirder, too.
Jun 15, 2004
The Daily Reckoning
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
and other fine publications.