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Silver and Gold Salvation

Richard Daughty
...the angriest guy in economics
The Mogambo Guru
Provided as a courtesy of Agora Publishing & DailyReckoning.com

Sep 25, 2007

Having the government and the Federal Reserve in cahoots with each other reminds me of a humorous classroom exercise where the teacher had the students complete some well-known phrase. For the phrase fragment, "When the blind lead the blind", one insightful young student had completed the sentence as "get out of the way" - which is perfectly correct, and damned good advice!

However, if the teacher had asked the kid to complete the phrase, "When the Congress leads the Federal Reserve to create more and more money so that Congress can borrow and then spend more and more money to 'fix' more and more problems of more and more people", he would have been correct if he had finished the phrase by saying, "Then The Mogambo is right! We are freaking doomed!"

And so while even little kids know the terrible price we will pay for our stupidity and greed, there is a salvation! Adrian Ash at bullionvault.com writes, "the last time America's credit rating came into crisis - during the late '70s - inflation ate both equity and fixed-income investors alive", but "Gold, on the other hand, rose by 510% for dollar-based buyers."

Gold! Just like I have been yelling about! See? I'm not as stupid as you thought!

He also notes that it wasn't just us clever Yanks that made a bundle, but, "The metal rose five times over against the British pound (GBP) too, and spot gold prices gained more than 370% for German investors. Japanese gold buyers made four times their money inside three years."

On the other hand, let's not forget silver, featured in a mineweb.com article that reported,

"The latest figures from the Commodity Futures Trading Commission show that the net speculative long position on COMEX stood, at the end of August, at just 4,196 tonnes. Silver was trading, at that point, at between $11.80 and $12.00."

I furtively look around the room to see if anybody else is as confused about this information as I was, as it meant absolutely nothing to me. Hell, I wasn't even sure the guy [Editor's note: The article was written by Rhona O'Connell, who is a gal] was speaking English, for crying out loud! I was hoping there would be a lot of other people scratching their heads and looking puzzled looks so I could rise to my feet and say "Of course, I understand exactly what you are saying, but there might be some people in the audience who do NOT have the encyclopedic knowledge and high IQ necessary to fully understand it all, like you and I do, and you had better explain it to them, because you gotta admit that most of these people sure look pretty stupid!"

At that, the crowd got even more hostile towards me for trying to help them out! Fortunately, Mineweb immediately diverted their attention by explaining what it meant; "This net speculative position is at its lowest level since the end of April 2003, when silver was about to embark on its four-year bull run." A four-year bull run? Wow!

Suddenly, my heart jumped into overdrive, and I felt a cold chill that could only mean that I did not have enough silver stashed away, and leapt up to go out and get some more. And perhaps it was my sudden, rapid exit that prompted him to ask, as I ran down the hall, "So does this mean that prices are poised to move higher?" I thought to myself, "It sure as hell does, if I can get enough money!"

And other prices are poised to move higher, too, and one of them is oil. And why oil? Well, that is the conclusion that I reached after reading Jim Puplava's interview of Matt Simmons, who is Chairman of Simmons International and author of the book Twilight in the Desert, at Financial Sense Newshour.

As regards peak oil, Mr. Puplava ominously says, "All the canaries have stopped singing", an ominous reference to the fact that the mining industry used to stick a canary down in a mine to see if the air was poisonous by noting whether or not the bird died, a callousness towards canaries that reminds me of the Federal Reserve policy of constantly creating the poison of too much money and credit, and then watching their indicators to see how many people died a financial death.

How does miners killing canaries remind me of the Fed? The difference being that when the canary dies, they don't then stuff the mine full of more canaries, but the Federal Reserve will drop interest rates to increase borrowing, to increase debt, to increase the money supply, to increase demand and spending, to increase inflation in prices, to increase the rate of people eventually dying a financial death. Weird!

Mr. Puplava apparently thinks I am making too much of this canary thing, maybe because he is not a "bird person", or maybe because the topic was supposed to be about oil, not canaries.

So perhaps that is why he stays focused on oil, saying, "I think the BP Statistical Review talked about a refinery capacity at about 17.5 million barrels today; and yet our consumption is 21 million barrels a day."

Naturally I raise my hand and ask, "How can we consume more petroleum products than we refine from crude oil? It doesn't make sense to me! How can you use more than you make? It's impossible! Is this one of those rare times when it is YOU that made a mistake, and it's ME that is correct for once in my whole, miserable, rotten life?"

Imagine my embarrassment when he brushes me off by easily explaining that "it's not just the fact that we're importing oil, it's the fact that we have to import the refined products of oil", too.

Well, why is that? Well, for one thing, we haven't built an oil refinery in the United States in more than twenty years, and Mr. Simmons said that now the "core units" of domestic refineries "basically on average are about 85 years old." Hahaha!

So this is how you develop "energy independence"? Hahaha!

I was right!

We're freaking doomed!

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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