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Mogambo: Ruler of The Universe
Fully armed, peering through the gun slits

Richard Daughty

The Daily Reckoning
...the angriest guy in economics
The Mogambo Guru
October 6, 2004

- October has started off with the national debt climbing to a new record, $7.405 trillion, easily surpassing the statutory debt limit set by Congress of $7.384. Now, this could be because the Congress authorized a new limit and they did it in secret hoping that the Mogambo wouldn't find out and then he would send them more hate mail ("Dear Butthead") and tying up their phones all day ("Let me speak to Butthead!"). But knowing the US government like I do, I am sure that they don't give a rat's ass about any laws or limits, and that the Treasury thinks it can do any damn thing that they want, because all the other branches of government, and all the people IN all those other branches of government, all think that THEY can do just about any damn thing they please.

But perhaps a paragraph in last Monday's Daily Reckoning should be enough to 1) explain this recent explosion in debt and 2) send you screaming in fear to the nearest convenience store to buy some chocolate donuts or other comfort food, because it is going to be a long night, panicked and shivering in fear about what tomorrow may bring.. They write, "On Sept. 9, a strange thing happened: America's tower of debt barely grew. The U.S. Treasury held an auction of its 10-year securities. Typically, foreigners buy about one-third of the notes on offer, according to reports from the Financial Times. But at this auction, the central banks of China and Japan, who can generally be relied upon to take up America's debt, were oddly quiet. When it was over, they had bought less than 3% percent of the total."

Three percent! That's almost nothing! Hell, I get a three percent response to my monthly sale of Mogambo 30-Year Gilt-Edged Super Safe Debentures Paying 15 (Fifteen) Percent Interest Guaranteed, which are unique in that 1) they are available in face amounts equal to whatever cash you have with you at the time of sale, and 2) the bonds say right on them "These bonds are a fraud and a scam, but no more of a fraud than Ben Bernanke's infamous printing press, and if you let the Federal Reserve do that to you, without any protest from you at all, then don't come whining to me because I don't want to hear it! Now fork over the money!"

In short, foreigners are apparently deciding that they have choked down enough dollars these last few years, as they expanded their own money supplies in their good-hearted attempt to keep the malignant US economy from erupting into flames and aid their export markets by supplying customers (us) with both credit and stuff to buy with the credit, and now their own rates of price inflation are soaring. And, now, so the story goes, they (especially the Chinese) wish to diversify out of dollars, because to continue accumulating them is, in a word, stupid, and with the Chinese emphasis on tradition they can see far enough into the future that their grandchildren will one day be standing in front of them and asking "Pardon the interruption, venerable grandfather, but why did you continue lending so much money to someone who was already so far in debt that he could not possibly pay you back? Pardon humble observation, esteemed elder, but that sounds really stupid. Or, as the Mogambo says, that sounds really American economist!"

So what to do with the piles and piles of dollars they already have? Indeed! Well, as Marshall Auerback notes, in China "reserves have in fact been slowly, but steadily diversified out of dollars into euros, yen and gold."

On top of this good news, for those of us who ALSO think that diversification into gold is a really good idea, and I am not saying that Mr. Auerback is, or is not, diversifying into gold because I have no idea and I never have a chance to ask him because as soon as he figures out that it is me calling, he says a naughty word real loud and hangs up the phone, but he has taken a look at the Fed's latest Flow of Funds statement and noted that "US total debt has risen 8.2 per cent year-on-year to a record 298 per cent of GDP at the end of the second quarter." Debt is rising at 8.2% and is already at a higher percentage than at any other time in US history, even way back at the tippy tip top of the bubble of the 20's? The reason that my voice is suddenly muffled is that I am speaking to your over the intercom from deep inside the Mogambo Bunker, because this is the kind of information that sends me into a freaking panic, so for God's sake don't make any sudden moves that might startle my trigger finger, and I'm warning you; don't come any closer.

In a related note, the Fed has stepped up its outright buying of Federal Debt, thereby committing the ultimate financial fraud: the Fed creates credit, member banks borrow the money to buy government debt, so that the government gets money to spend, then the Fed creates more credit to buy the debt from the banks, leaving the banks with more money, and the debt just sort of "disappears." What a fraud! And yet people are lauding this Greenspan crook, and this Bernanke monster, and all the rest of the corrupt, ignorant jackasses in the Fed as some sort of geniuses? You think it takes genius to constantly commit this fraud? You think it takes smarts to do this, even when I just showed you how simple it works? Do you really, really, really think it takes a genius to do this, when you can explain it to any pre-kindergarten kid, and in less than a minute the kid can do it flawlessly from then on? Jeez! You're easy to please! If you have any job openings, please allow me to apply for the position, as I would love to work for somebody so gullible! "Sleeping on the job? Me? No, boss! You got it all wrong! I have ESP, see, and I was receiving, ummm, uh, brain waves from the workers! And the customers! Yeah! Brain waves! That's the ticket! So now I can, ummmm, do a better job for you, my boss, the best boss in the whole world!"

- Dr. Gary North, who writes the e-newsletter, Reality Check, has a new essay entitled "Faith in the Stock Market" He notes that "The presence of stock market mutual funds, especially retirement funds, has kept the market from entering the final collapse of hope that marks the end of bear markets. There is a floor under this market because of the automatic monthly purchases of shares by fund investors." If you are one of those people who thinks that this is good news, well, I guess it is, in a way. I lean back in my chair and I stroke my chin in thought, and I seem to recall that anytime somebody tells me that they have forestalled calamity, then I usually regard that as good news of a sort, like when a friend tells me that he messed with the scope on my wife's .30-30 deer rifle, making her miss me by a mile, although my hat was not so lucky. Unfortunately, he goes on to say "The 'buy and hold' philosophy promoted by economists, which paid off after August of 1982, has produced capital losses on a massive scale since 2000." Okay, now THAT'S bad news! Especially for those guys whose "automatic monthly purchases of shares" kept the market from falling in the first place, and whose misplaced confidence resulted in something more like "automatic monthly losses."

In a related vein, on Monday the Wall Street Journal published its "Mutual Funds Quarterly Review." How did stocks do? Not very well. How did gold do? It kicked butt, that's how! Gold-oriented funds were up 14.68% for the quarter! 15.3% a year for the past twelve months! 34.28% for the past three years! And 15.58% a year for the past five years! Hahahaha! Better than everybody else! Look it up if you don't believe me! And this impressive performance was in an asset that "everybody hates," is constantly denigrated by sneering and pompous "professional money managers" as a worthless relic, disdained by guys who call themselves "economists," and is also an asset that is being manipulated down in price by the central banks of the world! Imagine what will happen when any one of these groups of knotheads wakes up and finally abandons efforts to win the Nobel Prize for "Most Stupid Investment Advice In History!"

Steve Sjuggerud of the True Wealth investment service, is as hip to this as anybody, and his latest essay in entitled "The Midas Touch" reveals one of the best ways to get rich in investing over the longer term. He says that there are "Three things I look for in an investment - super cheap, hated, and in an up trend. You buy something of extraordinary value at a time when nobody else wants it. And you sell it at a time when people are willing to pay any price to get it."

And what investment fits that list of criteria right now? If you have been paying attention, you know that we are talking about gold. But if you were NOT paying attention, then I will turn you back over to Mr. Sjuggerud, who says, "Gold coins offer the best opportunity to do this in the investment world right now."

But the dismal performance of regular equities tips you off as to why there is such a big push by The Big Money Management Association Of Hucksters And Criminals (TBMMAOHAC) crowd to privatize Social Security, by which you would be forced to invest in the stock market by forcing your employer to rip the money out of your paycheck before you ever get it. This would be the ultimate in "automatic monthly purchases of shares," and would mean a gigantic income to the liars and ripoff artists of TBMMAOHAC, and will put a lot of people into that aforementioned "automatic monthly losses" crowd as a result.

Of all the lies, distortions and frauds committed by Wall Street and that whole despicable crowd in the name of The Equity Culture, the most egregious is that everyone will prosper from investing in the stock market. This is manifestly not true, even if all you do it look at history! Show me another time when this was true! Show me! Just one! It is obvious that it is not true, because it would mean that everybody will get more out of a market than is put in it? Gimme a freaking break here! Do I look like I am stupid enough to be a Democrat or something?

But the government taking your money and "investing: it in the stock market would make the stock prices go up, alright, as prices always go up when there are more buyers than sellers. And the government forcing people to buy would guarantee more buyers than sellers.

This must be part of Ben Benanke's "unconventional methods" that he threatened to use.

- On a non-economic topic, only more serious, I am sorry to report that the Supreme Court is back in session, and that means that the Constitution of the United States is under assault again, as those damnable jackasses seem to delight in finding things in the Constitution that are obviously NOT in there, and deliberately disregarding things that ARE in there, and only so that they can "make their place in history" as they perceive no glory in just deciding Constitutional issues and doing the boring little job, especially when they can MAKE a New Constitution In Their Own Image!

And if they ever took the time to read the Federalist Papers they would know that the Constitution was written exactly as it was so that there would be no freaking doubt whatsoever in the minds of anybody who could read at a third-grade level about what IS in there and what is NOT in there, and yet Well, suffice it to say that I have no respect for the Supreme Court, or anybody that has any respect for them. Jerks. And to be fair, they have no respect for me either, and if you call them on the phone and ask them "Hey! What do you think of the Mogambo?" they will have one of their receptionists say they never heard of me, and they don't want to talk to me, but I know that they are on the line, listening. I can hear them elbowing each other in the ribs and trying not to laugh.

- A sentence in the New York Post can be used as one of the measures of the level of corruption in America when they write "Executives of Fannie Mae apparently rigged books just to trigger bonuses."

I am not going to go into the accounting shenanigans at Fannie Mae, the foul megalithic mortgage giant, and how they, as a Government Sponsored Enterprise (GSE) is a filthy, lying clot of corrupt weasels, and how they all should go to prison for long terms, but since they are so cozy with the equally-corrupt government we know that nobody will even lose their damn job. Suffice it to say, because it is axiomatic, that the level of low-life, scheming corruption always goes to extremes at the end of long booms.

- Bill Gross at PIMCO calculates that inflation would be higher every year since 1987 if the despicable "hedonic adjustments" were not made. Remember, that 1987 is when the horrid Alan Greenspan took over the Federal Reserve and things started going downhill. Coincidence? Anyway, he says that "My sense is that the CPI is really 1% higher than official figures and that real GDP is 1% less."

And how much price inflation is actually produced, and paid for in higher prices, at a rate of 1% for 17 years? 18.4%.

- China's government has announced the takeover of the biggest mining company in Canada. An ABC news article says that "Chinese firm, Minmetals, which is owned by the Chinese government, is said to be paying about $US5.7 billion, for Noranda Mining. It has also been reported that the Chinese oil company Sinopec, which is controlled by the Chinese government, is in talks to acquire a large lease of oil bearing land."

Oil and gold! The Chinese are using their gigantic hoard of dollars to buy the two things that I have been screaming at you to buy. So the Chinese have been listening to the Mogambo, and they are going to prosper because of it. How do you say "All hail the Mogambo" in Chinese?

Well, how much money do the Chinese have on hand to spend on this kind of stuff? Well, the China Daily notes, "At the end of 2000, China's foreign exchange reserve was US$165.6 billion. By the end of 2002, it rocketed to US$286.4 billion before it soared to US$403.3 billion by the end of 2003." I think I am perceiving a trend here, but perhaps that is only because the Magnificent Mind Of The Mogambo (MMOTM) sees patterns where mere mortals see only randomness and cheeseburgers. Catching us up-to-date, they sum up with "By the end of June this year, the reserve was registered at a staggering US$470.6 billion." Staggering? Hell, that is less than our trade deficit accumulated in one year, much less over the last decade! It is also less than this year's federal budget deficit! But nobody pays any attention to the Mogambo, and they continue "About two thirds of the reserve is dominated by the US dollar. As the dollar goes down, China will suffer great financial losses."

Well, I got some news for the China Daily. Regardless of what the author of the column thinks, I am sure that China has no intention of suffering "great financial losses." They are not waiting until the US dollar collapses, but they are spending that money now, before it loses its buying power, to buy real asset-type things by which they will prosper, such as oil and gold and other commodities. Notice that the Chinese are NOT buying American tech stocks and bonds! But Americans still are! Hahahahaha! Americans! The Chinese buy gold and oil, and we buy tech stocks and government bonds yielding some of the lowest interest rates in US history, at a time when the Fed is tightening, at a time of gigantic budget and trade deficits, at a time of outlandish debt loads! What a bunch of idiots we are! No wonder nobody has any respect for us!

- Alan Abelson, in his weekly Barron's column, does a nice job of reviewing Bill Gross's acerbic dissection of hedonic measurement, the unholy bastardization of the Consumer Price Index in which the government blatantly lies and cheats in order to disguise actual price inflation and how it is slowly gnawing your legs off and one day you are going to get real angry when you realize that your entire weekly paycheck is no longer enough to afford the Big Three of American Manliness, namely a tank of high-octane gas, a copy of Playboy magazine and a six pack of beer, and you will probably erupt in violent anger, grab a flaming torch from the Mogambo Flaming Torch and Café Mocha Outlet, and take to the street, bent on violent overthrow of the government, because that is what happens when a government gets to be this corrupt and inflation-happy at the end of a long boom financed by pure, raw credit, in order to perpetuate what Mr. Gross calls a "con job" and which the Mogambo has long called much worse, mostly involving loud obscenities repeated over and over, and some rude hand gestures, too.

Then Alan, and don't tell him that I called him Alan because he is a bigshot editorial writer and I am just the ugly little guy who needs a bath and who is always digging around in his garbage can looking for ideas and talking to himself, goes on to present a graph by Ray Dalio of Bridgewater Associates that shows where the profits in America came from, starting in the 50's, and then proceeds to show where the profits come from today, by which you can compare and contrast the two time periods, which is a technique found on the SATs, so it must be useful somehow. Anyway, it used to be that American manufacturing got 60% of the profits, as we made stuff labeled "Made in the USA" and sold them to a world that was happy to get quality stuff, and the financial sector made 10% of the profits. Nowadays, it is the financial sector that makes the most profits (45%) in the USA, and manufacturing is making less than 10%. So who are these financial sector profit-makers? The usual suspects, namely bankers (crowd erupts "booooo!"), investment bankers (another chorus of "boooo!) , Wall Street sharks ("boooo!") , hedge fund operators ("boooo!") and the equity-hawking gang of liars and con-men ("booooo and boooo!").

- Well, living in Florida I have had the pleasure of being hit with a fourth hurricane, and have experienced all the joys of living without electricity for four days. And if you are going to tell me that I should be ashamed of myself for my whining self-pity when there are hundreds of thousands of my fellow Floridians who have had their houses destroyed, their businesses destroyed, have been without power for almost two months, and their whole rest of their lives have been ruined boo hoo hoo, then save your breath. If you look up "Mogambo" in the dictionary, you will see that it means "Nasty, brutish little man who a) thinks only of himself and b) who thinks that central banks committing excesses of money and credit should be a felony, and if you need somebody to go up and arrest Alan Greenspan, Ben Bernanke, Bob McTeer or any of those lowlife weenies connected, even tangentially, with the Federal Reserve, and then drag them kicking and screaming into a John Ashcroft Super Secret Police Squad Car for ultimate disposal under the new auspices of the Patriot Act, including those secret, nasty parts that they don't let anybody see, then I'm your man."

No, the reason I bring this up is that as I was sitting around in the heat, sullenly plotting revenge against the power company and listening to my wife reading aloud some choice excerpts from her new book "Things That Are Seriously Wrong With My Idiot Husband, Volume 4." My mind was pondering all this devastation, and wondering if I would soon be reading how this hurricane is a good thing. This is known, in the economics business, as Bastiat's Broken Window Fallacy. The idea is that if somebody's window is broken, then there will be a flurry of economic activity, as the glazier sells a new pane of glass, a workman makes money installing the new pane of glass, the glazier will replenish his stock of glass by ordering a new sheet of glass, the manufacturer of glass will get the new order, the workers at the glass plant will have work to do, and the providers of all the raw materials to make glass will book new dales, and all the energy to convert those raw material into the glass and transportation of the raw materials and the glass itself, etc. will be a boon.

In short, this preposterous idea says that everybody achieves economic Nirvana because this one window was broken, including the police and the whole criminal justice system who have used their Official Junior Policeman's Fingerprint Kits and have found my fingerprints on that rock, because I pick up a lot of rocks, because that is my hobby, namely picking up and putting down rocks without breaking things, especially windows, and hour after hour I tell them that if I WAS going to be hurling rocks through windows, I would go the Federal Reserve in Washington and heave a big, heavy one through their windows and maybe knock that Alan Greenspan on the head and maybe it would knock some sense into him and he would stop committing the kinds of monetary excesses with which he is now synonymous and then America would not be sent any farther down the Road To Economic Hell And Ruination (RTEHAR) and then everyone would love me for saving America and then maybe I would have some friends, or at least not as many enemies.

But that whole Broken Window As Economic Panacea idiocy was debunked over two hundred years ago, and many, many times since then, and there has never been anybody who has defended such a ridiculous theory. And so I know that there are very few real idiots out there who are so short-shrifted in the smarts departments that they could still believe in that sort of stupidity. Naturally, I figure that the chances of anybody committing that error was slim.

And then I was encouraged as I listened to my wife drone on and on about my many faults, as my wife is a pretty smart cookie. But if she was stupid enough to marry a loser like me, then there must be lots and lots of really stupid people out there! Then if somebody would say such a stupid thing, then I would have something to write in this stupid newsletter, because if I don't get something juicy pretty soon then I am going to resort to listing all the people who are out to get me, and once I get started on that, there seems to be no end to it.

And sure enough, my prayers were answered! In the September 30 edition of my Leftist rag of a hometown newspaper, the St. Petersburg Times, the top story on the Business section was "Storms Create Lucrative Times"! Four paragraphs into the article we get this gem "Some financial watchers anticipate that within a year or less Florida could see a multiyear economic upswing because of the billions of dollars in reinvestment that is headed for the state." It's Bastiat all over again!

Now it is an easy thing to deride the ridiculous Leftist newspapers, because making fools of themselves is what the Left does. And so picking on intellectual cripples (Democrats) is not the highest pinnacle of good sportsmanship. And the author of the piece, Joni James, could be a young intern who probably doesn't know any better, since I don't remember seeing her name before.

But the author of the article decided to put her two cents in right away, and said "History shows that short-term losses sustained in a hurricane generally are eclipsed long-term by the extensive rebuilding that follows, financed by insurance and the federal government." Wow, let me write this down! The insurance companies are going to pay out millions of dollars in claims, and will then hike premiums to recover that money, and this is something good! And the federal government borrowing and spending more money, the very thing that is at the core of our problems now, is somehow going to be another good thing! And all of this is to just get us back to Square One, which is where we were before the hurricane caused the damages! And this all adds up to an economic wonderland of some kind! And people wonder why I am screaming in outrage at the media!

So, after this introduction to the Bastiat Broken Window Fallacy, I was licking my lips in anticipation to reading the names of anybody else so stupid as to say such a thing, because what I really want to do is run into the plush library of the Mogambo Mansion, slide down the Mogambo pole, jump into the Mogambo Mobile and roar out of the Mogambo Cave, and lead the police on an exciting high-speed car chase to where those morons live. Dashing inside their offices with a 26-ounce framing hammer in one hand and a machete in the other, I would chant the Mogambo War Cry ("Go, go, Mogambo! Go, Go Mogambo!") while I smash their phone system ("Economic Nirvana thanks to Bastiat's Broken Phone Theory!") and whack at the fax machine ("Economic Nirvana due to Bastiat's Broken Fax Theory") and slash the carpet ("Economic Nirvana due to Bastiat's Ruined Carpet Theory"), and as the police jump me and pin me down under a pile of Boys in Blue, with a brave effort I will reach out with my one free hand and set the curtains on fire ("Economic Nirvana due to Bastiat's Flaming Curtains Theory!").

Alas, all the people quoted in the article seemed to be wary of saying this really stupid thing, and they were all being really subtle. The best I could get was a guy named Richard Brown, who is the chief economist for the Federal Deposit Insurance Corp, who was "bullish on Florida's economy after Hurricane Charley," which can be interpreted many ways, and Moody analyst John Incovaia who said "everyone expects (the hurricane damage) will be a long-term benefit" which I am pretty is exactly what I am looking for, but Moody's has such a good security system that I wouldn't get very far. Damn.

- One of the things that I do is to look at tables of numbers, especially those that I can access easily, mostly by having them set down in front of me so that I don't have to take precious time away from picking at my toenails with a letter opener. And then I kind of look for hidden messages put there for me to read by Intelligent Life Forms From Outer Space, and sometimes I can't help but notice that some numbers have taken a strange turn.

I can see by the number of hands raised that you want to know why in the hell I brought this up. With a snotty edge to my voice, I say that if you had just waited a minute, then I would have gotten around to explaining to you that I brought it up because several of those moments occurred recently in Barron's.

One of them was that the "Mtg. Bankers Assoc Refinance Index" went from 2,052 to 2,211 in one week, which is, if I have done the math correctly (and there is only a small chance that I have), an increase of 7.7%. In one week! Personally, I have no idea what this means, if anything. But I note that in the fine print at the bottom of the table we learn that 1) I need some stronger reading glasses and 2) the statistic comes from the "Weekly seasonally adjusted Mortgage Bankers Association of America Release (Base period March 16, 1990=100.0)"

Out of the corner of my eye I see that the pretty little girl in the third row is raising her hand, and so I say "Yes, I see you have a question! Why don't you come on up here, and you can sit in my lap while you run your fingers through my hair and stick your tongue in my ear while you ask me your question?"

Instantly, a wave of disgusting gagging noises and rude comments sweeps though the auditorium, but I am able to shut them up by screaming "Who wants a piece of the Mogambo?" while reaching menacingly to the shoulder holster under my coat. After the hubbub dies down, I realize that she is the epitome of class and gentility, as she doesn't say a thing in response my crude comment. Casually flipping me the finger, she says "What does an index of 2,211 mean against a base of 100 in 1990?" I tell her "It means a big increase in something! And it has something to do with mortgages! And if you had been a little nicer to me, if you catch my drift, maybe I would have given you a fuller explanation!"

But it's not WHAT it is that gets me. It's how much it changed in so short a time.

- Even though the government is doing everything it can to make sure that you don't get the true picture on inflation, the new Gross Domestic Product Deflator came out and it is back up to, and I hope you are sitting down for this, 3.2%.

And this brings up an interview in the new Barron's, entitled "The Buck Stops Here," with James Turk, who is so kind to bring up the historical tidbit that 2% inflation is NOT tame, or benign, or anything other than what it really is, which is, to use the semantically correct term, Bad News In Spades (BNIS). This is because, and notice how I have gotten your attention by promising you a quote from the estimable James Turk but have now thrust myself, unbidden, in your face, so that I can scream at you in a loud, irritating voice, that all the way through history a 2% inflation has ALWAYS been BNIS. It is a Universal Constant that inflation over 2% is always BNIS. That's the way it was throughout history (and notice that the background music has changed to ugly discordant horns and kettle drums pounding, pounding, pounding out what seems to be somebody's heart (mine) having a cardiac arrest or the theme from Jaws, which is where I stole the riff) until we get to the current crop of laughable pinheads called American Economists, who have suddenly decided that everybody else in the entire course of history is wrong about this inflation thing, that they have always been wrong, and persistent, gnawing inflation that caused economic misery, which happened 100% of the time, were all, somehow, mere anomalies.

But I can't help but notice by the way you are screaming and crying and trying to make me to let go of your shirt so that you can get away, that you are not here to hear me run my big fat mouth. And so bowing to your wishes and your promise not to report me to the Principal again, we again turn to James Turk, who said "We talk about 2% or 2 1/2% inflation being tame today, but back in the early 1970s Nixon imposed wage controls when the inflation rate got to 3%." See? See what I mean? Only recently has 3% inflation been regarded as "tame."

Again I startle you by suddenly grabbing you by the front of your shirt and haul you in close to me so that I can again scream in your face, "Doesn't this mean anything to you? You are completely unimpressed by the fact that a former President of the USA felt forced to seize dictatorial powers over the economy to combat a lousy 3% inflation? This means NOTHING to you?"

- ContraryInvestor.com's October commentary entitled, "The Outer Limits" was a very interesting read, and for those of you who are fond of saying how there was some wonderful budget surplus under that damn Bill Clinton and his horde of collectivist-think morons, these guys handily debunk that by noting what REALLY happened. They say, and here I am putting words in their mouths because that is the kind of lowlife that I am, that Congress decided that since they found that they could lie their heads off because nobody in the mass media has enough smarts to see through the transparent lies, because they are all "journalists" now, whatever in the hell that is supposed to mean, that they would eclipse themselves and count things differently. They note "The U.S. government counts the annual surplus in the Social Security Trust Fund as a windfall to the Treasury rather than as a long-term obligation of the Treasury, which it is. So, even under Clinton, there was never a budget surplus except in the technical accounting sense that Social Security obligations are counted as off-budget obligations of the U.S. government." Note the important point, which is that THERE WAS NEVER A BUDGET SURPLUS

- Leaving the realm of stark numbers, we are now taking a pleasant little drive down into Technical Analysis country. Citigroup has a technical analyst named Louise Yamada, who says that she is pretty sure that the patterns she is seeing means that the market benchmarks are headed for a decline. The Dow, for instance, has dropped below 10,000 again, for the fifth time in 2004, and she said that she doesn't see the Dow going over it on a permanent basis any time in the next 10 years.

She says that "Volume is the weapon of the bull,'' and notes that trading on the New York Stock Exchange is averaging 1.1 billion shares a day, "or 20 percent below average for the year."

Another technical analyst, Ben Inker of Grantham, Mayo, Van Otterloo. Says "Our forecast for the next seven years is that stocks are likely to tread water.''

Don Delavan of Market Waves Newsletter is equally pessimistic, and writes that "The charts are showing DJIA dropping to around 3000-3200 by the fall of 2006." As if that wasn't bad enough, it gets worse, and he goes on to say "The S&P500 chart below shows a much weaker picture than the DJIA chart."

And them just when you thought it couldn't get any worse, it does, and he goes onto say "The Nasdaq composite chart below shows a much weaker picture than the SPX chart."

Apparently, we are in what is known as a Wave C down, and these waves are known for "relentlessly falling prices."

Speaking of chart action, Richard Russell was looking at the divergence between the daily chart of the Dow Jones Industrial Average and a daily chart of the DJ Transportation Average, and he was so struck by what he saw that he was so upset that he could not talk to me about loaning me a few bucks to get me through the weekend. His voice kind of trailed off as he said "I can't talk to you now, Mogambo, but" So I start yelling "What is it, Mr. Russell? Are you okay? Talk to me! What is wrong?"

He said "I call the seven months since February a period of the most flagrant divergence and series of non-confirmations in the history of the US stock market. I've never seen anything like it. And nobody else is writing about it. Does anyone else even recognize what has been happening? Knock, knock - is anyone home and awake?"

- Bob Moriarty of 321gold went to China and says "I sorta thought the demand from China might be responsible for 50% of the price of any commodity. Wrong. All I could see was building cranes and worker bees swarming over construction sites seven days a week." So, his original estimate of 50% may be too low? Wow!

He went on to say, "China doesn't just have an impact on commodity prices. Prices are going up from here on copper, iron, moly, silver, gold, oil and everything else you need to construct a modern economy in the shortest timeframe in all of recorded history."

And that brings up some vague recollection about something called supply and demand, and I get the feeling that this huge up-swelling of demand ought to mean something as regards prices and profits, but damn if I can put my finger on it!

- The deputy chairman of the Bank of Russia is a guy named Oleg V. Mozhaiskov. Thanks to the devilishly handsome Peter Spina who reported it on his site Goldseek.com, we learn that GATA has received a translation of a speech he gave. Says Peter, "The central banker acknowledged that the great increase in the use of derivatives and central bank leasing of gold have depressed its price in recent years."

Mr. Mozhaiskov also has revealed himself to be a clued-in dude as concerns economics when he vociferously "denounced 'the blatant lack of discipline' " of United States fiscal policy and "the social and economic injustice of a world order that allows the richest country in the world to live in debt, undermining the vital interests of other countries and peoples."

Hooray for Mr. Mozhaiskov! It is indeed a sad day for the world when a former "evil Empire" has to be the ones to tell us the truth about the monetary and fiscal insanity of the United States.

He also noted that the dealing in derivatives of gold is huge, as "Last year turnover with gold derivatives was about 4,000 million ounces (or 129,000 tonnes), but physical metal actually sold totaled 120 million ounces or some 3,860 tonnes." So the derivatives monster lurks not only in stocks, bonds and currencies, but on gold, too.

He has concluded, as I infer from his saying "One conclusion, at least, is clear," that "Gold is predominantly a financial asset, not merely a precious metal. In this capacity gold is competing with other financial assets on a variety of parameters. Being inferior in terms of returns, it is far more reliable than anything else for protection against war-related, political, financial, economic, and credit risks, and also provides a high level of liquidity and lower management costs. However, since the rate of return is the main measure of success for financial institutions under normal conditions, investment-related decisions depend directly on the stability of the international monetary system, strength (or weakness) of the dollar, and the level of interest rates on financial markets, the growing interest of investors in real assets, gold in particular, is more than justified."

In short, dangers abound, and gold is your protection from those dangers. And since you won't listen to the Mogambo, perhaps you will listen to the only central banker that seems to be telling the truth.

- I am proud to say that I was asked by the congenial David Bond to be a speaker at the recent Silver Summit, and I was not arrested nor even picked up for questioning! I am glad that I agreed to do it, as everybody was real nice to me at first, and what they said afterward is probably just an ugly rumor spread by, I assume, the CIA or somebody like that. Anyway, it was very nice to be around people who recognize the importance of sound money, and who did not have to be shown the egregious errors made by anybody so foolish as to rely on government officials to act in a responsible manner as regards money and credit, and that naïve, ignorant foolishness about the dangers of fiat currencies and fractional banking has to be paid for in terms of misery and suffering, and that is because of an unwritten, secret Iron Law of Economics, whose mysteries are whispered about only in hushed tones, in the shadows, late in the dark, deadly night, by mainstream economists when they gather together to sharpen their pointy heads and hatch their evil plans.

But now, for the first time ever, I , The Mogambo, am going to tell you, the reader, this Mysterious Secret Of Economics (MSOE)! So remember where you read this, because you are going to be talking about this at work today, and the day after that, and the day after that, day after day, until people ask you to shut up about it, won't you please please please shut up about it, and you won't, because you can't, and then you notice that they start going into their offices and shutting the door and locking it whenever you walk by, but that is not important anymore, because I, the Mogambo, have revealed a secret that is better than friends and colleagues, and that is the MSOE that is, written out in its entirety, "Because that is the way the world has always worked in the past, and that is the way that it is going to work now, too, and that is because people were people in the past, and people are people now, and there is a reason, make that a big, big freaking reason, that the whole field of economics was originally known as 'political economy', and it is the political arena that authorizes this whole filthy mess and so that tells you who is really at fault here." The shorter patented version is, of course, "Because Mogambo says so, that's why." (Note for the future: After I am elected Ruler of the Universe you will be required to bow your heads and intone "All hail Mogambo, whose infinite wisdom surpasses transcendent!" whenever I make any pronouncements like that).

And speaking of voting, remember that if my name isn't on the ballot in your district, then that proves that they ARE out to get me, just like I've been saying all this time! So just write "The Mighty Mogambo" on your ballot like everybody else.

But we were talking about the Silver Summit, and being the kind of intelligent people that they obviously are, they prove, once again, that thinking people (like them) and paranoid lunatic people (like me) will take action to protect both themselves and ourselves, and will make a buck, too, by buying precious metals and the stocks of companies that mine them. The best of all worlds!

And that includes not only buying precious metals like gold and silver, but buying the shares of companies that mine gold and silver, and talking to their relatives about them buying gold and silver, too, and getting laughed at by those relatives, who, for reasons that defy explanation, refuse to buy gold and silver even when shown the supreme folly, with graphs and charts commentary and all kinds of things, for NOT doing it! Then I stand there with my mouth open, shaking my head in bewilderment. Then I remember a line from the movie "Blazing Saddles", where Gene Wilder was explaining to Clevon Little that he ought to give the narrow-minded townspeople some slack, because they were something like (and I am quoting from memory here) "Just ordinary citizens. Your common people. The salt of the earth. You know, morons!"

So, thanks to David and Chuck and Bjorn and Roy and Ray and Charles and Karin and all the rest of the charming people who were nice to my face, and especially to Rebecca, the pretty Vegas craps dealer who provided the Mogambo Moment Of Enlightenment And Self-Awareness (MMOEAS-A) when she put a silver ounce in my hand and suggested that I mention in my newsletter the notion that it is not "throwing away your vote" to vote for a third-party candidate, but it is a crime against your neighbors to cast your vote for one of the two major-party candidates when you know they are both wrong and bad for your country. Or something to that effect, I forget exactly what, because I didn't write it down. And, looking at that gleaming ounce in rapt fascination, I heard myself say that I would do that. And now I have. All of which proves, as the MMOEAS-A, that I am revealed as lazy, as corrupt as anybody else, and I sell out really cheap, too. Sort of a Mogambo Trifecta.

- On a lighter note, John Mackenzie, a money manager, refers to the current economic regime as "the New World Financial Odor." Hahahaha! Odor! Hahahah! Very clever! Hahahaha! I can't stop laughing! Hahahaha!

- On the Mises.org website, which is the one place you should go to read about real economics, because I wish I had gone there when I started out learning about this economics stuff because it would have saved soooOOOooooo much time, has an excellent new essay entitled "The New Deal Debunked (again)" by Thomas J. DiLorenzo. Mr. DiLorenzo is reviewing an article in the August 2004 Journal of Political Economy entitled "New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis," by Harold L. Cole and Lee E. Ohanian, who are economists at UCLA. Although I usually find it a huge waste of time to read anything written by Californian eggheads because it is usually just more ridiculous Marxist trash written by people who are so absurd that they don't even realize how laughable they are, I am glad that I overcame my natural anti-California bigotry and bias, because they sure don't sound like the typical California Leftist commie-jackass knotheads.

Mr. DiLorenzo writes that these two guys have dispelled The Myth of the New Deal, but only because of their sticking to looking at "economic reality" instead of the idiotic and slavering devotion to "neoclassical model building," which is the tack taken by, and notice that I am using my most sneering and snotty tone of voice to say this, American economists.

Finally, after all these years, other people are recognizing what Murray Rothbard showed in his book America's Great Depression, namely that "It was the easy money policies of the early and mid 1920s that created all the malinvestment that was the trigger for the Great Depression." And, while none of these guys are saying it, I am here to tell you that one day there will be another guy writing essentially the same thing about us, namely "It was the easy money policies of the 1990s that created all the malinvestment that was the trigger for (whatever in the hell they will call the calamity that will have to befall us)."

To compound that folly, the authors note that "virtually every single one of FDR's 'New Deal' policies made things even worse and prolonged the Depression." And, in likewise similar fashion, that selfsame writer of the future will say "virtually every single one of the Democrat Party's collectivist, commie-think policies made things worse and that is why the Mogambo spent all those years locked away in some dank cell, screaming his head off in outrage and only getting enough psychoactive drugs to keep from going homicidally ballistic, but not enough to get a good buzz on." He notes that "Austrian economists have known this for decades," and he is talking about FDR's jerk-face economic policies, and he is NOT talking about how Austrian economists have known about the poor old Mogambo, although I suspect that they DO know, and HAVE known, and did nothing to help, but were instead laughing at me the whole time, the sorry bastards. But and he is hoping that, maybe, now that the truth about FDR is becoming better known, perhaps "the neoclassical model builders have finally caught on."

He sums up with "In short, it was capitalism that finally ended the Great Depression, not FDR's hair-brained cartel, wage-increasing, unionizing, and welfare state expanding policies." Too bad he doesn't extrapolate that to the current crop of FDR-wannabes who are, even as we speak, continuing down that same lugubrious path, only on a more gigantic, pervasive and ugly scale.


*** The Mogambo Sez: As I breeze around the internet looking for stuff to plagiarize, ideas to steal and pornography to download, I see a lot of charts, and I am impressed that the Good Economic Things (GET) seem to be tracing out what is commonly referred to as "lower highs and lower lows," which translates into continuously falling averages of the Good Things That We Want (GTTWW). The Bad Economic Things, (BET) however, seem to be putting in higher highs and higher lows, which correspondingly translates into continuously rising averages of the Bad Things That We Don't Want (BTTWDW).

So, GETs are getting worse, and BETs are getting even worse, and this whole acronym thing seems to be getting worse, too (GWT). And if you are the kind of person who maxed out the Verbal half of the SATs in high school and then walked around bragging about how smart you are and then you stood around with your snotty friends laughing and pointing at the poor old Mogambo who spent the entire time trying to figure out how to write his name in those damn tiny little circles on the answer sheet and no matter how small I wrote I always ran out of room and subsequently got a zero on that part of the test, then you are probably already aware that both of those things have the word "worse" in common, and you have learned something from that. And then you quit reading, jump in your new red Ferrari and go out for a day of partying with your rich and beautiful Hollywood friends and having a wonderful time.

And for you people who got the majority of your education, and constantly proved it by hanging out with your hoodlum friends down at the far end of the playground, mostly smoking cigarettes and spitting a lot and plotting revenge against people because we are envious of their success and good looks, then you instantly recognize that these two "worse" things indicate, as is the case every damn day of your pitiful life until sometimes I think I can't stand it anymore, that this is a Sign Of More Trouble Ahead (SOMTA). But we do not have snazzy Ferrari cars to jump into, red or otherwise, and the only Hollywood stars that we know are the ones who are always having their lawyers file these Restraining Orders against us to keep us from ever again bothering them with our adoring fan mail, our phone calls, our constant begging for photographs, autographs, and small loans, and preventing us from going through their garbage, hoping until our little hearts are bursting to find something of theirs that we either make a creepy shrine out of in our living rooms, or sell on eBay. So the only thing that we can do is cry ourselves to sleep and then wake up refreshed enough to take our frustrations out on somebody smaller than us.

But, having everything getting worse is what you gotta expect. But because I expect invaders from outer space to steal my car doesn't make me like it, either.

And if you want to see what this fear looks like, the cover of the October 2-8 issue of the Economist magazine is a photo of what seems to be the Mogambo as a youngster. The scene is a wicker basket, and peeking up out of the basket is a wide-eyed, frightened boy who has been hiding in there. The caption is "Scares ahead for the world economy". My sentiments exactly, and they have not changed in all these years, which shows a little consistency, anyway, except that now I am wearing full body-armor and hefting powerful weapons, and am not peeking out of some stinking little wicker basket, but the Cold Eyes Of The Mogambo (CEOTM) are peering through narrow gun slits of the massively over-constructed Mogambo Fortress Of Solitude (MFOS).

There is plenty to be scared about. Especially you, because I am in here, and you are out there, alone and unarmed.

Oct 5, 2004
Richard Daughty

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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