Out comes the funny-looking rubber
...the angriest guy in economics
November 4, 2004
- The dollar resumed its inexorable decline to its intrinsic
worth, namely zero. Foreigners decided either 1) that they like
losing money, or 2) have so much invested already that what's
another few billion here and there? So they all popped another
Prozac and resumed their buying of Treasury debt, knowing full
well that they will certainly lose money on it, too.
And speaking of the dollar, according to an article in 11/1/04
issue of the Wall Street Journal entitled "Fed Ponders Oil
Price and Dollar," the Federal Reserve thinks that "an
abrupt run on the dollar and sudden jump in interest rates"
is a concern to "policy makers around the world," because
the American current-account gap is so wide, and getting wider,
which means that we are pumping dollars by the $600-billion a
year boatload out of the USA and into the hands of foreigners
who probably do NOT have our best interests at heart, which I
surmise by the lackluster response I get to my emails to them
that plead "Dear Foreign Sir or Madam, May I please borrow
some money?" and they respond, if they respond at all, with
what I assume are rude colloquialisms (e.g. "Go glagny yourself,
you blampherous glackney porgler.").
But ever the smiling optimists, "Though Fed officials believe
such a crisis is unlikely," they "appear to broadly
agree the dollar will have to fall to narrow the gap." Let
me get this absolutely straight in my tiny little mind: A crisis
is only "unlikely"? Unlikely? How in the hell did we
get to a place (to which I cleverly allude by comically pointing
to my watch and shouting "Right here and now, you freaking
bozo!" and hitting you over the head with this funny-looking
rubber chicken) where such a crisis is only "unlikely?"
The cashier at the supermarket was stunned when I whirled around
and jumped up on the conveyer belt, leaned over and said "The
whole damn problem is that if the dollar goes down, then imports
have to cost more! Things costing more is inflation! Or else
those foreign devils will have to make less! One or the other!
And these foreign devils are all guys whose nasty butts we have
kicked in wars in the past, some of them numerous times! And
you can take it from me that they are still carrying grudges.
And the reason that I bring this up is that I don't think that
they are going to be too keen on the idea of taking losses, in
real terms, i.e. adjusted for inflation, for years and years
and years into the future so that we can continue living beyond
Even the bozos at the Fed "appear to broadly agree the dollar
will have to fall to narrow the gap"! And filling a $600
billion per year gap is a HUGE gap, and it would have to be filled
with an equally large chunk of change!
And THAT is the part that is causing panic around here, mostly
because the Mogambo Inflation Alert System (MIAS) is springing
into action at all hours of the day and night, and it is unnerving
to have sirens constantly blaring and horns blaring and alarms
blaring and everything just blaring blaring blaring, and the
loudspeaker is continuously advising the neighbors "Warning!
Warning! The Mogambo Self-Defense System (MSDS) is now activated!
Do not leave your homes until further notice! Resistance is futile!"
and now they are all snippy to me about their alleged lack of
sleep and the fall in their property values and blah blah blah.
I mean, I can't win around here! No matter how hard I try!
But then we read "Officials stress that they aren't trying
to influence the dollar, a job they leave to the Treasury. So
I have taken this to mean that I can take my wife's car and drive
it like a maniac around town, smashing into mailboxes and across
flowerbeds, ramming it into parked cars and careening at those
school-crossing guards with their stupid orange vests and their
stupid little whistles going "Tweet tweet tweet!" like
it was MY job to keep those little brats out of the street or
something. And when my wife goes out in the morning, takes a
look at her beat-up car and screams "What in the hell have
you done to my car, you horrid little jerk?" I can smugly
say "Hey! I am not trying to influence the value of the
car! That is the Treasury's job. I mean, that's YOUR job!"
But is not only the foreigners who are morons about buying US
government debt, as the corporate bond arena also blasted to
new highs, driving yields to new lows. This may be partially
explained by the banks gobbling up $13 billion in "Other
Securities" last week, which is the catch-all category for
things other than "U.S. Government Debt." Or it may
be that Doug Noland's analysis is correct in that "with
performance suffering, many bond mangers have unwound interest-rate
hedges and, in the process, supported bond prices and systemic
- Personal consumption exploded up another few notches to a new
record of $7.659 trillion, up a whopping $258 billion since this
time last year, which works out to almost $1,000 for every man,
woman and child in America, although MY personal consumption
certainly did NOT increase by a thousand dollars, and so that
means that one of you greedy little people are getting twice
as much as me! Meanwhile, incomes are up 0.2%, while spending
is up 0.6%!
- A Prudent Bear site Guest Commentary entitled "Oil demand
- Why so strong?" was written by Andrew McKillop, who is,
so he says, "the founder of the Asian Chapter, International
Assoc. of Energy Economists and Former Expert-Policy and programming,
Divn A Policy, DG XVII-Energy, European Commission,"
and I am wondering how he got all of that on his business card.
But that is not important. What IS important is when he says
"What counts for the near-term and mid-term, the next 3
5 years, is that world oil supply will almost inevitably
trail world oil demand. That is, growth of world supply after
increasingly difficult and costly compensation for annual depletion
losses now running at about 1.25 1.5 Mbd, and set to increase,
will be unable to satisfy the essentially inelastic and accelerating
growth of demand. This will continue until and unless oil prices
rise well above 75 USD/bbl, or an intense, worldwide economic
recession is triggered through indiscriminate use of the 'interest
rate weapon' in the OECD."
Well, I am here to tell you and this Mr. McKillop that anytime
supply trails demand, the price will go up. Whether or not the
$75 per barrel is the price where the world's economic system
gags on the price, I dunno. Sounds about right, though, I guess.
"Targets for oil saving will likely have to be at 5% or
more reduction of oil demand per year. In the USA, we can note,
current oil demand growth trends, and declining domestic oil
production, result in oil import demand growing at about 5% -
6%/year. Oil saving programmes would therefore need to target
annual reductions in oil demand well above 5%." Americans
cut demand? Hahahaha! Hey, moron! We're Americans! We consume
as much as we want, of everything we want! We're Americans! That's
what we do! And if prices get too high, the government will give
But the price of oil declined to less than $50 a barrel Monday,
and that was the inspiration for one of the most stupid things
I have ever seen on the Bloomberg.com site, and I am going to
quote it verbatim: "Crude oil futures fell below $50 a barrel
in New York for the first time since Oct. 5 on speculation that
growth in demand will ease as supplies increase." Hahahaha!
Demand stops growing as supply increases? Hahahaha! Stop it!
My sides are hurting from this laughing! Hahahaha!
The Mogambo turned his face to the camera. Audiences world-wide
laugh in delight to see the look of perplexed exasperation on
my comically expressive face. "Supply more of something
and the demand goes DOWN?" I ask incredulously, my bow tie
spinning around with a whizzing sound. "If gasoline goes
down in price, I will drive less? Wow! This is ALL news to me!"
I abruptly fall to my knees, my hands clasped as if in prayer,
beseeching you to have mercy on me! With a voice dripping with
heart-breaking pathos and utter, mortal despair, I say "Forgive
me! I feel like a fool! How could I have been so wrong? I beg
you; please forgive me! I did not know that if you increase the
supply of something, that the demand will go down!"
But you will notice that my eyes gleamed like cold steel with
a fierce light, as secretly I am saying to myself "And oil
fell on the world market because of THAT? Ha! Idiots!" And
suddenly I remember a scene from the movie "Butch Cassidy
and the Sundance Kid," where Strother Martin has hired the
two heroes to guard a payroll that they have to pick up in La
Paz in South America, and they are imagining ambushes at every
turn in the road. Strother finally says to them "Nobody
is going to rob us going DOWN the mountain! We don't have the
money when we are going DOWN the mountain!" And then he
exclaims, talking to himself in a loud voice containing large
quantities of sarcasm and disrespect, "Morons! I've got
morons on my team!"
But it is not just the price of oil. Mr. McKillop goes on to
say "Overall, and in the OECD bloc the inflationary impact
of higher oil and energy prices is more than compensated by 'structural'
deflationary trends. The demographic and social impacts include
rapidly aging populations (Europe and Japan) leading to a fast
increase in non-working populations, lower real incomes, for
example through longer work weeks and falling unionization of
labour, increasing 'structural' unemployment, impoverishment
and marginalisation of ever larger groups within 'postindustrial'
society." In short, he figures that the number of people
who cannot afford to buy oil or anything else is growing, and
it is these people slowly starving to death that will keep a
lid on inflation, because the few dollars that they possess have
such low buying power, and so they will buy less and less, and
as demand goes down and down, then prices will go down and down,
too, and that misery will be inflicted on ever-larger and larger
sub-populations of Americans! Wow! Ain't economics fun? Don't
you just love this stuff?
Mr. McKillop goes on to say "It is therefore the older,
aging societies of the North and not the fast industrialising
countries, nor the poorest, vastly less oil-intensive economies
and societies of low and lower income countries that will be
first and hardest hit by rising oil prices." He is talking
about, and my eyes briefly scan the room, you, which doesn't
bother me too much because that's the kind of selfish little
bastard I am and how everything is about me, me, me, but it bothers
me that he is also talking about me, because that is a bummer,
and it REALLY bothers the hell out of me that he is also talking
about my wife, because she knows EXACTLY whose fault it is that
the economy of the USA is collapsing and thus caused her suffering.
She blames me, because all things that happen in her life that
are bad are my fault, and by God, I am going to suffer for it
every hour, of every day, of my life.
But I, personally, do not blame me. I blame the Federal Reserve,
because this is exactly what you always get when you have a loose
central bank, a fiat currency and a spendthrift government that
grows, via deficit-spending, like a cancer both in sheer size
and in grasp, which can be easily measured by the handy metric
known as the Mogambo Hands Around Your Neck Number (MHAYNN),
which indicates how many government agencies have their hands
around your neck and are choking money (measured in dollars and
cents) and/or services (measured in sheer hours of required compliance)
out of you. The latest estimate is that there are eighty pairs
of hands around my neck. So to get MHAYNN, we multiply "pairs
of hands" by two, to give (and this is the answer to Question
Number 12 in last night's homework), MHAYNN = 160.
- The stupid Cuban communists (and anybody that thinks that a
communist economy is viable is stupid), have now passed a law
that requires dollars held by Cuban citizens to be converted
into Cuban pesos. Apparently, there will be a 10% charge on the
exchange. Ten percent! Thus, another fascist/commie/socialist
government grinds its population to dust.
But you can call it taxes, or you can call it fees, or you can
call it Ray, or you can call it Jay, but the bottom line is that
another grubby dirtbag government is taking money away from some,
or all, of the citizens, making the citizens poorer.
- Jonathan Clements, who writes the Getting Going column for
the WSJ, has had an epiphany of sorts. He say that after ten
years, his optimism "has taken a beating. Yes, I still believe
it is possible for ordinary investors to make decent money on
Wall Street, but it has become increasingly clear to me that
the odds are stacked against us."
He has finally gotten around to looking at the historical record
like the Mogambo has taken a look at it, and he admits "I
don't like what I see." While the record of the stock market
since 1925 is impressive he says, he also notes that "A
significant part of that gain, however, came from both rich dividend
yields and rising price/earnings multiples. Today, with dividend
yields so low and P/E ratios so high, long-run returns will almost
certainly be lower- even assuming robust economic growth."
Not only that, but he notes that to compound the misery of paltry
gains in the decades ahead, "the gains may all but disappear
after figuring in investment costs, taxes and inflation."
He makes the case that your returns are going to be eaten up,
"leaving you with no real return."
And as gloomy as this sounds, he is still more sanguine than
I, because my Official Mogambo Outlook is much more bleak, especially
when you consider that the most optimistic forecast of either
of us (him) is "no real return," which is merely breaking
even. The more pessimistic of us, (me) sees horrors too awful
to describe in front of children because it gives them nightmares,
because I predict that we will not only lose almost all of everything
we own, but we will soon die screaming in the gutter, consumed
by bankruptcy and misery and self-loathing and realizing too
late the utter profundity of what "Your vote counts!"
means, and as the scene fades to black we will look at what the
boneheads we voted for have done for us, and we will cry out
in anguish, and I blame Democrats, mostly, but Bush is no prize,
Then he says that he has reached the conclusion: "You need
to save like crazy." And I am here to tell you that history
has shown that you need to save a month's pay now to have a month's
income when you are retired. That's the hard lesson of long-term,
simmering inflation. And if you don't believe me, then the next
time you are looking at some of those old sit-coms from the 60's
and 70's and 80's, pay attention to the prices for food you sometimes
see on supermarket walls. Then compare that to what that same
item costs today. Compute the inflation. It always works out
somewhere between 3 to 6 percent a year.
Now, sit back in your chair and put your hands behind your head.
Close your tired eyes and picture yourself retired, getting up
late, having a nice breakfast and then having fun all day playing
with your hoodlum friends. Now think how much money you would
need, per month, to retire right now. Then think about how much
people made, per month, back then. Compute the inflation. It
works out, again, to 3 to 6 percent a year.
Ergo, to have a month's worth of income in the future, you have
to save a month's worth of income now. So, you wanna be retired
for 20 years? Then you need to save 100% of your income for 20
years. And since you can only work about 50 years before your
back gives out and you finally get fed up with all the crap and
the stupid bosses you have to put up with, and then one day you
say "Screw this! I'm retiring!," you will need to save,
every month, 20/50th, or roughly 40% of everything you make,
every month! Welcome to the joy of inflation!
He has also had his eyes opened the low IQ level of ordinary
people. "Unfortunately, during the past decade, my confidence
in the investment acumen of ordinary investors has been shaken."
And that is one of the main reasons why he figures that the privatization
of Social Security "will be a disaster."
- Asia Times presented Henry C K Liu, who is chairman of the
New York-based Liu Investment Group, who has written a very good
article that explains the problem, the dilemma, and the looming
disaster with China, entitled "Part 1: Follies of Fiddling
with the Yuan". After tracing the history of Chinese exchange
rate policy, he notes that "In China, eight reductions over
a period of eight years since 1994 halved the benchmark yuan
one-year lending rate to 5.31%. The yuan one-year deposit rate
is now 1.98%. China's consumer price index rose 5.3% in the year
through July, meaning that borrowers now enjoy near interest-free
loans after adjusting for inflation."
Interest-free loans! Just like here! And you are think China's
growth is going to slow? Hahahaha! He goes on to say "Industrial
prices climbed 14% in the first seven months of 2004, making
real interest rates negative by a wide margin in industrial sectors."
Negative interest rates! Yow! "Yuan bank deposits at 1.98%
now suffer erosion of principal to inflation at the rate of 3.32%
a year, which then as bank loans goes to support a built-in 8.69%
annual profit for those who borrow at 5.31% to speculate in the
industrial sectors with 14% inflation." Just like here,
the banks are screwing over us little dirtbag depositors! If
you listen carefully you can hear them laughing and spitting
on us lowlife depositor trash, and with my Super Mogambo Hearing
(SMH) I can actually hear them saying "Depositors? Hahaha!
I spit on the lowly depositors!" which confirms your earlier
reports of laughing and spitting.
"International money flow is closely linked to interest
rate differentials between economies, in the direction of the
higher rate. Speculative hot money poured into China for the
past two years as the Fed cut (the Fed Funds Rate) to 1%."
So, here in America, the Fed cut rates, and the money poured
into China! Hahaha! The jokes on us, huh? Old folks with their
Certificates of Deposit paying squat, and bank depositors getting
squat for their savings, all got screwed, so that money could
flow into China! He goes on to say "Ample liquidity triggered
an investment boom in China that exacerbated inflation. The resulting
negative real interest rate amplified investment demand and caused
a speculative bubble."
If you want to argue that China's economy can't grow, you can
quote Mr. Liu when he says that China, "Despite spectacularly
rapid growth, still accounts for only an insignificant 3.5% of
the global GDP, a pathetic figure for a nation with one fifth
of the world's population. Yet China now accounts for 60% of
the growth in world trade."
Then he touches on "recent calls from US officials for China
to simultaneously raise both the yuan exchange rate to the dollar,
and yuan interest rates further above dollar interest rates are
ill advised. Such moves will cause an upward spiral of interest
rates and inflation in the US, China, Asia and the rest of the
world." The Mogambo Inflation Detector (MID) is clicking
Apparently this Liu guy is unaware that the reason that I am
on the floor, twitching and gagging in fear, is this inflation
thing. Then, without warning, as if to kick me in the guts, he
gets into this issue of the Fed hedonic massaging of inflation
statistics so as to disguise it. "As this measuring technique
is being extended to a growing number of goods, it has become
a most important factor in reducing the US inflation rate, and
intrinsically raises nominal GDP growth while the real GDP may
"All this suggests two important things: first, that the
reported new paradigm increases in real GDP and productivity
growth have been exaggerated by a statistical illusion; and second,
that real interest rates have been far too low in relation to
real inflation, which also explains the most rampant money and
credit creation that the US has ever seen in recent history."
He then quotes the heroic Bill Gross of PIMCO, who wrote: "The
CPI inaccurately calculates Americans' cost of living. Since
social security and pension benefits as well as the level of
wage hikes are predicated upon the specific number and/or the
perception of annual increases, Americans are being in effect
conned by their government and falling behind the inflationary
eight ball year after year."
Mr. Liu continues "With every passing day, more market watchers
are joining the ranks of those predicting looming financial crisis
in US markets from excessive debt, particularly external debt."
Unfortunately, he says "This danger cannot possibly be defused
by China, regardless of what monetary policy it adopts.
"But the longer the Fed takes to bring (the Fed Funds rate)
back to neutral or restraining levels," he says "the
bloodier will be the crash of the bond market when it happens.
And it will happen. Reality does not stop merely because some
short-sellers lost money. Borrowing short-term to finance long-term
bets is a deadly game that cannot be made safe by hedging, no
matter how sophisticated the strategy. Hedging does not eliminate
risk; it only transmits unit risk onto systemic risk."
And no truer words were ever spoken, even though neither the
Federal Reserve, nor the banks sucking money, vampire-like, out
of the system, nor the SEC, or Wall Street, nor the government,
nor the armies of clueless university economics professor morons,
nor any of the stock touts on TV believe a word of it. To the
contrary, they all believe, for reasons that they cannot enunciate,
that financial derivatives in quantities that swamp global GDP
will prove to be some bizarre economic savior or another. But
one day, when the whole derivative mess collapses in a huge stinking
heap, they will rise as one and say "The Mogambo was right!
We are all a bunch of idiots! All hail The Mogambo!"
- "Beige Book Shows Growth, Despite Energy Tab," says
the CBS.MarketWatch. com article by Rex Nutting. He says "The
higher prices weren't feeding inflation, the report suggested."
This is the last thing I remember reading before "it"
happened. The official theory is that this sentence was so self-contradictory
that my mind seized up, the first victim of a new syndrome called
Mogambo Cognitive Dissonance Seizure Syndrome (MCDSS). I still
marvel at it: Higher prices don't feed inflation. Hmmmm. And
when I say "marvel," I mean that I sit here, immobile,
minute after minute, staring at the sentence, trying to wrap
my tiny little brain around such a concept. Higher prices ARE
inflation, and yet (and here is where I get lost), they don't
feed inflation. So where did the price inflation come from? Even
today I get the willies when I read that sentence, and this is
after intensive therapy by highly-trained professionals using
state-of-the-art techniques and sophisticated equipment that
is just a little too overly-reliant on administering electrical
shocks to suit me, if you want my opinion.
Well, this is so weird that I decided to go to the Fed Report
myself, and see if this Nutting character was pulling my leg.
When I access the report itself, I read "Five of the 12
districts reported more factory jobs, while none reported a decline."
The Fed report actually said "Manufacturing activity increased
further since the last Beige Book."
Well, perhaps this has something to do with the government changing
the definition of "manufacturing." Now, it seems, people
who make hamburgers are "manufacturers." As far as
I am able to discern, if somebody takes several items and combines
them, then that is "manufacturing." So if a waitress
takes a knife, a fork and a spoon, and wraps them up with a napkin,
would THAT be manufacturing? Apparently yes, if I understand
the whole concept, and the chances are that I don't, but that
is the way it seems to me.
The Fed report also stated "Firms across the nation also
expressed concern about higher input costs, particularly for
energy and petroleum-based products, metals, and construction
materials." Aren't these the things that China is buying?
And speaking of China, didja see how the media morons actually
believed the Wall Street story that China increasing the interest
rate is going to slow them down? And that this will be good for
us somehow? Well, they will be slowed all the way down from growing
six times faster than us, to only growing three times as fast
as us. And this "improvement" will take a few years,
so if that is your definition of good news, then yes, it was
But to all of this I say "Hahahaha!" and by now you
know, if you are hip to the various idiosyncrasies of The Mogambo,
that I am laughing in that mirthless way that I have, and that
means that from here on out, things will spiral slowly out of
control, and later on tonight the police will be calling on the
phone, wanting to know if my wife wants to come downtown and
arrange my bail, and she will laugh in their faces with that
mirthless laugh of HERS about how I can stay there until I rot
for all she cares, and I'd probably be there still if the other
prisoners hadn't pooled their own money to bail me out just so
I would get the hell away from them, because apparently (and
I did not previously know this) criminals do not like to be informed
about monetary and fiscal policy and how we are being economically
murdered and how they ought to invest in gold and silver and
The Fed report went on to say "Six of the twelve District
reports suggested that trucking firms were able to pass along
most, if not all, of the cost increases to their customers."
And so the customers of the truckers had their prices go up,
but they were at least able to pass along SOME of that higher
cost to THEIR customers. And who are these customers? You and
me, Bub, if you don't mind me calling you Bub, but seeing as
we are in this together and it looks like it's inflationary curtains
for us, it seems only natural that we be informal.
- David Bond is editor of the Silver Valley Mining Journal, and
is a guy I know personally, and I am happy to report that he
is one of the people I know who do NOT want to punch my lights
out or get their money back, so I have THAT going for me. Well,
it seems that Mr. Bond went to China on a fact-finding visit,
and he apparently didn't have time to buy me a present or even
send me a lousy postcard or call me long distance and say "Hey!
Mogambo! Guess where I am!"
But perhaps this is because Mr. Bond is one of those guys who
apparently attends strictly to business, and with his keen insight
notices things, and he is mightily impressed with them. Little
things. Things that I have never heard before, especially since
the government is censoring my mail and messing with my computer,
so I am the last to find out about everything. In keeping with
this attention to important detail, Mr. Bond reports that "there's
not a lawyer amongst the upper echelon of the Chinese government.
To a man and woman, they are engineers."
A light went on-- bink! -- in my head. They have engineers. We
have lawyers. Engineers make things work, while lawyers make
things NOT work. And while we are fabulous Americans, I was always
told that the Chinese were just bunch of guys running along pulling
picturesque rickshaws down quaint little slums where people are
selling opium and weird herbs to each other, and everybody is
smiling and saying "Ah, so!" and telling "Confucius
says" jokes to each other in these happy little sing-song
voices, and they like to work in Chinese laundries, and work
on railroads, and run Chinese restaurants, where they eat fried
rice, which they pronounce "flied lice."
But they have engineers as politicians, while we have lawyers.
I may have been misinformed about these Chinese guys!
- "An Austrian Analysis of U.S. Inflation" by Krassimir
Petrov on the PrudentBear site is also thinking along my lines
where he writes "Therefore, we must expect more inflation
for the next 6-10 years."
So what does one do if one wanted to 1) protect himself, or herself,
or itself from the fallout of our monetary and debt insanity,
and 2) maybe make a few bucks on the deal? Because this is the
Mogambo Optimal Outcome (MOO), and if there is one thing that
I like about MOO, it is that you can't do any better than optimal.
I know what I personally think is a good plan, but let's query
Mr. Petrov. So I yell out, "Hey! Krassimir! What assets
do you recommend if I want to make some money on this deal?"
Well, without missing a beat, he says, "The obvious choices
are hard assets (precious metals, industrial commodities, real
estate) and strong foreign currencies." No sooner had the
words come out of his mouth than I was up out of my seat, and
out of the corner of his eye he sees me dashing across the stage
to grab the microphone to try and hog a little glory. But before
I could get there, and this is the weird part, he actually reads
my mind, and says the exact word that I was going to use! He
says, and this is so spooky, "Personally, I have my doubts
about real estate. As a student of speculative manias, there
is no doubt in my mind that real estate is in a bubble of historic
proportions that is destined to burst." Then he turns around
and grins at me. I stand there with my mouth hanging open. How
did he read my mind? Finally, I turn around and go back to my
seat and sit down in a huff, all grumpy and all, looking like
an idiot, muttering under my breath about microphone-hogging
Russkie bastards, grumble grumble grumble.
Then I think about commodities in general! Again, I leap out
of my seat and lunge for the microphone! And again, before I
can even get there, he again reads my mind, and quickly says
"Yet demand for commodities is dependent on a strong worldwide
economy. A worldwide depression will hardly prove bullish for
commodities. In such an environment, commodities and energy may
no longer be expected to be safe and profitable bets. Only precious
metals will provide the ultimate safe-haven in such an environment."
Looking at me sideways, I can see him laughing at me and I can
hear him thinking to himself "Stupid Mogambo!" He goes
on to say "Even though gold is the ultimate choice, I believe
that over the next decade, silver will outperform all investments,
whether boom or bust, inflation or deflation; for more on silver,
I refer the reader to the excellent work of Dave Morgan and Ted
of you who are naturally lazy, like me, I will save you the trouble
of bothering either of these two guys, who are probably real
busy advising their rich Hollywood and international jet-set
friends and haven't got time for slobs like you and me anyway,
and will tell you what they would say if you could get through
to them. Buy silver. And lots of it. And then when the wife wants
to know why you hocked her jewelry to buy silver, you don't have
to get into this long explanation about demand continuously outstripping
supply, and how silver has literally disappeared by being used
up, and how it is undervalued by any historical metric, and blah
blah blah, which is a literary device that means you are wasting
your time because she stopped listening hours ago. Now you can
simply say, "Because The Mogambo told me to," and then
she will say "Who in the hell is The Mogambo?" and
then you can say "A heavily armed lunatic who knows where
we live. Let's just do as he says, and maybe he will leave us
alone." That usually shuts them up, and you end up with
a bunch of silver, to boot. Everybody wins!
- I got a letter from James Korman, who seems like a real nice
guy, and he keeps his letter mercifully brief. He wanted to comment
how Fannie Mae is "going to extend mortgages to 40 years,"
which I already knew, and am as upset about as he is, but also
that the Bush Administration is going to guarantee the value
of a home! And it is going to do this wonderful thing by charging
1% at the time of closing!
Now, personally, I never heard this one, so if you have a problem
with the report, talk to this Korman guy, and not me, since my
only responsibility is to whine and complain and pass along rumors
as if they were fact and make up horrible lies about my enemies
and write nasty things about them in public restrooms wherever
I go, sometimes in limerick form. (Example: "A guy named
Alan Greenspan who is a big butthead and is chairman of the Federal
Reserve came from Nantucket")
But this making implicit guarantees sounds like something government
would do, especially if they wanted to shore up the real estate
market to make sure that the slimy corrupt colossus known as
Fannie Mae does not go bankrupt like it should. But if it is
true, what do they do with the money, this 1% of the mortgage,
that they collect at closing? Do they store it away somewhere?
Do they save it? No! They spend it!
So with this one brilliant stroke, the government gets more money
to spend, AND they put a floor under the real estate market to
bail out another bankrupt bunch of jerks whose only salvation
is that they have grown "too big to fail"! Nobody will
ever lose money on real estate again! You can only make money
or, at worst, break even!
If true, and I have no reason to doubt that it is true because
it has to sound irresistible to a government, it's just another
gimmick that will come back to haunt us, because it can't work
and it will not work. And if you think that it CAN work, then
please contact me immediately, as I have several proposals for
perpetual motion machines that need funding, and they have the
exact same probability of success.
- To illustrate that the Europeans are as stupid as the rest
of us, the EU signed their ridiculous Constitution. One guy,
Silvio Berlusconi, the Italian premier, said "The seeming
madness of our founding fathers has become a splendid reality.
Never in history have we seen an example of nations voluntarily
deciding to exercise their sovereign powers jointly in the exclusive
interests of their peoples, thus overcoming age-old impulses
of rivalry and distrust."
No, Mr. Berlusconi, the FATHERS of your founding fathers were
right when they said "It cannot work" and that is why
they never did it. But your founding fathers, who say
the exact opposite, are wrong, because I am here to tell you,
and you can quote me on this, that you can get all the countries
in the whole freaking world together and sign anything you want,
but when you have the European Union central bank dictating a
uniform, EU-wide monetary policy, but every country has its own
fiscal policy, there is going to be Big Freaking Trouble In Euro-Land
(BFTIE-L). And this Berlusconi moron tells you why, even though
he apparently doesn't recognize it, when he said that the countries
will "exercise their sovereign powers in the exclusive interests
of their peoples." That is exactly right! And that is why
the EU is doomed to failure. Each country will try to "exercise
their sovereign powers in the exclusive interests of their peoples,"
which is just another way of stating Bastiat's maxim about "Everyone
trying to live at the expense of everyone else," and that
is why it cannot, and will not, work. It never has. It never
And if you want an example of "overcoming age-old impulses
of rivalry and distrust" then I can confidently point that
there has NEVER been an example of anyone overcoming "age-old
impulses of rivalry and distrust." The Jews are still angry
about the Egyptian pharaohs, the Christians are still grumpy
with Pontius Pilate and the Jews, the Arabs are still testy about
the Crusades, witches are still grumpy about being burned at
the stake, blacks in this country are still whining about slavery
before 1865, The Mogambo is still angry about the Supreme Court
letting FDR declare war on the American Constitution, and the
Palestinians are still grumpy about Israel being founded in 1947,
all of which proves that nobody ever forgets age-old grudges.
- As usual, Doug Noland keeps trotting out these statistics that
he knows are probably going to kill me, but he doesn't care that
I could plotz right here. He says things like, for example, "Bank
Credit added $3.9 billion for the week of October 20 to $6.71
Trillion. Bank Credit has expanded $440 billion during the first
42 weeks of the year, or 8.7% annualized. For comparison, Bank
Credit expanded by about $420 billion during all of 2003."
Take a look at my EKG! See how my heart went "urrkk!"
when he wrote that?
Or how about when he writes things like "This week's ABS
issuance came to $13 billion (from JPMorgan)"? Urrkk! Or
how about "Total year-to-date issuance of $523 billion is
40% ahead of comparable 2003"? Urrkk!
And if that is not enough, how about a little "2004 home
equity ABS issuance of $333 billion is running 84% ahead of last
year's record pace"? Urrkk! Urrkk!
- "Inflation-Induced Valuation Errors in the Stock Market"
is an essay by Kevin J. Lansing, who is Senior Economist at the
Federal Reserve Bank in San Francisco. The title pretty much
says it all, but it was a graph of the Price/Earnings ratio that
caught my eye. Up until we idiot Americans really started going
crazy with this stupid stock mania in the 90's, the average historical
P/E ratio was around 10 or so. In fact, no other generation of
American boneheads ever bid stocks up to these ridiculous levels,
so the P/E hardly ever even GOT to 15! And if it did, then it
sure as hell did not stay there very long! But the recent insanity
of bidding stocks so high has increased the P/E, and increased
it for so long, that the "average" historical P/E ratio
is now 15.7! That is how much we are distorting historical measures
with our speculative mania!
- Paul Krugman, economist gadfly for the New York Times, has
also begun to see the light, and he finally sees Alan Greenspan
for what he is; a real jerk. He writes "Now his record as
a monetary leader has been called into question, and his judgment
on fiscal policy has been proved disastrously wrong. Worse, he
seems to have abandoned the long tradition that places the Fed
above the political fray." Exactly!
** The Mogambo Sez: These recent declines in oil and gold
are temporary, and it is a gift to you, allowing you to buy them
at low, low, insanely-low prices. Back up the truck and start
November 3, 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.