The Straining Straps of the Straightjacket
- I hope you don't mind talking to me through the mail slot in the door, but I am not in the mood to open the damned door right now, as I am being driven crazy crazy crazy by alarm bells and alarm buzzers going clang clang clang and buzz buzz buzz respectively, and the Mogambo Economic Seismograph (SES) is literally flopping (plop plop plop) on the table from the financial tremors being detected.
It wasn't always this way. Why, I sort of remember this morning when I got up, smiling as the sun was coming up and little birds were singing sweetly to me from the treetops. And this morning the wife was still asleep so she wasn't already yelling at me, "Are you going to get up off your lazy butt and do something around here today?" (No).
But then my idyllic morning was shattered when the alarms starting going off after I learned that Total Fed Credit shot up by $3.955 billion dollars last week, which is scary enough in itself, because this means that all of this instant increase in credit was used to create more debt for somebody, and with the reserve multiplier of almost 100! I notice that you did not say "Yikes!" at that, so you are probably very hungover and thinking only of how your head hurts, and your stomach hurts, and your hair hurts, and there is a bad taste in your mouth, and somebody has peed in your pants, and you are therefore blissfully unaware of what this means. So, showing off my mathematical and calculator wizardry, I finally manage to turn the calculator on. With a self-satisfied smugness, I key in the number $3.955 billion with surgical precision, and then multiply that by 100, and after a few tries, I announce that most of the answers I got were $395.5 billion. That is how much potential new debt was created LAST FREAKING WEEK! In one week!
So the next thing I know, I am trying to explain to this stupid policeman that the obvious reason that I am riding my bicycle down the road this early in the morning, wearing nothing but an adult diaper and a wedding veil while screaming "It's time for stupid Americans to wake up and prepare to be economically killed, you morons!", is that all this torrent of new debt means we are even MORE freaking doomed! And especially since all this new debt means all this new money in the system, and all this new money means all this new inflation in the money supply, and all this new inflation in the money supply means price inflation is coming to kill our money, our economy and us. To make sure that he comprehended the crucial importance of this basic fact, I even helpfully pointed out to him, as tactfully as The Mogambo can, that if he can't get it through his thick Neanderthal skull that my heroic actions, sort of like Paul Revere only more comfortably dressed, are fully justified, then he was just another stupid fascist pig cop. The next thing I said was, "Before you hit me with that nightstick again, are you telling me that you agree with the stupid idea that a nation can go into so much debt, and then print the money to pay the debts, that we will all end up rich?"
A few more whacks to the head with that damn baton of his finally convinced me that my original assessment was right; he WAS a another stupid fascist pig cop, and yes, he DID believe a country could borrow its way to prosperity and wealth, because he works for the government, and the government said so, and so that was good enough for him.
Fortunately, he also believed that he was going to have to change my diaper before throwing me into his squad car, because being knocked senseless like this makes me poop, a lot, and he could see the evil gleam in my eyes that I was going to make this just as messy and unpleasant as I possibly could. So he let me go home if I promised to be a good boy from now on, and I said I would. But I lied.
And I was justified in my lying, as I did not even bring up the fact that the Fed bought up, for itself, a big glopping handful of government debt last week, too. If you run to look up the exact definition of "handful, glopping, big" in your copy of the Big Mogambo Dictionary Of Economic And Financial Stuff (BMDOEAFS), you will see it equals $2.243 billion, which is precisely the amount of government debt that the Fed monetized last week alone. So that is why I used the precise term "big glopping handful."
This is the part that really bothers me, in that we taxpayers now owe the banks, which is a bunch of private banks with owners and insiders and stockholders who all agree that I always have to use the drive-up window because I am not allowed in the bank lobby ever again since, well, perhaps I'd better not to dredge up painful old memories. But this is not about how I screamed at some halfwit teller about how she and the stupid banks, as part of the Federal Reserve system, are destroying our money, and our country, and how the bankers are going to Hell, and how she is going to Hell, too, and how her ugly, stupid little children are going to Hell right along with her, and how if I had children as ugly as hers I would not put their photograph on my stupid desk, but it did not matter because they are all going to burn in Hell for their crime of destroying our money and our economy and our country and us by creating so much money for their own damned profit! Like I said, I don't want to bring it up, but here they are again, doing the same damned thing!
So the banks created, at their whim, another $2.243 billion dollars which they used to buy government debt, so that we stupid taxpayers can stand around drooling down the front of our shirts as we now owe the banks another $2.243 billion. And we not only owe them the sum total of 740 freaking billion dollars of government debt that the damned banks have amassed, but also the interest on every dime of it! And for the rest of our lives! And the banks bought the asset for themselves by literally creating the money out of thin air and then giving it to themselves? My God! We are THAT stupid, and yet we have nuclear weapons? No wonder everyone is against us!
- That the world is now so full of corruption is beyond doubt. GATA has clearly exposed the grubby manipulation in the gold market, and Ted Butler has exposed the fraud and manipulation in the Comex silver market. Now we have it in the financial markets, as revealed by an essay by Daan Joubert, who teaches a course in 'Technical Analysis at the Treasury of a major South African bank', in his "essay of the week" on the InvestmentRarities.com site. Mr. Joubert has been taking a look at intervention in US markets and has decided that our stock market behaves irrationally to external events.
"There can be only two
possible explanations: Americans are truly irrational, unable
to reason logically and easily swayed by propaganda and the herd
instinct, or there are some powerful forces at work to intervene
in and steady US markets."
Sure enough, when you look at the data, every time there is what is clearly a cascade of selling as people suddenly realize that the Mogambo was right ("We're freaking doomed!"), mysterious buyers suddenly enter the markets out of nowhere, brandishing dumpster-loads of money and buying, buying, buying everything in sight, and the market goes, miraculously, back up! The same thing happens in the bond market, to a lesser degree.
When you stop and think about this, reading it over and over again, you will see why I have cleverly used the word "dumpster" when describing a large container of money used in this manner. I would normally have used the term "colossal cesspool-load of money", because that is the kind of giggly, rude childishness so characteristic of The Mogambo. But the whole "cesspool" concept is, although highly descriptive and apropos, so yucky and it puts me off my feed, and being so close to lunch, that is the last thing I want.
He cautions us that "What is presented here is not 'proof' in the scientific sense that the government is intervening in US markets through the efforts of the WGFM and implemented by private sector intermediaries (but) judging purely on the evidence, with no preconceived ideas of what can and cannot happen, there can be little doubt that intervention is taking place - unless, the markets have become totally irrational."
And this whole corruption and government fraud just gets worse and worse, as we read in the Oct 31, 2005 Financial Times that the "Treasury Moves To Alleviate Bond Shortage", whatever in the hell that is supposed to mean.
The article was written by Jennifer Hughes, and she starts off by saying "The US Treasury is this week expected to set out its latest thinking on the creation of a special securities lending facility to relieve exceptional market shortages of Treasury bonds." Hahahaha! The whole freaking world is literally awash in U.S. Treasury debt, and yet I am supposed to believe that there can be a shortage of it? Hahahaha! People always think that just because I look like and idiot, and act like an idiot, and sound like an idiot, that I am an idiot. And, as much as it embarrasses me to admit it, I am an idiot, but not so big an idiot that I could possibly believe, even drunk and half-conscious laying on a barroom floor, that there could be a shortage of US Government bonds! Hahahaha!
Perhaps things become clearer when she writes "The creation of such a backstop facility by the Treasury would mark a significant shift of the government's role in the bond market. The Treasury would work towards a proposal that would, in effect, make it the market's lender of last resort. Any plan would be aimed at easing strains on the repurchase, or repo, market - where securities are borrowed in exchange for cash - by issuing extra securities on some occasions when the original supply has become scarce."
In case you are not up to speed on the repo market, she helpfully adds, "In a repo agreement, one party lends Treasuries to another and agrees to take them back on a set date. In effect, it helps those selling bonds short to borrow the notes they need to do so; it also allows traders to raise short-term loans using bonds as collateral."
So I know what you are thinking. You are thinking that it is almost lunchtime, and you are not in the mood to hear about some dumb repo market where rich people and powerful institutions somehow screw me out of my money. But hold on there! The reason that this is coming up at all is that "The issue has arisen following a number of significant 'fails' which have disrupted the market. A fail occurs when bonds are not delivered or returned as agreed."
AhhhhHHHHHhhhhh! Now it all becomes clear! Some of the slimy guys playing the repo market are scumbags who reneged on a bet, and now the players who are still in the game are getting more picky about what they are doing, and asking for higher interest rates to compensate themselves for the extra risk they are taking on, since so many of these repo deals are going bad and sticking somebody with losses! Now, the damned government, and in this case the damned crooked Treasury department and that arch jackass John Snow, is wanting to guarantee those bets! Someone gets stuck with a busted trade, and the damned Treasury Department will make up the losses!
Not only that, but as Gerald Lucas and George Goncalves at Bank of America point out, it would lead participants to "game" the market. "The Street - both dealers and buyside accounts - knows that, if rates are pushed to the Treasury's threshold, more supply will hit the market and cheapen the term rates," they said.
I will not go into the idea that this cheapening of short rates puts the yield curve back in, um, steepness, so that players (and banks) can borrow short and lend long and make a big ol' huge profit, which is politely known as the "carry trade", and which has the effect of (they hope) lowering long rates and, as I already said, make a big ol' huge profit for themselves. How clever! And how embarrassing that we would let them get away with it!
- Disobeying doctor's orders, I watched Alan "See No Evil" Greenspan as he testified before the Congressional joint economic committee, and of course I was straining mightily against the straps of the straightjacket I am now forced to wear, but I could still swear and spit at the television screen every time I disagreed something that this horrible little man said, which meant that by the time it was over the TV and the floor all around it was gooey and sticky, which only proves that I need more practice in spitting for accuracy (SFA).
The whole thing these days is "containing inflationary expectations." The point that we obviously HAVE price inflation is never discussed, and now the only thing that matters is that the Fed, somehow, control people's expectations! Hahahaha! Where is this written in the charter of the Fed? Hahahaha! This stupid bit of nonsense is so preposterous that I cannot even fathom anybody but the morons on CNBC falling for it.
And fall for it they did. CNBC had three dimwits, including Steve Liesman (the resident "economist" at CNBC), Rick Santelli (cub reporter), and some talking-head from some bank (guest doofus) all talking excitedly about this "inflation expectations" thing, never once mentioning 1) that price inflation is a fact and rising inflation is a fact, 2) that the damnable Federal Reserve is still pumping out money and credit at record speeds (monetary inflation), which means that price inflation is going to get worse and worse and worse, or 3) the effect that this would have on The Mogambo, or how local television stations are already setting up cameras outside my house because THEY know that pretty soon I am going to go freaking berserk in a blaze of self-righteous outrage.
To show you what a lying nitwit this Greenspan is, he said, "Thus, although spending continued to rise rapidly last year, the deficit in the unified budget dropped to $319 billion, nearly $100 billion less than the figure for fiscal year 2004 and a much smaller figure than many had anticipated earlier in the year." Hahaha! Just in new federal debt alone, the deficit was over $500 billion! And yet some cockamamie "unified" budget, a concoction of lies, distortions and "off-budget" expenditures, shows a deficit of only $319 billion? Hahahaha! And this deceitful jackass is the chairman of the Federal Reserve? Hahaha! No wonder people are trying to kill us; we're morons with nuclear weapons!
Greenspan also said "Inflation expectations have decreased, and accordingly, the inflation premiums embodied in long-term interest rates around the world have come down." Huh? Bond prices are falling, interest rates are rising, and yet this blowhard jerk thinks that inflation premiums have come down? Hahahaha! Then what in the hell went up that made rates go up? Hahahaha! What a moron!
He did, in an odd instance of candid honesty, say "Nevertheless, the suppression of cost growth and world inflation, at some point, will begin to abate and, with the completion of this level adjustment, gradually end." So he admits they are suppressing cost growth and world inflation? And he admits that the ruse must end? And then what happens? I'll tell you what happens next: We die a horrible economic death!
But this "managing inflation expectations" is completely lost on Stuart Thomson, who is a fixed-income strategist at Charles Stanley Sutherlands in Scotland. Since we are dealing with a Scotchman, or Scotchperson, or whatever in the hell they call themselves these days, I was slugging single-malt Scotch and trying to peek up his kilt to see if he had underwear on, and thus finally put that mystery ("What does a Scot wear under his kilt?") to rest, when suddenly he said something that answered that timeless riddle; his underwear was obviously too tight . What he said was that he thinks that T-bonds are a good deal because Treasury 10-year yields ended last week at the highest yield since the Federal Reserve started raising interest rates in June 2004, and that this means that, for bonds, "it's a good buying opportunity. The market has been seduced by the Fed's aggressive commentary.'' Hahaha! As the market-commentator Half-Monty explains, "What are rising interest rates, after all, but a measure of money leaving the bond market?"
Apparently Mr. Thomson doesn't agree with me, Half-Monty or the Economist magazine, either, which, in the November 5 issue, said that the "price of ten-year American Treasury bonds fell," and that "Bonds elsewhere are also losing their appeal."
To see why, all one has to do, since we are already looking at the Economist magazine, is take a look at the money supply figures, and one is stunned to see that money is being created at double-digit rates all over the place. This monetary inflation means that future price inflation is already written in stone. Bonds always react negatively to rising price inflation (although they seem oblivious to monetary inflation. Weird!) . And a negative reaction to rising inflation is always bad news for the prices of bonds. Unless your underwear is too tight, it seems.
Someone in the front row raises his hand and asks "So how much more money is being created around the world?" Good question! As I dutifully start adding it up on my fingers and taking off my shoes to continue this exercise in addition, Richard Russell, of the Dow Theory Letters, either gets tired of waiting, or is aghast at the thought of me taking off my stinking shoes and exposing my stinking feet to his sensitive nose, and hurries to supply the answer: Australia 9.8%, Britain 11.2%, Canada 9.8%, Denmark 16.3%, Sweden 5.6%, Switzerland 6.3%., United States 6.6%, and the Euro area 8.5%!
And all of this money is owed to the banks, as only banks can create money out of thin air. So you may be asking yourself "Well, if the banks are owed all of this money, and people cannot pay their debts, what does this mean for the shares of banks and money centers?" I was ready to give you some vague, noncommittal answer to conceal the fact that I have no idea, when up comes Jim Willie CB, he of the Hat Trick Letter, who saves my bacon and says that the "battle of the titans is shaping up. The BKX bank index is in the process of breaking down. It represents some of the largest and most powerful money center banks in the United States. Just two weeks ago, a warning was given that the BKX was in danger of breaking below critical support at 95. That level was broken last week."
Well, I can see that he is stealing the show, but before I could get a word in, here comes Robert Prechter, of Elliott Wave fame, who says "Banks are leveraged so greatly that the slightest retrenchment in property prices will precipitate an unprecedented downward spiral of evictions and property sales, and then will come the bank failures."
But property prices are dependent on interest rates. So, can the Fed stop hiking rates? Hmmm! Another good question! If inflation is starting to surge everywhere, and now other countries are already raising their interest rates in response, then NOT simultaneously raising American interest rates would make the dollar tend to fall, would it not? And doesn't money tend to exit a country where the value of the currency is falling? If so, then Greenspan must raise rates, too! Right?
And here comes Martin Weiss again, whose sneer insinuates that I am a big stupid idiot, because OF COURSE interest rates are going to rise! But instead of yelling at me and calling me ugly names for belaboring the obvious ("It's the Mogambo Way!" I retort), instead he merely says, "We have a bulging budget deficit, a sinking trade balance, and wild, debt-driven speculation among banks, consumers, and even governments. We have some of the biggest bull markets of all time in commodities such as oil, gas, copper and many more. And, as you just saw this week, we also have the biggest monthly jump in prices in a quarter-century! All of these forces are pressuring interest rates higher. And all are coming together at the same time. But right now, interest rates are still not far from their 45-year lows!"
And these rising rates are starting to affect the housing bubble, and in that regard Steve Sjuggerud reports that "Bill Gross is confident that a major change in the U.S. economy is just around the corner." And he uses the words "almost inevitable." What's "almost inevitable?" According to Bill Gross, it's 1) a housing bust followed by 2) a weakening U.S. economy. I knew you were not going to believe me, so I am going to actually quote Mr. Gross directly when he says "Let me state categorically that [this] sequence is barely questionable, almost inevitable, 99% unavoidable, and in modern parlance - a 'slam-dunk.' "
Why is it a "slam-dunk"? Well, Mr. Gross writes that "The Fed found that housing booms peak, on average, four-to- six quarters after that country's Federal Reserve first starts to raise interest rates. Subsequently [after the peak], real house prices fall for about five years, on average, and their previous run-up is largely reversed." And how much did the house prices fall? About 15% over the five years after the peak. And that was BEFORE we had the enormous run-up in housing prices! So look for a much bigger fall than some piddly 15%!
- From Reuters we read that "U.S. consumer credit unexpectedly dipped by $59.4 million in September in its first monthly decline since November 2004." The guys who estimate these kinds of things expected a rise of $6 billion. What makes this so remarkable is that "September's decline is only the fourth monthly decline since September 1998, according to Fed records." Whether or not this has anything to do with the new bankruptcy laws is anybody's guess, and it is academic anyway, as the fact that less money was spent speaks for itself.
One reason for this may be explained by Stephanie Pomboy, at MacroMavens, who says ''Food and energy outlays have accounted for 42% of growth in spending over the past year," and that "90% of the growth in consumer spending over the last quarter has come from food and energy. So it would seem that we should be fretting the fact that food and energy are now crowding out discretionary spending to a degree that has always been associated with recession.''
Or perhaps this slowdown in the rise of consumer debt can be explained by Peter Schiff of Euro Pacific Capital, who explains one of the fundamentals of debt: "Current consumption financed by debt, ultimately leads to far less future consumption. Ironically, it is savings, the deliberate act of under-consumption, that maximize lifetime consumption, as savers, rather than struggling to repay debts, enjoy the extra consumption financed by compound interest." So if you borrow more, you consume less, but if you lend more, you consume more! So, since this is obviously true, maybe we are in the future, and now we have, as he explained, "far less future consumption" because we are, as we just found out, in the future! Weird, huh?
- The famous Dr. Kurt Richebächer says that he has discovered that "For many years, we have waited for Mr. Greenspan to ever mention the word 'credit' in his speeches and congressional testimonies. Though hard to believe, in all his 18 years at the helm of the Federal Reserve, this word has never come over his lips."
For the record, the name Mogambo did not come over Greenspan's lips, either, although you can bet your sweet butt that the name Alan Greenspan came over MY lips a lot, mostly with some rude adjectives attached, e.g. mutant moron jackass from Hell that is killing our money and killing our country by creating so much damned money and credit all the freaking time, and that is why I am so scared that I am holed up here under the couch cradling an AK-47 in my arms and sobbing gently. Okay, so I got a little carried away, and I'm sorry.
But you will soon know why I am acting that way, and if you want to know what happens when so much money and credit have been created and that leads to inflation, then take a look at the riots in France, where things cost so much compared to what the poor and unemployed get in state assistance that it keeps 40% of that sub-population below the poverty line! Exacerbated by a 20% unemployment rate among that population, of course. But it all comes down to, as it always does, the buying power of money, and how the lack of it causes hardship
And pay attention, too, because these kinds of rioting things are just getting started all over the place, and they will be here in America before you know it. And why do I say something so dramatic? As a kind of multi-sensory lesson, I hit the "Play" button on the video machine, and instantly the screen is filled with Dr. Richebächer saying "During the second quarter of 2005, after 11 rate hikes, total credit in the United States has surged by $2,937.8 billion at annual rate. This compares with a simultaneous annualized increase in nominal GDP by $716.8 billion as the broadest proxy for spending growth. According to these two figures, debt grew four times as fast as GDP. For perspective: During the three postwar decades until the early 1980s, this debt-to-GDP ratio was 1.4:1."
Debt has been growing at four times the growth in GDP? Which means that the Federal Reserve has created huge amounts of money, gigantic amounts of money, obscenely overwhelming amounts of money, four times as much money as the entire growth in entire country's GDP? Wow! See? See why am I running to the Mogambo Bunker in fear and panic? I slam the door in your face before I could explain further, but Dr. Richebächer fills in the gaps; "Credit expansion in the United States has grossly run out of reasonable proportions to economic activity. Putting it bluntly: It is completely out of control."
And when that happens, pretty soon the people get out of control, too!
- Alert reader Robert A. M. writes "One item of interest is that real estate prices have been falling here in Lima." So you say to yourself, "Lima, Ohio? Who the hell cares about real estate in Lima, Ohio, unless you own property in Lima, or were planning to move there for reasons that normal people cannot even fathom, except maybe to escape the cops, or your hateful little family who thinks that some stupid judge can make me give money to them every freaking month like I am made out of money or something?" Well, I have no idea what it is like to be normal, either in OR out of Lima, Ohio, but it turns out he was talking about Lima, Peru.
So he was querying some of the locals, and "I asked my sis-in-law about whether you could buy gold freely here. She told me 'How the hell do I know? Nobody here has money to buy gold!' So, even though things are very different here (worse, mainly), nobody here thinks about gold. I guess people think about survival first, then investments." Maybe that's why stock markets don't perform well in depressions!
So why in the hell is he in Peru in the first place? "Like I told my smarty-pants Wall Street type brother-in-law in Baltimore, I am so paranoid that I look for eggs in not only different baskets, but different countries, investments, and even different dimensions if possible." This may be the best unsolicited advice you ever got.
- To prove that not all central Bank governors are complete morons, Alan Bollard of the New Zealand central bank recently "took the extraordinary step of calling an urgent briefing on Friday to warn new home owners to start saving now and beware of huge mortgages."
Mr. Bollard said that in New Zealand, unlike America, they obey the laws of physics and economics, and that the economy can't handle the continuing rise in house prices. Furthermore, he warned the government that a spending spree will just make things worse! Well said, dude!
Which brings up something my buddy Phil S. sent me, who is in the habit of periodically sending me things that he thinks will interest me or help me, mostly in the work-ethic vein (e.g. "Sober up, you stupid little bastard!") or the personal habits vein ("Take a bath, you stupid little bastard!") But he sent me one here recently that shows why we are screwed. The quote is from Milton Friedman, who opines that "The government solution to a problem is usually as bad as the problem." In fact, he was being nice. A government solution is almost ALWAYS as bad as the problem, something that is known, as we now know, as far away as New Zealand!
- To those who keep calling me up on the phone and either wanting me to pay back the money I owe (no), or explaining to me that if I would just stop being such a jerk that I would recognize that inflation cannot exist unless wages rise, I now respond in typical Mogambo fashion (TMF); "Screw you."
But I have to admit that it makes sense that if things cost more, but you don't make more, then sales will slump, and producers will cut prices, and thus price inflation will not be sustained. Well, to these people I suggest that they put Martin Weiss, of the Money Report, on speed-dial, as he reports that "U.S. hourly wages have just registered their biggest year-over-year surge since July of 2003, and their biggest month-to-month surge since February of 2003! In other words, the cost of labor in America - the last missing ingredient to fuel a classic inflationary spiral - is now beginning to jump."
Talking about rising wages prompts Hans H. Kahn and Daniel Tessler, of the Au Capital Letter, to chime in with "The most significant fact in the economic world today,' they said, "is that countless millions of workers have entered the cash economies of their developing countries in the past twenty years or so and now compete in world markets for the first time. Behind them are hundreds of millions more. They are competent, motivated, and increasingly well-trained, well-managed, and well-equipped. Their threat is that their rising incomes will come to represent virtually all the growth in world demand and that they likely will be able to meet virtually all of their own demand internally." So to those nay-sayers, including that arch-bonehead Wayne Angell, who is actually a former Fed big shot of some type, who say that inflation is not happening and cannot happen unless American wages are increasing, I now say, in TMF, "Screw you, boneheads! Wages ARE increasing like gangbusters all over the damn place, you stupid little twerps! And even if American wages fall, the wages of those foreign devils will keep rising in relation to a dollar that keeps falling in value! So if you think that inflation will not rise unless American wages rise, then step over here a little close to me so that I can slap your stupid faces for you until you smarten up! Morons!"
Messrs Kahn and Tessler are horrified at my outburst, which I have edited extensively to remove the obscenities and vague death threats, which always causes the FBI and the CIA and the Homeland Security people to heighten their surveillance of the Mogambo Fortress Of Impregnable Solitude (MFOIS). But I know that Kahn and Tessler will always have a warm spot in my mighty Mogambo heart (WSIMMMH) because they said "Alan Greenspan will be seen eventually to have been our most profligate and intellectually corrupt central banker ever."
Richard Russell says that he also has opinion of Alan Greenspan. "It makes me angry when I see supposedly intelligent analysts and economists stating that the Greenspan Fed has done 'a great job' in containing inflation. What in God's name are they talking about? In the 18 years that Greenspan has reigned on the Fed, the purchasing power of the dollar has been cut in half. That's right -- in half."
- Ambrose Evans-Pritchard on the Telegraph.co.uk site wrote an interesting essay entitled "Soaring Price of Gold Predicts Bout of Carnage in Bond Markets" in which he reports that "A new study by H.C. Wainwright & Co looked at gold as a predictor of inflation. After reviewing data back to 1951, it found that gold is an uncannily accurate predictor of inflation one year ahead -- and a crystal ball for future interest rates and bond prices. If so, there may be carnage in the bond markets in 2006, since gold is now screaming inflation."
The study, released by the World Gold Council, found that gold is a much better forecaster of inflation than oil, which indicates what will happen to prices next month, but not next year. But they say "gold provides a much earlier warning. The optimal correlation (0.73) between changes in the price of gold and changes in 10-year T-bond yields is about 12 months." Using that interesting fact to advantage, you can, theoretically, time the bond market, as "gold is a powerful predictor of nominal interest rates, both long and short. It is free from many of the errors of measurement that bedevil the official indices of inflation."
This years-long telltale rise in gold is being desperately offset by central bank sales, and this same H. C. Wainwright & Co. reports that "Three European central banks may have played a role in the latest dip, selling 398m ounces in the last week of October, according to the ECB in Frankfurt." They are getting desperate, folk!
- I see by the clock on the wall that it is time for me to pound the table for silver, because it is the most under-priced asset on the freaking planet. And beyond that, the startling fundamentals are screaming "Buy silver! Buy silver!" And we also have Ron Rosen, of the Ron Rosen Precious Metals Timing Letter, figuring that "silver bottomed on January 26, 1976." Why is this significant? They explain: "The 30-year cycle in silver is repeating." So silver is at the bottom, and will rise for the next 15 years! Whee! See what I mean? What an investment!
- Since I am always talking about inflation or thinking about inflation or screaming about inflation or predicting the End Of The World As We Know It because of inflation, things will get worse, as we realize when George Ure of UrbanSurvival.com reports a "19 - 30% increase in farm inputs (seed, fertilizer, soil prep, sprays, front end labor)." This is a shocking number. A reader of his, a farmer, wrote to say "What we are getting for wheat presently (less than $3 a bushel) is the same price or a little lower than what we received back in 1975. Expenses have gone up 50% or more just in 2005."
- If you have celebrated the recent fall in gasoline prices, then I suggest that you take off that stupid-looking party hat, sober up, walk over to the telephone and buy oil and oil stocks, because James Howard Kunstler, in his Commentary on the Flux of Events, writes, "Since the hurricanes shredded our Gulf of Mexico oil and gas capacity, Europe has been sending us 2 million barrels of crude oil and 'refined product' a day from its collective strategic petroleum reserve. Now, the important part of all this is that last week the International Energy Agency (IEA), Europe's energy security watchdog, declared that it would now end the 2 million barrel a day shipments to the US."
He doesn't even mention the part about how our government opened the taps of the Strategic Petroleum Reserve to flood the market with oil, or the fact that the government is going to have to, soon, buy more oil to replace what was released from the SPR.
And speaking of the IEA, they also calculate that global oil demand will increase by 1.75 million barrels per day in 2006, mostly due to increased demand from China and India. This is an increase in demand of approximately 2%, while supply is expected to increase by a smaller amount than that. It doesn't take a PhD in economics to realize that demand rising faster than supply means higher prices. In fact, it takes no education at all, as all you have to do is stand within earshot of me, and you can hear me yelling "Buy oil and oil stocks!" And if you stand not only within earshot, but also downwind of me, you can smell me, too, but that doesn't say anything about oil, but only why I am so lonely. And blue. Lonely and blue. And angry. Very, very angry all the freaking time, because our money and our economy are being destroyed all the freaking time.
In short, says Mr. Kunstler, "We can look forward to watching the price of gasoline, heating oil, diesel and aviation fuel kick back up through Thanksgiving and on into the heart of the Christmas shopping season. At the same time, homeowners will be getting their first substantial heating bills of the season."
***Mogambo sez: If I was ever bullish on gold and silver and oil, then those are the "good old days" when I was not hyperactive, because I am now so addled with anger that I am leaning out of the windows, throwing rocks at people to get their damned attention and yelling that everyone should be buying some of all of them, but they are ignoring me, and that makes me even MORE bullish, because I know that the longer they wait to get their nasty little butts in gear, the bigger will be the rush when they wake up out of whatever catatonic stupor they are in, and try to get in on the gold rush, and the silver rush, and the oil rush after the trains have left the station. Idiots!
Nov 8, 2005