 No... no,
no, no, no and no
Richard Daughty
The Daily
Reckoning
...the angriest guy in economics
The Mogambo
Guru
Archives
November 25, 2004
- Total Fed Credit, which is the fount from whence springs
all that magical, out-of-thin-air, fairy-dust money that is the
hallmark of the Greenspan Fed, was up another $3.8 billion in
the last week. The Treasury issued another $3 billion in actual
paper-and-ink cash, which is NOT money made of fairy dust, but
is, instead, money that is made from actual paper and ink, but
which is just as phony-baloney. All of which is why the G-20
are all gathering in emergency session to try and figure out
a way to manage this dollar crisis thing without any of THEIR
citizens taking a whack to the head, and of course we are going
to insist that no AMERICANS will take a whack to the head, either,
meaning that they have to figure out a way of this mess where
nobody has to take a whack to the head.
But this is why they pay themselves the Big Money: They sit around
all day, drinking coffee, popping tranquilizers, and pondering
the impossible. How taxing it must be on their tiny little
brains! But this only shows how incredibly stupid all twenty
of these nations are, because the lessons of history are clearly
outlined in the course syllabus that you were given on the first
day of class, and if you have lost your copy of the syllabus,
then you have learned another Valuable Mogambo Lesson (VML) that
you can take from my class and gainfully use the rest of your
life because it will serve you very well, which is, namely, that
you should pay attention and shouldn't lose your stuff.
If you care to read your course syllabus, you will note that
the Section Titles clearly indicate that there is no freaking
way that the G-20 , or the G-100, or a G-5,000 or a G-zillion
can EVER come up with a way to turn bankruptcy and ruination
into a gain for all parties concerned. Life doesn't work that
way. And while we are talking about Valuable Mogambo Lessons,
here is another one that you can tell to the members of the G-20;
when you abuse not only the American monetary system, but also
the world's monetary system in collusion, then everybody is going
to take a whack to the head! And their inescapable conclusion
will be that it is Alan Greenspan, an American, who is to blame,
and thus it is Americans who are going to pay the price for hiring
him and for hewing to such monumental monetary stupidity that
is the hallmark of the Federal Reserve System in general and
the Alan Greenspan Years in Especial Particular.
But foreign central banks, desperate to try and keep the dollar
from sinking any lower because they have foolishly tied their
entire economies to a single buyer, the United States, bought
up a staggering $7.8 billion in US debt, and stored it at the
Fed, bringing their total holdings to $1.3 trillion dollars.
To do this, they had to create money and credit of their own
currency, which means that they are committing monetary inflation
and guaranteeing price inflation for their own stupid citizens!
Morons! They felt they "had" to do this because their
citizens are drowning in a deluge of receiving more than $600
billion a year, in dollars, which equals the current account
deficit of the United States. But their citizens don't want to
keep dollars! No! They want their own stupid little currencies!
They want their own currency because they buy things in the local
stores in their own currency, their creditors send them bills
denominated in their local currency, and bill collectors are
calling on the phone day and night and sending me these letters
that have this vicious overtones of latent hostility about some
debt or another and they are always talking in terms of local
currency and in terms of broken local kneecaps, and when their
wives go out shopping they don't say, "I am going shopping
now, jerk-face. I will need all of your dollars. So fork them
over, bozo!" No, their wives say pleasant things like "I
am going shopping now, my wonderful darling, and will need local
currency, my precious little sweetie snookums!"
And the husband says "What a dilemma! I am pleased that
I am up to my ankles in American dollars, thus waxing exceedingly
wealthy, and thus can easily afford my beautiful wife's shopping
trip. And yet, I am troubled because I need local currency to
give to my darling wife, who never hits me over the head with
various blunt instruments, unlike the Mogambo, but then, he deserves
it, the nasty, horrid little man, so to hell with him!"
Which shows why I don't trust ANY of those foreign bastards,
but that is another story.
So the foreign exporters jump into their little foreign car and
tootle on down to the their quaint local banks, avoiding the
cows and chickens and peasants that crowd the roadways because
everybody knows that all foreigners are stupid peasants who spend
a lot of their free time walking down dirt roads for some reason,
probably to catch the cows and pigs and chickens that are also
walking all over the roads when they aren't out in the fields
posing picturesquely. And then when they get to the bank,s they
exchange the dollars into the local currencies, and then they
jump back into their cars and tootle on home, and give it to
their wives, and she says, "Oooh! So much money! Where did
you get so much money?" and he says "The Americans!
They will buy anything! Hahahaha!" and they are both very
happy, and they all lived happily ever after, and they laughed
at us when they thought we were not listening.
Of course, the guy is happy because he is making all this money
selling stuff to Americans, and his wife is happy, but the central
banks are not. The reason is that those damn exporters are all
hanging around the lobby, wanting to exchange suitcases full
of dollars into local currency, like it grows on trees or something,
and their wives are all outside in their cars, honking the horns.
But if the central banks simply allowed exporters to dump those
dollars on the market, the dollar would sink like a stone! And
since they are up to their freaking foreign ears in American
debt and equities already, all those retirement accounts and
investment accounts of all those foreign people in all those
foreign countries would immediately suffer a capital loss! Oops!
They get the loss because the dollar suddenly doesn't fetch as
many local currency units anymore, and so that big fat account
stuffed with American stocks and bonds, and real estate, and
things denominated in dollars, would immediately be worth less
local currency! And it is local currency that I am supposed to
take home to the wife! "Oh woe is me!" says our foreign
friend.
And here is where we learn that, as far as monetary policy is
concerned, the foreign central banks are just as preposterously
stupid as our own ridiculous Federal Reserve, and that their
central banks just create more local money and credit, and then
they buy up the dollars! Presto! More money and credit (monetary
inflation)! And it is this increase in money and credit, especially
when performed over a long period of time, that is guaranteed
to lead to, with that coveted Mogambo Guarantee Of Freshness
(MGOF), price inflation. And a corollary to the MGOF is that
People Will Not Like Inflation (PWNLI). Only governments that
are highly indebted like inflation. Remember that salient fact.
It is important.
Thus, the central banks are creating more money and credit, just
like us, to get the local currency to buy the dollars, thus expanding
the money supply, thus giving the citizens insurance that inflation
is on its way. And when the inflation finally arrives, more and
more, every day a little bit more and more, these foreign dorks
will all run around whining and wringing their hands in bitter,
bitter consternation, and crying like the childish morons that
they are, "Oh, dear! Oh woe! The people are mad because
inflation is chewing the legs off their buying power, and the
elections are coming up and they are threatening to throw me
and my stupid butt out of office, and since I am obviously incompetent
as hell, where am I going to get another job as good as this
one? Who would hire a guaranteed loser like me? Oh, woe! Quick!
Call a G-20 meeting!"
The Daily Reckoning people are as good at this economics thing
as anybody, and better than most, and they write, "The U.S.
Fed has not merely brought about an explosion in the number of
dollars around the world; it has also lit the fuse of other currencies
all over the world. The United States sells dollar debt. Foreign
central banks buy it by issuing currency of their own. The result?
A world flooded not only with dollars, but also with yen, kroner,
euros, and pounds. The broad money supply in Australia is rising
at a 9.7% annual rate. In Britain, the pounds pile up at a 9.3%
rate. Canada multiplies its loonies at 9.1% per year. The Danes
are expanding their money supply at a breathtaking 10.7%. Euros
are increasing 6% annually. And the dollar - the U.S. broad money
supply is only increasing at a fairly modest rate of 4.8%, a
rate that is still far above the increase in GDP."
And yet, here the Congress is, authorizing another $800 billion
in debt for their spending needs for the next eleven months,
which will mean an additional increase in hundreds of billions
of dollar's worth of foreign currencies, too, on and on, round
and round.
These central bank guys, in toto, have proven themselves to be
grossly incompetent boobs, year after year. And yet, nobody seemingly
cares! I mean, if they were NOT incompetent boobs using a flawed
and ridiculous economic theory that rests on absurd propositions,
then why are we here now? Just look around you! Does THIS look
like a bunch of economies that are healthy and the people are
enjoying rising standards of living? The answer is no! Not only
no, but also no, no, no, no, and no, which is a particularly
childish and ridiculous way of commanding your attention, but
that is part of the Recent Way Of The Mogambo (RWOTM). What we
are looking at, and you might want to jot this down in your notes,
is the OPPOSITE of successful economies! All thanks to the central
banks in general, and Alan Greenspan in particular, whose monetary
expansions have induced the same defensive crap around the whole
freaking globe, and now there is so damn much debt, so impossibly
much debt, that all economies before this that have gotten this
indebted have imploded in flames by this point. So the central
banks have proved what has always been known; it is entirely
possible to delay the inevitable destruction of the economy when
such monetary policies were pursued. The bummer is that it has
never before been possible to permanently prevent the inevitable
bust.
- You can learn a lot about what is going on by listening to
the sound track. For instance, when I was a teenager taking a
girl to the movies, I spent most of the time trying to get a
kiss or touch her breasts or something obnoxious and teenager-like,
and I would rely on the soundtrack of the movie to tell me when
something exciting was going to happen. That way, I wouldn't
have to watch the rest of the crappy movie, which was always
people yammering at each other about something, or watching some
guy on screen getting all the loving he can handle, which doesn't
do ME any good, and, in fact, even monsters from beyond outer
space were getting more loving attention than me, sitting in
the dark with old what's-her-name here.
Now, for instance, if you listen very closely, you will hear
the sound of a distant gong, echoing eerily, seemingly tolling
some lonesome dirge for the dead, or nearly dead, or soon to
be dead. Spooky! Your finger involuntarily tightens on the trigger.
Bang! A shot rings out! People are screaming and sirens are blaring
and everybody is dialing 911 and shouting that The Mogambo has
lost it again! Blam! Blam! Blam! More shots ring out, as I shoot
off a few rounds as my clever non-verbal way to tell them to
calm down! Now, with your heart pounding in your chest, you are
in the mood to appreciate that the Leading Economic Indicator,
which is a crude measure of future profits, was down for the
fifth month in a row. Let me rephrase that sentence into Mogambo-ese
to read, "Now you are in the mood to be blasted out of your
freaking mind in terror, because the dangity-blang Leading Indicator
was down, falling, falling down and down, for the fifth, repeat
fifth, freaking month in a freaking row! And if you are NOT spending
all your time hiding in the back bedroom, loading fresh ammo
into assault rifle magazines and muttering to yourself about
how the world is coming to an end, then there is something very,
very wrong with you."
Blam! Blam! Blam! Next, we have the Coincident Economic Indicator,
which is a sort of rough indicator of current conditions, was
actually up a little bit, which corresponds pretty well with
anecdotal evidence that things are poking along and government
economists are bullish and confident. But it was the (Blam! Blam!
Blam!) Lagging Economic Indicator when the soundtrack exploded
in a cacophony of kettledrums, and blaring brass, and people
screaming, and the voice of The Mogambo screeching hysterically
in a voice so high that he sounds like some whiny little kid,
"We're all going to die horrible deaths! We're all going
to die!" This Lagging Indicator is an indicator of costs
and inflation. And it was up! Now you see why the soundtrack
thing! Future profits are down, but inflation is up! Look at
me when I am talking to you! Watch my lips! Future profits are
dooooooonwwwwnnnnn, and future inflation is uuuuuuuuuupppppppppp!
Both of which are Bad Economic News (BEN).
This is not some hypothetical crap like you get from government
economists and their toady little playmates in the universities.
If you are looking to add to your invaluable Mogambo Encyclopedia
Of Investment Stuff (MEOIS), these obviously-trending indicators
indicate, which is why they call them "indicators",
that you want to sell (or be short) bonds, because inflation
is going up, and that means that interest rates will eventually
go up, which means that bonds prices will go down. And they also
indicate that you should sell (or go short) equities, too, since
future profits are going to be down, and there are very few people
who will bid stock prices up when the company is having lower
and lower profits, especially when those selfsame stock prices
are historically grossly overpriced like they are right now.
On the other hand, the money supply as measured by unadjusted
M2 and M3 continue to expand, meaning that somebody is borrowing
those big bucks for something, and I am pretty sure that it is
Friends Of The Government (FOTG) going into the stock market
and the bond market, keeping them up, so they and other Friends
of the Government can sell out and, hopefully, make a nice chunk
of change. And I am betting that some of these Other Friends
Of The Governments (OFOTG) are those foreign devils who are sitting
on all those American stocks and bonds and dollars, and who don't
like the prospect of losing so much money.
And let's not forget that the end of the calendar year is not
far off, and income taxes and capital gains are calculated from
the prices on December 31, and so the government has a very keen
interest in making sure that nothing bad happens between now
and December 31!
- Mark Rostenko asks, "If you hear a nasty rattling under
your hood but your car makes it home alright today, tomorrow
and two days from now, does that mean the car's running fine
and will continue to do indefinitely? Probably not. Our economic
engine continues to rattle under the hood, but with every passing
quarter that nothing especially dreadful occurs, we grow immune
to the rattling."
This is where Mr. Rostenko shows that he is old-fashioned, and
is making his Big Mistake. According to the new economic theories
of the Federal Reserve, and championed by the acadademic nitwits
who infest the economics departments of most of the nation's
universities, the fact that the engine did not quit is proof
that it WILL go on indefinitely! And there is no proof to the
contrary! That is the proof! It rattles, and yet it runs! It
sputters, yet it runs! Ergo, it has always run, and so it is
thus proved that the car will always run!
The etymology of this fabulous philosophy is that it originally
comes from a group of mental defectives who lived in a lunatic
asylum in ancient Mesopotamia. These ancient whack-jobs sat around
picking invisible bugs off of themselves and scratching their
bizarre economic theories into the floor stones of their cells,
where they lay dormant for the next 5,000 years, until some bonehead
at the Federal Reserve won a free vacation to look at some condominiums
time-share deal, and while they were as lost in the desert as
they are lost in modern economics, they tripped over the floor
stones in the sand, and when they had it translated, said to
themselves "Hey, guys! Listen to this! This sounds really
neat!" The basis of the whole philosophy can be handily
summarized as "More of what is killing you will cure you,
if the dose is large enough."
This is the foundation of economics as practiced by the Federal
Reserve and most of the idiot banks around the world.
- Stephen Roach of Morgan Stanley has taken a look out the window,
and at the statistics, and at the horrified look on the face
of the Mogambo, and figures that the odds for a recession in
2005 is about 40%. Somebody, I accidentally deleted who, said,
"Recessions, on average, bring about stock declines on the
order of 43%."
- Rob Peebles, writing an essay entitled "Eastward ho!"
on Prudent Bear, reports that Californians are streaming into
Texas after being priced out of the entire California real estate
market, and these ex-Californians are driving up housing prices
in Texas. This is, of course, complete news to Alan Greenspan,
who has already told us jerkwater peasants out here that there
is no such thing as inflation in houses.
More worryingly, however, is when he reports that, "Subprime
mortgage originations have grown from something less that $150
billion in 2000 to more than $250 billion last year. This year,
subprime lenders forked over $157 billion in the second quarter
alone. That's double last year's amount according to the National
Mortgage News. And get this -- in the first half of 2004, subprime
accounted for 19% (as in ONE - NINE with a percent sign) of mortgage
loans, up from last year's 9.9% tally."
And if you look up the word "subprime" in your
Mogambo Dictionary, it is defined as "People that nobody
in their right mind would loan money to, especially big amounts
of money, because they are almost certainly not going to pay
you back." Fortunately, Fannie Mae can act as stupid as
it wants, because it is a Government Sponsored Enterprise, (GSE)
and they can act as stupid as the government, which is, if you
have been watching, really, really, really stupid.
- I really like this guy Lance J. Lewis, because he has a way
of so pithily explaining the proof of why Modern Structured Finance,
or the New Economics, or Keynesian Enabler, or whatever they
are calling the current bastardized economic theory that we are
using, must fail in the end. He writes "If printing money
were the way to prevent recessions, the world would have had
uninterrupted growth since the beginning of time, during which
all governments throughout history have eventually inflated away
their currencies into confetti."
But it is what happens to the people and the economy and the
whole country and the whole world when a currency is turned into
confetti that is the crux of the whole thing! There are movies
on TV right now, violent movies with adult themes and adult situations,
although very little profanity for some reason, and very little
nudity for no damn good reason that I can think of, with plots
about what happens to people as their buying power goes down
and down, month after month, year after year, as the Miracle
of Compounding, (which is what Isaac Newton called it, which
shows you that four hundred years ago they knew this stuff, too),
now works in reverse. And if compounding working IN your favor
is called a "miracle", then what do you call its exact
opposite? And is that opposite called an antonym? I think it
is, and for all of you who ever said, "Why do I have to
learn the word 'antonym'? I'll never use it again as long as
I live" believe me, I said this same thing when I was young,
and sure enough, I never did, until right now! And now it has
finally paid off! Education will pay off in the end! Wow! Who
knew?
Sort of like holding gold, which will pay off in the end, too.
For a long time you never had a use for the word antonym, and
no beautiful woman ever came up to you in a smoky bar and looking
longingly into your eyes, and in an exotic, breathy way said
"I'm on the prowl for a man with a big antonym!" But
gold is sort of just that way, too, and although you will never
in your life have gold hit on you in a smoky bar, it will come
in real handy one day. Trust me on this one, because gold has
ALWAYS come in real handy one day. And the way things are going,
that day will be very soon.
Similarly, John Myers of Outstanding Investments, writes that
he is hip to what is going on, too, and can just as easily get
up and go over to the window in his spacious office and look
around and see just as clearly as The Mogambo, who is holed up
in that stupid lead-lined bunker of his and peering in terror
at the world through a periscope, and he says, "This is
the exact type of environment that the nation went through nearly
three decades ago. As we go through it again, the consequences
will be the same."
Now, in
case you, like me, can't quite remember how it was back then,
he tells us "Namely, there will be a stagnant market in
blue chip stocks, a miserable bear market in bonds and a raging
bull market in commodities, especially the Big Three - gold,
silver and oil."
And for those of you writing to The Mogambo and wanting me to
give you advice that will guarantee that you will make big, big
profits, here is a smattering of advice for you. Gold is guaranteed
to go up in price, unless the governments of the world conspire
against it, and even then, it will only be temporary. The run-up
in gold will, theoretically, coincide with a bear market in bonds.
Then, one day in the future, when bonds are paying 15%, or 20%
or 25% or some unimaginable number and gold is selling at some
preposterously-high price, that is the time to sell the gold
and buy the bonds.
Then, later, as interest rates eventually revert back to the
norm (fall), the price of the bonds will go up, and you will
make even MORE money. Then, it will be time to retire in some
wonderful place and live like kings and queens. This is the essence
of The Mogambo Financial Plan (TMFP), and if it is good enough
for The Mogambo, then it is good enough for you, as I am impossible
to please, and I never have enough money, no matter how much
I have, and sometimes I have as much as twenty whole dollars
in my wallet! Twenty bucks! And yet I am not happy even then!
- Matthew Lynn at Bloomberg, who wrote the article "France's
Sarkozy Should Let Economy Fix Itself" has a good idea how
economics really works, when he writes, "In truth, what
France needs isn't a finance minister who aims to fix all the
country's woes single-handedly. It needs one with the courage
to shut his office door, shrug his shoulders, and tell business
it needs to start fixing itself." This is how Smith's "Invisible
Hand" keeps things going in a healthy, maximizing way.
As an example of French economic stupidity, he reports that this
French finance minister, Sarkozy, which probably means "economic
nitwit" if you looked it up in one of those unabridged French
dictionaries, decided to meddle in the economy, and "In
September, he prodded retailers into cutting prices by an average
of 2 percent as part of an effort to boost demand." Well,
let me say right here that the increased demand created by a
2% discount is equally offset by a decreased demand from the
guys SELLING the merchandise at 2% less profit! Net net, there
is no gain! In fact, there is only a loss, in that the economy
is just that little bit more distorted! What a loser!
Furthermore, Mr. Lynn goes on to say that "In the energy
industry, he limited price increases by Gaz de France, the country's
state-owned gas utility, to 4 percent, instead of the planned
8.2 percent, in a bid to boost consumer confidence." Confidence?
Confidence in what? That their finance minister is a meddling
old fool?
As a result, "The Bank of France has just cut its economic
growth forecast for this year from 2.5 percent to 2 percent.
Gross domestic product grew 0.1 percent in the third quarter,
and isn't expected to grow more than 0.6 percent in the fourth
quarter."
This is in addition, I might add, to unemployment that is higher
than 10% and inflation of at least 2.3%. Nice going, Sarkozy!
Nice going, French buttheads!
- Captain Hook, which you gotta admit is a great name, has a
new essay entitled "Commercial Short Squeeze Underway"
He writes that "At the moment, we are working on a macro-oriented
study that will blow people's socks off when they realize the
future implications." And I jump up to my feet and say "Socks,
schmocks! My Mogambo Macro-Oriented Study (MM-OS) will blow your
whole freaking head off like you got hit with a grenade launcher!
I snort contemptuously at your puny socks!" He ignores me,
and like I wasn't even there goes on to write "Here is a
glimpse into the future for you now, where factors such as price
inflation in foodstuffs has been relatively subdued literally
since the birth of modern US modeled finance, but where it appears
technological gains in production are finally to be overrun by
global demand side constraints, with the net effect being a potentially
large catch-up move in prices commensurate to the monetary inflation
that has occurred over the past 80 years."
The good Captain then proceeded to show a graph of inflation-adjusted
corn prices, and man, oh man, it looks scary, which probably
is what prompted him to include the phrases "coiled spring"
and "there's no free lunch."
"Corn, along with the rest of the grains complex, is very
cheap at present from a historical perspective, especially considering
nominal prices are trading at levels seen in peak instances back
in the 20's."
Not only did he give us a nice tip to start amassing some corn
and grain futures, but he has also included, at no extra cost,
a nice little Technical Tidbit, and reveals that "gold has
a non-lagged relationship to the PPI." Which means that
as commodity prices go up, gold will march along with them in
lockstep. Nice to know!
- Chuck Butler, the currency wizard who writes the Daily Pfennig
at DailyReckoning.com, says "John Snow has signaled to the
markets that there is no floor on the dollar," which shows
that John Snow is not as stupid as he sounds. In fact, Mr. Snow
sounds downright educated when he says, "The history of
efforts to impose non- market valuations on currencies is at
best unrewarding and checkered.''
- If you are cruising around the Kitco site, and take a look
at the gold lease rate. The various durations of the leases were
kind of tending down, until November 15, when the year-rate went
bananas.
- Addison Wiggin, who is also one of the big shots from the Daily
Reckoning and who could crush me like a bug with just the emanations
from his powerful brain, is actually in China, and I assume that
he is buying me a nice camera, and he writes "While haggling
for a digital camera in Beijing's famous pearl market, a cohort
on the trip threw down $200 in U.S. dollars, rather than Chinese
yuan. The woman sneered in disgust. 'Those no good. No good here.'
We'd had become accustomed to U.S. dollars carrying a little
extra bargaining power, but not here. She wouldn't settle for
anything in U.S. dollars, demanding remminbi, the people's currency,
instead."
When a vendor in the street won't take your money because she
deems it to be of little value, you know you are in trouble.
In the same vein, Peter Schiff of Euro Pacific Capital says that
interest rates around the world tell an interesting story. For
instance, interest rates on "Hong Kong dollars (another
pegged currency) are now negative. The last time this happened
to a currency was the Swiss franc during the 1970's, when people
all over the world were fleeing dollars. In other words, depositors
would rather pay to own Hong Kong dollars than get paid to own
U.S. dollars."
There has been a lot of speculation that since "everybody"
is so bearish on the dollar, that the market's natural perversity
should mean that the dollar is destined to go up, instead. And
so, maybe this is the perfect time to go long the dollar? The
problem with that is that there must be some huge group of people
who want to buy dollars! Would you?
- There has also been a lot of loose talk about oil going down
in price in the future. I laugh! If you were an oil producer,
would YOU lower the price of your product when the price is denominated
in a currency (the dollar) that is falling in value? Of course
not! And neither will they.
- Phil Spicer, whom I was going to refer to as "my friend
and pal" with the hope that he would feel obliged to buy
me a tall frosty one and maybe let me come over to his house
and maybe, you know, I could sort of hide out at his place for
awhile until things, you know, kind of cool down, and maybe we
could send out for a pizza because that would be nice, too, But
he says that he prefers to be addressed by persons of my ilk
as "Chairman of Central Fund of Canada Limited, listed on
the Amex as CEF and Co-Chairman of Central Gold-Trust listed
on the TSX as GTU.UN". Well, not only is he good at putting
worthless people like me in my place, but he is also somewhat
of a whiz on the calculator, and writes, "$5.89 in 2004
dollars equals the purchasing power of $1.00 in 1966."
Seeing how that kind of mathematical wizardry stuff impresses
the girls, I cannot resist putting on a little of calculator
magic show of my own. With a flourish I whip out my calculator,
and proceed to compute that this dollar devaluation works out
to, ummm, 4.77% a year. So, anyone who invested a dollar in 1966
had better get back $5.89 just to break even, in terms of buying
power. And that is before tax! And since the government is going
to insist on taking at least a quarter of that gain, you had
better have made a hell of a lot more than 5.89% on your money!
He notes that the Dow was at about 1,000 in 1966, and that "The
DJIA closed at 10,549 on 17 Nov 04, equaling 1,791 in 1966 dollars.
Thus, the DJIA has advanced by 79.1% over 38 years in constant
dollars."
And what is THAT inflation-adjusted return? It is a real, inflation-adjusted
annual gain of 1.54%! Hahahaha! Less than 2% real return a year!
Hell, the government will take more than that away in taxes!
Which only proves my point: You cannot make money in the stock
market over the long-term, and you have to save like hell just
to be able to break even after inflation and taxes eat your guts
out.
He asks the rhetorical question, "A decline in the DJIA
to 5,890 would be equivalent to the 1,000 in 1966. Might the
dollar and DJIA be proceeding towards such equivalency?"
Sounds right to me!
Then to show why he is an a highly-paid big shot and I am just
another guy in the back of a squad car screaming that I am innocent--
innocent I tells ya! --he finishes up by saying "The fiat
dollar is not money. It is a vanishing denominator !" Hahahaha!
Very cleverly put, and, to top it off, no truer words were ever
spoken!
- An article in the Boston Globe written by Steven Syre has the
intriguing title, "Advice From A Bear: Panic". Well,
whenever I come across a bear, I always panic, but I did not
know that the bear was giving me that advice! So, curious, I
read on, and it was only then that I discover that he is not
talking about real, literal bears at all. He is talking about
stock market bears, which are merely figurative. He writes "Jeremy
Grantham, Boston's most famous investing bear, exudes a kind
of reassuring calm when he tells you that he has seen the stock
market's future, and it's a train wreck." The author then
goes on to say that Grantham's actual words are "Our summary
advice on an absolute basis is much more painful to deliver though
shorter: PANIC. Now is the time to lower risk and survive to
fight another day with your assets as intact as you can manage."
Grantham says the SP500 stock index should fall to 725, about
a 40% drop from here.
- Jim Puplava, writing an essay entitled "The Perfect Option"
has the same fears that I do. He writes, "The economy will
vacillate between periods of deflation and inflation, with each
recession bringing forth a temporary reprieve from what will
be an inexorable rise in the general rate of inflation. Eventually
wars, deficit spending, a rising mountain of debt, and peak oil
will lead towards hyperinflation in the United States."
- Bill Bonner, the affable and big-brained top dog at the Daily
Reckoning, writes that the USA is no longer wearing the white
hats. "In a contest of David vs. Goliath, who takes Goliath's
side? That is the trouble one of the perverse curiosities of
this world: You go to all the trouble to get on top of it, only
to amuse your friends by falling off." Hahahaha!
- John Waggoner, in a column in USA Today entitled "Giant
Sucking Sound Is Inflation" which I think is kind neat,
because what inflation does is to suck the buying power out of
your money, and so the "Giant Sucking Sound" thing
is kinda cool and it is a nice metaphor and I wish I had thought
of it myself, which only underscores my complete lack of creativity,
and now I am envious of this Waggoner guy, who probably says
things like "Oh, you thought that 'Giant Sucking Sound'
thing was creative and clever? Ha! I create stuff better than
that every day!" But when I started reading the article,
and my initial elation and admiration turned to something else.
He makes the surprising statement that "The average person
might not mind a shot of inflation. Higher inflation means higher
wages, higher real estate prices - and, if you have a fixed-rate
loan, stable mortgage payments." Why in the hell he brings
up the fixed-rate loan thing is beyond me, because it has nothing
to do with inflation, and the whole idea behind fixed-rate mortgage
is that payments are stable. In fact, every payment is identical!
I could not sit still another minute. I shout out "Look!
Over there! A UFO!" and when everybody turned and looked
out the window, I jumped up on stage and grabbed that damned
microphone out of his damned hand. I said, "For those of
you who do not know me" and they all said, "We know
who you are, Mogambo! Now shut up and sit down! And we are sure
you remember what happened to you the LAST time we told you to
shut up and sit down, but you didn't!" and as it turns out
I DON'T remember what happened the last time they told me to
sit down and shut up but I did not listen, but I recall that
I woke up a few weeks later with some nurse right in my face,
saying "You were right, doctor! He did live! I owe you ten
bucks. Now I'll bet he doesn't live through the night' which
reminded me that I have got to upgrade my health insurance policy.
But getting back to this inflation thing, let me tell you and
this John Waggoner fellow that his "average person"
is NOT going to like anything about inflation. They never have,
and they never will.
He further says that if you want to keep ahead of inflation,
you should consider TIPS bonds, which I am here to tell you may
not be such a hot investment, as their rates lag inflation, and
they also use the government's calculation of inflation to set
the interest rate on those bonds, which is all lies.
There was also an article in the Washington Post entitled "Upside
of a Down Dollar" but I did not read it, since they wanted
me to provide my identity before I was allowed to read whatever
the hell it was that they wrote, and you know that The Mogambo
doesn't give out any information to anybody unless I need something
badly or they have the power to do something awful to me, and
then only grudgingly. But it must have been a very short article,
because there are not many things that stem from a "down
dollar", unless you are a masochist.
- The Islamic Mint is issuing the Islamic Gold Dinar again. The
gold coins are available in the United Arab Emirates and the
Dubai Islamic Bank. The coin is 4.25 grams of 22 carat gold.
If the Muslims wanted to rule the world, all they would have
to do is to insist on being paid for their oil with these dinars.
The sudden demand would increase the price of gold, and so they
would make money as their money went up in price! And with every
new barrel sold, they would increase the demand for gold, which
would drive up the price of their dinars some more!
Maybe I have said too much. If you are a Muslim oil producer,
forget I even said anything.
- G. Lammert, who is a guy who appears on the site UrbanSurvival.com,
writes "The overriding factor - the overriding factor- in
a contracting credit system that makes the fractals so precise
is the enormous debt that burdens the US and world credit system
at this point in history- debt that must be serviced or attempted
to be serviced. In the US there is an estimated 37-40 trillion
dollars in financial, corporate, private and governmental debt.
At an average of 5 percent interest this represents an annual
debt service load of 1.8 trillion dollars in yearly interest
payments in an economy growing only by 0.35-0.4 trillion dollars
annually." So interest payments are five times total growth?
And somebody thinks this is sustainable? Hahahaha!
From a slightly different perspective, the Daily Reckoning folks
write, "On the surface of it, a modest 10% decline in the
dollar would mean a loss of some $15 trillion - or more than
the total GDP of the United States... and more than 30
times all the profits of all the publicly traded companies in
America."
- In the Boston Herald, a writer named Brett Arends has written
"Economic 'Armageddon' Predicted." He writes that,
"Stephen Roach, the chief economist at investment banking
giant Morgan Stanley, has a public reputation for being bearish.
But you should hear what he is saying in private."
What is he saying in private? He is predicting that, "America
has no better than a 10 percent chance of avoiding economic 'armageddon.'
I say it is less than that. A lot less.
- Alert reader Jim E. sent me a New York Times article by a guy
named James Surowiecki, who has written an interesting article
entitled "Why Gold?" Jim thought the guy was the "dumbest
SOB that ever lived" and of course I was excited to hear
about a guy who was a bigger and dumber SOB than me! So I go
to the link that Jim provided, and was sped, straightaway, to
the very article to which he referred. In my mind I hope the
guy really IS a bigger bastard than me, and so I am mentally
shaking the guy's hand and inviting him over for dinner so that
I can prove to my wife that I am NOT the biggest dumb bastard
in the whole world, and in fact, here is a guy right here who
is! That ought to shut her up!
I never heard of this Surowiecki guy, and I assume that it was
some dumb filler by a new intern or something, but it was an
interestingly told, but old story, with a distinct bias, about
how gold is just a metal, and when you buy metal you are not
investing in plants and machinery and production, and how gold
is the ultimate in speculation and blah blah blah. He deems belief
in gold as "a testament to the tenacity of popular delusion.
What is gold, after all? Strictly speaking, it's a commodity."
Well, duh! He then goes a step over the line when he dismisses
me, as "Gold bugs are classic cranks". Although he
did not mention me by name, if you read between the lines you
could easily tell that he WAS talking about me! The bastard!
So now there's ANOTHER name I have to add to the Mogambo Official
Enemies List Of Official Enemies Of The Mogambo In List Form
(MOELOOEOTMILF), because that is just the sort of over-the-top,
bizarre and vaguely homicidal over-reaction that is so typical
of my behavior here lately, probably as a result of my being
freaked out of my mind.
The dispiriting thing is that he makes some valid points about
gold. For example, "Gold's buying power has plummeted,"
he says. "In 1980, ten ounces of gold would have bought
you a nice car. Today, it would get you a nice bike." I
don't know where he buys HIS bikes, but around my house we don't
spend $4,450.00 for no stinking bike, especially when there are
so many perfectly good free bikes just sitting, abandoned, in
neat little rows next to schools and playgrounds! Weird, huh?
(I figure it is part of some space alien thing or another. My
warning is "Watch the bikes!") But I am not going to
begrudge the guy just because he can afford fancy-schmancy bikes
while I am on this pink My Little Pony bicycle that is four sizes
too small for me, but which does have this handy little white
plastic basket in front, and featuring a smiling pony with a
rainbow-colored mane.
But with a slightly different perspective, Peter Brimelow and
Ed Rubenstein, of CBS.marketwatch.com, write, "The remarkable
thing about gold is that really has been a store of value. Adjusted
for inflation, a dollar invested in gold in 1801 has fluctuated
around about a dollar ever since. For now, the point is that,
on the evidence of these charts, gold is hardly overvalued."
And from the look on The Mogambo's face and the way he is pounding
the table trying to convince you to buy gold, gold, gold, and
silver, silver, silver, and oil ,oil, oil, there is also some
evidence that gold is waaayyyy undervalued. Both these guys are
saying so! And while we are talking about it, so is silver, which
has the most compelling fundamentals of any asset on the planet.
But even Mr. Surowiecki admits that "So there's a little
bit of the gold bug in all of us." Then he goes into the
very reason to own gold, "Still, in a world of 'swaptions'
and strips, gold's allure is increasingly atavistic. The idea
of gold as a platonic currency, universally valuable across time
and space, reflects a basic distrust of markets, a fear that
in a world of paper money wealth is just an illusion" Yes!
Yes! That's it exactly! Fear and illusion and distrust! And don't
forget treachery and bankruptcy and ruination! That's the whole
lesson of history of economics! And if Mr. Surowiecki doesn't
like it, then that explains perfectly why he is writing in a
Leftist newspaper, parroting the typical Leftist dogma that governments
are to be trusted, and that the Founding Fathers were wrong when
they insisted in the freaking Constitution itself that money
shall ONLY be silver and gold! The guys who participated in the
American Revolution and created the freaking government did not
trust government, for God's sake!
Now everyone is looking at me and quietly arming themselves with
baseball bats and those damned Tazer zappers because they can
tell that I am getting pretty wound up here, and those little
tattletale machines I am hooked up to are all going "beep
beep beep!" With a mighty effort, a Mighty Mogambo Effort
(MME), I calm myself down, my brawny chest and broad shoulders
(or is that broad shoulders and brawny chest?) heaving mightily,
and I take a deep breath, flip the selector to full-auto and
shoot off a clip of expensive bullets into a bush that is acting
strangely. He goes on to say "For gold bugs, paper money
turns us all into Wile E. Coyote-we're running on air, and we'll
plummet once we look down and realize there's nothing holding
us up. The gold bug's apocalyptic mentality maintains that someday
the global economy will look down and the result will be chaos.
Gold is the only thing that will still be valuable after the
bottom drops out." Yes! This is it! Get this Surowiecki
on the phone! Ring ring ring! Damn. Nobody home, and he forgot
to turn his answering machine on. So, if you see this guy, tell
him that the Mogambo says, "Yes! Exactly right. Mr. Surowiecki,
if that IS your real name! This is the reason that people own
gold! And it is the reason that ALL thinking people eventually
own gold, too, because all that stuff you talk about is what
WILL happen, not only to Wile E. Coyote, but to us, too, because
that is what DID happen ALL the other times in history, and that
is why I am so sure that it will happen again, just as sure as
I am that a fat dog will eat a hamburger!"
He sums up with "One could say that gold is the biggest,
most durable bubble in history. Someday, even this one may pop."
To that he is also right. But that day is a long way off, as
we have not even gotten a good start on paying penance for the
economic sins that we have committed, a particular circumstance
for which gold is particularly suited.
And we committed these economic and financial sins against our
own Constitution, against the Laws of Economics, against all
of economic history, against common sense, and against the wishes
of The Mogambo, all of which proves that we are a monumentally-stupid
race of people. And if you examine the Laws of Nature, you will
notice that she is not kind to the stupid. In short, we deserve
to be eaten so that others, who are more economically fit, from
a Darwinian perspective, may survive. And then, Mister Smarty
Pants journalist, what are YOU going to do?
For the last 5,000 years in a row, all the people who needed
an answer to that question always came back to gold, because
there IS nothing else. But many will come to appreciate that
fact too, too late.
Ugh.
*** The Mogambo Sez: Just when you think it can't get
more bizarre or twisted, it does. And if gold does not go up
in response, it is a buying opportunity.
Nov 24, 2004
Richard Daughty
email: scgcjs@gte.net
Archives
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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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