 The horrible New Deal quagmire
Richard Daughty
The Mogambo Guru
Posted December 19, 2003
The only real action in the
Fed system is foreigners buying another huge chunk of US debt.
Bank assets and banks savings are still slowly going down and
down. The monetary base seems to be on a plateau. The money supply,
as evidenced by the three M's, are acting weird, or as Bill Bonner
at the Daily Reckoning put it, "America's money supply -
M3 - is actually falling. It dropped 0.3% in November. Cause:
unclear. Effect: unknown. Importance: unsure. Significance: ominous."
The Treasury, too, was strangely
quiet, perhaps because the world's financial system is still
gagging up blood from the forced feeding of having enormous amounts
of American debt - and foreign debt too, for that matter! - crammed
down its throat for the last few weeks, and months, and years.
Or maybe they heard that at this time of year that not a creature
was stirring, not even a mouse, and since they are all a bunch
of rats, which gets my gratuitous snide remark about the government,
including the Fed, out of the way.
An essay entitled "The
Five Years 'Til Tragedy Rule" by Steve Sjuggerud is one
of those rare essays where some new bit of economics arcana comes
to light, and it makes me scratch my head and say, "Hey!
Now I did not know that! Nor did I suspect that! Nor did I have
any information whatsoever that this relationship exists, but
now that it has been revealed to me by the brilliant Mr. Sjuggerud,
I gotta say THAT'S interesting! And I am going to write that
down somewhere so that I don't forget it, and in the meantime
let's order a pizza to celebrate our good fortune!"
He goes on to explain, "In
short, after a major stock market peak, there are five years
until tragedy...five years until a dollar crisis - and soaring
commodity prices." My keenly attuned ears perk up at the
sound of prices that are "soaring," and yours should
be, too. The reason is that there DOES seem to be a cyclical
thing between making fortunes in financial assets and then making
fortunes in commodity assets, and then financial assets, and
then commodity assets, back and forth, round and round. And thus,
the pizza-sharpened Mind of the Mogambo instantly extrapolates
between our long bull market in financial assets, which is one
of the longest and biggest on record, and the post-boom recession,
which was the mildest on record, as regards stock prices and
the usual attendant aggregate misery. So like a lightning bolt
from the blue, the computer-like Mind of the Mogambo figures
that the era of financial assets is coming to a close, as episodes
of financial assets always do, and that the cyclical thing with
commodities is beginning, as it always does. All I needed was
the timing. And now, thanks to the remarkable Mr. Sjuggerud,
we have it. Five years.
So where are we in that whole
timeframe continuum? Well, in terms of prices from the middle
of 2000, the height of the stock boom, to the end of 2003, which
represents the "here and now," is a little over three
years.
He even relates it to historical
parallels, which are usually eerie, and normally I would refrain
from even mentioning so scary a subject, since I am such a high-class
kind of dude, but he relates it to FDR. I am intrigued, as I
happen to despise FDR with some bizarre kind of irrational, gut-level,
overwhelming hatred that I certainly can't explain, and nobody
else can either, even though they call laughably themselves "professionals"
and charge the big bucks, but they are all pretty sure that these
new pills will be able to keep it under control whatever in the
hell it is, but I am always interested in what people write about
this FDR person. And you will notice by the way that I pronounced "person,"
dripping with snarling, sarcastic and disrespectful venomous
loathing that I am on the verge of one of my "episodes."
For some reason that I cannot fathom, Americans seem to LOVE
this horrible guy and how everything is always "We have
nothing to fear but fear itself," and how this FDR guy single-handedly
mired America in the Great Depression and heroically delivered
us into the belly of the communism monster,
which is now regarded as a Good Thing (GT)! And, to be fair,
if he were alive today, I am sure that he would despise me right
back, that smarmy little commie bastard, and he'd have the FBI
poking around in my life even more than they are already doing.
But Mr. Sjuggerud says, instead, "FDR wanted to create inflation.
It was a crazy idea. Never before had a country attacked its
own currency for the purpose of creating inflation and rescuing
debtors."
Hey! Earth to Commander Steve!
Come in, Commander Steve! We are doing it again, and it is STILL
crazy!! In fact, it is bigger and crazier than ever! And if what
happened the last time is any indication, it will not, repeat
NOT, be a pretty sight. Of course, just to show you how low the
Democrats can actually sink, Hillary Clinton is running around
wailing about how Bush wants to undo the New Deal that the nasty
little socialist/communist FDR cooked up. So if you run into
Hillary, tell her that if Bush is not up to the task of dismantling
the horrible
New Deal quagmire that
her precious little FDR saddled us with, that the Mogambo is
ready and willing to do it for him.
Mr. Sjuggerud continues, and
drops that nice little pearl of wisdom in our laps, "By
coincidence or not, each major stock market peak of the 20th
Century was followed by a crash in the U.S. dollar five years
later. People who kept their savings in dollars saw the purchasing
power of their savings shrink substantially. Yet those who invested
in commodities made fortunes." Ergo, the Five Years 'Til
Tragedy Rule.
There's that delicious phrase
again! "Made fortunes!" I love the sound of that! It
is kind of musical! Well, let me say that it is music to MY ears,
anyway, because although I have never had a fortune, I think
it would be very nice to have one, because all the people who
DO have fortunes seem to enjoy them immensely. And so I would
like to have one, too. So this Sjuggerud guy thinks that fortunes
will be made in commodities, eh? Hey! What a coincidence! It
is the same thing that the Mogambo has been saying all along!
The brilliant dudes over at
the Daily Reckoning website wrote "On Monday, we took a
look at the Bureau of much be-Labored Statistics website and
discovered - right there in liquid crystals - that if you count
all the discouraged, disparaged and disgusted workers, the rate
of unemployment actually rose to 9.7% in November... rather than
falling to 5.9% as the financial media has been so keen to report."
Did he say discouraged, disparaged
and disgusted workers? That's alliterative! And so perfectly
done that I can almost hear some comely country-western singer
warbling sweetly about being "discouraged, disparaged and
disgusted," another brave and beautiful woman done wrong,
breaking your heart with every warbled syllable, and then you
end up ordering another beer, and then another, and then another,
and pretty soon you are disgusted AND disgusting, because you
are trying to drown in alcohol your growing realization that
you are one of those 9.7% who is living a life of proverbial
quiet desperation. Well, I do, anyway.
Economist Gary Shilling said
in Forbes "I hate to be the bearer of bad tidings, but if
you expect the economy and the market to keep climbing next year,
you will be sorely disappointed. The sober truth is that cutting
costs is the only route to profit salvation these days."
Well, nothing new there, eh? There has never been a time, as
far as I have been able to glean from the little, tiny bit that
I have read about economics in my whole freaking life, when increasing
costs was EVER a road to economic salvation. So I am not sure,
but I am fairly certain that the immutable laws of economics
have not changed that much, and my snotty attitude reveals that
I am pouncing on the poor guy as soon as the words are out of
his mouth.
But then we see that the old
Mad Mogambo was a little quick on the trigger, and we note with
chagrin that what he was getting ready to say, before I rudely
interrupted him with my loud mouth, was "Most costs, directly,
or indirectly, are labor. And that means more layoffs."
And that is the rub of it! That is the incandescent, radiant
point of the whole thing! Jobs!
And I say, in my memorable
adaptation of the Mexican bandit in "The Treasure of the
Sierra Madre," there ain't going to be no stinking jobs.
Today's jobs are all in services, right? And most services are
one-on-one, right? I mean, you sit in the barber's chair and
he performs a service on your hair, not too much off the top,
and keep it long and perfectly combed over my bald spot or NO
TIP! Or the services provided by the person who is selling me
cigars and adults-only magazines down at the newsstand is one-on-one.
Or the roofer. Or the guy who fixes your complicated car, an
expensive-to-repair, Money Pit From Automotive Hell millstone
around your neck. Services services services! But there is no
other way for these guys to make any money, unless it comes from
me, right?
So how much do you silly people
think I make, that I can pay all these guys some fabulous "living
wage," and their overheads, and 401(k) plans, and health
insurance premiums, and a whole army of people they have to hire,
such as daycare workers for the children and tax-form preparers,
and myriad liability insurance agents, and on and on and on,
as they purchase services so that they can provide me with services?
No, the only way I can pay
more for services is if I, the guy who pays everything, the final
consumer, the last stop on the line, the All The Bucks Come From
Here person, make more money! And I ain't making more money!
And I ain't GONNA make any more money! Because anything that
I can do, or will do, or would like to do, or could do, or will
sink to doing as a last ditch emergency to stave off starvation,
is nowadays much more cheaply done by some Chinese dude, or some
Indian dude, or some Philippino dude, or some Hungarian dude,
or some Polish dude, or some Brazilian dude, or some Nigerian
dude, or dudes from almost anyplace you can name on the globe,
who are all willing - nay eager! - to do it for mere pennies
on the dollar, and steal my job and thus kick me out into the
street to starve in the gutter, and then they will walk by with
their nasty foreign clothes and talking in their nasty foreign
languages and pretend, in their nasty little foreign way with
their nasty little foreign noses up in the air, that they don't
even notice me lying there in the street, trying to beg a few
measly pennies to feed my starving children! And now you know
why I refer to these people as "foreign devils."
So only a company run by 1)
actual idiots or 2) the mentally ill would hire Americans, which
is the archetypical "me," to do anything that didn't
require actual, physical presence, when they could hire one of
the aforementioned foreign devils to do it, for less! A lot less!
And with a gigantically reduced level of hassle, too, since their
governments are not as particular about hassling businesspeople
about equal rights, affirmative action, ecology, workplace safety,
safety equipment of any kind, insurances, benefits, nag nag nag,
blah blah blah, the list goes on and on. So starting a business
in America saddles you with the highest costs and exposes you
to unlimited liability for things you did not even know you could
be held liable for!
And you don't have to take
my word on it, as Bloomberg reports "China's factory production
grew in November at its fastest pace in nine months, surging
as overseas companies move factories there to take advantage
of wages less than one-twentieth those in the U.S."
Stephen Roach of Morgan Stanley
writes, "Central banks have made the riskiest bets in modern
history." He compares the record-low interest rates in Japan,
America and Europe that have been engineered by the central banks,
versus the humongous government budget deficits, which are, statistics
updated by me, 8% in Japan, 5% in America, and 4% in Europe.
He then utters what may be one of the most profound statements
of the age, or let me change that to Most Profound Insights Of
The Modern Age, which is, "The authorities have colluded
in currency management in a period of unprecedented external
imbalances."
And why would they need to,
as he says, collude? Why did he pick the word "collude"
instead of, umm, "cooperate?" Because what they are
doing is, in the words of an erstwhile vendor of electronic appliances,
INSAAAAANNNNNNE! And therefore probably illegal. And if not strictly
illegal, then immoral, unethical, and probably a lot more similar
adjectives that signify "something bad," and anyway
the whole point is that competent, honest governments do not
do these kinds of things. That is why they now "collude."
And by which I screech, with a strange kind of circular logic,
that the colluding governments are thus proved incompetent and
dishonest.
Doug Noland points out that
the central bank of China was a net seller of U.S. government
debt in September. This is significant. I am not sure if it is
significant in the way of "Hey! Look! That huge meteor is
heading right at us!" or some other lesser level of significance,
but if the Chinese powerhouse is getting out of US debt, then
all the other not-so-powerhouse countries had better start getting
with the program, too. And this makes the selling impetus greater.
But in a related note, there
is the persistent rumor that China is buying oil to stockpile.
And, to tell you the truth, I would be doing the same thing if
I was running China, which I am not, but am willing to entertain
an offer, because I think it would be a lot of fun to run China,
and will do the job for a lot less than they probably figure.
And I could do a lot of it right here at home, and in that way
nobody will ever have to watch me eat, because trust me when
I say that nobody wants to see that.
But the point is that oil is
priced in dollars. The yuan is priced in dollars. Dollars have
been going down. Therefore the yuan is extraordinarily cheap
right now. That makes it valuable. The dollar is still overpriced.
That makes the dollar less valuable. And remember Greshams' Law?
It says
that the less-valuable currency will be spent, and the more-valuable
currency will get hoarded. Ergo, get rid of those damn depreciating
dollars to buy something that you are going to need in the future.
If they used those depreciating dollars to buy oil, they will
be accruing stockpiles of it at a significant long-term discount
that will pay off big in the future. And a lot of gold has
been going somewhere, too, which is another thing that I would
advise China to do if I was running China, which I am not, as
we already covered, but would love to have the job, as we also
already covered.
In a similar vein, or maybe
even the same vein, Deborah Brewster, writing for the Financial
Times on their website FT.com, writes "Foreign money flowing
into the US stock market has slowed to a trickle and much of
it appears to be heading back to its native lands rather than
looking for fresh opportunities elsewhere." By elsewhere,
I assume she means "not the USA."
She goes on to say that most
of the buying is from foreign governments, which is filled to
the brim with the foreign devils I warned you about earlier.
But that the private-sector buyers are NOT buying US debt, even
though they are also, in case you had a lapse of attention, actually
just another group of foreign devils. If I close my eyes real
tight and be real quiet, I can almost hear you thinking to yourself
"Hmmm!" Or maybe that is what I am thinking to myself.
Well, ONE of us is thinking it, anyway.
James Grant, in an article
in Forbes magazine, writes an essay he calls, "The Case
for Silver," and he writes, "But the major looming
use for silver is the ancient monetary one. The metal that used
to be money will serve as a store of value once again."
Didja get that part about how he says silver will be used as
money again? Well, he didn't say "money" but rather
as a "store of value." Except, and I emphasize this
because it WILL be on the final exam, that IS the very definition
of money! That is, if you can get people to accept it as payment
for goods and services! Interesting, huh? And if people will
not accept silver in exchange for goods and services, because
maybe they are allergic to silver, or they have some religious
thing about silver, or they are werewolves or something, then
you can always, as in anywhere and always, sell it to somebody
nearby to get the kind of money that people WILL accept as payment
for goods and services. So silver IS money, once-removed.
He goes on to say, "Gold is a better monetary asset than silver, but
silver has better supply-and-demand characteristics than gold. Since the Silver Institute began keeping track
in 1990, silver consumption has annually outpaced silver production,
and not by a little. The cumulative 13-year difference adds up
to 1 billion ounces." Which is, I helpfully add, a lot.
And when demand outpaces supply, especially over the long term,
then historically prices rise.
This also seems to square with
the sentiments of Ted Butler, who writes over at the Market Update
newsletter of Investment Rarities, Inc. Anyway, Mr. Butler says
that, wait a minute and I will get you the actual quote, "(Silver)
is the cheapest item in the investment universe, with no exception,"
who then goes on to lay out a pretty convincing case to prove
it.
The December 10 WSJ in an article
entitled "Fed leaves Rates At 1%, But Signals Shift on Inflation,"
we read this remarkable sentence: "Economists expect the
economy to grow a healthy 4.4% next year." Well, I don't
know who these people are that are being called "economists"
and whose idiotic opinions are being quoted in the article, but
I say that anybody who thinks that the economy will grow "a
healthy 4.4%" is a world-class idiot, and believe me when
I say that, as a world-class idiot myself, I am in a position
to know.
Because a 4.4% growth in the
economy at the same time that the government is running a 4.9%
(as a percentage of GDP) budget deficit is NOT healthy by any
stretch of the imagination, and my imagination is so huge (audience
shouts out "How huge, Mogambo?") that I can imagine
that women actually spitting on me, kicking me in the groin,
and spraying Mace in my eyes is their cute little way of flirting
with me, as alleged in official court documents.
These "economists,"
I assume, are the same lackluster dimwits who are the "they"
in the follow-up sentence, "They also expect inflation excluding
food and energy to rise half a percentage point, to 1.8%."
This proves two things at once, showing a huge increase in productivity,
because most of us can only prove one thing at once. One is that
inflation, which is already higher than 1.8%, cannot "rise"
to 1.8%, by mathematical imperative. And the other follows naturally,
namely that American economists are obviously numerically illiterate.
But in the same issue of the
Journal we have John Lipsky, who is chief economist for JP Morgan,
on the op-ed page writing an article entitled "Remember
Inflation?" He writes, "The Fed is going to wait longer
than investors currently anticipate before raising rates. But
once inflation risks begin to rise, the Fed will act quickly
to withdraw the existing stimulus." Hahaha! I am laughing
like a hyena here, and drool is actually dripping down my chin
in my hysteria and making a wet spot in my lap, which looks like
I have had an "accident," but I have not, but my explanation
only sparks a fierce debate about whether or not drool stains
are less revolting than urine stains. But saving that for another
day, every single indicator of inflation is rising, and HAS been
rising, and yet the Fed is still holding interest rates to absurd
lows! So what kind of jerk does he think I am that I would believe
that the Fed would act with any haste, at ANY level of inflation,
when they are already proving that they have absolutely no interest
in inflation, OR its deleterious effects, whatsoever, and in
fact, and this is the important point, they are doing everything
they can to create MORE inflation? At that I abruptly stop laughing.
Later on in the same article,
Mr. Lipsky writes "Central bankers became convinced that
maintaining low and stable inflation produces the best possible
outcomes." Huh? I mean, what planet am I on? Is this still
early twenty-first century Earth or not? If so, then the damnable
Fed is on record, Greenspan is on record, Bernanke is on record,
and I assume that even the mailroom clerks at the Fed are on
record as saying that they WANT higher inflation! They are screaming
loud and clear that they do NOT want, as Mr. Lipsky says, "low
and stable inflation!" That is the whole freaking point
of their monetary insanity! And yet, here is this Lipsky fella
telling me the exact opposite? The mind reels, and I stagger
and collapse into a chair, clutching my chest and gasping for
air! I sense the world fading to black, as black as my mood,
and as I mouth the words "Goodbye, cruel world!" I
suddenly remember, and am cheered, that I don't have any money
under management at JP Morgan.
I mean, this is all at the
exact same time as Bloomberg reports, "The Reuters CRB Index,
an indicator that tracks 17 different commodities, from live
cattle to crude oil, has risen 11 percent this year. Gold is $407 an ounce, up 17 percent over the past
year. Copper is up 39 percent, oil 31 percent, and natural gas
prices are 51 percent higher than at the end of October. In addition,
the dollar dropped to a record $1.22 against the euro and fell
to its lowest in more than a decade versus the British pound
yesterday. That helps boosts the price of gold
and other dollar-priced commodities on international markets
and also makes imported goods more costly."
So while us bozos out here
in the real world still live in our fantasy world, where rising
prices is evidence of inflation, the Fed says no. They figure
that productivity, output per hour of labor, is rising, offsetting
the rise in raw materials. "So while the supply of some
commodities may be temporarily scarce, raising their price, the
supply - and price - of workers is not. That enables companies
to absorb the commodity price increases without passing price
increases on to consumers."
To which I say, hahahahaha!
You guys crack me up! Hahahaha!
And then right below that,
on the same page, we have yet another piece of ridiculous fluff,
this time by Joshua B. Bolten, who is the director the Office
of Management and Budget, which is apparently an office of government
wonks that is used to employ mental defectives as another affirmative
action-type thing. His asinine screed is entitled "We Can
Cut the Deficit in Half."
First off, we have Mr. Bolten
tracing the "roots of today's deficits" to the economic
slowdown as Bush took office, three freaking years ago. Next,
he implies that deficits are not important as Bush's policies,
namely national security. Wow! Talk about your government-speak!
Fiscal rectitude is not as important as policy!
So here we have another government
spin-meister saying that deficits don't matter as long as it
is paying for something nifty and wonderful, as when he explains
how three-quarters of the deficits are directly related to the
post 9/11 "enhanced homeland security and the global war
on terror," as if somehow this justifies immense budget
deficits, as this bottomless pit of spending madness will somehow
metamorphose into healthy economic growth or something.
Then Bolten, and notice that
I have dropped the "Mr." because I am obviously working
myself into one of my foul moods and I am this far away (let
the record show that I am holding up my thumb and forefinger,
and that they are almost touching each other) from calling him
a lowlife insect, probably something that crawls around in sewers,
then says that the budget deficit is "entirely manageable,
if we continue the president's strong pro-growth economic policies
and sound fiscal restraint."
The audience spontaneously
laughs at my exaggerated double-take, my head snapping around
comically and my hair standing straight up into the air - fweep!
- as I perfectly portray a man who cannot believe what he just
heard. Restraint? This is the same guy who has run up the national
debt by $1.3 trillion dollars in three short years! This is the
same guy who is running a budget deficit of 4.9% of GDP! This
is the same guy who has not vetoed a single spending bill in
the entire three years of his administration! "Not one?"
you ask in that darling and delightful way that melts my heart.
"Not one lousy veto of any spending bill?" Nope!
And this is, and you would
laugh if you saw me because I am comically rubbing my bloodshot
eyes in stunned disbelief at what I am hearing, what the author
calls "fiscal restraint?" Huh? Did he say "fiscal
restraint?" Did he really say "fiscal restraint?"
And right around in here someplace is where court-appointed experts
figure that I was overcome with emotion, and, compelled by forces
that I could neither comprehend nor control, was propelled to
action. I grab a fully-loaded AK-47 that just, you know, happened
to be leaning against the desk, and jump up on that selfsame
desk and scream at the top of my lungs, "Did he say fiscal
freaking RESTRAINT? I can't believe my ears! But I thought he
said that the President of the United States is showing fiscal
freaking restraint! RESTRAINT? You want restraint? I'll show
you a little dang-blang restraint!" and I proceed to throw
that rifle into full-automatic mode and, holding it down low
against my hip like John Wayne storming a machinegun nest on
some God-forsaken Pacific island in WWII, proceed to empty an
entire banana clip of full-metal jacketed mayhem, shooting out
all the lights in the place, plaster exploding off the walls
and ceiling, framed pictures shattering in a hail of glass splinters,
passersby and process servers ducking for cover, a cascade of
smoking empty shell casings beating a tattoo of tinkling sounds
as they hit the floor.
Well, at last, the fusillade
of gunfire is finished, and the silence that follows is punctuated
only by the ringing in my ears and the sound of approaching sirens,
and I sink to the floor, spent and exhausted, too weary to even
reach for another full clip of ammo. But it isn't really needed,
as I am sure that you get my point, which is to demonstrate "restraint."
But the next day, Friday, the
Wall Street Journal had an op-ed piece by Brian S. Weebury, entitled
"Keeping the Bush Boom Alive." In it, he owns up to
the horrific state of the economic world, and says, "Nonetheless,
beneath the surface problems are brewing. Government spending
is soaring, business regulation is on the rise, and protectionism
is gathering some momentum. At the same time, excessively accommodative
monetary policy threatens an increase in inflation." Later
he reprises that with "Big government and easy money is
the perfect recipe for inflation."
And he has some suggestions
on how to make this all work out, as if there is anything anyone
can do to make it all work out, and I am charmed by his brave
self-confidence, and the Mogambo smiles to himself, as if to
say, "Ahh, little grasshopper! The sunny optimism of youth!
To hear you is to make me remember my own youth, and I smile."
Martin Hutchinson, who writes
The Bear's Lair, "If the multiple imbalances currently visible
in the U.S. economy result in a substantial downturn, then an
inflationary repeat of the 1970s, albeit with somewhat worse
growth performance, appears the most likely scenario."
The only thing left to wonder
is if the historical record has any instance of "multiple
imbalances" that did NOT result in a substantial downturn.
Nah. I don't wonder. The answer is no.
Gold Bullion Securities Ltd.,
which issues shares of ownership of gold
bullion, started trading on the London Stock Exchange, in response
to investor demand. Closer to home, the popular Central Fund
of Canada, for whom I have a warm place in my heart because I
happen to know Philip Spicer personally, and who has been officially
clocked as having spent more than ten minutes talking to me at
a stretch and did not end up screaming that I am the antichrist,
which was a nice change of pace, even though I always point out
that if you look closely, you can plainly see that the birthmark
is NOT "666," but looks more like "686,"
but anyway the Central Fund also sells shares of ownership of
gold and silver, and they have recently
announced, with a certain proud fanfare, that they are increasing
their holdings by another $60 million in bullion to accommodate
wildly increased demand.
In short, there is increased
demand for this type of investment, and these guys are providing
it. And when demand goes up in the absence of increased supply,
doesn't that imply rising prices to equilibrate the imbalance
and clear the market?
Joseph Giannone of Reuters
reports that sales of stock by corporate insiders hit a new record
in November, indicating that they are even more bearish, or that
they need the money or something. Time will tell, I suppose.
But, and this is the important point I am trying to make, corporate
insiders have been heavy sellers of their own stock for a long,
long time. But this is, to refresh your memory, a new record
in a long string of new records.
Richard Russell, he of the
remarkable Dow Theory Letters, says "I believe that the
United States and most of the rest of the nations are heading
towards monumental events, events that will shake loose the entire
monetary and economic systems of the world as we know them."
I mention this only because Mr. Russell has been successful at
this business for longer than the rest of us, and by a long shot,
too, and it is good to listen to an "old pro," because
you never know what you are going to learn from the wealth of
his accumulated wisdom, and when the old pro starts telling you
that a cataclysm is coming this way, maybe we ought to be looking
for a tall tree to climb and maybe get out of the way.
Le Metropole, another newsletter
that deserves high respect, even though the title of their newsletter
is decidedly French-sounding and no self-respecting American
can give any frog any respect these days, says that those Chinese
dudes are accumulating gold though
various secret and various sources. So the Chinese, ever inscrutable,
are rumored to be accumulating oil and gold,
just like the Mogambo has been suggesting that YOU do. A bunch
of dumb chinks listen to the xenophobic Mogambo, but you don't,
even though now that I think about it calling them a bunch of
dumb chinks is probably not a good idea, since I am pretty sure
that those dudes are going to rise up and eat our lunch, so maybe
I should refer to them as "Our Asian Overlords" who
are listening to the Mogambo?
He is also worried that the
existing massive hoard of gold derivative
contracts could cause an explosion if the price of it keeps rising,
which he likens to neutron bombs.
Speaking of the Chinese, William
Pesek, Jr., a columnist for Bloomberg, writes, "China has
named its price for playing nice with Washington: Taiwan."
Well, China wanting to absorb Taiwan has been a fact of life
for, oh, about as long as I can remember. And one powerful country
exerting its influence over another is also as old as anyone
can remember, especially an economic influence, and doubly especially
when one country is a heavily indebted, consumption-addicted
wastrel, like us, and the other is the big, young and vigorous
up-and-comer getting old enough to swagger around the neighborhood
and start getting the hang of extortion on a grander scale, like
them.
But then he goes on to say
something that I think is right, and if you are looking for a
way to invest in China, it makes a lot of sense to me, ceteris
paribus-wise, but this is certainly outside of my limited range
of expertise, so don't take this as some hotshot investment advice,
even though if I was investing these days, which I am not, it
is enough to make me say to myself, "Hmmm. China is the
play of the future, but I am leery of Chinese protections of
my rights, and they even restrict me to ownership of this mutant
Class B shares that are created for us Occidental devils. So
what do I do if I want to make a gigantic fortune in this China-as-the-future
thing, so that I can go back to my next high-school reunion in
an expensive limo and gloat and strut around like I am such hot
stuff, and have everybody envy ME for awhile, and let them look
at me in awe and jealousy at my incredible wealth, instead of
that mix of pity and disgust?"
Well, perhaps Mr. Pesek has
provided the answer to that question, and offers the clever suggestion
that maybe investing money in Taiwan is a backdoor way to invest
in China, if you think that Taiwan will be able to withstand
Chinese hegemony, and it might for awhile. Long enough to make
a few bucks, anyway.
The Mogambo For President campaign
is gathering strength, as I have had a 100% increase in support
in the last week alone. Last week it was just me voting for me,
total votes = one, and this week we have Gordon Rollins AND me
voting for me, total votes = two, although I had to offer him
the spot of vice-president to get his endorsement. He is naturally
aghast that the Mogambo, a recipient of the esteemed Rollins
Prize in Economics, did not zoom to the top of the polls at the
mere mention of a possible candidacy. Me, too, Gordon. Me, too.
Pearls before swine.
In a chilling example of government
run amok in the throes of police-state idiocy, we need look no
farther than Canada. Canoe, on their website cnews, posts this
remarkable article, dateline Ottawa, "Forcing reluctant
witnesses to testify at secret court hearings is an acceptable
practice in the fight against terrorism and doesn't violate anybody's
rights, federal lawyers argued Thursday. 'There is a moral and
civic duty on all citizens to aid in enforcing the law,' Justice
Department counsel Bernard Laprade told the Supreme Court of
Canada. 'Parliament has created a most reasonable regime. . .
. There is no constitutionally protected right to refuse to assist
police.' "
Fortunately, we have the Bill
of Rights here in America, so that ought to protect us for a
few weeks against this kind of thing. But one has to wonder for
how long beyond that, seeing as how this Laprade fella lives
right next door, and his fascist-cooties might waft over to our
side of the border on some errant breeze.
It takes a man with a strong
will to read Doug Noland's weekly column over at the Prudent
Bear website, but I am just a sniveling little gutless coward,
and always have been, as far as I can tell. But every once in
awhile I like to, as the saying goes, "Take a walk on the
wild side," and in one of those rare moods I found myself
disregarding doctor's advice and reading Mr. Noland's column.
But I rapidly re-evaluated my resolve when Mr. Noland hit me
between the eyes with one sentence, "It was another strong
week of debt issuance." Government issues, investment grade
issues, junk bonds, and asset-backed securities went flying out
the door, bought by people strangely eager to take on such low-yielding
debt. The total issuance of debt rose to new historical records,
to lofty heights that sane people heretofore thought to be impossible,
barring mass insanity caused by alien spores from outer space
infecting the population.
On the inflation front, he
says, "The CRB index jumped 2% this week, with 2-week gains
of 5%. The CRB today closed at the highest level since April
of 1996 and is up 44% from the lows of October 2001. Please take
note that the dollar is at 6 to 7-year lows, gold
prices at 6 to 7 year highs, commodity indexes at 6 to 7 year
highs, Chinese inflation at 6 to 7 year highs." This is
not even to make mention of the headline-making rises in real
estate, the permanent double-digit rises in health insurance
premiums and co-payments and many, many other things.
With a cold, clinical detachment
we notice that our hands are clammy and shaking in fear, dreading
the horrors of price inflation, because the entire historical
record is pretty explicit that sustained price inflation is The
Surefire Superhighway To Hell And Damnation. Then we look into
the magic mirror hanging on the wall, and peer into a weird,
parallel dimension, and read where the Fed says, in the actual
minutes of their big shot Open Market meeting, "The probability
of an unwelcome fall in inflation has diminished in recent months
and now appears almost equal to that of a rise in inflation."
Mr. Noland then takes a hard
gander at the extraordinary efforts of central banks
to orchestrate inflation. Rather than acting Mogambo-like and
start screaming that it is long past the time when we need to
take up flaming torches and storm the offices of the central
bankers and send them fleeing into the dark and gloomy forest
where they would spent the rest of their nasty little lives eating
roots and berries, dodging angry citizens and ravenous wild animals
until they die some horrible death that they richly deserve,
and their bones bleach white in the sun, he merely says, "It
has been a long time since inflation enjoyed such widespread
adulation."
And it has been a long time since vicious, rabid animals were
considered cuddly, which I figure is next on the World Panorama
Of Increasing Weirdness.
Some people are wondering why
the Federal Reserve would be trying to economically murder the
citizens, and it does seem disconcerting, since perversely creating
inflation usually condemns the offending nation to economic death.
The answer is simplicity itself; too many people and too many
institutions owe too much money. The idea is that if money is
cheap enough, then the "too many people" who owe the
"too much money" will borrow some more money to pay
a little bit of money to the people they owe, so that none of
them goes bankrupt in the meantime, and eventually prices will
rise so high that the amount of money they owe won't seem
so onerous.
Perhaps an example will illustrate the point. If I borrow a dollar from you
to buy a loaf of bread, and I never pay you back the dollar,
but instead keep borrowing a few cents of cheap money to pay
you the low interest on that dollar, and I keep doing this year
after year after year, then one day I will look at it and realize
that I have borrowed and paid you two dollars, when I only borrowed
a dollar to begin with! Which I still owe! It looks bad!
But compared to the price of
bread in the future, which is five dollars a loaf, it was quite
a bargain! So that is how inflation benefits debtors. Especially
seeing as how I borrowed against the equity in my house, and
so all the interest expense was deductible against my taxes!
But that particular bugbear
about inflation is my own nightmare, and Mr. Noland has other
fish to fry. In particular, his thrust this week was in looking
at a report by the Office of Federal Housing Enterprise Oversight
(OFHEO) about Freddie Mac. Writes Mr. Noland, "In the back
of my mind, I presumed that Freddie's management had likely been
forced into using questionable accounting to counterbalance imperfect
and confused accounting regulations that, if used as prescribed,
would have misrepresented the true economic situation of the
company. What they did was clearly wrong, but I have hesitated
to think of it in terms of a malicious fraud. I have been wrong.
Freddie Mac... had orchestrated an increasingly sophisticated
fraud."
It just proves what Mises and
Hazlitt and others, mainly the whole Austrian school of economics,
and now Doug Noland, have noticed, namely that at the end of
long booms the amount of corruption is off the charts. Ugh
---Mogambo Sez: We are getting to the end of the portfolio
fraud season, where the accounts are totaled up, losers are sold
and the winners accumulated, and blame and losses are shifted
to somebody else, and things are done and mistakes are made,
and all of the other slimy things that occur whenever huge amounts
of money are involved, because if there are huge amounts of money
involved, then the government is not far away, and that is the
path to utter ruin, QED.
But soon it will be the new
year and a new game, and it will get worse and worse in every
material respect, day after day, until some unforeseen event
causes the whole thing to just, one day out of the blue, go "bang!"
And that, and I am talking about at that exact moment, when you
fully comprehend, in a flash of incandescent, total enlightenment,
the real value of gold.
And soon after that you will
have another epiphany, in which you will comprehend the great
value of cannons, and guns, and bows and arrows, and knives,
and pitchforks, and machetes, and axes, and slingshots, and clubs,
and sharp sticks with which to fend off the mobs of suddenly-impoverished
people who ALSO have suddenly comprehended the real value of
gold, and they don't have any, and in fact
they don't have anything anymore, except debts and creditors
hounding them day and night, and then after awhile you get tired
of answering the phone and trying to explain to one collection
agency after another that if I had any money then I would certainly
be happy to send it to them, but as it turns out I don't have
any money and so why don't they just stop calling, but they never
do, and then I finally just stop answering the phone, and turn
off the lights and cower in the corner behind the sofa and use
some throw pillows to cover my ears to try and muffle the sound
of the phone as it rings and rings and rings and rings...
Richard Daughty
December 17, 2003
Copyright ©
2000-2003 Agora Publishing, Inc. All rights reserved.
The
Mogambo Guru Lives!
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.
The Daily Reckoning
"Financial
Reckoning Day: Surviving the Soft Depression of the 21st Century"
by Bill Bonner
and Addison Wiggin.
You can buy
it
online from Amazon.
____________
321gold Inc
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