Rats deserting a sinking ship
I was surprised to see the surprisingly bullish article "Golden Opportunity" in this week's Barron's magazine, and if you want to know all about investing in gold, then I suggest that you get a copy. I will not review it for you, but I will say that the author, Robin Goldwyn Blumenthal, did a good job of spelling out the enormously bullish case for gold without actually screaming, like the Mogambo does, "Buy gold, or it will prove that you are an idiot!"
I liked the way that James Turk, founder of GoldMoney.com, is quoted as being "worth listening to" because he correctly forecast last autumn how gold would break $500 an ounce in 2005. So what does Mr. Turk, a guy who is thus certifiably "worth listening to", think about the price of gold in 2006? "Over $850 an ounce," he says! Hahahha! A 70% gain, in one year, on the metal alone! I love this investing stuff! It's so easy!
And I really liked the little inset box entitled "The Bottom Line", which is, I suppose, the condensed Executive Summary for busy guys like you and me, poor proletariat working trash slobs upon whose shoulders the weight of the whole world is borne, and we are far too busy screaming at teenage children and hostile neighbors to read an entire article. So, handily, we are able to quickly learn the salient points, namely "Gold could exceed $800 next year, say some savvy pros." And revealed in this marvelous "bottom line" inset is the "easiest way to participate" in the coming gold bonanza, which is, according to the author, to use GLD, the popular gold ETF.
And as an aside, I was mightily impressed with the performance of the Central Fund of Canada, which, according to the article "holds gold and silver, but has no operations and no management fees. It was up 16% in the last year" which actually beats the performance of actual bullion itself, which was only up 15% in the same year, according to the article! Wow! Holding metal, but doing better than metal? Nice going, CEF!
Anyway, if you have read this far, then you are already aware that gold and silver (and commodities of all kinds) are "the" place to be, according to me, The Mogambo, and also according to Marc Faber, whom I call "brilliant", and Mr. Faber, in return, collegially gave me the nickname "stupid pig person." And the similarities don't end there! He also thinks, as I do, that taking physical possession of at least some physical gold and silver is a good idea, as he explains by saying "I don't want to be right on gold and wrong on having done some speculative transactions that can't be settled in the end." Well, not specifically YOU doing speculative transactions, but the guy who sold you your "paper gold" WAS speculative, and now that guy can't be found, and while we wait for extradition papers to wend their way through my friends on the courts of whatever luxurious garden spot I escaped to, we'll both grow old together while I'll squander the whole wad.
But this is not about how I am an untrustworthy little thieving lunatic weasel scumbag, but about WHO is reading this Barron's article and starting to get lots of ideas? Who is getting greedy ideas, desperate ideas, panicked ideas about the dismal prospects of growing older and soon retired, and is looking for an investment that is going to make a lot of money quickly? And who is also wondering how in the hell he or she is going to make up for all this lost time and money since the stock market bust of 2000? And who is so desperate that they have finally gambled in the housing market a little bit, and now it looks like the housing market (which was supposed to "catch us up") is starting to go down in flames, too, and now they are completely up to their eyeballs in property deals that they bought at the peak of the boom? Who indeed? I'll tell you the answer; desperate people. And desperate people will go to extremes, as they have nothing to lose.
This is why I confidently predict, with every ounce of dead-bang serious Mogambo sincerity (DBMS) that I can muster, that there will be a massive bubble in gold and silver, as there IS no other place to be in the late stages of a fiat currency regime, as history has shown over and over again, country after country, era after era, on page after page of history, until I can't stand the ennui of the utter predictability of it all anymore, whereupon I leap to my feet, and with a cry in my voice shout "Stop! I have heard it all too many times! Buy gold and prosper, or suffer if you don't!"
And gold will increase in price (audience shouts "How much increase in price, Mogambo?") not only enough to revert to the historical, inflation-adjusted mean, but waaayyyy past the mean. Thus, people who own gold and gold mines will be wealthy as hell and the rest of the idiots out there that had laughably placed their faith and fortunes in ridiculous fiat currencies in manipulated markets, despite the overwhelming historical evidence to the contrary, will pay the big ugly price (TBUP) for their unforgivable stupidity.
But the government is not going down without a fight! For example, last week's jumps in Total Fed Credit ($5.6 billion) and currency in circulation ($4.5 billion) would normally send me scurrying, like the little weasel I am, to the famed Mogambo Bunker, where I would whimper in fear and lash out in mindless panic, using up a lot of expensive ammo in the process. But being the last week before Christmas, if I was the Federal Reserve, I suppose I would do the exact same thing. I mean, this is only the same kind of suicidal monetary idiocy that they have been doing since 1997, and in only a lesser degree since the '60s, for crying out loud. So they are going to suddenly stop the week before Christmas? Hahaha!
Interestingly, at the same time, John Snow, our Treasury Secretary, was saying "As Treasury and the Office of Management and Budget reported in October in our 2005 fiscal-year-end budget report, the growing economy brought 2005 revenues to a level of $2.2 trillion. This increase of almost $275 billion over 2004 revenues was nearly a 15 percent increase and was also the largest year-over-year percentage increase in receipts in over 20 years."
Well, I will give him the benefit of the doubt and stipulate that, okay, maybe tax revenues were $2.2 trillion on the nose, and that the $275 billion more tax revenue money was, likewise, a 15% increase over 2004. Whoopee. Even more magnanimously, I will also agree that this was (and notice the way my voice cracks in fear) the biggest freaking tax haul "in over 20 years." Your homework assignment for tonight is to explain WHY there is no economic book, anywhere, in any dimension of space and time, that contains the sentence "The economy was invigorated by increasing tax revenues."
But when he said that "the growing economy" created that money, man, oh man, I came unglued! A few trillion dollars, TRILLIONS, in new money and debt was created by the Federal Reserve in the last year, and all the government got was a lousy $275 billion? Out of all the money and debt created, the government's tax income was a measly $275 billion increase out of all that money multiplied by the velocity of money as it went from transaction to transaction through the economy? My God! What kind of stupid economic management is THAT? Hell, I don't know where YOU work, but around here you are expected to show a return on investment from the instant you sign the loan papers, and if you don't, then one day you come to work and find that your parking spot has been given to the "Apprentice Custodian's Helper", whoever in the hell THAT is, and it turns out it is YOU!
But Mr. Snow is not interested in my horrible new job, but goes on to say "These increased revenues resulted in a much lower-than-expected 2005 budget deficit. While deficits are never welcome, the 2005 deficit of $319 billion, when expressed as a percent of Gross Domestic Product, was lower than the deficits in 16 of the last 25 years." Hahaha! There is something really funny in there, because just the extra debt that was incurred by the Treasury as the Congress and spent and spent and spent was over $700 billion this year! And yet, somehow, through the magic of government accounting, the budget deficit was only $319 billion? Hahaha!
This level of stupidity is perhaps explained by an article in the Washington Post entitled "College graduates' literacy drops." Apparently, a new study by the American Library Association showed that "only 31% of American college graduates" are proficient in the ability "to read labels." Hahaha! They administered a test that "measures how well adults comprehend basic instructions and tasks through reading -- such as computing costs per ounce of food items, comparing viewpoints on two editorials and reading prescription labels." Hahaha! A lousy third of college graduates!
- If you want another reason to buy silver, and you shouldn't, as the facts are so stark and compelling that I look at you with pity and contempt because you are not out buying MORE gold and silver right now, then listen to Barnaby Feder, who wrote an interesting article in the NY Times entitled "Scientists resurrecting use of silver as antiseptic" He reports that a company called AcryMed, "has invented a process to deposit silver particles averaging about 10 nanometers - less than a thousandth the diameter of a human hair - on medical devices." The reason that this is exciting news is that silver has the amazing property that it kills bacteria and viruses virtually on contact, reducing the chances of infection. Now, to see how this benefits you, imagine that you are a doctor. Now imagine that there is this cute young intern at the hospital, and you are glad that you are a big shot doctor with power to extort compliance over sweet young things like that, and you are daydreaming about this VERY interesting scenario, and after awhile you think to yourself "Hey! This would make a good porno movie!"
But now imagine that your reverie was disturbed because you just got the premium notice for your liability insurance, and you are getting hit with another big whopping increase in your insurance bill. And if your stupid patient gets an infection because you did NOT use a silver-coated infusion device, what is he going to do? He's going to sue the hell out of you! And THEN think of the liability insurance problems I'll have when it further gets out that The Mogambo has no medical training at all, except for helping deliver some puppies one time.
But this is not about how I love the money and the bennies of being a doctor, and that is why I pretend to be a doctor a lot, or even how I can legally do this because laws do not apply to me anymore as I think there is an emergency that allows me to override existing laws and regulations at my sole discretion. I pattern this interesting and handy "laws do not apply to me" rationale after the way George Bush feels justified in willfully violating the Constitution and Bill of Rights because it makes things easier for law enforcement! Hahaha! No wonder that a reported 85% of Americans want this megalomaniac fascist religion-addled idiot impeached. But then Cheney would be President! The manly shoulders of The Mogambo (MSOTM) shudder at the concept.
Fortunately, it is pointed out that I have digressed. So, veering sharply (insert sound of tires squealing) back to the point, I continue that the use of silver-coated devices is going to increase because of the sheer pressure of liability insurance. And while that alone is enough to make silver usage is going to increase, and it doesn't get better when he goes on to say "Nano-scale silver could also eventually make its way onto permanently implanted devices like silicone breasts, artificial hips and knees and pacemakers."
Now, I am no scientist, but I am a consumer of medical services, and judging by the reclusive, sedentary and hate-filled way I am living my dissolute and wasted life, this means that I will have a need for a lot MORE medical services and devices in my future. And if something goes wrong, infection-wise, then you can bet that the old Mogambo Lawsuit Machine (MLM) will spring into action, and then the NEXT time I am getting some medical services from some quack "surgeon" with whom I just faced off in the courtroom earlier that morning, I will either get the silver-coated stuff or die on the operating table. But either way, no more damned infections!
For the technophiles amongst us, he goes on to elucidate by informing us that the way nano-silver works is that "The nanoscale particles have so much surface area to react with the microbes, in relation to their volume, that small concentrations are effective antiseptics." Supposedly, a teaspoonful would be enough for an Olympic-sized pool.
But it is the medical thing that has me mesmerized. Previous attempts at medical colloidal silver were crude, bungling attempts, but "This time around, they are armed with nanotechnology, a fast-developing collection of products and skills that helps researchers deploy silver compounds in ways that maximize the availability of silver ions - the element's most potent form."
- Daan Joubert, who has written a lot of really interesting articles over the years, writes that he was so bored last week that he accidentally read my stupid Mogambo Guru garbage, and feels soiled from the experience. His critique was thankfully brief, covering the points that I am a big stupid moron, but also that while the debt-to-GDP in 1929 was 260%, like I said, the ratio was actually worse, Mr. Joubert says, and bottomed somewhere around 350% in 1933, as the debt did not deflate, but everything else did. So, extrapolating, he calculates that "If the US now stands at a ratio of 350% and should the GDP fall by say a relatively mild 20% , given the parameters you rant about (here I pause the interview to make a note to myself; "Give this guy a punch in the old bazoo for that 'rant' crack. And pick up some cookies on the way home. Chocolate ones."). Restarting the tape, we listen as he goes on to say "compared to almost 30% from 1929 to 1933, the ratio of debt to GDP would push up to 420% - that could then be compared with the 260% of 1933. Really much, much worse."
He could probably see that I was shaken by the revelation that the debt-to-GDP ratio could explode to 420%, but he takes no notice of me and breezily goes on to say "Since we know from history what damage the 260% did, speculating about 420% makes your bunker sound like a good idea!"
Of course it's a good idea! To depend on the goodness of your neighbors and government would be stupid. And Alex S. sends notice that John Wayne, all-American hero, famously said "Life is tough. It's even tougher if you're stupid." Hahaha! Man, I heard THAT! And if John Wayne was alive today, I am sure that he would return the compliment by saying "The Mogambo says that life is tough when you're stupid, and MUCH tougher when your government and central bank act stupid!"
And if you want more proof than just me running my loud mouth, then listen to how Doug Noland tells us that Charles E. Persons, in an excerpt from "Credit Expansion, 1920 to 1929, and its Lessons," which was published in November 1930, wrote "Credit expansion results in business activity, in full employment, in optimistic outlook and in a flood of gratulatory literature proclaiming us wiser than our predecessors." Wiser than our ancestors? Hahaha! There has been nothing new under the economic sun for thousands of years, as there have always been just the basics of taxes, government spending, investing, borrowing, leveraging, owing, paying back, or not paying back but instead taking it on the lam with the company payroll and never being heard from again.
But now (and pay no attention to the scornful smirk on the otherwise serene face of the Mogambo (SFOTM)), after all these centuries of trying and failing, we can finally create real prosperity out of debt and paper money being spent by a large, inter-connected system of layer upon layer of governments? We can now do this when all other attempts at such stupidity ended, predictably, with bankruptcy, mass suffering, war and misery of change-the-course-of-history proportions? Hahahaha!
But this Persons guy is apparently too prissy and delicate to talk about this ugly stuff, and says only "When the process of expanding credit ceases and we return to a normal basis of spending each year no more than we earn that year, there must ensue a painful adjustment period." There it is! "Painful adjustment period!" Painful!
Finally, he ends with "The check to expansion is sharp and is intensified by the excesses inevitably associated with periods of over-rapid expansion." Now, I suspect that he is saying, in that stilted, archaic way that they wrote back in the 20's, that the bigger the boom, the bigger the bust. The Roaring 20's was a nice boom, and the resultant Great Depression was hellacious. This proves that if you think that the Great Depression was bad, then whatever horrible fate overtaking us will be considered to be, in retrospect by historians in the future, far, far worse. Exactly what Mr. Joubert said, too!
- Rick Ackerman of Rick's Picks mirrors my feeling exactly when he says "Bernanke considers himself to be an expert on the Great Depression and the 1929 Crash, and he evidently has Wall Street convinced that under his watch the Fed will not repeat the monetary mistakes that supposedly triggered the deflationary collapse of the 1930s. I would argue that merely by harboring the belief that the Fed will be able to manage a global debt bubble amounting to hundreds of trillions of dollars, Bernanke has disqualified himself for the job." Hahaha! Good one!
But hundreds of trillions? I interrupt to say "An impressive number, Mr. Ackerman!" Hearing me, I can see a vein pop out on Mr. Ackerman's neck. But instead of having a couple of his goons throw me out like he threatened to do if I opened my big fat yap one more time when he was speaking, he explains "the total value of the world's goods and services economy amounts to no more than $40 trillion. However, the financial economy has a notional value more than six times that size, resting as it does on leveraged financial instruments with a face value estimated by the BIS at $250 trillion." I have also read of a $350 trillion estimate, for the record, if you believe the memory of The Mogambo (MOTM), and you are a fool if you do.
But, getting back to the subject, the total notional size of existing financial instruments is six times the size of all the actual buying and selling of goods and service in the whole freaking world? Yow yow yow! But even THAT is insignificant, as he argues when he says "Again, the focus is wrongly on the relatively puny goods-and-services economy. But it is the $250 trillion financial economy that we should be concerned about, since it rests entirely on collateral that has been artificially inflated via credit stimulus."
All I can do is stare off into space, my mouth hanging open in stunned stupefaction at the enormity of it all. $250 trillion! Trance-like, in my mind's eye I see gold. Glittering, shining gold, all yellow and golden, saying "I will save you, Mogambo! And even better, you will be rich for having accumulated gold and silver at these bargain prices, and you can easily finance the long-awaited Mogambo Reign of Terror against all your enemies, both real AND imagined, which is, by this time, probably damned near everybody alive or dead."
Seeing that I am going off on another tangent of rhapsodizing about delicious revenge, Martin Weiss of Money Report tries to calm me down and says that "2008 we will see gold at over $1,000 an ounce." Well, I admit that his clever ploy worked. As a guy who has both 1) a wife with a gold crown on her tooth and 2) a pair of pliers in the garage, I LOVE hearing about how gold is going to $1,000 and ounce! I sit down, enthralled.
Jason Hommel of SilverStockReport.com sees how easy it is to get me to shut the hell up, and says that he predicts $40,000 an ounce! I scoot over towards Mr. Hommel and away from that piker Weiss and his lousy $1,000. With me fawning at his feet, I am entranced when he says "And yet, this prediction of $40,000/oz. gold is conservative. It is important to note that these are not really true growth rates. They are actually decay rates. They show the dollar decaying. Gold's value cannot grow to infinity, but a dollar's value can decay away to nothing. So, I'm not saying that gold will have infinite value. I'm saying dollars will become worthless."
Well, I didn't once date a math major in college for nothing, and I am telling you that dividing gold by the zero worth of the dollar is, indeed, infinity on the old dollars-per-ounce scale. Or damned close to it!
And for this week's installment of "Don't forget about silver!", he says "Silver will rise to about $8000/oz. You should start investing as early as possible, and you should not really care whether silver is $7/oz., or $9/oz. or even $25/oz."
So who is buying all this gold? It ain't me, since I have no money and have no prospects of getting any because I am lazy and hate working, and I have a wife who won't take a second job and gets real testy when I bring it up all the time. Well, it turns out that lots of people are not like me, and they are buying with enthusiasm, as Martin Weiss says "The buyers are more aggressive right now because they know that the world is on an inflationary path. They also know that most central banks will do everything in their power to keep their economies tilted toward inflation. The alternative - deflation - is a nightmare to all governments."
But deflation might be terrific for you! How does a nice waterfront home in Florida for $12,000 suit you? How about a ten-cent cheeseburger? It suits you fine, I'll bet! But we are not talking about Florida real estate or luscious cheeseburgers (even though it is almost lunchtime, and now that we are talking about cheeseburgers, why don't we all knock off early and take a long lunch?), but about gold. He goes on to say "Historically, when you hear about central banks selling gold, also keep the following in mind: In the late 1970s, the U.S. Treasury sold tons of gold. Traders and savvy investors bought every ounce at every auction, and more. So despite the Treasury sales, gold prices went up, up, and away!"
And keep in mind, too, that in the 30's, during the Great Depression, Homestake Mining supposedly went up 500% while everything else went, like my life, my dreams and ambitions have gone today, into the crapper.
Weiss also reports that a milestone was set recently, so that the "Chinese are now consuming more natural resources than any other civilization in history." The upshot of this news is "That's putting huge upside pressure on prices, which, in turn, is raising general inflation levels around the world." And on top of that we have central banks creating more money and credit, which ALSO puts upward pressure on prices! And what is the one thing, the one sure bet, the only thing that will protect you against the debasing of your currency/rising prices? Gold!
- Perhaps he is sick of hearing me whine about inflation this and inflation that, but Rick Ackerman says that I should "Think of deflation in precisely the way it will come knocking on your door: i.e., as an increase in the real burden of debt. Which is to say, having to pay real rates of 9 or 10 percent to service a mortgage on a home worth less than you paid for it. Or having the rate on your $15,000 of credit card debt boosted from 4% to 12% overnight."
But we are both on the same page when he asks the timeless question, "Can anyone still believe Keynesian quackery works, or that the key to reviving prosperity is to get consumers to spend yet more borrowed money?"
Well, Congress does, and the Federal Reserve does, and from SafeHaven.com we learn that there may be more than meets the eye to this decision by the Federal Reserve to no longer report M3, the most inclusive estimate of the money supply. They write, "The date when M-3 will start being hidden also happens to be the exact month that Iran will declare economic war against the U.S. Dollar by trading its oil in Petro-Euros on its new bourse." Hmmmm! But before I can take the time to think about this, he says "But there is more. The Federal Reserve currently has three vacancies within the 19 top Regional Bank and Board of Governor spots. Why? Part of ongoing wholesale resignations. Over the past few years no less than six Federal Reserve Regional Bank Presidents have resigned. This is highly unusual. Two positions for the Board of Governors (there are 7) have been open for quite a while. Plus six of the 12 Regional Head spots have turned over during the past few years."
Notice that he is such a classy guy that not once did he use the phrase "rats deserting a sinking ship." But The Mogambo is not nearly so constrained by civility and breeding, and I say that they, and the whole rest of the Federal Reserve System, are a bunch of filthy, stinking, lying, stupid rats that have made a diseased, pus-filled canker sore of the economy of the United States
What is even more interesting is when they write "The recent rise in gold catalogued 74 points over about a month, a 16 percent rally from precisely the day the Fed announced it would hide M-3 from taxpayers and citizens of this great nation. That is no coincidence, gold sees hyperinflation, monetization of debt, and intervention into free markets. Gold is telling us it expects Ben Bernanke to be an inflationist."
All of this over M3? So how big is the M3 money supply? For this we turn to Doug Noland, who says "Broad money supply (M3) surged $27.3 billion (week of December 12) to a record $10.148 Trillion. Over the past 30 weeks, M3 has inflated $523 billion, or 9.4% annualized. Year-to-date, M3 has expanded at a 7.3% rate, with M3-less Money Funds expanding at an 8.2% pace."
And we can rely on Doug Noland not only for pertinent data, but to give his unbiased opinion about Ben Bernanke, too, as when he says "We have a full-fledged monetary quack about to take the helm at the Federal Reserve."
- Len C. reports that there is plenty of inflation and deflation in prices out where he is, and that "Farmers in Oregon are plowing up their Berry fields [Blackberry, Loganberry, Boysenberry] and cutting down their apple orchards [red delicious] as the activity just doesn't pay anymore. Property taxes are going straight up on the farms, and corporations that buy the fruit to process pay virtually nothing for it."
***Mogambo sez: This is the end of the year. Things will be weird as we approach that fateful December 31 end-of-year cutoff when tax liabilities are fixed. Buy silver and gold regardless.
Dec 27, 2005