 Whoa! This can't be right!
Richard Daughty
The Mogambo Guru
January 16, 2004
To the few truly unfortunates
in this world whose lives are so completely pathetic that they
actually noticed that there has been no Mogambo Guru for the
last couple of weeks, I pity you. The explanation for the absence
is simplicity itself; they are all out to get me.
 To
make sure that everybody had a nice holiday, the Treasury released
billions of dollars in actual cash, foreign central banks bought
up American debt, and the Treasury issued a humongous clot of
new debt, the size of which is so huge that I dare not look at
it with the naked eye. Earlier, and I shudder to think of it,
I had gotten a glimpse of it as I was scanning some other number,
and the impact from that brief fleeting peripheral vision glance
caused my heart to - urk! - momentarily seize up. So naturally
I am afraid that if I look directly at the heights to which Official
Government Debt has grown I will turn to stone, just like what
happens when you look at a Gorgon, of which Medusa was one, she
of the hideous hair of snakes, and whom Perecles was
supposed to slay or something, and I think the Three Stooges
were somehow involved, but, then again, Greek mythology was never
my long suit.
So we will wait just a few
moments here while my wife comes to look at the number for me,
and I suggest taking a few deep breaths of pure oxygen in preparation
- inhale exhale inhale exhale - and here she comes, and she snatches
the paper rudely out of my hand and, adjusting her glasses, starts
off by saying "Six trillion," which I already knew
it was probably in the six trillion range somewhere, so my heart
rate is about eighty-five now. Then she goes on to say "Nine
hundred and...," and I breathe a little easier, as it did
not break the seven trillion dollar milestone. Already I have
almost stopped paying attention out of relief and lack of emergency,
and then she said, and I remember it like it was yesterday, she
said, real fast, "Ninety billion dollars!"
I am proud to say that the
computer-like brain of the Mogambo sprang immediately into action,
and as soon as I regained consciousness I instantly demanded
that the surprised paramedic take that damn cardiac needle out
of my chest and his hand off my wife's thigh, and to immediately
unhook all of these damn lines and tubes and wires, and then
I asked her to repeat that number, and I wrote it down as she
repeated it. $6,990 billion dollars!
Almost immediately, Barb, over
at 321gold, sent me an e-mail to keep me current on the state
of the national debts, as her site keeps
tabs on the official debt level, as she figures that I would
be interested in the fact that the national debt has now officially
soared over $7 gazillion, I mean trillion, but when you are talking
about money in mountains that big it really makes no difference
whether it is gazillions or trillions, as numbers that big are
too huge to be comprehensible, and when you think about them
you get dizzy, and then you get a headache, and pretty soon you're
real grouchy, and then your conversational skills subset is reduced
to snarling "What in the hell are YOU looking at, scumbag?"
But either way, seven gazillion or seven trillion, it is a lot
of money, roughly comparable to what it would take in plastic
surgery and personality transplants to make me appear to be almost
human, and then paying somebody to be nice to me so that I could
get used to how that feels.
As the news about the debt
is toxic to the hyper-excitable type of person, like me, it was
not surprising that I had excruciating pains shooting through
my chest, which felt like it was in a vise being squeezed, my
breath was coming in ragged gasps, and that my left arm was hanging
limp and useless at my side when I read the news that the debt
soared to over $7 gazillion. I mean, trillion.
As for the cash released, I
assume that the majority of the continual issuance is to give
to Iraqis and Afghanis and CIA operatives, so that they could
spend their way to happiness, as seems to be the course chosen
by American democracy, since we are now in the business of forcing
democracy down the throats of the world. And buddy, I'm telling
you that spending your way to Nirvana takes cash. And lots of
it. And if you don't believe me, ask my wife, who is absolutely
sure that she is NOT in Nirvana, and the reason for that unfortunate
circumstance is that she lacks the cash to achieve it, and she
never tires of telling me how she feels about that, so she is
somewhat of an expert on the topic of how much cash it takes
to achieve happiness.
To help us out, foreign central
banks, of course, continue to underwrite the profligacy of we
Americans, or us Americans, I'm not sure which, and they salted
away at the Fed another $6 billion in the latest week, roughly
twenty billion in the last month. And those are, lest we forget,
dollars. Lots and lots of dollars.
And while I am sure that twenty
billion a month doesn't seem like that much to a big shot like
you, but to the rest of us chumps out here in the real world
who are walking down the street minding our own business and
wondering if that foul smell is us or something that we have
stepped in and hoping that it isn't, it is a lot of money. But
perhaps in the big scheme of things, given the huge money supply
on the globe, what's another twenty billion? Chump change!
But it adds up. And here I
am reminded of a joke from a joke book about the kid who shot
his mother and father for twenty-five cents. The judge asked
him why he would do such a thing, and the kid replied, "You
know how it is, judge. Two bits here. Two bits there. It adds
up."
The joke is, I admit, tasteless,
and it comes from a book that I had when I was a teenager entitled
"Truly Tasteless Jokes." Given my fascination with
that tacky tome, as evidenced by my being able to remember the
title after all these years, it is, I think, a clue as to why
I am the way that I am, but hoity-toity mental health professionals
won't even discuss it, preferring to stick to their recommended
regimen of massive electroshock therapy and solitary confinement
under heavy sedation someplace far, far away, dumped in somebody
else's lap where none of them have to deal with me ever again,
and there is my wife shouting "Amen, brother! You're outta
here, you little bastard!" and I am yelling "I object!
I object!" and even the court reporter is telling me to
sit down and shut up, and I can see that THIS confinement hearing
isn't going to go any better than any of the other ones.
But the essential truth is
that the kid is right; two bits here and two bits there DOES
add up, and not just in a good way, but in a bad way too, if
there are actually two negative bits here and two negative bits
there, which means you are four bits in the hole. And to demonstrate
this profundity I take a piece of chalk and draw a number line
all the way across the blackboard, and selecting the midpoint
of that line, I label it "You are here," and I proceed
to prove that debt becomes negative income, that time and space
curve back on themselves, and that evil beings from another planet
have taken over all the government jobs and are actively working
to destroy mankind in general, and me in particular.
The money supply as measured
by the famous M's continue to disappoint and cause consternation
amongst guys that cannot fathom them to start with, like me,
but who have some gut-level idea that they must mean something,
and that the supply of money going down must have some untoward
significance, even though we have no idea what in the hell it
could possibly be. But it can't be good, as you never hear of
an economics lecture on the topic "The benefits of a falling
money supply."
But foreign nationals, as compared
to their central banks, must be a little more on the ball, as
the dollar sold off again, as it has been doing for quite a while
now, which obviously means that they are not interested in owning
dollars or things that dollars can buy. Those foreign guys are
such sneaky little copycats, and that is why we sneer in contempt
and disrespect for all foreigners and their strange ideas and
odd habits and bizarre customs and incomprehensible laws and
the funny way they dress and their stupid little accents when
they comically try and speak English. And as for getting out
of dollars and dollar assets, I again snort in contempt at them,
both collectively and individually, as we genius Americans have
been waaayyyyy ahead of them in that regard, because we don't
care about the dollar either, and are only interested in shiny
baubles and fattening foods and things that make us feel good,
and that is why we are up to our fat ears in them, and why we
happily give them every dollar we can get our hands on in exchange
for amusing doodads, and that also explains why the aforementioned
foreigners are up to their ears in dollars, as that is what we
use to pay for the shiny baubles. And now who are the big chumps?
They are! I laugh at those snotty foreign devils - Hahahaha!
- who all smell funny, who actually live in foreign countries,
and talk in some strange foreign language or another that I can't
understand a word they say, and they often wear funny hats, too.
Speaking of foreign nationals,
there is progress afoot to legitimize illegal aliens here in
the USA so that businesses do not have to pay higher wages to
attract Americans to take the jobs, which they don't want, because
they pay so little. In this way, businesses will not have to
charge higher prices to make up for the higher wages.
And thus - thus! - we transfer
the downside of inflation, which is defined here as rising consumer
prices, onto the backs of desperate poor people so as to create
a new class of poor people here in America. How special! And
this also keeps the employment figures up, and if you are George
Bush, this seems like good news, and just in time for the election.
And why won't Americans, like
that worthless layabout son of yours who is at this very moment
stretched out on the couch watching TV instead of looking for
a job, take the jobs that these illegal aliens are taking? Because
of inflation, the same inflation that you have been told does
not exist, and Ben Bernanke says is too low, and it has driven
the price of things so high that, even working, you can't afford
to buy them. So why bother?
I am sure that the government
is pleased with themselves that the stock market and the housing
market and the bond markets all held up through December 31,
so that a lot of tax revenue will be due to the government. Lord
knows they need it and they want it. It would have been so unseemly
for those markets to fall to their true worth and then have the
hapless investors turn right around and deduct a bunch of those
losses on their tax returns.
The Daily Reckoning website
opines, "Already, even with the lowest interest rates in
4 decades, Americans' debt-service ratio is at historic highs.
And, at least in Silicon Valley, as many as 68% of all mortgages
are adjustable rate. The average mortgage rate currently is only
5.8%."
This behavior would make sense,
even knowing that future interest rates would be higher, IF the
borrower banked that savings, namely the difference between the
monthly payments on a higher fixed-rate and the lower adjustable-rate.
This way, he would make some interest on the money that he WOULD
have spent per month, but is not spending, and then, when the
interest rate changes, he can just close out the savings account
and pay down a huge chunk of cash to the mortgage company, bringing
down the amount to be re-financed.
But I am pretty sure that many
people took the lower adjustable rate, and, even knowing that
rates would increase in the future, spent the savings! That's
the kind of mindless and insatiable greed that made America great!
"Japan's central bank
committed around 10 trillion yen ($93 billion) this year to currency
intervention operations, " observes Strategic Investment
editor Dan Denning, " [and still] the dollar fell 10% against
the yen in 2003. $93 billion is a lot of cash to start throwing
around in your currency fight. Let's say Japan and China together
buy up 40% of the NEW U.S. debt (about what they own now),"
Dan continues. "That still leaves US$270 billion in new
bonds the U.S. government would like the rest of the world to
buy at between 4% and 5% interest. Will the government sell US$270
worth of new bonds next year? Probably. But you have to wonder
how 'safe' a 4% yield is when you're losing 10% a year on the
currency conversion alone."
To Dan I say, "Relax!
You worry too much! Remember that these are foreigners, who make
movies which actually seem to be in a foreign language or something,
so how smart can they be?" I mean, look at them buying US
debt at record low rates now! And they have been losing money
on simmering inflation and taking the currency translation whack
for years! So do you really think that these stupid foreign jerks,
who drive their ugly little cars with their wimpy little horns
- Beep! Beep! - are suddenly going to finally wise up, after
all this time, and say to themselves "Whoa! This can't be
right!"
Kurt Richebcher wades into
the same thing when he writes, "Yet the Asian countries,
ex Japan, have a second reason to run a surplus with the United
States. It is the main source of the high-powered money of their
banking systems. As their central banks are buying gargantuan
amounts of surplus dollars, they create liquid reserves for their
banks that foster the lending boom to their domestic producers.
Vastly excessive reserve growth is creating vastly excessive
money and credit growth, stimulating and financing an unprecedented
investment boom, similar to that in Japan in the late 1980's."
And here is where I pause and
think, and scratch my head in puzzlement, and all that thinking
makes by brain hurt, and so I naturally stop thinking, but keep
scratching, and pretty soon I am thinking about why I am scratching
my head so much, but don't I remember reading something, somewhere,
that what Dr. Richebcher calls a "vastly excessive money
and credit growth, stimulating and financing an unprecedented
investment boom" is something bad? Where did I read that?
Oh yeah! I remember now! I read it in damn near every economics-related
thing I have read in the last few decades! But it must have somehow
escaped the attention of these idiot foreigners, who are so backwards
that some of them even drive on the left side of the road, so
how bright can they be when they can't even tell left from right,
for crying out loud? And since Mother Nature, whom should more
precisely be called Cruel Taskmistress With A Whip In One Hand
And A Bazooka In The Other Who Will Kick Your Butt Every Time
You Step Out Of Line, eliminates the stupid from the gene pool,
you must assume that Japan is doomed. And parenthetically, the
Japanese on their tiny little island making the mistake of committing
horrifying cruelty and unbelievable barbarism in China, which
is a huuuuuuge country with a national characteristic of veneration
of the past and, I assume, revenge, proves that they do not truly
think truly strategically.
Speaking of Kurt Richebcher,
and as rational, thinking human beings we should be not only
speaking of him but quoting him - at length! - to friends and
family and co-workers and the clerk at the grocery store and
even total strangers, is also the main guy exposing the fraud
of hedonic (as in "feel good" I assume, and if there
is one thing I know it is hedonism, especially the part about
how much it costs) government calculation, as when he writes
"Computer investment soared by $93.1 billion, of which $81.6
billion came from the hedonic spin. Each additional dollar spent
on computers in the real GDP accounts during the year translated
into eight additional 'chained' dollars, accounting, by the way,
for 26% of real GDP in this time. The difference between the
two measures of business computer investments is exploding."
So, putting words in his mouth, not only is there a fraud, but
it is getting more fraudulent as time passes, which we signify
by showing a short video clip of a calendar with its pages being
torn off, and then the pages are thrown into a wastebasket, scorned
and rejected by everyone, which pretty much sums up my whole
life, and I don't want to get into that right now, but I can
feel that it will come exploding out in a torrent of raw, crippling
emotional pain one day real soon, and the only way I can keep
it from destroying my life is for you to send me some money,
as I could use it right about now. Or even tomorrow. Whenever
you can get around to it. Preferably now, of course.
But anyway, Dr. Richebcher
continues, "As we have explained many times, these particular
dollars are fictitious dollars that nobody has paid and nobody
received. Obviously, such dollars inherently add nothing to profits.
Putting it briefly and bluntly: The trumpeted brisk rebound in
U.S. business capital investment is another bullish mirage lacking
any serious substance."
And that is why he is a respected
economist and international big shot and I am merely a sad and
lonely little man poking around in the dumpster behind the WalMart,
as I would never have thought to use the phrase "bullish
mirage lacking any serious substance." The only phrase that
comes to mind is "A lie! A big, fat, disgusting lie, told
by disgusting, corrupt people, whose crimes - Nay! Calumny! -
are such that it behooves the society to rise as one and to grab
weapons like this M-16 here and snap in a full clip of high-powered
ammo like this and go around shooting at all the houses that
are owned by people who have been mean to me in the past, which
is everyone as far as I can tell, and here is what I think of
that weather vane, Mr. Brown!" and then I pull the trigger
and blow that weather vane to smithereens, and in that dramatic
way I poetically, because not all poems are written with a pen,
show my displeasure with my government lying to me. Especially
since it involves such a transparent lie that any third grade
kid can see through it at a glance, and so they have insulted
my intelligence, and thus my new civil right of having things
not make me upset is violated. And thus they owe me! So what
am I doing in this courtroom? This is a travesty of justice!
Anyway, this is essentially my whole line of defense that I am
going to use when my case gets to trial.
But win or lose, the important
point is that hedonic measurement is exposed for what it is,
and that it was most ardently exposed by Kurt Richebcher, and remember that there
is an umlaut in there, which I do not use because I can't easily
find an umlaut on my computer,
and if he doesn't like it then he can just come over here and
spit on me and call me names and express his displeasure about
my horrific lack of personal hygiene and how he is revolted to
even be near me, which I hope he doesn't do because I get enough
of that at home.
But I bring it up as my way
of helping the word get out, and maybe one day when some government
yahoo is spewing this stuff, someone in the audience will yell
out "Liar! Richebcher with an umlaut in there someplace
has exposed that hedonic measuring crap, and the Mogambo helped
to spread the word! All hail Mogambo!" And then everyone
will join in, saying "All hail Mogambo! All hail Mogambo!
Let's send him a few bucks because he sure could use the money,"
and then maybe someone will, and then I will be in the envious
position of making money by doing a good deed, and that would
be real nice, too.
Doug Noland, who is a regular
fount of statistics that can make your stomach churn and your
EKG machine to start frantically beeping, writes that Tom Sullivan
and Christine Richard of the Dow Jones wires reported "Low
interest rates and a recovering economy fueled a record $4.938
(up 25% y/y) trillion in global private sector bond sales for
2003." Calculating, because you know how I love to play
with a calculator even though I have no idea what in the hell
I am doing, by dividing the new census estimate of 290 million
people in American, that works out to a tidy $17,938 per man,
woman and child in the USA, even though it is global issuance
of debt, and there are more people on the globe than us Americans,
although none of them are as important as we Americans. "The
numbers include issuance of corporate debt, federal agency debt,
taxable municipal bonds, debt backed by mortgages and debt backed
by assets such as credit card receivables and home equity loans.
By comparison, issuance in 2002 totaled $3.938 trillion."
I notice that your hands got
sweaty at that news, and I am wondering how you will take the
news that "State and local governments borrowed a record
$379.1 billion to close budget gaps at low interest rates...
Total municipal bond issuance rose 6.5 percent from a record
$355.9 billion in 2002." Closing budget gaps by borrowing.
How scary.
Now I pull out the big stuff,
and I quote Doug, and don't tell him that I called him by his
first name, but I spend so much time reading his stuff that I
feel as if I know him, although he never sends me so much as
a birthday card, the little snot, "As for 2003, the debt
issuance and market return numbers speak for themselves. Global
markets experienced history's greatest liquidity surge and reflation.
Asset inflation - both real and financial - was powerful and
all-encompassing. Speculation and inflation were vigorous and
indiscriminate. Debt and equity markets were stoked by an unprecedented
surge in dollar liquidity and renewed speculation, along with
a massive short squeeze. The upshot was a market abnormality
with virtually all boats being lifted. Credit market speculation
was unleashed to play the world. Unprecedented mortgage Credit
growth and leveraged speculation fostered excessive dollar liquidity,
while the faltering dollar played an instrumental role in the
flood of global liquidity. It has had the look and feel of an
historic 'blow-off,' yet it is being dangerously extrapolated
into the future." When we look beneath all that sugar-coating,
I get the impression, nothing that I can actually put my finger
on, that he sees a bad moon rising.
Speaking of states, California's
Governor Schwarzenegger has cut spending across the board. It
will avail him naught, for it is exactly the same, in effect,
as a tax increase.
I say this surprising statement
because a tax increase reduces income by taking it away. And
all state spending is somebody else's income, and now he is taking
THAT away. So, in the final analysis, somebody is getting their
income cut. And add in the damage done when they realize that
a goodly part of the tax revenue they are receiving is because
the state spending filtered through to produce taxable sales
and income. And now, aggregate income is going to be down, keeping
the fiscal balance of California in bad shape.
So the net effect of cutting
spending is the same as a tax increase. And this is why I say,
in a voice that is both unnecessarily loud and shrill and which
may explain why nobody will get on an elevator with me even though
there is always lots of room, that there is no easy way out of
a credit and money-fueled boom. Cutting taxes won't do it. Cutting
spending won't do it. And that is why, and this is the important
part and you can be sure that it is on the mid-term exam, it
is so damnably necessary that you NOT get into a excess money
and credit-fueled boom in the first place.
That is why, and you knew I
was going to bring up the Constitution thing sooner or later,
so wipe that surprised look off of your face, the Founding Fathers
wrote into the Constitution that money shall only be silver and
gold, and there was no provision for a
central bank. We ignored them and their legally-binding advice,
and now we are going to pay the price for our outrageous and
inexcusable stupidity. Or, more precisely, the outrageous and
inexcusable stupidity of FDR, whom I fondly refer to as a filthy
commie bastard, who did it, and the Supreme Court, which allowed
it.
Dan Denning is a real bright
guy, and I am not, and that is probably why he is the editor
of Strategic Investment, and I am not, although I make up for
it by also having a lot of interesting but serious character
flaws, which would also explain the difference between our two
circumstances.
But he shows his smarts by
saying something that I do not understand, and never will be
able to understand, even though I am sure that any fourth-grade
kid could write a doctoral thesis on it, but he says "The
fate of the American stock market is now linked with the dollar.
And as the dollar falls, so, too, will most (though not all)
stock prices."
Now, in completing my FBI Profile,
I am proud to be one of those loudmouth fringe lunatics, and
if you read the reports you will find out who is also an ARMED
loudmouth fringe lunatic, and so say it with a smile, who thinks
that stock prices have almost nothing to do with anything, including
the dollar, and that people, domestic and foreign people, any
people, including strange visitors from a distant planet from
a galaxy far, far away, will cheerfully buy them with all their
spare cash, and put their retirement accounts, and make sport
of them every day of the week. And I am absolutely sure that
if the dollar crashed to literally zero tomorrow, that the talking-heads
on TV would be screaming that stocks would be screaming bargains,
and that people would buy them, if they had the money, and if
they don't have it, they will borrow some against the equity
in their houses to buy the stocks.
He also laments that "America
is the most hated nation on Earth," as I have often keened
about, as I really liked the idea of us Americans wearing the
white hats and rescuing the damsels in distress and being champions
of the underdogs all the rest of that "Truth, Justice and
the American Way" folklore. He goes on to ask, "How
could it be that less than 15 years after the collapse of the
Soviet Union, America has replaced the USSR as the Evil Empire?"
The room grows quiet as the Mogambo clears his throat and raises
his hand to be recognized. Immediately, everybody else raises
their hands, too, asking to be excused, and the more desperate
audience members bolt for the exits.
Too late, as I begin with my
usual monotone. "I will endeavor to answer that one, Mr.
Denning," I say. "It all started when the Earth cooled,
and one-celled creatures appeared in the primordial sea, and
to make a long story short, time passed, and we arrived at today.
And as my latest attempt to produce powerful productivity in
my every word and deed, as I am The Mogambo, I will now simultaneously
cloak myself in jingoistic claptrap and note that there are thirteen
stars on the American flag, and thirteen original colonies, and
the answer is likewise thirteen words long. The Clintons, the
Democrat Party, Bush, and Alan Greenspan at the Federal Reserve."
The audience was, to put it mildly, stunned. It was a milestone
in profundity and productivity, and the Mogambo sits back down,
and with a big, silly smile of smug satisfaction on his face.
You are probably asking yourself,
"So what? How can I, personally, make a lot of money on
this information, so that I can quit my horrible job and have
a lot of money to travel around showing off how much money I
have, by spending it on toys and the consuming the best of everything
in a fit of greedy, glorious gluttony?" Well, I was going
to call him up and ask him, but before I finished dialing the
phone, he provided the answer to that very question. "What
America was to the 19th century, China is to the 21st. A great
global force of production and falling prices has risen in China.
It is the world's largest producer of goods. It will soon become
one of the world's largest consumers of commodities. These two
developments will mean the continued decline of American manufacturing
and a tremendous bull market in," and here I pause for dramatic
emphasis, "commodities for U.S. investors."
I am assuming that you are
like me and your ears actually twisted around on your head, like
an alert dog hearing a can of dog food being opened, when he
uttered the phrase "tremendous bull market in commodities
for U.S. investors." Now, substitute "grubby, greedy
speculator in search of obscenely bloated profits and involving
no heavy lifting" (or, better yet, the shorter term "you")
for the term "U.S. investors." Now, substitute "gigantic,
unbelievably huge gobs of free money" for the bland term
"bull market," and you will see how, once you strip
away all of the fuzziness, he was actually saying "Tremendous,
gigantic, unbelievably huge gobs of money in commodities for
you, a grubby, greedy little speculator who is interested only
in amassing inconceivable amounts of wealth so that he can unleash
a vicious revenge on a cruel and unforgiving world, and produce
some gut-wrenching levels of envy in the neighbors that hate
you almost as much as you loath them." Well, I just threw
that last part in there, but it adds a certain realism to the
whole thing.
Mr. Denning also predicts,
"A new era of trade wars." Now the effects of trade
wars is to impoverish one set of people while enriching another
set, which, oddly enough, ends up impoverishing them both.
On a paranoid level, and there
are those who think that I cannot get more paranoid, as I am
already setting new records ever day, he says "Look for
an increase in terrorist activity as the terror network attacks
American resolve."
If you have been in a cave
for the last couple of years and so you have not noticed the
meteoric rise in gold, he reminds you where people go when
the things like the above really get cooking. "Sometime
in the next two years a big move in gold
is coming." Now, this is the second or third time in the
last week that somebody has pointed out the relevance of the
next two years as pertains to gold. The
back-of-the-envelope average is gold
doubling in price in two years, tripling in five. Already it
is selling at the highest price in fifteen years.
Now you may be one of those
hard-headed people that thinks that maybe Mr. Denning is too
pessimistic, and how could he know any of these things? Search
me. In his defense, I will note two things: 1) he is smart enough
to refuse to have absolutely anything to do with me, so that
puts him one up on everybody else who has ever made the mistake
of taking my call, or responding to an e-mail, or a fax, or a
letter, or a telegram, or even coming out of their house late
at night and asking me to stop rummaging around in his trash
cans, and 2) he has closed his essay with the profound investment
genius of billionaire investor George Soros, who offered the
immortal advice, "Find The Trend Whose Premise Is False
- Then Bet Against It."
And when you
do, you will, once again, find gold
is a perfect investment.
And you don't have to listen
to me. BBC News reports that the Vietnamese, of whom I know almost
nothing except that they are an Asian people of some kind, kicked
France's butt and then America's butt in the Fifties and Sixties
and Seventies, and me and the missus sometimes go out for Vietnamese
food which is very good, not too heavy on the sauces, are stepping
up their purchase of gold by another ten tonnes per year. The
title of the article was "Vietnam Plans Gold
Buying Spree." So the Vietnamese, and remember that these
are determined people from a tiny little country who had enough
smarts to be beat up two of the biggest superpowers in the world,
are diversifying out of dollars and into gold,
and you gotta respect the acumen of guys who can use a few bamboo
sticks and surplus AK-47's to whip a superpower to a standstill.
Marc Faber, one of the true
big-brained hotshots of the economics world, has written, "I
remain convinced that the present 'strong' recovery phase in
the US economy won't last for long, as it is totally artificial.
There are simply too many imbalances in the system, as reflected
by a record low national saving rate, record household debts,
and record trade and current account deficits, for this recovery
to lead to sustainable strong growth that would justify the present
stock valuations."
I'm not sure if Martin Weiss
of the Safe Money Report personally knows Mr. Faber, but they
are obviously on the same page as Mr. Weiss writes, "If
you bought the average Nasdaq stock right now, you'd have to
wait a full 140 years - until the year 2144 - before the companies
could produce net profits that add up to the amount you invested."
Even Bob Wood of KMA writes,
"But there are other things that keep me bearish that are
much simpler and easier to understand. Like how the greatest
investors of our time like Buffett, Soros, Rogers, Templeton
and Grantham are for the most part out of this market. Why are
the bulls telling us to rush in the front door as the people
that know their businesses better than anyone are scrambling
out the back doors? If the greatest investors of our time are
out of the market, why are we in it?"
And Mr. Faber is right, and
if you care to go and look at any book on economics, and I wish
you would because I am too stinking lazy to get up and do it
myself, you will note that no author of any book has ever, and
I emphasize "ever," related any of these imbalances
as the start of something wonderful. To the contrary, they are
always listed as precipitating factors that caused calamity.
He goes on to quote Joseph
Schumpeter: "Our analysis leads us to believe that recovery
is sound only if it does come from itself. For any revival which
is merely due to artificial stimulus leaves part of the work
of depression undone and adds, to an undigested remnant of maladjustments,
new maladjustments of its own."
He then goes on to refer to Peter Bernstein, who is, in Mr. Faber's
words, "the author of several best-selling books as well
as the excellent economic newsletter entitled Economics and Portfolio
Strategy."
"Noteworthy is that US
consumers have increased their spending for an unprecedented
47 quarters in a row (the last downturn was in the fourth quarter
of 1991) and more recently, consumer spending rose largely as
a result of higher borrowings. Private sector saving, private
sector investment, household consumption, government spending,
government revenues, capital flows, and trade balance all react
upon one another - often in surprising fashion. We live in a
complex system: each piece tends to function as both symptom
and cause."
Which is exactly what I have
been saying all this time, namely that all things are connected
to all things, and all things necessarily influence all other
things, but when I bring this salient point up, I am sure that
this Bernstein guy will easily prove that he has been saying
it for longer than I have, and that I am just a lackluster copycat
who has never had an original thought in my whole life, and then
it will escalate into a lot of name-calling and screaming and
threats, and then our wives will be drawn into it, and then they
will start fighting with each other with lots of hair-pulling
and scratching out of eyes, and then me and Bernstein will open
a few beers and a can of peanuts and watch them go at it, maybe
making a few side bets, and then everybody will get either tired
or drunk and then we will just all go home, tired and exhausted,
leaving it unresolved.
He also dryly notes that US
household sector debt to net worth is at an all-time high, and
he quotes Merrill Lynch's chief North American economist, David
Rosenberg, as saying "The amount of leverage relative to
the size of the consumer balance sheets has never been as large
as it is today."
To elaborate on this interesting
factoid, he notes that "In fact, since 2001, real wages
and salaries have declined (they declined by 0.2% in the 12 months
ended September 2003)." So, adding it all up, debts are
up and means of paying them are going down. And, once again,
I admit to a complete lack of education, as I have never heard
of a successful economy that had record-setting debts that steadily
increased, coupled with falling real incomes with which to pay
the debts.
Then Mr. Faber says something
that I have been screaming about, namely, "I may add that
the decline in real wages and salaries was far worse than official
figures would suggest, because the US government has been purposely
understating inflation figures by a wide margin." I am impressed
by the way he refrained from screaming it at the top of his lungs
that the government is a lying bunch of corrupt weenies and that
they are all out to get us, but Mr. Faber is obviously too classy
of guy to steal my thunder. But my anecdotal evidence is that
prices are rising a hell of a lot more than official releases
state, and I note that an issue of Barron's went to four bucks
a pop, up from $3.50, which is, percentage-wise, ummm, let's
see if I can remember how to calculate this, either 14.3% or
1,984,643.67%.
Mr. Faber goes on to say "This
highly artificial recovery is, in our opinion, not sustainable
for very much longer, although we should all realize that the
Fed is fully aware that asset prices must, under no circumstances,
be allowed to decline. In fact, the Fed will try to make them
appreciate even further through highly expansionary monetary
policies." And this is why the stock market was almost guaranteed
not to go down before December 31, and, sure enough, it didn't.
In a remarkably similar vein,
not enough to be spooky, but close, we have the Daily Reckoning
people saying, "Greenspan acknowledged that he might have
raised rates to prick the bubble. But that would have meant a
real correction rather than a phony one. A falling stock market
would 'bring the whole economy down with it,' warned Greenspan."
Now as far as I am concerned,
no truer words were ever spoken, and that is why Mr. Faber and
the DR people are so fearless as to say it, as the retirements
of everybody is now tied to the stock market, the wealth effect
is now tied to the stock market, interest rates are now tied
to the stock market, most of the buying and selling in America
is directly related to buying and selling of stocks, a huge fraction
of the entire US economy is the buying and selling of stocks,
and a huge, humongous wad of tax revenues to the government are
a result of gains in the stock market, and in fact everything
economic and financial is now tied to the stock market.
Or, as Stephen Roach at Morgan
Stanley puts it, "The ascendancy of asset markets has resulted
in a significant shift in the mix of America's internally generated
economic fuel - away from earned income toward the wealth effects
derived from investments in stocks, bonds, and property."
This explains why the government
is so anxious to keep Americans enamored with the stock market,
and why Eliot Spitzer got a $1.4 billion settlement from America's
top 10 brokerage firms, but not a single person, in those firms,
not one, faced criminal charges or admitted any responsibility
whatsoever. So now acting criminally is now just a small fine,
which is the same as buying a license to steal. And it is even
better than a license, since if you don't get caught you get
to keep the money, and if you do get caught, then all you have
to do is buy the license! And so you can be sure that there is
nobody out there "cleaning up his act."
So you can see why the Fed
is so anxious to, as they so cleverly put it "prevent deflation,"
which means, literally, "prevent stock prices from ever
going down, no matter how many frauds we have to commit, how
many lies we have to tell, or how despicably we have to act."
And while I am talking about acting despicably, I am sure that
you recognize that this is the perfect opening to rag on Ben
Bernanke, but to show you that hanging around with classy guys
will rub off on you, I will not do it. Although I want to, and
usually take any opportunity to do so ("Hey, neighbor! Taking
out the ol' trash, eh? That reminds me! Ben Bernanke of the Fed
is a real piece of trash!") and he so desperately deserves
it, but I will take this one opportunity to act like a normal
human being and just let it go by, even though it really gripes
my butt to do so, and secretly in the back of my mind, I am making
a mental note to rag on him TWICE as soon as I get another opportunity.
And as bad as it is here, you
can only imagine the pressure being brought to bear by foreign
governments and investors, who are up to their armpits in US
assets, who are probably becoming aware that the stink is not
their own armpits, but the US assets that are piled up to that
point, and which ARE starting to stink.
Jay Shaft, writing on the website
AxisofLogic.com "How much worse can it get? When will mainstream
America wake up?" sounds just like me, so much so, in fact,
that I quickly ran through a few court transcripts and psychiatrist
reports to see if I have ever used the name Jay Shaft as an alias.
Nope. But apparently he is a real guy and not another of those
multiple personalities of mine that keep popping up. Even though
he sounds like me, I secretly dread that he is more handsome
than me, and probably taller and has gobs and gobs of thick,
wavy hair that has Hollywood starlets panting, and probably even
has a neighbor, or even several neighbors, that are NOT suing
him in court, although, as I said, he sounds exactly like me.
But he said something that
I have noticed too. He writes, "I had an amusing conversation
with a so-called 'normal' American the other day. I was presenting
him with the current figures on how bad it really is on all the
issues he mentioned, and he acted like it was something he had
never heard before. I realized that maybe he never has heard
how bad it has gotten, and maybe he didn't want to hear it. His
shock and anger were immediate and vitriolic in nature. He denounced
me as a liar, and claimed I was making these things up out of
thin air."
"The fact that most of
the figures and facts I gave him were from US government agencies
and the newest reports did not even slow him down in his attacks.
I repeatedly pointed out that the facts were coming from his
oh so loved government and he almost physically attacked me.
I even showed him the printed reports from various agencies and
he accused me of fabricating them completely."
I'm not sure who coined the
term "Americanus boobus," which can be defined as "Moron
living in a dream world," but this is its spoor.
"These people seem to
be totally oblivious to the fact that homelessness has risen
by 40-50% on a nationwide level and that poverty has reached
an all time high. They don't know that the US is last in education
levels among first world countries, that the deficit is greater
than ever in recorded history, that the unemployment rate keeps
climbing despite Bush claiming otherwise, or all the other grim
facts of life in America."
I, personally, put it down
as the grim result of a thing that he touched on, namely "The
US is last in education levels among first world countries."
Last. Dead last. By a long shot. We even had to adjust downward
("norm") the SAT scores because the American students,
the kids who are supposed to be so bright and make so much money
and can support us in our old age, can't even pass the dumbed-down
SAT's anymore.
And I am here to tell you,
and you can tell by the way I am ferociously grasping you by
your lapels and screaming in your face and how my eyes are bugging
out in fear and anger, that a rising poverty level is never a
good sign, and is always a precursor to something ugly, usually
reminiscent of the French Revolution, and I am sure you know
how well that turned out. And why is poverty increasing? Because
prices are rising faster than wages. To keep wages from rising,
we have taken the bizarre path of letting illegal aliens come
here and take the rotten jobs at those starvation wages, so in
this clever way THEY will be poor, and they can't do anything
about it, because we can deport them! Hahahaha! I'll bet that
if those French jerks had thought of importing Mexican illegal
aliens to do all the work for starvation wages, they wouldn't
have had the French Revolution! It's just another example of
how we Americans are smarter than everybody else!
A woman was recently attacked
by a mountain lion, and all the on-lookers could do is throw
rocks at the predator as it dragged her away by the head. If
only one of them had taken the ordinary precaution of having
a handgun, perhaps something in a large caliber semiautomatic
with an oversized clip and a feather-touch trigger, then everything
would have been fine. But noooOOooo! You can bet that if the
Mogambo was there, the air would still be tinged with the acrid
smell of burnt gunpowder, the landscape would be knee-deep in
spent shell casings, and all that would be left of that damn
mountain lion would be a few scraps of fur that were too small
to even perform DNA tests on.
This distressing episode is
also the natural progression from passing laws to protect predators
while eliminating the natural food source of the mountain lions,
and then the predators get hungry and desperate. The bottom line
is that that poor woman was killed not by a mountain lion merely
trying to stay alive, as do all animals, but by the defenseless
unarmed jackasses and tree-hugging wimps who think that nature
will respond to their kindness with kindness, although most of
the animals in the world that comprise "nature" probably
think we taste like chicken for all we know.
In keeping with that, there
is now a pesticide-resistant mosquito, just as there are antibiotic-resistant
germs, all thanks to the overuse of pesticides and antibiotics
that wipes out the susceptible variants, but lets those with
evolutionarily-enhanced resistance live and multiply, and so
we have produced super-bugs.
Humans are such jerks, who
can spell "evolution" and can wax eloquent about "survival
of the fittest," but have no idea what in the hell it means,
and always act surprised when forcefully reminded.
If you want a job of the future,
then learn to speak Chinese, as there will be plenty of Asian
tourists traveling to the USA in the coming years and decades,
as the worthlessness of the US dollar will make America into
a cheap vacation paradise. And there are lots and lots of Chinese,
so even a small percentage of them coming to Disney is a huge
wad of people.
David Callahan writing in the
Jan 8 edition of the Christian Science Monitor, intones "Barely
a third of households hold more than $5,000 in stock. Most Americans
have more debt on their credit cards than money in their mutual
funds."
Does this imply that the average
American owes more on his/her/their credit cards than he/she/they
has/have in his/her/their retirement account/accounts? He doesn't
say.
Anyway, to this hypothetical
average American I guffaw in contempt, and if you have ever seen
me guffaw then you know I am deadly serious here.
My latest escapade with the
microwave and the car made me aware of accrual accounting, and
so I sat down and figured up that if I have to replace all my
appliances and consumer goods every six years, on average, then
two cars, two computers, the air conditioner, the stove, the
refrigerator, the dish washer, the washer and dryer, three TV's,
the stereo, the video games, not to mention the lawn mower and
painting the house and all the rest of that constellation of
stuff that defines "American standard of living," then
it comes to about $60,000, and that means that I have to spend
ten grand a year, and those are after-tax dollars, just to achieve
standstill. No wonder there is so much borrowing!
And this brings up a point
from a reader, who asks if I have any tips for people who are
NOT rich. And I say yes, I have. Spend less than you make, stay
out of debt, and invest wisely, and then one day you will be
rich, unlike the majority of your neighbors, who spend more than
they make, assume un-payable debt load, and will one day be very,
very poor.
The International Monetary
Fund, and I will refrain from calling them a bunch of low-IQ
commie bastards only because I have said it so many time before,
has waded into the financial state of the US, and, of course,
has bad advice to generously dole out to us. Apparently they
figure that we are too stupid to notice the parlous effects of
their advice to other countries all these years, and that we
will sit still for them lecturing to us, the guys who are the
primary funding source of the IMF.
Anyway, it only goes to show
that the IMF losers are seriously behind the times, as they are
still wailing about how high government borrowing needs will
"crowd out" private borrowing and drive interest rates
up and blah blah blah. This logical argument had some validity
back in the olden days when the US dollar was gold,
or backed by gold, or had some relationship to gold, and so therefore the money supply was more
or less fixed. So, therefore, higher borrowing by government
meant that there was, ipso facto, less money available to be
borrowed by everyone else.
Those days are long gone, and
Ben Bernanke and his printing press can merely print up as many
dollars as anybody wants. Therefore, there can never again be
such a phenomenon as the dreaded "crowding out effect."
The Wall Street Journal is
no big fan of the IMF either, although their economic acumen
is highly suspect, as when they write in the January 9 editorial
"The IMF Votes Dean" that "As long as the Federal
Reserve maintains a firm hand on the monetary tiller and a watch
on the dollar's value...then the earnings from US growth and
investment should be more than able to repay any accumulating
debt." Huh? What in the hell is THAT supposed to mean?
For one thing, right off the
bat, the Fed does NOT have a "firm hand on the monetary
tiller," and are instead recklessly producing money
and credit at breakneck speed to keep all the bubbles from popping.
Secondly, they are obviously NOT keeping "a watch on the
dollar's value," either, as hardly a day goes by that the
dollar is not worth less and less.
And even if the Fed WAS doing
both of these things, what have they got to do with "earnings
from US growth and investment" that are supposed to produce
some glut of money to "repay any accumulating debt?"
One does not necessarily follow another.
This particular idiocy is an
extension of the New Age fallacy that all that matters is interest
rates, interest rates, interest rates, and the logical extension
that if interest rates are low enough then economic vigor always
follows, as night follows day, and as insults predictably follow
my pathetic attempts to be clever. The WSJ may believe it, and
the Fed may believe it, and the economic twits at Princeton may
believe it, and all the economists in the USA that you can gather
together into a gaggle may believe it, and if you are familiar
with geese and geese-related terms you will no doubt notice that
"gaggle" refers to geese, which are renowned for their
group herding behavior, and I use this goose-related metaphor
to characterize the stupefying uniformity, and even more stupefyingly
wrongness, of the laughable opinions of economists in the USA,
but economic growth and economic health does NOT automatically
flow from lower interest rates.
Although one would think that
at least once in the last fourteen years, maybe out of sheer
boredom or something, that somebody at the WSJ, or someone at
the Fed, or maybe one pinhead graduate students at Princeton,
or any thousands of so-called economists wandering aimlessly
around the halls and offices of America, dazed and drooling on
themselves in contemplation of the basic fact that they have
no idea what they are talking about as evidenced by their egregious
performance, would have noticed that Japan has exposed that lie,
as they have kept interest rates at almost zero the whole
time, and without any apparent beneficial effect.
And here in the good old USA,
interest rates have been pounded down and down and down for year
after year after year, to levels seen only a few times in the
last century and always then in response to emergency situations,
to little effect, except to 1) make debt levels monstrously bigger
to prevent 2) the debt bubble from imploding until some later
date. Ugh.
---Mogambo Sez: This afternoon I watched Alan Greenspan
address the German Bundesbank. He admits that we have problems,
but they are all manageable if we remain, and I quote, "flexible,"
which is Fed-speak for "Acting like idiots and doing things
that are suicidal in the long run, and which no serious student
of economics has ever espoused in the entire history of economics,
because if they had, then everybody would have laughed at their
laughable incompetence and somebody would have thumped them on
the head and it would have hurt." Now I am feeling ill and
more scared than ever, and expect the Germans to rise in indignation
and declare war on us to keep us from breeding.
Richard Daughty
January 14, 2004
Copyright ©
2000-2004 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.
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