 Mozart's birthday
is only 1 day of happiness
Richard Daughty
...the angriest guy in economics
The Mogambo
Guru
Archives
January 25, 2006
Countdown < - - - - - -
-Total Fed Credit did not appreciably
change last week, up a mere $562 million, which is chump change
when you have been watching TFC shooting up by a few billion
per freaking week for years and years, especially since 1997,
which is, for you Mogambo scholars, a special year for me, as
clinical records indicate that 1997 was when I officially entered
Permanent Mogambo Panic Mode (PMPM), thanks to Alan Greenspan
and his horrible Federal Reserve moron buddies suddenly starting
to create explosive, monumental amounts of money and credit around
the clock, which they have not stopped doing yet, nine freaking
years later.
As Sprott Asset Management
wrote, "For those keeping track, M3 money supply is up 50%
since the beginning of the decade, and has doubled since the
beginning of 1997. Alan Greenspan has been a money printing speed
demon. Before 1997 it took fourteen years for the money supply
to double. Since then it has taken only nine; and if the rate
of the past month is any indication, it will double again in
four years."
So, money and credit were not
being created willy-nilly as much in the last couple of weeks,
which is a nice change of pace for those of us who understand
how excess money and credit is what fuel booms, and how booms
lead to busts, and how busts lead to business slowdowns, and
business slowdowns mean relatives getting laid off, and then
they come over here crying and pleading and whining and wanting
me to pay back the money I owe them, and I laugh so much that
I get a sore throat. But mostly I am despondent at the prospects.
My mood is elevated somewhat,
as is yours, I am sure, by plans for the big celebration of Mozart's
250th birthday celebration this Friday, the 27th of January.
On that glorious day we will all again spend time listening to
the music of the greatest and most phenomenal composer in the
history of music, eating German pork products, and drinking German
beer until we puke. Ahhh! Music appreciation at its finest!
But Mozart's birthday is only
one day of happiness, and then it is back to the coming recession/depression,
which will be particularly ugly and misery-laden this time, as
the unfortunate side of brutal reality (USOBR) is that the misery
of the subsequent bust (M) pretty much equals the fun (F) of
the prior boom, as in the timeless equation, M = F. And how much
fun was the boom? Well, according to everything I read, see,
or hear, it was the biggest freaking boom in recorded history.
From there, it is a short hop to all-consuming fear, a left turn
down Panic Alley, a U-turn onto Screaming Hysteria Lane, and
then you arrive at the Mogambo Bunker Of Ultimate Dread (MBOUD).
But it is not just me! Listen
to Doug Casey of the International Speculator newsletter writing
on the FreeMarketNews.com site, as he says "Predicting the
coming financial crisis is a relatively straightforward affair,
made so by the fact that it is now unavoidable. The only question
is how bad it will get. And it could get extremely bad."
Apparently, he hasn't heard of M = F.
And I notice that Mr. Casey
kinda wimps out there at the end, too. So, I take my blue editor's
pencil and change the phrase "could get" (which is
too cautious for a macho Mogambo man (MMM) like me) to read,
more flamboyantly, "is going to get bad bad bad bad really
freaking bad bad bad because, as the fabulous Mogambo says, 'We're
freaking doooooooomed!' " Someday, probably soon, Mr. Casey
will thank me for making him appear so prophetic.
But there is, alas, no money
in prophecy. For example, when I come home from a late night
working at the office, stinking drunk and reeking of cigarette
smoke and cheap perfume, it is easy to forecast that my wife
is waiting behind that door with vengeance on her mind and a
blunt instrument in her hand. I just can't make any money on
it. Mr. Casey takes the hint, and, being the terrific guy that
he is, tells us HOW to make money on it! He points out that the
stock market is floating on "a fantasy of easy money and
debt. When that fantasy ends, it will be gold and silver stocks
that are left standing."
Larry Ellison of Money and
Markets hears me yammering about gold and says "Investment
demand worldwide surged 56% in the third quarter of 2005, compared
to the same quarter in 2004. Gold prices have started moving
higher at a much faster pace."
This is nothing new to us inveterate
gold bugs, but it gets better for me and my paranoid gold bug
ilk as he adds "If gold went up rapidly last year even without
the typical demand from investors fleeing the dollar, imagine
how fast gold will go up when a weak dollar is driving hordes
of investors into gold!"
Well, the thought is so pleasant
that I am temporarily lost in a fit of wild Mogambo imagining
(WMI) about the price of gold when "hordes" of people
are being "driven" into anything that exists in strictly
limited supply. Visions of enormous wealth dance in my head,
and soon it is apparent that I had forgotten what in the hell
he was talking about. Seeing that I have again lost contact with
reality, Mr. Ellison jumps in and continues "A weak dollar
will light a fuse under gold! Gold will explode." Take points
off for lack of an exclamation point on that last sentence, but
the message comes through loud and clear.
But before I can start lecturing
him on the use and misuse of the exclamation point, he jumps
in and says that gold will also go up in price because of the
additional stimulus of rising fears about the escalating tensions
about Iran and a flu epidemic, which are, he says, "Not
the kind that go away!"
But just to show you that the
Fed is still kicking, the category of Government Securities Bought
Outright went up by $1.3 billion bucks. This, if you look up
"Fraud, Ultimate, Government" in your Handy Mogambo
Encyclopedia (HME), is when a bank that is a de facto arm of
the government prints up money to buy government debt. Net result:
Government spends, further indebting the citizens, and the banks
create the money to buy the debt, which increases the money supply,
which will make prices go up (price inflation)! This gives us
stupid American taxpayers and even more stupid American voters
a DOUBLE whack to the head (DWTTH); more interest expense to
pay, more debt to pay off, and higher prices to pay from now
until forever. So I am really, really, really, really huffy about
that, too.
And, to add to the general
crap that actually defines the life of The Mogambo (TLOTM), I
have been forced, over what seems like an eternity, into a new
email rigamarole with new addresses and sub-accounts God knows
what all, and everything is all screwed up like you would not
freaking believe. And so if you have written me about the money
I owe you and you haven't heard from me, that's normal, so screw
you, chump. For everybody else, you are, I regret to tell you,
lost in 'lectronic limbo (LILL). Sorry. There was a birthday
greeting I was supposed to send, and lots of other thank you
notes (mostly "Thanks for dropping the lawsuit against me!").
But it has been one big hassle, and I have no idea if it is all
working or not, so I am highly, highly, highly perturbed about
that, too.
But things economic must be
really worse than advertised, as Ford is laying people off, General
Motors is laying people off, Chrysler is laying people off, and
lots of companies are laying people off, and I am hearing a lot
of stories about how total revenues were down (which is bad)
but profits were somehow up (which is good) all over the place,
which means that they must have cut costs. This is what passes
as brilliant management today.
"But," The Mogambo
says, "it was not always thus!" And waxing nostalgic,
truly do I fondly remember when I tried this same good news/bad
news thing in one of my early executive-trainee gigs. Soon after
arriving, I had somehow alienated all of our idiot customers,
except for the one I was blackmailing, and most of them were
either suing the company or sending me death threats. Sometimes
both. I remember that part VERY clearly.
And since we only had that
one customer left, my brilliant Mogambo plan (BMP) was to fire
everybody except the billing/accounting department, and have
our contract with the maintenance/janitorial service amended
to add "customer order fulfillment" to their job descriptions
at no increase in pay. It was brilliant! Costs were slashed to
almost zero! Then, our one customer provided us with the aforementioned
less revenue but (thanks to no expenses) more profit. Just like
now! I remember this part very clearly, too.
What I don't remember as clearly
is when the CEO forced me to explain it to the board of directors,
probably because that's when I learned a very valuable Mogambo
lesson in life (VVMLIL): even real old guys with arthritis will
react like vicious, clawing, screaming, frightened rats when
you tell them that (on paper) we are doing great, but in reality
the company is ruined, we are all going to prison and I am responsible.
The next thing I knew, I am running from the board room with
my suit ripped to shreds and the sound of old men crying like
babies ("I'm ruined!") reverberating in my ears. I
had just gotten back to my drab little closet of an office when
two big guys from the maintenance/ janitorial service came busting
in, grabbed me, dragged me screaming and bawling like a little
girl out through the lobby, and threw me bodily out into the
parking lot, while cruelly laughing at me, "How do you like
your 'customer fulfillment' now, you filthy little piece of crap?"
So, while MY personal experience
with the "lower revenue/higher profit" paradigm was
traumatic, I am amazed that today this is now good news, as I
seem to understand it. I guess I was just a Mogambo man ahead
of his time (MMAOHT)!
- The yield curve has actually
inverted, as short-term interest rates are now higher than long-term
interest rates. This is always a very bad sign for an economy,
as bond players are betting that the economy will be so weak
that the Federal Reserve will be forced to drastically lower
interest rates, thus increasing the value of their long bonds.
Peter Grandich hears me talking
about an inverted yield curve and says, "I think an inverted
yield curve, no matter how small of an invert it was, is one
of the most reliable indicators around." Reliable indicator
of what? Using my amazing Mogambo paranormal abilities (AMPA),
I not only know EXACTLY what he thinks it means, in all its far-flung
ramifications, but I also know how to shorten it to the pithy
"We're freaking doomed!" because an inverted yield
curve means we are facing a recession, and with this heaving,
bloated, over-indebted, over-leveraged, mal-invested, idiotic
big-government economy, we cannot possibly stand the strain.
What in the hell stock investors
are so happy about, on the other hand, beats the hell out of
me.
And I notice that the dollar
is rolling over, as it should, and as befits a currency that
is being so devalued by the central bank and the government that
it is being literally destroyed in front of my aching, bloodshot
eyes. And when the shooting war with Iran gets started, the dollar
will fall even farther. And when oil is priced in some currency
other than dollars it will fall even farther.
- I was sitting right there
in the audience when the overlords at the Labor Department trotted
their quants out of the dank, diseased cellars where they live,
and had them say soothing things to us stupid unwashed masses.
Looking right at me with their beady little eyes, they snarled
"Everything is fine, but you are stupid! And ugly!"
So you can see that Bloomberg News got it all wrong when they
reported that the words they used were "U.S. consumer prices
unexpectedly fell for a second month in December as energy prices
declined, a government report showed. Excluding food and energy,
prices rose no faster in 2005 than the year before, supporting
the Federal Reserve's view that inflation remains tame."
Bloomberg also did not report
that at this I jumped to my feet, disrupting the press conference,
and shouted "This is, to use the scientifically-correct
term, a Gigantic Load Of Crap (GLOC)! Even people suffering terminal
Alzheimer's disease, who can no longer even recognize themselves
in a freaking mirror, for crying out loud, can instantly see
that this reported low rate of inflation is a huge freaking GLOC!"
Then pandemonium broke out,
and everybody started yelling something that sounded sort of
like "GLOC you, Mogambo!" which was real flattering
and all, but they went on as if I hadn't even been born, saying
"The 0.1 percent decline in the consumer price index follows
a 0.6 percent decline in November, the first back-to-back declines
in two years. Core prices, which exclude fuel and food, rose
0.2 percent for a third month."
It is perhaps coincidental
that we got this laughable report on "tame" inflation
so soon after I personally wrote to the Federal Reserve about
this very topic. I mean, just that morning I had written them,
starting the letter out with the usual salutation "Dear
butthead Federal Reserve idiots that are killing the dollar and
America with your insane monetary-inflation stupidity."
But this is not about how the first 225 pages of my inflammatory
letter to the Federal Reserve were devoted to describing how
much I hate their guts for being lying scumbag trash about creating
monetary inflation, which creates price inflation, which they
also lie about, and which is actually running much, much, MUCH
higher than they say.
Back at the press conference,
they finally get a little closer to the truth when they admitted
that "For all of 2005, the core index rose 2.2 percent."
This is, remember, the "core" rate of inflation, which
is akin to your showing up at the emergency room with your toes
and fingers reduced to dead, blackened stumps by severe frostbite,
and yet the doctor is jamming a rectal thermometer up there and
saying "Nothing to worry about, as his core temperature
is almost fine! Tame, in fact!"
I think all this talk about
rectal thermometers got them nervous, and just before bounding
from the room, they hurriedly said "Consumer prices were
up 3.4 percent for the 12 months ended in December compared with
a 3.5 percent year-over-year gain the previous month. They rose
3.3 percent in 2004." Then, they were gone!
I am sitting there, stunned
at the revelation of 3.4% inflation! Any price inflation is worrisome,
and when price inflation is over 3%, it is, historically, supposed
to have central bankers and governments jumping out of windows
in panic, and citizens rioting in the streets, shouting "Viva,
Mogambo!", at the egregious mismanagement of the economy
by the Federal Reserve and Congress. Just remember that Richard
Nixon once seized unprecedented dictatorial powers over wages
and prices in the USA because inflation hit, one stinking year,
an intolerable 4%! And now, fast-forwarding to today, 3.4% inflation,
which we are suffering year after year, is somehow "tame?"
I feel a mighty roar of Mogambo outrage (MROMO) building deep
in my chest at the very thought.
Just to show you a taste of
the horror of inflation, the Labor Department said "Weekly
earnings of workers, adjusted for inflation, rose 0.1 percent
in December after rising in November by 0.8 percent." Hahaha!
If you use the ridiculous "core rate" of inflation
to dilute the buying power of nominal wage increases, then workers
are essentially standing still! But if you devalue those wages
by the REAL rate of inflation, which is running somewhere north
of 7% (which is a number that I randomly pick from the air because
it seems "right"), then workers are suffering a huge
freaking drop in their standards of living, which is manifested
in having to make the choice of buying less stuff every week
or going farther into debt every week. Whoopee.
And what accounts for this
drop in prices that only government statisticians can see? They
rounded up some unnamed "economists" to explain. "Discounts
on automobiles and markdowns to lure holiday shoppers,"
they figured, "probably held down the consumer price index
last month." Hahahaha! Lower prices to hold a big store-wide
sale brings prices down? Wow! No wonder these geniuses make the
big money!
But, to be fair, it is not
only government wonks and unnamed "economists" that
say stupid things. How about "the median estimate in a Bloomberg
poll of economists taken Dec. 23 to Jan. 8", which breezily
announces that "Price gains for all goods and services may
slow to 2.8 percent this year as fuel prices stabilize."
Hahaha! Fuel prices stabilizing? Hahaha! What a comedy of the
absurd!
Apparently, these guys do not
share the same crystal ball as Kurt Wulfffounder of McDep Associates,
whom Matt Badiali at The-Rude-Awakening.com site quotes as saying
"we'll have $150 per barrel oil by 2010." And you can
bet that Iran is not setting up a new oil trading center so that
they can sell cheaper oil to Americans!
Toni Straka of the PrudentInvestor.blogspot.com
says that he is tired of hearing about 1) inflation in fuel costs
and 1) about me trying to borrow five lousy bucks for some gas.
Inflation, he says, is a function of what you use as money. "Would
you pay your crude oil bill in the universally accepted currency
of the last 6000 years - commonly known as gold - your barrel
would have become 28.4% percent cheaper since the nominal record
high reached last August." Thus, the value of a stable currency
is again demonstrated, this time as less inflation at the pump!
And if we are talking about
pricing oil in ounces of silver, it is cheaper yet! See why I
am always yelling about how only gold and silver should be used
as money?
- At the same time as all of
this craziness is going on, from Reuters we read of other craziness,
namely that "The Federal Reserve is watching vigilantly
for any signs of deterioration in the inflation outlook, Fed
Governor Susan Bies said. Bies said the U.S. economy was expanding
solidly and consumer spending appeared to be supported by rising
incomes and sound household balance sheets."
No sooner had she said that
the U.S economy was "expanding solidly" when, "Speaking
to reporters following her remarks, Bies said that while the
Fed must remain watchful on the inflation front, economic growth
was likely to slow a bit this year." Only in the mind of
a Fed governor can "expanding solidly" mean "slow
a bit," not to mention the fact that they (including Bies)
all believe that inflation north of 3% is "tame", when,
in reality, to even think such absolute stupidity is a sign that
THEY, not I, should be locked up in this loony bin.
She also said the Fed would
need to continue to monitor prices for energy and other commodities,
but said it was remarkable how little of the recent commodity
cost run-up had fed through into core consumer prices so far.
This reminds me of joke sent
by Mary Kay M. that went " DejaMoo: The feeling that you've
heard this bull before."
- The dimwitted socialist government
trash in Maryland decided that the essence of socialism is alive
and well there, and passed a law requiring Wal Mart to either
provide health insurance to everybody who works there, or pay
a special tax so that the government can provide health insurance
to everybody. Wal Mart now has to raise prices to stay profitable.
Next on the agenda of these
socialist morons? Whining that prices are too high! Hahaha! It's
just as Alan Greenspan himself said, "The financial policy
of the welfare state requires that there be no way for the owners
of wealth to protect themselves." In fact, he has it almost
right. But because of all of this kind of Fascist/socialist/communist
nonsense, prices will rise so much that NOBODY can protect themselves.
In the same stupid vein, the
Brazilian President, Lula da Silva, agreed to raise the Brazilian
minimum wage 17 percent, as if the poor damned Brazilians didn't
have enough to worry about.
- For those of you who like
your market indicators moving in a more glacial vein, Richard
Russell of the Dow Theory Letters writes "From a Dow Theory
standpoint, the markets continue to face a major non-confirmation
in the Averages. The Transports have risen to new record highs
while the Dow has failed month after month to confirm. Thus,
from a Dow Theory standpoint, this is a dangerous market. It's
particularly dangerous because of this truly spectacular divergence
and non-confirmation in the Averages."
Now, as today's obligatory
lesson containing real "educational content", let's
analyze this linguistically. First off, we note that he uses
the adjectives "major", "record" and then
"dangerous" TWICE, and ending up with the word "spectacular."
What was the author saying?
Well, I could call him up on
the phone and ask him, but I am far too lazy and far too cheap
to do that, for one thing, and for another thing I can just read
his mind with my amazing Mogambo paranormal abilities (AMPA).
I close my eyes. I concentrate. I send out waves of mental energy,
locking onto his mind, sort of like a Vulcan mind-meld. I probe
his mind. Probe. Probe Finally, I see he means "Get up off
your stupid fat butt and buy gold and silver and platinum and
oil, because these are the kind of tremors that happen at the
Big Freaking Moment When The Tides Turn (BFMWTTT), and it is
not just The Mogambo that is so scared that he poops in his pants,
but lots and lots and lots of other people, too, measured in
the teeming hundreds of millions all around the world, are pooping
in THEIR pants, too, in fear of losing their money, and now there
is a big stink everywhere as a result." So, I am happy to
report, it's NOT just me that stinks in raw fear around here.
- Eric Sprott and Sasha Solunak
of Sprott Asset Management write (to paraphrase) that I am not
the only one that thinks that we Americans are acting like scary,
stupid buttheads. They write "This environment of egregious
excesses and unprecedented financial recklessness has only gotten
worse in the past twelve months, even surpassing what macroeconomic
logic can reasonably describe as the breaking point." If
you are like me, then you are wondering what in the hell they
are talking about. Sensing this, they continue "US consumers
were able to amass $1.3 trillion of new debt in 2005. Outlays
in fiscal 2005 increased by 8% over the previous year. The national
debt now stands at $8.2 trillion, already hitting the debt limit
that was raised by $800 billion at the end of 2004. The federal
government's net liability, as reported in the '2005 Financial
Report of the United States Government', now stands at a mind-boggling
$49.4 trillion. That's almost $200,000 per American! It sounds
too ludicrous to be true, but this is the government's own number."
- A reader wrote to the Urbansurvival.com
site to report that "certain ammo is impossible to obtain
now. The Russian manufactured Wolf & Bear ammo in 7.62x39
(for use in AK's, SKS's, & Ruger Mini-30's), which was dirt
cheap for American shooters, is now dried up. More then likely
all this ammo is being shipped to Iran, Syria, and other Arab
states as the AK's in 7.62x39 are what their military and other
forces use there. Just another little indicator that things with
Iran are heating up big time."
This may be in anticipation
of the news from the Federal Reserve that not only is Industrial
Production and Utilization up 2.8% from a year earlier, but that
the American Global Belligerence War Machine had a lot to do
with it, as spending on defense and space equipment was up a
whopping 9.7% higher a year earlier! Everybody is arming!
Also on the UrbanSurvival.com
site was an email from Dr. Stephen Rinehart, who is apparently
some kind of engineer or something. And when he applies his prodigious
intellect and education to the task, he sees a lot of turbulence
in various market indexes.
Getting most of my engineering
education from television and old movies, I know that when you
are flying in an airplane and you hit turbulence, then either
1) somebody cute will fall into the lap of somebody handsome
(or vice-versa) if it is a romantic comedy, or 2) the airplane
immediately goes into some kind of unrecoverable pin and everybody
dies if it is a drama. Either way, turbulence is nothing to take
lightly.
To prove the point, he says
"we may have only 18 weeks or less warning until a crash
occurs after the amplitude in the 18-week cycle starts growing.
This cycle has started increasing in amplitude! We do not know
(on just the basis of this cycle) which top will be involved
in the 'crash' but it is flagging a potential incoming storm."
Well, obviously, the swoons
and zooms of markets around the world are only the beginning.
Worse, these are the kinds of wild, worsening oscillations and
turbulence that characterize systems just before they become
unstable and blow up, sort of like how the idiocy of the modern
incarnation of central banking makes me crazier and crazier,
day by day, worse and worse, until one day I suddenly go berserk
and wake up a few weeks later in a straightjacket being fed Jell-O
through a straw.
And the bad news for a lot
of people is that the losses of these market swings are magnified
by, probably, a hundred-fold, or a million-fold, or a zillion-fold,
as that is the insane degree of leverage that is used in finance
these days; borrow the whole wad with almost nothing down. So,
one hell of a lot of money was lost lately.
And the worse news is that
it will continue to get worse and worse, and then people with
big money still at risk are going to be wringing their hands
and saying things like "Oh, dear! Whatever shall I do? My
market losses are terrible! Shall I listen to The Mogambo and
put everything in gold? Or can I think of someplace else safe
and profitable to put all my money? Am I smart enough to be the
first guy in all of freaking history to figure out some other
way to preserve my wealth, without utilizing gold, to keep my
financial butt from being chewed off in a big deflationary bust
that comes after a long inflationary boom?"
Hmmm! Good question! But I
am betting that they, like everyone else in history, will come
to the conclusion that there is nothing, NOTHING, else that will
work, except gold and silver. If there was, I am pretty damned
sure (PDS) that I would have heard about it, or read about it,
in all these years of reading economic history. But economic
history is little more than the sad, sad story of the people
and countries who did NOT trust in gold, and how they suffered
for it.
Ugh.
***Mogambo sez: You got gold, you got silver, you
got oil, and you got Mozart. Your life is serene. Who could ask
for more?
Jan 24, 2006
Richard Daughty
email: RichardSmithGroup@verizon.net
 Daughty
Archives
Provided as a courtesy of Agora Publishing and The
Daily Reckoning
Richard Daughty
is general partner and C.O.O. for Smith Consultant Group, serving
the financial and medical communities, and the writer/publisher
of the Mogambo Guru economic newsletter, an avocational exercise
the better to heap disrespect on those who desperately deserve
it. The Mogambo Guru is quoted frequently in Barron's, The
Daily Reckoning
and other fine publications.
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