 Take your
damn shoes off! Shoes off! Shoes
off!
Richard Daughty
...the angriest guy in economics
The Mogambo
Guru
email: scgcjs@gte.net
February 3, 2005
- The heavy lifting this week was done by the banks, which soaked
up $26 billion in government debt (!), and a little help from
foreign central banks, which absorbed $3.8 billion of US debt
themselves. The Treasury, always ready to spend us into the poorhouse,
sold oodles of fresh US debt last week, bringing us up to, as
of today, $7.627 trillion in debt.
Rubbing my eyes in disbelief,
corporate bonds again went up in price and down in yield, to
another new record! This was at the exact same time as fresh
evidence of rising inflationary pressures is spooking me out,
as the Gross Domestic Price Deflator bumped up to 2%, and the
Employment Cost Index also went up.
Total Fed Credit, that mystical
place which is the Fount From Which Magical Money Appears As
If By Magic Which Is Then Compounded By The Banks Via The Fraud
of Fractional Banking (FFWMMAAIBMWITCBTBVTFOFB ) is actually
not expanding at it's usual, out-of-control clip. Whether or
not this is the start of something big or is just a random wiggle
in the chart, I don't know. But if it IS a change, then look
out below! As usual, and you technically-oriented people have
already noticed, it again coincides exactly with the performance
of the stock market this month.
- I recently read somewhere,
by some moron, that the reserves at the banks still constitute
about 10% of liabilities. Hahahaha! In 1997, liabilities in the
banks were about $2.5 trillion, and reserves were $45 billion.
Today, liabilities are $4.7 trillion, and reserves are $43 billion!
Hahahaha! Liabilities almost doubled, and reserves actually went
down! Hahahaha! Central banking at its finest!
- The Daily Reckoning.com site
was talking about a coin show that they went to, and there was
a lot of activity in ancient coins, the kind you find when you
"explore old Roman dwellings with metal detectors."
Then they go on to say "More importantly, we saw evidence
of a bear market in the dollar. Why? Because everyone there was
from Europe!" Apparently, most everybody was from Europe!
These foreign devils were all saying the same thing, namely,
"With low interest rates in Europe, and such a horrible
dollar, they all come over here looking for bargains."
And that brings up a tasty
tidbit from Bernard von NotHaus' terrific book "The
Liberty Dollar Solution to the Federal Reserve ", which
is actually a terrible title because the whole first half of
the book is packed, top to bottom, margin to margin, with what
really smart people have said for centuries about fiat currencies,
central banks, fractional reserve banking systems, and all of
the horrors that happened when people tried to use any of them.
But the point is when he notes that in 1921 Germany was required
to pay reparations to the winners of WWI, but that "Germany
was barred from selling its goods at a fair market price and
soon started printing paper money. Prices began to rise immediately.
Germany became a bargain basement for anyone with US dollars,
pounds or any other hard currency backed by gold
and silver." Now the US is a bargain basement
area, and that is why you are seeing so many foreigners over
here buying stuff.
But the Weimar situation is
similar in the USA today. While we are not required to pay war
reparations to anybody (as far as I know, although we seem intent
on giving tons and tons of money to countries all over the globe!),
we are printing money with the same reckless abandon. And perhaps
that explains why the Europeans are viewing the USA as such a
bargain, since the dollar is so cheap, although still overvalued.
And it is destined to get worse
and worse. For one reason, let's take a look at another entry
in Mr. NotHaus' book, where we read that "When Julius Caesar
came to power, a third of the people of Rome were on the public
dole." Another similarity! The Romans were obliged to print
money to keep these people supplied with "bread and circuses",
as the popular expression goes, and ditto the buttheads in the
Congress, who feel that they are obliged to keep providing free
stuff to the legions of Americans on the dole, which I define
as "somebody getting money from the government." And
when you count them up, I am sure that is a LOT higher than some
piddly third of the population.
But as far as rare coins are
concerned, I admit that my interest in them is minimal, and I
don't own a single one. But I am a speculator of sorts, and have
loss carry-forwards on my tax return to prove it! But as a speculator,
my Mogambo Speculator Juices (MSJ) get flowing when I hear that
there is increasing buying pressure in a market that is strictly
limited in size, and especially one that involves buying gold at these low prices. And I stand up on the couch
to say "gold is a bargain at these prices, because
when the dollar really starts falling, you are going to see gold selling at literal multiples of the current
price! And don't get me started on the merits of speculating
in silver, which will almost certainly achieve
a bigger percentage gain than gold!"
Sadly, the message would have been more powerful, perhaps even
memorable, if my wife had not started screaming "If you're
going to stand on the couch, take your damned shoes off, you
big stupid moron! Take your damn shoes off! Shoes off! Shoes
off!" So finally I just got down off the damn couch so she
would just shut the hell up, but the magical Mogambo moment (MMM)
was, alas, ruined.
- I know you get tired of me
turning on the Mogambo Siren And Neighborhood Audio Alert System
(MSANAAS). A much more dignified approach is taken by Comstock
Partners, who say that "The Commercials, often called the
'smart money,' have amassed a rather substantial net-short position
in S&P 500 futures contracts. They have placed their biggest
bet against the stock market in recent memory. The stock market
is setting up for a significant decline beginning early this
year and continuing into 2006."
I hit the "pause"
button, and I direct your attention to the word "significant."
Then I draw the camera back a little bit, and direct your attention
to the phrase "significant decline", which is a little
more interesting. And pulling the camera back a little farther,
I now direct you to expand your vision and contemplate the significance
of "significant decline beginning early this year."
If you are like me, you ran
to the calendar, and were struck by the fact that we are in the
aforementioned "early" part of the "year,"
thus qualifying this temporal moment in the space-time continuum
as where the "beginning" is supposed to be! We are
here!
Comstock Partners has an opinion
about that, too. "Early 2000 marked the end of an 18-year
secular bull market similar to those from 1921-to-1929 and 1949-to-1966.
Each of these periods was followed by multi-year secular bear
markets." And what does the phrase "multi-year",
as in "multi-year bear markets", mean to you? Hint:
twenty to thirty years.
Besides the cyclical nature
of things, the cycles are remarkably similar in many ways. I
know what you are thinking. You are asking yourself, "Hmmmm!
How interesting! I wonder what he means?" Well, I could,
of course, explain in my long-winded, pedantic way that everybody
hates, and that probably explains why I have no friends, and
even if I had any friends they would soon learn that being long-winded
and pedantic is the LEAST of my many problems But I won't. Instead,
I will motion with a wave of my hand for these Comstock guys
to go on, and they say "The peaks of the bull markets were
featured by high valuations, excessive speculation, investor
euphoria, and a belief that markets had reached a permanent new
level of high valuations (a new era)."
I was going to stand up and
put in my two cents about the high valuations of today's stock
market, but those Comstock guys continued, "The S&P
500 is selling at 21 times trailing reported earnings with a
skimpy dividend yield of 1.8%. Investor sentiment is frothy while
equity mutual funds maintain historically low levels of cash
as a percent of assets. At the same time the Fed has now raised
rates at each of last five meetings with a sixth one likely soon...The
federal fiscal policy that created a strong tail-wind for the
market over last two years is now in the process of reversing
and becoming a head-wind instead."
- George Ure's UrbanSurvival.com
site made mention of the sudden seeming increase in earthquake
activity, and how this is evidence that the earth's plates are
in motion. And there are other anomalies lately, such as solar
flares, Florida's astonishing string of four hurricanes in a
single month, and lots of other things. For a change, Elvis is
not involved, as far as I can tell, and UFO activity is still
relatively quiescent, which I gather from waiting in the line
at the grocery store and reading the covers of the periodicals
on the rack, where I can also learn to reduce my fat, awaken
the youthful spirit that dwells in all of us, put zip back into
my love life, and achieve miraculous changes in my appearance,
at home and in my spare time, using a Secret Oriental Blend Of
Herbs And Spices. Plus, Nostradamus is still popular, although
that guy never has anything good to say about anything.
For example, I hang my head
in shame to admit that I put two bucks a week into playing the
lottery. It's always the same routine. I buy the ticket on Saturday.
I spend the rest of the day thinking of all the things I will
buy when I win, and the wave of revenge that I will unleash upon
a cruel and uncaring world that has crushed my spirit. Then,
when I don't win, I record this as proof that they are out to
get me. But this week I matched three numbers, and it paid five
bucks! And there is nothing in Nostradamus about THAT! So to
hell with him!
These are all bad things, and
they depress the popular mood. At least my wife's mood is depressed
here lately, and she has been sighing a lot, and when I ask her
what is the matter, she merely sighs again, and with a listless
voice she replies, "I guess I'm just getting bored with
making every moment of your life into a living hell" which
I think is real good news for a change, at least for me! But
when the broad social mood changes, according to Robert Prechter's
Elliott Wave Theory, the market changes along with it. Ergo,
when the social mood darkens, as it is now, the market darkens.
Perhaps the social mood has
something to do with, and I am just throwing this out for discussion
here, money, since everything is always about the money (EIAATM).
According to the Commerce Department, the U.S. economy grew at
3.1 percent, at an annual rate, in the final quarter last year.
I like this next part: The economy grew at "its slowest
since the beginning of 2003 as the country's trade performance
deteriorated and inflation picked up." If that is NOT the
definition of stagflation (a stagnating economy and rising price
inflation), then what the hell is?
The report also showed that
our exports of goods and services fell at the steepest rate in
two years during the same fourth quarter, while imports rose.
Buying more and selling less! Wow!
But it is not economic stagnation
that bothers me. If everything, including prices, stayed the
same, then no one would be worse off. But in my Usual Mogambo
Hysterical Way (UMHW) I screech that inflation (which is bad
anytime) is made worse when the economy is not expanding enough
to increase wages.
And, of course, speaking of
money, we eventually get around to wages, and wages, the Labor
Department report showed, grew the least in almost six years
during the same doleful fourth quarter, as wages rose a meager
an 2.5 percent over the past year , which happens to be the smallest
increase on record. Compare that to a 3.3 % overall increase
in prices for the year!
The lower end of the income
scale actually had a fall of 1.7% in their wages, even without
the inflation. WITH inflation, they are getting whacked. But
the poor always are the first to feel the pain of inflation.
Or, as reader George C. so aptly expressed it, "Our society
is in a dwindling spiral".
But it is not just me and George!
Mark M. Rostenko of The Sovereign Strategist is talking about
the same thing when he says, "I find it fascinating that
with all the disposable income this steamy fireball of a recovery
is generating, household debt stood at 115.3% of disposable personal
income in the third quarter of 2004. That's an all-time high
for that figure. Funny that Americans, with a hyper-abundance
of disposable income, are borrowing to make ends meet."
And the reason is that they aren't making any more money than
they were! They are making less real, inflation-adjusted, income!
Doug Noland characterizes it
as "Wages and salaries rose 0.4 percent in the quarter,
the smallest increase since the first three months of 1999. The
2.4 percent increase for the year was the smallest in more than
two decades of record keeping."
He goes on to note that "The
employment cost index rose 0.7 percent from October through December
after a 0.9 percent increase in the third quarter. Costs were
up 3.7 percent for the year after rising 3.8 percent in 2003,
led by surging benefits such as health care."
But at least we may not have
to listen to Alan Greenspan running his fat mouth about how inflation
is low, because the Personal Consumption Expenditures, which
is his favorite indicator of inflation (probably because it excludes
pesky things like food and energy), went up at a 1.6 percent
annual rate in the fourth quarter. This is, to quote the article
"nearly twice the 0.9 percent advance posted in the third
quarter." It almost doubled! Doubled!
Hey! Get Alan Greenspan on
the phone! Tell them that Them Mogambo wants to speak to him
in sharply critical tones about how he has been so blind to the
inflation that has been coming all this time, and it is now REALLY
showing up, because this fresh evidence of inflation is in his
FAVORITE indicator. And because it is now showing up in that
indicator, then it must REALLY be raging!
- Representatives of countries
are having a wonderful time in Davos, Switzerland, for the World
Economic Forum, which is, as characterized by Bret Stephens of
the Wall Street Journal, "the world's premier gathering
for rapacious plutocrats, neoliberal globalizers and assorted
hangers-on." Commenting on the goings-on, Reuters reports
that Germany has backed Britain's proposal for the International
Monetary Fund (IMF) to write off debts of poor countries by selling
or revaluing part of its gold reserves.
Hey, wait a minute! These are the same morons who keep telling
us that they and their central bank idiocies have it all under
control! So why don't they just print the damn money and give
it to the poor countries? They can do it! They have been printing
up excess money and credit for forty freaking years in a row!
And now, NOW, they are suddenly averse to printing up a little
more currency? What in the hell is going on here?
Of course, the clownish British
finance minister Gordon Brown, **arch-knothead,
came up with the idea. **[Editor's note: See this fabulous old poster,
All
Mouth and No Trousers.] His
words were "The first proposal of 2005 must be to deal with
this historic problem of unpayable debt, the multilateral debt."
What he means is that some countries owe Britain and Germany
a lot of money because the selfsame Britain and Germany made
a bunch of bad loans that only an idiot would make, required
that the borrowers buy stuff from them to propel their exports,
and now that the goods and services are used up to no avail,
they are going to get predictably stiffed. But instead, they
want ME to get stiffed! If you run into the Gordon Brown character,
tell him that The Mogambo thinks that the first order of business
is to find out how yet another group of nations got into yet
another problem of borrowing too much money, and they ought to
examine the scene of the crime to detect the fingerprints of
that perennial failure, that loathsome commie organization, the
IMF.
- The Iraqi elections were
held, and people were elected. Now that it is all over, we have
to listen to jerks bloviating about how democracy is some wonderful
thing and how Bush is going to lead America to wage war on anybody
who stands in the way. Perhaps it is too late to read the essay
on LewRockwell.com entitled "What's
the Argument for Democracy?" by David Gordon. He opines
that, "Though it is easy to characterize democracy, recent
political theory has been marked by a conspicuous omission. Virtually
no argument is ever offered to support the desirability of representative
democracy, and the little that is available seems distressingly
weak. Why ought democracy to be either instituted or promoted,
let alone exported, as a recent book by Joshua Muravchik (Exporting
Democracy) advocates? One would think that as important a question
as that of the best political system would have generated an
enormous literature. In point of fact, most writing on the subject
simply takes for granted the desirability of democracy and inquires
how existing democracies may be improved. The issue of whether
democracy is a 'good thing' is not thought worth raising."
As a case in point, the Soldier's
Training Manual, issued on November 30, 1928, defines democracy
as "A government of the masses. Authority is derived through
mass meeting or any other form of direct expression. Results
in mobocracy. Attitude toward property is communistic, negating
property rights. Attitude toward law is that the will of the
people shall regulate, where it be based upon deliberation, or
governed by passion, prejudice and impulse, without restraint
or regard to consequences. Results in demagogism, license, agitation,
discontent and anarchy."
Harry Browne, at the Financial
News Network, FMNN.com, has a few good words to say about this,
too. "George Bush proclaimed his desire for world domination
- to have the power and the right to decide who is good and who
is bad, who shall live and who shall die, what form of government
will exist in each nation." The operational phrase is, as
far as I can gather, "world domination."
- For those of you who were
apprehensive about America fiddling with DNA and the human genome,
again the Mogambo was proved to be right when he said "If
America does not want to do the research, there are plenty of
others who will. And while we may not choose to lead in the effort,
we will merely buy the results from other nations who do not
have such a priggish, moralistic view about such things."
As proof, according to the National Geographic News, "Chinese
scientists have succeeded in creating a part human, part animal
hybrid."
But we are not exclusively
backward, as the scientists at the Mayo Clinic have created pigs
whose "veins flow with human blood, and Stanford University
is considering an experiment that would create mice that have
human brains.
- Richard Russell, of Dow Theory
Letters, has apparently been taking the pulse of The Mogambo,
and says "There's something 'sick' about this market, and
it's hard to put my finger on it. It's probably that the whole
country is leveraged with debts and deficits, the entire US is
a bubble waiting to burst, and the smart guys know it and the
big money knows it. Ultimately, ALL bubbles burst, and I'm very
much afraid the Fed has turned these United States into the biggest
bubble economy the world has ever seen. Which, in the end, is
the true rationale for holding gold. Sorry
to say it, but that's the way I see it". Me, too, Mr. Russell!
Me, too!
- John Mauldin, Millennium,
quoting from George Muzea's book called "The
Vital Few vs. the Trivial Many," provides
us with a bit of market lore when they write, "When there
is a divergence between insider selling and public opinion (thus
the Vital Few vs. the Trivial Many) it is an indication of major
and intermediate tops and bottoms. What we are still seeing today
is a very bullish public and insider selling - not a good sign."
This becomes clearer when Mr.
Mauldin notes, "The Leuthold Group notes that in January,
usually, there is a net inflow into the market. "But this
year, January is not only shaping up to be a month of net redemptions,
but record net redemptions."
Mr. Mauldin
anticipates your next query. "My thoughts? I think we drift
down from here with a last gasp rally later in the early spring,
then into an ugly summer, much as last year, with a late year
rally after tax loss selling by institutions (mostly mutual funds),
which must sell by October 31st, if they are to balance their
gains. Will the rally recover to new highs? It did last year,
but I think the economy will be seen as weaker in the winter
of 2005. Thus I expect the market to be lower at the end of the
year. We do not see the resumption of a real bear market until
a recession is peering around the corner at us.
- Alan Abelson,
in his Up and Down Wall Street column in Barron's,presents a
chart by Ed Hyman and the ISI Group that divides existing house
prices by the median family income. Sure enough, there is a bubble,
a big one, or better yet BIG ONE, and what is more, there has
never been a real estate bubble like this since 1970 (which is
as far back as the chart goes).
- I have started getting mail
from people who are alarmed at the way that George Orwell's Big
Brother is taking over, and especially the new RFID device, which
is nothing more than a tiny, tiny, eensy-weensy electronic device
that will respond to an electronic query by transmitting its
own identification number, thus identifying itself.
And if you have that RFID on
you, then you are identified. How? If your money has an RFID,
and if every piece of your clothing has an RFID in it, and your
driver's license and all your other identification and credit
cards have RFIDs in them, and if that new copy of "Hot and
Horny Hotrod Honeys" has an RFID in it, then it will be
impossible to keep anything secret.
But this can work for our advantage!
Suppose I'm driving down the street where one of my many enemies
live, which is almost any street in America as far as I can tell.
I turn on my Mogambo RFID Hunter And Tracker System (MRFIDHATS)
and see who he is spending time with (as they all have RFID's
on them somewhere, too) and how much money he has in his pocket.
Then I merely track him around for a few weeks, and sooner or
later he is going to do something that I can use against him
to make HIS life into a living hell for a change! Hahahaha!
And it does not even have to
be the government, because you can bet your sweet keester that
right now there is somebody out there who is designing and building
something similar to the MRFIDHATS (although I won't see a lousy
dime of royalties, and my lawsuit will drag on and on in court,
and then we'll settle out of court for a nice settlement, probably
a large pizza with everything, which is all I wanted in the first
place until a lawyer got involved, the bastards!). But this is
not about my legal problems, nor is it about my other problems,
namely crippling emotional baggage that, in a normal world, would
easily qualify me for a Handicapped Parking sticker for my car.
No, I am here today to inform you that our privacies are doomed,
and the days when you could get away with things, secret things,
dirty things, fun things, forbidden things, delicious things,
dangerous things, ("Anything, Jack, anything!") is
over. Anybody with an MRFIDHATS and a lot of time on their hands
can find out anything and everything about you. So, say hello
to the New Virtuousness, or be ready to pay! Oh, Brave New World,
indeed!
- JP Morgan Chase, as quoted
in the Financial Times, estimates that global government bond
supply in 2005 will be $2.320 trillion, which works out to a
figure that is up two-thirds from 2001. Which will, since nobody
has that much money laying around (well, may YOU, since you are
such a brilliant hotshot and that is why you make the big money),
the money will be produced by the world's central banks, which
will make prices rise in a general inflation. Some things never
change.
- Adam Hamilton, of Zeal Intelligence,
writes that the dollar is turning into something as worthless
as the Mogambo, which, according to my wife, has less than zero
value, and everybody would be better of without me hanging around
the living room and stinking up the place. He
writes, "From July 2001 to December 2004 it has fallen
by an amazing 33% bear to date. It is appalling that the average
American who pays no attention to these things has no idea that
the international purchasing power of his income and wealth has
been cut by a third in only the past few years."
- In his article, "Gold
Bugs Need a Dose of Humility," Joel Bainerman writes
that the complaint of gold bugs,
namely that the fate of fiat currencies (they all go to zero
worth), is not guaranteed, and he presents some valid points
about how The Mogambo is a big, fat idiot for being such a gold bug, although he did not actually refer to me
by name, but I could tell that is what he was thinking. He writes,
"It is not a given that 'all the fiat currencies will eventually
collapse', and I hand you the Swiss franc, the Canadian dollar
- the Australian dollar - and the English pound as fine examples.
All might go up and down - but I can't remember the last time
any of them 'collapsed' in the past 100 years." Three currencies,
out of all of the world's currencies, including the hundreds
and hundreds that HAVE collapsed, have not yet collapsed, and
this is proof, he thinks, that fiat currencies do not collapse?
Hahahaha! And the Swiss franc IS backed by gold,
which explains a lot of why it hasn't collapsed, and don't get
me started on how the Chinese are buying up Australia and Canada
and pumping scads of money into those economies!
But the problem is not that
currencies arbitrarily collapse for some unexplained reason.
It is that the inflation caused by the irresponsible over-issuance
makes them go down, and down, and down, in purchasing power.
And every single one of the world's long experiment with fiat
currencies has gone down in purchasing power, as do they all,
until one day the word "collapse" seems appropriate.
And if you don't believe me, then ask anyone who has put some
of these collapsed and/or devalued currencies under their mattresses,
and ask them how much purchasing power they have lost! Then ask
the guy who put gold under his mattress and then, SAT-like,
compare and contrast!
Eric Fry, in his Rude Awakening
column at DailyReckoning.com, writes " gold's
$4 drop yesterday reminds us of the risks of owning the yellow
metal. On the other hand, the dollar's 40% drop over the last
three years reminds us of the risks of owning the alternative."
Hahaha! Well put!
In a similar vein, Sprott Asset
Management Chief Investment Strategist John Embry is on record,
loud and clear, that gold will hit at least $800 per ounce as
"paper money is going to hell in a handcart." Embry
said he believes even a $1,000/oz gold
price may be conservative.
And he is pretty adamant in
his belief that the gold market is being manipulated. Mr. Embry
said "it would be extremely naive to believe that clandestine
intervention is not occurring today." To that, he opines,
"It appears that central banks are unwilling to allow the
gold price to repudiate their excessively
loose monetary policies. Near as we can determine, they have
pumped as many as 500 million ounces into the market over the
last 10 or 12 years."
Apparently the Turks are not
on the same page as Mr. Bainerman, either, as Mr. Embry reports
that imports of gold into Turkey were up 129% year-over-year.
And apparently there are more
than Turks in the market, as Mr. Embry also said that bullion
dealers in New York cannot keep up with physical demand in Switzerland,
and that "all the world's gold refineries
are running full out trying to keep up with overall demand. This
is very important because physical off take is the key to breaking
the stranglehold that the Comex paper traders have maintained
on the gold price to date. Their recent machinations
are providing physical buyers with cheap gold
and they can't believe their good fortune."
He sums up with, "The
only things you have to know to believe in gold
at this juncture is that paper money is going to hell in a handcart,
thus fuelling investment demand for gold,
there is already an enormous gap between gold
demand and mine supply that has been filled by central bank gold, and the central banks soon will not be able
to fill that role. That equation adds up to dramatically higher
gold prices."
- Jeff Ferguson "Is a
Secular Bear Market Inevitable?" He defines a short term
cycle as something that lasts 2 to 4 years, as opposed to a secular
(30 to 40 year) cycle. Now, I see cycles in everything, such
invisible FBI guys riding around my house on their invisible
bicycles, which is not exactly the same thing, and I can also
see invisible government helicopters hovering over my house,
and over YOUR house, too, but don't tell them that I tipped you
off.
But he writes, "Contrary
to a common belief, equities didn't simply move sideways through
the 1970's before moving to new highs with the great bull market
starting in 1982. This illusion is caused by the inflation which
plagued the period. Deflating the S&P 500 with the CPI reveals
that the market peaked in 1969, not 1973, before falling 64%
over the subsequent 13 years, ultimately bottoming in 1982."
I will pause there to let the significance of that seep into
our brains, as I am not sure that I comprehend the full significance,
although there are several rude audience members who can't restrain
themselves, and who blurt out that I am such an idiot that I
can't comprehend the significance of a twist-off bottle cap,
which is probably true, but beside the point. But if they had
privatized Social Security in 1969, how would you feel to see
that your retirement lost 64% in buying power, as you got poorer
and poorer, until 1982? In effect, you can afford to buy slightly
more than a THIRD of the basket of stuff you could have bought
in 1969!
But it gets worse than that!
He goes on to say, still adjusting things for inflation, "Stock
prices failed to exceed the 1969 peak until 1993, 24 years later,
and didn't move convincingly through the 1969 level until 1995."
That's 26 freaking years in a row that you failed to break even
in the stock market, i.e. before the 1969 level was reached.
And how long will it be before the guys who bought at the exact
bottom actually make a profit? Don't ask.
I know what you are thinking
"Wow! The Mogambo was right! When adjusted for inflation,
stocks bite the big one (BTBO) from time to time, like all the
other investments BTBO from time to time!" If you were really
thinking and not sitting there on the couch sucking down another
beer and probably more than a little drunk, if not (like me)
sloshed and sloppy, then you would think to yourself "Hmmm!
Let me see! The Mogambo was right that there are long periods
of time when stock are NOT going to increase your actual, inflation-adjusted
wealth! And right now the stock market is still waaayyyYYYYyyyy
higher than it has been, and is very, very expensive, and so
is this really the best place to be putting my money right now?"
But can it get worse than that?
Yes. I close my big blue Mogambo eyes (BBME) and I concentrate,
concentrate, concentrate, and I am tapping into your brain, probing
your subconscious, and I can tell that you are asking yourself,
"How can it get worse than that?" Well, for instance,
I could come over there and try to borrow your barbeque grill,
and then keep in your face until you just give me the damn thing
just to get rid of me. I am sure you agree that would be worse!
But the authors were probably not referring to that. And sure
enough, they go on to say, "At this point the weary, and
rather aged, investor still faced capital gains taxes on a phantom
300% gain wholly due to inflation. Covering this tax liability
likely extended the true recovery period to within shouting distance
of the bear market in stocks beginning in 2000, the most recent
peak in equity markets."
So, net of inflation, and net
of taxes, the investing dudes and dudettes in 1969 NEVER actually
showed a profit from their investing in the stock market! And
the two authors did not even mention the fees and commissions
and costs that their hypothetical investor would have had to
pay to the greedy, grubby financial services industry all these
years, nickel-and-diming you to death, including "inactivity
fees" which you have to pay because you don't do enough
trading to suit the guys who charge you fees for that trading.
And, depending where you live, they neglected to deduct state
taxes on the gains, and/or the value of the holdings! What a
racket! And they call this "investing"" Hahahaha!
And now we are talking about
putting Social Security money into privatization? The Mogambo
tilts his head back and roars, which sounded a lot like "hahahahaha!"
only with more spittle and an unmistakable undertone of contempt.
But of course the privatization
of Social Security, or some tamer variant, will be passed, or
they will simply increase taxes, or reduce benefits, or all three,
as there is no other way. We are here with a gigantic, bankrupt
system, strictly attributable to the stupidity of Congressional
boneheads, which not only ratified FDR's New Deal idiocies in
the 30's, but kept expanding them, year after year after year,
letting more and more people gobble money from the Social Security
fund, and increasing increasing increasing benefits for current
beneficiaries. And when that predictably caused shortfalls, they
increased the Social Security tax, adding the Medicare surtax,
and then spending spending spending the resultant Social Security
Trust Fund surpluses. And now here we are again. The Congress
that we have now is more stupid, arrogant and corrupt than any
other in the history of Congress, the Leftist morons on the Supreme
Court have destroyed the Constitution by letting them do it,
and a brain-damaged Federal Reserve has provided every dime of
financing for the whole enchilada and destroyed the dollar for
their efforts. Since nothing has changed, except to get worse,
I am sure that taxes are going to be increased. Again. And again.
And again. Ugh.
***** The Mogambo Sez: Too many forces are in play, and like
any system with too many variables, unintended consequences will
erupt. And it will be bad news all around.
Feb 2, 2005
Richard Daughty
email: scgcjs@gte.net
Archives
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Daily Reckoning
Richard Daughty
is general partner and C.O.O. for Smith Consultant Group, serving
the financial and medical communities, and the writer/publisher
of the Mogambo Guru economic newsletter, an avocational exercise
the better to heap disrespect on those who desperately deserve
it. The Mogambo Guru is quoted frequently in Barron's, The
Daily Reckoning
and other fine publications.
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