 Dear Diary,
Today The Mogambo says...
Richard Daughty
...the angriest guy in economics
The Mogambo
Guru
Archives
March 17, 2005
- A lot of things scare me nowadays, and the two biggest things
I fear are 1) that my wife wants to go on the Jerry Springer
show to tell me something, and 2) that the US Treasury issued
$49 billion in new debt, which they did, in ten lousy days. Annualized,
this rate of issuance runs to $1.78 trillion, which is, by strange
coincidence, the exact amount of money it would take to buy enough
tranquilizers to make me NOT scared of this, or hearing Jerry
Springer say to me, "Come on out, Mogambo, and hear what
your wife wants to tell you, you worthless little bastard!"
and as I walk to the stage I can hear the audience chanting "Bas-tard!
Bas-tard!" and I will instinctively know that THIS is not
going to be good, either.
Foreign banks only plopped $1.6 billion into their custody holdings
at the Fed. This may have something to do with how they want
to "diversify" their holding of foreign reserves, as
many of them have hinted in the last few weeks. This means that
they do not want to hold more dollars, but what else is there?
The world is awash in the things, they are accumulating more
of them at the rate of $660 billion a year in trade deficits,
and there are more dollars and dollar-denominated assets sloshing
around the globe than practically all the other currencies combined!
They want to diversify? Into what? And how?
But when you take a look at the chart of the dollar, one is hard-pressed
to come up with a bullish case, and that means that the value
of the dollar will continue to go down, which means that oil
will continue to go up, which means that oil equities are going
to go up, and that means that (if you believe in cost-push inflation)
that the price of everything is going to go up because the cost
of energy has gone up, and that means that gold
should go up, and silver should go up, and uranium should go
up as one country after another looks at their predicted energy
consumption and discovers that only nuclear power has the necessary
most-bang-for-the-buck to even try and pull it off.
For the bulls, the bad news is that Total Fed Credit, that original
source of magical money-from-thin-air, is down by $7.2
billion this week. The amount of credit being created by the
Fed is surprisingly muted here lately. If this keeps up, you
can kiss the stock market and capital gains goodbye, as an economy
as bizarre, as large, as expensive, as government-centered, and
as malignant as this one cannot exist without more and more money
being created all the time, and at ever-greater rates. So this
change in credit-creation is so potentially important that you
might want to make a note of this in your diaries, "Dear
Diary, Today The Mogambo says to keep an eye on Total Fed Credit,
and if it does not start shooting to the moon soon, then we can
all kiss our butts goodbye. P.S. I saw David in the hallway at
school today. He is so cute!!!!! I hope he asks me to the prom!!!!!"
Perhaps this "cute David" thing is what alarms Jim
Shepherd, of the Shepherd Investment Strategist. Or maybe it
is the strange goings-on with Fed Credit. I don't know. But something
sure has him spooked, as he has a new flier out that says, simply,
"Huge Crash Near." I could not have said it better!
- This is a bad time of year for me, as my infrequent big bills
all hit at once, and when combined with the monthly bills, hits
me like a sledgehammer between the eyes, Well, auto insurance;
up. Health insurance; up. Monthly bills; up. Food; up. To the
sharp-eyed detectives among us, after a while you recognize a
pattern. And for those of us who are not so gifted as to be able
to recognize patterns, here is the answer. The pattern is that
things are going up in price.
And, in fact, they have been going up in price for quite awhile
now. Years, in fact. And every time you pay the higher prices,
you vaguely recognize that things are a little more expensive
these days. But you chuckle knowingly to yourself-- heh heh --
and accept that "a little the inflation is one of those
things that you can't do anything about." And month after
month, prices keep going up some more. More and more. Always
more and more! And then one day, perhaps a day like today, and
in fact a day that was EXACTLY like today, because it WAS today,
I went over the tipping point, and all the years and years of
prices hitting five, ten, fifteen percent per year increases
has finally, one day, produced a number on a bill that is so
large that instead of writing the check, I rush to the window,
fling it open, and shout "I'm mad as hell and I'm not going
to take it anymore!" And then everybody realizes that I
stole that line from the Howard Beale character in the movie
"Network" and that proves that everyone was right,
and I AM incapable of demonstrating originality or any real creativity,
and thus I am actually handicapped by more than just looking
funny and smelling bad . I'm creativity impaired, too! I'm a
Creativity-Impaired American! But when you go down to try and
get one of those fabulous Handicapped Parking stickers for your
car so that you can get one of those choice parking spots, they
laugh at you and say "no!" Just like that! No!
Then if you ask them did they know about how the Federal Reserve
is creating more and more money and credit, and how the government
is going more and more into debt, and how this is going to create
an inflationary firestorm that will more than decimate the world's
wealth, they admit, "No, we did not know that" and
so I shout "Ha! That proves you are imbeciles!" which
was, apparently, the wrong thing to say because somebody called
security and things got, for me, real ugly, and real fast. So
this proves that their reaction to inflation was anger. Anger
and uniformed security personnel. Well, their whole reaction
to inflation was anger and uniformed security personnel and pepper
spray.
But pepper spray making my eyes water and forcing me to gasp
for breath does not change the fact that the universal reaction
to inflation is rage AND outrage, which both contain the word
"rage", so right off the bat you get a good idea of
the tenor of the situation.
You watch, helpless, as prices rise faster than your after-tax,
after-benefits, after-deductions, net net net take-home wages,
that pitiful little bit that is left after everybody has had
their chance to chew the guts out of your paycheck, like ravenous
vultures. This brings up your homework assignment for tonight.
I want you to perform a spreadsheet analysis that assumes that
your income is slashed by five percent. You must now make cuts
in discretionary spending to balance your budget. Detail these
cuts in spending to achieve a balanced budget under the new paradigm
of lower purchasing power.
Then, for the next year, take another five percent loss of income.
Again detail the cuts to achieve a balanced budget. Then the
third year, take another five percent loss of income. Detail
those spending cuts, too. And the fourth and the fifth and the
sixth year do the same thing. And then you notice, which I call
The Mogambo Moment Of Enlightenment (TMMOE), that the price of
inflation is measured in the aggregate price of happiness lost.
And the sheer tonnage of lost happiness accumulates, year after
year, as prices rise year after year, and it adds up and up,
and pretty soon you realize that life ain't fun anymore, and
all your money goes to pay for necessities, and they, as I said,
ain't fun.
- "Europe's House Prices Create a Puzzle for the ECB"
is an
article by Matthew Lynn. He writes, "Three countries
recorded house-price increases of at least 10 percent in 2004:
France, Spain and Ireland. Several others showed appreciation
that could be described as robust by any historical standards:
In Belgium, Denmark, Sweden, Finland, Portugal and Italy, property
prices rose 5 percent to 8 percent. There is no mystery about
what is driving house prices up across most of Europe: the lowest
interest rates in six decades."
And how do you miraculously get low interest rates at a time
of increasing demand for large amounts of credit, credit in such
abundance that bubbles are created? You use a central bank that
is under the control of guys who actually believe, and I know
that you find this as hard to understand as I do, that while
our problems are caused by too much of everything and insufficient
capacity to pay for everything, necessitating debt, that the
solution to the problem of too much debt is more of the same
freaking thing! This is insane! Borrowing your way out of debt?
Actually going into more debt as a cure to relieve the miseries
of too much debt? This is beyond insane! The next thing I know
I am running down the street, screaming like a madman, "We're
doomed!"
These idiots in charge of the central banks acknowledge that
every government in all of history, in every corner of the globe,
all wanted to find a way to spend more money. Everybody wants
to spend as much money as they want. There has never been a government
that wanted to spend less money. But they all succumbed to the
siren call of deficit-spending to one degree or another, and
after awhile they suffered for it. And then, in the past, as
their desperation mounted, countries and their indebted monarchs
tried spinning gold out of hay, raising geese that could
lay golden eggs, capturing unicorns, experimenting with alchemy
to turn lead into gold, etc. They all failed, and in the
end the governments ultimately turned to robbing somebody, either
their own citizens or the citizens of other countries, to get
what they needed.
The crucial difference is that today, with fiat un-backed currencies,
central bankers and equally low-IQ governments actually believe
that the remedy for too much money and credit and debt, is MORE
money and credit and debt! Look! Look at me! Look at how my eyes
are open wide in stunned disbelief as my brain refuses to comprehend
that grown adults, whose educational specialty is actually economics,
could think such lunacy! They believe that there is, literally,
no end to the amount of debt you can owe? And there is no price
to be paid for it? Wow!
- An interesting thing came across my desk, entitled, "Last
Will and Testament Of Jesse Franklin Cornish." I excitedly
read the thing to see if he left The Mogambo a few bucks, but,
alas, he did not. But he did say a lot of the things that I routinely
screech about, and so, without further ado, here are some excerpted
words of wisdom from a guy, presumably, on his deathbed. "My
generation found a way to lead the good life by borrowing from
yours. We have lived out the last thirty years in a credit 'dream
world' of luxury and affluence and monetized the massive debt
by offering the next two generations as collateral. The material
wealth I leave to you will not even begin to pay your share of
the bill we ran up during your lifetime and it will haunt you
and cause you to ask, 'How could my dad do this?'
"Please know it was not what I did, but rather, what I failed
to do. I just didn't bother to get personally involved in the
affairs of government at any level. I filled my days to earn
large sums of dollars and spent too may nights celebrating when
I did. Like millions of others, I stood by as inept elected officials
bought votes with your money and changed America from a capitalistic,
free enterprise nation to a land ever-approaching mandated socialism."
But this is nothing new, beyond giving The Mogambo an opening
to give a heap of contempt and disrespect on socialist, communist,
collectivist, statist stupid bastards in government (especially
the ones from Massachusetts).
But then he goes on to say that if you think that you are going
to "invest" over a long period of time for the purpose
of showing gains and accumulating wealth, you are wrong wrong
wrong. He correctly says "The conventional investments I
planned for your future failed the break-even point years ago.
Savings, common stocks, and money funds were tied to the shrinking
dollar and eroded away with inflation and taxes, just as they
will when this economy turns around to monetize the most massive
debt in history."
This "monetizing" thing he refers to is where the government
creates money and buys the debt with the money, and then it takes
the debt down to the basement and throws it in the furnace, and
then they all shake hands and congratulate themselves on how
smart they are. Net result; less debt, but lots more money supply,
which will eventually find its way into prices, and prices will
unfortunately rise until all of the money is used in paying prices.
He goes on to write to his children, "Over the past 15 years,
most of my income was taken away in taxes to finance the enormous
bureaucracy that now has a strangle hold on every aspect of our
economy." He is right there, too! While only 22 million
people work directly for governments, there are about three times
that many people whose incomes come from performing activities
under government contracts. Ergo, about half of the working people
in America get paid by a government!
And if you really want to know what I think, I think that if
there is a multiplier for this kind of thing, and if it is like
all multipliers, then it is about 5, and thus government money
pays for 110 million jobs, or 79% of the whole freaking job market!
Already, over 45% of all spending is by government, and, not
surprisingly, about 50% of income is paid to governments, in
the form of taxes or fees, according to mwHodges.com and his
Grandfather Report.
And I saw another article, this one by Helen Huntley, who is
the Times Personal Finance Editor for my hometown Leftist rag
of a newspaper, the St. Petersburg Times, about how different
asset classes perform over time. Her article in last Sunday's
paper was entitled "Despite history, stocks are no sure
bet" which made me sit up and go "Huh? Here is a newspaper
writer who is not perpetually optimistic on stocks? Wow! How
refreshingly novel!" But in the article's sub-head, she
reveals herself as she writes "Over the long run, stocks
have produced a 7.1% return after inflation. But there is no
crystal ball - or guarantee." Her table shows that stocks
return 10.43% annually, calculated before inflation? Wow! Her
bond return was, before inflation, 5.44%? Hahahaha! What world
is she living in? What is the annual return of stocks since the
bubbles burst in 2000? When is the last time you saw any bond
in America yielding 5.44%? Hahahaha! 5.44%!
I consider these kinds of returns as, searching for the perfect
phrase, wildly optimistic. Even if you accept at face value these
kinds of incredible gains, most of that "gain" contains
the anomaly of the explosive, insane run-up in stock prices since
1982, when tax-advantaged retirement plans were being authorized
by Congress, and then in the 90's when everybody really started
getting in on the bubble.
Don't believe me? Then take a look at stock prices for the whole
century, and notice how tprices only went ballistic in the last
couple of decades or so. If the last two decades of the SP500
had kept on the same trend with the first 80 years, then the
annual nominal returns would have been down in the 5% range or
less. And after deducting for inflation and taxes on the gains,
you would have been freaking lucky to have broken even, because
most people would have LOST real, inflation-adjusted buying power!
Which only proves that The Mogambo was right all along: Most
people will not increase their wealth in the stock market, as
it is impossible. At best, the majority will break even, in terms
of buying power. Some will lose a lot. In reality, most will
lose some, and many will lose a lot.
And how about bonds? Forget it. As for the near term concerning
bonds, I will turn the podium over to Martin Weiss of the Safe
Money Report, who goes out on a big limb and declares "Greenspan
Is Between A Rock And A Hard Place - No Matter What He Decides
Next Week, Bonds Will Plunge." Both a time and a direction!
Gutsy call!
- Thanks to Richard Schlessel, I now have a silver
round ounce of pure silver that has a picture of Alan Greenspan
engraved on it, encircled by the phrase "The Mogambo was
right! I am an idiot!" Hahaha! On the reverse side, it has
the phrase "We don't need no stinkin' Federal Reserve Notes."
Hahahaha!
- Tom Dyson of Daily Reckoning has taken a look at a lot of this
stuff, and got to wondering about the fundamentals of stock valuation.
"We grabbed A Modern Approach to Graham and Dodd Investing
by Thomas P. Au. It's not hard to argue that equities are fundamentally
overvalued. On almost any measure dividend yield, p/e ratio,
discounted cash flow valuations the major indices are massively
overvalued in relation to historical precedents.
"With the Dow at 10,787 in 2000, the author calculated IV
to be 3,036, valuing the Dow at a 255% premium to its underlying
investment value. The message is simple. A simple reversion to
fair value would cut the Dow in half, and then some. It may seem
unlikely, but who are we to argue with history...?"
Yow! No wonder Bush is so hot to get Social Security contributions
into the stock and market! A big shot of fresh money, especially
in a constant, never-ending stream, can do wonders to stock prices.
Well, in the short run, anyway. And sometimes in the intermediate
run, too. But never in the long run. And the proof is simplicity
itself: If it was possible, someone would have succeeded at it
before now.
And let me assure you that even if it DOES succeed in the short
run, there is nothing in their precious little theory that says
that prices will not increase, and it completely ignores the
stark, ugly reality that prices WILL increase faster than incomes.
And if you want a REAL important Mogambo lesson in economics
(RIMLIE), it is that when prices are increasing faster than incomes,
then standards of living have to go down, and when standards
of living go down far enough, people get real grumpy.
So no wonder Bush is trying so hard to get Social Security money
into the stock market indeed! But I can tell you, with all the
steely-eyed conviction that The Mogambo can muster, that the
Congress will pass something that will have the effect of forcing
taxpayer money into the stock market, and into the bond market,
too. And I loudly say, with the entire weight of economic history
of the entire world on my side, that I know this because the
government, our government, like all governments, will stop at
nothing. Absolutely nothing.
And while even their own precious theory says nothing about the
ruinous resultant inflation, the government actually lies to
you about how bad inflation is! This corruption is part of the
"price" that one (meaning you) must pay for "flexibility"
in the conduct of monetary policy, which is the catchphrase mantra
that they use to justify their idiocy. The Federal Reserve, which
is just a damn private banking corporation, has so abused its
power that that the dollar has suffered a 98% loss of value since
they took over in 1913. And now we are sitting on the biggest
set of not one (stock market), or two (bond market) or three
(real estate market) or four (size of government) of the most
egregiously overvalued bubbles in history, but we have them all
at the same time! Gaaahhhh!
My voice now probably sounds strange to you, but that can be
easily explained, as I am now in lockdown mode here in the Mogambo
Impregnable Fortress Of Fear (MIFOF), as a strange chill came
over me when my tiny little mind absorbed the enormity of what
I just said.
And here is that glorious moment in Mogambo history (GMIMH) where
theory meets practice. My prices are rising faster than my income,
and I am real, real grumpy.
And if you want a real- world example of how things really work,
ask the pretty little secretary who is behind on the rent for
a third month in a row, about the remedies that the slimy little
pervert of a landlord suggests. For now, the landlord is satisfied
with the transfer of computer technology and weapons. And fairly
soon the pretty little secretary starts relying on bigger and
bigger transfers of technology and weapons, and keeps spending
the rent money.
Then, one day, the lecherous landlord has all the computers and
technology and weapons that he needs, and starts casting his
lecherous eye over her willowy figure, outlined in that flimsy
negligee by the full moon shining through the open windows. He
was licking his lips and wringing his hands in eager anticipation
of the coming debauchery, whereupon Lance, home from the Marines,
bursts into the room, picks me up by the seat of my pants and
throws me out of the window! The same window, mind you, that
just a few sentences ago I was reveling in the radiance! Like
this is my fault or something!
- On the front page of the Wall Street Journal last Wednesday
in the Business and Finance section, we read that Fannie Mae
has to fix certain "deficiencies" in their accounting
practices, including, and I love this, "The new requirements
include policies banning falsified signatures on journal entries
and limiting employee's ability to alter databases."
My Mogambo mind immediately looks to turn this to advantage!
I say, in that manly way that I have, "Hey! Look! You are
allowed to falsify signatures until you get caught, and then
they merely say you have to write a policy that you can't do
that anymore! And you can alter the data, too! And when you get
caught, they merely tell you that you have to write a policy
that you can't do that anymore!"
- The government of France recently issued 50-year debt. Fifty
years! Some mental defective bought that debt, and has locked
in some of the lowest yields in history for the next fifty freaking
years! Naturally, Germany and the UK are looking at the free
gift, and you can bet your sweet butt that all the rest of them
are looking at that, too, and saying "We can issue 50-year
debt at yields that will certainly prove to be the low of the
next fifty years? Wow! P.T. Barnum was right! There IS a sucker
born every minute!" And then they will laugh.
- When Alan Greenspan took office in 1987, the national debt
stood at $2.3 trillion. Now it is over $7.4 trillion. John Myers
of Outstanding Investments never says it in so many words, but
that is a LOT of money. But he does allow that "Currently
Uncle Sam is carrying around a debt of $7.4 trillion. It is almost
impossible to really understand just how big $7,400 billion is.
But to put it into some perspective consider the following about
America's federal debt: It is twice the value of all the oil
beneath the sands of Sandi Arabia. It is larger than the combined
GDP of Germany, France, England and Canada. It is 15 times more
than the value of all the gold that
has ever been mined since the dawn of mankind."
This is all thanks for Alan Greenspan and the Federal Reserve.
Bill Fleckenstein calls Alan Greenspan "The most incompetent
and irresponsible Fed chairman in the history of the world."
I say the same thing, only with more obscenities and at a higher
volume.
- Michael Berry was looking at the price of silver,
and he notes that "Historically, for hundreds of years,
their prices traded in a tight band around 16 to 1 (16 pounces
of silver for each ounce of gold).
The current value of the ratio is 59.7." Mogambo note: This
is one of those six-sigma events, probably having something to
do wit the manipulation of the silver
market as alleged by Ted Butler, and there is obviously going
to be lots and lots of money made as the ratio corrects back
to the mean. The only question is, when? I look at my watch.
I look at what is happening. I look at silver.
I look at my watch again. I don't know when. But I keep looking
at my watch, which is a clue to my gut feeling.
- Robert Prechter, of the Elliott Wave, notes that the housing
bubble may be rolling over. "January brought the first wave
of mark-downs. The median sale price on new U.S. homes plunged
13%, from $229,700 to $199,400. The decline is the largest one-month
fall in the history of the data, which goes back to 1963. Total
new home purchases dropped 9.2% from the level of December, while
existing home sales were down 9.5%."
Even Alan Abelson, of the Up & Down Wall Street column in
Barron's, quotes Phillippa Dunne and Doug Henwood of the Liscio
Report, who note that housing is slowing up here lately. "The
construction sector may follow" they opine.
A look at bank portfolios of mortgages they hold, however, shows
that they are still hitting new records, so the bubble may not
quite be popped. But when prices are this high in relation to
income growth and GDP growth, it doesn't take an over-active
imagination to see goblins in every shadow.
And it is not like the labor market is going to improve and give
everybody a new, high-paying job. In fact, the wags at the DailyReckoning.com
site looked at the employment numbers and wrote "The fastest
growing categories are administration, health care, construction,
real estate, and restaurants. Many of the new jobs, in other
words, involve building houses for people and serving them dinner.
Nearly all of them are related to consumption... and practically
none of them help ease America's trade deficit. Nor do they help
Americans out of their holes of debt. Just the contrary - it
is as if Americans had been put to work digging themselves deeper!"
Hahahaha!
And how big is this hole that we are digging for ourselves? They
go on to say "Total consumer credit in America is at 305%
of GDP. A bigger hole has never been dug."
They note that today, Americans routinely spend 5% more than
they make, as "That is the implication of a $600 billion
current account deficit in a $12 trillion economy." This
is also the number that Warren Buffet came up with.
And it is not just the crappy type of jobs and the level of debt.
But worse, the purchasing power of the dollar is going down!
The Daily Reckoning people also have a few choice words to say
about that, too. "Americans are getting poorer. They don't
realize it. No newspaper tells them. No politician dares even
to whisper the truth. No Fed economist proposes a remedy. Still,
real wages are less today than they were a year ago... and
no higher than they were at the bottom of the recession in November
2001. Worse, unmentioned in the 'real' calculation is the cost
of housing."
- Marshall Auerback of Prudent Bear writes prophetically with,
"Given the parlous state of America's national finances,
it is clear why Tokyo, with its huge repository of savings, is
being brought in effectively to help underwrite this policy (although
why the Japanese have gone along so compliantly, other than a
longstanding historic rivalry with China, is less clear). With
these 3 global behemoths engaged in an increasingly fraught competition
over an increasingly scarce resource, it is clear that the global
economy will pay a higher price for oil, not only in dollar terms,
but also in blood for every additional gallon of oil which we
seek to consume. The great game has truly begun."
- An essay posted at Speculative-Investor.com by Steven Saville
opines that "we are now a few years into a secular bear
market that will last at least 10 years and take the Dow/gold ratio back to near the bottom of its long-term
channel." In fact, the chart suggests that the bulk of the
downside in the Dow relative to gold
is yet to come. This does not, of course, mean that the Dow will
experience a large decline in nominal dollar terms, although
the most likely way for the secular trend to reach its ultimate
target would be via weakness in the Dow alongside strength in
gold."
He figures we are now "a few years into a secular bear market
that will last at least 10 years and take the Dow/gold ratio back to near the bottom of its long-term
channel. In fact, the chart suggests that the bulk of the downside
in the Dow relative to gold is
yet to come. This does not, of course, mean that the Dow will
experience a large decline in nominal dollar terms, although
the most likely way for the secular trend to reach its ultimate
target would be via weakness in the Dow alongside strength in
gold."
Either way, gold goes up, and that is all you really
need to know.
- The Fed's Beige Book noted that inflation is still "well-behaved"
and then, abruptly changing lanes without signaling, goes right
on to say that manufacturers in a number of districts are "finding
it increasingly easy to pass along price increases", including
increasing costs of higher oil and other commodity prices. The
Beige Book also noted that retailers say that while prices were
"generally flat or up modestly", but that businesses
are getting hit with "rising input costs", of which
one is, of course, labor, and the report said that more and more
businesses were, indeed, seeing "Sharp increases in benefit
costs, particularly health insurance."
And with crude oil rising to over $55 a barrel and a gallon of
gasoline hitting new highs, you will see more benign-sounding
"rising input costs."
And it is not only other Americans who are noticing, as the Financial
Times had an
article actually entitled "US Industry Passing On Higher
Costs" by Andrew Balls.
He says the same thing, and
adds another complaint. "US manufacturers are finding it
easier to pass on higher energy and other raw material costs
to their customers, and companies are finding it harder to hire
skilled workers, a Federal Reserve report said." Again with
the education thing and how our American kids are the most ignorant,
of all the developed countries!
- M.A. Nystrom at Financial
Sense Online talks about, and this is my take on it, how the
rich get richer and the poor get poorer. Which is bad enough,
but there is another downside to that. "Since the rich save
more money than the poor, the concentration of wealth in fewer
hands increases savings and decreases consumption. As demand
drops, and economic growth fails to keep pace with growth in
the labor force, unemployment rises. But when wealth becomes
concentrated, the number of less affluent people increases, as
well as their borrowing needs. These less affluent people, who
now make up the majority, have fewer assets and are thus less
credit worthy. Even in such an environment, BANKS CANNOT AFFORD
TO BE CHOOSY -- they must make loans in order to stay 'competitive'
with their peers and simply to stay in business. As the concentration
of wealth rises, the number of unhealthy banks with shaky loans
also rises in a dangerous spiral, INCREASING THE POSSIBILITY
OF SYSTEMIC FAILURE." Notice the use of capital letters!
- Now here is something REALLY spooky, especially if you are
holding any US debt. The heads of the Risk Unit at Moody's Investor
Services testified to the House Ways and Means Committee "What
we have concluded at Moody's is that almost every country will
default on its pensions. Including the U.S." This apparently
was taken from a March 8 release entitled "What We Know
Now".
Please notice that there is no mention of The Mogambo saying
the same thing, which he has been, and you can bring in that
surprised cashier at Kentucky Fried as a witness, who will verify,
under oath, my claim. But you don't see ME getting quoted in
some fancy-schmancy testimony. Oh, noooOOooo! Or even treated
with a little respect, as I am rudely shoved into position in
the lineup, and bright, merciless lights are shone into my eyes,
and I can hear some smarmy little policemen saying, "Now,
ma'am, look closely at these suspects, all of them probably guilty
of something. Doesn't number one, the one on the left, look exactly
like the guy who was screaming into your face about monetary
policy? Sure he does! That is the guy who was hitting you on
the head with a loaf of French bread and bellowing about how
the Federal Reserve is killing your money!"
It was at this moment that I leap forward and admit that it was
I, The Mogambo, who was indeed whacking her over the head with
the loaf of bread because she is an economics doofus, and she
deserved to be punished for her inexcusable ignorance! But I
say "I strongly object to being referred to as 'number one',
when I have a name, and that name is (pause for dramatic effect)
The Mogambo!" A woman screams! Pandemonium erupts! People
are shouting! Doors are slamming! Immediately, I reach for my
sword so that I could carve the letter M on the wall ("The
Mogambo was here!") and I noticed that I don't have a sword,
and I am trying to gouge an M in the wall with my shoe, and it
is not working, and after awhile I get real tired, and then I
quit and sit down, huffing and puffing, and the whole moment
was ruined. So I'm kind of bitter about that, too.
- The sun has changed its polarity, as it periodically does.
The bad new is that the relationship between the sun's polarity
and the earth's polarity is now altered. This is alarming to
The Mogambo, who has seen far too much Discovery Channel, and
Nova, and the History Channel, and who has also seen Star Wars,
and there are lessons to be gleaned from it all. Synthesizing,
these are ripples in the Force, and you will notice that when
Jedi knights sensed distortions in the Force, they always took
it seriously and got ready for battle.
Steve Quayle on his website had a report from the India Times,
which said "The tectonic plate movements, especially under
the oceans, have gone up by many times." They go on to say
"It is evident that the tectonic movements have gone up
by several folds in the last nine months." Furthermore,
"Many researchers are now concerned about these developments.
They are saying the probability of a mega or multiple mega volcanoes
is very high now. According to some there is 74,000 year cycle
of mega volcanoes and that is due in 2012."
In a possibly related story, George Ure of UrbanSurvival.com
notes that "Barring a late season weather miracle, snowpack
in the Pacific Northwest is running at around 4% of normal. Already,
the Columbia River, source of both hydro power and irrigation
water is far below normal levels. This means in all likelihood
there will be very little - if any - northwest power to sell
to hungry southwest states including California. There will also
be a shortage of water for agriculture."
I bring these things up because I never see a documentary or
movie on TV that shows a newspaper headline that says something
like "Super-volcano to destroy world! Everyone is dying
of thirst and hunger! Dow goes up!"
This is the kind of thing that produces stupefaction in The Mogambo,
and I do not know what to say. By this point I am in total lockdown
in the Mogambo Bunker, alarm systems set to "loud",
locks set to "100% security", fire control systems
set to the extreme position called "Hail of lead" and
trigger sensitivity is set to "hair". I know that these
cosmic changes are not a good things, but how much of a bad thing
are they?
Some, like me, have postulated that this magnetic tug on the
earth's core is at the heart of the seeming increase in earthquakes
and weather patterns, and some of us (me, again) use this as
the basis of my latest "Repent, sinners! The end is near!"
rant. And that postulate is now accepted as fact, now that Chaos
Theory has shown that even the faintest flap of the wings of
the most obscure butterfly in the most inaccessible region of
an Amazon forest can tip the scales of probability as to whether
it will rain in Chicago five days later. And when you have this
gigantic flipping of the polarity of the sun, which is a million
times bigger than the earth, so we are talking one big freaking
butterfly effect! And this huge freaking butterfly effect is
bigger than Mothra, and that damn Mothra was so big that I've
seen movies where it almost ate Tokyo a few times, because even
cannon fire just bounces off of it, and it could spew flames
and laser beams out of its mouth, too! And now I'm talking bigger
and deadlier than THAT!
So it is a foregone conclusion, according to Chaos Theory, that
SOMETHING will happen, and in all probability, a LOT of things
will happen.
- From Reuters we read "The United States posted a record
$113.94 billion budget deficit in February, above most Wall Street
forecasts, as higher government receipts were not enough to cover
a spending increase. The government took in $100.87 billion in
February, nearly $9 billion more than a year ago, but outlays
rose more than $26 billion, causing the budget gap to stretch."
As bad as that is, in Doug Noland's Credit Bubble Bulletin column
on the Prudent Bear.com site he reports that "The Goldman
Sachs Commodities index increased 2.3%, increasing year-to-date
gains to 20.4%. Commodities price gains were broad-based, with
the CRB index surging 4.1%. The CRB is up 12.2% already this
year." This year? This year? This is only the middle of
March, for crying out loud, which is far, far, farrrRRRrrrr too
early to talk about things like 12% inflation "so far, this
year"!
- I got an email joke entitled "Typical computer help center"
showing a room full of computers and a monkey manning each work
station, actually looking like they are working at being real
on-line customer-support help.
And I think that this is a great moment in measuring how much
a guy is underpaid or overpaid, and in fact I suggest that you
refer to this as the Mogambo Monkey Measurement Metric (MMMM),
which is a length of time it would take to train a monkey to
do a job. For instance, you could easily train a monkey to do
Alan Greenspan's job as chairman of the Federal Reserve, as all
he does is wave his hand in the air and create more money and
credit, as if that is the answer to everything. Obviously, Alan
Greenspan is grossly overpaid.
And I bring this up because I hear Disney is looking for a new
CEO, and perhaps I could provide some guidance on proper compensation.
- Reader Carol F. has identified a new psychiatric disorder,
this one "attention to deficits disorder -- the malady of
paying no attention to serious, raging budget and trade deficits
while claiming that all is well." Hahahaha!
- Speaking of inflation in commodities, Steve Sjuggerud reports
one of those weird things that make your mind go "boing!"
He writes, "A penny now costs two cents to produce!"
Going back to the U.S. Mint's last annual report, dated September
30, 2003, he notes that back then "It cost the U.S. government
3.8 cents to produce a nickel and 0.98 cents to produce a penny."
So the government was still making money on making money, showing
a small profit. But it may be too early to celebrate just yet,
as he goes on to say "We haven't heard from the Mint since
then, but metals prices have nearly doubled. By my quick math,
as of this morning's metal prices, it would cost 1.7 cents to
produce a penny and 7.2 cents to produce a nickel today"
Hahahaha! It costs more than a nickel to make a nickel? And it
costs more than a penny to make a penny? Hahahaha! Talk about
your basic monetary mismanagement!
He suggests that we could go into business buying coins from
the Mint at face value, melting them down, and selling the raw
materials back to the Mint at a profit. "We buy freshly
minted pennies and nickels for 1 cent and 5 cents respectively,
melt them down, and then sell the metal back to the mint for
1.7 cents and 7 cents. It's the perfect business." Hahahaha!
Yes, it is! And this is just ONE of the weird things that happens
as inflation destroys the purchasing power of your money.
He admits that they would never let you get away with that. But
he does ask a relevant question, as we watch the literal destruction
of our money, "You do own gold coins
by now, right?"
- I got suggestions that I ought to comment on the surprising
way that the idea of Mexico adopting a silver
coin has been making its way through the government. Relax and
forget about it. There is no way in hell that a government or
a central bank, especially a Mexican one, is going to willingly
give up the power of creating money out of thin air or submit
to the healthful, intelligent strictures of metallic money.
Ugh.
**** The Mogambo Sez: Chuck Prince, chief executive of
Citigroup, said: "The possibility of a liquidity bubble
around the world concerns me. A very cautionary thing is that
it feels like the world is changing and traditional indices may
not give a complete picture." To this I say, "Hahaha!
Wrong-o!" This gives a very complete picture, as it is nothing
more than the death scene played out in the last pages of the
ABCT, (Austrian Business Cycle Theory), where the mal-investments
paid for by the excess money and credit has to be reversed. Perhaps
the picture would be more complete by the addition of a caption
that reads "We're freaking doomed, you morons!"
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.
Recent Gold/Silver/$$$ essays at 321gold:
Dec 20 Crypto Tumbles & Gold Stocks To Buy Morris Hubbartt 321gold
Dec 20 Fed Tests Gold Upleg Adam Hamilton 321gold
Dec 19 DSI says Gold and Silver going higher. Tax Loss Silly Season ends shortly Bob Moriarty 321gold
Dec 17 Gold: A Cyclical Low Is Here Stewart Thomson 321gold
Dec 16 Gold’s Short-Term Price Oscillator Tom McClellan 321gold
Dec 16 Bullion and Silver Miners Ross Clark 321gold
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