 Gimme all
my money...
Richard Daughty
...the angriest guy in economics
The Mogambo
Guru
Archives
Jun 01, 2005
- The Treasury is back on a borrowing binge, and national debt
rocketed up to $7.781 trillion. And the foreign central banks
are back in the game, big time, as they soaked up an incredible
$6.759 billion of US debt in the last week alone, stashing it
directly at the Fed, bringing their total to $1.41 trillion.
- The cover of this week's
issue of Barron's asks "Hedge Funds: Is The Party Over?"
If they had taken a moment and asked The Mogambo, I could have
told them that the answer is "no": The money that comes
OUT of hedge funds has to go INTO something else, and as soon
as it becomes clear that a lot of money is moving in to this
new thing, whatever it is, then hedge funds will start piling
into that, too.
Speaking of Barron's, I was
poking around on the Economic Indicators page of their Market
Laboratory section, and I noticed that Total Reserves in the
banks is $44.5 billion. This is the money and cash equivalents
that the banks have to keep on hand in case somebody comes storming
into the bank, screaming "The Mogambo is right! We are going
to be freaking killed with this insanely-stupid and suicidal
monetary expansion of the Federal Reserve! Gimme all my money
so that I can go buy gold and silver
with it, and I mean right now!" You look up at the guy and
say "Hmmm!" to yourself. Then you turn back to Barron's,
and your gaze happens to fall on the figure for savings deposited
in the banks, which is $4,786.6 billion, and suddenly your mind
is sharpened! Your nostrils flare and you start to get really,
really scared! This would mean (and I gulp as I say this because
my mouth is dry and my heart is beating thumpa thumpa thumpa
and all I want to do is run somewhere and hide), that reserves
are now roughly 0.0093 of liabilities or, if you prefer, 0.93%
of liabilities, which is, obviously less than one stinking percent
-- one stinking percent! -- of even just the "savings"
part of the banks' liabilities. This is a ridiculously-low, absurdly-low,
freakishly-low reserve requirement, such that you wonder why
they even bother with having a reserve requirement at all! The
textbook example is, I remind our newer viewers, 10%. Now the
damnable Federal Reserve has allowed the banks to have on hand
less than 1% of this amount! This is where all the money is coming
from!
I bring this up because with
a at 0.9% reserve requirement, the reserve multiplier is thus
huge! If you walk into the bank, take a one-dollar bill out of
your wallet, slap it on the counter and tell the surprised teller
that you want to use that dollar to make a cash deposit into
your account, then the banks are, in effect, empowered to make
available (for loaning out to borrowers) more than a hundred
new dollars! A hundred!
I also noted that the banks
hold almost $1.2 trillion dollar's worth of government debt.
It is not just foreign banks that are stupidly accumulating US
government debt, which will fall in value as interest rates rise.
But added together, $1.4 trillion and $1.2 trillion, this comes
to $2.6 trillion, which is about 25% of the entire GDP of the
USA! And this behavior by the banks brings up the point that
that I am always screeching about: It's always the same thing
that causes economic slowdowns and problems and recessions and
depressions and collapses; the banks acted stupidly and greedy.
- Steve H., who prefers to
be characterized as "alert reader", says that, in reference
to a comment last week about high state taxes, "Montana
ALREADY has an 11% top rate. And it starts at only $76,199. I'll
bet they can't figure out why no one who makes any money wants
to live there. What morons!"
And so we see that Montana
has political morons, too, which proves that stupidity seems
to be, like God, everywhere at once. Which brings up a Cryptoquote
by James Feibleman, which recently appeared in my hometown newspaper,
which reads "You can say one thing about ignorance: There
seems to be more than enough to go around." Hahaha!
- Speaking of alert readers,
David B.C. sent a link about Paul McCulley of Pimco, who is commenting
about what is referred to as the Bretton Woods II system, which
is, according to Marshall Auerback of the Prudent Bear website,
"posits the notion that the world is effectively back to
a regime of global fixed exchange rates pegged to the US dollar
like the original Bretton Woods regime that lasted from 1945
to 1973. Mr. McCulley writes "by linking mercantilist emerging
market countries, notably China, into a de facto monetary union
with the United States, represents a positive shock to global
aggregate supply relative to global aggregate demand." Well,
not necessarily, because it would take a willingly stupid US
consumer to go into debt to buy the new supply of goods and services.
But, ass it turned out, Americans DID willingly act stupid! What
luck for foreigners!
Anyway, it is the next part
that makes me foam at the mouth and stick pins into a voodoo
doll. "Consequently," Mr. McCulley writes "it
is America's global civic duty to live beyond its means. And
it is the Federal Reserve's global civic duty to facilitate American
hedonism, because in the face of a positive structural shock
to global aggregate supply, notably labor, American hedonism
is not inflationary." My mouth is hanging open in stupefaction!
Well, I will agree that a glut
of supply does not necessarily lead to higher prices immediately.
But I am here to tell you that the weird economic distortions
and mal-investments of such a shocked system WILL, sooner or
later, have to be paid for, in one way or another, because that
is the way that economics works. But nowadays, that is considered
to be a matter of opinion, I guess, sort of like how everybody
says that I am weird, stupid and hateful little drunken bastard,
and I disagree and tell them that I am NOT drunk!
But it is the part about our
"civic duty" to go into debt that makes me, ummm, I
am looking for the right word, crazy. This horrid little McCulley
putz, and those words came immediately to my lips, actually says
that it is our damned obligation to go into bankrupting levels
of debt? We have a duty to consume more that we can pay for?
If I decide to go into the business of making lousy chocolate
pies, it is automatically the duty and obligation of my neighbors
to buy the pies, and eat the pies, and borrow more money to buy
more pies? And the bank has an obligation to loan them the money
to buy the pies? Wow! It is a good thing that this McCulley dude
is good at managing a bond portfolio, because the career options
for what appears to be mentally-ill socialist crackpots who declare
that an entire country has an obligation to "live beyond
its means", and that it is similarly the duty of the central
banks of that country to provide the financing for such gluttonous
excess, regardless of the consequences, must be very limited,
indeed, as I have never seen a "help wanted" classified
ad where anybody was looking for one, and as a mentally-ill crackpot
myself, I happen to be somewhat of an expert in that particular
employment area.
Can you cite another time in
all of history when anybody ever said "It is the duty of
the nation to live beyond its means, and to borrow and consume
to the limits of our greedy imaginations"? And, assuming
that there is actually some precedent for this, gleaned from
some backward little enclave of economically-ignorant dirtbags
in the forgotten backwaters of economic history, how did it work
out? I am asking because I have never, ever read about such a
thing happening. I have never HEARD of such a thing happening.
In fact, I have never heard of anyone ever even SAYING such a
thing! Never! Only now, in 2005, for the first time in all of
history, we have a guy saying that we owe it to the world to
plunge ourselves into ever-more debt, day after day, month after
month, year after year! It boggles the damn mind! It must be
a weird mutant variety of Keynesian stupidity taken to new extremes
or something!
Or perhaps Mr. McCulley is
extrapolating beyond Mr. Auerback's comment that "Implicit
in the Bretton Woods II model is that the presumption is that
the arrangement is symbiotic and mutually beneficial for everybody."
But perhaps if Mr. McCulley was not so anxious to make a fool
of himself, he would have heard what Mr. Auerback said next,
as he goes on to immediately say, "Ironically, the very
aspect of BWII lauded by exponents as introducing the virtues
of an quasi-fixed exchange rate system has in fact propagated
enormous international imbalances, the unwinding of which will
almost certainly be hugely destabilizing."
Or perhaps the words of Eric
J. Fry, who writes the Rude Awakening column, will explain the
errors of such irresponsible socialization. He writes
"As we pile up foreign debts, we are also piling up liabilities
that must be 'socialized' away. We must all, collectively, satisfy
the cost of our excesses, either through taxation or currency-debasement,
or both."
- Mike C. who is another alert
reader who was driven to comment on my boring , predictable and
overly-strident denunciation of the stupidity of anyone WANTING
to have constant inflation, as the horrid Ben Bernanke and other
fellow-traveler central banking morons advocate. He writes that
South Africa, where he lives, has a central bank that "is
happy with 3.8% y/y inflation." In fact, those South African
central bank boneheads are already targeting inflation, like
the asinine Bernanke advocates! He writes "Their CPIX target
is range of 3%-6%." Wow!
For us, as it is with everybody,
such a suicidal plan would dictate a constant devaluation of
the dollar, which means a constant lessening of buying power,
which means that prices constantly go up and up, which means
that tempers go up and up, and pretty soon the world is awash
with unions on strike, demanding higher pay, and those existing
on government handouts demanding more money, everybody needing
more money, lots more money, but nobody is getting more money,
much less lots more money, and the government responds by creating
MORE money and credit (monetary inflation), which makes price
inflation even worse, thus everybody is grumpy as hell and getting
grumpier every day. And while I am not an expert on the subtleties
of the Elliott Wave theories, one salient aspect is that nations
that are grumpy do NOT prosper. And although there is some debate
as to which causes which, please use your sharply-honed, SAT
test-taking skills and parse the previous sentence to determine
if prosperity and grumpiness are 1) mutually exclusive, 2) coincident,
3) both of the above, 4) neither of the above, or 5) who the
hell cares? The answer for you and me, as mere mortals who are
grumpy, is 1. The answer for the government and the central banks
and the monstrously huge, jimongously huge, unbelievably huge
financial services industry is, obviously, 5.
And perhaps that is what has
led Dan Denning, of Strategic Investment, to make the comment,
"Liquidity, simply speaking, is the flow of cash and credit
through a financial system. When you have more savings and/or
credit in an economy than there are productive places to invest
them, you get a bubble: Too much money chasing too few good opportunities.
The prudent monetary policy in such situations is to take your
medicine and tighten credit. Greenspan, for the most part, has
done the opposite. He has flooded the U.S. financial system with
excess liquidity, in the process creating bull markets -- or
bubbles -- in stocks, real estate and bonds, while fostering
a related bubble and in consumption (the symptom of which is
a huge trade deficit)."
What we need, we tell one another,
is a way to make some fast money on this. Looking to The Mogambo
for an answer is, as has been proved, a total waste of time.
So where do we turn? To our good fortune, Mr. Denning has the
answer! "But for traders, there may be a profitable solution
to the liquidity black hole problem. If you could quickly and
easily 'buy' volatility in the options market, you could buy
the one thing that WILL go up in a liquidity crisis. You'd want
to buy the 'fear gauge,' better known as the volatility index
(VIX)."
But before you run to the phone
to pick up some VIX, he goes on to say "The Chicago Board
Options Exchange (CBOE) was scheduled to begin trading options
on two separate VIX-related indexes in late April. But as usual
with a new product, the launch date was missed. CBOE hasn't said
when VIX options will start trading." Apparently, the symbol
for two of the first VIX products will be VXB and VBI.
- Rob Peebles, writing on the
PrudentBear.com site, says that the Japanese Nikkei and the 10-year
U.S. Treasury bond yields track each other. I see a flurry of
hands go up, as we all are scratching our heads, and quizzically
asking ourselves "The Japanese stock market and the American
10-year T-bond are coincident? Now, why would stock prices all
the way over in Japan be so closely correlated to U.S. bond yields?"
Without even bothering to let us ask the question, Mr. Peebles
breezily goes on to note that Michael Panzner (author of "The
New Laws of the Stock Market Jungle") wonders if it's because
"when the Japanese invest in our bonds (to support the dollar
vs. the yen and to take up the slack from our financial imbalances),
they divert funds from their domestic equity market." And
vice versa. Well, that's the way it used to be, but with central
banks no longer willing to loan us so much money, who knows any
more?
- For those of us, like me,
who are anxiously waiting for gold to
shoot to the moon, Mike Swanson offers his "Three Signs
Of A Gold Bottom." First off, he notes
that "The divergence between the XAU gold
stock index and gold reached an extreme level. The action
in gold stocks tends to lead the action in
the metal. When gold stocks outperform gold
it has historically been bullish for both the stocks and the
metal. However, when the stocks trade weaker than gold a correction is usually near." In particular,
he monitors the XAU/gold ratio. "When this ratio is rising,"
he writes, "gold stocks are outperforming gold, and when it is falling, gold
stocks are trading weaker than the metal, which is bearish."
More importantly, he notes
that "What many of these people don't know is that this
divergence between the stocks and the metal has reached an extreme
level, which has marked important bottoms in gold
and the gold stocks over the past 14 years."
My little antennae are quivering at the words "important"
and "bottom", which means I can go long, and not have
to go short anything, which is nice, because I know that if I
have to go short to make a profit, then I am going to be squeezed
by the sharks on Wall Street who will buy and buy, and force
the price up, squeezing my short position until blood squirts
out of my ears, and I will lose my big, fat butt, and then my
wife will be asking embarrassing questions like "Where did
all the money go?" and "Why are these people taking
away our stereo?" and "Did you just fart?"
His second point about the
bullish case for gold, which he cleverly labels as 2), is
that "Commercial futures traders are covering short positions.
This is important because, during the past five years, important
bottoms in the gold market have been made when the commercials
have been net short 40-60k contracts." Again with the "important
bottom" thing! Are you as intrigued as I am?
His third and final point is
that gold is still hanging in there, despite
rampant manipulation by the central banks, which he characterizes
as "3) Major support levels have held."
- Bob Bauman, editor of the
A-Letter asks and important question when he writes "We
ask again: Does anybody in America care that freedom, liberty
and privacy are being diluted, diminished and destroyed? We raise
this question because of the deafening silence, the near total
non-reaction of the public and the 'news' media concerning the
pending consideration of the PATRIOT Act in the US Senate, where
the bill was marked up in secret. Next week debate begins on
this legislation. The PATRIOT Act, which gave the FBI and other
police agencies unprecedented monitoring powers over us all,
was approved only weeks after the terrorist attacks of Sept.
11, 2001. The 342 page law, passed sight unseen, gave police
the unchecked ability to conduct Internet surveillance without
a court order, secretly to search homes and offices without notifying
the owner and to spy on bank and other financial accounts and
freeze cash almost at will."
The answer is "no."
Nobody cares. Nobody mistrusts the government any more. But they
will care one day, and nobody will trust the government ever
again, and then people will scratch around for some protection
from the government, and they will re-discover the Constitution,
and they will read it, and they will be outraged, and they will
throw all present and former government elected and appointed
officials in jail for life, and desecrate the graves of those
previous government elected and appointed officials who took
the coward's way out and died before we could get our hands around
their nasty little throats.
As proof of the incompetence
and treason of Congress, they passed the Patriot Act, a piece
of nightmarish, Orwellian horror, that they did not even read,
and that guts the whole purpose of the Constitution and the Bill
of Rights. And that is why America is doomed; it is doomed because
it deserves to die, and it deserves to die because Americans
acted like morons when they voted, and voted, and voted for the
jackasses we have (and have had), in our Congresses, and who
appointed the jackasses we have (and have had), on the Supreme
Courts.
- Mike Shedlock, the guy who
runs the blog entitled Mish's Global Economic Trend Analysis,
gives us another little peek into Weird Places Where Normal People
Do Not Go (WPWNPDNG) when he reports that "President Bush
is now urging tax credits for homebuilders!" He even provides
a quote from President Bush himself, who perversely has said
to the National Association of Realtors, "To boost housing
sales even more, Congress needs to pass my single-family homeownership
tax credit."
This amazing Presidential disconnect
with reality comes at the same time as U.S. new home sales jumped
12%, to a record 1.431 million (at seasonally adjusted annual
rate), in March, which smashed the previous record of 1.304 million
homes, set in October, and at the exact same time as the median
house price rose to $206,000, too! The median household income
is about $50,000, and the median new home is now four times their
entire annual income! Gaahhh! At the same time as the prices
of everything else is rising fast! Gaahhh! At the same time as
incomes are actually stagnating! Gaahhh!
Mr. Shedlock notes "New
home sales are at an all time high, 69% of American families
own a home, prices have gone parabolic, but...the FHA wants to
compete against subprime lenders, and the president wants to
give tax breaks to an industry that has been setting record profits
for the last four years. Is this blatantly stupid or what? Is
that an industry that needs tax credits?"
Well, yes and no. If the housing
market keeps on getting massive financial infusions, then houses
will continue going up in price, and new houses will continue
to be built, and a lot of people will pay a lot of money and
(more crucially) a lot of taxes on the gains, and pay loan origination
fees, the cost of the documentary stamps, and the transfer fees,
and the mortgage insurance fees, and title fees, and title search
fees, and one damn cost after another, item after item, until
you realize that everybody is screwing the hell out of you and
they are all out to get you. And that is the whole point of it;
getting more money to go into incomes and taxes, especially taxes.
But we are suddenly in full
agreement when he says "Since there is no conceivable way
this can possibly end well, I have a fail-safe prediction: It
won't."
And I note that several other
writers have noticed that some housing prices have started to
fall slightly, and that foreclosures are rising. The significance
of this is supplied by Bill Bonner, of the DailyReckoning.com
site, who writes "The Greenspan Fed has made the likely
effects of a recession far more dangerous. By increasing personal
debt levels and causing a bubble in housing, the Fed raised the
cost of recession. More people will have to cut back more than
usual. Contracts to buy will be dropped. Mortgages will be abandoned.
The result could be that an ordinary recession could turn into
a fat tail credit implosion - a deflationary collapse."
Even Phil Spicer, who is usually
calm and steady and is usually found sitting on my chest, soothingly
trying to get ME to calm down and stop screaming about monetary
policy and how he promises that everything is going to be alright,
has had his mind boggled by the idea of someone buying a house
for $750,000, especially when one considers that "the annual
interest cost (at 5%) would be $37,500 a year." Then he
adds in property taxes at twelve grand, plus insurance and those
kinds of things, and when one hits the "total button"
on the calculator, it looks like $4,000 per month is the monthly
cost of buying one of these homes.
And he did not even mention
the cost of what to put INTO the damn house, because believe
me when I tell you that you are wasting your social-climbing
money buying that big, fancy house, unless the insides are as
spectacular as the outside. And as a guy who once disastrously
tried living in one of those upscale houses, I can reliably report
that the typical neighbors are not impressed with ratty furniture
rescued from the dump, or bookcases made out of boards and some
concrete blocks. And after you visit one of THEIR houses on a
reciprocal visit, you will learn that you must add many, many
more thousands of dollars, tens of thousands, for furnishings
alone. And don't get me started on artwork, although I still
maintain that Playboy foldouts stapled to the walls was a hell
of a lot nicer to look at than anything THEY had in their houses,
some of which you couldn't even tell what it was, maybe a cow
eating an umbrella or something.
And since we are talking about
reciprocal things, that means you gotta invite them over to your
house, which means MORE thousands of dollars for drinks, food,
munchies, decorations, and, (depending on your circle of friends),
drugs, establishing alibis, and a live band really making it
wail, dude.
But there is more to life than
money, live bands, getting totally wasted (although a lot of
life is also involved in recovering from spending too much money,
tinnitus from the live band and suffering from a killer hangover).
Then he gets into the real meat of the thing, as far as I am
concerned, and notes that "Interest-only mortgages are enslavement!"
And he is exactly right, as
even the thought of owing money perpetually, but making interest
payments month after month after month until I die, gives me
the willies. The only way that it is NOT enslavement is if Ben
Bernanke gets appointed to be the chairman of the Federal Reserve
over my strong objections. This guy is saying that he advises
that we "target inflation" which is a benign-sounding
term that actually translates, after running it through the Mogambo
Translating Machine (MTL), that he intends to CAUSE INFLATION!
Ben Bernanke, and a lot of other mentally-ill people here and
around the world, actually think that you can have a permanent,
constant inflation, and that somehow, I guess, "A rising
tide lifts all boats". This is a nice metaphor for boats,
but is ridiculous when used in economics, because I am here to
tell you, with that patented snotty Mogambo smug arrogance (PSMSA),
that in an economy there is NEVER an example of rising ANYTHING
that is good for ALL the boats. Some of the boats, yes. Many
of the boats, sometimes. A few of the boats, often. But all the
boats, never. And while this applies to beneficial things like
tax breaks, it goes double for inflation. Triple, even. Or more!
But one of the "boats"
will be, according to the Bernanke theory of permanent inflation
lifting all boats (BTOPILAB), houses. And so your house, for
which you paid a king's ransom today, will go forever, again
theoretically, up and up in value! You will be able to constantly,
all your life, borrow money against your appreciating house,
and so you will never again, in all your life, have to work,
and you can borrow and spend, and borrow and spend, and borrow
and spend and borrow spend borrow spend borrowspendborrowspend
until you wonder "I wonder if this Mogambo idiot is going
to ever stop borrowing and spending and borrowing and spending?"
But then, suddenly, it stops. You hear the sound of ravenous
wolves howling in the distance. Creepy.
Notice the use of all-capital
letters when I say that Mr. Bernanke wants to "CAUSE INFLATION,
which is a clever literary device that I use to indicate special
emphasis. He is even saying, out loud, and in front of witnesses,
that he literally advocates the "targeting of inflation"!
And since we are talking about it, I will tell you that I cannot
WAIT to get on the witness stand as a witness, and how this is
going to be sooOOoooo sweet, and testify against this guy, and
hopefully get him banished for life, and then he will live out
his days in torment and misery because everyone hates him, and
even little children spit on him, and call him names like "Mogambo
moron!" and "Get the hell out of my tool shed, Mogambo!"
This Ben Bernanke person, and
notice how 1) I cannot even say the name without spitting it
from between clenched teeth and how 2) my intensity and inner
fire closely match those of James Dean, the original Rebel Without
A Cause (RWAC) who, I am sure, would have been as outraged as
I am about this whole Bernanke inflation-targeting thing, is
therefore on record as advising the exact freaking opposite of
the Federal Reserve's explicit freaking mission in life, which
is to achieve "price stability"! That is what they
are freaking supposed to do! That is what the Federal Reserve
is literally freaking chartered to do, dammit! A bunch of private
businessmen are given the awesome power of creating all the money
and credit for the entire nation, at their total discretion.
In return, they are supposed to achieve price freaking stability,
so that the economy neither booms nor busts, but just keeping
on perking away in a steady, controlled growth, with no price
inflation (which is the literal definition of "price stability"),
and everybody will be happy! Look it up if you don't believe
me! It's all right there!
Except for the "freaking"
thing. I put that part in because I thought it added a little
"elusive, indefinable pleasing quality" which, in French,
translates as je ne sais quoi, which I use as an example of my
new respect for the French, who have had the good sense to reject
the monster known as the European Constitution, which is not
just another layer of government, but a HUGE, new, suffocating
layer of trans-national government, and at least the French are
smart enough to recognize that layers of government always get
larger, and more expensive, and they all have "mission creep"
as they take on more and more responsibilities, and a whole NEW
government, with a bizarre Constitution that runs over 500 pages,
is even worse!
But we were not speaking of
the French, nor the EU Constitution, but about how Ben Bernanke
and lots of other people suddenly want to, to my horror, create
inflation. And if the moronic Mogambo (MM) immediately recognizes
the glaring error of that, then surely someone with YOUR brains,
and YOUR education, and YOUR good looks, and YOUR high-IQ brilliance
must REALLY comprehend the profundity that if prices are going
up, then prices are NOT "stable"!
And now I want you to look
deep into my eyes to see my utter, utter conviction when I say
to you that prices of things you need WILL be going up thanks
to all the money and credit that has been created since Alan
Greenspan took control of the Fed in 1987. But if we ever made
the horrific mistake of appointing Ben Bernanke to anything where
he has any power, or say-so, or authority of any kind, then we
will never again see "price stability", because this
horrid little man has promised to cause inflation with his every
breath! Right there, for everybody to see! And to make sure that
you wake up in the dark of the night, bathed in sweat, screaming
in bloody fear, President Bush wants him as the head of his economic
advisory team! Arrrggghhhh!
And if he gets in charge of
the Federal Reserve and he actually does this, then, yes, one
day in the future, a $750,000 house will be a chump-change fixer-upper,
lived in by rats and derelict gold-bug
screwballs, perhaps even The Mogambo himself, still screaming
about the horrors of inflation and how it is going to kill all
of us. Of course, the price of a small pizza, one lousy topping,
cash-and-carry crappy crust and all, (betcha can't say "cash-and-carry
crappy crust" five times real fast!), will cost $75. Per
slice.
And let's not forget about
property taxes, because they are not going to be "price
stable," either! They are also going to go up and up. And
not only going up in nominal terms as a fixed percentage of your
house's value, but as a constantly-increasing percentage of your
house's value, because every dime that any government gets its
hands on gets spent on something that requires funding in the
future. It is always either some building that will always need
painting and a new air conditioner, or a new group of unfortunates
that needs a handout, but which always needs more money because
prices are rising faster than their handouts. And that means
that the government spending will rise faster than simple inflation,
and the cost to taxpayers for those things must always rise faster
than simple price inflation. And that means constantly higher
and higher taxes.
As a perfect example, on the
Bloomberg new site we read, "Venezuela boosted government
spending by 28 percent in March as surging revenue from record
oil prices paid for bigger outlays for social programs."
And what this Bernanke guy
is not telling you is that, thanks to his inflation, your retirement
is toast. Hewitt Associations figures the average 401(k) plan
has a balance of just $69,000. So, guess what? At retirement
your stupid little $69,000 that you have in your stupid little
401(k) will be worth less than what a janitor makes in a month.
How far do you think you are going to get on that?
But, now that you mention it,
we were not talking about inflation or the Federal Reserve or
Ben Bernanke. We were talking about houses. Seemingly thankful
to get back to talking about houses, Mr. Spicer goes on to note
that "Houses deteriorate over time", which is true
in the best of cases, and more so now, because if you think that
these crappy little cracker-box houses that they are putting
up these days, made on the cheap whenever possible, will NOT
need lots and lots of loving care from expensive construction
labor every day of their attenuated existence, then you are not
dealing in reality as the rest of us know it. And then you will
spend the rest of your life telling the story of how the house
seemed to just fall apart and how these construction guys screwed
you and screwed you and screwed you out of so much money, that
you finally had to sell the house at a loss? Hahahaha! Look!
I am laughing, because it seems so ludicrous to imagine otherwise!
Hahaha!
- Speaking of houses, InvesTech
has come up with a new indicator, which they call the "Housing
Bubble Bellwether Index." Rather than me reading it and
trying to understand things, which requires a lot of reading
and thinking and I still get it all mixed up, let me quote them
exactly: "Compiled of what we consider the best bellwether
stocks in the real estate sector, this Index gave decisive warning
before each of the last three bear markets." By the term
"decisive warning", they mean that the bellwether stocks
usually turn down a couple of years before the real estate market
went down.
The other thing follows from
the first, in that the housing stocks have not turned down. Ergo,
it would seem that the housing market is at least two years away
from peaking, according to this theory/indicator.
- The essay "Silver
is Money" and subtitled "The Four Horsemen
Part III" by Douglas V. Gnazzo on FinancialSense.com, says
that trading on the Comex OTC market and the overnight access
market is perfect for you, "If you are a big player in the
futures market and you want to keep your trading unknown, as
neither the over the counter market nor the overnight access
market have any disclosure whatsoever. No one knows who is doing
what to what degree. This raises derivatives to a whole different
level: now it is unknown and secretive, as well as extremely
risky, and potentially explosive."
And if you want to make risky
profits but not have to make good on your losses, then the Comex
is even MORE fun for you if you are a Member! Join today! Their
"Force Majeure" rules are custom-made for themselves.
These rules come into effect when somebody can't, or won't, make
good on their contracts. For example, in rule 402.C.1.d. we find
that Force Majeure is defined as "The actual or threatened
bankruptcy or insolvency of any Member or the imposition of any
injunction or other restraint by any government agency, self
regulatory organization, court or arbitrator upon a Member which
may affect the ability of that Member to perform on its contracts".
From this they give themselves
powers, awesome powers, such as the power in rule 402.C.2.c.,
which is to "Impose or modify position limits and/or order
liquidation of all or a portion of a Member's proprietary and/or
customers' accounts" which shows that they can just wipe
out the positions of customers (you) and screw you out of the
money that you were due, and counting on! And it gets even better
in rule 402.C.2.d., which can "Order liquidation of positions
as to which the holder is unable or unwilling to make or take
delivery." Note that they can order liquidation, at a price
of their own choosing, if one of their friends is "unwilling"
to fulfill an obligation! Man! There have been MANY times when
I would have LOVED to use that rule!
The really interesting part
is that, according to Mr. Gnazzo's analysis, "The futures
market is structured in the same way that our paper fiat monetary
system is. Both systems employ irredeemable obligations based
on fractional reserves." In short, the Comex can just create
commodities on paper, out of thin air, and sell them to you.
And if we all try and redeem them, which is impossible since
there are more commodities on paper than exist in the real world,
they can just screw you out of the money by citing their own
rules! No wonder Ted Butler and so many others have such a low
opinion of the Comex, as this, apparently, perfectly describes,
among others, the silver market at the Comex.
- James Puplava of FinancialSense.com,
writes
that "Credit expansion in the US is hyperinflating.
Outstanding debt in the US has grown by 38% over the last four
years to $36.2 trillion, an increase of over $10 trillion in
the last four years. Last year alone consumer borrowing expanded
by $1,017.9 billion, up from $839.4 billion the prior year.
As if this isn't bad enough,
he goes on to write "Spreads began narrowing considerably
over the last year right after the Fed began its latest rate-raising
cycle. The spread between the 2-year and 10-year note has narrowed
to 50 basis points. A narrowing of spreads to less than 25 basis
points is indicative of an approaching recession."
Well, let's take a look at
the spread. Considering the 10-year T-note, the yield has sunk
to a laughable 4%, with official, hedonically-adjusted inflation
running at 3.5% and real, unadjusted inflation running at twice
that. It makes no sense!
"Moreover, as spreads
continue to narrow with each new Fed rate hike, the Fed risks
collapsing the 'carry trade,' which is dependent on widening
credit spreads. As credit spreads have narrowed, hedge funds
and other speculators have had to go further out on the risk
curve in order to maintain a positive spread. The 'carry trade'
may have started out with Treasuries, but it has moved further
out on the risk scale towards the fat tail."
And the "fat tail"
that he alludes to is where enormous dangers lurk unnoticed,
the kind that took down Long Term Capital Management, with all
their precious little PhDs and their darling Nobel Prizes and
all their hot-shot, know-it-all arrogance.
But there is some good news,
and that good news is that you will make a lot of money by buying
oil. He says "The US trade imbalance is structural, not
temporal. One structural problem is our deficit in energy. As
US production declines by 5-6% a year and the price of energy
rises due to tight supplies and competing demands, energy imbalances
will become a permanent part of the US trade imbalance. Furthermore,
the average price paid for imported oil has been hedged with
an average price of $36. As these hedges mature, America's import
energy bill will rise."
But apart from the guys that
own oil (you and me), he notes that not everyone else will be
so lucky. "The fact that the US trade imbalance is structural
means there will be no easy fix -- no easy way out. A lower dollar
is not going to make it go away. However, a lower US dollar,
which is inevitable once foreign intervention wanes, means even
further problems for the US. A lower dollar means higher inflation
as the cost of imports rises." And higher price inflation
means, usually, that gold will also go up, which he does not
mention, because I guess he is waiting for me to bring it up.
And sure enough, I did!
The dollar has fallen about
30% in the last few years, and he comments that already "Year-over-year
import prices have risen 8.1%. As the dollar falls and as foreign
intervention cools, interest rates here in the US will begin
their inexorable rise. This will be bad news for the stock and
bond markets, the US economy, and the next tipping point: the
US consumer."
And since we are talking about
the consumer, Mr. Puplava notes that Mister And Missus Consumer
(MAMC) are already up to their ears in debt, as "Since the
year 2000, consumer indebtedness increased by $3,246.2 billion
compared to an increase of consumer income of $1,440 billion."
The bottom line? "In 1995
the US added $4 of debt for every $1 in savings. Last year that
figure expanded to over $20 of debt for every $1 of savings.
In effect, the American economy has turned into one giant hedge
fund."
- If you are having a hard
time even conceptualizing a trillion, then reader Paul C. is
your man. "To visualize a trillion," he says, "one
simply has to imagine fields totally covered with upright beer
cans". If these cans of beer cost a dollar apiece, which
he calls Beer Can Units (BCU's), all you have to do to visualize
a trillion cans of beer, all laid out side by side in a giant
square, and then drive your car around the circumference of that
square, which is 37 and a half miles on a side! Hahahaha!
For those of you more at home
with square units, he computes that "This would comprise
an area of 1406 square miles, or if you prefer 899,243 acres
(but now we get back to difficult to imagine numbers)."
- I am always happy to report
on the activities of anybody trying to get the American dollar
back on a basis of precious metals and out of the hands of the
slippery banks, which simply prints up as much money as it wants
and thus always ruins the economy when their raw, filthy greed
outmatches their smarts, which is always. As such, I am proud
to report that Bernard von NotHaus, renowned Monetary Architect
of the pure-silver Liberty Dollar, has announced that
"Final arrangements have been made for the Liberty Dollar
University 6, RCO Congress" on June 29 July 4th"
in Austin, Texas. But I am also EXTREMELY happy to report that
they will also be offering "Michael Badnarik's Constitution
Class", as somebody of his philosophical perspective lecturing
about the Constitution is exactly what this country needs a lot
more of.
And, in keeping with that,
the New Hampshire effort to get precious metals re-introduced
into their economy as money has not been killed. Yet. Unfortunately,
the one to get silver monetized in Mexico has been.
Ugh.
*****The Mogambo Sez: Keep buying precious metals and oil.
Why? Ask Bill Bonner, who says, "We buy gold
because we see a dangerously unbalanced world economy with no
painless way to set it straight. Americans cannot continue to
run up debts forever. Their houses are not going to increase
in price at three times the rate of GDP growth for much longer.
The Chinese cannot continue to build factories in order to make
products for people who can't afford to pay for them. And the
Japanese are not going to lend money forever to a country that
cannot pay it back. But the most alarming feature of the world
financial market circa 2005 is that so few people find it alarming.
Every hedge fund manager and homeowner is leveraged to the eyeballs.
Every analys[t] and strategist is confident. Every central banker
is complacent."
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 25 FYI Cda/US Christmas Holiday Schedule 321gold
Dec 24 Gold Stocks: Managing The Grinch Stewart Thomson 321gold
Dec 23 GSP Resource Aims at High-Grade Gold Potential Bob Moriarty 321gold
Dec 22 USD, Rates, & Gold: Synergistic Waves captainewave 321gold
Dec 21 L@@K Amazon Kindle and Paperback Books by... Bob Moriarty 321gold
Dec 20 Crypto Tumbles & Gold Stocks To Buy Morris Hubbartt 321gold
|
|
