 At least Mickey
tried to stop the brooms
Richard Daughty
...the angriest guy in economics
The Mogambo
Guru
Archives
Oct 19, 2005
- The big news, I guess, is
that required bank reserves dropped to $42.2 billion, even as
bank deposits climbed and new loans/leases dropped. Of course,
the Treasury printing up $3.8 billion in actual cash last week
was pretty exciting, too. This amount of cash comes to about
$27 for everybody in America who has a job. And though it is
obviously being used to pay off Iraqis and Halliburton and all
kinds of people who would not take a check, it still adds to
the world supply of dollars, and after just a couple of transactions
will imbed itself in the world economy, ballooning the money
supply a little bit more, and the dollar will get just that little
bit much weaker.
Of course, it was not just
the bankers and the Treasury acting like slimy little toads,
as we can usually count on foreigners who have trade surpluses
to keep buying our debt, and the other idiotic central banks
of the world to keep buying our debt, too. Sure enough, they
sank another $3.3 billion into that particular depreciating asset
in the last week. What dorks! Imagine going home and explaining
to your wife that, thanks to your supreme incompetence, you have
lost a LOT of money in nominal terms, and when you adjust those
losses for the loss of buying power of the dollar (inflation),
then the real losses become so big, so large, so overwhelmingly
huge that we are wiped out, and we have to either sell her car
or one of the kids, and you know which one I'd pick.
But it is the breadth of the
NYSE (cumulative advancing issues less declining issues) versus
price which is interesting, as the former spent most of the year
rising, and is now falling, while price ain't done squat, and
is actually down, too. Hahaha! The dark and deserted hallways
of the Mogambo Mansion echo with the eerie Mogambo laugh of contempt
(EMLOC) at those who kept buying stocks, kept buying stocks,
kept buying stocks in the face of zero gains! And now they are
actually down on the year, too! Hahahaha!
- The new bankruptcy laws took
effect Oct 17, and so now if you need to declare
bankruptcy, then you first have to pay for "credit counseling."
Why? So that there will be a lot of people being put to work
as credit counselors, doofus! Perhaps this is the fabled "re-education"
that everyone, including the current chairman of the loathsome
Federal Reserve, thinks is the answer to everything. American
jobs being sent overseas? "Retrain the workers!" they
all say. But they never answer the question "Retrain them
to do what?" Now you know!
And if the housing boom is
actually bursting at last, as is indicated by lots of anecdotal
evidence and some odd statistical facts, then all those brokers
and dealers and banks and intermediaries of every stripe and
kind are going to need something to do with their considerable
time, too! See how it all fits together? Hahahaha!
- The most interesting thing
was that on the Today.Reuters.com site was when we read "A
U.S. silver industry nonprofit group opposes the
creation of an exchange-traded fund backed by the precious metal
amid concerns such an investment product could make silver too expensive or illiquid in the world
market." Now, in case this is the first you have heard of
an exchange-trade fund (ETF), Reuters helpfully elucidates thusly;
"Commodity ETFs are designed to track the price of a specific
product or basket of goods, and in the case of silver,
one likely would be backed by physically stored metal."
In short, some guys start a fund, buy up a lot of silver, and if you want to own silver, you can buy it by buying shares of
the fund like an ordinary stock. Easy!
I thought to myself that my
eyes were deceiving me, or I had had a stroke or something, because
my Sensitive Mogambo Senses (SMS) were tingling like when I hear
that something is in danger (be still, my beating heart!) of
going higher in price, or what the SUA calls "too expensive
or illiquid", because, like most greedy people who want
to effortlessly make large amounts of money without actually
working, I would like to "Get in on some of that action"
(known in the investing biz as GIOSOTA), every time I hear about
something getting "too expensive or illiquid."
So I am sitting here with this
glazed look in my eyes as the article goes on to report that
"The silver Users Association is especially concerned
that a new ETF might threaten jobs in the silver
industry, as it would require large amounts of metal to be held
in vaults and out of reach of the marketplace, a spokesman said
on Wednesday." I raised my hand and said "Excuse me,
but I am The Mogambo, cub reporter for the Interplanetary Daily
News Gazette, and my question is 'Huh?' "
To make sure I got the point,
they then trotted out a guy named Paul Miller, representing,
so he said, the SUA. Well, he looked me right in the eye, and
for a long while we just stared at each other, neither of us
blinking. Then, just as I was about to fall to my knees and cry
"Uncle!" he abruptly caved in and said "The concern
we have is about jobs. That concerns our members greatly."
For some reason, this tickled the hell out of me, as it seemed
like such an odd thing to say. I figured "Yeah! Their own!
Hahahaha!"
Composing myself and trying
to show a little dignity for a change, I say "Let me get
this straight: silver in an ETF would take silver out of the marketplace and put it
in vaults someplace dark and spooky, probably full of vampires
and communists or something, whereas the vaults and warehouses
that already contain the silver
are bright and shiny, and do NOT have any vampires or communists.
Is that it? And so the price would go up higher, but still within
its historical range, probably somewhere between $30 and $500
per ounce, which is a LOT more accurate as to the true value
of silver in the big freaking scheme of things
(BFSOT) than its current low, low, low inflation-adjusted price,
especially considering the big supply-demand disparity and complete
elimination of global stockpiles. So, am I hearing you right,
you jerks?"
At these words, the audience
begins to become nervous and agitated, as they see that The Mogambo
getting worked up, and that has NEVER worked out well if you
believe what you read in the newspapers. They cringe in their
seats as I, with an increasing fury, continue with a sneering
tone of contempt in my voice. "But the SUA thinks that when
demand swamps supply, and when the price of this scarce, expensive
commodity soars in response, that employment in the silver industry will FALL? Hahahaha!"
I can see their faces contorted
in fear as my incessant bellowing reaches a thundering crescendo,
"Hell, the miners will be putting on double shifts to mine
more silver when the price gets that high! The
beleaguered debtor out here will pawn the family silver and get a little breathing room so
that he can do a little spending! silver
will be speeding around and around the economy! In short, there
will be jobs, jobs and more jobs, all over the damned place as
a result of the silver ETF, you big stupid morons!"
In a blind rage, I leap to ascend to the stage with the idea
to grab those SUA guys and slap the hell of him until he stops
spouting such gibberish. But they see me coming and take it on
the lam out the back door, leaving me alone on the stage. Now
I am even MORE mad! Grrrr!
The audience is hushed, frozen
in place, waiting to see what happens next. Rising to the theatrical
occasion, I drop to one knee, raise my arm towards the heavens,
and with a voice revealing a breaking heart, cry "But are
there are any limitations as to how much silver
a citizen, a simple person like you or me, can buy? No! Is it
written that the noble citizen must contain his lust for silver? No! Is there a law that dictates
the legal size of my silver holdings? No!" Rising to my feet,
I continue breathlessly, "It is therefore perfectly legal
for people, individually or collectively, to go out and buy all
the silver they want, including the piddly 130
million ounces of silver that this new ETF is supposed to be
proposing buying, and you can take the silver
home and melt it down and create cute little statues of The Mogambo
and put them around the edge of your desk at work if you want
to! And who would NOT want to do that?"
But the truth is, I am pretty
sure, that the SUA wants to make a silver
ETF illegal just because it is too convenient, as it is a Law
of the Universe or something that everything that I do has to
be the hard way, and nothing is ever easy for the poor old Mogambo.
And buying shares of a silver
ETF by making a lousy phone call is obviously a LOT easier than
waiting for my wife to start talking on the phone and then sneaking
around while she is distracted, looking in her purse for some
money with which to buy silver,
then getting in the car and going out and buy the damned silver, and then, maybe first stopping off
for a chili dog and a root beer on the way, take it to the bank
to put it into the safe deposit box, all of which is, like I
said, a real big hassle.
For another thing, that's how
you invest in commodities, you SUA idiots! You buy the commodity,
in this case silver, and you store it somewhere, hoping
for a higher price in the future, or, if the price drops, making
plans to legally harass The Mogambo and his stupid idea to buy
silver, because it is all his fault. Either
way, you gotta buy it and put it in a safe place, and that is
why it is called "storing"! And you don't bring the
commodity out and sell it until the price gets so high that the
profit is irresistible. When will that happen? It will happen
after a period of time where all you do, all day long, is keep
multiplying in your stupid little calculator, over and over,
how much silver trades for right now in the open market
by the number of ounces you have stored down in the basement
and that vulnerable safety deposit box at the bank (which you
never trusted in the first place, and which is the same snotty
little bank that has some sort of "policy" against
letting people booby-trap a safe deposit box, even though I am
the one paying to rent the damned thing! And don't bother bringing
up all those Second Amendment issues, as I have been down that
road with them many, many times to no avail).
But this is not about how the
Constitution gets no respect, but about all the silver you have, and how it has risen so
much in price, and all you can think about is all the fun you
can have with all that money, and all the fun things you can
buy, lease or rent with all that money, and all the fun places
you can go with all that damned money, and all the fun, beautiful
people you could hang around with if you had all that much money,
instead of being stuck here with your hateful little circle of
angry family and neighbors who plot and gang up against you because
they are spiteful, horrible little people who want to "get
even."
Then, one day, without thinking
about it, you involuntarily jump to your feet and sell some silver! And then you have a lot of money,
and then you remember that you have to pay income taxes on the
gain, and that makes you angry as hell, and you swear that the
NEXT time you vote you will show up sober at the polling booth
and manage to finally throw these tax-happy moron politicians
out on the fat butts. Anyway, this is not about voting, but about
how THIS is when you know it is time to sell some silver.
But getting away from this
SUA thing for a moment, if you want another reason to sell your
own grandmother to get money to buy silver,
and lots of it, then listen to what David Bond, associate editor
at Free Market News, says. China, he says, has admitted that
they have literally run out of silver,
and now they need to buy it! A country so big that it has almost
five times as many people as ours needs to buy silver,
because we, a country that has five times fewer people in it,
have used all the silver to get to where we are! I mean, the
potential demand for silver staggers the imagination!
So I love the idea that the
SUA thinks that a lousy 130 million ounces of silver
would drive up prices so much that the government has a vested
interest, in the public good, to literally forbid people from
buying silver, when it is perfectly legal to do
so now. It staggers the mind! These guys are actually suggesting,
and notice how I am repeating myself because I cannot believe
this is happening, that you must be prevented, by force of law,
from conveniently buying and owning silver,
although it is perfectly alright for you to otherwise buy and
own the identical amount of silver!
Gaaaaaaah!
So if you want my stupid Mogambo
opinion (SMO) about whether silver
is astonishingly cheap in light of these two developments, namely
the announcement by China that they were in the market as buyers,
and the SUA announcing that a stinking ETF would make silver so scarce that it would drive up the
price to crippling levels, then I will take this opportunity
to show off. Without a safety net or even checking the facts,
I fearlessly announce that I am staking out my claim to financial
immortality by loudly proclaiming, in that piercing, girly screech
that I call a voice, that silver,
at less than eight bucks an ounce, is so freaking cheap that
it is also the fabled Mogambo Investment Tip Of The Century (MITOTC),
which reads, in its entirety, "Buy silver
now! And lots of it!"
- You can almost hear the panic
in the voice of Ken Gerbino, of Kenneth J. Gerbino & Company,
who writes
that "The US Geological Survey states that 'global discoveries
of new oil peaked in 1962.' All oil fields face what is called
production declines. This is where less oil comes out every year
after a production peak is attained. The giant Prudhoe Bay field
is now declining at 11% per year and the giant Mexican field
Cantarell is expected to decline by 14% annually starting next
year. Globally, production declines are present in approximately
80% of the world's oilfields."
I know what you are thinking.
You're are thinking that the theory of Peak Oil is true, and
it appears to be true, except for one or two oil fields that
mysteriously re-filled themselves. He says "Using supply
and demand numbers that appear very reasonable, it appears that
currently a global oil squeeze has started with little relief
in sight. A severe supply shortfall looks possible within 6 years
and could have profound social, political and economic consequences."
If you are like me, you don't
give a rat's patootie about the stupid social consequences, and
ditto the stupid political consequences, and it is the economic
consequences that are the interesting part, as this is where
money can be made!
So, you raise your hand and
ask if he really said the words "severe shortfall",
and he says that yes, he did. So you turn and look at me, and
innocently say "Mogambo, what are the investment opportunities
in something that is going to have a severe shortfall?"
The routine Mogambo response is to not say a word, but to knock
you out of my way to get someplace to buy whatever in the hell
it is that is going to have a "severe shortfall" because,
brothers and sisters, I have read too, too many books and too,
too many articles in too, too many magazines, journals and newspapers
about too, too many guys who were in the right place at the right
time, which is defined in the original Mogambo Dictionary of
Economic Terms (MDOET) as "Buying low, especially right
before a big price rise caused by a supply shortfall, and doubly-especially
right before a SEVERE supply shortfall, as the necessary 'buy-low
prelude' to 'selling high' at a later time, and thus making one
hell of a lot of money in the process. See also Profits, Obscene
amounts of."
But we will not go and look
this up in the MDOET because we have finely-honed financial instincts,
and we instinctively know that buying anything connected with
oil is going to be a great idea for, ummmm, checking my watch
for the exact time, the rest of your freaking life.
- The alarm bells and klaxons
and horns and buzzers all started going off inside the heavily-fortified
Mogambo bunker when Bloomberg reported that "Import prices
rose 2.3 percent after a 1.2 percent gain in August, the Labor
Department said today in Washington. The increase excluding oil
was the largest since record-keeping started in January 1989
because of increases in natural gas prices." MarketWatch
reports this as "U.S. consumer inflation surged at the fastest
pace in more than 25 years"
And thanks for Doug
Noland for keeping us current with our commodities inflation
indexes. "For the week, the CRB added 0.7%, increasing y-t-d
gains to 15.4%. The goldman Sachs Commodities index increased
0.5%, with 2005 gains rising to 43.6%."
I am looking at these increases
and am choking on my own fear, but Doug Casey says
that "Many people think commodity prices are higher now,
but in inflation-adjusted dollars many key commodities are actually
cheaper than they were before the last great commodities bull
market peaked. For example, the current 'record high' crude oil
price of $68 is only $31.63 in 1981 dollars, when oil peaked
at $38.34. gold, at $440, is only $185.55 in 1980
dollars, when gold peaked at $850. In fact, at $440 in
2005 dollars, gold is actually lower than it has been
in 30 years... save for the 2000-2003 period when it bottomed."
So gold
is, when viewed like this, still cheap as hell! And it is not
just gold, either! He says "At $1.73, copper
today is at about half of the 1980 peak of $1.44. This doesn't
mean prices can't temporarily go lower - for the short-term,
given my overall pessimism about the U.S. economy, I'm particularly
concerned about base metals - but it does paint a bullish picture
for commodities for years to come. Long-term, however, the question
is not 'if' demand for commodities will grow, but, 'How fast?'
"
The next thing I know, Martin
Weiss, who has been listening to all of this, is calmly saying
"We have the Future Inflation Gauge from the Economic Cycle
Research Institute which reports a jump from 120.7 to 122.7 in
September, the highest reading in over five years. We have the
Conference Board's recent survey, showing the biggest single-month
jump in inflationary expectations in 15 years! We have the survey
from the Institute of Supply Management, saying its index of
prices paid for raw materials has suddenly skyrocketed from 62.5
to 78, also the largest jump in fifteen years. And now we have
our own September inflation number, the worst in a quarter-century."
And he did not mention Tuesday's release of the Producer Price
Index, which jumped 1.9% for the month, also the biggest jump
in something like 31 years!
In a separate report, because
the Labor Department knows how this stuff affects me when I read
it all at once, said that average weekly earnings, after adjusting
for inflation, fell 1.2%. Market Watch notes that "Real
average hourly earnings are down 2.4% in the past year, while
real average weekly earnings are down 2.7%, the biggest drop
in 14 years."
Toni Sagami of the Money and
Markets newsletter is as gloomy as I am about this when he says
"consumers are also getting hit with higher gasoline prices
and air fares ... fuel surcharges and price hikes from a long
list of energy consuming companies ... higher property taxes
... much higher home insurance premiums ... and higher interest
rates, especially on teaser-rate, adjustable mortgages."
He leaves out a lot of other
things that have higher prices, like every other freaking thing
in the whole damned world except my paycheck, as far as I can
tell. But before I stand up and enlighten this guy about how
it is out here in the REAL world, and I am talking the REAL world
where The Mogambo lives with imaginary friends but with real
enemies all around me, waiting to pounce, and who want to steal
my stuff like they stole my youth, my health, my hair, my teeth,
my hearing, and a lot of other stuff that I don't want to talk
about, he continues, "What do you think these sudden jumps
in the cost of living will mean to most Americans?"
My immediate response is, of course, "Who in the hell cares
what happens to them? I care about what happens to ME, you big
stupid moron!" Well, this is what I was THINKING, and I
would have said it, too, if he hadn't immediately gone on to
say, "I think the answer is simple: Any extra dollars they
have to spend on items they have to buy translates into fewer
dollars they'll be able to spend at places they want to go visit
- like McDonalds, Wal-Mart, or Toys R Us." Well, his guess
was pretty close, but he lost points because there were no references
to businesses whose marquees advertise "Girls! Girls! Girls!",
or "Pizza Pizza Pizza!"
But Mr. Sagami does not want
to dignify my gutter-level lifestyle with a reply, but instead
keeps talking about what HE wants to talk about, and that is
the drop in discretionary income. Not surprisingly, then, he
goes on to say "That's exactly what we began to see last
month when Wall Street was shocked by the news that the nation's
retail sales dropped 2.1% in August, the largest single-month
decline in four years."
Perhaps this has something
to do with a reader, known only as Steve, who writes "I've
been receiving more mail order catalogs than usual here, lots
of them, from companies I've never heard of! And I'm suddenly
getting stuff from companies & subscription services I haven't
done business with for years! All of a sudden, it's like everyone
is 'looking' (desperately) for new business!"
Me, too, Steve! I thought that
someone, probably somebody I know or the CIA or somebody like
that, put my name and address on some list somewhere!
- Greg C. writes that the idea
that the size of the bust is proportional to the size of the
boom is old hat, and that Valerius Maximus, the Roman historian,
once quipped that "Lento quidem gradu ad vindictam divina
procedit ira, sed tarditatem supplicii gravitate compensat."
He says this translates as, "The divine wrath is slow indeed
in vengeance, but it makes up for its tardiness by the severity
of the punishment."
- Reader Len C, writes that
the actions of the Federal Reserve always making more and more
credit and money reminds him of the Disney cartoon, 'The Sorcerer's
Apprentice', where "Mickey Mouse sets the brooms in motion
carrying water and then didn't know the magic spell to STOP the
process." Hahaha! Except that Mickey TRIED to stop the brooms,
and Alan Greenspan has never tried at all! Hahahaha!
- One of the reasons that things
are so weird, I betcha, is the sheer number of drugs, hormones,
antibiotics, vaccines, and God only knows what all in our blood
these days.
One of them is (according to
the Harper's Index) the miracle of Teflon, which is a non-stick
coating put on cookware. The problem with Teflon is that you
have to use special plastic utensils when you use a pot or pan
coated with Teflon, as metal spoons, whisks, ladles and tongs
will scratch away the Teflon. But when you are cooking, there
are usually lots and lots of things going on, and sometimes things
are boiling over and your spouse is yelling at you to do something
about it and you don't want to hunt up the one damned plastic
spoon, ("Has anybody seen the damned plastic spoon?"),
so you grab a metal spoon, which is real handy because they are
all over the damn kitchen, . So you stir with the metal spoon,
or dip with the metal ladle, and you inevitably scratch off the
Teflon into the food you are cooking.
Well, the actual Harper's Index
item was "Percentage of U.S. children who now have one of
these nonbiodegradable chemicals in their bloodstreams: 96."
I am not sure what effect Teflon has on the human body, if any,
but I don't like the adjective "nonbiodegradable" in
there, especially when this is only ONE of many non-stick products
made with perfluorochemicals that were "introduced"
in 1956.
So, the simplest test to see
if perfluorochemicals in our bloodstreams is bad for us is to
see if there are any differences between pre-1956 people and
post-1956 people. And I say, yes, I think I see a LOT of differences!
Especially if you get your facts from remembering something you
read a longtime ago, or by merely looking at old television shows,
which is so handy and entertaining. As an example of the former,
I remember reading once that the biggest problem faced by teachers
in 1956 or so was the scourge of children chewing gum. That was
their number one problem!
As an example of the latter,
I will leave that up to you to perform as your research project
this year, and I think that body piercing ought to be prominent
in your report.
And when you add in the sheer
tonnage of other chemicals that are in our blood from our astonishing
American intake of prescription drugs, legal drugs, (including
alcohol, which is a literal poison, which is why it can be used
as a freaking disinfectant, for crying out loud!), all the whole
panoply of food additives and preservatives, illegal drugs, things
used as drugs (sniffing refrigerant, huffing gasoline, etc) it's
a wonder that we don't actually drool when we act so stupid.
- Since we are talking about
the Harper's Index, there was one item that showed why we American
seem to love conflict so much; "Portion of all U.S. foreign
aid that goes to helping the recipients buy U.S.-produced weapons,
equipment or services: 1/4."
- Thanks to Mr. Doug Noland
for the Mogambo Laugh Of The Week (MLOTW) with this gem from
UPI: "China's top central banker says Beijing must find
ways to encourage domestic consumption as a way to cut the nation's
trade surplus. Zhou Xiaochuan, governor of the People's Bank
of China, said the nation's ballooning trade surplus is
causing more and more friction with trading partners."
I don't know where in the hell
they get this idiotic notion, but nations are usually encouraged
to produce like hell, save like crazy, generate enormous surpluses,
then go out and buy up the rest of the world that you have economically
ruined with the muscles of your economic powerhouse, and then
rule the world according to your own whims to the benefit, and
rise in the standards of living, of your own people.
But this just proves that the
Chinese leaders are not any smarter than our own, and that is
why our own two biggest idiots in town (BIIT), Alan Greenspan,
the chairman of the Federal Reserve, and John Snow, the Secretary
of the Treasury of the United States, are flying to China to
meet with those idiots. Only a complete and utter brain-damaged
imbecile of a moron could possibly look at the horrifying economic
condition of the United States, and then, knowing that these
two American weenies are responsible for the bankrupting debacle
that they see, even conceive of wanting either of these two clowns
to come to China to advise them about anything! So, the good
news is that you don't have to be so concerned with China, as
they are thus proved to not be any smarter than anybody else
with a central bank and a fiat currency. That means that they,
too, are screwed in the long run.
- I notice that the index for
inflation listed in Barron's as "Rate of inflation, % (annual,
unadjusted)" is now 4.7%! Why are you NOT locked away in
a fortified bunker somewhere, afraid to answer the door ("Go
away! We're not in here!") and clutching a machinegun to
your chest in case they don't believe you? That is where you
should be, whimpering and hiding in fear, as this is terrible,
terrible, terrible news (TTTN).
Now, for a financially savvy
person like you, I know that you are taking a look at this 4.7%
rate of inflation, and your hat comically flew up in the air
off of your head, and now you are scrambling to compare that
4.7% rate of inflation to the yield on the 10-year Treasury bond,
which is yielding less than 4.5%, which is less than the rate
of inflation. And then you remember that the whole yield is taxable,
too, and so the after-tax yield on the 10-year Treasury bond
is LOT less than the rate of inflation! And once you do, I know
that you will say to yourself "Hey! The Mogambo was right!
We're ARE freaking doomed!" Then I hope you will also say
to yourself "Maybe I'll send The Mogambo a few bucks to
show him my appreciation for pointing that out!"
And because inflation is so
high, 80 million Social Security recipients are getting a huge
4.1% increase in their monthly benefits, which is almost enough
to put them back to parity with inflation, but their Medicare
Part B insurance is going up $10.30 a month and the Medicare
Part D benefit, the prescription drug benefit, will cost enrollees
another $38 per month.
So inflation is running at
4.7%, the Social Security benefit check is increasing only 4.1%
gross, and a LOT less than that after the higher fees! So retirees
are suffering a falling standard of living, just like everybody
else is suffering a falling standard of living, all thanks to
the decline in the value of the dollar, which is manifested in
the higher prices of things priced in dollars! Hahaha! Suckers!
"Trust us!" the government said. "A fiat currency,
unlimited fractional banking and constant governmental deficit-spending
producing mal-investments are not inflationary, regardless of
what the stupid Mogambo says!" Hahahaha! And you believed
them! Hahahaha!
- Rick Ackerman, who does his
market magic as Rick's Picks, forecasts that gold
will fall in price, too, in a general deflation. The idea is
(as I understand it, which I am sure that I don't because I never
actually completely understand anything, it turns out) that when
so much money has been destroyed, there will not be any money
left with which to buy gold, or
anything else, for that matter, and so prices for everything
will fall, including gold.
Well, several readers asked
me to comment. Far be it from me, The Mogambo, whose name, loosely
translated from Latin, means "Loud-mouth idiot" with
a subtle shading of "heavily-armed paranoid lunatic gold bug", to dare to criticize anything Mr.
Ackerman says, and I will say that his analysis probably perfectly
applies to the end-state. But there is a LOT of room between
now, at these lofty heights, and then, at the depths of the lows.
Between those two extremes will be a lot of money moving around,
especially when the early sellers actually get most of the money
that will be gotten out of the stock market. And then there will
be one more guy with a fistful of money thinking to himself,
"Things are scary. They are getting scarier. What in the
hell do I do with this money so that I don't end up losing it?"
And then that guy will run through all the alternatives, reading
books, talking to co-workers, sending nervous emails to The Mogambo,
saying things like "You are an idiot! So send me your suggestion
so that I can do the opposite!" After a considerable stretch
time characterized by pacing the floor night after night, wondering
and worrying, that guy will, in the end, come to the same conclusion
that everyone else has always come to; buy gold.
And so before all the money
will have been destroyed, gold will,
theoretically, have a lot of money flowing into it. At least,
that is the way that history looks to me!
But Jay Taylor, in his gold & Technology Stocks newsletter, writes that
he sort of agrees with Mr. Ackerman, in that he thinks that "inflation
isn't the looming threat that some believe, but rather that deflation
will be impacting the American economy as a general 'unwinding
of the debt-pyramid' begins." And what does he think about,
ummm, gold? Well, he sees "a general move
towards gold as a storage of wealth, and as a result,
that it should outperform other commodities in the longer term."
And speaking of gold, Peter Schiff, of Euro Pacific Capital, writes
"Twice during the last century the Dow lost over 90% of
its value relative to gold. If
such declines could occur in an America with a strong industrial
economy, ample domestic savings, and a favorable balance of payments,
imagine what could happen today. History clearly demonstrates
the danger inherent in over-paying for stocks, both relatively
to their intrinsic values and the price of gold.
Those who bought into the new era nonsense of the 1990's will
fare no better than those who judgments were similarly impaired
during the 1920's and the 1960's.
"My guess is that in the
years ahead the Dow will once again retest its gold-price
lows. If we can put in a solid, long-term triple bottom at approximately
1 to 1, (which might be Dow 4,000, gold
$4,000 per ounce) stocks would likely be a great buy. Until then
the smart money is increasingly moving to gold."
None of this is news to Paul
van of Eeden of PaulVanEeden.com, who writes "gold is not only inexpensive relative to oil. When
the gold price is compared to the S&P500
we see that there were three stock market bubbles during the
past 100 years. In all three cases, the S&P500 rose dramatically
relative to gold, and in all cases the ratio collapsed
back to unity again."
And what if China and Japan
adopted the same policy as the European Union, where gold would constitute 15% of reserves? Mr. Eeden
says "then they would need to buy 17,000 tonnes between
the two of them. That is more gold than
the Bank for International Settlements, the IMF and all the signatories
to the Washington agreement own in aggregate, and it would still
amount to only petty cash for Japan and China."
- As if things are not bad
enough on the inflation front, the October 15 issue of the Economist
magazine has an interesting little article entitled "Pricing
the Future" about a "dynamic price index", with
the acronym DPI, being developed by a Princeton economist named
Ricardo Reis. His idea is that the Consumer Price Index, popularly
known by its acronym CPI, only measures what things cost today,
but you also care very much about what things are going to cost
in the future, too.
The upshot? Allow me to quote:
"In the fours years to 2004, the average annual rate of
inflation according to the DPI was 7.4%, compared with an average
increase of only 2.3% in the CPI." Almost three times as
much inflation! And notice that they did not even mention the
crimes committed again the poor old CPI, which has been mugged
and massaged and pounded lower using bizarre theoretical justifications,
which results in a lower CPI, which is used to keep us stupid
worker bees from getting alarmed about inflation.
Now here is this Princeton
guy showing that HIS gauge of future inflation is running at
7.4%, which is double the "official" rate of inflation
right freaking now!
Ugh.
***Mogambo sez: Things are getting spookier and spookier,
and the weird gyrations of the markets, the result rampant market
manipulations by (I assume) the Plunge Protection Team, don't
make it any easier to sleep. If there was ever a moment that
cried out for the safety of gold, then
this, my little darlings, is it.
Oct 18, 2005
Richard Daughty
email: RichardSmithGroup@verizon.net
 Daughty
Archives
Provided as a courtesy of Agora Publishing and The
Daily Reckoning
Richard Daughty
is general partner and C.O.O. for Smith Consultant Group, serving
the financial and medical communities, and the writer/publisher
of the Mogambo Guru economic newsletter, an avocational exercise
the better to heap disrespect on those who desperately deserve
it. The Mogambo Guru is quoted frequently in Barron's, The
Daily Reckoning
and other fine publications.
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