 What can I say except, "Got gold?"
Richard Daughty
The Daily
Reckoning
...the angriest guy in economics
The Mogambo
Guru
Archives
December 9, 2004
- The cover of the 12/4-10/2004
issue of the Economist magazine has a cover showing a dollar
bill being consumed by some caterpillar, with the caption "The
Disappearing Dollar." This "disappearing dollar"
is big-time important, because it directly affects how much imported
things cost, and since we import almost all the things that we
consume, it directly affect how much things cost, period. For
confirmation of that cryptic statement, ask Bill Ridley, of Online
Investors News, who writes "For the savvy investor who can
read the writing on the wall this also means that the asset based
inflation we have seen with gold, copper,
oil, and other resources will continue to go up regardless of
upward pressure on interest rates or the slumping dollar. The
devaluation of the dollar will not make these commodities worth
less." That is obviously true. It just makes them cost more.
Speaking of money, last week
Total Federal credit shot up another $5.6 billion, the Treasury
printed up another $4 billion in actual cash, foreign central
banks bought up another $5.8 billion of US debt, as everybody
tries desperately to keep this embarrassing economic monstrosity
from collapsing under its own ponderous weight.
- Government people came out
from behind the curtain and pronounced that GDP came in at 3.9%
growth. And maybe it did. I have no idea. But the consumer confidence
numbers went down as the consuming public's buying power went
down, which makes sense to me. With much less buying power (thanks
to a weakening dollar) and anecdotal reports of sluggish sales,
I have a difficult time reconciling that with how the government
says that the economy was up by 3.9%. People paid more, but they
got less. The GDP numbers are all supposed to be adjusted for
inflation, but I really, really, really, really have a hard time
imagining that we had nominal growth of over 7%, that would adjust
back down to 3.9% after backing out inflation of at least 3.2%.
If you want to see MY consumer
confidence go down, all you gotta tell me is that something that
I want to buy costs more money, and while the previous price
was more than I could afford to pay, I was willing to stretch
the point so that I can have everything I want now now now, because
that is just the sort of childish, gimme gimme gimme attitude
that is so characteristic of Americans in general and The Mogambo
in particular. And it fits a whole lot of other people around
the world, too, who are all up to their eyeballs in debt so that
they could have things then then then and who are getting calls
from bill collectors now now now who also want their money now
now now and I keep telling them that the check is in the mail
mail mail, and anyway, that guy moved, and me no speakee English
so I am saying goodbye now (click).
- Microsoft is dispensing a
whopping $32 billion to shareholders. Of course, I am convinced
that they are only doing this as a result of some extortion from
the government, which is desperate to get money into the government,
to be spent into the economy. Tom Dyson of Daily Reckoning has
looked at this and said, "The total sum that Microsoft will
dispense to shareholders is $32 billion. But Liquidity Trim Tabs
estimates that only $22 billion to $25 billion of this special
dividend will find its way back into the equity market.
"The Microsoft special
dividend will hit investors' accounts on December 2," Trim
Tabs continues, "but some institutional investors could
begin to spend the money a few days earlier using existing cash
or debt. Our best guess is that between 25% and 33% of the reinvested
$22 billion to $25 billion - between $5 billion and $8 billion
- will be reinvested during the first week of December. The rest
will probably flow into equities during the rest of December."
Just in time to keep the markets
up so that when December 31 rolls around, taxable gains will
be locked in, and so tax revenues to the government next year
will be locked in, too. How special!
- "The
China Factor and the US Dollar" is an essay by Frank
Shostak on Mises.org "By printing the most popular international
medium of exchange, the U.S. central bank enables the first receivers
of dollars, that happened to be Americans, to divert real wealth
from the rest of the world."
But it is not just Americans
that have caught the money-printing bug. He continues "Between
1994 to 2004, the Eurozone money printer has been working much
faster than its American counterpart. In other words, money growth
in the Euro-zone relative to the growth of real goods and services
has been much larger than in the U.S."
The Economist magazine opines
that, "The global financial system is a giant money press,
as America's easy-money policy has spilled beyond its borders."
But to show you that not even the vaunted Economist magazine
can get it right all the time, went on to say, "This gush
of global liquidity has not pushed up inflation. Instead it has
flowed into share prices and houses around the world, inflating
a series of asset-price bubbles." This is, the ridiculous
opinion of the magazine to the contrary, inflation. If a house
costs more to buy than it cost last year, how is it a "bubble"
and NOT inflation? Explain to the guy buying the house how this
is not inflation! "The price is higher, but is not inflation!"
One of the things that is getting
a lot of airplay is the idea that if a debtor cannot pay, this
is only of concern to the parties involved. Not true! Not true
by a long, long shot, and don't make me bring up that thing about
how a butterfly flapping its wings makes it rain in Chicago after
a few days. Instead, let me give you an example from my personal
life. Let's suppose that I cannot honor a debt. Naturally the
creditor calls me up and wants me to pay. Naturally, I tell him
the check is in the mail. Then, after a few days, he sees through
my little ruse, and starts harassing me anew. So far, things
are working out just like they say; it is only a problem for
me and the guy I owe. Then things start getting messy, because
the guy HE owes money to is now calling me on the phone, saying
that he can't get paid until I pay the guy I owe. And so I naturally
tell him that the check is in the mail. And then the guy HE owes
is calling me, too, and saying that the guy who owes him can't
get paid until I pay the guy I owe. And so I tell HIM that the
check is in the mail. And then the guy, well, you get the idea.
The Law Of Economics (LOE) is that all things are connected to
all things, and in fact there are very few things that are of
concern only to the guys directly involved, and money ain't one
of them.
- The folks at the Daily Reckoning
are not just a bunch of handsome, beautiful people who sit around
all day sipping mocha espresso lattes, discoursing learnedly
on economics and making jokes at the expense of The Mogambo ("How
is The Mogambo like a turkey? They are both stupid and ugly,
and neither of them likes being poked with a stick! Hahahaha!").
For example, they said "The Japanese, meanwhile, watch in
horror as the dollar drops. They have 800 billion worth of dollars
in their central bank vault. Each penny the dollar loses, takes
$8 billion off their balance sheet." Each penny!
They did not say how much their
government and their citizens will lose when the dollar drops
in value AND interest rates climb, but it must be a lot. For
the last umpteen years in a row they have been buying over-priced
American debt (thanks to interest rates being pounded artificially
low) and now all of that humongous, gigantic load of toxic crap
is going down in value, and there is nobody to sell it to.
- Personal income went up by
0.6% and spending went up 0.7%. Stephen Roach of Morgan Stanley
has looked at the numbers and says "I found the report appalling.
What caught my eye was a further reduction in the already sharply
depressed personal saving rate -- down to 0.2% in October from
0.3% in September."
Savings hitting a new low of
0.2% is a statistic that I cleverly demonstrate by using this
pile of 500 yummy cheeseburgers to illustrate your total income
for the year. Your entire savings would be represented (I hold
up one cheeseburger) by one cheeseburger. That is the amount
of money that you are saving? How big do you think one cheeseburger
can grow? Wake up, dude! And look! The Mogambo, representing
the government, is taking a big old bite out of that cheeseburger!
And now The Mogambo (what a talent!) is representing the financial
service industry, which is also taking these little bites out
of your one lousy cheeseburger!
Drew Matus, who is an economist
at Lehman Brothers, writes "The savings rate fell to 0.2
percent. That means for a person earning $40,000 per year, they
are saving $80. Put another way, that person is saving a little
over $1.50 per week."
Reader Arlo S., obviously thinking
along the same lines as these guys, writes that "What he
didn't say is that if the whole household only makes $40,000
per year, then the average family of 3.2 persons only saves just
under 47 cents per week per person. These people are planning
to survive on about a half of candy bar per week." Upset
that this Arlo S. character makes a better point than me, I notice
that he did not say anything about the effect of inflation on
the price of this hypothetical candy bar! I leap from my chair
to thrust myself unbidden into the conversation and maybe get
a little glory for myself. Out of the corner of his eye he sees
me coming, he suddenly realizes his mistake, and in capital letters
writes, "IF IT STAYS AT TODAYS PRICES."
I am naturally upset that he
has stolen my thunder, and I am left with mulling over even worse
news, such as that sent by Geoffrey W., who sent an article entitled
"Real Wages Falling, Maryland Professor Says" from
CBSMarketWatch.com. The article starts out with a quote from
Peter Morici, business professor at the University of Maryland.
"With average hourly wages up just 0.1 percent in November,
take-home pay for most U.S. workers is falling behind the rising
costs of energy and health care. American workers can expect
their paychecks to buy less and less each month," he said,
while painting a grim picture for job growth in the near term.
"Economic growth is already likely to slow in the first
and second quarters of 2005, and further interest rate increases
will further chill growth and jobs creation, without having significant
effects on inflation." This is stagflation writ large, in
case anyone asks you.
Peter Schiff of EuroPac.net
put it rather cleverly when he wrote, "The first rule of
holes is that when you find yourself in one, quit digging. Not
so for Americans, who simply buy larger imported shovels."
Hahahaha!
- "Resurrection
of the Islamic Gold Dinar" is an interesting essay by
J. Kent Willis of AGAPI Financial, who writes "Very few
understand the horrific implications of the wholesale bypassing
of the USD by the rest of the world. Regardless of how Americans
view our lovely, crisp, counterfeit-resistant (to everyone but
us!) IOU's provided almost free by the Federal Reserve, the opinion
of the rest of the world regarding their value will ultimately
determine our economy stability, military success, way of life
and our place in history. Will it be a worthy epitaph? Or shall
we reside in disgrace in the rubbish heap alongside the vulture-picked
carcasses of every other banana republic who believed they could
have lasting prosperity by issuing ephemeral fiat?"
For once in my whole life I
have read my homework assignment, and I know the answer to this
one! Oh, how exciting! My heart is pounding, but before I could
raise my hand to answer the question, he answers it himself,
the bastard. "All students of financial history are aware
of the economic ruin which follows every nation, without exception,
that debases their currency in pursuit of national pre-eminence."
National Review Online has
apparently read the homework assignment, too, and they write
"Those advocating a weak dollar to redirect trade flows
do not have history on their side. While a depreciating currency
is assumed to boost exports and shut off the demand for imports,
this is only the first effect. Eventually a weak currency invites
inflation, which neutralizes the effect of the lower exchange
rate. Persistent currency depreciation has never brought lasting
prosperity to any government in the history of the world. If
the dollar continues to depreciate it will bring higher inflation,
higher interest rates, lower real growth rates, and a reduced
standard of living for most wage earners."
And this is for starters! If
you really want to get into it, take a look at what happens AFTER
you have had all of this downside, and then you will know why
the fear of inflation has always been so intense throughout history,
all the way up until the current crop of economic blockheads
took over, and who now infest the Federal Reserve, the government
and the universities with their ridiculous theories.
And it was all for gluttony.
We just wanted to consume, and consume some more, and consume
without end. In a similar vein, Gary North writes in his Reality
Check newsletter essay entitled, "Chips, Dips And Red Ink.",
this timeless classic line from the Bible warning of the prices
to be paid for gluttony, " 'And put a knife to thy throat,
if thou be a man given to appetite.' (Proverbs 23:1-2)."
But Mr. North can be counted
on for much more than just good lessons from the Bible. He is
also facile with numbers, and also notes that, "The unfunded
liability of Medicare and Social Security is in the range of
$45 trillion. By 2008, it will be over $51 trillion. Most of
this shortfall -- 86% -- is Medicare-related. Congress is doing
nothing to deal with this looming crisis. The Bush Administration
pushed through a huge prescription benefit law, which will speed
up the fiscal erosion process. As a people, we are eating our
way to national bankruptcy."
- The recent fall in oil is
a gift, just in time for Christmas, or Hannukah, or whatever
you celebrate, and if you are still undecided, I suggest selecting
a religion or philosophy that doesn't involve a whole lot of
gift-buying, and especially one that has absolutely no gift-wrapping,
what with all those confusing bows and ribbons and stickers and
tags and tape and there is never enough paper on the roll to
finish wrapping this damn present, and anyway what is the point
of wrapping the damn thing, as if some flimsy gaily-colored paper
can possibly disguise a .50-caliber machine gun with tripod mount,
for crying out loud? One such holiday is, of course, Mogambo
Day (MD) which also occurs right around this time of year, and
it involves no wrapping whatsoever. You just gather up a big
gob of cash and send it to me, addressed to "Occupant,"
and then me and my Mogambo Hoodlum Friends (MHF) take the money
and drive around bearing gifts of single-malt scotch, whooping
and hollering "Happy Mogambo Day!" out the windows
of the car until we get a supernatural vision or the police pull
us over for no reason. Okay, I do not have big plans for Mogambo
Day becoming a national craze, but if you are one of those who
are always searching for The Next Big Thing In Holidays (TNBTIH)
this could be it, so this is your chance to get in on the ground
floor.
But whether or not it is a
Mogambo Day present or not, the fall in the price of oil is nonetheless
a gift by Saudi Arabia for some reason, who are leading this
charge, and who are paradoxically pumping more of a wasting asset
(because all oil is finite in quantity) of their only asset (unless
sand is a new asset category that I haven't heard about) at a
cheaper and cheaper price both in nominal terms (dollars per
barrel), but also especially in real terms (as the purchasing
power of those dollars falls). What in the hell could they be
thinking?
I mean, here is the situation
as I see it, and I'm pretty sober right now, which ought to help
a lot. Oil, which is the only thing they have that anybody wants
to buy, which they are also rapidly running out of, at a time
of increasing demand, at the limits of world refining capacity,
they are now selling oil at lower and lower prices! And, to top
it off, they are getting paid with a currency that is becoming
ever more worthless! Wow! Hey, Saudi guys! What in the hell do
they TEACH you in those schools of yours?
This could show that the mental
processes of Saudi Arabians are out of whack, or there is quid
quo pro in operation, or something else of which I am totally
unaware, which is usually the case. Either way, I suggest that
we all run out and buy oil futures and the shares of oil companies,
because there is no way in hell that the price of oil will NOT
rise and rise, probably for the rest of your life, until the
day comes when it is so expensive that alternatives will be developed
in desperation, and the Problem Will Eventually Be Solved (PWEBS)
after years and years of gigantic government-financed programs
full of actual government programs, federal grant money to universities
and corporations, and/or research and development tax credits
out the wazoo, plus a million other ways to take taxpayer money
and give it to their friends, and thus distort the economy more
and more.
- Phil Spicer, he of the Central
of Fund of Canada, is also something of an expert on inflation,
and he is so productive at his job that he has lots of time on
his hands. But then again, he doesn't have to keep checking in
with his probation officer or going downtown in squad cars to
appear in police line ups, which is SO time-consuming, and he
doesn't have the embarrassment of hearing people saying "That's
him, officer! That's him!" and then the intercom goes dead,
and we are left alone, all of us standing there in a line, looking
at one another. We can hear muffled voices coming from behind
the one-way mirror, and after awhile this voice comes over the
intercom and says in a deadpan voice, "Number three. Step
forward and say, 'The Federal Reserve is killing your money,
so they are killing you, you big, dumb freaking idiot'. "
Hell, not having THOSE hassles
would free up a lot of time for ANYBODY! Nevertheless, the point
is that he has the time to do interesting, research-oriented
things and I don't, like when he writes that the "FED shows
CPI index of 51 in 1800 and 25 in 1900." So prices for commodities
went down by half over a hundred year period (annual appreciation
in purchasing power = 0.715%), when we were on the gold standard, as "Dollars gained purchasing
power." That gaining of purchasing power is, I might add,
one of the beauties of being on a gold
standard.
So you can see that if I had
the spare time like Phil here, I could come up with interesting,
data-heavy things like this, and don't tell him that I called
him "Phil" because he's probably a real big guy and
he probably doesn't like to be called "Phil" and being
a Canadian he's probably getting real arrogant and snooty that
his money is gaining purchasing power (getting stronger) while
our wimpy little dollar is losing purchasing power (getting weaker),
and if there is one thing that I have learned in my years on
this planet which you call Earth, it is that it is the same here
as it is everywhere else in the universe, and that is that the
strong survive, the weak die, usually because the strong kill
the weak, and then they eat them.
He continues by saying the
"CPI crept to 29.7 by 1913" which was, of course, both
an average inflation of 1.3% over those thirteen years, AND it
was the year that the murderous monstrosity known as the Federal
Reserve was created, "and rose to 567 in 2004." So
what does that work out to, inflation-wise? 3.29% per year! Before
the Federal Reserve, money tended to be stable in purchasing
power, and actually gained purchasing power as the free enterprise
miracle known as Adam Smith's Invisible Hand worked its magic.
But ever since the loathsome Federal Reserve took over the whole
banking system of the United States without firing a shot, we
have had persistent, grinding inflation, year after year!
He also attached a BLS inflation
calculator that showed that a dollar's worth of stuff in 1980
cost $2.32 in 2004. And what is that, as an annual inflation,
for that measly 24 years? 3.57% a year, compounded! If anything,
inflation is getting worse under the horrid Greenspan, who took
over the chairmanship of the Fed in 1987.
The lesson is, I guess, that
the Federal Reserve can be counted on, if 91 years of continuous
history is any guide, to whack us with constant, simmering, grinding,
impoverishing inflation of over 3% a year. And you think that
the piddly little money you are putting away into your precious
little IRA or 401(k), which is growing at less than that and
has been for the last five years, is going to somehow grow into
some glorious pot of money with which to enjoy a long and luxurious
retirement? Hahahaha! No wonder the United States always tests
out as one of the most math-illiterate of all the developed nations!
Hahahaha! Even when our whole future depends on these retirement
accounts, we are so stupid that we cannot see that we are losing
money the whole time? Even when the evidence is right in front
of our eyes? Hahahaha! Americans! What a bunch of idiots!
Mr. Spicer has also confirmed
that, for the first time since 1980 (!), "The Fear Index
has reconfirmed the bull market in gold.
This new high in the Fear Index suggests that gold's
uptrend will continue, which is not too surprising, given the
problems with the dollar and all other reasons to worry."
This Fear Index is calculated as being equal to (US gold reserves X gold's
market price)/M3. Using actual numbers, it is written out as
(261 billion ounces of gold X
$448.98 per ounce)/ $9.300 billion.
- Chuck Butler, who is president
of Everbank, the author of the Daily
Pfennig newsletter on the Daily Reckoning.com site and is
probably a real good dancer, too, took a look at the jobs report
number and said "For what good does it do the economy if
half of those jobs are minimum wage, temporary, or seasonal?
Instead, why doesn't the market look and examine the numbers
I do from this report? The average hourly earnings, and work
week hours. These will tell us more about the shape of the economy
than any report that contains 'ghost' jobs and birth/death models!"
So I say, "Okay, Mr. Butler!
That is probably good advice! I will go and look at these numbers!
" Without further ado, I go to the BLS site and I note that
"The average workweek for production or nonsupervisory workers
on private nonfarm payrolls decreased by 0.1 hour in November
to 33.7 hours, seasonally adjusted. The manufacturing workweek
also declined by 0.1 hour, to 40.5 hours." Okay, now we
have taken a look at the average workweek, per his suggestion,
and it was grim. What was that other thing he advised us to look
at? Average earnings? Okay, let's take a look at average earnings.
The report says "Average weekly earnings decreased by 0.2
percent over the month to $533.47. Over the year, average hourly
earnings increased by 2.4 percent, and average weekly earnings
grew by 2.1 percent." Which is, I note with that grim look
on my face that means that The Mogambo Ain't Happy (TMAH), less
than the rate of inflation.
George Ure at UrbanSurvival.com
has also looked at the employment report, and has noticed that
"Over the year, the number of persons who held more than
one job increased by 346,000 to 7.6 million, not seasonally adjusted.
These multiple jobholders represented 5.4 percent of total employment
in November." So while the number of positions filled went
up, a lot of the jobs were taken by people so desperate for money
that they took yet another job!
Mr. Ure also prefers to look
at something else. "The unemployment rate which matters
to us is the Table A-12 Alternative Measures of Labor Under-utilization
which shows that again this month 9.1% of the workforce is either
unemployed or seriously under-employed."
- Bill Bonner, the handsome
top dog at Daily Reckoning, has a new essay entitled "The
Fabulous Destiny Of Alan Greenspan". Now, he is not
a big fan of Alan Greenspan either, and he writes "Fatal
to Greenspan's judgment was a combination of bad information,
bad theory and a human nature that - though unchanged for many
millennia - seems to have slipped the attention of central bankers."
So what was this "bad theory"? "Greenspan's theory
was that by carefully controlling the cost of credit and the
money supply he could avoid serious economic downturns."
Now, for you Mogambo historians
out there, and I pity you and your pathetic, worthless life if
you are, it was this whole thing of interest rates always guaranteeing
wholesome, healthily rising economic activity that first caused
me to say "Economics is full of, pardon my French, crap!"
Fortunately, my quest for something that was NOT full of, pardon
my French, crap finally took me to Austrian economics, and then
I found out that economics is NOT full of, again pardon my French,
crap, but only that American economists and their stupid theories
are full of, as the French say, crap, and which the Spanish call
"el crapola." You and I, one of us being a normal human
being, are already aware that just because interest rates go
down does not necessarily dictate that borrowing and spending
will go up.
To add credence to this, Doug
Nolan quotes from his favorite "monetary" economist,
Ralph G. Hawtrey (1879-1975). "The focus of Mr. Hawtrey's
analysis of the 'Trade Cycle' was the instrumental monetary role
played by traders and merchants borrowing to increase the inventory
of goods and commodities. 'When prices are rising, a very
high rate of interest may fail to deter merchants from borrowing;
when they are falling, an apparently low rate of interest may
fail to tempt them.' "
- David Bond, in the latest
issue of his Wallace Street Journal, reports that he is in England,
and he is thus reporting from the selfsame England, and it is
entitled "Metals
Are In For A Nice, Long Ride", which has a nice ring
to it if you are into metals, which you should be. (And speaking
of David Bond, he and David Morgan have a new website, SilverMiners.com,
which has such low literary standards that they will stoop to
posting my stupid Mogambo Guru, so you can see they deserve no
respect whatsoever).
He writes "China is now
consuming 20 percent of world aluminum production and 33 percent
of its steel output and has made purchase commitments throughout
South America for alumina, iron and steel." So, I assume,
South America is going to be having an increase in revenue, which
I assume is good for a country and region, since I never heard
of a news story that started out "The country had so much
money coming in, that they went bankrupt", or "Economy
collapses due to excess of revenue!", or "Businesses
go belly-up, choked to death on too much income".
So here's another Mogambo Tip
O' the Day (MTOTD), but delivered in true Hollywood style in
case any rich Hollywood producers are looking for leading men
to sign lucrative long-term contracts. For my audition, I am
re-enacting that famous scene where a family friend is talking
to Benjamin, as played by Dustin Hoffman, in the movie "The
Graduate."
I put my hand on his shoulder,
and I say "Mr. Hoffman, I mean, Benjamin, you are a rich
guy, and you could afford to loan me some money. Do you have
ten thousand dollars?" and he says, "Of course I have
ten thousand dollars!" So then I say, "Now we're getting
somewhere! Can I borrow those ten thousand dollars? " and
he looks me right in the eye and says "Of course not, family
friend!" So I say back to him, "And so you still want
some free investment advice, you cheap little movie star bastard?"
And he says "Of course, trusted giver of advice!" So
I tell him, "Okay, invest in South America somehow. I don't
know how, but just keep your eyes open, because this is a long-term
deal." And so Dustin Hoffman, in the role of Benjamin, says
"What about plastics? I seem to remember something about
plastics" and I say, and my eyes glint with excitement,
"Screw plastics! That was from the original movie forty
years ago, chump! South America, dude! South America!"
Well, that is all well and
good. But there is a bad side to it, says Stephen Briggs of Societe
Generale. 'But China's growth numbers do not fully explain global
metal use, because much of China's consumption is a mere relocation
- up to perhaps 30 percent- of the world manufacturing base from
Europe and the Americas to Asia." They have gobbled up thirty
percent of the world's manufacturing base? My God!
Mr. Bond goes on to say, "They
are scared to death of the US dollar and don't want to be left
standing when the music stops." Who are "they"
and what is this music that is playing? Well, he never does identify
the music, but he goes on to say that "they" are the
rich and the powerful, and their fear may explain the sudden
interest by these rich and powerful, who are royalty and such,
in this year's Mining Journal conference in England, only their
third such meeting since 1890. The other meeting was last year.
In short, everything was fine since 1890, and then, only 113
years later, they needed to have a meeting. And then, the next
year, (this year), another one. Hmmm!
He cleverly sums up with a
witty phrase: "Ninety percent of the time, mining is a money-losing
proposition. Welcome to the 10 percent that ain't." Hahaha!
I could use that line to steal the scene from Dustin Hoffman!
I look around. He is gone! Desperately, I call out, "Mr.
Hoffman! The profits should first show up in mining investments
in South America! Did you hear me? Mr. Hoffman? Benjamin? Anybody?"
- I read recently that somebody
said "If the United States is borrowing to finance its trade
deficit, then somebody must be lending, which means someone is
saving." Wrong. It could also mean that some government
is creating credit in the banking system, which somebody borrowed,
to buy our debt. Nobody saved anything.
- John Mauldin, who writes
the FrontLineThoughts.com
newsletter, was talking about gold recently,
and so when his back was turned, I snuck up close to him so I
could surreptitiously listen in and maybe get some free advice,
which is always the best kind, and usually well worth the money!
He was wondering whether this
recent action in gold was for real, "Or is it as I
have maintained for years that it is simply a function of the
falling dollar? There is no gold bull
market in Europe and in other countries where the dollar is falling.
Certainly in countries like China there has been a gold bull in terms of Renminbi, but that is because
the Renminbi and the dollar are pegged." I agree. Gold is mostly an insurance hedge against the stupidity
of governments, and, unlike most other insurances where even
if you DO die with a big ol whole life policy in force, you aren't
there to enjoy it because you are dead, so as far as YOU are
concerned, it was money down a rat hole. But gold
is one insurance that is always guaranteed to pay off sooner
or later, because government cannot be trusted with money, and
especially governments with paper fiat money, and especially
especially governments with fiat money in a fractional banking
system, like we have, and most other countries have, too.
So while gold
has gone up in price, American and Chinese holders of gold are better off only in terms of amount of currency
that we can get for our gold. But
in terms of total buying power, we are both left unchanged. And
since buying power is the measure of wealth, our wealth is unchanged.
That is how insurance works; you are left unchanged, no matter
what happens.
Not so the hapless holders
of horrid, dorky dollars, and unless they are realizing yields
of more than seven or eight percent after taxes, they are LOSING
purchasing power! Even though they are making a few percentage
points in nominal yield, thus increasing the amount of money
they have, their total buying power has actually decreased! Hahahaha!
- John Mauldin also said "Did
you feel the ground shake? The epicenter of the economic quake
happened in Laos last Tuesday. Southeast Asian nations and China
signed an accord to create the world's biggest free trade area
by removing tariffs for two billion people by the end of the
decade. In macro-economic terms, that is tomorrow. Leaders in
the 10-member Association of Southeast Asian Nations (ASEAN)
also signed a pact to create an ASEAN Community along the lines
of a unified Europe by 2020. It aims to create a common market
with common security goals. ASEAN members are actively talking
of creating their own 'reserve currency' to compete with the
dollar and the euro."
If you see any of these ASEAN
guys hanging around outside sneaking a cigarette and talking
into their cell phones telling each other jokes ("Hey! Did
you hear the one about how The Mogambo is like a turkey?"),
tell them that if the want a real reserve currency, then make
their money gold. Otherwise, they will just be another
bunch of foreign dirtbags with a fiat currency and a fractional
reserve banking system. Big deal: We are already up to here in
fiat currencies in fractional banking systems, and that is the
freaking problem.
He goes on to say "On
an even larger note, Japan, South Korea, Australia and New Zealand
have all agreed to start free-trade talks with the ASEAN countries.
(Just for the record, the Association of Southeast Asian Nations
consists of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar,
the Philippines, Singapore, Thailand and Vietnam.)" I'm
not sure, but looking over this list I think we Americans kicked
all their nasty butts at one time or another, so you can imagine
the bond between us.
Perhaps it is best summed up
by Michael J. Panzner in his fabulous book "The
New Laws of the Stock Market Jungle" when he wrote "In
most countries around the world, politics and economics are firmly
linked. Consequently, important issue such as unemployment, trade
balances, interest rates and energy prices can sometimes create
enough internal pressure to get government wheels spinning in
an unhelpful direction, at least with respect to cross-border
relationships."
Ugh.
** The Mogambo Sez:
What can I say except, "Got gold?"
 Dec 7, 2004
Richard Daughty
email: scgcjs@gte.net
Archives
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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