 PWOGs
People Who Own Gold
Richard Daughty
The Mogambo Guru
The
Daily Reckoning
December 13, 2003
Foreign central banks are shifting
into overdrive on their holdings of US debt last week, as evidenced
by their balances at the Fed increasing by $9 billion to a new
record. Hahaha! Dorks!
Just to show those jerk foreigners
that they haven't cornered the market in stupidity, US banks
also bought up a nice $4 billion themselves!
But, and if you really want
to see something scary, walk with me over to where the Treasury
holds sway, and we will cling to each other in fear and whimper
pitifully as we watch vile specters swirl around us, and we note
that they issued another $17 billion of debt in the same short
week! The whole scene reminds me of the end of the movie "Raiders
of the Lost Ark," where our intrepid hero, Indiana Jones
and his perky girlfriend are bound to a post, and the Nazis are
opening the Lost Ark of the Covenant and all those angels are
swirling around. At first the specters are beautiful and friendly,
like what happens when you first start printing money and creating
excess credit. Everything is wonderful and lovely! Then, right
before our very eyes, the angels metamorphose into shrieking,
devouring demons, and everyone is killed and the earth is swept
bare, except our hero and his lovely sidekick.
But getting back into something
more attuned to reality as it really exists, we note that the
Fed increased raw, fungible credit by $5.8 billion, too! In one
week! And, I might add, to a new record, another new all-time
new high, never before seen since the inception of the entire
Federal Reserve System! A veritable avalanche of raw, naked credit,
the original high-powered money if ever there were such a thing,
the fabled Money Out Of Thin Air of story and song, money that
can be multiplied by almost a hundred-fold, a thousand-fold,
a million-fold, a zillion-fold, all through the miracle of fractional
banking!
I say this even though people
at the supermarket always look at me like I have lost my mind
when I stand by the checkout counter and tell them about it,
because taking a very, very rough estimate of the multiplier,
I look at Required Reserves, $41.64 billion, and divide that
by Savings/other Deposits of $4084.8 billion. And what happens
when you do that? Well, if you are like me, and you have my powerful
skills with calculators, then you get some weird series of answers
because you did something wrong with all those confusing buttons
and then, in desperation, you finally ask someone who is just
walking by to please use come over here and figure this damn
thing out for me, then we get the surprising answer of 0.01.
This means that for every dollar
of deposits, they actually have only one cent of reserves in
case people come looking for their money. Okay. Now, taking a
look at Total Assets of the US banking system, we find roughly
$4,381 billion. And when we compare that to the reserves of $41
billion, it is, likewise, one puny cent of reserves against a
dollar's worth of some of those loans going bad. So that one
cent in reserves, that one measly penny, is backing up both a
growing contingency of souring loans going bad, AND people wanting
their money! Whew!
And now, as part of the physical
fitness component of your educational experience, I want you
to get up off your fat behind, and let's have none of that moaning
and muttering under your breath about how I am sitting here on
my fat keester while you are being ordered about like a dog or
something and how you have had just about all of this ill treatment
that you are going to stand for, and just who in the hell do
I think I am anyway blah blah blah, and go get a textbook, any
textbook, on economics, and look up their example of fractional
reserve banking. What is the standard amount of reserves that
THEY use to illustrate the use of fractional reserves? Ten percent!
They, meaning guys who write textbooks, would have an entire
dime's worth of reserves for every dollar of deposits! And we
have, in real life, a lousy penny! A penny!
And if you spend any time reading
that section, you will note that nowhere in the text do the authors
of those textbooks ever imply that reserves would get down to
one lousy penny! Does that imply something to you?
Anyway, why is this so possible?
Because we have a fiat currency, and a guy named Greenspan who
will stoop to anything, and another guy named Bernanke and his
printing press, and if the banks ever need any money, for anything,
just let them know, and they and their Federal Reserve will just
- presto! - print up some credit, and buy the holdings of the
banks, which also went up last week, as I noted above somewhere.
In short, commit monetary fraud on a grand scale.
They will even print up actual
currency! Which I add with that hysterical arching of my eyebrows
and high-decibel voice, arms flailing about like my arms were
on fire, although without the leaping up and down because the
old knees aren't what they used to be, they did just that, last
week! Again! They printed up $4.4 billion in cash! Dollar bills!
And they have printed up, in the last year, $38 billion! Lovely
stacks and stacks, pallet after pallet, of tens and twenties
and fifties and hundreds! About $138 for every man, woman and
child in the whole country. And $4.5 billion in one week, which
doesn't sound like that much, I admit, but it is for one lousy
week, and can't you see where this is headed? Now imagine not
just one week, but a month's worth of $4.5 billion weeks, a year's
worth of $4.5 billion weeks, a decade's worth of $4.5 billion
weeks! It adds up! And you think, and pardon me while I try and
stifle this laughter, that the dollars that you are putting away
today - tee hee! - into your retirement plan - giggle! - are
going to maintain their - snort snort! - purchasing power when
you - hahahaha! - retire? Pardon me, but hahahaha hahaha! I can't
help myself! Hahahaha!
Wiping the tears away from
my eyes, and my ribs really hurt from all that laughing, the
Federal Reserve and the Treasury are debasing your money right
in front of your eyes, and yet you think that - hahahahaha! -
when you retire that every one of those dollars you are depositing
today will be every bit as valuable years and years from now?
Hahahaha! And you admit that you are watching the Fed and the
Treasury debasing your money right in front of your own eyes,
week after week after week, and yet you STILL believe that a
dollar today is the same as a dollar tomorrow? Hahahahaha! Stop!
Stop! You're killing me! Hahahaha!
Now far be it from me, taking
a long breath and trying to calm down and be serious for a minute
because I am such a classy guy deep down, to suggest that there
is any connection at all between the Fed creating money out of
thin air to buy up government bonds, and thus effectively extinguishing
the debt through that particular fraud, and the fact that the
banks suddenly decided to acquire more government bonds. Must
be a mere, umm, coincidence. Hahahaha! Now I'm killing myself!
So, in one stellar example
we have all had a good laugh, I have demonstrated the perils
of a fiat currency, the danger of fractional banking, related
it all to "Raiders" which is a helluva good movie,
a classic, really, and now I predicted that we are all going
to die, except for the PWOG, which is an acronym for People Who
Own Gold, because you know what a sucker I
am for acronyms, especially silly-sounding ones, because things
are going to get really, really ugly one day real soon, and this
may be the only bit of levity that we get out of it.
Except, of course, like I said,
for PWOG, which sounds funny, instead of the more accurate PWOC,
or People Who Own Commodities, which doesn't seem that funny
somehow, but which I liken to the post to which Indiana Jones
was lashed during the cataclysm of the banshees, and it saved
his life. And, you will recall from the movie, that Indiana Jones
was exhorting Marion, the aforementioned love interest and attractive
eye-candy, who was also trussed up to the same post, "Close
your eyes! Don't look at it!" and they turned away from
being seduced by the allure of getting caught up in the whole
messy thing, and thus their lives were spared.
So now the stage is set, and
I am proud to introduce my new "Raiders of the Lost Ark"
ending, which is my new bid for immortality in the field of Productivity,
which is all the rage right now. MY particular genius in extracting
awesome productivity from the film industry is for me to take
other people's movies and merely pop on a new ending. Anyway,
my exciting new release has Indiana Jones, played by me, and
never looking more ruggedly handsome and virile, I might add,
saying to the beauteous Marion, "Hold onto my PWOG!"
which has a faintly prurient sound that means a bigger box office
and adds a subtle new layer to swirling emotional and riveting
climactic drama, and he does NOT say "Hold onto my PWOC"
which only sounds like he has something caught in his throat,
and which is, I dunno, icky, but is admittedly more accurate,
given the metaphor that I am looking for here, but, well, you
know.
Bob Landis, wrote a tidy little
essay entitled "The Once and Future Money" that is
enshrined in the files of the Golden Sextant Advisors, and he
wrote "Lord Keynes, along with Vladimir Lenin, ranks among
the most destructive forces unleashed by World War I. Keynes
was a Fabian socialist who provided intellectual cover for inflationism.
He's best known for authoring bogus economic theories that turned
classical economics on its head, undermined Western values and
philosophy, and enslave us to this day."
I agree, but regard the type
of slavery to not be the kind where we toil in the fields harvesting
cotton under the lash of a cruel taskmaster by day and singing
uplifting spirituals by night, but to the kind of slavery where
we are chained to the oars of a galley, doomed to go down with
the ship, as our hubris-maddened leaders crash us onto the murderous
rocky shoals of economic ruin.
But how does this happen? Bob,
and I call him Bob instead of Mr. Landis because all the other
guys named Bob that I have ever known have wanted me to call
them Bob, and so I imagine that Bob here would say, "No,
no! Call me Bob!" which explains why I call him Bob, but
his point is that excess money and credit did not fall from the
sky, but rather from the machinations of central banks, as when
he says, "To begin with, it's worth noting that in each
case the fateful errors were made by talented and well-educated
people. These men did not take the road to ruin frivolously,
but rather as a measured response to a set of exigent circumstances.
The point is that governments are simply incapable of managing
a money supply. The pressures and temptations always prove too
great. Economically each episode began with good intentions and
admirable restraint."
He didn't specifically mention
the recent scrapping of the Growth and Stability Pact of the
European Union, but I will do it for him, as it, too, is "fateful
errors made by talented and well-educated people (who)....did
not take the road to ruin frivolously, but rather as a measured
response to a set of exigent circumstances."
Okay, we have thus begun another
"episode," as he calls it. Now what? Well, cutting
to the chase, Bob says, "At the end of the day, as Voltaire
observed back in 1729, 'Paper money eventually goes down to its
intrinsic value - zero.' " I note that we have a paper money.
So do the Europeans and most other countries, but I say "Screw
them! What have they done for me?" No, I am wondering about
my country's currency in general and MY currency in particular.
And Voltaire, who is only one of many people who has something
important to say about this very important subject, states categorically
that it will eventually go the way of all the other fiat monies,
namely down to squat.
And Bob seems to agree. "Which
brings us at long last to our own experiment in fiat money, the
biggest and boldest of them all. Thirty years on, there are a
number of striking similarities between our own adventure in
fiat money, and its historical antecedents. For the most part,
they're obvious, and I won't dwell on them: the winners and losers,
the rise of the speculators, the rise of the debtors, the obliteration
of thrift, the corruption. Read any newspaper, and you see that
the nature of the excesses and distortions is pretty much the
same." Which eerily parallels Henry Hazlitt, who noted that
economies always proceed along this same perilous and putrid
path to perdition, which is today's gratuitous alliteration,
which I do for no particular reason other than as a pathetic
plea for love and attention, which I never get, so I probably
won't be doing it much longer.
And to show you the delicious
sense of black humor that Bob has, he says, "The technical
term for this explosion in monetary aggregates is 'nightmare.'
"
And he concludes with the final
prediction that we will not just wither away, but will go out
with a bang, and he writes "When it comes, the final collapse
will be a sudden breakdown, what we call today a non-linear event.
It will also, in all likelihood, take everything else down with
it."
The market went bananas when
it was revealed that productivity, or output per hour per worker,
went up at some fabulous degree that nobody had ever seen since
the invention of fire or something.
Is there some way that the
Mogambo can rain on this parade? Well, suppose that the company
fired all its employees and sold their entire inventory to Big
Lots. Statistically, productivity was almost infinite, as all
production was sold, and the only employee left is Ralph, the
part-time night watchman. And when you divide one tired and sleepy
part-time worker into sales, you get productivity that is almost
infinite! Brilliant! Now average that gigantic number in with
all the other companies who are still reporting ordinary productivity.
Yep, you get a huge increase in aggregate productivity!
Or maybe creative accounting
took another quantum leap, and now these detestable, lying little
bean counters are recording POSSIBLE future production as a sale,
and not even going through the rigamarole of routing bogus sales
of actual production through shell corporations. And, to get
the productivity figures up, the accountants, whom I previously
referred to as detestable, lying little bean counters, so there
is no point in going through that whole thing again because I
am sure that you get my drift here about accountants and how
they are the latest poor group of double-dealing schnooks to
wander into the crosshairs of the Mogambo Sarcasm Machine, are
accruing the savings that will occur between the time when the
company fires all the employees, but prior to actually declaring
bankruptcy, so that labor expense is lessened in the current
period! Genius! Productivity soars!
Or maybe those clever government-types
have figured out some new hedonic measurement of productivity,
such as recognizing that a goodly part of each hour of managerial
labor is wasted on things such as butt-covering, late-trading,
excuse finding, work-dodging, responsibility-shifting, scapegoat-identifying,
making personal phone calls, party planning, downloading porn
from the Internet, dealing with idiot children and their problems,
brown-nosing the boss, and other non-work-related activity. So
actual output, which is unchanged, is measured against fewer
hours actually on the job, so productivity again soars!
Or maybe they have decided
to adjust productivity calculations by noting that there are
many more security cameras installed everywhere, and so employee
theft and pilfering are down, and thus total labor is unchanged,
or even increased, thanks to their not taking so much time stealing
stuff, but that shrinkage is down, so actual productivity, which
in this case is non-stolen output measured against hours worked,
automatically rises!
Or maybe they are just lying,
because they are the government, and as far as I know the Webster's
New World Dictionary defines "Government" as "A
bunch of thieving lying weasels, who are out to get the Mogambo."
Well, I'm not sure about that last part there, where they are
out to get me and all, but I am pretty confident that the government
is a bunch of lying weasels, so I think my point is pretty much
made, don't you?
Because, and don't get me wrong,
I love my country, but I hate the governments, because I am scared
of my governments, just like all thinking persons have always
feared their governments, and rightly so, because the whole history
of governments is that they are inherently evil, that is why
we went through the hassle of writing the Constitution, and that
explains why the Supreme Court spends so much time insisting
that the Constitution does not say what it clearly DOES say.
The point is that higher productivity
is not really that much of a good thing. If you really wanted
some good news, I would argue in that irritating little nasal
whine of mine that FALLING productivity is good news, since it
means that more people will be put to work making products and
providing services. Instead, rising productivity is bad news,
as it can be defined as fewer people making products and providing
services. With falling productivity we would have MORE people
working and making an income with which to buy the goods and
services being produced by all those other people, but with rising
productivity we have fewer people making an income with which
to buy the goods and services being produced in the economy.
And it is people making money and then spending money that makes
an economy. And so that is why I argue that rising productivity
can be bad news, just to be, as is my nature, contrary.
Last Tuesday in the Wall Street
Journal was an article about how Wal-Mart is going to reduce
their acceptance of Mastercard debit cards. Now I know this will
come as a big shock to a lot of Leftists out there, but the higher
costs of transacting business ARE always passed on to the consumer,
as is attested to by a spokesman for Wal-Mart, who said "We
chose to eliminate the option rather than pass the costs on to
our customers. We believe the move will help us eliminate extra
costs that get passed on to consumers in the form of higher prices."
So who was this idiot who dared
to challenge the dearly held assumption of loudmouth Leftist
weenies that higher costs, such as higher taxes and fees, do
not get passed on to the consumer in the form of higher prices?
None other than Michael Cook, Wal-Mart's assistant treasurer
and vice president of finance, who is probably a lot more knowledgeable
about it than clueless newspaper employees and government morons,
who are fond of saying the exact opposite, which is why I usually
brand them as clueless weenies.
Also in last Thursday's WSJ
was a thing on the op-ed page entitled "States of Recovery,"
which quotes actual government figures, referenced as "U.S.
Department of Commerce, National Income and Product Accounts,"
and shows that the revenues being remitted to the states and
local governments are actually rising, reaching a new quarterly
record, which is $1.4 trillion. Sure enough, an accompanying
graph shows that revenues, per quarter, are now over $1.4 trillion
per quarter. A quarter? So, the states are taking in $5.6 trillion
per year? In an $11 trillion economy? Huh? The whole freaking
GDP, namely all the goods and services that the whole freaking
country produces in one lousy year, is about $11 trillion, and
the dimwits in state and local governments end up with $5.6 trillion,
or 51% of it?
The scene abruptly shifts to
scenes of ambulances turning off their flashing emergency lights
and driving slowly off up the street, police lazily rolling up
yellow "crime scene - do not cross" tape, and anonymous
SWAT teams are clambering aboard unmarked black helicopters,
shouting "We were not here, and you were not here, and this
did not happen!"
The camera pans in on the Mogambo,
lying on the floor, drops of sweat glistening on his manly brow,
shirt ripped open to reveal EKG leads plugged into a machine,
who says "I'm okay, I'm okay. I was hyperventilating there
for a minute, but I am okay now, and that" pointing to the
EKG machine bouncing on the desk, whose pens are slashing like
rapiers across the paper readout - clack clack clack! - "tachycardia
thing is normal after a jolt like that. But it means that things
are worse than I thought. Much worse."
Do I dare add this $5.6 trillion
in local and state government receipts to the $1.2 trillion,
being as generous as I can, that the federal government gets
in receipts? Do I? Do I dare? "Yes!" I say. "Yes!
I am the Mogambo, and I dare!" And the total is, and for
a little flourish I will add this up in my head to demonstrate
the powerful 1000-horsepower brain of the Mogambo, let's see
here, $5.6 trillion plus $1.2 trillion is, umm, carry the one,
i before e except after c, and they both have those decimal points
and all, so, ummm, well, let's just say that it is a whole hell
of a lot of money, and is more than most of us make in a whole
year, and in fact is 62% of everything the whole damn country
makes in a whole year, too!
Doug Casey, editor of the newsletter
International Speculator, writes about the stock market, and
he thinks, "What we've seen for the last year is nothing
more than a cyclical bounce upwards, a classic 'sucker rally,'
similar to what happened in 1930. Stocks are selling for outrageous
prices. So I recommend you take the money and run. But run where?
I think the precious metals are the only place to be. But I've
said for years that, this cycle, gold
isn't just going to go through the roof. It's going to the moon."
I liked that phrase, "Gold isn't just going to go through the roof. It's
going to the moon," so much that I used it in a conversation
recently. But the effort was wasted when she said, "Excuse
me? I asked if you wanted cheese on that burger." But anyway,
it is a catchy phrase, and maybe you will have better luck than
me in working it into a conversation.
Anyway, he goes on to say,
"How do I know? Because I've been in this market for 30
years, and I've seen it happen five times in the past (1973,
1980, 1983, 1987 and 1996, to be precise as to the peak years).
But this one will be the biggest of them all, because not only
will gold (and commodities, in general) be running,
but the public - trained by the 1983-2000 bull market - all have
brokerage accounts, and will be looking for the next hot sector.
And the gold-resource story will tell exceedingly
well. What's coming up is going to be a mania for the record
books. And I personally expect it to be the wildest bull market,
of any sort, I've ever seen."
Man! As a guy who has a little
gold, and my wife has some gold fillings in her teeth that I have had my eye
on, and which I am including in my pathetic net-worth calculations,
this kind of happy-talk about gold being
in a record-setting bull market mania really appeals to me in
the greedy, I'm going-to-be-so-rich-I can't-wait way. If you
had listened to the Mogambo and bought some gold,
too, then you would also be doing a little dance and singing
"We're in the money! We're in the money!" Well, maybe
not quite yet. But soon!
The November 22 issue of the
Economist magazine wonders aloud why stock markets are so wobbly.
They ponder that perhaps people are worried that "America's
rebound is unsustainable, being based on seemingly reckless fiscal
policy, unusually low interest rates and a consumer borrowing
binge." Well, I can't speak for anybody else, but if you
are walking by the offices of the Economist magazine you can
pop in and tell them that the Mogambo certainly does not wonder
about that, but rather is absolutely, 100% sure, your money back
if not satisfied, take-it-to-the-bank positive, no doubt in my
mind whatsoever, that "America's rebound is unsustainable."
The magazine also notes that
China and that whole region are now assuming the mantle of the
engine of growth, as the Mogambo has confidently predicted they
would. I mean, a third of the world's population rapidly building
infrastructure, unencumbered by consumer debt, and in slavering
anticipation of consuming at much higher levels will combine
to, as the saying goes, put us in the shade.
The Economist magazine gets
more things right, as when they say, "But do higher house
prices really create wealth, and thus substitute for the need
to save? In its latest 'Inflation Report' the Bank of England
says that it is not clear that rises in house prices cause households
to be wealthier in aggregate. Those who have yet to buy a home
or who want a bigger one face a higher cost of living. Thus increases
in house prices largely re-distribute wealth rather than create
it. Moreover, the price of homes can fall, whereas debt is fixed
in value."
This is the reason for one
of the planks in the Mogambo Presidential Platform, which is
that the price of housing should be discouraged from ever rising,
as all prices for everything should be discouraged from rising,
as it serves no purpose whatsoever, except to make housing more
expensive, and make everything else more expensive, and thus
eats up a larger and larger fraction of people's disposable income.
I mean, if you sell your house
for more money, you are just going to have to buy someone else's
house for more money than HE paid for it, so you are not any
better off, unless you plan to live under this bridge with me,
and there isn't enough room under here for you, too. The governments,
of course, get more money when houses are bought and sold for
higher and higher prices, and government fees and taxes are always
a percentage-based scheme. But you, as the hapless homebuyer,
are not better off. Plus, when it generates enormous amounts
of taxes, the local governments use it to create more idiotic
government services and programs and departments that are unsustainable
over the long run, unless you can be sure that housing will always
keep going up and up in price forever, or another replacement
source of higher taxes is imposed on the people if it doesn't.
So, at the end of the day, higher house prices make the economy
worse off.
But the Economist magazine
is not immune from looking ludicrous, as in Daffy Duck saying
"What a bunch of maroons!" as when they say "Rising
productivity ought to mean that future generations are richer
and will be able to afford bigger tax bills." Huh? Man,
I never heard that before! Rising productivity translates into
an aggregate increase in wealth, and thus it makes higher taxes
affordable? My God! What in the hell are those guys smoking?
Or, perhaps, what have I NOT been smoking that I SHOULD have
been smoking?
Steve Puetz, the big-brained
guy behind the Steve Puetz Letter, writes, "The US financial
bubble is huge. And it requires huge amounts of new money and
credit simply to meet interest payments due on the outstanding
debt."
Steve also offers a reason
why the money supply is contracting. "With borrowing levels
way down, it's not enough to offset interest payments being sucked
from the monetary pipeline by foreign creditors and US banking
institutions. As a result money supply is contracting."
Furthermore, noting that retail
sales are contracting for the third month in a row, Steve says,
"And three months of declining retail sales are usually
the first sign that recession is on the way."
Mark Rostenko, of the Sovereign
Strategist, writes "The quarter million jobs created between
September and October? Hogwash. Unless you consider increasing
numbers of hamburger-flippers and local government employees
to be some major sign of cyclical economic growth. (The bulk
of the new 'job creation' was in food service, government and
temporary work.)" And, I parenthetically note, a lot of
healthcare workers and teachers, too, none of which is exportable
and thus applicable to ameliorating our crushing trade deficit.
I also quote him as saying,
"According to Peter Beutel of Cameron Hanover, over the
past 30 years every move in crude oil above $30 per barrel has
been followed by a recession in 15-18 months." Well, I got
some news for Messrs. Rostenko and Beutel, as I, the Mighty Mogambo,
figure that oil will probably never again be less than $30 a
barrel for any appreciable length of time, because if it does
get that cheap it will mean that the members of OPEC are more
stupid than they already look.
Mr. Rostenko also opines, "Just
about everything we purchase, use, rely upon, etc. has its foundations
in crude oil. Nothing you buy gets to the store without crude
oil. And newsflash: most companies don't eat the higher costs
of energy. They pass it on to consumers." Now I know that
this is again completely contrary to the Leftist trash who constantly
insist that companies do NOT pass along increased costs in the
form of higher prices, and that prices have no relationship to
costs, but there it is.
Lance J. Lewis, of Daily Market
Summary.com, says, and I know this sounds like I am putting words
in his mouth but I am not, "I think Uncle Al will go down
in history as the most reckless and clueless Fed chairman in
history." Isn't that so Mogambo-like? He goes on to say,
"But even he must realize that he can't allow the market
to push the dollar off a cliff here. The dollar's continued inability
to rally on positive economic data is saying fairly clearly that
the Fed's gamble of trying to inflate our way back to prosperity
is not going to work. The only thing that is going to slow the
dollar's decline is rising interest rates, and that's precisely
what stocks and the economy cannot handle."
John Myers, of Outstanding
Investments, as concerns gold, says
"Take the number of ounces of gold
needed to buy a share in the Dow Jones Industrial Average. When
gold became unrealistically priced at the
end of 1980, one ounce of gold would
buy one share in the Dow. That was when gold
was at $800 per ounce and the Dow was at 800. In early 2000 that
ratio became an incredible 42-to-1."
"In the same vein oil
is also cheap. In 1980 it took 22 barrels of oil to buy one share
in the Dow. By 2000 that ratio reached an astounding 545-to-1.
Today, the ratio is still 312-to-1."
So, gold
and oil are cheap, and savvy dudes and dudettes like you and
me should be accumulating both, because the history of prices
is that things that are selling for less than their real value
do not stay cheap for very long, and that buying them now constitutes
"buying low," and when prices have risen it will mean
it is time to "sell high."
Putting it all together, he
says "With China's economy growing by leaps and bounds and
a national will to become a modern society, many of the Earth's
already taxed resources will fall into bidding wars that will
drive up their prices not by 20%, 30% or 50%, but by 200%, 300%
and 500% before this decade ends." And how far away is the
end of this decade? Six years? And five hundred percent over
six years is what annual percentage? 31%! Wow! Making 31% for
six years running? I love this stuff!
Jim Cook, of Investment Rarities,
writes in his latest newsletter that "I believe we are in
the blowoff stage of the current megaboom and a crash is imminent.
The time is fast approaching when you will be face to face with
the most important of all financial principles - keeping what
you have. Month by month you will be faced with new and worsening
circumstances."
Murray Rothbard, one of the
brighter lights in the economic firmament of superstars, once
said something so profound that when they removed the Ten Commandments
from the lobby of that Alabama courthouse lobby, they should
have replaced it with these words inscribed in stone, "It
is clear that prolonging the boom by ever larger doses of credit
expansion will have only one result: to make the inevitably ensuing
depression longer and more grueling. The way to prevent a depression,
then, is simple: avoid starting a boom."
"Avoid starting the boom."
This is the distillation of the entire wisdom of the Austrian
school of economics, too. And it is this one, crucial piece of
advice that Greenspan and the Fed disregarded that has caused
all our problems, and now we are going to pay the price.
Ambrose Evans-Pritchard, writing
for the Business Telegraph, reports that "The European Commission
is examining the legal basis for 1970s-style exchange controls
to stop the euro surging to destructive levels." Now, we
here in America have been regaled for years about how a strong
currency is such a wonderful thing, and how all things good will
accrue to those with a strong currency. But here are these Europeans,
who apparently have not been listening, contemplating serious
steps to prevent the Euro from getting stronger. So somebody
is wrong. But who? Or, if you prefer, whom?
The report concludes : "Should
extremely disturbing capital movements endanger the operation
of economic and monetary union, Article 59 EC provides for the
possibility to adopt restrictive measures for a period not exceeding
six months." I love that last part, about how it could be
for a period "not exceeding six months." Hahaha! Every
time you turn around, here are the Europeans breaking rules and
disregarding pacts and treaties and in general acting every bit
as snotty and profligate as us American dimwits, who don't let
the niceties of any legal restrictions, or Constitutional proscriptions,
or ethical considerations, or common sense, or historical imperatives
get in our way of doing as we damn well please.
Australia has raised interest
rates twice in the last couple of weeks, trying to head off the
surging inflation that is the result of their having exploded
their money supply for the last year or so.
Richard Russell, he of the
Dow Theory Letters, writes memorable things, and that is partly
why is newsletter is so successful for the last four or five
decades. For instance, he penned "All the gold
mined in the history of the world amounts to about $1.4 trillion.
And there's the US government spending an amount equal to 70%
of that in just the single year 2004. And then we have the years
2005 and 2006 to worry about."
He also opines that "The
system of fiat money is really immoral, almost evil. It will
not last." Well, most of us already know that. But what
is the time frame? He says that it is shorter than you think,
and that "Most of us will live to see the complete destruction
of the US dollar." And when he says "most of us"
he obviously means himself, too, and that is why he used the
term "us," and I note with some alarm that Mr. Russell
ain't no spring chicken. So the time frame must be pretty short.
Gary North, erudite writer
of the highly informative newsletter Reality Check, does a nice
piece on John Templeton, the guy who made a billion-jillion dollars
for himself and his clients at the Templeton Funds. Writes Gary,
"He is now a bear. To say that he is a bear barely does
him justice. He has looked at the economic fundamentals, and
he sees a bad moon rising."
Commenting on an article in
Equities magazine, Mr. North writes that Mr. Templeton says,
"Most Americans believe that the stock market will always
go up. They also believe that real estate is a sure thing. Both
assumptions are wrong." As for the stock market, he believes
that it is inexorably progressing toward "the greatest financial
crash in world history."
Okay, that takes care of the
stock market. How about the housing market? Well, Templeton says
that houses won't be a buy until, and this is a quote, as I have
indicated by the clever use of quotation marks, and if you paid
closer attention I would not have to spend so much time pointing
these things out, "After home prices go down to one-tenth
of the highest price homeowners paid."
So, he figures houses will
bottom out at a 90% loss.
Goldman Sachs has come out
and said gold may top $450 an ounce within a year.
As long as we are talking about what "may" happen,
the Mogambo said that gold may
go to $450 an ounce within a week, too. You never know, especially
when you have governments who are always anxious to "do
something."
A judge has decided that surviving
relatives of the victims of the 9/11 high-jackings can sue the
airlines for damages. This despite the fact that the FBI saw
no danger, that airlines could not legally confiscate box cutters,
ethnic-profile passengers, reinforce cockpit doors, or take any
reasonable action whatsoever. The only action that the airlines
could possibly, legally make was to advise all the passengers
on every flight to not fly at all, and therefore the high-jackers
would have been alone on the plane. And so, in summary, the airlines
are being sued because they did not take illegal steps to prevent
an unanticipated event, and for this a judge, and I use the term
to indicate that the guy IS a judge and not that he deserves
to be one, says that they may be liable.
There is no doubt that the
plaintiffs will lose either here or on appeal. But the cost,
measured in upteen millions of dollars and hundreds of who people
will make a substantial part of their income from this case,
far outweighs the right of this dimwit, Leftist judge to keep
allowing such expensive, terrifying, ridiculous, wasteful and
destructive frivolities. And I blame, ultimately, the damnable
Supreme Court, who have not stepped on these cockroach tort cases,
or the judges who allow them, or the political swine who allow
such ridiculousness.
I offer this as one more piece
of evidence of the depth of depravity of the American system,
the same one that we are trying to cram down the throat of the
whole world. And so you can imagine their seeming reluctance
to accept our generous offer, and it may offer a clue as to why
so many of those people are trying to kill us.
Martin Weiss of the Safe Money
Report has come out with this predictions for 2004. They are
a $1 trillion budget deficit, bond yields at 7% or higher, price
inflation to at least double, the dollar to fall 20% or more,
gold going to $550, and crude oil to $40!
The Mogambo says, for no apparent
reason and admits to himself that even the Mogambo is surprised
that it popped up, that he groks, which I seem to remember meant
something on the order of "complete comprehension"
in the novel "Stranger in Strange Land," although I
cannot remember any other fact from the book - no! Wait! I think
the cover was black, with a stylized figure on a barren landscape,
looking up at a large, ummm, planet overhead! So that's TWO things
I remember about that damn book! And it was thick, with small
print, which I hated, but now that's three things I remember
about that book! I'm on a roll here! - because I read it a long,
long time ago, and if I did read it and remembered anything about
it, then I would probably grok that I am making a complete fool
of myself by admitting that I had read it, for one reason or
another, because most of the other things that I did when I was
that young I am sorry about now, sometimes tragically so. Not
to mention the travails now visited on my psychiatrist, who has
lately taken to bursting into tears in a fit of empathic overload
at being confronted with so much emotionally draining pathos
after only a few moments of me continuing to discuss my inner
torment.
But, and here we are making
the tires squeal as we suddenly veer back onto the road, all
of these things cited by Mr. Weiss are all related to each other.
And so if any one of them is true, and I have no doubt that at
least ONE of them will come to pass, then won't all the other
ones also come true, to one degree or another? Because, and here
I pause as a subtle way of indicating emphasis, or maybe I pause
because the CIA is beaming brain-controlling rays into my head,
I don't know which, but I suddenly feel a need to hear and obey,
aren't all things related to all things, as required by Chaos
Theory? And so any tiny change in any one of these myriad things
will cause far-reaching changes in everything else after only
a few iterations of the system? Uh-oh! I feel faint, as all the
little gears and cogs in my brain go whirling, whirling, whirling
around and around, faster and faster, overwhelmed by the Mogambo's
sudden trying to grok all the changes in everything in the universe.
Perhaps it is best if we just move, as they say, on.
Marc Faber, one of the more
clued-in dudes on the economics scene, writes on AMEinfo dot
com, "If central bankers around the world are prepared to
print money and to flood the system with unlimited liquidity
at the first sign of weakness in the asset markets, then it is
difficult to make a very bearish case for either US real estate
or US equities in dollar terms." Because all that lovely
money has to go somewhere, and where else can it go? In short,
whatever is ridiculously expensive today can be more ridiculously
expensive tomorrow if the government keeps printing up money
to buy them with. The only crucial question is, can things get
more ridiculously expensive forever?
He continues, "We know
Mr. Bush wants to be re-elected at any cost, and that therefore,
over the next 12 months, he and his lackeys at the Fed and the
Treasury will only take economic policy measures that are designed
to keep the American public happy...and keep the lower classes
of society in good spirits and obedient."
Then he hits on the nub of
the whole thing, "The US Federal Reserve Bank can, if it
continuously floods the system with liquidity, keep asset markets
up, but what it cannot do when it follows such policies is control
the value of the US dollar against foreign currencies and its
purchasing power." So, if a share of Cisco stock and a barrel
of oil each go to a thousand dollars in price, are you REALLY
that much better off? I say no. You, if you had any sense at
all, and I think you do, or else you wouldn't be here reading
this, probably also say no.
He goes on to say, "Examples
of such stock price increases, which were based purely on monetary
easing moves by central banks, can be found in the German hyperinflation
period of the early 1920s, in Latin America in the 1980s, and,
more recently, in Zimbabwe. In all these cases, stocks and real
estate rose sharply in nominal terms, while economic conditions
remained largely depressed or even deteriorated." Ooohh!
How embarrassing for the Fed! To be equated with German hyperinflation,
which ushered in the utter devastation of Germany and the rise
of Hitler and WWII, '80's-style Latin American idiocies which
turned practically that whole continent into a basket case and
impoverished half the people in Argentina, and now the filthy
thuggery in Zimbabwe, which has turned Zimbabwe into a hellhole
of starvation and misery. How special for Alan Greenspan and
the Federal Reserve, and all the other little central bank people
around the world who participated in the thing. They must be
very proud. Ugh.
---Mogambo Sez: This is the time of year when things
are weird, end of quarter and a Triple Witching, end of the year
and Quadruple Witching, which I just made up, the calendar deadline
for fixing taxes, end of the whole thing, and then nothing left
to do but tally up.
It's always weird and scary.
Richard Daughty
December 10, 2003
Copyright ©
2000-2003 Agora Publishing, Inc. All rights reserved.
The
Mogambo Guru Lives!
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.
The Daily Reckoning
"Financial
Reckoning Day: Surviving the Soft Depression of the 21st Century"
by Bill Bonner
and Addison Wiggin.
You can buy
it
online from Amazon.
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