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| The Perfect Time to Buy Palladium
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- I knew something was wrong when I woke up
Friday morning. Not only was my Wall Street Journal missing,
but my wife was acting real nervous and suspicious, and the
damned kid was hiding behind the couch. What the hell is going
on? I soon found out, and, as obviously predicted, was highly
frightened to see that Total Fed Credit actually declined
by $17 billion last week! The ability, or actions, of the
banks in creating money out of thin air was, gulp, lowered
by $17 billion dollars? In one freaking WEEK?
To be fair, reversing the excesses of the customary
end-of-year monetary goosing by the Federal Reserve is pretty
par for the course, as it happens every year about this time.
But meanwhile, the money supply is still growing quite handsomely,
as reported by Bill Bonner at DailyReckoning.com, who writes
"In the latest reported week, more than $25 billion was
added to the nation’s money supply. If this were to
continue, it would add more new money in 18 months than the
present value of all the gold ever mined." Hahaha! The
money supply is going up faster than the growth in the economy,
which means that prices will increase (to absorb all that
money), and the supply of money is increasing, in one lousy
freaking year, more than the value of all the gold in the
whole world? And now you wonder if gold is going to go up
in price? Hahaha! It's not IF gold will go up, my darling
little Mogambo larva (DLML), but how freaking MUCH it is going
to go up in price! And I am betting gold will go up a LOT!
And if it does not, then I will be surprised as hell (SAH)
because this would be the first time in all of history when
gold did NOT rise mightily in price when faced with the enormous
economic idiocies, like the ones that currently bedevil us,
especially when using a fiat currency as money!
But we aren't here to talk about gold and how
freaking much money is going to be made in gold, although
it is one of my favorite things to talk about. Instead, we
were talking about the money supply, and almost as if by accident
I happened upon the essay "The Fed's Money Supply Armament
Is Underway" by Robert McHugh, which was posted on Financial
Sense.com. He writes that the money supply figure known as
M-3 "has been launched into outer space, up another $56.3
billion last week, up $92.4 billion over the past two. This
is some real horsepower. Over six weeks," he says, M-3
is "up $177.8 billion. These annualized growth rates
are 28.7 percent, 23.6 percent, and 15.3 percent respectively."
As soon as I read that, I gulped, suddenly nervous
and edgy. He then soothingly adds that "Those are the
seasonally adjusted figures." I think to myself "Whew!
That was close! I coulda had a heart attack!" Now I am
starting to relax a little, because adjusting "seasonally"
and "annually" are two of my favorite statistical
tricks. For example, suppose my wife starts up with that same
old whining crap of hers, and says "You are a lazy, mean,
worthless slob and I am sorry I married you, blah blah blah!
And now I am going to make your life miserable, you smelly,
horrible, disgusting creep blah blah blah."
In the past I would have suffered the humiliation
like a manly Mogambo man (MMM), as she is (I am ashamed to
say) right. But nowadays, things are different! Instead, I
duck into a convenient phone booth, and emerge, seconds later,
masked and caped, as Mogambo Statistician Man (MSM), whereupon
I cleverly cut out her diabolical, hate-filled heart by brandishing
real statistical proof (RSP) that she is a lying, hateful
demon from hell.
"Wrong, hateful, lying she-devil (HLSD)!"
I dramatically say. "I am NOT smelly, as I took a shower
this morning! And adjusting the last few hours to an annual
rate, I am thus proved to be ALWAYS fresh as a damned daisy,
you hateful old crab!" If she is not soon reeling by
this powerful statistical onslaught, then I hit her with my
backup statistical proof, and triumphantly declare "And
as for seasonally-adjusting, you nasty old biddy, since I
took a shower today, historically this is very early in winter
for me to be taking one. Seasonally adjusting the statistics,
usually I have taken only 0.0042 baths so early in the year,
and so I am waaaAAAaaayyy over trend here, so just shut the
hell up! Shut up, shut up, shutupshutupshutup!" which
does NOT, in case you are wondering, shut her up. Even though
you just PROVED that she was an idiot who doesn't know what
she is talking about! Sheesh! Women! Who can understand 'em,
eh?
But this is not about how the heroic and long-suffering
Mogambo tries so hard to be a good husband and father and
how he is rewarded for his magnanimous efforts by treachery,
although it DOES prey on my mind. Seeing that I am temporarily
distracted, suddenly Mr. McHugh springs the trap, and says
"The raw, non-seasonally adjusted, figure is up $293.3
billion over the past 12 weeks, on a pace to add $1.2 trillion
in money to the economy." Bam! Right between the eyes!
Stunned, I had to read that sentence several times, as my
mind kept refusing to comprehend what I was reading, probably
because I was screaming in fear. This kind of wild increase
in money and debt gives me a case of the Screaming Mogambo
Willies (SMW). Then he says, calmly, "Wow." That's
it. Just "wow."
Outraged, I leap up and, utilizing my famous
Mogambo Editor's Pen (MED), write in big, red letters on the
wall, "Exclamation points missing! Exclamation points
missing missing missing!!!" and I am angrily stabbing
the wall with the pen for additional emphasis.
In fact, now that I think about it, this will
be my entry into this year's hotly-awaited contest, the "International
Most Egregious Lack Of Exclamation Points Competition"!
In correct Mogambo literary style (CMLS), it should have read
"Wow!!!!" which, when applied to economics, is your
signal to buy more gold and wear a sidearm for the next couple
of weeks, just in case. I urge these precautions because this
kind of incredible, profligate, unbelievable monetary inflation
means that we will get a corresponding price inflation after
a just a little while, and people typically go berserk ("freaking
bananas") when they can't afford to even live anymore
because prices are so high, and then the kids start getting
hungry and whiny and crybaby boo hoo hoo, and they think that
just because I am their father that I am just going to, I
suppose, voluntarily pay more money for food, like I have
a magical money tree in the backyard or something.
But if you are sick of hearing me run my big,
fat mouth and you want some hard, real evidence of inflation,
then I can think of only two good sources. 1) Me grabbing
you by the front of your shirt and screaming at you, while
little drops of Mogambo spittle (LDOMS) hit you in the face,
and your ears are ringing ringing ringing with the noise,
and you cringe and struggle and cry, but I don’t stop
until you admit that you truly believe that inflation is up
dramatically, up horrifically, up destructively and you agree
that "We're freaking doomed!"
The other, less fun way, hereby denoted as 2),
is to read things like the article entitled "Energy costs
drive US inflation" on the BBC.co.uk website. It read,
"Wholesale prices in the US rose at their fastest rate
in 15 years during 2005, as the effects of soaring energy
prices took their toll." The fastest rise in price inflation
in fifteen freaking years? My hands shake at the prospect.
The actual numbers are no picnic themselves,
in that "The Labor Department producer price index (PPI)
rose 5.4% in 2005, driven by a 23.9% hike in energy costs.
For December, the PPI - which gauges price changes before
they reach the customer - rose 0.9%, the biggest jump since
September's 1.7%."
Not only that, but "Food costs moved up
by nearly 1% in December, following a 0.5% November gain."
If you are a carnivore, then you're in better shape than those
poor vegetarians, who got clobbered in December as the price
of vegetables "soared 22% during the month, the biggest
gain in more than a year." But even we vicious, meat-eating,
super-predator omnivores are looking at inflation in food
prices that are, annualized, 12% a year! This is the stuff
of Nightmares on Federal Reserve Street, which is not a movie,
but if it was, it would scare the hell out of you, and you
would die of a heart attack just from watching the fearful
effects of inflation caused by creating too much money and
credit, which is why they don't make the movie.
And speaking of rising energy costs, Doug Noland
passes on the news from the Financial Times, where Carola
Hoyos writes that “The oil revenues of the Organisation
of the Petroleum Exporting Countries, the cartel that controls
40 per cent of the world’s oil supplies, will increase
by 10 per cent to a record $522bn this year, the US Department
of Energy forecasts."
Now, I am sure that you noticed that they didn't
say that OPEC was going to be pumping 10% more oil, mostly
because OPEC ain't a-gonna be pumping no 10% more oil. And
in fact, if Peak Oil is here, they will probably be pumping
LESS oil. So the increase in "oil revenues" that
OPEC will be making must, by process of elimination, be because
of higher prices. Yikes! So prices are going to be 10% higher?
Or, if you want more proof of inflation, how
about Jeff Clark in the Rude Awakening column? He writes that
"palladium and platinum are becoming so valuable, the
St. Louis Post Dispatch reports, that they are become the
target of thieves, who are stealing cars in order to extract
these precious metals from catalytic converters."
So I raise my hand and say "Hey! Here's
an idea! How about starting a company that manufactures booby
traps for catalytic converters, so that if somebody tries
to steal it, it blows their damned arms off?" A look
of horror crosses his face, and taking a few steps away from
me in disgust, he hurriedly goes on to say "The fundamental
argument for owning palladium is growing stronger by the day.
That's because industrial demand is growing stronger by the
day. (And it probably doesn't hurt that commodity funds are
continuing to pour money into the precious metals sector).
Palladium can perform many of the same industrial uses as
its sister metal, platinum. Therefore, in the palladium market,
it is important to pay attention to the price relationship
between these two metals."
"Hmmm!" I think to myself. "Is
he talking about some linkage of the two metals that I can
exploit? And maybe make a zillion dollars by exploiting this
linkage between the two metals? And then maybe I can pay back
some of the money I have borrowed from people all these years?
Nah! But can I exploit the price linkage to maybe make a zillion
dollars anyway?" Well, perhaps! Listen, as I did, as
he explains, "Throughout the late 1990s, these two precious
metals tracked each other pretty closely. But in 2000, the
price of palladium spiked due to supply disruptions from Russia.
As the palladium price soared, many industries began substituting
other cheaper platinum group metals. So by the time Russia
resumed shipping palladium, industrial demand had disappeared.
The palladium price plummeted from more than $1,000 an ounce
in 2000 to less than $200 an ounce by 2003. But palladium
finally started inching up again late last year. This appears
to be the start of something big." Why? He explains,
"I expect industrial demand to continue booming, as long
as the price spread between platinum and palladium remains
as wide as it is currently." Oh! That's why; the linkage
we were looking for, with which to make that zillion dollars!
So buy palladium! I love this investing stuff because it is
so easy!
Anyway, the bottom-line upshot of all of this
is that today, right now, is the perfect time to buy palladium,
as he more than intimates when he says "With platinum
at $1,030 per ounce and palladium at $270 per ounce, the price
differential between the two has reached a record-wide spread."
Bill Bonner abruptly comes out of his office,
sniffs the air, and says "What in the hell stinks around
here? Is the stupid Mogambo in the damned building again?"
I pop up and say "Hi, Mr. Bonner!" and he demands
to know who let me in, and I tell him we are talking about
gold and palladium as I was just leaving. He looks me right
in the eye and says that if you want to talk about gold, then
we might be interested to learn that "The price has doubled
since George W. Bush became president." Yes, that was
sort interesting, but as an old-time Republican, I am ashamed
and embarrassed to talk about it. Or Bush. Or neo-cons. As
dispiriting as that is, my attitude is immediately improved
when he goes on to say "Our guess is that it will double
again before he leaves office"! Suddenly, without warning,
the great grasping greed gland of The Mogambo (GGGGOTM) squirts
out some hormone into my bloodstream ("squeeeshhhhh!"),
and I instantly realize that 1) if the Constitution is still
in force and 2) if the election goes off when planned, then
3) gold will double in a little more than two short years
from now! Hahaha! And the shares of mining companies ought
to, what? Triple? Quadruple? Hahaha! Bonanza! I love this
investing stuff! It's so easy when central banks act so stupidly!
- Doug Casey, in an essay on the DailyReckoning.com
site, gets into discussing government, and says "Frankly,
I never expect anything good from government. And here I refer
to the institution itself. How can you, considering that its
main products are wars, pogroms, prosecutions, persecutions,
taxation, regulation, inflation, and assorted idiocy?"
As if to prove the point, Bill Bonner reports
that "Senator Max Baucus of Montana, along with many
others, think there is something wrong. It seems to them that
China must be getting away with something. They're not sure
what it is that China is doing wrong, but they're determined
to put a stop to it. 'Washington may take measures,' Baucus
warned the Chinese."
Like what? Well, how about "Among the
measures Washington may take is a trade tariff"? What
is the effect of a tariff? It "would increase the cost
of Chinese exports by nearly 30%." Hahaha! A thirty percent
price inflation! Punishing the Chinese by making things more
expensive for us? This idiot can't possibly be serious! I
howl in my outrage! OwwwwWWWWwwww!
Bill Bonner is much more dignified when he says
"What are the poor lumpenhouseholders to do? They pay
more for energy. They pay more for healthcare. Their house-as-ATM
financing strategy is breaking down. And they earn less money
than they did two years ago. About the only thing they have
left are those Everyday Low Prices on manufactured goods from
China. And now, along comes a U.S. senator with a plan to
force prices up."
But, then again, that is what government does!
And it just keeps getting worse and worse because there is
so much, so much, so much, so damned much government. And
how big is the damned government, anyway? In a clever attempt
to demonstrate with gestures, I stretch my arms out real wide
and say "Bigger than this, even!" Carla Howell,
writing the essay "Big Government Is Even Bigger Than
You Think " on LewRockwell.com, laughs in contempt at
my puny Mogambo efforts (PME), and has a better way of demonstrating
how big the government is. "Federal, state, and local
governments together," she writes, "directly spend
a whopping $4.8 Trillion – every year." Assuming
a $12 trillion dollar economy, this is 40% of GDP! Note the
use of an exclamation point.
But then there is also the "off-budget"
money. She writes "Conservative estimates give us total
off-the-books federal, state, and local government spending
of at least $700 billion annually. Add this to the on-the-books
spending, and you get government spending of $5.5 Trillion
– every year!" Again assuming a $12 trillion dollar
economy, this is 46% of GDP!! Note the use of the rare double
exclamation points.
"Big Government mandates – compels
us to spend – another $1.5 Trillion to $3 Trillion every
year. This is the externalized cost of government, i.e., the
amount that governments force businesses, non-profits, and
citizens to spend to comply with government regulations. Combined
direct and mandated government spending may well exceed $7
Trillion." Yikes! The government spends more than half
of the entire economy!!! Note the extremely rare triple exclamation
points! This is big-time stuff in the category of "Economic
insanity."
So how would you describe how big government
is, but without actually using numbers? She thinks about it
for a moment. "Big Government in America is so huge,"
she says, "it boggles the mind and numbs the senses."
And if you are thinking "What in the hell
do they do with all the money?", then welcome to the
club. Well, perhaps Robert B. can help enlighten us when he
writes "The 10 Commandments: 179 words. The Declaration
of Independence: 1,300 words. The US Government regulations
on the sale of cabbage: 26,911 words. "Hahaha! Now you
know what they are doing with their time!
- There has been a lot of consternation lately
about whether another "confiscation" of gold, like
FDR did in 1934, is right around the corner. To be accurate,
I will quickly add that no gold was actually confiscated,
as the owners of bullion gold took the gold (worth $20 dollars
per ounce) to the bank, and the bank took the gold and gave
them twenty bucks in cash for it. Remember, the purpose of
rounding up the gold in 1934 was to "free up" idle
wealth (in the form of gold tucked under the mattress) and
put depreciating dollars in people's pockets, so that they
would (theoretically and hopefully) spend some (increasing
aggregate demand), and put some in the bank (creating bank
reserves).
And another big, burning question for The Mogambo (BBQFTM)
is "What about numismatic coins that are so rare that
they acquire premiums over the melt value of the coin and
were exempted from the FDR 'confiscation'?" The real
reason that rare and valuable coins were exempted from the
gold round-up was that the government would have to pay the
higher prices, as the Constitution prevents the government
from merely taking your coins, but has to pay full market
price for them. So, paying $20 an ounce for 24K raw, bullion
gold was plenty enough, but picking up one more stinking ounce
in the form of a rare coin valued at $5,000 was another thing
all together!
And besides, there weren't that many rare and
valuable coins, and it wasn't worth the hassle nor expense,
especially since Mogambo-hardened sharpies like you, seeing
that the government had boxed itself in, would have colluded
beforehand to bid up the price of rare coins, selling them
back and forth between us, back and forth, around and around,
driving the prices to astronomical levels, which the government
would be, by law, required to pay. And THAT is why valuable
and rare coins were exempted.
- I don't know why, but it struck me as real
funny when Chris/Super says "That guy bringing all those
gifts over the years wasn't Santa Claus, but a future bill
collector wrapped in a China flag."
Glenn K also sent me the something else that
confused me. It was a news bit from Reuters that read "Increased
globalization has lessened the usefulness of concepts such
as output gaps or capacity restraints for monetary policy-makers,
Dallas Federal Reserve Bank President Richard Fisher said
on Friday. The concepts of output gaps for economists or capacity
constraints ... are rendered nonexistent." Huh? I am
so confused that I don't know what to think. I include it
because I am not only nonplussed and, thus, at a complete
loss to even vaguely comprehend what he means, but also because
it seems somehow important to know that such gibberish came
out of the mouth of the president of a Federal Reserve Bank.
- Rick Ackerman of Rick's Picks actually used
the phrase "global annihilation" in the context
of something economic, like "We're freaking doomed to
global annihilation, just like The Mogambo said we would!
He is a god! Fall on your knees and worship Mogambo! All hail
Mogambo!" Well, okay, truthfully, he did not, you know,
actually use those EXACT words. But he DID use the phrase
"global annihilation", which is bad enough!
Anyway, then he asked "Where is Klaatu
when we need him?" Hahahaha! But is it entirely coincidental
that Mr. Ackerman brought up Klaatu from the movie, "The
Day the Earth Stood Still"? You be the judge: It is a
little-known fact that if you play the famous phrase "Klaatu
barada nictu" backward, you hear "Run for your freaking
life, Klaatu! These people are freaking morons!" Which
could, and probably does, explain why Mr. Ackerman mentioned
both "global annihilation" and Klaatu at the same
time!
- Adam Hamilton of Zeal LLC.com and appearing
on SafeHaven.com hears me talking about gold, and says "prices
trading near 25-year highs. The core tenet of successful investing
is to buy low and sell high. So if an asset is trading at
a quarter-century high-water mark, then odds are its price
is pretty darned high at the moment and therefore a bad buy,
right?" I silently nod my head like I understood what
in the hell he was talking about.
Then he says "But gold, believe it or not,
is still a great contrarian investment even at today's quarter-century
nominal highs. How is this seemingly absurd thesis possible?"
Everybody is suddenly looking at me to supply the answer,
as if I had any freaking clue. But being the classy guy that
he is, Mr. Hamilton saves my bacon and immediately goes on
to say "The answer is the measuring stick for any investment
pricing, the US dollar, has radically changed in the last
several decades. A dollar today is worth vastly less than
a dollar was 25 years ago, the last time gold closed over
$550."
He says to take a look at prices in the early
1980s. "They were almost trivial compared to what we
face today," he writes. "The median home price in
the US was $76k. You can hardly even buy an empty lot in suburbia
for this today, let alone a house. The median American income
was under $18k. Today $18k is actually below the official
US poverty line for a family of four! A first-class postage
stamp ran 15 ¢. The average new car was about $7k. So
a quarter century ago the $550 it cost to buy an ounce of
gold went a heck of lot farther in terms of buying real goods
and services than it would today." Exactly, my man!
Then, because he is such a nice person, I suppose,
he sums it up by stating the truism "Anytime the money
supply of a particular era or place grows faster than the
supply of goods and services on which to spend it, general
prices are inevitably driven relentlessly higher. This financial
law is as immutable as gravity."
So, how is gold doing in terms of gains in buying
power over the intervening, inflationary years? "Gold
last closed above $550 nominal on January 23rd, 1981,"
he says, "almost 25 years ago to the week. Yet adjusted
for inflation, an ounce of gold was really worth $1266 that
day in purchasing-power terms. Thus, in order to truly see
the quarter-century gold highs that the financial media is
wailing about, gold in today's dollars would have to head
north of $1250." So gold is priced at less than HALF
of its record price! Wow! What a bargain! Hahahaha! It's like
oil selling for less than $30 a barrel! What a freaking bargain!
And with the relatively-near future value of
the dollar being an estimated 30% lower than it is now, then
gold is so cheap (audience yells out, "How cheap, Mogambo?")
that if you are NOT buying gold, then I laugh at you, and
disparage the intelligence of your parents that you are so
stupid, and insult your significant-other that they are so
completely worthless that they have to love a stupid clot
like you, because nobody with any smarts or standards would
have anything to do with you or them. And it sounds like this:
"Hahahaha!"
And since we are talking about gold in terms
of its buying power, he further calculates that "From
the mid-1970s until the mid-1990s gold rarely went below $500
in today's dollars, so $500 gold really is historically cheap.
Today gold would have to challenge $1000 before it started
getting expensive and it would have to rocket up near $2200
to hit all-time real highs."
Then, saving the best for last, he says "Assuming
these growth rates are roughly correct, and compounding them
for the 25 years since 1980, the world's money supply has
ballooned by 5.4x. Meanwhile the global gold supply is only
up 1.3x. Dividing these 25-year growth estimates yields a
ratio of global-fiat-currency-supplies-to-gold-supplies of
about 4.2x. Now there is 4x as much fiat paper floating around
relative to gold as there was in 1980! The $850 spike high
in January 1980 multiplied by this ratio yields an all-time
gold high of $3570 in today's dollars."
My ears prick up when he says $3,570 an ounce,
but by this time my brain is numbed to senselessness by all
these numbers whizzing about, and in a state of stunned semi-consciousness
I am drooling down the front of my shirt. Disgusted at the
sight, Mr. Hamilton tries to distract himself by trying to
think of a way to impress upon dullards, like me, at least
the bare rudimentary essence of what he was trying to say.
Finally giving up, he merely says "My core thesis that
gold is cheap today in real terms."
And if you wanted yet another reason to buy
gold (although I personally find it hard to stand upright
under the weight of the sheer tonnage of damned good reasons
to buy gold right now), then Peter Spina of the Gold Forecaster-Global
Watch newsletter has one for you. He writes that the gold
market is changing, "Suddenly the Exchange Traded Funds
took control. StreetTRACKS Gold Trust saw its holdings jump
by an enormous 10% in the year to date (2006)! These volumes
are sucking in all the Central Bank Sales and some. On the
other side, no one wants to sell."
He then reports some impressive movements of
gold into the Exchange Traded Funds. "The week to 2nd
January saw them adding a 17.8 tonnes, followed by Wednesday,
Thursday and Friday bringing another inflow of 23.5 tonnes,
taking total gold holdings to 384 tonnes. This is an enormous
rise." Yes, it IS enormous, Mr. Spina, and it means that
demand is increasing dramatically, but since supply cannot
increase, that means that the price will continue to go up
and up and up as long as demand outstrips supply!
- From Doug Noland we get the chilling news
that Bloomberg News reports “Venezuelan President Hugo
Chavez said he plans to increase salaries for government workers
by as much as 80 percent this year.” I hate to be a
stickler here, but notice the lack of an exclamation point,
which one would naturally expect when the government has just
announced that they are going to shoot you, and everyone in
your family, with a machine gun. Oops! I mean, when the government
has just announced that they are going to destroy the money
and the economy, which is just about the same thing.
The point is that if you know anybody in Venezuela,
tell them that The Mogambo has put out an Important Mogambo
Bulletin (IMB) that was obviously censored by the media since
nobody seems to have read it, that the money of Venezuela
is going to get destroyed with price inflation and government-expense
inflation, and that I'll bet that smart people in Venezuela
are screaming "The Mogambo was right! We're freaking
doomed" and are buying gold right now, and I mean right
freaking now. Anyway, that's what I would do. Ugh.
****Mogambo sez: Mogambo him say oil go up. Oil go up. Mogambo
him say gold go up. Gold go up. Mogambo him say silver go
up. Silver go up.
Mogambo him big medicine. Mogambo now
say too buy heap big oil, gold, silver.
Richard Daughty, the angriest guy in economics
9241 54th Street North
Pinellas Park, FL 33782
727 546 5568
e-mail: scgcjs@gte.net
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