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July 26, 2005
- The big, big, big, BIG, BIGBIGBIG news is, of course, is
that China has lowered the peg of the Chinese yuan to the
dollar by 2.1%. As David Tribble commented, "From this
point forward, the United States Federal Reserve no longer
matters. The balance of power has shifted from the West to
the East." He is right, as the new currency regime is
a "managed float" of currencies, and the people
managing the float are the Chinese, so they run things from
now on. It's a scary new world, and I am sure that you are,
like I am, in the throes of hysterical paroxysms of fear,
characterized by infantile screaming, crying, begging, moaning,
and random bursts of gunfire at unseen enemies lurking in
menacing, murky shadows.
At the same time, Malaysia also announced it would no longer
tie their currency, the Ringgit, to our dollar, either. Being
a xenophobic paranoid lunatic who sees conspiracy everywhere,
I note with alarm that both of these peoples with their distinctly
Asian features look vaguely similar and may be related, they
both have charming sing-song languages that I can't make heads
or tails of, and they both eat really weird food, as far as
I can tell from watching old documentaries and older movies
on TV. But apparently this Malaysian currency untying does
not surprise Chuck Butler, president of EverBank, and who
is a guy that they say knows what in the hell is talking about
when it comes to this kind of currency stuff. Putting all
this wisdom and education to work, he noted that the Chinese
de-pegging would "lead to other currencies in the region
to allow their currencies to gain vs. the dollar."
Aside from the problems of one more large group ganging up
on us Americans (as if having all the Muslims in the world
and damned near everybody else against us is not enough),
there is no more permanent peg at all, although the government
will allow a maximum movement of 0.3% per day. 0.3? Like you,
at first I said "A third of a lousy percent? That doesn't
sound like much!" But it is! This percentage move is
every (pause) freaking (pause) DAY! It is like the little
boy who killed his mother and father for twenty-five cents
and explained "You know how it is, judge; two bits here,
two bits there, it adds up!" It adds up!
My horror lies in the fact that after a few months of this
"two bits here and two bits there", and the dollar
could be down by fifty percent! There is a lot of work done
through the last few years that suggests that the Chinese
yuan is overvalued by somewhere around 40%, so overshooting
that overvaluation is not inconceivable to me.
If you notice that you are suddenly bathed in a cold chill,
then you have passed a milestone in your quest for Total Mogambo
Enlightenment (TME), as you understand that a giant disturbance
has occurred in the cosmic continuum, and things are not going
to be good.
Or perhaps you heard a bell, as Peter Schiff
of Euro Pacific Capital suggests when he said "The old
saying 'no one rings a bell,' certainly doesn’t apply
today, as China rang the 'mother of all bells.' So deafening
was its sound, that its vibrations will be felt around the
world. Nowhere will the amplitude of these waves be more pronounced
than in the United States."
You can tell what a class-act Mr. Schiff is, because he calmly
lays it out, whereas I was unable to contain my hysterical
fear, and am currently hiding under the bed, alternatively
crying like a crybaby wuss and vowing blood revenge on all
the guys who were responsible for the Federal Reserve destroying
our money, which is pretty much everybody in any government
job in any government around the world, and all the clueless,
moronic teachers who have infested our schools for the last
fifty years or so, and the equally clueless media "journalists"
who cannot even comprehend what their damned "freedom
of the press" function is, and I suddenly realize to
my dismay that I don't have quite enough ammo to do the job,
and now I am even MORE depressed.
Immediately (and this is the part that ought
to make your trigger finger twitch involuntarily and your
heart slam-dance against your ribcage), oil, precious, precious
oil, which is priced in dollars, becomes instantly 2.1% cheaper
for the Chinese! The price to us is (big sigh of relief!)
unchanged. So far. Note the caveat "so far", which
is very meaningful to those of you with sharp eyes.
But the oil exporters have to be looking at this, too, and
figuring that getting paid in dollars is really, really, really
stupid if they are going to turn around and buy something
from the Chinese. If they do intend to buy some Chinese products
(and who doesn't?), then petroleum exporters just lost 2.1%
of their buying power! In one day! Remember, these oil production
companies are in the business of making profits, currently
denominated in dollars, by pumping and selling oil. Then,
in the natural course of events (and this is the best part!),
they will take some of their new dollars and spend them on
a few necessities and some other really neat stuff ("Did
you see where Abdul has one of those fancy new satellite dishes
with the optional polarized gaflugelizer?"). But when
the wife gets to the store, she finds that the prices of everything
are 2.1% higher! And getting higher by 0.3% per freaking day!
So she runs home and come storming into the room, throwing
the bric-a-brac at you and complaining that she needs more
money, and you stammer that you don't have any money because
you just put in that new satellite dish, and then she starts
yelling about THAT, too! So it would take a real dimwit to
NOT run back to the office and raise the dollar-price of your
oil, just so you can have a little peace and quiet at home
without the wife screeching and whining about how I have to
raise my prices to get some MORE damn money into this house,
because the damned dollars don't buy squat anymore, and I
tell her to shut the hell up because I have had it up to HERE
with her stupidly saying she wants (using a high-pitched,
snotty, mocking tone) "more money", but what she
REALLY means, but she is just too damn stupid to understand
the basic concept, is that she wants more "buying power"!
And then she coldly looks me in the eye and calmly says that
perhaps it is something like, for example, how she SAYS she
wants to kill me, and how she is GOING to kill me one day
real soon, but what she REALLY means is that she just wants
to see me dead and gone. I laugh in her stupid face and tell
her no, it is not like that at all, you hateful old bat! Then,
out of nowhere, she got into some little snit for no damned
reason at all, and stomped off. Just like (insert footage
of fingers snapping) that!
But this is not about my life in hell, but rather about that,
as Americans, it will just get worse and worse and worse,
as Chinese imports will immediately cost 2.1% dollars more,
because the dollar is worth 2.1% in buying power, UNLESS (and
this is the crucial part) somebody along the way agrees to
make less profit, which is bad for the company, or otherwise
cuts expenses. Both of these ideas will work, but crap for
somebody else, because all of those lost profits or cuts in
expenses were somebody else's income (shareholders or suppliers),
and now THEY are suffering a loss of income! There is nothing
good about price inflation. Nothing. It is always bad news.
Always.
So why have we jerk-wad American bozos allowed this? Occam's
Razor mandates that we find the simplest answer. Thus I loudly
declare that we, as a nation, are really, really stupid. A
lot like me, personally, but without the crippling emotional
problems. But perhaps there is something more to this whole
thing, something in the line of, ummm, destiny, as Bill Bonner
of the Daily Reckoning perhaps suggests when he observes "An
empire has to figure out a way to exhaust or destroy itself
in order to make room for the next empire." And that
is exactly what we have done. We have destroyed ourselves
so that the Chinese empire can assume dominance, continuing
the universal cosmic dance of birth, death and renewal.
Out of the corner of my eye I can see Peter Schiff is bored
with listening to me and this metaphysical philosophy, and
is furtively looking around for a discreet way out. I figure
"I'll teach him!" I spin around, point my finger
at him, and say, "So, Mr. Schiff, what are your final
conclusions?" Without missing a beat, the guy jumps up,
snatches the microphone out of my hand, and, ignoring the
audience cheering him on and urging him to use it to beat
the hell out of me, says, "In conclusion, July 21, 2005
will be another date likely to live in infamy. This time the
aggressor is China not Japan, and the bombs are purely economic.
Though there will be no immediate loss of life, and no American
retaliation, the financial damages will be devastating. History
will remember this date as the beginning of Chinese independence,
and the beginning of the end of America's ability to depend
on the Chinese."
So I confidently predict, without fear of contradiction,
that the yuan will continue to gain strength over the long
run. It will be, of course, in fits and starts so that the
Chinese can "manage" the currency markets so that
the local boys will profit from the ups and downs of the currencies,
and Wall Street, the Federal Reserve and government will "manage"
the stock and bond markets in the USA so that this whole stock/bond/housing
idiocy will not implode, and at the same time allow American
local boys to make profits from the manipulation. The whole
cost will be shifted onto the average American citizens, paid
for by suffering a huge, huge, decline in their standard of
living, and the wrenching societal dislocations that will
result, as the coming years and decades roll by.
And this will be peachy with China, as their
strong currency makes imports cheap! Thus, they can import
a lot of raw materials to the emerging Chinese consumer, whose
average wage is increasing at ten percent a year, and who
is a-hungering for the Promised Land of up-scale goods and
downright luxuries.
So, and this is the important part for those
of you who are whining, "When the hell is he going to
get to the damned point?", with a strengthening currency
they will import deflation into China, which will offset a
lot of the monetary inflation. The downside is for everybody
else to gag on, because when the Chinese import deflation,
they simultaneously export inflation. So what will we be mainly
importing from China? Inflation! Hahahaha!
Paul Tustain of GalMarley.com provides the perfect illustration
of how inflation is such a horrid thing. He says he "recently
wound up the estate of a great aunt, who died aged 95 after
a 35 year retirement." She retired in 1969, and was fortunate
enough to have a reliable pension, but where the monthly benefit
was fixed at the day of retirement. So she received the same
amount every month. Inflation made a mockery of the pension,
as "by 2004 the total annual revenue from it failed to
pay her local property taxes." In short, the poor woman
suffered a continually declining standard of living, even
though she had the exact same income, for every one of her
35 years of retirement, until it could not even pay the damned
taxes on her house.
And speaking of inflation, the good news is that we will soon
be blessed with the new John Williams' "Shadow Government
Statistics", which will begin publishing its own monthly
index of consumer prices later this year, now that we can
no longer trust the American government's statistics at all.
This ought to be really, really interesting!
To get us started, Mr. Williams posted this
as of last Friday; "Yesterday morning's report of 0.0%
monthly CPI inflation (both seasonally adjusted and unadjusted)
appears to have been a political fabrication, which was accomplished
through the manipulation of reported energy prices. Here's
where the hanky-panky comes in. For example, official (CPI)
seasonally-adjusted gasoline prices declined 1.2% in June
after a 4.4% plunge in May. Further, June 2005 gasoline prices
were up just 6.9% from June 2004. The reported gasoline inflation
rates, however, are demonstrably shy of reality. One good
surrogate for seasonally-adjusted changes in gasoline prices
is seasonally-adjusted retail sales of gas stations, and the
June retail sales numbers also were released yesterday morning."
And what did these independent statistics show? "Instead
of down 1.2% for June, retail gasoline sales were up 1.9%;
instead of down 4.4% in May, sales were down just 0.5% (revised
from a 1.6% drop); instead of up 6.9% year-to-year, gasoline
sales were up 16.2%!"
Mark L. is thinking along the same lines about this, and sent
along a link and his comments. "Gas prices down 34%!"
he writes. "This is just like the government; they tell
me I can get gas for less than $1.60 a gallon, but then forget
to tell me where I can buy it!"
Sure enough, he provided a link to the LeMetropole site, and
there we find that Bill King has apparently heard about this
crap, too, and says, "The PPI has gasoline station prices
DOWN 34.4% y/y and DOWN 25% m/m! Is this a misprint?!? Orwell
lives! " Hahahaha! He sure as hell does, Bill!
And there is a reason for that, too! Nobody ever told you
the end of the story about the little boy who pointed out
that the emperor was wearing no clothes. I will spare you
the ugly details and vicious rumors, but unmarked black helicopters
were involved, and there were FBI guys and CIA guys and NSA
guys and Homeland Security guys everywhere, all bumping into
each other, and there were state police and county sheriffs
and city police, too, all bristling with their spiffy SWAT
gear and dying for a chance to be heroes, and you never again
heard of that damned kid saying anything about anyone's clothes,
real or not.
- The most interesting thing, to me, was that Alan Greenspan
is supposed to have said to Ron Paul, the only clear-thinking,
hard-money guy in Congress, "Central banks have learned
the lessons of fiat money." Now immediately you, like
me, probably responded reflexively and shouted "You filthy
lying bastard!" But perhaps we are being too hasty here.
Nobody asked him WHAT they learned! And there, as Shakespeare
said, is the rub.
I am deathly afraid that they think they learned
something that is, in grim reality, very, very wrong. If they
DID actually learn the lessons of fiat money, then central
bankers would immediately stop that senseless, ceaseless crap
of creating excess money and credit. But they are not stopping
that, as I said, crap. All we see is more crap crap crap.
For example, Total Fed Credit went up again
last week, this time by $4.3 billion. This takes them to a
new, all-time record. So what is the lesson about fiat money
that central banks have learned?
Almost all the other countries in the world
are increasing their money supplies and driving interest rates
into the toilet, too. So what lesson about fiat money have
they learned?
Even more surprising was that Required Reserves
in the banks dramatically dropped to $42.5 billion, down from
$46 billion the week before. While it is not unprecedented
for reserves to suddenly drop to these low, low levels, it
is surprising, nonetheless. Now, I will stand begrudgingly
to my feet and under relentless cross-examination admit that
the idea of requiring banks to hold reserves is an anachronism.
In an age of purely fiat currency, there is no catastrophe
that can befall the banks that the Federal Reserve could not
immediately "fix" by simply creating as much money
as needed to completely make up any loss or shortfall. So
the whole exercise of keeping reserves is almost a charming,
but useless, relic from the old days. And the way that reserves
have diminished to almost non-existent levels only proves
that the Federal Reserve agrees with me 100%.
But what IS important is that this has suddenly freed up a
lot of money all over the damn place, as the banks suddenly
find that they have $3.5 billion of "freed-up" money
that they can now lend! Compounded by the fractional-reserve
multiplier, which is now running at almost 100, that means
that we have a brand-new $350 billion in lending power just
sitting there in the banks! A potential $350 billion boost
to the money supply!
So, what lesson about fiat money did the central bankers learn?
Perhaps coincidentally, alert reader Rich R. sent an interesting
quote from a letter that he recently received from his credit
union, Bethpage, which shows in black and white that the banks
are bragging about it! "As a result of a federal regulation
regarding reserve requirements," the letter begins, "Bethpage
will change the way it reports your Checking account balance
as part of an aggregate total to the Federal Reserve Bank
(FRB). Bethpage will now categorize checking accounts into
checking and savings sub-accounts for regulatory account purposes.
Bethpage may periodically transfer funds between these two
sub-accounts, enabling us to substantially lower our reserve
requirement balance at the FRB and increase the amount of
funds available for loans and investments, thereby allowing
us to better serve our members." Hahahaha! To better
serve their members? Hahahaha! Making money for themselves,
yes, but better serving their members? Hahahaha!
Wiping the tears of laughter from my eyes, I think I know
what lesson about fiat money the central bankers think they
have learned. And, as I predicted, it was the wrong lesson.
And, suddenly stopping my laughing, I confidently predict
that we will pay a huge price for allowing lying, manipulative
idiots like Alan Greenspan and Ben Bernanke to seize control
of our banks and money.
- Larry Edelson says that while people think
CNOOC (The Chinese National Offshore Oil Company) wants to
buy Unocal because the Chinese want to secure oil, that is
only part of the story. The lowly truth is that it is a screaming
bargain. "Two years ago, when oil was trading at much
lower levels, Unocal's reserves, based on the price-per-barrel
of crude, were valued at $64 billion. But the total value
of Unocal's shares was just $11.38 billion. So, in effect,
by buying its shares, you could have bought its reserves for
the equivalent of just 14.8 cents on the dollar." Remember,
this was two years ago.
Now, we fast-forward to today, where it gets
even better! Mr. Edelson takes up the story and says that
he figures that "Unocal's reserves are at $102 billion.
So you can buy the reserves for a puny 9.5 cents on the dollar."
Hahahaha!
But CNOOC trying to buy all the oil companies
is nothing new, as I gather from Larry, and I call him Larry,
even though he hates it, only because he is not here to make
me stop. He writes "In Angola, China’s Sinopec
purchased a 50% interest in offshore oil fields. In Sudan,
CNPC has expanded oil production in the southern oil fields
of the country, cutting trade deals with the Sudanese government.
In Iran, Chinese oil and gas companies have signed several
contracts to co-produce oil and natural gas. In Saudi Arabia,
Sinopec is exploring and developing natural gas and oil in
the Rub al-Khali desert. In Central Asia, Chinese oil firms
have purchased major interests in Uzbekistan, Kazakhstan and
Azerbaijan, including construction of a 1,860-mile oil pipeline
from the Caspian Sea to western China. In Australia, CNOOC
owns a stake in a natural gas project, co-operated by Chevron.
In Venezuela and Brazil, deals in Venezuela's Orinoco Basin
and with Brazil’s Petrobras. In Canada, PetroChina,
Sinopec and CNOOC signed deals for shares of Alberta's oil
sands and for a pipeline to the Pacific coast, for transport
via tanker to China."
And, now that they have the gas, all they need
is a car to put it in! Then we can all pile into it, take
a nice drive down to a noisy bar, get really drunk and rowdy,
maybe putting "the moves" on some ugly women. Perhaps
to that end, a Chinese outfit just bought Rover, the last
major car maker in England.
So, if you want to know where $700 billion a
year in trade deficits go? It is being used to let the Chinese
buy the world. It's that old Jeffersonian prediction that
those who engage in monetary stupidity will end up homeless
and ruined in their own country.
- Perhaps adding impetus to the Chinese desire
for oil is the news out of China's State Electricity Dispatch
that this summer will be a really hot one, and it will come
at the same time as China's worst energy shortfall in 20 years.
They don't actually say it, but I figure that the energy shortfall
is mostly due to the Chinese manufacturing crap like crazy,
but also because they are also buying and using energy-gobbling
doo-dads like air conditioners, and refrigerators, and dishwashers,
and all the rest of that kind of stuff. I mean, they have
been building power plants like crazy for years and years,
and the situation is the worst in twenty freaking years? It
can only mean that demand is outstripping exponentially-increasing
supply!
Justice Litle, the energy expert at the Daily
Reckoning, sees me hanging out here all alone with this Chinese
energy-usage idea, and takes pity on me, and in my defense
says to the bullies who are always picking on me that "In
China alone, electricity demand is 150% higher right now than
it was when China first started to boom, back in 1980. Last
year, over 6,400 factories in China had to shut down because
they didn't have enough electricity to run their machinery.
Another 10,000 manufacturers had to ration power."
And it is not just the Chinese, either! Mr.
Litle notes that "Demand for electricity is continuing
to soar worldwide. Worldwide electricity demand is expected
to explode by another 85% before the year 2020, faster than
demand for any other kind of energy." Almost double in
fifteen short years? Ouch!
And somebody has the nerve and gall and arrogance
to look me right in the eye and tell me that the price of
oil will NOT go up and up and up and up and up and up and
up and up and up? Hahahaha! Just because I am stupid and gullible,
people think that I will believe EVERYTHING I hear! Hahahaha!
And, additionally, let's not forget that if
oil gets priced high enough, it suddenly becomes profitable
to install expensive, extreme-extraction equipment on all
those tapped-out, dried-up, capped-off oil wells in Texas
and in that whole region, wells that still contain some residues
of recoverable oil, but which cannot be pumped profitably
now. And I can think of a few guys in power who would profit
immensely from that!
- This year, they expect that the median price
for an existing home to rise 9.4% to $202,600. New-home prices
are increasing 5.8% to $233,900. But, and you can believe
this because your own government told you so, there is no
bubble in housing. And even if the bubble DID burst, then
the Fed again will again merely lower interest rates to more
low, low, insanely-low levels to reflate the bubble, or create
a new bubble in something else, or the Congress will do the
same thing with tax-code tinkering. THAT is the lesson Americans,
and the world, have learned.
- From what I gather from reading the transcripts of Alan
Greenspan's testimony at the Congressional banking hearing,
it was weird, as he seems to contradict himself sometimes.
Maybe I am just being paranoid, but at Jesse's Charts we read
that maybe I am NOT being just paranoid, as they write "Perhaps
our greatest concern is that the problem has been getting
increasingly worse, and the best examination we can perform
seems to indicate that the Federal Reserve and Treasury are
employing most of their resources in masking the symptoms
of the problem so as to avoid a panic." And I am sure
that he is right, as Shoemakerconsulting.com gives us a little
more education when they write, "History records that
the money changers have used every form of abuse, intrigue,
deceit, and violent means possible, to maintain their control
over governments, by controlling money and its issuance."
Greenspan, for example, recently said that,
in order to control inflation and sustain growth, it "will
require the Federal Reserve to continue to remove monetary
accommodation." Huh? Where in the hell did THAT come
from? I never heard anybody, ever, say that growth in an economy
is dependent on the removal of monetary accommodation! This
is the exact OPPOSITE of their whole stupid neo-Keynesian
philosophy, for God's sake! You get growth when you PROVIDE
monetary accommodation, you idiot! And it works! It produces
growth! It also produces cancerous mal-investment, over-investment,
a drop in savings (as people try and escape low bank deposit
yields), bubbles, and, inevitably, an inflation in prices
that matches the foregoing inflation in the growth of money
and credit, ruining everything.
It is a sad, sad day when somebody as stupid
as The Mogambo has to explain something so basic to the chairman
of the Federal Reserve because he can't get his own ridiculous
theory right!
But maybe I am too hasty. As Julian Roberts
of the Tiger Fund said, the American consumer may be "out
of gas", being so far in debt already, and thus unable
to borrow to buy more stuff. If so, then maybe lower interests
will one day fail to do the trick. One guy who apparently
thinks so is Peter Warburton, author of the book "Debt
and Delusion," who said, "There is something big
coming. It is the destruction of the economy at low rates.
This is going to be the big surprise that the economy will
go into a prolonged slump even at very low nominal interest
rates."
Now, don't know if Kelly K. Spors of the Wall
Street Journal knows Julian Roberts or Peter Warburton or
not, but she is certainly hip to our debt problems and how
they just keep getting unbelievably worse and worse. The article
itself reveals the extent of the problem. "The debt service
ratio, the Federal Reserve's estimate of the ratio of debt
payments to after-tax income, hit 13.4% in the first quarter
of this year, an all-time high since the Fed began tracking
it in 1980. The financial obligations ratio, which adds automobile
lease and rent payments, homeowners insurance and property-tax
payments to the debt service ratio, was 18.45% last quarter,
near the record high of 18.84% in late 2002. Total household
debt grew 11.2% in 2004, the largest year-to-year increase
since 1986." We're not only up to our eyeballs in debt,
but it is getting deeper!
In the same vein, Marshall Auerback of the PrudentBear.com
site, has borrowed through the 2004 Financial Report of the
United States Government. He notes, with his usual cool and
unflappable style, like this doesn't affect him at all, that
"The table published in the Overall Perspective on page
11 shows an $11.1 trillion annual deterioration in the government's
net worth."
- Eric J. Fry, who writes Daily Reckoning's Rude Awakening
column, notes that a lot of "Wall Street analysts have
been rushing to issue 'Sell' and 'Underperform' ratings on
various resource stocks. The stocks are 'fully valued,' the
analysts explain." Now if it was me that was breaking
this news, I would begin by laughing at the idea, and then
move on to naming names of the morons who have been issuing
these recommendations so that you could look them up in the
phone book, and give them a call at 2 a.m., and tell them
that they are morons, and then go "Hahahaha!" before
hanging up on them.
But Mr. Fry is too sophisticated for that, and
merely says only "Maybe yes, maybe no. But we suspect
these recent downgrades will seem ill- advised, when viewed
from the 20-20 hindsight of July 2007 or 2008. In other words,
we'd ignore the dubious advice to sell lowly-valued resource
stocks in the middle of a resource-stock bull market."
Hahahaha! Selling cheap stocks into a bull market!
Hahahaha! I laugh because I happen to be an expert on selling
a stock too cheap, only to see it rocket higher and higher
within an hour of me selling it. So I am also somewhat of
an expert when I say "what morons!" But these analyst
windbags still pull down the big money for nothing, just like
the irritating Dick Grasso, who somehow got the NYSE to pay
him about $190 million a year to strut around acting like
a big shot, which comes out to about $800,000 per day! He
says, in his own defense, that he is worth 800 grand a day!
But after being ignominiously fired from the NYSE for his
grotesque, grubby greed, everything at the NYSE is still running
along just peachy, which maybe shows how little Mr. Grasso
was REALLY worth.
But this is not about how over-paid clueless
weenies with their eyes on your money are everywhere, but
about us smelly proletariat vermin out here trying to make
a little money by savvy investing, so that then maybe we can
afford to slip out this dump in the middle of the night with
the money and start a new life, trying to enjoy a little happiness
in the last few precious years of our miserable lives. While
Mr. Fry does not address this specifically, he does provide
a clue on the savvy investing part when he says "To be
a seller of resource stocks, the long-term investor must believe
that the bull market is over. We do not. Nor do we believe
that the long-term demand for energy products, base metals
or most other resources will slow enough to trigger a long-term
sell-off in resource stocks." So, if you are paying attention,
like I know you are because you are as greedy as the rest
of us, you doubtlessly noticed that the prices of commodities
and resources are 1) in a bull market and 2) will continue
to be in a bull market. So we have determined what asset will
be going up.
The next part of the strategy is revealed when
he says "To be sure, short-term volatility – sometimes
wicked volatility – will nip at the heels of resource
investors. But, we would be slow to interpret such periodic
nuisances as reasons to abandon long-term investments in the
sector." Nuisances? Man, that volatility thing is not
a nuisance! It's a series of buying opportunities! Dollar-cost
averaging will wring profits out of the whole run, nuisances
or not!
I see a couple of you have raised your hands
to ask a question. Using my Mogambo Mind-Reading Powers (MMRP),
I see that you want to know how this squares with the idea
that China is growing too fast, and how its banks are a mess,
and how this means that the boom in China can't continue,
and how that means that the boom in demand for commodities
and resources stocks can't go on much longer, either. Mr.
Fry adroitly disposes of that argument when he says "We
would also note that the price action in nearly every one
of the world's major commodities refutes the notion of a slowing
Chinese economy. The prices of copper, iron ore, coal and
oil are all hovering near all-time highs. Copper inventories
on the London Metal Exchange have dropped 45 percent this
year, down to their lowest level in 31 years. Somebody must
be buying this stuff."
He does not mention that for the growth in China
to stop would mean that there is no more pent-up demand in
China, or anywhere else, and that, finally, everybody has
enough television sets, and washing machines, and cars, and
air conditioners, and snappy new duds. And while I am not
an expert on China (although I have eaten a lot of Chinese
food over the years), around MY neck of the woods demand is
NEVER satisfied, and, as an example, even though we already
HAVE a dishwasher, she wants a new one! Why? I don't know,
as I think that the strips of duct tape stuck over the rusty
spots adds a really nice, bright metallic sheen to the whole
kitchen! Snazzy!
Bill Bonner is casually walking by, and hears
us talking about China. Off the top of his head, he comes
up with a perfectly apt simile when he opines that "China
is almost the exact opposite of the United States. If they
are joined at the hip, commercially, it is strange beast they
make. One works; the other eats. One saves; the other spends.
One gets rich; the other gets poorer every day." Leaving
me standing there with my mouth open at the unexpected profundity
of it all, he walks off!
Mr. Fry reaches out and, placing a finger under
my chin, closes my mouth for me, and goes on to say, "The
real problem is that the United States has lived beyond its
means - enabled by the Fed, China, Wall Street, greed, fantasy,
and imperial conceit. China can dump her deadbeat U.S. customers.
It won't be painless or easy, but there is plenty of ready
need and purchasing power in Asia." So, once again I
am in agreement with the estimable Mr. Fry, a point that I
will be bringing up the next time somebody says to me "Shut
up, Mogambo! You are always wrong about everything!"
And what can be done about it? And, eerily, while I am always
loud and strident in my conviction that nothing CAN be done,
Mr. Fry is seemingly agreeing with me again when he says "But
here is no conceivable adjustment that can be made that will
spare the United States a drop in living standards"
And in case you are in a casual conversation
with somebody and they are not quite familiar with the phrase
"a drop in living standards", then the Mogambo Desktop
Reference Dictionary (MDRD) can be your salvation. Looking
up "Living standards" and going down the subheads
to "Drop in, defined", we read that it means "You
get poorer."
- From the Texas Hedge we read that "The
adult citizens of China, all one billion of them, have recently
been given the freedom to own gold", which we all already
knew. But the new wrinkle is that they report "Now the
government is actually encouraging them to purchase gold as
a form of savings." And it all relates to the un-pegging
of the dollar to the yuan. They write "As the Yuan strengthens
against the Dollar and other currencies, gold becomes cheaper
for the Chinese to buy. We have long known that the day of
revaluation was coming, now that it is here, the light says
'green' for gold."
How green is that light at the start of the dollar crisis?
Well, Paul van Eeden says that "During the Mexican peso
crisis in 1995 the price of gold in pesos doubled. When the
yen fell in 1995 and 1996 the gold price in yen rose by 35%.
In 1997 the gold price rose more than 40% in both Philippine
pesos and Malaysian ringgits, 67% in Korean wons and more
than 400% in Indonesian rupiahs. From 1999 to 2002 the gold
price increased more than 40% in euros. We are currently in
a US dollar bear market. The gold price has already increased
by more than 60% in dollar terms and I expect it to increase
another 75% or so before it’s all over."
- An editorial in the Springfield News, by Representative
Peter DeFazio, about how CAFTA (Central American Free Trade
Agreement) if another NAFTA-like rip off that will plague
us, pretty much sums it up for me when he writes, "The
combined economic might of the five Central American countries
is only $151 billion, about what the U.S. economy produces
in five days. Even if every penny of these countries' economies
was devoted to buying U.S. goods, which isn't going to happen,
the impact would be insignificant in the $11 trillion U.S.
economy. The bottom line is that CAFTA is not about creating
U.S. jobs and exporting U.S. goods. It is about creating a
favorable climate for multinational corporations to export
U.S. jobs and use Central America to export goods back into
the U.S." Well, maybe not back into the U.S., because
if all the jobs are exported, what are we going to use for
money to buy those things with?
So is this some idea to help the Central American
countries? Obviously not. He notes that "The U.S. already
has a trade deficit with the Central American countries of
$1.6 billion, which will only grow if CAFTA is enacted."
So the countries affected by the proposed CAFTA
legislation are already showing trade surpluses! What the
hell is the problem that we need CAFTA? It probably has to
do with China. Our whole problem is that American wages and
costs are too high to allow us to compete with China. So,
with typical Yankee know-how, we change the law to produce
tax advantages to get our grubby hands on some cheap Central
American labor! It reminds one of the old line about how "The
machinery of capitalism is lubricated with the blood of the
exploited workers." Ugh.
*****The Mogambo Sez: Things are too, too,
too weird. And the historical lesson is that people run to
gold when they wake up to the fact that things are this weird.
And the good news is that gold is selling at very low prices.
The bad news is that you can't afford to buy it. But the good
news is that gold is selling at very low prices, just in case
you come up with any extra money.
The MOGAMBO GURU, e-economic newsletter
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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