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| The MOGAMBO GURU, e-economic newsletter
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- I am, as hard as that is to believe, getting
freaked out more and more. The Federal Reserve didn't increase
total credit by much, but they did continue accelerating down
the Road To Economic Hell (RTEH) by buying, outright, $2.4
billion of debt last week. In short, the government borrows
by issuing debt, and the Federal Reserve creates the money
to buy the debt! Bingo! Not only creating more money and credit,
the damn thing that got us to this point, but to fund the
activities of the government! Gaaahhhh!
But the bigger news in this filthy area of the
economic world, for me, is that Foreign Holdings of US debt
deposited at the Fed went up by a whopping $7.6 billion last
week. Whew!
But the biggest, scariest thing of all was that
nominal incomes dropped. And when you adjust nominal incomes
by the reduction in buying power from all the inflation around
here, then it is no wonder that inflation-adjusted incomes
dropped so much, too. But I wail like a wounded banshee (ooOOooOOoo!)
when I realize that the government's piddly little chain-weighted,
hedonically-adjusted statistical adjustment to incomes for
inflation is around two stupid little percent. At that, I
laugh this big booming Mogambo Laugh (BBML)! Hahahaha!
I am here to tell you, with the courage found
only in a guy fully clad in body armor and sporting a machinegun
in one hand and a flamethrower in the other, inflation is
a LOT higher than two or three percent. Horribly higher. Like
somewhere in the range of six to nine percent, at least. And
so when you adjust incomes for the REAL rate of interest,
then the drop in real, inflation-adjusted incomes is getting
to be pretty significant!
Don't believe me? Ha! Then I know that you are
either rich or locked up somewhere under supervision of competent
authorities, and so you are completely unaware of what things
cost. And maybe even BLISSFULLY unaware, depending on how
much of a buzz you can get out of the prescription drugs the
nurse gives you if I can hoard them and save them up until,
when I have enough, take them all at once! Gulp! Ahhhh! Bliss!
I am finally not screaming and angry and scared and hysterical
over what is happening in the world of inflation, central
banks and governments, namely getting bigger and meaner and
more insane with every tick of the clock tick, tock, tick,
tock, tick, tock, all the time tick, tock, tick, tock, until
I am out of my mind with the freaking tick, tock, tick, tock,
and the relentless tick tock growth in the tick tock central
banks and the tick tock growth in the size of governments,
and inflation rising with every tick tock of the clock. This
cannot, and will not, end well. Tick tock.
Well, let me put it a non-clock oriented way;
booms have never worked out in all of history, except at the
beginning, where it has worked every time. You always get
a boom when you stimulate, stimulate, stimulate the economy,
year after year. The ENDINGS never worked out well, because
inflation in prices always results from inflation in money
and credit. And here we are again, standing up to our ears
in debt at another ending of a period in which monetary and
fiscal sins were indulged in, and the boom happened, and now
we are again standing by the side of the road on the way out
of town with the company payroll under my arm, one step ahead
of auditors and creditors, inflation rising up to devour everything,
with my only consolation that at least I got out with a few
bucks, and my kids are old enough to beg, so they will be
fine.
But it is inflation that is the killer. For
example, in my little hometown Leftist rag of a newspaper,
the St. Petersburg Times, we have been getting stories of
how people are getting squeezed by the rise in gasoline prices,
and how they are coping. Mostly by cutting back.
And what do I mean by "cutting back"?
Well, consider Daryl, who says "My family owns three
supermarkets. We are building a new one currently. Costs will
exceed estimates by over one million dollars (or 25%). My
rent increased 13% this month. My local taxes increased over
100% (open space crap) this year and my ex needs more money
for after-school daycare for our daughter. And my income remains
the same."
Or consider alert reader Charlie R, who writes
"Yesterday I was at a local Ford dealership. Sales were
very, very slow. Across the street is a Chevy dealer. 6 months
ago they had 16 salesmen. Today 8, and are about to let more
go. A muffler & tire shop laid off half of its employees.
A furniture store is about to close the doors."
Here, listening (well, reading) this, is exact
place where The Mogambo weeps, and the mighty heart of The
Mogambo (MHOTM) breaks, because this is the price of inflation.
Driving the car, at work, in your sleep, wondering wondering
wondering how in the hell you are going to pay all of this
money, when you ain't got no money, and you ain't a-gonna
GET no mo' damned money, neither!
Or maybe you will listen to Mark Faber, who
is the editor and publisher of the Gloom, Boom & Doom
Report, who writes that "The Bureau of Labor Statistics
has calculated that health care inflation in the last ten
years or so averaged about 4% per annum. However, from private
studies we know that health care costs have risen by around
10% per annum in the last few years. Moreover, whereas the
weighting of the BLS's health care expenditures within the
CPI is only 6%, health care represents about 17% of consumption."
And it is even worse than Mr. Faber thinks,
as we learn from the latest inflation report. He writes that,
according to the write-up on Bloomberg, prices paid by U.S.
consumers rose 0.5 percent in August. That's 6% per year.
They blamed it on the steep rise in energy prices. The Labor
Department said that, excluding energy and food, the increase
was "less than expected." Probably because of a
0.5 percent increase in July. So-called "core prices
rose 0.1 percent, restrained by auto discounts, declining
hotel rates and steady medical costs." Steady medical
costs? Hahaha! And as for the increase in food costs, apparently
none of the government has been eating at Greasy George's
Gobble and Go Restaurant!
But Mr. Faber is still indignant about the fraud
being committed in reporting inflation. "I think there
is no better example to expose the US government's continuous
lies about the health of the economy. By understating the
rate of CPI inflation the bond market is being fooled and
real (inflation adjusted) GDP growth rates artificially boosted
since real GDP is nominal GDP less the rate of inflation.
So, if nominal GDP increases by 6% and inflation instead of
averaging 3% per annum is in fact more likely to average 5%
per annum, real (inflation adjusted) GDP growth is not 3%
but 1% per year!"
Mr. Faber notes that "Reuters interprets
that data as 'Increased competition and gains in productivity
have so far helped keep higher raw materials costs from passing
through to consumer goods." Hahaha! I love this! I remember,
fondly, telling the CEO to tell the board of directors that
we are making less profits because I am unable to pass along
our increased costs to our customers! I remember it so well
because it was the first time I was ever bodily thrown out
by security personnel with the laughter of my boss ringing
in my ears. Of course, if I had known what I know now, I would
have shouted back, "But we can make it up through clever
accounting tricks!"
Perhaps it is with that famous dry Faber sense
of humor, but he follows that up with "Reuters reported
that growth at New York State factories slowed in September,
as they are experiencing fewer orders and higher costs."
So not only is the firm not making any money on their existing
output, but the level of output is also dropping! Compounding
the losses!
I don't know where I got this next part, as
it showed up right here after a lot of frenzied-yet-stupid
cutting and pasting, but somebody, and maybe it was Mr. Faber,
predicted "a Dow low of 8450 by December 1, 2005."
Which is checking my watch, two months away! Wow! I look up
the Dow average, and it is 10,568. So a drop to 8450 is 20%!
Whoa!
As a kind of interesting coincidence to this
prediction is the appearance of the Hindenburg Signal, which
is a signal based upon the number of new stock highs and new
lows as a percent of total volume that was developed by Kennedy
Gammage. The Hindenburg Signal predicts that a stock market
crash has become likely within the next 30 days. Not only
that, but the McClellan Oscillator is negative.
Somebody, I forget who, noted that the latest
University of Michigan Consumer Sentiment also produced a
stock market crash signal, in that it had a one-month fall
that was the biggest drop in fifteen years or something.
What does one do? Well, The Mogambo starts borrowing
money like crazy. And when that (predictably) doesn't work
anymore, I work double shifts at the stop light, wearing my
sign that says "Homeless. Crazy. Pleaze help! Help me!
Give me money or I will take down your license plate number
and track you down, and you will be sorry!" And I don't
want to hear from any of you about how this is extortion and
the poor woman hasn't had a good night's sleep ever since
she looked in her rear view mirror and saw me writing her
tag number down, because this is not about who is extorting
who, or who threatened who, or who did what to somebody's
damned ugly yard ornaments. No, this is about inflation in
prices that comes after you have an inflation in the supply
of money and credit because the Federal Reserve acted like
halfwits and morons. Without an increase in wages, people
can't afford to buy as much stuff!
Rick Ackerman, of the newsletter Rick's Picks,
was talking about the rise in prices, especially heating oil,
and he writes, "Where will the money come from? Surely
not from our piggy banks, since household savings growth has
been wallowing near the zero line. The answer, quite simply,
is that the higher costs will come out of discretionary income."
How much? Well, he has this buddy, see, named Doug, who works
at Merrill Lynch, and he "calculates that, compared to
last winter, the average household will face an increase in
non-discretionary spending of at least $700 per month, or
$3,500 for the five-month period." And where will people
get that kind of cash? I am, personally, hoping that you would
send me a few bucks, but for the rest of you, it "means
it will be directly subtractive from the retailer’s
share of GDP -- a prospect that Wall Street should not be
shrugging off so blithely. The economy is headed for a precipitous
fall, and stocks are going down with it."
And it ain't just savings, either. The American
Bankers Association said number of people in the U.S. past
due on their credit-card bills rose to a record high in the
second quarter of this year. So not only do they have no money,
but they are up to their ears in un-payable debt, too!
- If you think we are NOT in some weird, parallel
universe, let me disabuse you of that foolish notion by relating
a quote, an actual quote. It won't be any normal quote, like
me quoting one of my stupid, hateful neighbors, mostly in
the snippy "Get out of my garbage cans, you little pervert!"
type of comment.
No, this quote is from Alan Greenspan. The quote,
and I swear I am not making this up, is "The vast majority
of homeowners have a sizable equity cushion with which to
absorb a potential decline in house prices.” Hahahaha!
Composing myself, I say "Oh? According
to Contrary Investor.com, total owner's equity is the lowest
point since 1945, running about 57% of the market value of
the houses! And not only that, but mortgage debt as a percentage
of GDP is at the highest since 1945 too! And all those people
who bought lately got into houses they cannot afford, with
zero down, adjustable rate, no closing cost loans, have zero
cushion!"
And if that was not enough, a September 2005
study by Greenspan himself, along with a Fed staffer named
James Kennedy, shows that home-equity extraction totaled $600
billion last year, representing a whopping 7% of disposable
income! So where in the hell this Greenspan moron gets the
idea that people have this "cushion" of home equity,
I have no idea. But I have always said that the Federal Reserve
and Alan Greenspan were idiots who actually think, in spite
of all evidence to the contrary, that they and their stupid
New-Age theories were a big stinking load of hooey (BSLOH).
And Greenspan is the same Federal Reserve bozo
who told the French that we Americans "have lost control
of our financial destiny." And why is that? Because this
jackass created so damn much money and credit, which flowed
to foreigners, that they own us! But they will not foreclose
right away. First we have to go through a long period of time
where they extort our compliance, such as staying away from
Taiwan.
- I finally got a copy of Addison Wiggin's book
"The demise of the dollar…and why it's great for
your investments." As I looked at the title, I was secretly
hoping that the title DID accurately describe the book, in
that he thinks the stock market is going to go up. Ha! I was
spoiling for a fight because I was going to finally going
to get even with this Wiggin punk and how he makes me look
bad by comparison, because if you want a guy who is sure that
a dead dollar is NOT a recipe for a booming stock market,
then you are looking at him.
So I bought it, and on the way home I'm getting
ready in my mind to tear this talented and over-achieving
little showoff a new one. But, alas, after reading it, I gotta
tell you that while the title is terrible, the book is great,
in that it says all the stuff I have been saying all these
lonely years, but with a lot more style, wit and class than
I could ever muster, even if I wanted to, which I don't. So,
he did NOT make such a stupid assertion as suggested in the
title. In fact, I agree with him right down the line on every
page. So what investment is a demising dollar supposed to
be good for? It is not until the last page of the book, the
very last page, that he explains that the "demise of
the dollar IS great for your portfolio - if you position yourself
in tangible assets rather than in empty fiat promises and
the bizarre economic premise of U.S. monetary policy."
The "bizarre economic premise" is, of course, that
you can borrow, spend and consume your way to prosperity.
He has a lot of good suggestions about that
these "tangible assets" are, and one of them is
gold. And speaking of gold, Richard Russell in his Dow Theory
Letters notes the recent "breakout of gold from a powerful
base." Not only that, but he thinks "It’s
interesting to note that the gold/oil ratio has reversed in
favor of gold. This does not mean that oil has to decline,
it simply means that gold is turning stronger than oil."
So what does this mean? Mr. Russell jumps in and explains,
"Either oil is far too high in relation to gold or gold
is far too cheap in relation to oil. My bet is that the ratio
will rise in favor of gold. Even if oil declines to 50 dollars
a barrel, gold is too cheap in relation to oil. My bet —
oil will remain above 50 dollars a barrel, and the price of
gold will continue to rise, as will the ratio."
And gold is starting to get some attention,
and even CNBC, the most clueless bunch of shameless stock
touts on TV today, has been forced to show how well gold is
doing. And why are they doing that? As Mr. Russell explains,
"When real money raises its head and makes the news,
even the crowd knows that 'something is wrong.' The unspoken
and maybe even the unconscious thought is — 'Why are
they buying gold? Why are people trading in their paper dollars
for gold?' Or, as when my wife's friends all advised her to
dump me, "What do these people know that I don't?"
She did not listen to them, to her eventual dismay. And if
you are not listening to what gold is telling you, then you
will eventually find out to YOUR dismay.
But perhaps it has something to do with what
Bill Gary, of the newsletter Price Perceptions, alludes to
when he writes "As long as foreign nations print money
to buy dollars, and the US prints dollars to cover deficits,
the world economic system is buoyed by liquidity."
And it is this continual increase in the supply
of money that makes "Investors realize that holding any
nation's currency is not a storehouse of wealth. The idea
of holding gold for the longer term as a safety haven is just
beginning to gain acceptance."
Mr. Russell says that even people as stupid
as I, including complete idiots and farm animals, will soon
see the light, because "as gold works its way higher,
and as central bank inflation continues, the 'great unwashed
public' will become increasingly more concerned with protecting
their purchasing power and protecting what wealth they still
possess. Thus fear of loss of wealth and purchasing power
will continue to power the great bull market in real money
-- gold."
On the other hand, being the suicidal maniac
that I really am, I will play devil's advocate, and stand
up and say "But duuuude! If all this money continues
to slosh into the marketplace, the money has to go somewhere!
Right? So inflation has to show up somewhere! Right? So If
it goes into houses, or stock, or bonds, then it's same-old
same-old, and you will be in another bull market of some sort
in one, or two, or all three of them again. There will be
money to be made, dude!"
I can see Mr. Russell's face turning red with
anger, but he is mostly transfixed with rage because, apparently,
he left some stupid "specific instructions" that
the security personnel were to keep me out, both denying me
several of my Constitutional and civil rights by requiring
that I pay the admittance fee like ordinary humans. Fascist
.
But this is not about how everybody is out to
get The Mogambo for God only know what reason, except that
they hate me for no reason, and I hate them right back, and
everything is normal. No, this is about whether it is possible
to encourage more asset accumulation in the stock market or
the bond market or in the real estate market. To find the
answer, I spin the crank on the legendary Mogambo Presumptions
Matrix Calculator (LMPMC), and things go clink and clank,
and there is a lot of grinding of gears, and then, after awhile,
a bell goes "ding!" and everything stops. The wire
services stand by, breathless!
Grabbing the printout, I walk to the microphone
and announce the famous Mogambo prediction (FMP), which is
(fanfare of trumpets going taaa-daaaaaa!) that I freaking
doubt it (IFDI).
Did you hear me? I said "I freaking doubt
it." And I mean it with all the sincerity I can muster,
and if you could see my face you would instantly see the sincerity
and probably a few crumbs of a pepperoni pizza on it. And
I will go farther than that! I will go so far as to say that
I doubt it NOT because I am the great Mogambo from another
planet, unfortunately without the crucial powers of being
faster than a speeding bullet "(pow!), having more power
than a locomotive (chug chug chug!) or the ability to leap
tall buildings at a single bound (boing!), not to mention
the power of X-ray vision, which I used to think was so cool,
but now am not so sure, because the gizmo power to look into
your house and under your clothes already exists, and if it
exists, then the government is probably monitoring you right
now, because that's what governments do. And if you don't
believe me, then…Shhhh! What's that sound?
But I am sure that I am just being paranoid,
but I am pretty damned sure about a lot of things. One thing
that I am sure of is that this increase in money and credit
will not ultimately work is because I can read, and because
I can read, I have read economic history, and because once
you begin to read economic history, you quickly realize that
having money can (and will, a lot of times) save your stupid
little butt because you are really, really stupid about a
lot of things, mostly about money and how to get along with
people. And I am also sure that one day, out of the blue,
you are lying on the floor of some smoke-filled barroom, where
Eddie kept serving you when he could PLAINLY see that you
are smashed out of your freaking gourd, and as you lie there
waiting for the paramedics to arrive, the other patrons of
the bar will be pouring beer on the crotch of your pants so
it would look like you had peed on yourself, and then the
jukebox plays a tune, and that is that moment of Mogambo enlightenment
(MOME) when you achieve total consciousness in the song lyric
"Nobody loves you when you're down and out" because,
brother, I've been there, and I am STILL picking birdshot
out of my butt from the last damned time I was down and out.
And I am pretty damned sure that my wife (or
the government spies who are all around us) will kill me in
my sleep one of these days, and that will be the end of The
Mogambo, unless I can come back and haunt them from beyond
the grave, and if I can, then I am sure that I am going come
back here as some kind of Super Mogambo Ghost (SMG) and make
a lot of horrible people very, very miserable for the rest
of their lives, the nasty little bastards and bastardesses.
BooOOOoooooo!
But I am I am also pretty damned sure that
this money will NOT go into American stocks and bonds and
real estate, because if that was all there was to it, then
everybody would do it! And everybody would always have done
it! We would have Egyptian pharaohs and pyramid-building laborers
investing their money in stocks and bonds and houses. But
they don't. And the reason is that the guys who DID try that
particular idiocy all ended up bankrupt and in a depression
and everybody and everything went kaput.
Do think I am being unduly pessimistic? Then
perhaps you did not hear that the latest report from the Institute
of Supply Management showed that their index of prices paid
for raw materials has suddenly skyrocketed from 62.5 to 78,
which is the largest single jump in 15 freaking years. And
wait until those price increases start showing up in retail
prices! Then we'll see who is being pessimistic!
- But I notice that I have not been pounding
the table for silver lately. So let's turn our attention to
alert reader Chris M, who writes "You might be interested
to note that the delivery time for physical silver in New
Zealand has expanded to a four-week wait on account of the
Australian refineries that supply the NZ Mint not being able
to crank out ingots fast enough. Two months ago I only had
to wait two weeks for delivery. Four months ago there was
no wait at all. With all this demand you'd expect the price
to rise more."
Well, as a guy who HAS a little silver because I was once
watching TV and this priest threw a pure silver crucifix at
me as part of some kooky exorcism ritual or another while
he and my wife were chanting "Die, Satan! Die, Satan!"
So this rise in silver demand comes as good news for me, because
I happen to believe that increases in demand without an increase
in supply means that prices will go up!
And if you are into gold, and you should be,
it gets even better, according to Mike Swanson of free Weekly
Gold Report, who writes "People have been asking me where
do I think gold stocks are going to go next year? Okay, I'm
going to go out on a limb here. I think the XAU is going to
193."
The gold index is going up by HOW much next
year? I realize that what I think is the level of the XAU
must be wrong, because the numbers don't make sense. So I
quick run over to Kitco and check out where the XAU is right
now, and it is at 113. That's a 71% rise in one glorious year!
A year that market people will talk about for decades and
decades as the first official year of the Great Gold Rush,
when the gold index rose 71% in one year! And it kept going
and going and going after that, and all the people who owned
real assets, especially gold and silver, made out like bandits,
and you will smile knowingly to yourself because you were
on the ride up the whole way, and, in fact, that is where
you got all your money, and now that you are stinking rich
yourself, you realize why being rich has always been so popular!
If you ask him "How did you come up with
such a specific number" he says "So how did I come
up with such a specific number? It's simple, Elliot Wave Theory."
He cleverly infers from the way I say "Huh?"
that I am as stupid as they say I am. But rather than try
in vain to teach me Elliott Wave theory with me protesting
all the way because I hate learning new things (like putting
my dirty underwear in the hamper), he just tells me that "we
should be beginning wave three of the Elliot Wave sequence."
Again I am clueless. Exasperated, he says "What is exciting
for gold investors is that phase three of a bull market is
the most profitable phase to be in." Now that IS good
news. "It is the longest and biggest cycle of a bull
market." Even better!
And, as evidence of the on-going bull market
in gold, Richard Schlessel sent me a nice little un-attributed
graph of the market performance of gold from ResourceInvestor.com.
It showed the prices of gold, the CBOE Gold Index, and the
Wilshire 5000 and S&P500 stocks indexes. Gold kicked stocks'
butt continuously since November 2000! Hahahaha!
And why did gold kick stocks' little fanny?
Well, consider what Doug Casey, writing for The Daily Reckoning,
thinks. He says that "Gold is, after all, the crisis
commodity. I am more convinced than ever that we're heading
for a financial crisis that's going to dwarf what we saw in
the '30s.”
- The insanity of the central banks
is still alive and kicking. According to Reuters, "The
credit derivatives market grew by almost 48 percent in the
first six months of the year to $12.4 trillion, the International
Swaps & Derivatives Association (ISDA) said on Wednesday."
Grew by half? In six freaking months? Now you know why I am
gobbling these tranquilizers like candy, which may explain
why I am the way I am.
- If you think I am pessimistic, get a load
of Sorcha Faal from his book that I lost the name of. Looking
ahead, he prognosticates that "In the span of less than
3 months: Gasoline prices will rise 500%. The prices of both
food and shelter rise over 300%. Unemployment levels reach
over 30% and are still climbing. The savings of millions evaporate
overnight due to currency devaluation and bank failures. Unrest
will begin in the larger cities first, then spreading out
into the countryside. Strong and repressive laws are newly
enacted as Police and Military forces spread throughout the
country to counter all signs of growing rebellion.
"If you are an American reading these
words you must understand two things: 1.) This is what is
soon to happen to you, and 2.) The description written above
applies equally to the United States of 2005, The United States
of 1929, The former Soviet Union of 1989, The German Republic
of 1924, The Cuba of 1960, Argentina of 1986, Iran of 1979
and the Czarist Russian Empire of 1917, to just name a few."
- The fate of the USA hinges on the dollar,
as that is practically the only thing that we produce, and
last year we exported $760 billion of them via the trade deficit.
In that regard, seeing the writing on the wall, Venezuelan
President Hugo Chavez said Venezuela has moved its central
bank foreign reserves out of U.S. banks, liquidated its investments
in U.S. Treasury securities and placed the funds in Europe.
A commie Leftist with smarts! Wow! I never thought I would
live long enough to see it!
But this also brings up the point about readers
asking "Mogambo, what about foreign stocks?" In
reply, I lapse into ridiculous Mogambo mode (RMM), and reply
with a universal truism; all things are connected to all things,
my darling grasshopper. And all the manufacturing advantages
in the world won't mean diddly squat when nobody is buying
your stuff. And if the American consumer is going to be forced
to cut back, hard times are coming for us all. Ugh.
****Mogambo sez: President Bush has opened the Strategic Petroleum
Reserve in response to high gasoline prices, and thus temporarily
driven down the price of oil. But nothing has fundamentally
changed, except to get worse. So, Mogambo Tip O' The Day (MTOTD)
is to buy oil and oil stocks, as not only is demand still
outpacing supply, but Bush has to refill the SPR pretty soon,
adding to demand. Ergo, oil prices will shoot back up.
And the gold lease rates on gold have
started back down, which usually means that the people that
manipulate the price of gold are trying to manufacture a lower
gold price. In practice, this means that you can soon buy
gold on the cheap. Do so, or suffer the consequences of having
your spouse and family laugh at you and say hurtful things
like "Hell, even an idiot like The Mogambo knew to buy
gold!"
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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