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June 14, 2005
On the other hand, non-revolving credit (like car loans) rose 1.5%. So while we may be on the way to the poorhouse, at least we will drive there in style! And when people are buying less stuff, then the stock market tends to go down, and it has not been acting very perky here lately. Perhaps that would explain why CNBC reported, on at least two days last week, that some mysterious buyer came roaring into the SP500 futures pits and gobbled up enough futures to control $300 billion in stock. $300 billion! In one shot! I mean, if the total capitalization is $14 trillion, then this one stinking position is 2% of the entire capitalization of all the stock markets in the whole freaking country! Naturally, the market went up, as off-setting positions of the sellers of those futures (who are now effectively short the market) were put in place and the shorts hastened buy to cover their positions so that they don't get killed in the rising market and blah blah blah. But $300 billion!
And it is not just me that has noticed this. Eric Fry at his Rude Awakening column writes "the earnings growth of the S&P 500 is slowing markedly. Stock prices tend to track – approximately – the S&P 500’s earnings growth trend. At minimum, slowing earnings growth is not a good thing."
But now they have apparently done as much as they can do with that slimy approach. The new magic trick is to change what is in the basket. If steak goes up by a lot, then out of the basket it goes! Hey! This is easy! Then (and you are going to love this), if dried dog poop is worth zero and has always been worth zero, then into the basket it goes! Then, next month, and I can hardly contain my excitement, when we compute how much the stuff in the basket costs, we can say "Dog poop is still zero! The price is unchanged! Inflation is, therefore, zero!" And if somebody rude, like The Mogambo, stands up and says "What about steak? Do you know how long it has been since I have been able to afford steak?" then the government bureaucrat can say, "Steak? Who cares about steak? It's not in the basket!"
But nobody asked The Big Freaking Mogambo Question
(TBFMQ) that I would ask. It goes like this. "Mr. Greenspan,
when you came to power in 1987 and took control of the Federal
Reserve, the national debt was at $2.3 trillion, which is (and
I am sure that my fellow Congresspersons will agree) a big, honking,
pot load of money. But the interesting thing is that now, only
18 years later, the national debt is $7.8 trillion. You have allowed
an almost tripling of the national debt! In 18 years! All by yourself!" I can see him sweating bullets, and I mercilessly press the attack by asking, "What would have happened then?" Waiting for his answer, I savor his squirming in his seat, his beady little eyes darting from side to side, trapped like the little rat that he is. Finally, he would start to stammer out something like "Well, umm, well, given that…" and at that I would have jumped up onto the top of my desk and shouted "Shut up! I will tell you what would happen! Everyone would get all mad and write rambling, disjointed and threatening letters to their elected government representative, such as, for example, 'Dear deficit-spending Congressional nitwit, I'm voting against you in the next election! The Mogambo was right! You ARE all a bunch of buttheads! Signed, Angry Voter.' " Leaning forward so that I can stare into his vacant eyes, I continue, "But now, you, Alan Greenspan, think that you have found a way around that, don't you? You think that now that our money is just paper and electronic digits, that you have found a marvelous, magical way to let the damn government spend and spend and spend! My question to you, Mr. Alan 'Crazy Al' Greenspan, is the famous Big Freaking Mogambo Question (BFMQ),which is "If this is such a hot idea, how come no other country ever thought of it before?" Now, if I know Alan Greenspan, he will then turn into a bat and fly away, so you are not going to get an answer from him. So I will tell you the answer to the BFMQ. The answer is that they all DID try that crap, and it ruined every last one of them! Hahahaha! All governments always resort to this money-creation thing at the end, after their previous credit-fueled booms started petering out, and all the friends of the government starting calling up and wanting the government to "do something" to keep the stupid, bloated, misshapen, mal-invested and preposterous economy from collapsing and dying from the cancer that was eating it alive. And what they did was to create MORE money and credit! And since nobody else in history has ever pulled off this trick, and in fact it destroyed their economies, I must assume that we half-witted American boobs won't prove any more successful at it than any of them. And it is not just me that is so angry that sparks are flying out of my eyes. For example, Bill Fleckenstein of the Contrarian Chronicles looked at an article by Greg Ip of the Wall Street Journal, who has "explained" the current Fed policy. "Faced with an asset bubble," writes Mr. Ip, "a central bank has two choices: Prick it early or wait for it to burst and try to contain the damage. The Fed in 1929 and the Bank of Japan in 1989 tried…raising interest rates in response to rapidly rising asset prices. The result in the U.S. in the 1930s was depression and deflation. In Japan it was stagnation and deflation that continues today." So this time, it is explained to us, they decided NOT to try and stop the bubble and speculative excesses, but to let it expand until it burst, and then lower interest rates to try and clean up the big stinking mess! Instead of me getting apoplectic, I will try and sit here calmly, and let Mr. Fleckenstein explain why I am so angry. "The article and the Fed argued from a false premise to a false conclusion," states Mr. Fleckenstein, "by blaming the American bust of the 1930s and the one in Tokyo in the 1990s on monetary tightening. That is completely untrue. The aftermaths of both were caused by the preceding asset bubbles, precipitated by reckless monetary policies. It is asset bubbles that create the damage, not the small amount of tightening that comes at the end. In fact, I would argue that the tightening didn't end those bubbles. Exhaustion ended them, and the tightening was coincident with the exhaustion phase."
And not only gold and silver will prosper mightily, but we both figure ( and notice how I cleverly put us together so that people will get the idea that we know each other and that we are old buddies, and then maybe people will say "Hey, give The Mogambo a break! He's friends with Doug Casey, so how bad can he be?") that the resource sector as a whole has a lot of profit-potential in the coming years. He notes: “Governments will always act stupidly, but the long-term trend is inevitably towards freer markets, higher standards of living – and higher resource consumption.”
But maybe we are not the only guys in the world consuming things, and that Chinese laborers ARE seeing higher wages and more access to credit, and Indians are seeing higher wages and more access to credit, all of which they will be using to buy things. Ergo, over half of the globe's population has the wage inflation that IS necessary to sustain long-term inflation! Right now! And since the dollar will almost certainly fall against those currencies, then the inflation that we will be importing will blow your socks off! And since you already know what high and constant rates of inflation will go to the price of gold, then I will dispense with the obligatory Mogambo Rant About Why You Should Be Buying Gold And Silver And Oil Right Freaking Now(MRAWYSBBGASAORFN) that would normally be inserted here.
I love the phrase "A lot of room to move up before threatening previous highs" because it tells me that gold obviously can, because it has, commanded such a lofty price, which is about twice what it is selling for now! And that was a quarter of a century ago! Inflation has chewed the legs off the dollar, and gold is only selling for half its peak? Wow! So what is the future of gold prices looked at through the bloodshot eyes of The Mogambo? Well, we could go back to the gold standard, which would mean that your gold ounce (that you bought for $425) would go to $5,000, which is a real nice rate of return, no matter HOW you look at it! But even before I start drooling in greedy anticipation of "five large" the ounce, Mr. Casey busts that little dream. "Returning to the gold standard, which would require $5,000 an ounce gold, has almost no chance of happening in the foreseeable future." Damn! So, if five grand per ounce is not politically doable, then what? The answer is, surprisingly, even better than $5,000 per ounce! "That pretty much clears the way for the dollar to depreciate more or less steadily to its intrinsic value... just shy of completely worthless." And THEN how many stacks of worthless dollars will equal one ounce of gold? Hahahaha! Who cares? It is so much, so impossibly much, so incredibly much, that it doesn't even make a difference! But I know that you expect more when you tune your radio to the Mogambo Broadcasting Service, and you want a real answer. Rising to my responsibilities, which even I admit is unusual for me, I say "How about, just picking a number from the air, a gazillion dollars per ounce?" Sounds about right to me! When talking about money going to worthlessness, I am reminded of the German lady in the Weimar hyperinflation, who took a wheelbarrow full of Reichmarks to the store to buy bread. The shopkeeper gave her the loaf of bread, but threw the money in the garbage, because what had value was the wheelbarrow! Hahahaha! Welcome to the wonderful world of inflation, which spawns not only misery and suffering on a grand scale, but also creates amusing anecdotes like this one! Then he goes on to talk about the euro and how the rejection of the European Constitution may lead to problems with the euro, or not, as in "who knows?" But if they want the advice of The Mogambo, and I don't know why they would, since I offer the same advice to my own government and all I get is Secret Service guys tapping my phone and putting something in the water that turns my own wife against me, I say they should adopt the gold standard for the euro! Immediately the euro has real value, and, after an initial adjustment, it will get stronger and stronger against all the damned fiat currencies left in the world. A golden euro will get stronger because suddenly the Europeans are prevented from committing acts of monetary lunacy! I have to admit that I'm not a big fan of the euro, since I consider the idea of having a system of one EU-wide monetary policy, but many fiscal policies, as each country decides on its own budget, to be stupidity writ large. In fact, it is so incredibly stupid that I am amazed that it is not an American economic idea, as we seem to revel in stupid economic ideas. In effect, each little dirtbag country in the EU will try to engineer something that will allow them to prosper at the expense of all the others, which is just one more sorry example of Jean Baptiste Say explaining how everyone, everywhere, is ALWAYS trying to live at the expense of everyone else. And so I do not own euros. Instead, I own gold and silver and oil, which will go up, guaranteed by the certainty of the rare Mogambo's Historically-Certified Guarantee Of 100% Confidence (MHCGO100%C), because gold has ALWAYS preserved its buying power, but fiat currencies NEVER have. And preserving buying power is what I want in a long-term asset. Secondly, I want to make money by owning gold. And I know that gold will go up in value, because it has to. But we are not talking about gold, although we should be, but about the absolute stupidity of a fiat-currency euro and multiple fiscal policies. But, hell, if you are going to have gold backing the euro, then maybe I'll take some of that action! I am sure that it will appreciate against the dollar! Mr. Casey goes on to say, "I remain convinced that a continuation of the bull market in commodities in general, but specifically precious metals, is a near certainty." Not the famous MHCGO100%C guarantee, perhaps, but close enough! As if to add a coda to all this talk about commodities, Peter Zihlmann of P.Zihlmann Investment Management writes that if you go all the way back to 1920, you will note that "commodity prices, adjusted for inflation, are as low as during the depression of the thirties. The prices of basic commodities world-wide have fallen so low that, despite modern efficiencies, many trade below their cost of production." The inescapable message is that commodities have nowhere to go but up.
- For those of you to whom the concept of a multiplier is new, David Lazarus at the San Francisco Chronicle explains it with poetic succinctness. "When GM cuts 25,000 jobs, as many as 175,000 other jobs elsewhere in the economy could be affected." See? One job lost that leads to the loss of seven-- seven! --other jobs is a multiplier, and one hell of a multiplier at that!
Apparently, The Mogambo is the last person he has given this advice to, as lots and lots and lots of people are already doing this very thing in California right now. Once again, I am the last to know! And speaking of houses, Mike Hoy, in an email forwarded
by Richard Schlessel, And as for valuations, from the American Banker we learn “Appraisals that inflate home values are becoming more common and threaten access to credit, according to a report released this week by the national Community Reinvestment Coalition. ‘Problematic appraisal practices exist as a serious impediment to responsible lending, impede fair housing and equal access to credit, and place the American dream of homeownership and safety and soundness of the mortgage marketplace at risk.’ Most of the blame lies with lenders who want inflated appraisals so they can make bigger loans with larger interest payments…” Appraisers and bankers acting like the corrupt bastards that they are perhaps gives you a taste of life in America. Thanks to an article ("thanks Phil!") by Al Rosen in the Financial Post, Canada sounds even worse. Anyway, he writes that in Canada they have "their own problems with firms playing those 'accounting engineering' games. To date, there has been little action to address our most significant financial reporting problems including: income being increasingly bloated by loose accounting choices; cash being deliberately confused with income in order to materially overstate operating results; year-over-year trend lines being skewed by reversals of relatively recent accounting rules changes; and executives being given extensive accounting choice to manipulate the figures." He goes on to say that it has gotten so bad that "some investors are now getting back a portion of their capital investment in a company, and believing that it represents income derived from a sustainable situation." Hahahaha! The Ponzi scam in action! The bad news is that "Under the circumstances, a financial statement audit has become close to pointless. Prosecutions for violations of fairness in financial reporting are negligible, because of the absence of tightly-worded rules and principles needed in Canadian courts. At least in the U.S., financial recovery is possible through litigation and business settlements." Other examples include "charging current-period losses to prior years' retained earnings, using valuation allowances to play with the value of tax assets and pension liabilities, using wide-ranging assumptions and techniques to estimate stock option expenses, and assessing whether currency losses should be ignored through hedge accounting." And if there is one thing that The Mogambo knows for sure, it is that if things can be manipulated, then they will be manipulated. And they will be manipulated until enough low-level flunkeys have taken the rap and gone to prison and they are coming after me next.
Personally, I never heard of the guy, but apparently Matsufuji is, according to the author of the piece, the most famous investor in Japan. He has, according to the blurb, "written several books that became bestsellers in Japan and has accurately forecast events such as the collapse of Japanese real estate and Japanese stocks to the failure of Yamaichi Securities." I yawn. Big deal. I put that on my resume, too. So why am I bringing up the whole thing? "Now he is predicting a new bull market for gold." Hahahaha! That's why! "Matsufuji sees gold prices sitting on a powder keg and ready to explode into a rally that will take it to $764 an ounce with Japan serving as the spark." Japan? Japan serving as the spark for gold? Hmmm!
Now, that's new! Interesting! - The latest estimate I have read about the size of the government is that it is now 37% of GDP. A new non-wartime record, and bad news any way you slice it. - If you would like an example of where all that money is going as the government gets bigger and bigger, and more and more rapacious, let me tell you a little story. Once upon a time, I was watching the news on TV while waiting for Little Red Riding Hood to arrive, and there was the ever-popular car chase scene, where some bozo in an old stolen car was trying to outrun the police. The usual stuff. So there he was, tootling down the freeway, followed by at least five police cars, plus the police helicopter, as he weaves in and out, and makes u-turns and all of that "Bad boys, bad boys, whatcha gonna do?" stuff. Finally, the police succeeded in making the car spin out of control, coming to a complete stop after going "bang" up against a roadside concrete barrier. Instantly, the car was surrounded by no less than five police cars, plus three armored SWAT team vehicles! Soon, in a single camera shot on TV, I counted nine-- NINE! --SWAT team people, dressed all in black, with black masks covering their faces, mysterious and menacing and threatening, and a half-dozen policemen, all surrounding this one halfwitted, scared doofus sitting in a ratty stolen car. God only knows how many other law enforcement people were off-screen! So you want to talk about the size of the government? They now have the spare capacity to utilize at least fifteen people, in at least eight vehicles, to catch one lousy stolen car! How many tens of thousands of dollars did apprehending this one low-IQ car thief cost? How many more tens of thousands of dollars are going to be spent as this jerk gets shuttled through the legal system? And then how many tens of thousands of dollars more is it going to cost with follow-up, and parole, and the fines he has to pay, and the treatment programs that he has to pay for? And it is going to get worse and worse, and thus cost more and more, because this is just another part of the sickening symphony of symptoms of an economy spiraling into the toilet because of the many inflations (in this case, the inflation in the size and cost of government) that have accompanied the rampant monetary inflations where the Federal Reserve was, and is, creating money and credit with 1) reckless abandon, and 2) both hands. - Doug Noland reports that in the last twelve months, "Total Credit Market Debt (non-financial and financial) expanded at a 6.9% pace to $37.31 Trillion (306% of GDP)." My mouth flew open at the revelation! 306%! This is where I wish that I was not so lazy or incompetent, because I think it would be nice to so a little research to prove that our degree of indebtedness is almost certainly higher than anywhere in the whole, huge, freaking historical record. And what's worse, at every point in the historical record where these levels of debt were reached, something very bad happened right after that. And THAT is why I think that these levels of debt are a bad, bad thing (BBT). I was going to get off this depressing topic, but I find I cannot! I am driven by inner demons to grab you by your lapels, draw your face nearer to mine so that I can stare into your frightened soul and you can smell the garlic pizza I had for lunch on my foul breath, and there is spittle flying everywhere because I am getting so worked up. I mean, we owe more than three freaking times what we make in a whole year! Three! At the height of the mania in 1929, the ratio was only 260%! Look it up! Mr. Nolan goes on to inform us that "Bank Credit expanded an amazing $1.054 Trillion seasonally-adjusted annualized during the quarter to $7.0 Trillion. This was a growth rate of 13.4%. One has to go all the way back to inflationary 1978 (13.6%) to find a year of stronger Bank Credit expansion." And what happened in a few years after this expansionary crap in 1978? Bad news! Bad news! And if there has ever been any doubt that the horrid Federal Reserve is actually in the business of acting stupidly, then you will be disabused of that notion when you consider that "The first quarter’s record nominal Bank Credit increase of $225.6 billion exceeds the $215 billion annual average growth during the decade of the ‘90s (and there has been no let up in bank Credit growth during the second quarter!)." The damned Fed is creating as much money in one lousy quarter as they averaged in a whole year in the 90's! A year! And this is the same 90's that led up to the bubble popping in 2000! Then Mr. Noland provides that final bit of evidence that my original hypothesis, namely that Alan Greenspan is an idiot. Mr. Greenspan says that we are in a strange new landscape, and that he had nothing to do with any problems, "The reason we are having trouble fully understanding this process is that we’ve never run into anything like this before. This is the first time – despite a half-century of globalization – following World War II - that we have really begun to see the movement, of not only goods and services, but of capital and debt instruments, all sorts of exotic new types of financial innovations going across boarders and integrated worldwide." See what I mean? Hahahaha! In fact, these "exotic new types of financial innovations" shows that he does NOT understand finance, as all of these "financial innovations" are nothing more than the same old pedestrian buying and selling of debt, or pieces of debt, or securitized debt, all to try to screw somebody else into taking all the risk while you get all the profit. So they are "new and exotic" only in the way that whores change the color of their hair. What IS different is the sheer SIZE of the debts! It took a lot of sedation, but I finally stopped screaming "We're all doomed! We're all doomed!" after I read this next part. Greenspan went on to say, "So I do think that the most relevant likely reason why we are dealing with what we are dealing with are new forces at work in the international market, but their nature and their behavior is not something we are going to fully understand, if ever, certainly except in retrospect.” Well, the first thing I want to say is that I really like, from a literary standpoint, is the phrase "why we are dealing with what we are dealing with". This concludes the laudatory portion of today's review of Alan Greenspan. Now we seamlessly segue back into our regular programming, where we take up where we left off, with The Mogambo bellowing in one of his loud, needlessly-sarcastic and crudely-insulting diatribes, and I will tell you that there are no such things as "new forces". Instead, it is just lots and lots more of the "old forces", namely the damned bankers and central bankers creating more and more credit, desperately driving interest rates lower and lower in their panic. Ugh.
The MOGAMBO GURU, e-economic newsletter Richard Daughty, the angriest guy in economics |
