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- Things are getting back to normal, and by
the alarm bells ringing in the Mogambo Stinking Hole Of Fear
(MSHOF) in the backyard, I know that the Federal Reserve is
back increasing Total Fed Credit. Sure enough, I quickly find
out that they created another $4.1 billion last week. This
was at the same time as the Treasury printed up, in actual
cash, another $4.3 billion, which is fourteen bucks for every
man, woman and child in America.
For good measure (I suppose), the Fed bought
up $2 billion in government debt last week, too, blatantly
committing the ultimate fraud; creating money to buy government
debt for itself, which is then (supposedly) turned over to
the Treasury.
I am cursing under my breath at all of this
monstrous, malignant monetary madness (which is this week's
installment of gratuitous alliteration for no particular reason),
when I suddenly realize "Hey! I haven't said something
nasty about somebody in government, Wall Street or the banks!"
To correct that grievous error and to get my bodily humours
and biles back in sync, I can cover them all by noting that
everybody seems to think that Hank Paulson from Goldman Sachs
taking over as the new Secretary of the Treasury is such great
stuff, but the fascination escapes me. He is just some smiling
suit who made his money by successfully hustling up clients
and cash for Goldman Sachs to manage and rake off some big
fees, so apparently that is what his duties at the Treasury
will be, too.
After all, what in the hell can the Secretary
of the Treasury do? He is just a laborer. The Congress proposes
to spend, the President signs every spending bill laid in
front of him, then the Treasury Department issues bonds to
finance the spending. That's how it works. And, somehow, some
big shot from Goldman Sachs as Secretary of the Treasury can
affect any of this by juggling the books? Hahahaha!
In turn, of course, the loathsome Federal Reserve
creates additional credit, so that somebody can borrow the
credit (turning it into money) which is used to buy the Treasury
bonds ("going into debt to buy debt!").
In short, my Suspicious Mogambo Mind (SMM) immediately
comes up with a million terrific conspiracy theories about
how Paulson was obviously placed there to benefit Goldman
Sachs, which (I note with sarcasm) is a major shareholder
in the Federal Reserve, and, I assume, is now to create new
secret accounts everywhere so that his actions (at the behest
of Goldman Sachs, the White House and the Federal Reserve)
can be hidden from view. This is exactly the kind of desperate,
despicable, degenerate thing you see at the end of long booms.
And I am sure that it does not surprise Christopher
Galakoutis, of CMI Ventures, whose essay "Out of Bullets"
was posted on SafeHaven.com. He writes "Speaking of successions,
it was just announced that Henry Paulson of Goldman Sachs
will replace John Snow at Treasury. This to me is further
proof that everything within reach of our bankers and politicians
will be utilized to keep the US's 'prosperity' game going.
You just don't bring in a Wall Street heavyweight when you
are about to cripple the economy with tougher Fed action."
Peter Schiff, of Euro Pacific Capital, does
not suggest that Mr. Paulson was nominated for anything underhanded,
but perhaps because "In today's style over substance
economy, the job of Treasury Secretary has devolved into a
pitch man for the government's economic disinformation campaign."
And let's remember that Lloyd Bentson disgustedly
quit the job of Treasury Secretary, and Paul O'Neill was fired
for being too curious (and for being too honest about what
he found). We ended up with John Snow, who is, apparently,
none of these things.
As to why Mr. Paulson, perhaps this is a good
time to quote the new interview of Jim Rogers by Jonathan
Laing in Barron's magazine, where Mr. Laing writes "According
to Rogers, new Fed Chairman Ben Bernanke is 'an amateur with
no knowledge of markets' whose academic work revolved around
how nations could avoid depressions by printing more money."
Hahaha! Exactly!
The rub is that you can make money available
at low rates, but you can't make anyone borrow and spend it.
I figure that this is where the new Treasury honcho comes
into the picture.
And since we are talking about the Jim Rogers
interview, he is pretty adamant about the coming boom in commodities.
And let's be sure that we completely comprehend all the ramifications
of the phrase "Add to (American consumption) 1.3 billion
Chinese and 1.1 Indians- all walled off from the global economy
during the last commodities boom- joining the global scrum
for natural resources." This additional 2.4 billion people
represents, in case you were wondering, a full third of the
world's population.
Once you take the time to meditate on that mathematical
fact, it is then but child's play to instantly agree with
Mr. Rogers' view, namely that "it's delusional to deny
that competition for commodities will continue to heat up
as a result of China's pell-mell rush from a peasant economy
to economic giant."
As a fun "rainy day" activity, get
out your Mogambo Junior Economist Machine (MJEM), enter the
two variables "chronic, gigantically rising levels of
demand" and "lagging supplies in a finite world",
and then crank the handle a few times. If your shiny, new
MJEM is not past the end of the 2-hour warranty period (and
therefore not just another broken piece of Mogambo Enterprises
crap (BPOMEC)), you will probably notice that demand and supply
for commodities will equilibrate at a higher price. And "higher
prices" is a prerequisite for "profit" in a
"buy low/sell high" kind of way.
But if you are stupid enough to buy a Mogambo
Junior Economist Machine from Mogambo Enterprises (our motto:
"Our business is profits, not quality!") then you
probably did NOT notice that chronic, gigantically rising
demand for commodities and lagging supply in a finite world
equilibrate at a higher price. In that case, take just my
word for it.
And now, looking out into the misty future,
we see that wisely including the word "chronic"
in defining a rising level of demand means that this bull
market in commodities will last another 10-15 years, just
like all the other commodity booms in history seem to have
done.
"Well," you might well note, "if
there is a rush to buy commodities, then the increase of demand
(constrained by sluggish supply) should be reflected in a
rise in the prices of commodities." Good point, young
grasshopper! So we take a look at look the CRB Group Index
futures, and we can't help but be impressed that they are
up 26% over last year's prices. The industrials are up 63%,
grains/oils up 12%, energy up 23% and precious metals up 51%
from last year, too. Livestock, the sole exception, went nowhere.
Now let's look at the commodity price index
in the Economist magazine. Sure enough, that's what you see
there, too! The Dollar Index item labeled as the inclusive
"All Items" is up in price by 36% in the last year.
With the Sterling Index, All Items are up 31.6%, the All Items
Euro Index up 30.2% and the All Items Yen Index up 41.3%!
Oil is up 39.2% over this time last year, and gold is up 58.9%.
So if you think that inflation is low, then
you are truly insane.
In keeping with this "Everybody is insane"
theme, bonds actually rose in price as clueless "investors"
snapped up bonds, locking in yields so low that I laugh in
contempt, as I find it quite unbelievable that anyone would
buy a bond at these prices! Hell, even 30-year bonds are priced
so high that they are yielding roughly the same as the Fed
Funds rate! And in fact, the yield curve actually inverted
today, so that long rates are less than short rates! Hahaha!
What morons!
Of even greater news, however, is that the website
of the Bank of Japan reports that Japan's monetary base in
May was, suddenly, 66% smaller than a year ago. Something
has caused it to fall off a cliff.
Commenting on all of this, ContraryInvestor.com
writes "What took maybe three years to build in terms
of the Japanese monetary base from early 2003 to present,
has been reversed in a few short months."
At the same time, they also report that the
Japanese Current Account balance is in 53% deficit over last
year, and the change is so sudden that the Economist magazine
still shows Japan sporting a Current Account surplus of $166
billion!
I don't know if this has anything to do with
the recent Japanese announcement that they were going to discontinue
their zero interest-rate policy (ZIRP) and quantitative easing,
but I figure it does.
What will happen? Well, Chris Laird of PrudentSquirrel.com
asks, provocatively, "World Markets about to Crash Together?"
He first defines the problem as "The US is considering
a pause in its interest rate hikes of late. The interest rate
differential the US holds over Japan and Europe is as much
as 3%. If that differential is not maintained, trillions of
dollars of US denominated financial investments are going
to be unloaded on the world markets."
So what is the upshot of this unloading? "A
combination of unwinding the Yen carry trade and a serious
drop in the value of the USD will just simply pull the rug
out from under every major financial market that has benefited
from the cheap USD and Yen." I'm going to go out on a
small limb and say we are looking right now at a gigantic
world stock collapse."
Almost as an afterthought, he says "Oh,
did I mention that we are seeing the highest insider selling
of stocks since about 2000?" And you remember what happened
in 2000.
So it is the sudden, huge collapse of the Current
Account that, alongside the fall in Japan's monetary base,
is the Big Freaking News That Screams Danger! Danger! Danger!
To The Mogambo (TBFNTMD!D!D!TTM).
Perhaps I am not the only one that thinks this
is shouting Danger! Danger! Danger, and this has something
to do with why Rick Ackerman of Rick's Picks at GoldSeek.com
writes "I’ve long doubted the usefulness of head-and-shoulders
patterns, since they tend to be everywhere you look for them.
Still, there’s no denying that the one the Dow Industrial
Average has been carving out since early March is quite a
looker. Yeah, it needs a little more development on the right
shoulder to give it proper symmetry. But otherwise, it looks
good to go for an 800-point plunge. Does that sound bearish
enough? Maybe to you, it does -- but not to me. For if this
market is about to unravel the way I expect it to, a 3000-point
leg down sounds about right. But a measly 800 points? That
wouldn’t begin to discount some of the more problematical
trends that are in the pipeline already, including a real
estate collapse and a run on the dollar."
Even Dennis Gartman of the Gartman Letter is
looking at a recession, and has found a close correlation
between recessions and the ratio of the coincident to lagging
indicators. "The Ratio of the Coincident to Lagging Indicators
topped out months ago." So what does this mean to you
and me, looking to make a few bucks? "The US economy
shall reach its peak and move into a quiet recession sometime
in the last 3rd quarter or early 4th quarter of this year."
-- Even the clueless touts on CNBC are starting
to chatter about stagflation, which is the phenomenon of falling
economic growth and rising inflation, which are not supposed
to coexist according to the idiotic mainstream economic theory
with which America (and, sadly, most of the world) is currently
saddled.
But if you are asking "Mogambo, are we
having stagflation?" Well, the Institute of Supply Management
came out with manufacturing data was much lower, again. And
inflation is higher, again. So I will answer "yes."
And who is to blame? The damned Federal Reserve!
And this seems like a good place to bring up the odd happenstance
that I received my new homeowner's insurance statement on
the same day as I got the new prospectus for one of my money-market
funds.
Their little chart shows that the U.S. Treasury
fund yielded 5.4% in 2000, and comfortably over 4.3% since
1996. Then the stock market bubble popped in 2000, thanks
to the Federal Reserve first creating the money so that people
could bid up the price of stocks in a stock-market bubble
and a bond-market bubble.
That's when the Fed, ever the evil bastion of
hurting everyone to make up for their own incompetence and
mistakes, pounded interest rates down and down, so much so
that the money-market fund finally bottomed out at a yield
of 0.49% in 2003. Less than one-half of one percent! It is
now back up to the princely 2.36%, which is still 33% less
than their own stated rate of inflation, for crying out loud!
And with REAL inflation running north of 9%, people who try
and save a little money are really getting screwed by the
Fed. And to make it worse, I still have to pay income tax
on the nominal gain, putting me farther into the hole!
But it is the insurance companies that get really
hurt, as they have to invest the premiums they receive from
the policyholders. But, again thanks to the damned Federal
Reserve, nowadays they don’t get a yield that allows
them to make a profit, especially now that the value of the
insured assets (in this case, our houses) have been inflated.
So now we, as homeowners, have to pay higher
property taxes and higher property insurance premiums, all
thanks to the damned Federal Reserve creating the housing
bubble.
- If you were thinking that maybe The Mogambo
was wrong about this gold bull market thing. You probably
figured that just because I look stupid, and sound stupid,
that maybe I really AM stupid, and you were right. But you
forgot to allow for luck! Perhaps it IS just luck that I am
pounding the table for gold and silver at the same time as
alert reader J.A.D sent the news clip from Telegraph.co.uk,
headlined "Russia leading global 'stealth demand' for
gold", which is an article written by Ambrose Evans-Pritchard.
The article starts off "The world's big
money brigade is snapping up gold bullion at eight times the
rate originally thought, according to a report by UBS, the
world's biggest gold trader." Instantly, my sensitive
nose twitches as my Mogambo Olfactory Profit Sense (MOPS)
detects the delicate and enticing aroma of a way to make some
big money pretty damned soon, which is, if you are into making
money, the best kind!
Intrigued and now slavering, I read on, and
learn that "The Swiss bank said information from its
trading floor suggested that funds and investors were allocating
20pc of their commodity portfolios to precious metals. This
is far more than the index tracking funds run by Goldman Sachs,
Dow Jones-AIG, and others, typically taken to be a guide to
overall investment flows."
Twenty percent of the portfolios moving in gold?
Wow! Wow! Talk about rising demand! My MOPS was right!
The audience is suddenly abuzz, as The Mogambo
seems to actually be right about something for a change, and
that is Big News On Campus indeed! Amid catcalls from disbelievers,
shouting "Impossible!", "The fix is in!"
and "God is dead!", I smile knowingly to myself
and, with a mere hand gesture, motion to Mr. Evans-Pritchard
to quote Ross Norman, director of the BullionDesk.com, who
happily opines "It is slow steady investment by pension
funds and long-term buyers. Anybody who thinks this market
is about to head sharply lower is reading it badly,"
My detractors somewhat stilled, Mr. Evans-Pritchard's
next words must have pierced their cold hearts, as he writes
"President Vladimir Putin, a frequent critic of dollar
hegemony, has ordered the Russian central bank to raise the
gold share of foreign reserves from 5pc to 10pc." Now,
doubling something that already exists is usually a lot, but
it is much more bullish than that, because he goes on to report
"Russia's reserves have surged to $237bn - the world's
fourth biggest - after rising 61pc in 2004 and 40pc in 2005."
Well, being a real linear kind of guy, I figure that Russia
in on track to take in, at a 30% rise, another $71 billion
this year, of which $7 billion will be used to buy gold.
Another way of looking at this is provided,
at no extra charge, by Mr. Evans-Pritchard, when he writes
"With a current account surplus of 10pc of GDP, it must
sweep up a big chunk of global gold output just to stop its
bullion share of reserves from falling."
But I continue to be very impressed with the
way gold and silver keep going down in price, when normally
(and by that I mean in the entire rest of economic history
since the first true fungi used protein strands as money),
gold goes UP in price in economic situations like this. Up.
Not down. Up.
This is an anomaly. And if there is one Gigantic
Mogambo Truism (GMT), it is that anomalies do not last, such
as the anomaly about how a woman as pretty as my wife would
marry a creep like me. And sure enough, halfway through the
first night of the honeymoon she, too, is calling me a "disgusting,
depraved pervert." Thus, another anomaly reversed, and
things are back to normal.
But the nice thing about anomalies is that people
who bet against them continuing much longer therefore have
a lock on a guaranteed profit if they can hold out long enough.
And to profit on an investment, you usually need to buy something
first. And in this case, buy gold and silver.
So what does one do when one wants to buy gold,
but has spent all of one's money? A thorny and perpetual worry!
The Mogambo Way (TMW) is to volunteer as a guard at a school-crossing,
and then, twice a day, you can charge the damned snot-faced
school kids a small fee to cross the street. And if they don't
pay, well, then maybe they will "accidentally" fall
in front of a car, which works out great because not only
does the kid learn a valuable lesson, but maybe you can get
a few bucks out of the terrified driver for yourself, too!
Anyway, the point is that you somehow get some
money, and then you use this money to buy more gold and silver,
as these price declines in gold and silver are a gift, because
nothing that has been causing gold to go up in price has changed,
except to get worse. A lot worse. Making the case for gold
more compelling, as if that were even possible.
As an example of bullishness about gold, read
the essay "I Knew I Should Have Bought Gold" by
I. M. Vronsky, of Gold-Eagle.com. First he notes that "The
Brazilian currency (called the "real") price of
gold soared nearly 80% in a two-week period in January 1999."
Then he follows that up by saying "I believe the US dollar
price rise of gold will be equally dramatic, violent and without
notice sometime next year."
George Ure of UrbanSurvival.com has a different
take on the recent downdraft in gold "It's so that the
gold suppression crowd can clear their hedge books of shorts
because they know inflation is coming - a euphemism for the
purchasing power of the US dollar is going to tank. Down comes
the price and the big boys load up on the long side."
- Analytical reader Tom L. notes that
"silver has a density of 655.515 LB/cubic foot."
Keeping with English measurements, that means that "16
OZ/LB = 10,488 OZ/cubic foot of metal." So, at $13 an
ounce, a cubic foot of silver will cost about $136,000 and
crush your foot if you drop it on your toes.
- The Last Contango in Washington by Antal E.
Fekete writes "People from around the world keep asking
me what advance warning for the collapse of our international
monetary system, based as it is on irredeemable promises to
pay, they should be looking for. My answer invariably is:
"watch for the last contango in silver".
"It takes a little bit of explaining what
this cryptic message means. Contango is that condition whereby
more distant futures prices are at a premium over the nearby."
I interrupt to add that contango is the usual spread for futures
contracts. Instead of thanking me for clarifying that important
point, he breezily went on "The opposite is called backwardation
which obtains when the nearby futures sell at a premium and
the more distant futures are at a discount."
What the hell does this have to do with making
money with silver? I raise my hand to ask, and I know that
he sees me, but instead of calling on me, he elects to flip
to the last page of his notes and hurriedly concludes "When
contango gives way to backwardation in all contract spreads,
never again to return, it is a foolproof indication that no
deliverable monetary silver exists. People with inside information
have snapped it up in anticipation of an imminent monetary
crisis."
- If you were wondering why we Americans seem
so intent on picking fights, perhaps the essay "The System
in Crisis" by Peter Montague on Counterpunch.com will
answer that question. "Defense is the only national industrial
policy that almost everyone will agree to, or at least acquiesce
to, perhaps for fear of being labeled unpatriotic. Foreign
enemies are the ultimate consumers of our military preparations,
so in the face of flagging demand for toasters and SUVs our
economy now arguably requires a growing supply of foreign
enemies." Ugh
****Mogambo sez: The gold and silver market
manipulators are handing themselves and their friends a gift,
as they know that gold and silver are going to boom any minute
now, as they always have when economic conditions got like
this.
If you want some, and you should, then
all you have to do is walk over and pick it up!
Richard Daughty, the angriest guy in economics
9241 54th Street North
Pinellas Park, FL 33782
727 546 5568
e-mail: RichardSmithGroup@Verizon.net
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