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Gold, Faith and Credit

By Richard Daughty "The Mogambo Guru"      Printer Friendly Version
Nov 3 2008 3:24PM

Like many people, I have been looking at the price disparity between the market prices of gold and silver bullion (averaging about $1,000 an ounce for gold and $16.50 an ounce for silver) versus the prices of gold and silver futures (about $730 and $8.90 respectively), and I am thinking to myself that I would love to get a piece of that luscious arbitrage action where I buy the gold and/or silver futures at a low price while simultaneously selling the same gold and/or silver bullion at a higher price, telling the buyers that they must pay in advance and then wait up to a few months for me deliver their gold and silver, pocketing a hell of a lot of money on the buy-sell spread and the interest the money earns until the futures contract matures so that I can take delivery and settle up, and then spend the rest of my life on a wild, hedonistic spree of spending, spending, spending!

Then, sadly, I remember that such a plan requires money, and I don't have any money because I have already spent all my money thanks to inflation in prices killing me, thanks to the damned Federal Reserve and the demonic, loathsome Alan Greenspan who was its chairman from 1987 to 2006, and who is directly responsible for all our economic problems; and every time I think about it, I get more angry, and I want to scream, scream, scream in my Anguish And Outrage (AAO)!

I see that I have gotten off-track, and I apologize for starting off with an idea of how to make a lot of money by playing the huge, gaping, unbelievable arbitrage opportunity between gold and gold futures, but then let it degenerate into a personal attack on Alan Greenspan, ex-chairman of the Federal Reserve, whom I despise for what he has done to us, and who deserves some cruel punishment for it.

Yet, I'm the one at the police station being held for "creating a disturbance" just because I helpfully informed a group of Girl Scouts at the supermarket to, as security video reveals, "Hang it up, you stupid kids, as your entire future has been destroyed first by the Federal Reserve under Alan Greenspan creating too much money and credit for almost two decades, and now Ben Bernanke at the Fed and Henry Paulson at the Treasury have grossly exceeded even those insane monetary excesses by huge, huge multiples of that!

"And in a matter of weeks, too…all of which guarantees roaring inflation and all its miseries and horrible, screaming pain and suffering for everyone, so that now you, and your parents, and your brothers, and sisters, and aunts and uncles and cousins and all the ponies and everyone you love will all die horrible, lingering, painful deaths of starvation and disease, crying out in ceaseless agony! Ya ever sing any songs about THAT around the campfires, you little doomed morons?"

I was quite proud of myself that I had "gotten through" to them, as they all ran off, screaming in terror, just like I do when I hear about this stuff! "Congratulations, Mogambo!", I thought to myself!

However, this is not about what you can and can't say to children, as it turns out, but about education; and for some reason, John Embry of Sprott Asset Management has never earned his Junior Mogambo Ranger (JMR) merit badge in "Mogambo Educational Initiatives (MEI)", and thus is also shocked and appalled at my teaching methods designed to make sure that little kids grow up having the correct information about the true nature of the Federal Reserve and the government.

Apparently leaving the education of the masses to me and not getting tied up in the clutches of a vengeful legal system, Mr. Embry is thus free to be both shocked at my behavior, and to concentrate on other things, like this glaring disparity between the futures contracts for gold and silver versus the market prices of gold and silver bullion; and he probably figures that there are lots of greedy little bastards like me out there who are looking to make a pile of money with this luscious arbitrage opportunity, which leads him to conclude that some holders of the December gold futures contracts may try to take delivery of enough contracts so that there will not be enough physical gold in the Comex warehouses to deliver! Rising demand and zero supply! Wow! What will that do to the price? Hahahaha!

This would, of course, bust the whole "paper gold" and "paper silver" scam wide open on the commodities exchange, although Mr. Embry is quick to note that this would "prompt a claim of force majeure when the exchange cannot deliver enough real metal", which is legalese butt-covering crap that says now that the crime has been uncovered, the commodity exchange negates the contracts, the guilty do not have to pay, nobody goes to jail or loses their jobs, and the investors get screwed out of the profits that they had coming to them.

The hapless investors thought they were going to get gold and silver at a low price, deliver it to buyers who have already paid for it, and everybody makes a fortune by when the price subsequently soars, thanks to governments around the world creating so incredibly much more money and credit so that governments can spend, spend, spend.

But now these investors get (probably at best!) their money back; and probably only then after years of legal wrangling where the lawyers end up with most of the money anyway! Hahahaha! Welcome to the full faith and credit of American markets! Hahaha!

If your nerves are on edge at the way I laugh so maniacally at such calamity, take comfort that gold will (theoretically, at least) soar when physical demand finally swamps physical supply, especially if the Europeans and Asians are serious about replacing the dollar as the world's reserve currency with something else, as there is nothing else that will work.

One way or the other, for the last 4,500 years, gold has always preserved buying power, at least, while nothing else has, and sometimes gold was actually an investment opportunity because it was so under-priced. Like now! Whee! This investing stuff is easy!

The MOGAMBO GURU, e-economic newsletter,
by Richard Daughty, the angriest guy in economics.



Editor's Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.

The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications.