profits are down, but inflation is up!
Total Fed Credit, which is the fount of from
whence springs all that magical, out-of-thin-air, fairy-dust
money that is the hallmark of the Greenspan Fed, was up another
$3.8 billion in the last week. The Treasury issued another
$3 billion in actual paper-and-ink cash, which is NOT money
made of fairy dust, but is, instead, money that is made from
actual paper and ink, but which is just as phony-baloney.
All of which is why the G-20 are all gathering in emergency
session to try and figure out a way to manage this dollar
crisis thing without any of THEIR citizens taking a whack
to the head, and of course we are going to insist that no
AMERICANS will take a whack to the head, either, meaning that
they have to figure out a way of this mess where nobody has
to take a whack to the head.
But this is why they pay themselves the Big Money: They sit
around all day, drinking coffee, popping tranquilizers, and
pondering the impossible How taxing it must be on their tiny
little brains! But this only shows how incredibly stupid all
twenty of these nations are, because the lessons of history
are clearly outlined in the course syllabus that you were
given on the first day of class, and if you have lost your
copy of the syllabus, then you have learned another Valuable
Mogambo Lesson (VML) that you can take from my class and gainfully
use the rest of your life because it will serve you very well,
which is, namely, that you should pay attention and shouldn't
lose your stuff.
If you care to read your course syllabus, you will note that
the Section Titles clearly indicate that there is no freaking
way that the G-20 , or the G-100, or a G-5,000 or a G-zillion
can EVER come up with a way to turn bankruptcy and ruination
into a gain for all parties concerned. Life doesn't work that
way. And while we are talking about Valuable Mogambo Lessons,
here is another one that you can tell to the members of the
G-20; when you abuse not only the American monetary system,
but also the world's monetary system in collusion, then everybody
is going to take a whack to the head! And their inescapable
conclusion will be that it is Alan Greenspan, an American,
who is to blame, and thus it is Americans who are going to
pay the price for hiring him and for hewing to such monumental
monetary stupidity that is the hallmark of the Federal Reserve
System in general and the Alan Greenspan Years in Especial
But foreign central banks, desperate to try and keep the
dollar from sinking any lower because they have foolishly
tied their entire economies to a single buyer, the United
States, bought up a staggering $7.8 billion in US debt, and
stored it at the Fed, bringing their total holdings to $1.3
trillion dollars. To do this, they had to create money and
credit of their own currency, which means that they are committing
monetary inflation and guaranteeing price inflation for their
own stupid citizens! Morons! They felt they "had"
to do this because their citizens are drowning in a deluge
of receiving more than $600 billion a year, in dollars, which
equals the current account deficit of the United States. But
their citizens don't want to keep dollars! No! They want their
own stupid little currencies! They want their own currency
because they buy things in the local stores in their own currency,
their creditors send them bills denominated in their local
currency, and bill collectors are calling on the phone day
and night and sending me these letters that have this vicious
overtones of latent hostility about some debt or another and
they are always talking in terms of local currency and in
terms of broken local kneecaps, and when their wives go out
shopping they don't say, "I am going shopping now, jerk-face.
I will need all of your dollars. So fork them over, bozo!"
No, their wives say pleasant things like "I am going
shopping now, my wonderful darling, and will need local currency,
my precious little sweetie snookums!"
And the husband says "What a dilemma! I am pleased that
I am up to my ankles in American dollars, thus waxing exceedingly
wealthy, and thus can easily afford my beautiful wife's shopping
trip. And yet, I am troubled because I need local currency
to give to my darling wife, who never hits me over the head
with various blunt instruments, unlike the Mogambo, but then,
he deserves it, the nasty, horrid little man, so to hell with
him!" Which shows why I don't trust ANY of those foreign
bastards, but that is another story.
So the foreign exporters jump into their little foreign car
and tootle on down to the their quaint local banks, avoiding
the cows and chickens and peasants that crowd the roadways
because everybody knows that all foreigners are stupid peasants
who spend a lot of their free time walking down dirt roads
for some reason, probably to catch the cows and pigs and chickens
that are also walking all over the roads when they aren't
out in the fields posing picturesquely. And then when they
get to the bank,s they exchange the dollars into the local
currencies, and then they jump back into their cars and tootle
on home, and give it to their wives, and she says, "Oooh!
So much money! Where did you get so much money?" and
he says "The Americans! They will buy anything! Hahahaha!"
and they are both very happy, and they all lived happily ever
after, and they laughed at us when they thought we were not
Of course, the guy is happy because he is making all this
money selling stuff to Americans, and his wife is happy, but
the central banks are not. The reason is that those damn exporters
are all hanging around the lobby, wanting to exchange suitcases
full of dollars into local currency, like it grows on trees
or something, and their wives are all outside in their cars,
honking the horns. But if the central banks simply allowed
exporters to dump those dollars on the market, the dollar
would sink like a stone! And since they are up to their freaking
foreign ears in American debt and equities already, all those
retirement accounts and investment accounts of all those foreign
people in all those foreign countries would immediately suffer
a capital loss! Oops! They get the loss because the dollar
suddenly doesn't fetch as many local currency units anymore,
and so that big fat account stuffed with American stocks and
bonds, and real estate, and things denominated in dollars,
would immediately be worth less local currency! And it is
local currency that I am supposed to take home to the wife!
"Oh woe is me!" says our foreign friend.
And here is where we learn that, as far as monetary policy
is concerned, the foreign central banks are just as preposterously
stupid as our own ridiculous Federal Reserve, and that their
central banks just create more local money and credit, and
then they buy up the dollars! Presto! More money and credit
(monetary inflation)! And it is this increase in money and
credit, especially when performed over a long period of time,
that is guaranteed to lead to, with that coveted Mogambo Guarantee
Of Freshness (MGOF), price inflation. And a corollary to the
MGOF is that People Will Not Like Inflation (PWNLI). Only
governments that are highly indebted like inflation. Remember
that salient fact. It is important.
Thus, the central banks are creating more money and credit,
just like us, to get the local currency to buy the dollars,
thus expanding the money supply, thus giving the citizens
insurance that inflation is on its way. And when the inflation
finally arrives, more and more, every day a little bit more
and more, these foreign dorks will all run around whining
and wringing their hands in bitter, bitter consternation,
and crying like the childish morons that they are, "Oh,
dear! Oh woe! The people are mad because inflation is chewing
the legs off their buying power, and the elections are coming
up and they are threatening to throw me and my stupid butt
out of office, and since I am obviously incompetent as hell,
where am I going to get another job as good as this one? Who
would hire a guaranteed loser like me? Oh, woe! Quick! Call
a G-20 meeting!"
The Daily Reckoning people are as good at this economics
thing as anybody, and better than most, and they write, "The
U.S. Fed has not merely brought about an explosion in the
number of dollars around the world; it has also lit the fuse
of other currencies all over the world. The United States
sells dollar debt. Foreign central banks buy it by issuing
currency of their own. The result? A world flooded not only
with dollars, but also with yen, kroner, euros, and pounds.
The broad money supply in Australia is rising at a 9.7% annual
rate. In Britain, the pounds pile up at a 9.3% rate. Canada
multiplies its loonies at 9.1% per year. The Danes are expanding
their money supply at a breathtaking 10.7%. Euros are increasing
6% annually. And the dollar - the U.S. broad money supply
is only increasing at a fairly modest rate of 4.8%, a rate
that is still far above the increase in GDP."
And yet, here the Congress is, authorizing another $800 billion
in debt for their spending needs for the next eleven months,
which will mean an additional increase in hundreds of billions
of dollar's worth of foreign currencies, too, on and on, round
These central bank guys, in toto, have proven themselves to
be grossly incompetent boobs, year after year. And yet, nobody
seemingly cares! I mean, if they were NOT incompetent boobs
using a flawed and ridiculous economic theory that rests on
absurd propositions, then why are we here now? Just look around
you! Does THIS look like a bunch of economies that are healthy
and the people are enjoying rising standards of living? The
answer is no! Not only no, but also no, no, no, no, and no,
which is a particularly childish and ridiculous way of commanding
your attention, but that is part of the Recent Way Of The
Mogambo (RWOTM). What we are looking at, and you might want
to jot this down in your notes, is the OPPOSITE of successful
economies! All thanks to the central banks in general, and
Alan Greenspan in particular, whose monetary expansions have
induced the same defensive crap around the whole freaking
globe, and now there is so damn much debt, so impossibly much
debt, that all economies before this that have gotten this
indebted have imploded in flames by this point. So the central
banks have proved what has always been known; it is entirely
possible to delay the inevitable destruction of the economy
when such monetary policies were pursued. The bummer is that
it has never before been possible to permanently prevent the
- You can learn a lot about what is going on by listening
to the sound track. For instance, when I was a teenager taking
a girl to the movies, I spent most of the time trying to get
a kiss or touch her breasts or something obnoxious and teenager-like,
and I would rely on the soundtrack of the movie to tell me
when something exciting was going to happen. That way, I wouldn't
have to watch the rest of the crappy movie, which was always
people yammering at each other about something, or watching
some guy on screen getting all the loving he can handle, which
doesn't do ME any good, and, in fact, even monsters from beyond
outer space were getting more loving attention than me, sitting
in the dark with old what's-her-name here.
Now, for instance, if you listen very closely, you will hear
the sound of a distant gong, echoing eerily, seemingly tolling
some lonesome dirge for the dead, or nearly dead, or soon
to be dead. Spooky! Your finger involuntarily tightens on
the trigger. Bang! A shot rings out! People are screaming
and sirens are blaring and everybody is dialing 911 and shouting
that The Mogambo has lost it again! Blam! Blam! Blam! More
shots ring out, as I shoot off a few rounds as my clever non-verbal
way to tell them to calm down! Now, with your heart pounding
in your chest, you are in the mood to appreciate that the
Leading Economic Indicator, which is a crude measure of future
profits, was down for the fifth month in a row. Let me rephrase
that sentence into Mogambo-ese to read, "Now you are
in the mood to be blasted out of your freaking mind in terror,
because the dangity-blang Leading Indicator was down, falling,
falling down and down, for the fifth, repeat fifth, freaking
month in a freaking row! And if you are NOT spending all your
time hiding in the back bedroom, loading fresh ammo into assault
rifle magazines and muttering to yourself about how the world
is coming to an end, then there is something very, very wrong
Blam! Blam! Blam! Next, we have the Coincident Economic Indicator,
which is a sort of rough indicator of current conditions,
was actually up a little bit, which corresponds pretty well
with anecdotal evidence that things are poking along and government
economists are bullish and confident. But it was the (Blam!
Blam! Blam!) Lagging Economic Indicator when the soundtrack
exploded in a cacophony of kettledrums, and blaring brass,
and people screaming, and the voice of The Mogambo screeching
hysterically in a voice so high that he sounds like some whiny
little kid, "We're all going to die horrible deaths!
We're all going to die!" This Lagging Indicator is an
indicator of costs and inflation. And it was up! Now you see
why the soundtrack thing! Future profits are down, but inflation
is up! Look at me when I am talking to you! Watch my lips!
Future profits are dooooooonwwwwnnnnn, and future inflation
is uuuuuuuuuupppppppppp! Both of which are Bad Economic News
This is not some hypothetical crap like you get from government
economists and their toady little playmates in the universities.
If you are looking to add to your invaluable Mogambo Encyclopedia
Of Investment Stuff (MEOIS), these obviously-trending indicators
indicate, which is why they call them "indicators",
that you want to sell (or be short) bonds, because inflation
is going up, and that means that interest rates will eventually
go up, which means that bonds prices will go down. And they
also indicate that you should sell (or go short) equities,
too, since future profits are going to be down, and there
are very few people who will bid stock prices up when the
company is having lower and lower profits, especially when
those selfsame stock prices are historically grossly overpriced
like they are right now.
On the other hand, the money supply as measured by unadjusted
M2 and M3 continue to expand, meaning that somebody is borrowing
those big bucks for something, and I am pretty sure that it
is Friends Of The Government (FOTG) going into the stock market
and the bond market, keeping them up, so they and other Friends
of the Government can sell out and, hopefully, make a nice
chunk of change. And I am betting that some of these Other
Friends Of The Governments (OFOTG) are those foreign devils
who are sitting on all those American stocks and bonds and
dollars, and who don't like the prospect of losing so much
And let's not forget that the end of the calendar year is
not far off, and income taxes and capital gains are calculated
from the prices on December 31, and so the government has
a very keen interest in making sure that nothing bad happens
between now and December 31!
- Mark Rostenko asks, "If you hear a nasty rattling under
your hood but your car makes it home alright today, tomorrow
and two days from now, does that mean the car's running fine
and will continue to do indefinitely? Probably not. Our economic
engine continues to rattle under the hood, but with every
passing quarter that nothing especially dreadful occurs, we
grow immune to the rattling."
This is where Mr. Rostenko shows that he is old-fashioned,
and is making his Big Mistake. According to the new economic
theories of the Federal Reserve, and championed by the acadademic
nitwits who infest the economics departments of most of the
nation's universities, the fact that the engine did not quit
is proof that it WILL go on indefinitely! And there is no
proof to the contrary! That is the proof! It rattles, and
yet it runs! It sputters, yet it runs! Ergo, it has always
run, and so it is thus proved that the car will always run!
The etymology of this fabulous philosophy is that it originally
comes from a group of mental defectives who lived in a lunatic
asylum in ancient Mesopotamia. These ancient whack-jobs sat
around picking invisible bugs off of themselves and scratching
their bizarre economic theories into the floor stones of their
cells, where they lay dormant for the next 5,000 years, until
some bonehead at the Federal Reserve won a free vacation to
look at some condominiums time-share deal, and while they
were as lost in the desert as they are lost in modern economics,
they tripped over the floor stones in the sand, and when they
had it translated, said to themselves "Hey, guys! Listen
to this! This sounds really neat!" The basis of the whole
philosophy can be handily summarized as "More of what
is killing you will cure you, if the dose is large enough."
This is the foundation of economics as practiced by the Federal
Reserve and most of the idiot banks around the world.
In similar fashion, we come to the recent news item of the
American soldier who shot an unarmed and wounded Iraqi in
a raid on a fortified mosque. Did anybody bother to ask if
the American soldier was an American economist? No, they did
not! And this could explain it! Because if he was an American
economist, then he can tell you that the Iraqi insurgent was
suffering from too many bullets, and thus the cure is, according
to the theory, more bullets! It's too bad they did not show
the bullet being fired, because if you had seen it, then you
would instantly know that the Iraqi jumped when the bullet
hit him! And if he is jumping, he is not dead! And, by logical
extension, if we can only pump enough bullets into him, then
he will one day jump up, and then they can simply walk him
off to jail, and then maybe we'll all go out and get some
tacos. Maybe chug some brew.
So remember, that the new theory is more bullets, more jumping!
And more jumping is growth! Growth and health and vitality!
So before you "rush to judgment", consider: That
brilliant American solider was giving him a good, healthful
dose of good old American Monetary Policy! That stupid Iraqi
bastard ought to be grateful for being shot!
- Stephen Roach of Morgan Stanley has taken a look out the
window, and at the statistics, and at the horrified look on
the face of the Mogambo, and figures that the odds for a recession
in 2005 is about 40%. Somebody, I accidentally deleted who,
said, "Recessions, on average, bring about stock declines
on the order of 43%."
- Rob Peebles, writing an essay entitled "Eastward ho!"
on Prudent Bear, reports that Californians are streaming into
Texas after being priced out of the entire California real
estate market, and these ex-Californians are driving up housing
prices in Texas. This is, of course, complete news to Alan
Greenspan, who has already told us jerkwater peasants out
here that there is no such thing as inflation in houses.
More worryingly, however, is when he reports that, "Subprime
mortgage originations have grown from something less that
$150 billion in 2000 to more than $250 billion last year.
This year, subprime lenders forked over $157 billion in the
second quarter alone. That's double last year's amount according
to the National Mortgage News. And get this--in the first
half of 2004, subprime accounted for 19% (as in ONE - NINE
with a percent sign) of mortgage loans, up from last year's
And if you look up the word "subprime"in you Mogambo
Dictionary, it is defined as "People that nobody in their
right mind would loan money to, especially big amounts of
money, because they are almost certainly not going to pay
you back." Fortunately, Fannie Mae can act as stupid
as it wants, because it is a Government Sponsored Enterprise,
(GSE) and they can act as stupid as the government, which
is, if you have been watching, really, really, really stupid.
- I really like this guy Lance J. Lewis, because he has a
way of so pithily explaining the proof of why Modern Structured
Finance, or the New Economics, or Keynesian Enabler, or whatever
they are calling the current bastardized economic theory that
we are using, must fail in the end. He writes "If printing
money were the way to prevent recessions, the world would
have had uninterrupted growth since the beginning of time,
during which all governments throughout history have eventually
inflated away their currencies into confetti."
But it is what happens to the people and the economy and
the whole country and the whole world when a currency is turned
into confetti that is the crux of the whole thing! There are
movies on TV right now, violent movies with adult themes and
adult situations, although very little profanity for some
reason, and very little nudity for no damn good reason that
I can think of, with plots about what happens to people as
their buying power goes down and down, month after month,
year after year, as the Miracle of Compounding, (which is
what Isaac Newton called it, which shows you that four hundred
years ago they knew this stuff, too), now works in reverse.
And if compounding working IN your favor is called a "miracle",
then what do you call its exact opposite? And is that opposite
called an antonym? I think it is, and for all of you who ever
said, "Why do I have to learn the word 'antonym'? I'll
never use it again as long as I live" believe me, I said
this same thing when I was young, and sure enough, I never
did, until right now! And now it has finally paid off! Education
will pay off in the end! Wow! Who knew?
Sort of like holding gold, which will pay off in the end,
too. For a long time you never had a use for the word antonym,
and no beautiful woman ever came up to you in a smoky bar
and looking longingly into your eyes, and in an exotic, breathy
way said "I'm on the prowl for a man with a big antonym!"
But gold is sort of just that way, too, and although you will
never in your life have gold hit on you in a smoky bar, it
will come in real handy one day. Trust me on this one, because
gold has ALWAYS come in real handy one day. And the way things
are going, that day will be very soon.
Similarly, John Myers of Outstanding Investments, writes that
he is hip to what is going on, too, and can just as easily
get up and go over to the window in his spacious office and
look around and see just as clearly as The Mogambo, who is
holed up in that stupid lead-lined bunker of his and peering
in terror at the world through a periscope, and he says, "This
is the exact type of environment that the nation went through
nearly three decades ago. As we go through it again, the consequences
will be the same."
Now, in case you, like me, can't quite remember how it was
back then, he tells us "Namely, there will be a stagnant
market in blue chip stocks, a miserable bear market in bonds
and a raging bull market in commodities, especially the Big
Three - gold, silver and oil."
And for those of you writing to The Mogambo and wanting me
to give you advice that will guarantee that you will make
big, big profits, here is a smattering of advice for you.
Gold is guaranteed to go up in price, unless the governments
of the world conspire against it, and even then, it will only
be temporary. The run-up in gold will, theoretically, coincide
with a bear market in bonds. Then, one day in the future,
when bonds are paying 15%, or 20% or 25% or some unimaginable
number and gold is selling at some preposterously-high price,
that is the time to sell the gold and buy the bonds.
Then, later, as interest rates eventually revert back to
the norm (fall), the price of the bonds will go up, and you
will make even MORE money. Then, it will be time to retire
in some wonderful place and live like kings and queens. This
is the essence of The Mogambo Financial Plan (TMFP), and if
it is good enough for The Mogambo, then it is good enough
for you, as I am impossible to please, and I never have enough
money, no matter how much I have, and sometimes I have as
much as twenty whole dollars in my wallet! Twenty bucks! And
yet I am not happy even then!
- Matthew Lynn at Bloomberg, who wrote the article "France's
Sarkozy Should Let Economy Fix Itself" has a good idea
how economics really works, when he writes, "In truth,
what France needs isn't a finance minister who aims to fix
all the country's woes single-handedly. It needs one with
the courage to shut his office door, shrug his shoulders,
and tell business it needs to start fixing itself." This
is how Smith's "Invisible Hand" keeps things going
in a healthy, maximizing way.
As an example of French economic stupidity, he reports that
this French finance minister, Sarkozy, which probably means
"economic nitwit" if you looked it up in one of
those unabridged French dictionaries, decided to meddle in
the economy, and "In September, he prodded retailers
into cutting prices by an average of 2 percent as part of
an effort to boost demand." Well, let me say right here
that the increased demand created by a 2% discount is equally
offset by a decreased demand from the guys SELLING the merchandise
at 2% less profit! Net net, there is no gain! In fact, there
is only a loss, in that the economy is just that little bit
more distorted! What a loser!
Furthermore, Mr. Lynn goes on to say that "In the energy
industry, he limited price increases by Gaz de France, the
country's state-owned gas utility, to 4 percent, instead of
the planned 8.2 percent, in a bid to boost consumer confidence."
Confidence? Confidence in what? That their finance minister
is a meddling old fool?
As a result, "The Bank of France has just cut its economic
growth forecast for this year from 2.5 percent to 2 percent.
Gross domestic product grew 0.1 percent in the third quarter,
and isn't expected to grow more than 0.6 percent in the fourth
This is in addition, I might add, to unemployment that is
higher than 10% and inflation of at least 2.3%. Nice going,
Sarkozy! Nice going, French buttheads!
- Captain Hook, which you gotta admit is a great name, has
a new essay entitled "Commercial Short Squeeze Underway"
He writes that "At the moment, we are working on a macro-oriented
study that will blow people's socks off when they realize
the future implications." And I jump up to my feet and
say "Socks, schmocks! My Mogambo Macro-Oriented Study
(MM-OS) will blow your whole freaking head off like you got
hit with a grenade launcher! I snort contemptuously at your
puny socks!" He ignores me, and like I wasn't even there
goes on to write "Here is a glimpse into the future for
you now, where factors such as price inflation in foodstuffs
has been relatively subdued literally since the birth of modern
US modeled finance, but where it appears technological gains
in production are finally to be overrun by global demand side
constraints, with the net effect being a potentially large
catch-up move in prices commensurate to the monetary inflation
that has occurred over the past 80 years."
The good Captain then proceeded to show a graph of inflation-adjusted
corn prices, and man, oh man, it looks scary, which probably
is what prompted him to include the phrases "coiled spring"
and "there's no free lunch."
"Corn, along with the rest of the grains complex, is
very cheap at present from a historical perspective, especially
considering nominal prices are trading at levels seen in peak
instances back in the 20's."
Not only did he give us a nice tip to start amassing some
corn and grain futures, but he has also included, at no extra
cost, a nice little Technical Tidbit, and reveals that "gold
has a non-lagged relationship to the PPI." Which means
that as commodity prices go up, gold will march along with
them in lockstep. Nice to know!
- Chuck Butler, the currency wizard who writes the Daily
Pfennig at DailyReckoning.com, says "John Snow has signaled
to the markets that there is no floor on the dollar,"
which shows that John Snow is not as stupid as he sounds.
In fact, Mr. Snow sounds downright educated when he says,
"The history of efforts to impose non- market valuations
on currencies is at best unrewarding and checkered.''
- If you are cruising around the Kitco site, and take a look
at the gold lease rate. The various durations of the leases
were kind of tending down, until November 15, when the year-rate
- Addison Wiggin, who is also one of the big shots from the
Daily Reckoning and who could crush me like a bug with just
the emanations from his powerful brain, is actually in China,
and I assume that he is buying me a nice camera, and he writes
"While haggling for a digital camera in Beijing's famous
pearl market, a cohort on the trip threw down $200 in U.S.
dollars, rather than Chinese yuan. The woman sneered in disgust.
'Those no good. No good here.' We'd had become accustomed
to U.S. dollars carrying a little extra bargaining power,
but not here. She wouldn't settle for anything in U.S. dollars,
demanding remminbi, the people's currency, instead."
When a vendor in the street won't take your money because
she deems it to be of little value, you know you are in trouble.
In the same vein, Peter Schiff of Euro Pacific Capital says
that interest rates around the world tell an interesting story.
For instance, interest rates on "Hong Kong dollars (another
pegged currency) are now negative. The last time this happened
to a currency was the Swiss franc during the 1970's, when
people all over the world were fleeing dollars. In other words,
depositors would rather pay to own Hong Kong dollars than
get paid to own U.S. dollars."
There has been a lot of speculation that since "everybody"
is so bearish on the dollar, that the market's natural perversity
should mean that the dollar is destined to go up, instead.
And so, maybe this is the perfect time to go long the dollar?
The problem with that is that there must be some huge group
of people who want to buy dollars! Would you?
- There has also been a lot of loose talk about oil going
down in price in the future. I laugh! If you were an oil producer,
would YOU lower the price of your product when the price is
denominated in a currency (the dollar) that is falling in
value? Of course not! And neither will they.
- Phil Spicer, whom I was going to refer to as "my friend
and pal" with the hope that he would feel obliged to
buy me a tall frosty one and maybe let me come over to his
house and maybe, you know, I could sort of hide out at his
place for awhile until things, you know, kind of cool down,
and maybe we could send out for a pizza because that would
be nice, too, But he says that he prefers to be addressed
by persons of my ilk as "Chairman of Central Fund of
Canada Limited, listed on the Amex as CEF and Co-Chairman
of Central Gold-Trust listed on the TSX as GTU.UN". Well,
not only is he good at putting worthless people like me in
my place, but he is also somewhat of a whiz on the calculator,
and writes, "$5.89 in 2004 dollars equals the purchasing
power of $1.00 in 1966."
Seeing how that kind of mathematical wizardry stuff impresses
the girls, I cannot resist putting on a little of calculator
magic show of my own. With a flourish I whip out my calculator,
and proceed to compute that this dollar devaluation works
out to, ummm, 4.77% a year. So, anyone who invested a dollar
in 1966 had better get back $5.89 just to break even, in terms
of buying power. And that is before tax! And since the government
is going to insist on taking at least a quarter of that gain,
you had better have made a hell of a lot more than 5.89% on
He notes that the Dow was at about 1,000 in 1966, and that
"The DJIA closed at 10,549 on 17 Nov 04, equaling 1,791
in 1966 dollars. Thus, the DJIA has advanced by 79.1% over
38 years in constant dollars."
And what is THAT inflation-adjusted return? It is a real,
inflation-adjusted annual gain of 1.54%! Hahahaha! Less than
2% real return a year! Hell, the government will take more
than that away in taxes! Which only proves my point: You cannot
make money in the stock market over the long-term, and you
have to save like hell just to be able to break even after
inflation and taxes eat your guts out.
He asks the rhetorical question, "A decline in the DJIA
to 5,890 would be equivalent to the 1,000 in 1966. Might the
dollar and DJIA be proceeding towards such equivalency?"
Sounds right to me!
Then to show why he is an a highly-paid big shot and I am
just another guy in the back of a squad car screaming that
I am innocent-- innocent I tells ya! --he finishes up by saying
"The fiat dollar is not money. It is a vanishing denominator
!" Hahahaha! Very cleverly put, and, to top it off, no
truer words were ever spoken!
- An article in the Boston Globe written by Steven Syre has
the intriguing title, "Advice From A Bear: Panic".
Well, whenever I come across a bear, I always panic, but I
did not know that the bear was giving me that advice! So,
curious, I read on, and it was only then that I discover that
he is not talking about real, literal bears at all. He is
talking about stock market bears, which are merely figurative.
He writes "Jeremy Grantham, Boston's most famous investing
bear, exudes a kind of reassuring calm when he tells you that
he has seen the stock market's future, and it's a train wreck."
The author then goes on to say that Grantham's actual words
are "Our summary advice on an absolute basis is much
more painful to deliver though shorter: PANIC. Now is the
time to lower risk and survive to fight another day with your
assets as intact as you can manage."
Grantham says the SP500 stock index should fall to 725, about
a 40% drop from here.
- Jim Puplava, writing an essay entitled "The Perfect
Option" has the same fears that I do. He writes, "The
economy will vacillate between periods of deflation and inflation,
with each recession bringing forth a temporary reprieve from
what will be an inexorable rise in the general rate of inflation.
Eventually wars, deficit spending, a rising mountain of debt,
and peak oil will lead towards hyperinflation in the United
- Bill Bonner, the affable and big-brained top dog at the
Daily Reckoning, writes that the USA is no longer wearing
the white hats. "In a contest of David vs. Goliath, who
takes Goliath's side? That is the trouble one of the perverse
curiosities of this world: You go to all the trouble to get
on top of it, only to amuse your friends by falling off."
- John Waggoner, in a column in USA Today entitled "Giant
Sucking Sound Is Inflation" which I think is kind neat,
because what inflation does is to suck the buying power out
of your money, and so the "Giant Sucking Sound"
thing is kinda cool and it is a nice metaphor and I wish I
had thought of it myself, which only underscores my complete
lack of creativity, and now I am envious of this Waggoner
guy, who probably says things like "Oh, you thought that
'Giant Sucking Sound' thing was creative and clever? Ha! I
create stuff better than that every day!" But when I
started reading the article, and my initial elation and admiration
turned to something else. He makes the surprising statement
that "The average person might not mind a shot of inflation.
Higher inflation means higher wages, higher real estate prices
- and, if you have a fixed-rate loan, stable mortgage payments."
Why in the hell he brings up the fixed-rate loan thing is
beyond me, because it has nothing to do with inflation, and
the whole idea behind fixed-rate mortgage is that payments
are stable. In fact, every payment is identical!
I could not sit still another minute. I shout out "Look!
Over there! A UFO!" and when everybody turned and looked
out the window, I jumped up on stage and grabbed that damned
microphone out of his damned hand. I said, "For those
of you who do not know me
" and they all said, "We
know who you are, Mogambo! Now shut up and sit down! And we
are sure you remember what happened to you the LAST time we
told you to shut up and sit down, but you didn't!" and
as it turns out I DON'T remember what happened the last time
they told me to sit down and shut up but I did not listen,
but I recall that I woke up a few weeks later with some nurse
right in my face, saying "You were right, doctor! He
did live! I owe you ten bucks. Now I'll bet he doesn't live
through the night' which reminded me that I have got to upgrade
my health insurance policy. But getting back to this inflation
thing, let me tell you and this John Waggoner fellow that
his "average person" is NOT going to like anything
about inflation. They never have, and they never will.
He further says that if you want to keep ahead of inflation,
you should consider TIPS bonds, which I am here to tell you
may not be such a hot investment, as their rates lag inflation,
and they also use the government's calculation of inflation
to set the interest rate on those bonds, which is all lies.
There was also an article in the Washington Post entitled
"Upside of a Down Dollar" but I did not read it,
since they wanted me to provide my identity before I was allowed
to read whatever the hell it was that they wrote, and you
know that The Mogambo doesn't give out any information to
anybody unless I need something badly or they have the power
to do something awful to me, and then only grudgingly. But
it must have been a very short article, because there are
not many things that stem from a "down dollar",
unless you are a masochist.
- The Islamic Mint is issuing the Islamic Gold Dinar again.
The gold coins are available in the United Arab Emirates and
the Dubai Islamic Bank. The coin is 4.25 grams of 22 carat
If the Muslims wanted to rule the world, all they would have
to do is to insist on being paid for their oil with these
dinars. The sudden demand would increase the price of gold,
and so they would make money as their money went up in price!
And with every new barrel sold, they would increase the demand
for gold, which would drive up the price of their dinars some
Maybe I have said too much. If you are a Muslim oil producer,
forget I even said anything.
- G. Lammert, who is a guy who appears on the site UrbanSurvival.com,
writes "The overriding factor - the overriding factor-
in a contracting credit system that makes the fractals so
precise is the enormous debt that burdens the US and world
credit system at this point in history- debt that must be
serviced or attempted to be serviced. In the US there is an
estimated 37-40 trillion dollars in financial, corporate,
private and governmental debt. At an average of 5 percent
interest this represents an annual debt service load of 1.8
trillion dollars in yearly interest payments in an economy
growing only by 0.35-0.4 trillion dollars annually."
So interest payments are five times total growth? And somebody
thinks this is sustainable? Hahahaha!
From a slightly different perspective, the Daily Reckoning
folks write, "On the surface of it, a modest 10% decline
in the dollar would mean a loss of some $15 trillion - or
more than the total GDP of the United States...and more than
30 times all the profits of all the publicly traded companies
- In the Boston Herald, a writer named Brett Arends has written
"Economic 'Armageddon' Predicted." He writes that,
"Stephen Roach, the chief economist at investment banking
giant Morgan Stanley, has a public reputation for being bearish.
But you should hear what he is saying in private."
What is he saying in private? He is predicting that, "America
has no better than a 10 percent chance of avoiding economic
'armageddon.' I say it is less than that. A lot less.
- Alert reader Jim E. sent me a New York Times article by
a guy named James Surowiecki, who has written an interesting
article entitled "Why Gold?" Jim thought the guy
was the "dumbest SOB that ever lived" and of course
I was excited to hear about a guy who was a bigger and dumber
SOB than me! So I go to the link that Jim provided, and was
sped, straightaway, to the very article to which he referred.
In my mind I hope the guy really IS a bigger bastard than
me, and so I am mentally shaking the guy's hand and inviting
him over for dinner so that I can prove to my wife that I
am NOT the biggest dumb bastard in the whole world, and in
fact, here is a guy right here who is! That ought to shut
I never heard of this Surowiecki guy, and I assume that it
was some dumb filler by a new intern or something, but it
was an interestingly told, but old story, with a distinct
bias, about how gold is just a metal, and when you buy metal
you are not investing in plants and machinery and production,
and how gold is the ultimate in speculation and blah blah
blah. He deems belief in gold as "a testament to the
tenacity of popular delusion. What is gold, after all? Strictly
speaking, it's a commodity." Well, duh! He then goes
a step over the line when he dismisses me, as "Gold bugs
are classic cranks". Although he did not mention me by
name, if you read between the lines you could easily tell
that he WAS talking about me! The bastard! So now there's
ANOTHER name I have to add to the Mogambo Official Enemies
List Of Official Enemies Of The Mogambo In List Form (MOELOOEOTMILF),
because that is just the sort of over-the-top, bizarre and
vaguely homicidal over-reaction that is so typical of my behavior
here lately, probably as a result of my being freaked out
of my mind.
The dispiriting thing is that he makes some valid points
about gold. For example, "Gold's buying power has plummeted,"
he says. "In 1980, ten ounces of gold would have bought
you a nice car. Today, it would get you a nice bike."
I don't know where he buys HIS bikes, but around my house
we don't spend $4,450.00 for no stinking bike, especially
when there are so many perfectly good free bikes just sitting,
abandoned, in neat little rows next to schools and playgrounds!
Weird, huh? (I figure it is part of some space alien thing
or another. My warning is "Watch the bikes!") But
I am not going to begrudge the guy just because he can afford
fancy-schmancy bikes while I am on this pink My Little Pony
bicycle that is four sizes too small for me, but which does
have this handy little white plastic basket in front, and
featuring a smiling pony with a rainbow-colored mane.
But with a slightly different perspective, Peter Brimelow
and Ed Rubenstein, of CBS.marketwatch.com, write, "The
remarkable thing about gold is that really has been a store
of value. Adjusted for inflation, a dollar invested in gold
in 1801 has fluctuated around about a dollar ever since. For
now, the point is that, on the evidence of these charts, gold
is hardly overvalued." And from the look on The Mogambo's
face and the way he is pounding the table trying to convince
you to buy gold, gold, gold, and silver, silver, silver, and
oil ,oil, oil, there is also some evidence that gold is waaayyyy
undervalued. Both these guys are saying so! And while we are
talking about it, so is silver, which has the most compelling
fundamentals of any asset on the planet.
But even Mr. Surowiecki admits that "So there's a little
bit of the gold bug in all of us." Then he goes into
the very reason to own gold, "Still, in a world of 'swaptions'
and strips, gold's allure is increasingly atavistic. The idea
of gold as a platonic currency, universally valuable across
time and space, reflects a basic distrust of markets, a fear
that in a world of paper money wealth is just an illusion"
Yes! Yes! That's it exactly! Fear and illusion and distrust!
And don't forget treachery and bankruptcy and ruination! That's
the whole lesson of history of economics! And if Mr. Surowiecki
doesn't like it, then that explains perfectly why he is writing
in a Leftist newspaper, parroting the typical Leftist dogma
that governments are to be trusted, and that the Founding
Fathers were wrong when they insisted in the freaking Constitution
itself that money shall ONLY be silver and gold! The guys
who participated in the American Revolution and created the
freaking government did not trust government, for God's sake!
Now everyone is looking at me and quietly arming themselves
with baseball bats and those damned Tazer zappers because
they can tell that I am getting pretty wound up here, and
those little tattletale machines I am hooked up to are all
going "beep beep beep!" With a mighty effort, a
Mighty Mogambo Effort (MME), I calm myself down, my brawny
chest and broad shoulders (or is that broad shoulders and
brawny chest?) heaving mightily, and I take a deep breath,
flip the selector to full-auto and shoot off a clip of expensive
bullets into a bush that is acting strangely. He goes on to
say "For gold bugs, paper money turns us all into Wile
E. Coyote-we're running on air, and we'll plummet once we
look down and realize there's nothing holding us up. The gold
bug's apocalyptic mentality maintains that someday the global
economy will look down and the result will be chaos. Gold
is the only thing that will still be valuable after the bottom
drops out." Yes! This is it! Get this Surowiecki on the
phone! Ring ring ring! Damn. Nobody home, and he forgot to
turn his answering machine on. So, if you see this guy, tell
him that the Mogambo says, "Yes! Exactly right. Mr. Surowiecki,
if that IS your real name! This is the reason that people
own gold! And it is the reason that ALL thinking people eventually
own gold, too, because all that stuff you talk about is what
WILL happen, not only to Wile E. Coyote, but to us, too, because
that is what DID happen ALL the other times in history, and
that is why I am so sure that it will happen again, just as
sure as I am that a fat dog will eat a hamburger!"
He sums up with "One could say that gold is the biggest,
most durable bubble in history. Someday, even this one may
pop." To that he is also right. But that day is a long
way off, as we have not even gotten a good start on paying
penance for the economic sins that we have committed, a particular
circumstance for which gold is particularly suited.
And we committed these economic and financial sins against
our own Constitution, against the Laws of Economics, against
all of economic history, against common sense, and against
the wishes of The Mogambo, all of which proves that we are
a monumentally-stupid race of people. And if you examine the
Laws of Nature, you will notice that she is not kind to the
stupid. In short, we deserve to be eaten so that others, who
are more economically fit, from a Darwinian perspective, may
survive. And then, Mister Smarty Pants journalist, what are
YOU going to do?
For the last 5,000 years in a row, all the people who needed
an answer to that question always came back to gold, because
there IS nothing else. But many will come to appreciate that
fact too, too late. Ugh.
*** The Mogambo Sez: Just when you think it can't get more
bizarre or twisted, it does. And if gold does not go up in
response, it is a buying opportunity.
Richard Daughty, the angriest guy in economics
9241 54th Street North
Pinellas Park, FL 33782
727 546 5568