Posted on 07/30/2003 12:04:55 PM PDT by arete
“…I have come up a plan, which I refer to as the Save Our Butts Plan. It works like this. We put everybody and everybody's money into a huge life insurance policy, see, declare some wars, release a few deadly viruses, wipe out half the population, and pay off the policy. In the end, there will be half as many people, creating job openings out the wazoo, each survivor will have twice as much money, and this will fuel consumption. With plentiful jobs and more money to spend, the recovery will commence!...”
The Mogambo Guru
St. Petersburg, Florida - The big news, eclipsing everything else, is that the European Central Bank announced that it was encouraging the selling of US agency debt, probably since everybody has so much US debt already that it was literally clogging up every nook and cranny on the continent, and it was looking so untidy, and people were complaining. The reason that they bought so much debt in the first place was that the humongous trade deficit of the USA resulted in mountains of dollars piling up over there. And businessmen over there do not want dollars. They want Euros, so that they can give some to their wives and mistresses so that maybe they will just shut up for awhile, even ten minutes would be a blessing, about how they want more Euros, and when are they going to get some more Euros, and could they have a few Euros right now, and how there was this darling little frock down at the dressmaker's shop and they don't have enough Euros to buy it and that is just one of the thousand reasons why they want some Euros and by the way when are you going to give me some Euros? So you can see why they don't want any stinking dollars.
So when they traded a few jillion tons of these unwanted dollars for Euros, then that made the Euro go up, since that is what everyone wanted, and the dollar to go down, since that is something they DIDN'T want. A classic supply and demand thing.
But that meant that their exports would suffer, since the dollar was then so weak and the Euro was, obviously, so strong.
What to do? Well, in time-honored central bank fashion, which is Mogambo-ese for "stupidity writ large," they decided that what they would do is print up large amounts of Euros, literally debasing their own currencies, to remove these dollars from the private economy, and the government/central banks would use those dollars somehow. So that brought up the interesting question; what in the hell do you buy that can possibly absorb so damn many dollars? Enter the stupid idea of buying US agency debt, so that us jackass Americans can have lower interest rates, higher house prices with which to borrow against the increased equity, so that we can have the money to buy more European exports, which makes the trade deficit worse, which exacerbates the problem of unwanted dollars piling up in Europe, and, since you are so bright that you are waaayyyy ahead of me here, taking them right back to square one. Only worse, since they now have tons of US agency debt, issued by liars and thieves who refuse to testify before Congress about how they conduct business, that has no alternative but to go waayyy down in price eventually, and handing them a loss for buying that worthless crap in the first place. And, for all their work, they have inflicted the pain of monetary inflation on their own citizens by the printing of Euros to try and sterilize all those damn dollars. See how this intervention in the economy always leads to disaster of one kind or another?
The other big news for me is that Paul Krugman, the self-styled hotshot economist-commentator for the New York Times, that execrable enclave of laughable loathsome Leftists and assorted losers, has finally seen the light and announced that Alan Greenspan's whole legacy is, to use his own phrase, "in tatters." Well, hallelujah! I was wondering when, if ever, Mr Krugman would put his stellar IQ to work and take a real look at what this Greenspan Fed, the Monster From Hell that has killed us all, has done, and then to announce that he was wrong in supporting him, lo these many long years.
Of course, Mr. Krugman's unflinching and childishly adoring support of Greenspan all these years has left his OWN reputation in tatters. But at least we have another example of "better late than never," I suppose.
- One of the other interesting things is that last week the money supply, as described by action in all the M's, was down, because all the M's were down. This does not happen very often, and to be sure, the overwhelming trend is up. So I have no idea if it means anything at all, but to me, being the kind of shallow jerk that I am, you know, always ready to hysterically over-react at the least innocuous provocation, I find it, well, I already used the word "interesting," so you already know that.
But it would almost certainly be one of the Horsemen of the Apocalypse, which I use as a metaphor for the End Of The World As We Know It, which I will also call A Time When The Living Envy The Dead, if the M's kept going down, so you see where I am coming from when I say that the M's being down was "interesting."
- The camera pans in on the general and his staff, all clustered in the headquarters tent, which is being illuminated by fires raging out of control and bombs bursting in the background. The soldiers gather around him in hopes that he would provide them with a plan to save their butts.
"What are we gonna do, General, sir?" asks the gruff sergeant. The general rubs his chin. Finally, he orders the doors closed, and he announces his plan.
"Gentlemen, I have pondered our situation long and hard, and have considered our best course of action from many perspectives, with the help of many of you. I have come to the conclusion we are idiots, Keynes was just another commie jackass, the damn Austrian-school economists are right, and we stand here with egg on our faces, most of us figuratively, but literally for you over there, yeah, you with the egg on his chin and, what is that, a piece of bacon on your tie? For crying out loud, people! At least try and LOOK like we deserve some respect! Jeez!
"Anyway, our chances of future employment are obviously growing dimmer, since everything we know is wrong and we look like idiots for having believed it to start with, and the result of our woeful ministrations is, well, just look around you! And as you can see by this chart here in your handout, labeled Chart A, the probability of the common people rising up and dragging us in the street is rising to alarming levels. The cute graphic shows our little legs humorously kicking futilely as they drag us out, and it looks like somebody has lost a shoe." A murmur runs through the assembled crowd.
"And that is why I have come up a plan, which I refer to as the Save Our Butts Plan. It works like this. We put everybody and everybody's money into a huge life insurance policy, see, declare some wars, release a few deadly viruses, wipe out half the population, and pay off the policy. In the end, there will be half as many people, creating job openings out the wazoo, each survivor will have twice as much money, and this will fuel consumption. With plentiful jobs and more money to spend, the recovery will commence!"
The assembled troops were stunned to silence. Off in the distance, a wolf howls.
"Hey, knock off that howling in the distance!" the general thunders. "It makes more sense than that stupid 'print money' solution you losers came up with, and I still can't believe I let you guys talk me into trying something so stupid, but this new plan of mine really has a chance to work!"
Sensing that maybe his wonderful new plan was not meeting with the anticipated approval, General Greenspan finally surrenders with a sigh of resignation, "Okay, okay. You win. We keep printing up money full time, and flooding the world with money, and resorting to actions of increasing desperation. But we know what will happen in the end if we do." Everyone in the crowd nodded their heads, and several broke down in sobs. Then he added brightly, "Naturally, we keep giving ourselves salary hikes all along the way, and backing each other up, and with nobody to blame us, none of us can be individually blamed!" And then everybody cheered and they went out for coffee and cake. And some cookies. Chocolate ones.
- The majority of the world's money supply has been going up by at least twice the rate of inflation. In America, we are expanding by about, oh, let's say, 9% a year, to be charitable? So, at this rate, doesn't that mean that the majority of the world's money supply is going to double in eight years? And all that money is going to go into government debt, driving interest rates lower, and stocks, making prices and capital gains higher, and houses, making their prices rise and thus handing equity to homeowners to borrow against? Is that how it is supposed to work, Binky?
But that rise in prices, caused by the Fed profligately printing money and creating excess credit, won't seep over into the consumer goods area? You know, what us local mouth-breathing bozos call inflation, the kind that requires paying more money for stuff? You're telling me that those prices WON'T rise? Huh? Are you sure it won't? You're SURE? You're really, really, REALLY sure? Really really really really sure?
I'm not believing what I am seeing with my own eyes or hearing with my own ears! Maybe if I could read Braille and could actually touch the words, THEN maybe I would believe it. But by my ears and eyes? Never!
I feel like Butch Cassidy of the movie "Butch Cassidy and the Sundance Kid," played by Paul Newman, to whom I have calculated could have been my real father, but would have required extraordinary effort of a kid that young and something pretty weird about my mother too, but that is so scary that I don't even want to go there, so let's drop that whole subject, I'm sorry I brought it up. Brrr.
What was my point? Oh, yeah, I remember. Paul Newman and Robert Redford are being pursued by a posse of blood-thirsty professional trackers and bounty hunters, and our two anti-heroes can see them waaay out there in the distance, doggedly pursing their exact trail in the inky darkness of a moonless night. Butch is saying, incredulously, at observing the feat, "Who ARE those guys? I can't do that! How can they do that? Who ARE those guys?"
Anyway, like Butch, I am wondering who are these guys that can channel huge humongous globs of government money into assets, and only investment assets? And who are these guys who have the power to prevent the generalized price inflation that has accompanied every other money and credit excess in all of recorded history? Even back before dinosaurs, back when the cooling of the earth was still a recent event in all the newspapers, back when lousy one-celled organisms were financing businesses to grow algae on a commercial scale, even THEN excesses of money and credit collapsed the economy in an inflationary bonfire in the end! So, like Butch Cassidy, I wonder who ARE these guys that they think they can pull off a stunt like that, when nobody in the whole history of the earth has been able to, and I again use the phase "pull off a stunt like that," which makes it significant and symbolic on so many levels?
- Kevin Murtaugh, another of us economic gadflies, wrote a nice little piece entitled, "California's budget problems are structural." Structural. How neutral. That's a nice way of saying that California's problems result from the repugnant way that they went whole-hog into that Leftist-loser mode, the one where the government is seen as the fount from which all blessings flow but is not seen as the bottomless pit into which all money flows, and Californians grew the size and scope of their government and government programs to the point where it is now financially killing them all. Hahaha! I laugh at California and the dimwits who have ruined a beautiful state! It deserved better than you.
But it would be nice if California was the only place where the cancerous growth of government was proving fatal, but it isn't. All the states, to one degree or another, have done the same damn thing, and the federal government too, and the local governments, too, and in fact at every level where there are government weenies trying to pull that stunt. More than one of six working people is directly employed by a government of some kind. One sixth of the damn working population works for the government!
And the whole shebang flows from the fact that Americans are apparently getting dumber and dumber, and looking the part, with every passing day, as evidenced by the woeful results of recurrent examinations of the nation's students on standardized tests and the anecdotal descriptions given by foreign nationals about how they perceive ugly Americans. It ain't pretty.
But then, again, and it is now an established fact that everything American is now crap, because is has been proved over and over again that anything and everything that the Leftists touch will turn to crap, and because schools were commandeered by the Leftist Losers years and years ago, and have been operating as the indoctrination cells of the Leftist philosophy for decades, they have now infiltrated everything American. Ergo, everything American has turned to crap. And if you have a dog, or have ever had a dog, then you know that crap has poor survivability.
But California is a case study in how Mother Nature gets rid of the congenitally unfit, and since California has more than its fair share of congenitally-mutant Leftist philosophies, it is only natural that they suffer the most.
Mises, writing extensively to show how Mother Nature actually works, showed conclusively that it is impossible to have successful socialist planning, and that to have a mixed economy of private and socialist enterprises is likewise impossible. And history proved Mises to be exactly right. So, what we are seeing today is just the QED of what he, and many others, already proved. And now California is just the latest and biggest bunch of childish morons to try and disprove the cold, hard, unpleasant fact that big-hearted socialism and large, please-save-the-children-and-everybody governments have not, cannot, and will not, ever, work. Ever. And now they are also just the latest and biggest bunch of morons that has to be shown, like a bunch of little retarded children, that trying to get socialism and overweening governments to work successfully is always the path to bankruptcy and ruination writ large, or, as was so beautifully put by the wags at the Daily Reckoning site, " ...the spectacle of monumental arrogance humbled before nature," even though they were probably talking about something completely different, but it is so deliciously appropriate that I couldn't stop myself from using the line to my own twisted advantage.
Personally, I admit that I long wistfully, with maximum wist, for the days when it was only the loathsome Democrats who wallowed in this filthy mess. The Republicans were always enough of a presence to hold it down to some level where things COULD work out. But now it is the Republicans who are doing it, too, and not only more so, but also terribly so, horrifically so, nightmare-ishly so, my eyes are popping out of my head when I see it so, and is a modern fact that causes me to wake up screaming in fear and anger.
- In a brilliant essay entitled "The Key Question," Mark W. Hendrickson writes "Whereas the Keynesians, the monetarists, and supply-siders, seeking to 'fine-tune the economy,' call for incremental changes within the existing constellation of public policies, the Austrian economist...categorically denies the very legitimacy of the transfer state. He unequivocally opposes all government programs that channel economic activity away from where free people would direct it, thereby redistributing wealth among the citizens."
This forced channeling of economic activity must be a permanent program, as normal people engaged in normal economies would not stand for such foolishness, and in fact the citizens are constantly trying to subvert the government's activities in this regard. This is only natural, since guys all the way back to Adam Smith himself showed that it is each man's attempt to provide a profit for himself that makes for healthy, sustainable, low-inflationary economies.
So the government, in response to the natural proclivities of us grubby, self-centered Adam Smith-type people, running-dog capitalist swine like you and me, spending all our time grinding up the proletariat working class in the gears of our deadly capitalist machine, must enforce the other-centered perspective of the government. They do this by hiring more and more people, usually relatives and friends and political needs of elected office-holders, and this is how the mal-investments are made manifest and permanent.
Or, as Professor Hendrickson says, "It is a glaring inconsistency to attempt to increase the production of wealth while also working to increase the size of the very agent- government -that hinders production."
And all these new government employees, these growing legions of friends and relatives and political payoffs have, as their freaking jobs, the powers of punishment and coercion to either force you to do something, or force you NOT to do something. And in either event, they are going to take more money away from you to fund those very activities! Yow! This is the very antithesis of freedom, out there in the Dark Outer Regions of economics.
As Bill Bonner of the Daily Reckoning website so eloquently put it, "Throughout the entire 20th century, the high tides of central planning, paper money, debt and social-welfare promises slapped the shore in the same corrosive way. Almost no matter where you are in the modern world, for every transaction, there is a tax. For every act, there is a regulation. And for every idea held by the masses, there is a massive fraud. But every bill gets paid somehow. If not by the borrower...then by the lender."
In summary, Mark, and notice that I am calling him Mark by this time, like someone of his caliber would even be caught dead in the company of someone like me, but I do it anyway since we have now spent a couple of paragraphs together, what with him writing stuff and me reading the stuff without comprehension and tragically misunderstanding everything, writes, "Today, some seven decades later, the truth of Mises's assessment is irrefutable. The evidence that lack of freedom leads to economic catastrophe is massive. Those how have lived under it testify that socialism creates a hell on earth."
But, since nobody is describing California as a "hell on earth," we can assume that things will continue to get worse and worse there, until the day when it IS referred to as a hell on earth.
- Roger Reynolds, one of us economic tea-leaf readers and market commentator, and notice how I said "us" in the hope that you will say "Oh? Mogambo is with Roger Reynolds? Then perhaps this Mogambo fella is not aas stupid and insane as he appears!" recommends that we read the book entitled A World In Debt written in the 1930's, although he did not give the author's name. The thrust of the book is that the historical record shows that in all the other eras of huge accumulations of debt, the children and grandchildren of the people who ran up the debt said that since they did not authorize such debts to be accumulated in their behalf, then they felt they were under no obligation to pay the debts. And so they didn't. Rogers says, "A generation or so from now, our children will refuse to pay also."
A generation is about, what? Twenty-five years or so? So let's have some Calculator Fun and get out the old HP 12C and plug in the Present Value, PV, equals 100 at par, a period of years, N, equals twenty-five, future value, FV, equals zero, and see what that is, as an interest rate. Well, as usual, wisps of smoke seep out and on the display we get an "Error 5" message, since we have no idea what we are doing and whenever I work with a calculator I pretty much just press the buttons at random, hoping for a miracle of some kind, and if I look pathetic enough then kind strangers will stop and help me, and maybe buy me an ice cream cone to help dry my tears of frustration. But this certainly doesn't answer the original question, which was "What is the present value of a bond that will have zero value in twenty-five years because the debtors decide they ain't a-gonna pay?" which would allow us to perhaps answer the Big Question That Was Not Asked, namely "Is the fall in price of bonds in the last couple of weeks on, or above, this trend?"
- A very interesting article in the Financial Times, written by Kevin Morrison, entitled "Central banks to extend gold sales pact," says that the central banks continuing to manipulate everything concerning gold, or money, or anything remotely connected with gold or money, will probably continue until, and you may want to make a note of this in your planning calendar, long after we are all dead. "The current agreement, which expires in September 2004, allows for 400 tonnes of gold to be sold each year. One central banker told the Financial Times recently that he thought there was room for an increase in gold sales." Meaning, I guess, that "room" is a euphemism for "central banks would love to sell more" and that there is also a rising demand, too.
Well, duh. Since the central banks have no interest in gold or real values for the money they are pledged to protect, then obviously there is LOTS of room on the supply side for an increase in gold sales. Like, sell all of it, dudes! And as for rising demand, well, all one has to do it look a the current selling price of gold, which is rising.
Too bad that all that gold, selling at around a measly $350 an ounce, is only worth about a lousy hundred billion or so dollars, eh? Imagine the money the government could have if gold was selling at $3,500 an ounce! Think of the social programs they could start with that trillion dollars! And if gold was $350,000 an ounce, and I gotta tell you that I'm getting pretty excited right here, then the governments could sell the gold for, let me get my calculator here, wait a minute, where is the damn thing, okay, here we go, let's see, $350,000 an ounce would be, ummm, $100 trillion dollars!
Mr. Morrison continues, "The original arrangement was signed in September 1999 in response to increasing concerns that uncoordinated central bank sales of gold were adding volatility to the market and pushing prices lower." This is what I call Exhibit A that something is very weird, because when the supposedly biggest brains in all of Economics-dom had "increasing concerns" about whether or not adding huge dollops of supply in sudden chunks involving hundred of tonnes at a crack, and promises of more on the way, would meet with the demand curve at a lower price, you gotta go "Huh? This is news to you?" My God! If this is the depth of understanding of basic Economics 101 that is truly indicative of Fed and central banking thinking, then both common sense and history say that you would have to be a complete moron to have anything to do with them or their money, because something is worrisomely wrong with these guys (and here you gotta imagine that I am crossing my eyes and waving my index finger in little circles at my temple, to indicate what is referred to in polite company as "loony tunes").
The author of the article thoughtfully added a little educational content when he later writes, "The gold price fell to a 20-year low of $252 a troy ounce when the Bank of England announced its gold sales in the summer of 1999."
I remember the time well, as I have scrapbooks filled with newspaper clippings of me running around the city yelling, "Gold is at the biggest bargain basement prices of your lifetime, or any lifetime of your children, or your grandchildren! Buy gold! Buy gold, you fools! Buy buy buy!" Well, to be truthful, most of the clippings are photos of grim policemen trying to wrestle me to the ground and snapping handcuffs on my wrists because I am creating another hysterical disturbance somewhere, or determined mental health workers wielding hypodermic needles full of powerful tranquilizers are trying to drag me into an ambulance, and all the accompanying narratives are along the lines of "Brave government professionals were again involved in subduing local lunatic."
But the important thing, and you know that this is an important thing because I just said so, so it must be important, is that I was right about gold being the biggest freaking bargain of the whole freaking millennium, and anyone who had followed by advice would be fabulously wealthy by now, and would be sending me expensive presents out of sheer dumb-ass gratitude, like one of those spiffy new motor scooters would be nice, or maybe a batch of yummy toll-house cookie or something, but noooOOOooo! So I say that you are welcome, you ungrateful little bastards, for giving you the greatest investment tip in all of recorded history, or what historians will naturally call the "Best Investment Advice Anybody Will Ever Get For The Next Thousand Years Or So." Which is, now that I think about it, worthy of a damn Nobel Prize, wouldn't you think?
And, since we brought up this whole Nobel Prize thing again, let me say that if I don't get this deserved Nobel Prize, then I promise you, and look me directly in the eyes so that you know that I am serious, that I am going to spend the rest of my life repeatedly repeating the phrase, "I called the exact bottom of the gold market," and you know that I am dead serious when I wrote "repeatedly repeating," which implies that there will be a time when you are going to get so sick of hearing me say, over and over and over, how I called the exact bottom in the gold market I called the exact bottom in the gold market I called the exact bottom in the gold market I called the exact bottom in the gold market that you will make it your damned holy crusade duty to get me that damn Nobel Prize even if it's the last thing you ever do on this earth, just to shut me up because you're so damn sick of hearing it! So if you know anybody on the Nobel Prize committee, then you let them know the evil that lurks in the mind of Mogambo, and perhaps that little bit of knowledge will prompt them into doing the only decent thing. And, if they ask, I'd like the million dollar prize money in gold, as my clever way of being, well, you know, clever.
This Mr. Morrison fella follows up with "The current pact has proved successful in adding order to the market." Man! This is too, too much! I mean, here I was paying attention, all serious and all, and out of left field he lets me have it between the eyes with this zinger! Pounding down the price of gold is, and believe me that I am as shocked as you are, known as "adding order to the market!" Well, I gotta say that I know a lot of economic buzzwords, and some slang words too, but I never heard that falling prices was "adding order to the market!"
But he is right, when you stop to think about it! Back then, back in the olden days of 1999, gently falling prices was a GOOD thing, and but we were so backwards that we merely called it "adding order to the market." And, actually, when the market is functioning perfectly, prices SHOULD be gently falling, as productivity works its magic! That's the whole freaking point of productivity! Ask Alan Greenspan, for crying out loud! He is positively obsessed with the idea of productivity, so he should know!
Okay, class, now put your books away, because we have a treat today. We are going to have a filmstrip supplied to us by SixSixSix Productions, an agency of the federal government, entitled "The Truth About Deflation." The lights go off in the room and the screen fills with images of price tags being replaced with lower and lower prices, one after another, as pages of old calendars are being flipped through in the background. Happy, bouncy music is played. Off in the distance, smiling little adorable children are happily playing with adorable puppies, that are, I might add, also being sold for lower and lower prices.
Now, the scene dissolves in a blur to signify the shifting of the scene, and the background music becomes discordant and dark, with low and gloomy tones. As the screen clears, we see, gradually coming into focus, that we are back to the present time. Price tags are being replaced with other tags for higher prices. The pages of apres-2003 calendars are being flipped through in the background. In the distance we see nasty, dirty little children tearing the body a dead dog apart with their bare teeth. The scene is soon replaced with the image of an evil creature, who looks a lot like Greenspan, but with devil's horns because he is a lying, deceitful, amoral Demon From Hell Itself, and is thundering from the pulpit of some satanic dungeon! And whose voice sounds like the hiss of a snake as he calls prices that are gently falling a "deflation." And who is chanting, in a rising, thunderous ovation, "Deflation is evil! Prices are not rising as fast as necessary! We must raise prices! This is because inflation is good! Inflation is your friend! I am your friend! Higher prices are good! Higher prices are your friend, too! We're all your friends! Ahhhh-hahahaha!" The filmstrip ends by fading to black, and there is the slight odor of sulfur in the room.
But, continuing with the metaphor of Greenspan appearing as the Devil and Jerry Mathers as the Beaver, the forces of Good and Light were not to be denied. They bought gold. Mr. Morrison adds credulity to that off-hand remark of mine when he writes, "Gold rose to about $320 shortly after the agreement was reached. After a brief subsequent fall it has risen steadily for the past two years." Indeed, as I write this, gold is up to over $360 an ounce.
"So why would governments, our own governments, do this to us?" you ask in that charming little way you have that just melts my heart. Mr Morrison agrees with you when he notes, "Central banks are not allowed to sell assets or reserves to help finance government budgets, as this would breach the Maastricht treaty." So once again, your question echoes through my mind; why would our own governments do this to us? Grabbing our magnifying glasses on a frantic search for answers, Mr. Morrison himself provides a vital clue when he then quotes Matthew Turner, an analyst at Virtual Metals, which is noted is a consultancy, "However, there are also ways that funds can transfer from the central banks to the treasury, such as dividend payments."
So there you have it. The reason is old-fashioned money-grubbing. Always the money grubbing.
- I ran across an article, and it might have been the one I just finished talking about in the preceding paragraph, that said that the lease rate on gold is now zero. Imagine that. The banks are loaning gold at ZERO freaking percent! Of course, only an idiot would borrow gold long-term in an environment of rising prices.
- Dan Ackman at Forbes magazine reviewed the book "Yes, You Can Time the Market," by Ben Stein and Phil DeMuth. In it, Stein and DeMuth easily explode the "always buy now" sales pitch of stock and bond salesmen. "If you buy stocks all the time, whether they are high or low, you can expect to profit much less than if you buy only when they are low." Gosh! You mean that buying stocks when they are high-priced will reduce my long-term returns? And that you get the most bang for your buck by buying only when the prices are relatively low? Well, duh!
And how does an ignorant doofus like me tell when stocks are low, and thus ripe for buying? Easy, sayeth Mr Ackman, as he explains that "Stein and DeMuth found that those who bought when the current level was below the average would have scored much higher long-term returns than those who bought when the S&P was above its moving average. In a series of detailed statistical studies, the book shows how the same technique would have worked using price/earnings ratio, dividend yield or other measures for determining whether stocks are cheap or dear."
So there you have it. You CAN time the market, and they prove it.
My big problem with Mr. Ackman is that he takes great exception to the photograph on the cover of the book, which shows the two authors surrounded by gold bars and coins.
If Mr. Ackman, who had ostensibly read the damn book, had actually learned anything and thus had taken the time to look at the current price of gold as compared to the historical price, as adjusted for the purchasing power of the dollar, which is the same, exacto-mundo analytical tool that the book so eloquently propounds, then he would know that Messrs. Stein and DeMuth were telling him something profound about gold.
As an interesting tidbit, the authors conclude that the last time that stocks were cheap enough to buy was, hold onto your hat, 1984.
- Eric Fry, one of the big-brained dudes at the Daily Reckoning website, apparently likes to rub our noses in our own incompetence, and combines his penetrating economic analyses with clever and witty prose, as when he writes, "Net-net, the legacy of the Greenspan years has been to convince an entire generation of Americans that, yes, there is a free lunch, and if you hang around long enough, there will be a free dinner and dessert as well." Hahaha! Well said, dude!
- Now, here is a scary paragraph, and it is so scary that the author starts off by telling you that it is a scary paragraph, as I have also just done. Herewith, I present it to you.
"Now, here's a scary paragraph from an article by John Berthelsen in Asia Times. You can find it at www. atimes.com. He quotes an analysis done by an expert with Credit Lyonnais Securities Asia in Hong Kong by the name of Christopher Wood: 'Wood predicts that by the end of the decade there will no longer be a possibility that the world's central banks can control the situation, and there will be a truly massive devaluation of the dollar.'" The end of the decade is a little over six measly years from now. Is that "long term" or "short term"?
Okay, I know what you are thinking; you have heard other things more scary than that, like, for instance, that I am coming over to your house for dinner or that I have a handgun with your fingerprints on it. But we are not done yet! Mr. Woods then goes on to say, "The view here is that the U.S. dollar will have disintegrated by the end of this decade. By then, the target price of gold bullion is U.S. $3,400 an ounce." So, one of you math whizzes out there can tell you the exact annual percentage compounding gain of a thousand percent over six years is, but it registers as a "home run" on the Capital Gains-O-Meter.
Mr. Berthelsen sums it up by saying, "This is predicted because of the massive trade deficits, massive federal deficits and massive personal debt that stupid politicians and citizens have accumulated. Since the target date is only seven years from now, we have only the 2004 elections to replace idiots with some smart people who might be able to head off this disaster." And yes, I assume by the way he calls politicians "stupid" and citizens stupid for having voted them into office that this Mr. Berthelsen and I are clones of each other, and I would ask my mom about that, but then that would open up that whole can of worms and maybe it is best if we just not go there at all.
But isn't it just too bad that there is nothing that any people, smart or not, can do, except survive and prosper by buying gold?
- Rick Ackerman of Marketwise is a guy I have never met but for whom I have a lot of respect, namely because we think along the exact same lines. As an example of this phenomenon, he writes, "If there is one statistic we can believe, it is that tax revenues at all levels are continuing to decline. This means that, no matter how many people it is claimed are working or being rehired, they are doing so less and less profitably as the months roll by." This is evidence that is solid, and it is bad news, as opposed to the ephemeral smoke of happy government-adjusted statistics, that says things are good.
- Didier Sornette, a professor of geophysics at UCLA, wrote an interesting article that was featured on the 321gold.com site, entitled "Prediction: the future of the USA stock market." The thrust is that there is some linkage between herding behavior (can you say moooo?), fractals, non-linear math ("chaos theory"), oscillation/cycle theory and stuff I am not even sure WHAT in the hell he is talking about, much less even beginning to comprehend, since most of it uses terms that sound like he just made them up. But, the good news is that we are not required to know any of it. This is because the kind professor included several graphs, and all of them show that the collapse of the American stock market is imminent. And that is all you need to know to make some, as Mr. Haney of "Green Acres" would say, gi-gantic money.
One of the more interesting things, to me anyway, was when he wrote, in his little introduction as to what in the hell he and W. X. Zhou were going to do, "We combine a macroeconomic analysis of feedback processes occurring between the economy and the stock market." I gotta admit that when he said that he and this buddy of his claimed that they had quantified how the stock market and the economy have an action-reaction, yin yang, feedback-loop, I almost said "Bah! Egghead morons!" and moved on. What gall! What hubris! What stupidity! Actually, I DID say "Bah!" and for those very reasons, but I did NOT move on, and it was an interesting read.
And as this seems to be the week for scary, here is something to scream in fear about. They authors say, "We also detect a log-periodic power law (LPPL) accelerating bubble on the EURO against the US dollar and the Japanese Yen." I have absolutely no freaking idea what in the hell a log-periodic power law (LPPL) is, or what it could possibly mean concerning the Euro or the dollar or the yen, and I could only make a wild, clutching-at-straws guess that there is, hmmmm, a periodicity of some, ummm, logarithmic exponent maybe, and this bigger number would, uhhhh, possibly denote a power, or force, or something, maybe, and now armed with that powerful insight I would STILL only have a slim ghost of a chance of correctly answering the test question in a multiple-choice format.
But my reaction to this fascinating analysis is much farther down on the brainstem, down there in the primal spinal cord, where self-preservation trumps even the need to eat, for crying out loud. My reflexes, while always sharply reminiscent of a fierce jungle cat, are now raw and hyper, conditioned by the constant adrenaline bath of stark fear, and I now can instantly react to mere hints of suggestions of subtle nuances, such as the imperceptible wobbling of a distant planet in a star system a thousand light years away. And that is why I fully intend to learn all about this interesting stuff, like log-periodic power laws, just as soon as I am finished strapping on this suit of bullet-proof armor, arming myself to the teeth and digging a great big hole to hide in.
---Mogambo Sez: Perhaps it was luck, or perhaps it was fate, or perhaps it was just common sense rising to the fore, but the Central Fund of Canada launched their wildly successful gold bullion fund at the exact right time, and now the shares are selling at a premium, on top of the run-up in the share price. I must disclose that I am tangentially associated with these fabulous guys, mainly by virtue of their paying me money to stop bothering them, but the fact is that they know something, and that is why they launched the fund at this auspicious moment, and the people who are buying their shares know something, and that is why they are bidding up the price of the shares, and now you know something, too.
The Mogambo Guru Lives!
Richard Daughty is general partner and C.O.O. for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise the better 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.
Yep, keep people distracted until it is too late and they have already stepped over the edge of the cliff. It's the American way.
Richard W.
Comments and opinions welcome.
Richard W.
Some time ago, the plan was executed in Europe. It was called the Plague of the Black Death.
I greatly enjoy reading Mogambo's stuff and thanks for posting it. This specific piece seems long.....like he was on a desert island without a pencil for 2 or 3 months and wrote this piece as soon as he got a pencil and was able to get it all down on paper.
Mogambo references the Asia Times online. Very interesting paper, and a lot more fun than anything in the West. I'm trying to figure out who is behind it besides the Chinese government.
Here's the article - it's a good read.
Asia fills her boots: dollar reserves skyrocket - John Berthelsen
Richard W.
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