E-Economic Newsletter

By: The Mogambo Guru | Thu, Jan 26, 2006
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This article originally appeared at The Daily Reckoning.

- Total Fed Credit did not appreciably change last week, up a mere $562 million, which is chump change when you have been watching TFC shooting up by a few billion per freaking week for years and years, especially since 1997, which is, for you Mogambo scholars, a special year for me, as clinical records indicate that 1997 was when I officially entered Permanent Mogambo Panic Mode (PMPM), thanks to Alan Greenspan and his horrible Federal Reserve moron buddies suddenly starting to create explosive, monumental amounts of money and credit around the clock, which they have not stopped doing yet, nine freaking years later.

As Sprott Asset Management wrote, "For those keeping track, M3 money supply is up 50% since the beginning of the decade, and has doubled since the beginning of 1997. Alan Greenspan has been a money printing speed demon. Before 1997 it took fourteen years for the money supply to double. Since then it has taken only nine; and if the rate of the past month is any indication, it will double again in four years."

So, money and credit were not being created willy-nilly as much in the last couple of weeks, which is a nice change of pace for those of us who understand how excess money and credit is what fuel booms, and how booms lead to busts, and how busts lead to business slowdowns, and business slowdowns mean relatives getting laid off, and then they come over here crying and pleading and whining and wanting me to pay back the money I owe them, and I laugh so much that I get a sore throat. But mostly I am despondent at the prospects.

My mood is elevated somewhat, as is yours, I am sure, by plans for the big celebration of Mozart's 250th birthday celebration this Friday, the 27th of January. On that glorious day we will all again spend time listening to the music of the greatest and most phenomenal composer in the history of music, eating German pork products, and drinking German beer until we puke. Ahhh! Music appreciation at its finest!

But Mozart's birthday is only one day of happiness, and then it is back to the coming recession/depression, which will be particularly ugly and misery-laden this time, as the unfortunate side of brutal reality (USOBR) is that the misery of the subsequent bust (M) pretty much equals the fun (F) of the prior boom, as in the timeless equation, M = F. And how much fun was the boom? Well, according to everything I read, see, or hear, it was the biggest freaking boom in recorded history. From there, it is a short hop to all-consuming fear, a left turn down Panic Alley, a U-turn onto Screaming Hysteria Lane, and then you arrive at the Mogambo Bunker Of Ultimate Dread (MBOUD).

But it is not just me! Listen to Doug Casey of the International Speculator newsletter writing on the SafeHaven.com site, as he says "Predicting the coming financial crisis is a relatively straightforward affair, made so by the fact that it is now unavoidable. The only question is how bad it will get. And it could get extremely bad." Apparently, he hasn't heard of M = F.

And I notice that Mr. Casey kinda wimps out there at the end, too. So, I take my blue editor's pencil and change the phrase "could get" (which is too cautious for a macho Mogambo man (MMM) like me) to read, more flamboyantly, "is going to get bad bad bad bad really freaking bad bad bad because, as the fabulous Mogambo says, 'We're freaking doooooooomed!'" Someday, probably soon, Mr. Casey will thank me for making him appear so prophetic.

But there is, alas, no money in prophecy. For example, when I come home from a late night working at the office, stinking drunk and reeking of cigarette smoke and cheap perfume, it is easy to forecast that my wife is waiting behind that door with vengeance on her mind and a blunt instrument in her hand. I just can't make any money on it. Mr. Casey takes the hint, and, being the terrific guy that he is, tells us HOW to make money on it! He points out that the stock market is floating on "a fantasy of easy money and debt. When that fantasy ends, it will be gold and silver stocks that are left standing."

Larry Ellison of Money and Markets hears me yammering about gold and says "Investment demand worldwide surged 56% in the third quarter of 2005, compared to the same quarter in 2004. Gold prices have started moving higher at a much faster pace."

This is nothing new to us inveterate gold bugs, but it gets better for me and my paranoid gold bug ilk as he adds "If gold went up rapidly last year even without the typical demand from investors fleeing the dollar, imagine how fast gold will go up when a weak dollar is driving hordes of investors into gold!"

Well, the thought is so pleasant that I am temporarily lost in a fit of wild Mogambo imagining (WMI) about the price of gold when "hordes" of people are being "driven" into anything that exists in strictly limited supply. Visions of enormous wealth dance in my head, and soon it is apparent that I had forgotten what in the hell he was talking about. Seeing that I have again lost contact with reality, Mr. Ellison jumps in and continues "A weak dollar will light a fuse under gold! Gold will explode." Take points off for lack of an exclamation point on that last sentence, but the message comes through loud and clear.

But before I can start lecturing him on the use and misuse of the exclamation point, he jumps in and says that gold will also go up in price because of the additional stimulus of rising fears about the escalating tensions about Iran and a flu epidemic, which are, he says, "Not the kind that go away!"

But just to show you that the Fed is still kicking, the category of Government Securities Bought Outright went up by $1.3 billion bucks. This, if you look up "Fraud, Ultimate, Government" in your Handy Mogambo Encyclopedia (HME), is when a bank that is a de facto arm of the government prints up money to buy government debt. Net result: Government spends, further indebting the citizens, and the banks create the money to buy the debt, which increases the money supply, which will make prices go up (price inflation)! This gives us stupid American taxpayers and even more stupid American voters a DOUBLE whack to the head (DWTTH); more interest expense to pay, more debt to pay off, and higher prices to pay from now until forever. So I am really, really, really, really huffy about that, too.

And, to add to the general crap that actually defines the life of The Mogambo (TLOTM), I have been forced, over what seems like an eternity, into a new email rigamarole with new addresses and sub-accounts God knows what all, and everything is all screwed up like you would not freaking believe. And so if you have written me about the money I owe you and you haven't heard from me, that's normal, so screw you, chump. For everybody else, you are, I regret to tell you, lost in 'lectronic limbo (LILL). Sorry. There was a birthday greeting I was supposed to send, and lots of other thank you notes (mostly "Thanks for dropping the lawsuit against me!"). But it has been one big hassle, and I have no idea if it is all working or not, so I am highly, highly, highly perturbed about that, too.

But things economic must be really worse than advertised, as Ford is laying people off, General Motors is laying people off, Chrysler is laying people off, and lots of companies are laying people off, and I am hearing a lot of stories about how total revenues were down (which is bad) but profits were somehow up (which is good) all over the place, which means that they must have cut costs. This is what passes as brilliant management today.

"But," The Mogambo says, "it was not always thus!" And waxing nostalgic, truly do I fondly remember when I tried this same good news/bad news thing in one of my early executive-trainee gigs. Soon after arriving, I had somehow alienated all of our idiot customers, except for the one I was blackmailing, and most of them were either suing the company or sending me death threats. Sometimes both. I remember that part VERY clearly.

And since we only had that one customer left, my brilliant Mogambo plan (BMP) was to fire everybody except the billing/accounting department, and have our contract with the maintenance/janitorial service amended to add "customer order fulfillment" to their job descriptions at no increase in pay. It was brilliant! Costs were slashed to almost zero! Then, our one customer provided us with the aforementioned less revenue but (thanks to no expenses) more profit. Just like now! I remember this part very clearly, too.

What I don't remember as clearly is when the CEO forced me to explain it to the board of directors, probably because that's when I learned a very valuable Mogambo lesson in life (VVMLIL): even real old guys with arthritis will react like vicious, clawing, screaming, frightened rats when you tell them that (on paper) we are doing great, but in reality the company is ruined, we are all going to prison and I am responsible. The next thing I knew, I am running from the board room with my suit ripped to shreds and the sound of old men crying like babies ("I'm ruined!") reverberating in my ears. I had just gotten back to my drab little closet of an office when two big guys from the maintenance/ janitorial service came busting in, grabbed me, dragged me screaming and bawling like a little girl out through the lobby, and threw me bodily out into the parking lot, while cruelly laughing at me, "How do you like your 'customer fulfillment' now, you filthy little piece of crap?"

So, while MY personal experience with the "lower revenue/higher profit" paradigm was traumatic, I am amazed that today this is now good news, as I seem to understand it. I guess I was just a Mogambo man ahead of his time (MMAOHT)!

- The yield curve has actually inverted, as short-term interest rates are now higher than long-term interest rates. This is always a very bad sign for an economy, as bond players are betting that the economy will be so weak that the Federal Reserve will be forced to drastically lower interest rates, thus increasing the value of their long bonds.

Peter Grandich hears me talking about an inverted yield curve and says, "I think an inverted yield curve, no matter how small of an invert it was, is one of the most reliable indicators around." Reliable indicator of what? Using my amazing Mogambo paranormal abilities (AMPA), I not only know EXACTLY what he thinks it means, in all its far-flung ramifications, but I also know how to shorten it to the pithy "We're freaking doomed!" because an inverted yield curve means we are facing a recession, and with this heaving, bloated, over-indebted, over-leveraged, mal-invested, idiotic big-government economy, we cannot possibly stand the strain.

What in the hell stock investors are so happy about, on the other hand, beats the hell out of me.

And I notice that the dollar is rolling over, as it should, and as befits a currency that is being so devalued by the central bank and the government that it is being literally destroyed in front of my aching, bloodshot eyes. And when the shooting war with Iran gets started, the dollar will fall even farther. And when oil is priced in some currency other than dollars it will fall even farther.

- I was sitting right there in the audience when the overlords at the Labor Department trotted their quants out of the dank, diseased cellars where they live, and had them say soothing things to us stupid unwashed masses. Looking right at me with their beady little eyes, they snarled "Everything is fine, but you are stupid! And ugly!" So you can see that Bloomberg News got it all wrong when they reported that the words they used were "U.S. consumer prices unexpectedly fell for a second month in December as energy prices declined, a government report showed. Excluding food and energy, prices rose no faster in 2005 than the year before, supporting the Federal Reserve's view that inflation remains tame."

Bloomberg also did not report that at this I jumped to my feet, disrupting the press conference, and shouted "This is, to use the scientifically-correct term, a Gigantic Load Of Crap (GLOC)! Even people suffering terminal Alzheimer's disease, who can no longer even recognize themselves in a freaking mirror, for crying out loud, can instantly see that this reported low rate of inflation is a huge freaking GLOC!"

Then pandemonium broke out, and everybody started yelling something that sounded sort of like "GLOC you, Mogambo!" which was real flattering and all, but they went on as if I hadn't even been born, saying "The 0.1 percent decline in the consumer price index follows a 0.6 percent decline in November, the first back-to-back declines in two years. Core prices, which exclude fuel and food, rose 0.2 percent for a third month."

It is perhaps coincidental that we got this laughable report on "tame" inflation so soon after I personally wrote to the Federal Reserve about this very topic. I mean, just that morning I had written them, starting the letter out with the usual salutation "Dear butthead Federal Reserve idiots that are killing the dollar and America with your insane monetary-inflation stupidity." But this is not about how the first 225 pages of my inflammatory letter to the Federal Reserve were devoted to describing how much I hate their guts for being lying scumbag trash about creating monetary inflation, which creates price inflation, which they also lie about, and which is actually running much, much, MUCH higher than they say.

Back at the press conference, they finally get a little closer to the truth when they admitted that "For all of 2005, the core index rose 2.2 percent." This is, remember, the "core" rate of inflation, which is akin to your showing up at the emergency room with your toes and fingers reduced to dead, blackened stumps by severe frostbite, and yet the doctor is jamming a rectal thermometer up there and saying "Nothing to worry about, as his core temperature is almost fine! Tame, in fact!"

I think all this talk about rectal thermometers got them nervous, and just before bounding from the room, they hurriedly said "Consumer prices were up 3.4 percent for the 12 months ended in December compared with a 3.5 percent year-over-year gain the previous month. They rose 3.3 percent in 2004." Then, they were gone!

I am sitting there, stunned at the revelation of 3.4% inflation! Any price inflation is worrisome, and when price inflation is over 3%, it is, historically, supposed to have central bankers and governments jumping out of windows in panic, and citizens rioting in the streets, shouting "Viva, Mogambo!", at the egregious mismanagement of the economy by the Federal Reserve and Congress. Just remember that Richard Nixon once seized unprecedented dictatorial powers over wages and prices in the USA because inflation hit, one stinking year, an intolerable 4%! And now, fast-forwarding to today, 3.4% inflation, which we are suffering year after year, is somehow "tame?" I feel a mighty roar of Mogambo outrage (MROMO) building deep in my chest at the very thought.

Just to show you a taste of the horror of inflation, the Labor Department said "Weekly earnings of workers, adjusted for inflation, rose 0.1 percent in December after rising in November by 0.8 percent." Hahaha! If you use the ridiculous "core rate" of inflation to dilute the buying power of nominal wage increases, then workers are essentially standing still! But if you devalue those wages by the REAL rate of inflation, which is running somewhere north of 7% (which is a number that I randomly pick from the air because it seems "right"), then workers are suffering a huge freaking drop in their standards of living, which is manifested in having to make the choice of buying less stuff every week or going farther into debt every week. Whoopee.

And what accounts for this drop in prices that only government statisticians can see? They rounded up some unnamed "economists" to explain. "Discounts on automobiles and markdowns to lure holiday shoppers," they figured, "probably held down the consumer price index last month." Hahahaha! Lower prices to hold a big store-wide sale brings prices down? Wow! No wonder these geniuses make the big money!

But, to be fair, it is not only government wonks and unnamed "economists" that say stupid things. How about "the median estimate in a Bloomberg poll of economists taken Dec. 23 to Jan. 8", which breezily announces that "Price gains for all goods and services may slow to 2.8 percent this year as fuel prices stabilize." Hahaha! Fuel prices stabilizing? Hahaha! What a comedy of the absurd!

Apparently, these guys do not share the same crystal ball as Kurt Wulfffounder of McDep Associates, whom Matt Badiali at The-Rude-Awakening.com site quotes as saying "we'll have $150 per barrel oil by 2010." And you can bet that Iran is not setting up a new oil trading center so that they can sell cheaper oil to Americans!

Toni Straka of the PrudentInvestor.blogspot.com says that he is tired of hearing about 1) inflation in fuel costs and 1) about me trying to borrow five lousy bucks for some gas. Inflation, he says, is a function of what you use as money. "Would you pay your crude oil bill in the universally accepted currency of the last 6000 years - commonly known as gold - your barrel would have become 28.4% percent cheaper since the nominal record high reached last August." Thus, the value of a stable currency is again demonstrated, this time as less inflation at the pump!

And if we are talking about pricing oil in ounces of silver, it is cheaper yet! See why I am always yelling about how only gold and silver should be used as money?

- At the same time as all of this craziness is going on, from Reuters we read of other craziness, namely that "The Federal Reserve is watching vigilantly for any signs of deterioration in the inflation outlook, Fed Governor Susan Bies said. Bies said the U.S. economy was expanding solidly and consumer spending appeared to be supported by rising incomes and sound household balance sheets."

No sooner had she said that the U.S economy was "expanding solidly" when, "Speaking to reporters following her remarks, Bies said that while the Fed must remain watchful on the inflation front, economic growth was likely to slow a bit this year." Only in the mind of a Fed governor can "expanding solidly" mean "slow a bit," not to mention the fact that they (including Bies) all believe that inflation north of 3% is "tame", when, in reality, to even think such absolute stupidity is a sign that THEY, not I, should be locked up in this loony bin.

She also said the Fed would need to continue to monitor prices for energy and other commodities, but said it was remarkable how little of the recent commodity cost run-up had fed through into core consumer prices so far.

This reminds me of joke sent by Mary Kay M. that went "DejaMoo: The feeling that you've heard this bull before."

- The dimwitted socialist government trash in Maryland decided that the essence of socialism is alive and well there, and passed a law requiring Wal Mart to either provide health insurance to everybody who works there, or pay a special tax so that the government can provide health insurance to everybody. Wal Mart now has to raise prices to stay profitable.

Next on the agenda of these socialist morons? Whining that prices are too high! Hahaha! It's just as Alan Greenspan himself said, "The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves." In fact, he has it almost right. But because of all of this kind of Fascist/socialist/communist nonsense, prices will rise so much that NOBODY can protect themselves.

In the same stupid vein, the Brazilian President, Lula da Silva, agreed to raise the Brazilian minimum wage 17 percent, as if the poor damned Brazilians didn't have enough to worry about.

- For those of you who like your market indicators moving in a more glacial vein, Richard Russell of the Dow Theory Letters writes "From a Dow Theory standpoint, the markets continue to face a major non-confirmation in the Averages. The Transports have risen to new record highs while the Dow has failed month after month to confirm. Thus, from a Dow Theory standpoint, this is a dangerous market. It's particularly dangerous because of this truly spectacular divergence and non-confirmation in the Averages."

Now, as today's obligatory lesson containing real "educational content", let's analyze this linguistically. First off, we note that he uses the adjectives "major", "record" and then "dangerous" TWICE, and ending up with the word "spectacular." What was the author saying?

Well, I could call him up on the phone and ask him, but I am far too lazy and far too cheap to do that, for one thing, and for another thing I can just read his mind with my amazing Mogambo paranormal abilities (AMPA). I close my eyes. I concentrate. I send out waves of mental energy, locking onto his mind, sort of like a Vulcan mind-meld. I probe his mind. Probe. Probe Finally, I see he means "Get up off your stupid fat butt and buy gold and silver and platinum and oil, because these are the kind of tremors that happen at the Big Freaking Moment When The Tides Turn (BFMWTTT), and it is not just The Mogambo that is so scared that he poops in his pants, but lots and lots and lots of other people, too, measured in the teeming hundreds of millions all around the world, are pooping in THEIR pants, too, in fear of losing their money, and now there is a big stink everywhere as a result." So, I am happy to report, it's NOT just me that stinks in raw fear around here.

- Eric Sprott and Sasha Solunak of Sprott Asset Management write (to paraphrase) that I am not the only one that thinks that we Americans are acting like scary, stupid buttheads. They write "This environment of egregious excesses and unprecedented financial recklessness has only gotten worse in the past twelve months, even surpassing what macroeconomic logic can reasonably describe as the breaking point." If you are like me, then you are wondering what in the hell they are talking about. Sensing this, they continue "US consumers were able to amass $1.3 trillion of new debt in 2005. Outlays in fiscal 2005 increased by 8% over the previous year. The national debt now stands at $8.2 trillion, already hitting the debt limit that was raised by $800 billion at the end of 2004. The federal government's net liability, as reported in the '2005 Financial Report of the United States Government', now stands at a mind-boggling $49.4 trillion. That's almost $200,000 per American! It sounds too ludicrous to be true, but this is the government's own number."

- A reader wrote to the Urbansurvival.com site to report that "certain ammo is impossible to obtain now. The Russian manufactured Wolf & Bear ammo in 7.62x39 (for use in AK's, SKS's, & Ruger Mini-30's), which was dirt cheap for American shooters, is now dried up. More then likely all this ammo is being shipped to Iran, Syria, and other Arab states as the AK's in 7.62x39 are what their military and other forces use there. Just another little indicator that things with Iran are heating up big time."

This may be in anticipation of the n ews from the Federal Reserve that not only is Industrial Production and Utilization up 2.8% from a year earlier, but that the American Global Belligerence War Machine had a lot to do with it, as spending on defense and space equipment was up a whopping 9.7% higher a year earlier! Everybody is arming!

Also on the UrbanSurvival.com site was an email from Dr. Stephen Rinehart, who is apparently some kind of engineer or something. And when he applies his prodigious intellect and education to the task, he sees a lot of turbulence in various market indexes.

Getting most of my engineering education from television and old movies, I know that when you are flying in an airplane and you hit turbulence, then either 1) somebody cute will fall into the lap of somebody handsome (or vice-versa) if it is a romantic comedy, or 2) the airplane immediately goes into some kind of unrecoverable pin and everybody dies if it is a drama. Either way, turbulence is nothing to take lightly.

To prove the point, he says "we may have only 18 weeks or less warning until a crash occurs after the amplitude in the 18-week cycle starts growing. This cycle has started increasing in amplitude! We do not know (on just the basis of this cycle) which top will be involved in the 'crash' but it is flagging a potential incoming storm."

Well, obviously, t he swoons and zooms of markets around the world are only the beginning. Worse, these are the kinds of wild, worsening oscillations and turbulence that characterize systems just before they become unstable and blow up, sort of like how the idiocy of the modern incarnation of central banking makes me crazier and crazier, day by day, worse and worse, until one day I suddenly go berserk and wake up a few weeks later in a straightjacket being fed Jell-O through a straw.

And the bad news for a lot of people is that the losses of these market swings are magnified by, probably, a hundred-fold, or a million-fold, or a zillion-fold, as that is the insane degree of leverage that is used in finance these days; borrow the whole wad with almost nothing down. So, one hell of a lot of money was lost lately.

And the worse news is that it will continue to get worse and worse, and then people with big money still at risk are going to be wringing their hands and saying things like "Oh, dear! Whatever shall I do? My market losses are terrible! Shall I listen to The Mogambo and put everything in gold? Or can I think of someplace else safe and profitable to put all my money? Am I smart enough to be the first guy in all of freaking history to figure out some other way to preserve my wealth, without utilizing gold, to keep my financial butt from being chewed off in a big deflationary bust that comes after a long inflationary boom?"

Hmmm! Good question! But I am betting that they, like everyone else in history, will come to the conclusion that there is nothing, NOTHING, else that will work, except gold and silver. If there was, I am pretty damned sure (PDS) that I would have heard about it, or read about it, in all these years of reading economic history. But economic history is little more than the sad, sad story of the people and countries who did NOT trust in gold, and how they suffered for it. Ugh.

****Mogambo sez: You got gold, you got silver, you got oil, and you got Mozart. Your life is serene. Who could ask for more?


 

The Mogambo Guru

Author: The Mogambo Guru

Richard Daughty, the angriest guy in economics
The Mogambo Guru

The Mogambo Guru

Richard Daughty (Mogambo Guru) is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise to better heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning, and other fine publications.

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