This article originally appeared at The Daily Reckoning.
-- I am having a hard time believing that the Federal Reserve is not expanding Total Fed Credit. In fact, it went down last week by $4 billion. Even Currency In Circulation is down. For a bunch of guys who are so hell-bent on flooding the world with money and destroying the USA with inflation, the Federal Reserve is suddenly doing a very poor job of it!
It's almost as if they woke up one morning and had the sudden revelation of "My God! The Mogambo was right! We ARE a bunch of freaking idiots, and our stupid New-Age, warmed-over, half-Keynesian-half-stupid monetary policy, combined with an asinine Fascist/ socialist/ communist political hodgepodge, means we are really freaking doomed!" And then they all jumped up and ran to work, and immediately started acting like competent grownups for a change, and immediately stopped that suicidal excessive creation of money and credit, which eventually drives up prices so high that people can't afford to loan me twenty lousy bucks, and THEN where in the hell will I be?
The real reason, I suspect, is much more prosaic, and that people have started stopping (as strange as that sounds) borrowing money, as suggested by a report on CNNMoney.com, namely that "Americans are among the world's most cash-strapped people, according to the latest semi-annual survey from AC Nielsen. Nearly a quarter (22 percent) of Americans have no money left once they've paid for their essential living expenses and spent their discretionary dollars. That puts the United States at the top of a list of 42 countries for saving futility."
I am going to gloss over the part where they seem to be saying how we ignorant wastrels out here have paid for "essential living expenses" and have also spent our "discretionary dollars", too! So, is the survey merely finding out who just got tired of spending money before it was all gone?
I dunno. Anyway, this goes along with the facts that about a quarter of the people have no health insurance because they can't afford it, and a quarter of homeowners have no homeowner's insurance because they can't afford it, and about a quarter of the drivers on the road have no automobile insurance because they cannot afford it, and 100% of the people I personally know cannot loan me any more money because they, so they claim, "can't afford it."
But life is not all bad, I am supposed to surmise, as they go on to say, "Some good news for Americans -- the results were an improvement from six months earlier, when 28 percent of those surveyed had nothing left at the end of the month." Well, it may be some good news for "some" Americans, but it is bad FOR America, as this means that at the end of the month there is a lot of money left over that was NOT spent on goods and services. The change may be due, Nielsen suggests, to "an attitude change -- 42 percent of Americans (up from 33 percent) now list debt repayment as their first priority for spare cash."
If my voice seems muffled at this point, it is because I am speaking to you via the cheap speaker-phone in the Mogambo Bunker Of Ultimate Defense (MBOUD) and I am locked in here shaking in fear, because this lack of spending is bad freaking news (BFN) for the economy. Spending is what MAKES an economy! An economy requires that people have to be out spending money, and making money, and borrowing money, and investing money, and loaning money, all of which it takes to make an economy go. And suddenly, we are "None Of The Above".
Well, at this point I need a heavy medication regimen to control my fear, and am typing this with my nose because my hands are clenched in useless fists, as I am so freaked out, and so without further ado we'll return to this very scary report as they say "Americans are saving more cash by curtailing some of their discretionary spending. Nielsen reports that 66 percent of those surveyed said they have cut down on take-away meals; 61 percent have turned down the thermostat to save on gas and electricity; 61 percent have cut back on home entertainment; 54 percent on new clothes; and 47 percent do less driving." Yikes! Yikes! Yikes yikes yikes!
So, if your fabulous, high-paying job is overseeing some vast global empire having anything to do with drive-through restaurants, giga-watt utilities, catering services, fabrics and/or petroleum, then your business is in a slump. And you are in a slump because of all us over-stretched, over-indebted, over-leveraged people out here have been forced to "cut down" on buying your goods and services. And then one morning you get to work and you learn that the board of directors has decided to make cuts in staff, and one of the cuts is either you or The Mogambo, and then one Friday when I am taking another of my famous three-day weekends that my stupid boss is always yammering about, I'm fired! For no reason! This is how recessions really hurt!
And now, worse, houses in some areas are suddenly not selling, or inventories of homes for sale is rising to historic records, or mortgage applications and originations falling or something, and the global bubble in housing also seems to be cooling dramatically.
But this is all about economic collapse and blah blah blah, while it is price inflation that really concerns me. And along this line of thought comes Doug Noland and his famous Bubble Watch column at PrudentBear.com, where he writes "The CRB index closed at another all-time high. This week saw copper, platinum and zinc all trade at new record highs. For the week, the CRB index added 0.5%, increasing y-t-d gains to 4.6%. The Goldman Sachs Commodities index declined 1.2% this week, with a y-t-d gain of 4.0%."
Now let's get up, whining and complaining about having to get up, and walk over to the Economist magazine and take a gander at what THEY show prices are doing, according to their "The Economist Commodity Price Index". Hmmm! I see that, in the Dollar Index, over the past twelve months, we have "all items" up 21.6%! Food up 13.5%! "All industrials" up 30.7%! Non-food agriculturals are up 18.6% and metals are up 36.5%! Oil is up 33.0%! Gold, precious, lovely, value-protecting, wealth-conserving, butt-saving gold, is up 31.5%!
And inflation is every freaking where (EFW), too! The Yen Index of "all items" has inflation at 34%, the Euro Index is up 28% and the Sterling Index is up 27%!
My God! If this ain't price inflation, then what in the hell IS it? And if we are not, as The Mogambo says, freaking doomed, then what in the hell IS going to happen? What in the hell else COULD possibly happen? Things will magically get better? Hahaha! Let the hollow scornful laugh of The Mogambo (HSLOTM) ring in your ears!
If, in the face of all of this, you are NOT buying gold and silver and palladium and oil and commodities of any kind, then you deserve what is going to happen to you!
-- I had just gotten back from playing golf in the morning, and I am whining about my need for a mid-range wedge, you know, something a little more than a sand wedge, but a little less than a lob wedge, and wondering who I could borrow eighty-five bucks from so I could get one, when the phone rang. Somebody is calling me, and might be able to loan me eighty-five bucks! "Thanks, God!" I said. It was Barb of 321Gold.com, who was calling me to tell me that the National Debt was OVER the debt limit set by Congress. The damned Treasury voluntarily spent more money than they were allowed by law!
I quickly figured that with all this money floating around, see, maybe could come up with eighty-five bucks to lend me, but she said no. Now that we had that point of business out of the way, I politely asked "So, what in the hell are you yammering about?" She says to go to 321.Gold.com. I did. She says to click on " Fed Temp Bank Reserves". I do. I was taken to the page showing temporary changes in bank reserves and repo accounts.
So I scroll down, and sure enough, there are nine little round, red heads in a row, which is Barb's attention-getting device to draw attention to the fact that Treasury borrowings have exceeded statutory limits.
If you look closely, you will see that the little heads each have two little eyes and a little animated mouth, and are apparently chanting in unison. I am not an expert in lip-reading, but after awhile I was finally able to figure out exactly what these little animated heads were saying. They are intoning "The damned Treasury Department voluntarily went over the damned debt limit, as set by Congress! This is an outrage! This is a (long series of rude, deleted expletives) outrage! I think that the (another long string of deleted expletives) Mogambo should get into the (deleted expletives) Mogambo-Mobile of his and (del. expl.) go to Washington (de.ex.) DC, and strut around like he owned the (de) place, and kick a little ( DE, DE, DE DEDEDEDE!) Treasury butt!"
Then she says that since she has me on the phone and I am still seem relatively sober, she will show me how smart she is and how stupid I am, and I am thinking to myself "Crap! I get enough of this at home!" She says that has noticed two things. 1) I am probably the biggest idiot she has ever seen, and she has known some real jerks in her time, and 2) that before 9/11, the Federal Reserve repo market used to average about $3 billion a day. But ever since 9/11/ it is running at about twice that! Hmmm! Interesting!
Well, no sooner am I off the phone that the wires are burning up with the screaming headline "U.S. IN TECHNICAL DEFAULT", which heralds an essay by Dr. M., who writes " In a shocking development, the Treasury Department website is openly stating that as of January 24, 2006 our national debt stood at $8,185.3 billion and on January 26 th at $8,190.5 billion."
So that is three of us that are outraged! Dripping with sarcasm, the mysterious Dr. M. continues "Since the debt ceiling has been raised 50 times over the past 40 years, I suppose we could write this off as merely an unsurprising development from a government that no longer bothers to even appear to be adhering to rules, laws and procedures, let alone actually doing so."
Nice touch! Anyway, he goes on to say "The last debt-ceiling adjustment was $800 billion and was passed in November 2004. Now, on January 24 th 2006, it is entirely gone. $800 billion in only 16 months for an average of $50B a month."
Yow! The Federal Reserve is creating $50 billion a freaking month? The money supply is being directly increased by fifty freaking billion bucks (FFBB) a freaking MONTH (AFM)? And how much IS $50 billion a month, you ask? It's $417 for everybody in the country that does not have a government job. PER MONTH! Your insane government is indebting you by another $417 per month, every freaking month! And they have been doing this for years! And they will CONTINUE to do this, more and more, for more years! Hahahaha! We're idiots!
And you wonder why I am screaming "Buy gold!"? Hahaha! I am screaming "buy gold!" because this is insane!
And it is not just us! From Reuters we read "Commenting on U.S. reliance on foreign oil supplies, McCain told Fox News, 'We better understand the vulnerabilities that our economy and our very lives have ... when we're dependent on Iranian mullahs and wackos in Venezuela.'
Mr. Chavez himself was, I guess, too busy coming up with more idiotic socialist ways to destroy Venezuela, so the vice president was called on to tell Sen. John McCain that "he could 'go to hell' for suggesting that 'wackos' were governing the oil-producing South American country."
The Reuters article went on to explain "A former army paratrooper prone to quoting Ernesto 'Che' Guevara and Karl Marx, Chavez presents his revolution as a counter to U.S. free-market proposals for South America." Hahaha! A revolution to counter the free-market? Hahaha! The free-market, which is the only hope that any of us have, he is going to eliminate? Now I know what McCain means about "wackos" running Venezuela!
The article also says "He often accuses Washington of plotting his overthrow." Hahaha! If you see Mr. Chavez, you can tell him to relax on that score, because nobody in America wants to kill him. Everyone wants him to live! If he lives, he is going to destroy Venezuela with this insane collectivist drivel, and then America and other nations will be able to swoop in and pick up the pieces. Why in the hell would anyone want to kill him?
-- That the stock market did not collapse into a big, stinking pile of crap is a big, big surprise for me. For one thing, one big thing, one Big Freaking Thing (BFT), earnings for the indexes went down. A lot! The DJ Industrial Average shows earnings dropping from $573.68 to $504.84. Yow! Hell, a year ago they earned $600.65!
The SP500 Index showed earnings falling from $66.76 to $66.57, which isn't huge, I'll admit, but it ain't growth, either. This lack of earnings dovetails nicely with the current drop in Consumer Installment Debt, because if nobody bought stuff, the guys who make stuff don't sell as much stuff.
But even the DJ Utility Average dropped from $22.34 to $21.40, which means, I guess, that if consumers aren't buying things, then they are not running home and plugging them in and turning them on and having fun playing video games or something. And of course this is mirrored in the falling earnings of the DJ Transportation index, which fell from $244.63 to $238.09.
And this is when the price/earnings ratios of these indexes are all 18, 19, 20, or 21 already! These share prices are at the historical high end, the very high end, the extreme high end of valuations for stocks, compared to earnings! To get the P/E back to some semblance of sanity, such as, oh, say, 14, then either earnings have to rise like crazy, or prices of the shares have to drop, and drop a lot, and somewhere in the neighborhood of half, or more. Much more!
The reporters sit there in silence. The Mogambo looked around the room. Finally, in exasperation, the long-suffering Mogambo cries out "The stock market almost certainly has to lose more, a LOT more, than some piddly 50%!" Still, the reporters said nothing, standing there mutely, holding out the stupid little microphones in their stupid little hands. Tearing his hair out in frustration, the voice of The Mogambo rises to a shout "We just saw, for crying out loud, that earnings are NOT going up, and consumer borrowing is NOT going up! What in the hell is the matter with you stupid people? Can't you morons understand that your damned heads are going to be chopped off, even as you watch the blade of the guillotine hurtling down towards your stupid, geeky pencil necks?"
To make a dramatic point, I grab one of the smaller, weaker reporters, whose stupid little ID badge said he was a sixth-grader on a field trip from Skyview Elementary School, and I am right in the kid's face, shouting at him "And those earnings are going to keep on dropping, you little jerk! Month after month, year after year, earnings fall and fall as consumers continue to not spend, and companies not earn! And so the price of shares of stock has to drop that much more! Do you understand what I am saying, you nasty little bastard? The stock market will collapse, you stupid, stupid kid!"
Well, my stunning performance was, unfortunately, cut short when people are clawing at me, trying to drag me away from the kid, and that little twerp shook loose of my grasp, jumped up and starting crying, and everybody is yelling and running around, and my wife is offering a hundred bucks to anyone who will knock my "block off."
But this is not about how the enlightened Mogambo treats children as he treats adults, and thus hates them both equally, but how the damned stock market is going to go down, and take with it the retirement dreams of those many, many morons of the world (MMMOTW) who actually think that everybody can get rich by putting ten bucks into a bucket labeled "stock market", and then coming back later to take twenty bucks out of the bucket! Hahahaha! And to those people I laugh the stinging, scornful laugh of Mogambo contempt (SSLOMC), which, for those who haven't heard it, sounds sort of like a hyena retching.
Bill Bonner of the DailyReckoning.com site hears me and my brutal style, and decides that he is going to show me how to say the same thing, and simultaneously wax not only philosophic, but lyrical and poetic, too! I'm thinking to myself "Well, I gotta see THIS!" Without even warming up, he says, right off the top of his head, " Oh Alan, Alan ...what have you done? You have lured a whole generation into a debt trap from which they cannot get out. Debt service, as a percentage of income, is at a record high. Even with Mom and Dad both working, family expenses exceed income. What can the lumpenhouseholders do but pray for a miracle...file for bankruptcy...or cut back even more?"
With all due respect for Mr. Bonner, I say that, as a guy who has prayed for a miracle many, many times because I really, really, really needed one because I did something really, really stupid, the data is pretty conclusive: This is a zero-probability option, and your best shot is to sneak out of town in the dead of night with all the cash you can lay your hands on, and try and do better next time with a new name, and new spouse, and new kids, in a new state or country, depending on circumstances.
-- Dr. Kurt Richebacher, everybody's favorite Austrian economist, writes " The American idea that everything good comes from consumer spending is preposterous. And that is the key fallacy in America today."
I thought I was the only guy around here who can't believe his eyes, but Dr. Richebächer says "Because consumption has grown so far out of proportion to production, capitalist America relies on the generosity of communist China. Americans don't even realize how ridiculous and absurd this is. It's so absurd I can't believe it. I think this is the worst sign that I could imagine."
Well, I personally could imagine worse things, such as Godzilla rising up out of the ocean, shooting laser beams out of his eyes and smashing through here like he did to Tokyo many, many times before. THAT would be worse!
Dr. Richebächer looks at me like he can't believe I would say something so stupid, and says, like he is talking to some idiot child, "It means that net investment is collapsing." Again, he's lost me, as I continue to argue that some stupid drop in "net investment" is a whole lot better than Godzilla stomping around, smashing the hell out of my house and maybe me, too.
Apparently wanting to end this quickly, he summarizes "There is no way out."
- I had lunch with Bob and Paul the other day, and Paul says that he hears stockbrokers starting to recommend to their clients that they hold some gold. The fact that gold shares (as represented by the HUI index) have exploded more than twenty percent this month alone means that those brokers are looking like geniuses. So expect more of the same, as more and more stockbrokers start recommending that their clients buy gold, and clients of stockbrokers start making money in gold, which will lead to higher and higher prices for a long time as they start bragging to their friends about how much money they have made in gold, and then more and more people start buying gold. So, is this a bubble in gold? Who knows? I'm betting that it is.
-- If you want another reason to buy silver, and by this time you should be up to your eyeballs in silver and you are praying to yourself, "Please, Mogambo! Don't recommend silver again! I'm drowning in the stuff!" So, in answer to your prayer, I am NOT going to recommend that you buy more silver. Yet.
In the meantime, I offer up the essay "Silver ETF Packs Punch" by the Texas Hedge Report, which is about the proposed Exchange Traded Fund for holding silver bullion. " With silver trading at around $9.60/oz, $6 billion in incremental investment demand would translate more precisely into about 625 million ounces of the grey metal. This would almost certainly wipe out the entire world's identifiable supply of above ground silver (about 550 million ounces according GFMS)."
Hahaha! You want an investment tip that is going to pay off in spades? This is it! Silver is so cheap, and so rare, that a measly $6 billion would buy up all the available silver in the world!
Okay, now imagine that you happen to HAVE $6 billion, and you are a ruthless, grasping Mogambo greed machine (RGMGM). You can buy that first ounce today at $9, and then you can buy more and more and more. And when you are getting ready to buy that last ounce of silver available in the world, do you think it will still cost $9? Hahaha! Not only "no," but "no indeed" That last marginal ounce of silver for sale, wherever it is on the planet, will cost hundreds, if not thousands, of dollars!
Your homework for tonight is to determine how much profit will you make on all those ounces you bought for $9. Hahaha! Welcome to the Mogambo Fantasy World Of All The Things You Can Do With Enormous Wealth (MFWOATTYCDWEW)! Fun, ain't it?
These Texas Hedge boys think that if an ETF "approaches anything close to the popularity of the other ETFs, then silver's run-up may be more spectacular than anyone can imagine."
They summarize with "Finally, if you were to ignore all of our ETF demand assumptions and look at the big picture, you should be even more bullish. The fact is that the entire dollar value of annual silver demand is peanuts."
-- They say that Alan Greenspan is going to open his own consultancy, which I think is a good idea. When the results of his disastrous monetary policy start becoming more and more obvious, angry groups of people will be thankful to know just where he is, so they can march down there as an angry, unruly mob, brandishing flaming torches and dragging him out into the street, given a quick kangaroo-court trial with me as judge and jury ("Guilty, you stinking idiot bastard!") and thrown into some stinking prison cell, sort of like my office, but not as drab or messy.
And it is not just me that is grumpy about Alan Greenspan. For example, listen to Adam Hamilton of Zeal Intelligence newsletter as he writes "History will rightfully remember Alan Greenspan not as an inflation-fighting hawk, but as a socialist Keynesian advocate of endless inflation. The bottom line is Alan Greenspan, despite his huge fan club today, is no different from the Communist party bosses of Russia before the Cold War ended. Rather than sitting back and letting the invisible hand of the free markets determine the price and growth rates of money, Greenspan chose to play God and horribly messed everything up like all other would-be demi-gods in history. In five or ten years from now once the full spectrum of the consequences of his highly-inflationary and moral-hazard-ridden policies become apparent, I suspect Greenspan will be remembered as a goat, not a guru, a blight on our great nation and economy."
Or as Morgan Reynolds, PhD, professor emeritus at Texas A&M University and former chief economist of the US Labor Department says, Bernanke "will be a disaster because he is wrong about virtually everything." Ugh.
****Mogambo sez: It's hard to be too gloomy when one is making so much money as gold and gold mining stocks rocket heavenward.