-- Things just do not make sense to me anymore, and it is that bewildering confusion and "fear of the unknown" that brings out the paranoid and panicky side of me, against which modern pharmaceutical science stands powerless, their expensive nostrums bouncing off of my frantic paranoia like bullets bounce off of Superman's Buns of Steel.
What kind of confusion? Well, for instance, Total Fed Credit was down another $4.2 billion last week, although credit in the banks is still expanding like crazy, which means, by definition, that debt is still expanding, which means that the money supply should be expanding, but I see that the money supply is not very robust. Confusing.
And the national debt is still increasing at about $3 billion per day. And getting worse every damned day, as if someone actually believes that an always-failed-in-the-past, guns-and-butter fiscal policy is not inflationary and suicidal! Confusing!
But these horrific things apparently mean nothing to anyone except Chicken Little, gold-bug, Austrian school of economic thought, loudmouth crackpots like me. And indeed, the bigger news seems to be that America's central bank elite, ordinary bankers, underlings, assistants, friends, hangers-on and miscellaneous "others" are/were meeting in Jackson Hole, Wyoming. They meet there for their annual super-secret conference, where I suspect that they smoke crack and gobble Ecstasy, which would explain the bizarre way that they think, especially that weird "lowering interest rates will fix any problem" idea that they seem fixated upon.
The running joke this year is about whether they see a moose or not, which they jokingly imbue with the oracular power to predict a growing economy. Yuk yuk yuk. And sure enough, we get actual video footage of a sad, sick old moose wandering around out in the distance. I mean, the place is swarming with FBI people, CIA people, NSA people, security people, police people, television crews and noisy whatnot, so it really is a wonder that some desperately sick and/or old, starving moose will accidentally wander close enough for a cameraman to record the event, to the delight of CNBC.
Then I heard that Bernanke's speech was not about inflation! It was not about, for instance, the housing bubble that is bursting. Nor about the roaring debt problem, both public and private. Nor about roaring global money supplies, nor the falling U.S. dollar, nor the dangerously rising price inflation, nor how they have to soon admit that they are all complete, blithering idiots for believing their laughable economic theory about how lowering interest rates, to encourage taking on more debt, will always work its incomprehensible magic, or any of that important stuff!
The topic was, instead, some insipid, throwaway blather about "globalization" and how it has progressed surprisingly faster and bigger than any time in history, and that they are all pleasantly confused as to why this happened. They all agree that it is a good, good thing for America, of course, and they are all sure that everything will be simply perfect, perfect, perfect from now on, even though they wonder, you know, why?
At this outrage, I leapt to my feet in anger and ran up to the television screen, and putting my nose so close to the screen that I am sure they must be able to see me, I am yelling "Why? Do you want to know why globalization progressed so fast and so far, you morons?" That was supposed to be just a rhetorical question, but suddenly the whole family started whining, and the kids are crying "Mom! Mom! Make him stop! For the love of God, mom, please make him stop!" and my oldest daughter is looking comically heavenward and wailing "O, Death, where is thy sting?"
And then the wife pipes up and says "No, dear, we do NOT want to know why, because we already know why! It's because of the Federal Reserve, isn't it?" Before I could admit that it was, she snarls "Isn't it? Admit it, you big blowhard Mogambo bastard (BBMB)! Admit that it's because of the Federal Reserve! Go ahead! Admit it!" and I replied, in my usual Witty Mogambo Way (WMW) "Shut up, shut up, shut up! All of you just shut the hell up!" and then I ran out, my little heart breaking, and my eyes stinging with bitter, bitter tears.
Later, after having a few drinks with my new close friends down at the nearest bar that has cheap, greasy food and cheap liquor (served in greasy glasses), I realized that she was right. It was because of the Federal Reserve! But that brought up the odd question; if my family can figure it out, then how come the only guys who can't figure it out are the Federal Reserve and the guys whose living depends on toadying to the Fed so that they can go to swell conferences and act important and charge clueless clients the big money?" Then I thought "Maybe they don't know!"
This is when I hit upon my Fabulous Mogambo Idea (FMI). My idea was to rent a moose suit and go to Jackson Hole. Masquerading as a real moose, I would casually wander up, all docile and cutesy-wootsie moosey-like, close enough to the conference to get everyone's attention. Then I would bellow, really moose-like, "The Spirit of the Moose says: Send me Ben Bernanke!" and then he would come out and say "What do you want, moose?" Then, dramatically, I would heroically jump out of the moose suit and shout, in a thick, Boris Badenov-and Natasha type Russian accent, "Ha! It is neither moose nor squirrel, but I, The Mogambo!"
Then, hoping that the camera crews get this on film before the security people get to me, I bellow "The globalization happened because someone paid for it, you stupid dork-face! It was bought and paid for! So, the highly pertinent question from the Spirit of the Moose is; 'Where do you think the financing for all that unprecedented globalization came from, you big stupid-faced jerk?'"
Then, after a short dramatic pause, I continue, waxing eloquent in my moment of glory, "Since you obviously have no clue, I'll tell you! The financing for the whole thing came from the Federal Reserve, you butthead, which created so much excessive money and debt, year after year, so that the government could sell bonds, year after year, so that the government could have an endless orgy of deficit-spending, year after year, and everybody ended up with money! Money to freaking burn, dude! And crippling debts to match! And the money all ended up in the pockets of the rich, as it must, because it is the rich who lend money, and the debt ended up in the pockets the poor, who must borrow it!"
Out of the corner of my eye I see figures sprinting towards me, and so, speaking more quickly, I hurriedly exclaim "And then all the other central bankers around the world were forced to do the same thing, to keep their currencies from getting so strong against a rapidly inflating, depreciating dollar! And all that money, all that mountain of money and debt, was used to expand, expand, expand! There's your damned globalization!"
The next thing I knew, I was calmly explaining in a very loud voice to the FBI men-in-black who were dragging me away into an unmarked black limousine, "Nobody wanted to have the dollar fall, and so that is why the foreign governments created the money to buy up all of those dollars! They suicidally devalued their own money, too! We're all freaking doomed! Can't you see that, you ignorant, moron cops?"
At this point, Officer A said to Officer B, "I think he's resisting arrest. Let's shoot the tranquilizer gun at him again!" and I am screaming "I am not resisting arrest! I'm motionless and handcuffed, you stupid pigs!" and Officer B says "That sure sounds like 'resisting arrest' to me, Officer A!"
But this is not about how the rest of the day is a big blank in my mind, or about moose suits, but about the current Jackson Hole conclave, and how Bernanke is astonishingly reported to have said, of all the things he could possibly have said, "The challenge for policymakers is to ensure that the benefits of global economic integration are sufficiently widely shared." What? I can't believe my ears! What kind of commie/socialist crap is that from a banker? My hands are visibly shaking at the horror!
The phrase "ensure that the benefits are shared" means, of course, "Have the government take money and power from somebody, and give it to me and my friends."
And who are these "friends?" He quickly supplies an answer by saying "For example, by helping displaced workers get the necessary training to take advantage of new opportunities." Hahahaha! Is this man personally aware of any real success in "training displaced workers" (who are fired only because they cost too much per hour) to take advantage of "new opportunities"? I'm not! Hahahaha!
And the reason is that there ARE no "new opportunities" to enable the overpaid American worker to make more money per hour than some cheap foreign labor, dude! If there were, then foreign labor would be doing it already! Hahaha!
So, believe me when I say that if there really WERE "new opportunities" against which foreigners could not compete, then wages would be rising in that industry, and money would be moving there, and there would be lots of shadowy people all over the damned place, furtively trying to get a little of that early action, legal or not.
This is underscored by reader Baldy, who writes that he learned a valuable lesson from the old Bre-X gold fraud. He writes "When Bre-X was hot and heavy here, I met a young Aussie geologist at rugby, and he said there's no gold there. 'How do you know?' asks I. 'No illegals!!!' he replied."
-- From News.Yahoo.com we get the news that "Bundesbank President Axel Weber ruled out the use of Germany's huge gold reserves to help fill the gaps in federal budget.
Asked by the mass-circulation daily Bild whether the German central bank could simply sell some of its gold to plug the gaping holes in the budget that the government wants to fill by means of an increase in valued-added tax (VAT), Weber replied: 'You can't be serious.'"
He then uttered the economic truism that "Such one-off measures are never a good idea."
But here in America we routinely plug budget holes by the use of one-off ideas, like going farther into debt, and like selling land, buildings, ports and toll roads to foreigners. And now California is proposing a whopping new $4 billion tax on oil producers, so that the money can be used to propel California to the forefront of the alternative-fuels bandwagon via massive government intervention in the economy. Hahaha! What commie morons! Hahahaha!
Perhaps this rush to alternative-fuels is why George Kleinman, the Editor of Commodities Trend, says that the future is in corn, and that "The corn market is forming a significant bottom. Just as the era of cheap energy is behind us, 2006 is the last year of cheap corn. The reason is ethanol. With 100 ethanol plants either already up and running or close to production and another 35-plus due to come online next year, corn usage for fuel will surge."
The question is "What do you mean by 'surge'?" I ask that because I remember that "everybody" warned that if they took off my ankle-monitor and just let me run loose in the community, then complaints would "surge". But while I admit that total complaints were up, I would hardly call it a "surge", and, besides, it was mostly crybaby whining from people who deserved what they had coming to them.
Mr. Kleinman, suddenly realizing the kind of dangerous, hotheaded weird-o that I am, involuntarily recoils in horror, and hurriedly launches into the "surge question" by saying "An average ethanol plant uses 18 million bushels of corn annually. Corn usage for ethanol will grow in 2006 by 300 million bushels versus last year and is projected to rise by more than 500 million bushels in 2007 versus this year."
What will happen (in case you were wondering) is that all this new demand for corn will drive up the price of corn, and this will drive up the price of corn meal, and that will drive up the price of taco shells, and that will drive up the price of tacos, and that will drive up the number of times I scream about the high price of tacos WHILE I am eating the tacos, and pieces of taco are flying out of my mouth, which makes a big, disgusting Mogambo mess (BDMM) in the restaurant, and all the other customers are sickened by the sight and sound of it.
So in response, the government will almost surely reduce the subsidy that they currently pay to farmers to idle their land, effectively paying farmers not to grow anything. Now, farmers will, instead, be encouraged to grow commodities, especially corn, and doubly especially the kind that makes ethanol, and triply especially the kind that makes good taco shells. Then they will all plant corn, and buy farm machinery, and hire farm hands, and farmers and everybody else will make some big, big money in the coming inflation in commodities, and the US economy will be saved once again by an inflation.
But while we stand, united as a nation, aghast at the thought of inflation in the price of yummy tacos, let's take a look at some other inflation, such as from John Hussman, of the Hussman Funds, who calculates that "Over the past year, consumer price inflation has clocked in at 4.15%. Producer price inflation (finished goods) has been a similar 4.12%. But if you look at intermediate goods, we're currently at an inflation rate of 8.83%. That's the most abrupt widening in the spread between intermediate and finished goods since the 1973-74 oil crisis."
By this time, I am, of course, fixated on getting some tacos, and I am impatiently tapping my toe in my exasperation, as if to say "Hey! John! I'm a busy guy here, so get to the punch line so we can get to the lunch line, okay? Will inflation go up, or down? Up or down? Up? Down?" But before I could even ask, he tells us. "Moreover," he says, "if we look at points in history when prices for intermediate goods have outpaced prices for finished goods over a 6-month period, we've also seen, on average, an acceleration in the PPI finished goods inflation rate over the following 6 months."
Here is where The Mogambo would have lost it, and started screaming in fear and panic about how "inflation is going to kill us and we're all freaking doomed!" and blah blah blah, but notice how classically understated and calmly he sums it up by saying "So if there is credible evidence to be found of weakening inflation pressures, it wasn't to be found in last week's CPI or PPI reports."
But they will be, soon enough, and the lesson seems to be "Buy corn."
-- In the Aden Forecast we read "China's commodity imports alone have grown more than tenfold over the past 15 years." Wow! Compounded, this works out to 16.6% a year!
And what did they get for this massive commodity import boom? Inflation. Just listen to Doug Noland, in his Credit Bubble Bulletin at the PrudentBear.com site, as he quotes International Herald Tribune's Carter Dougherty writing "During 20 years in the toy business, Anthony Temple has reveled in the bounty of inexpensive stuffed animals, coffee mugs and resin figurines on sale in China."
"But a buying trip this year for his company, Rainbow Designs...was a rude awakening. Traveling through the Pearl River Delta north of Hong Kong, Temple found that cost increases - for raw materials, but above all, for labor - dominated every discussion he had with suppliers. Far from being eager to underbid each other, Chinese companies talked about marking up their prices from 5 percent to 10 percent so consistently that Temple...became convinced that these were not simply negotiating gambits. 'When I went over there, I was under the belief that China is a bottomless pit of cheap product,' Temple said. 'When I left, I was not.'"
10% inflation in prices to the wholesaler! As if to exacerbate this news from his site colleague, Rob Peebles in his Random Walk column ominously notes that "The International Herald Tribune reports that China single-handedly knocked 2% off of import price inflation in the Euro-zone every year from 1996-2005. But things are changing. Higher material prices and wage pressures are pushing up costs in China."
And then there is Richard T. Williams, who is the Director of ICAP Equity Research, commenting on the latest Richmond Fed Survey. He notes "significantly weaker business activity covering almost 10% of the US economy. But even worse is the Prices Paid component, which rose to 3.28% from 3.14% in the prior month."
-- Perhaps all of this is what prompted MarketWatch.com to report that "The United States is headed for a recession that will be 'much nastier, deeper and more protracted' than the 2001 recession, says Nouriel Roubini, president of Roubini Global Economics and professor of economics at New York University."
He says that "Every housing indictor is in free fall. As the housing sector slumps, the job and income and wage losses in housing will percolate throughout the economy."
Beyond that ugly volcanic eruption of bad news, he notes that it gets worse, as "Consumers also face high energy prices, higher interest rates, stagnant wages, negative savings and high debt levels."
This housing bust is, in effect, the "straw that broke the camel's back", and he says that "This is the tipping point for the U.S. consumer and the effects will be ugly. Expect the great recession of 2007 to be much nastier, deeper and more protracted than the 2001 recession."
Not to be outdone, Jas Jain, Ph. D., the Prophet of Doom and Gloom himself, takes it all to a new level in his new essay, "The Pause That Depresses: Recession to Begin Within Six Months and Depression Prior to 2008Q2" which is the shining epitome of explanatory brevity, as the title itself is the perfect abstract.
Now, if a depression in the second quarter of 2008 is too, too far away for you hotshot short-term traders, then how about the next couple of months? If so, then you should be interested in "A History of Autumn Declines in the Dow Industrials from 1997 to 2005" by Robert McHugh, of Main Line Investors. He writes that "The Dow Industrials have declined sharply every Autumn for the past nine years in a row, from 1997 through 2005, reflecting an interesting market psychology, and it is setting up to do so again in 2006."
I don't know about you, but I am very impressed with "nine times is a row. And more than that, he says that these were not just "declines", but that "Five of the nine declines were stock market crashes, with declines greater than 15 percent, and a sixth was nearly a crash, plunging 13.2 percent! The smallest decline was still a significant 4.7 percent."
So, in summary, the Dow went down every Autumn for the last nine years? And six times the decline was greater than 13%? Ugh.
****Mogambo sez: The Big Mogambo Lesson (BML) that one draws from history is that when this latter stage of the boom-bust cycle is reached, people always rushed, more and more, faster and faster, to buy gold and silver, and the price of these metals soared, as people rushed, more and more, faster and faster, away from the inflating currency.
It has happened just like that every time that a desperate or brain-dead government committed the same economic sins (SES) that we are committing today. To think that this one time in history, for no reason at all, it will end differently, is pure idiocy.
You can tell that I am working myself into one of my "spells," but before I can launch into another of my tiresome-yet-loud tirades about how stupid people are, and how evil the Federal Reserve is in creating all that excessive money and credit, Sol Palha of Tactical Investor supplies the moral of the story when he says "Live and think like an idiot, and you will invest and reap the rewards of a moron."
As a moron myself, I can tell you with some authority that the "rewards" that Mr. Palha thinks we morons reap will, I assume, come in heaven, because I have never seen one.
Better you should "Live and think like a guy who can learn the lessons of history, and you will invest and reap the rewards of the literate!" which, in this case, is to buy gold and silver. And lots of it!