-->Litany Of Woe

The Daily Reckoning

Paris, France

Monday, 3 November 2003

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*** Crash, depression, impending financial Armageddon...
boy are we out to lunch!

*** Market makes it through the Scary month... the Daily
Reckoning crew, not so well...

*** Minor trends... ghouls, goblins and financial
journalists... Mogambo on Monday!... and more...

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Halloween in New Orleans... ummm... team Daily Reckoning
sustained heavy casualties.

But never fear, Addison is here on the job, safely back in
Paris, writing on behalf of the whole équipe. (Bill, for
his part, is on his way to Baltimore to look after his
business interests. Eric Fry, one presumes, made it back in
one piece to New York. We'll try to rustle up some gory
details from him tomorrow morning.)

If the weekend was meant for ghouls and goblins... somebody
forgot to remind stock market investors what a scary time
of year October can be. In fact, the Dow"put the finishing
touches" on another winning month Friday after closing 2.3%
higher for the week (at 9,801). The Nasdaq gained 3.6% and
closed at 1932... ever-so-close to the psychologically
important 2000. Since the end of August, the Dow is up 4.1%
and the Nasdaq ahead by 6.7%.

"October wasn't such a frightening month after all," wrote
Eric over the weekend,"although it scared the daylights
out of a few short-sellers."

Indeed,"sitting there with your morning coffee and the
stock tables," begins another example of why the mainstream
financial media can be hazardous to your portfolio,"you're
probably feeling all warm and fuzzy about markets in
general and your portfolio in particular. And why wouldn't
you?

"Stocks have had a fine run over the past year," continues
John Heinzl of Toronto's Globe & Mail,"and sailed through
the scary month of October without a scratch. Profits are
surging. And the powerful U.S. economy is roaring back to
life, which should pull Canada along for the ride.

"The soaring value of your home is another reason to feel
secure about the future," Heinzl continues. Oh là
là... what's not to love? Well, the next tack on this guy's
course...

"Addison Wiggin is here to tell you," the Canadian writer
continues, citing yours truly,"everything is not the least
bit okay. You should be afraid, very afraid, because the
coming financial cataclysm could smash your portfolio like
a pumpkin."

Mr. Heinzl called last week to discuss our book... and 'I'm
here to tell you', we said nothing of the sort.

Poor Mr. Heinzl. He didn't even have to crack the cover of
his complementary review copy to see that we're not
predicting financial calamity - rather, a"soft, slow
depression"... an increasingly perceptible loss of wealth
over a long period of time, aided by politicians, abetted
by bureaucrats. And made all the more painful by
lumpeninvestoriat in denial. Yet, that probably wouldn't
have made very scary Halloween copy for his newspaper.

It's true that while doing research for his article,"Very
Scary Stories," Mr. Heinzl appears to have absorbed at least
part of a clue."Each book [he talked to Bob Prechter and a
few other so-called 'gloom-and-doom' authors, too] maps out
a slightly different route to Hell, but they pass many of
the same signposts: An American consumer bloated by debt, a
U.S. Central bank handing out money like Halloween candy,
stocks, real estate and other assets pushed to
unsustainable heights and - perhaps most worrisome -
widespread complacency about all of the above." Okay, so
far so good...

But then... what happens? The article flips its cape around
and comes back at us with a pair of bloody fangs. Rather,
Mr. Heinzl lets his penchant for journalistic objectivity
get the better of him... then offers himself up as Exhibit A
in the Complacency showcase."Mainstream economists offer
their own piece of advice," Heinzl counters."Ignore the
gloom and doom books altogether. Their predictions are
usually out to lunch." Ouch.

"The crash has been coming for about 20 years now," Heinzl
quotes George Vasic, chief economist at UBS Securities
Canada. We presume Mr. Vasic meant to be sarcastic, along
the lines of that ol' chestnut: So-and-so predicted 30 out
of the last 2 recessions. But if so, we're left with a
simple question: Did Mr. Vasic - or Mr. Heinzl for that
matter - pull a twin set of Rumplestilskins and completely
miss the year 2000... 2001... and 2002? There wasn't a market in
the world that wasn't in free fall. If that's not a crash,
then we'd be tickled to see their idea of a boom.

"With governments and stock markets cranking out an endless
supply of data," says Mr. Heinzl,"anybody with an Internet
connection can construct, 'an ongoing story about numbers
that are going to explode or implode.'" On the other hand,
one supposes, if you happen to be the chief economist of a
large Canadian trading firm, you could crank out an ongoing
story of economic recovery, not to mention strong reasons
for buying your firm's financial assets. Or better yet,
just get your staff and a host of breathless journalists to
do it for you.

"The whole genre of crash, depression, impending financial
Armegeddon," Tim O'Neill, chief economist at the Bank of
Montreal chimes in,"is based on gross extrapolations from
some minor - in relation to the outcome that they foresee -
current trend." Hmmnnn... 13 rate cuts, a three-year bear
market and over two and a half million jobs lost since the
'recovery' began. Yep... minor current trends. We sure must
be out to lunch.

It almost goes without saying, with this kind of commentary
passing for insightful, we must be nearing the top of the
rally.

"Addressing the comparison of the United States and Japan,"
writes Heinzl,"[O'Neill] says the U.S. banking system is
far more stable than Japan's and the U.S. central bank
moved more quickly than its Japanese counterpart to shore
up the weakening economy."

That's funny... during the 1990s - the ten years known in
Japan as the 'Lost Decade' - the Nikkei rallied 5 times
more the 25% on its way from 39,000 to where it sits today
at roughly 10,000. Each time the BOJ was praised for
actively dropping rates (eventually to zero) and the
government commended for issuing large checks to build
cement highways out into the middle of nowhere. Each time
the Nikkei rallies petered out. Each time they sold off to
new lows.

What's more, Japanese banks may have been weaker (an
arguable point given the vested interests of their
directors), but their consumers were net savers! In the
U.S., during the height of the boom, the savings rate went
negative. With record levels of consumer debt... consumer
spending comprising 70% of GDP... the U.S. dollar headed
into the toilet and a government willing to flush once it
has arrived... and stocks still selling at bull-market-high
valuations... what trends are these guys looking at that
make them so chipper?

Mr. Heinzl takes the high road. He is apparently rather
concerned that the"outlook for the gloom-and-doom
industry" is so bright. Our greatest concern: it isn't.

Our short plane ride to New Orleans and back revealed nary
a copy of Financial Reckoning Day on the shelves. Nor
anything remotely like it. Your average debt-strapped
American burger-masher doesn't have a clue as to what may
lay ahead.

He lacks the imagination required to envision it.

Addison Wiggin
The Daily Reckoning

P.S. The Mogambo Guru, on the other hand, has a fine
imagination... on display below...

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The Daily Reckoning PRESENTS: Mogambo on Monday! A brave
new world of woe... courtesy of your friends at the Fed.


LITANY OF WOE
By the Mogambo Guru

Inflation.

Hardly a minute goes by when I don't mention the dreaded
"I" word. It freaking scares me to death.

Last week, USA Today offered an article entitled,"Bernanke
Has No Fear of Diving In." The article confirmed that
Bernanke was appointed to a 14-year job at the Fed. But it
also provided a little information about the guy, such as,
"In a break with Greenspan, Bernanke is prodding the
central bank to adopt a target or range of acceptable
inflation. He says such a target, mentioning 1% to 2%
annual core inflation based on a preferred Fed measure as a
reasonable bound, would give markets increased confidence
the Fed will not let inflation soar too high nor plummet
too low."

So, right off the bat we have a new Fed big-shot promising
price inflation! Could anything BE farther from the goal of
a central bank? And as a direct corollary, is there anybody
who is LESS deserving to be getting an appointment to the
Fed than this Bernanke creep?

The goal is supposed to be zero inflation, or, better yet,
gently falling inflation, which would give people an
automatic rising standard of living! But nooOOOoooo! We
have a guy standing right there in front of you, appointed
to a sparkling new 14-year term at the central bank,
looking you right in the eye, who has the sheer gall to
promise to use all the powers at his disposal to give you a
constantly lower and lower standard of living, every year,
for the rest of your life!

The article goes on to say how Greenspan disagrees. Oh, not
about cramming a lower and lower standard of living down
your throat by fostering inflation. No, Greenspan's
objection is that setting a strict inflation goal,"used by
other central banks, could limit flexibility."

Man, I love that word!"Flexibility!" So what else is
Greenspan"flexible" on? Well, the Greenspan Federal
Reserve has consistently broken every rule of responsible
and prudent economics and central banking, so you have to
assume that he is flexible on most everything, as long as
it results in you getting whacked on the head.

And perhaps the ultimate in flexibility is permitting a
jackass like Bernanke, who is promising you the one thing
that is to be feared over all else, namely persistent,
gnawing, cancerous price inflation, to be appointed to the
Federal Reserve. It reminds me of a speech by Groundskeeper
Willie of the Simpson's TV show, who was testing a podium
microphone and facetiously said,"And if elected, my first
official act in office will be to kill the lot of you, and
burn your town to ashes!"

Well, I'm happy to say, Groundskeeper Willie's services
will not be needed by most of the electorate. In fact, the
litany of woes experienced by the lower-income classes is
heating up, judging by the seemingly increasing number of
references that I run across in the media. Whatever low-
income group you talk about, somebody is speaking up about
them and their escalating desperation. The homeless. The
poor. The disabled. The immigrants. The minorities. The
seniors.

I am sorry to report that the misery will continue to grow
in breadth and severity, and it will continue to be more so
in the future. Week after week you will be able to see it
in graphs and charts and visual aides. Month after month
there will continue to be strident calls for the government
to"do something" to help these pathetic, desperate people.
Year after year the big situation gets worse and worse, and
everybody's little situation gets worse and worse, and
pretty soon the whole freaking enchilada gets worse and
worse. And tempers will flare, and scapegoats will be
found, and the excess population will be killed off.

I know I shocked you with that last part there, you know
that part about excess populations being killed off. But,
you know me: I am always trawling for the Nobel Prize in
Economics, grubbing around in the gutter and sewers of the
world of economics, and especially that million-dollar
prize money. Or even just the money, if you want an example
of how flexible I can get on this thing. And now, to my
amazement, econometric guys are still winning the darn
things, even though I get up and look out of the window and
I see the result of them and their stupid cockamamie
theories, and their damned stupid econometric models, and
their damned stupid monstrously over-inflated egos,
thinking they could make an healthy economy out of fraud
and printing money, when not one other country in the
history of the world has ever done it, and all of them
tried to print their way of their stinking mess and none of
them could do it! But Alan Greenspan, and Ben Bernanke, and
all those Fed governors, and Fed big shots, and advisors,
and researchers, and concerned bank presidents, and
Congressperson meddlers, and computers, and computer
models, and miscellaneous hangers-on and loudmouth bores,
all smugly thinking that now - now! - after all these
wasted centuries, now will our geniuses in charge make a
vibrant, healthy economy based on fraud and printing money,
and then forever preventing the collapse they so
justifiably earned, when, as I said, everybody in all of
history has else has already tried it, and NOT ONE OF THEM
EVER CAME CLOSE!

Jeez, now I'm all worked up in a sweat and in a really foul
mood! What were we talking about? Oh, yeah, my Nobel Prize-
winning economics idea! Well, first we note that that poor
brain-dead Terri Schiavo woman was ordered by a court to be
left alone to starve to death. Why? For the money, stupid!
It's always about the money! Everything is always about the
money! This brain-dead woman is costing somebody around a
hundred thousand dollars a year, every year since 1991. And
I don't know where you come from, but around these parts
$100,000 a year is a lot of money to keep a human vegetable
alive.

And so killing off the old people and the disabled people
and all the rest of those people gobbling up expensive
government-provided money and services would instantly
alleviate the stress on those systems. And then Social
Security would always be solvent, since retirees would all
be dead, and Medicare would always have enough money, since
the sick would all be dead, too. And those smelly homeless
people would all be dead, and not creating an unsightly
mess by sleeping on the sidewalk!

But getting back to the point I was trying to make, which
was about how the poor and the old and the disabled and all
those static-income people get the old baseball-bat-upside-
the-head treatment, or in this case let-them-starve-to-
death treatment, when it comes to inflation. And I know it
is inflation that is causing their problems because all the
problems being suffered by these pitiful people are the one
same problem: prices rose faster than income, and now they
don't have enough money to buy the things they need. They
USED to have almost enough to buy the things they needed.
But nowadays they do NOT have enough money to buy, you
know, the things they need.

And I know this for a fact because history has shown that
these are the people who ALWAYS feel it first, and then the
misery travels up and up into the middle classes and chews
their guts out awhile, and then pretty soon everybody else
is looking at reduced real income.

Welcome to the Wonderful World of Inflation!


Regards,

The Mogambo Guru
For the Daily Reckoning

P.S. If there anything you can do to prepare yourself to
enter this brave new world of woe? Well, you can get a copy
of Financial Reckoning Day, hopefully a first edition. And
by reading it and taking the necessary precautions, then
you can easily afford the updated one they are going to
print in a few years. Hopefully, that next book will
contain more flattering references to the Mogambo Guru
(total references in current edition: zero), and maybe
they'll even put my picture on the cover or something.

But right now the plan I have carefully laid out for you is
to get a copy of Financial Reckoning Day, read it,
underline whole passages, study it, comprehend it, color
whole paragraphs in yellow highlighter, and pore over the
graphs. The Mogambo looks down at the eager students,
gently reaches out his open hand, and says"Listen and
listen well, my little grasshoppers! I, the Mogambo, say to
you that if your souls are indeed pure, if your purpose be
righteous, and with the proper frame of mind, your course
of study will be diligently done. And it is thus that your
consciousness will expand until you will achieve Full
Comprehension and Enlightenment (FC&E). And if you check
the schedule, you will notice that there is a light buffet,
and the next scheduled stop after that is Full Panic Mode
(FPM)."

For this reason I recommend that you only read the book in
the bright daylight hours, because if you read it at night,
when everything is scary and gloomy and quiet, when all you
can hear is your heart pounding in growing panic, the clock
ticking hollowly in the hall, and the sound of CIA agents
rustling around in the bushes outside the window, well,
that's what I did, and, I mean: Look at me! Do I seem
normal to you?