Euphuistic Claptrap / The Daily Reckoning

verfasst von - Elli -, 30.06.2003, 20:44

-->Euphuistic Claptrap

The Daily Reckoning

London, England

Monday, 30 June 2003

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*** Asian banks hold up dollar...U.S. government...

*** Dow off last week...is the rally over?

*** Analysts, gurus - bullish! Sell! 81-year-old wins
Wimbledon...Mogambo on Monday! And more...

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We are amazed and aghast.

Federal budget expenditures in the second year of the
conservative G.W. Bush's reign are 20% higher than they
were when the nation was under the lash of liberal, big-
spender Clinton.

But last month, the aforementioned Mr. Bush gave taxpayers
a break - a $350 billion tax cut measure was signed into
law.

"By ensuring that Americans have more to spend, to save and
to invest," said Mr. Bush,"this legislation is adding fuel
to an economic recovery. We have taken aggressive action to
strengthen the foundation of our economy so that every
American who wants to work will be able to find a job."

What a wonderful, dizzy world we live in! George W. Bush,
former baseball team owner, and now master of practically
the entire world - from the Euphrates to the moon - joins
another fabulous magician, Alan Greenspan, by offering to
create money out of thin air. For how else could the
government spend more...while taking less? Where does the
money come from?

"Foreign central-bank holdings of Treasurys and agencies
are up 21.9% in the past year and by 24.6% over the latest
6 months [annualized]," explains James Grant."As the Fed
buys securities to fix the funds rate, foreign central
banks buy securities to manage the dollar exchange rate."
And finance the difference between what the U.S. government
spends and what it collects in taxes.

And so we are even more amazed and aghast. While foreign
investors grow anxious and sell the dollar off...foreign
central banks (primarily those in Asia) buy U.S. Treasury
obligations in order to hold the dollar up, so their
export-led economies can stay in business.

Currently at $935 billion, foreign banks' dollar holdings
approach the $1 trillion level."They have to keep
supporting the dollar," say U.S. economists."Who else can
they sell their exports to?" These neo-economists see a
clear and happy division of labor in the world economy:
foreigners save the money; Americans spend it. Foreigners
make things; Americans buy them. Foreigners lend; Americans
borrow. Thus it is and so it ever shall be; at least, they
cannot imagine anything different.

And thus does the Dollar Standard Monetary System shuffle
along in its 32nd year. If it lasts a year longer, it will
have outlived Christ. But it bears such a heavy cross
already - in addition to the nearly $1 trillion in central
bank vaults, another $8 trillion burdens private hands.
These private holders are neither so dumb nor so civic-
minded as their central banks. They will sell dollars by
the boatload if they think they could make a penny at it.

Already, they have sold a lot...and made a lot. They will
sell more, because there's money in it. And because there
is nothing to stop them. The U.S. cannot defend its own
currency. Because raising interest rates would pop the
housing bubble...upon which the U.S. economy and G.W.
Bush's next term depend.

"Since U.S. policymakers will do nothing to defend the
dollar, it can only continue its plunge," concludes Kurt
Richebächer in his most recent letter."We are at a loss to
say what will stop it."

So, herewith, we change the subject: Eric Fry with the
latest from Wall Street...

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Eric Fry in the Big Apple:

- Bear market rallies, like banana splits for breakfast,
are a perverse delight. Sure, they're tasty. But they are
hardly a healthy staple of a long-term investment diet.
Feasting regularly on bear market rallies is no way for a
portfolio to grow big and strong. A small taste of"bear
market rally" won't kill you, but don't try living on the
stuff. It's about as nourishing as whipped cream.

- The most recent bear market rally, which kicked off in
early March, may be drawing to a close...Last week, the
fatigued market lost a little of the fluff holding it up.
The Dow fell 211 points to 8,989, while the Nasdaq slipped
19 points to 1,625.

- Ironically, the stock market selloff accelerated after
the Fed trimmed the Fed funds rate to a mere
1%...Apparently, Greenspan has either lost his magic touch,
or he never really had a magic touch in the first place.
Not only did stocks drop immediately after his latest rate
cut, but the bond market also tumbled, sending long-term
interest rates soaring...That's no way to stimulate an
economy.

-"Sanford C. Bernstein strategist Vadim Zlotnikov
calculates that every half-percentage point rise in the 10-
year Treasury note keeps another three million potential
home buyers from qualifying for a mortgage on a median-
priced home," Barron's observes."Higher rates would also
cut into the expected $80 billion in consumer liquidity
expected to come from mortgage refinancing this year. The
10-year note yield is up almost exactly half a point since
its low of 3.08% two weeks ago.

-"The other major burden of proof for the bullish
believers, who have become bolder in recent months, is
internal to the market itself - the question of whether
investor sentiment has gotten too excited and complacent
for stocks to hold these levels. It's an ambiguous picture,
though cause for at least some concern.

-"The Investors Intelligence poll of newsletter writers
has shown a drastic skew toward professed bulls for a few
weeks, and last week's American Association of Individual
Investors poll (which is deeply flawed in its survey
sampling) flashed a huge and rarely seen 89% bullish
reading. All these items stack up as evidence the upside
move is imperiled, pointing to more downside risk than
immediate appreciation potential."

- Maybe 13 straight rate cuts, coupled with a soaring money
supply, is inflationary after all...especially in the
housing market."Bubbles have a certain smell to them,"
ContraryInvestor observes,"and what's going on in the
housing and mortgage markets is emitting that odor - i.e.
they're up a lot on unsustainable, uneconomic behavior.

-"As interest rates have come down, old and new homeowners
have refinanced their mortgages, typically taking more than
they owed and spending more than half of it. In addition to
using mortgage borrowing to finance their current
consumption, they tilted toward adjustable rate mortgages
because these rates are lower...raising their vulnerability
to rising interest rates. It wouldn't take much of a rise
in interest rates or fall in real incomes to cause major
mortgage default problems."

-...And neither it would it take much of a rise in
interest rates to cause major stock problems!

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Bill Bonner, back in London:

*** An 81-year-old Englishman has won at Wimbledon...at
croquet!

*** And here on page 6 of the Times is a marvelous picture
of 30 naked people...who are protesting against genetically
modified crops by, what else, taking off their clothes in
East Sussex.

*** But we have been thinking about the dead, dear
reader...so rather than read about the near-dead, or those
who just look like they died, we turn to the obituaries.
Not finding our own name, our spirits lift...and our
thoughts move on.

*** But what have we become, my sweetish friend?

We have been thinking about the dead. We do not worship
them, just because they are defunct. We're just curious;
what do they think of us?

As we approach the July 4th holiday, we wonder...

..what do the generations of Republicans, now in their
graves, who believed so strongly in balanced budgets for so
many years, think of the current Republicano in the White
House...who has proposed the most unbalanced budgets in
history?

..and how about the millions of dead Americans who
immigrated to the U.S. to find freedom; what do they think
of the country now? They came believing that if they minded
their own business, they would be left alone to do what
they wanted. But now, every pettifogging pecksniff with a
GS rating is on their case.

..and they can't escape even by leaving the country and
going back home. U.S. tax agents follow an American
wherever he goes...and the U.S. army, which was warned by
George Washington to mind its own business, seems to find
no business in no hellhole nowhere on the whole dingdong
planet too remote or too forlorn not to want to stick its
nose in...

..and look at what we have done with this 'land of the
free and the home of the brave' that they left us: frail,
bent grandmothers have their shoes x-rayed at airport
terminals. No one really believes that the old ladies pose
a threat to public safety - but why take chances?

The dead. Do they praise us? Or curse us?

The Honorable Ron Paul, Congressman from our President's
home state, recently expressed similar concerns about
ignoring the dead. In a speech addressed to Benjamin
Franklin, Paul warned that despite the best designs of the
nation's forefathers, America has descended helplessly into
the hands of an angry mob.

"Democracies," Paul quotes James Madison,"have ever been
spectacles of turbulence and contention; have ever been
found incompatible with personal security or the rights of
property; and have in general been as short in their lives
as they have been violent in their death." Is this the
America presaged by its founders?

See:"Sorry, Mr. Franklin, We're All Democrats Now."
http://www.agora-inc.com/reports/RCKN/RonPaul/

*** Mogambo on Monday...more below...

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The Daily Reckoning PRESENTS: The Mogambo Guru on the
persistence of delusions.


EUPHUISTIC CLAPTRAP
by The Mogambo Guru

Last week, the number of S&P 500 futures contracts exploded
to a huge new record just before expiration. Being a big
believer in conspiracy theories, especially ones that
involve government meddling, I naturally look at"outside
events" like this with a lot of interest.

This wholesale buying of futures, probably including the
Fed, may seem unconventional to you and us doofus people
who are still laboring under the impression that America
has free markets. But remember that the Fed is on record as
saying that they will stoop to anything - no matter how
stupid, no matter how corrupt, no matter how low, filthy or
underhanded, no matter how legal or maybe illegal, no
matter how many pornographic websites they have to
subscribe to - but dang-nabbit this economy IS going to
respond to monetary stimulation or everybody will die
trying. And getting out our secret decoder rings, we
decipher that when they say"to respond," it means to"go
up in price." And by"everybody," they mean"you."

I figure that the market is being rigged also for the
foreign holders of U.S. assets, who are probably getting
verrrrrrryyyy nervous right about now. And who want to
sell. But it is such an enormous pile that selling that
gigantic load of U.S. assets would have seismic
repercussions of such size that they would probably destroy
the world. Perhaps unleashing Godzilla, who is, as I
recall, slumbering under a mountain outside of Japan, and
believe me when I tell you that releasing Godzilla, or any
giant, destructive, rampaging primordial creature, is the
last thing that the economy needs right now.

A solicitous reader named Hans Martin wrote in to The Daily
Reckoning website to say he was depressed to read that I
have been occasionally lost for words when describing the
horrific stuff that the government does, as regards
monetary and fiscal policy, and recommends"Euphuistic
clap-trap," which he assures me is defined in the Webster
New World College dictionary as"artificial, affected,
high-flown style of speaking + showy, insincere, empty
talk, expression etc. intended only to get applause or
notice."

I cannot verify this, of course, since the only local copy
of that Webster's is in the library, and the librarian
there won't let me use the dictionary anymore, since she is
sure that I and my hoodlum friends only use it to look up
naughty words and then disrupt the whole place with
giggling and poking each other and having a fun time. So we
will accept Mr. Martin's report as factual.

Well, as grateful as I am, and with all due respect, I will
soon again be writing about the egregious policy errors
being made in monetary and fiscal policy, for the twin
purposes of 1) holding those guys up to public ridicule,
because that is what they deserve and that is the kind of
lowlife gadfly bastard I am, and 2) having something to do
with my day other than hiding in the closet and whimpering
in terror from THINKING about the egregious errors being
made in fiscal and monetary policy. And since he has the
dictionary so damn handy, how about him supplying me with a
word that means,"consciously doing something that you know
is wrong, because it has been wrong every time any
government has tried it for the entire course of human
history, but now they are trying it again for some bizarre
reason that is apparently not connected to reality as we
know it, and expecting that now, after it has failed every
single freaking time it has ever been tried, it will
somehow work this one damn time and surprise the hell out
of everybody, and shut me up once and for all, and the
handsome prince marries the beautiful princess and they all
ride off into the sunset on white horses and everybody
lives happily ever after."

In MY dictionary, the one into which I insert new words
that I make up in the margins, this is my definition of
"Democrat Party, The," but actually that is more of a
phrase, and not a word. And even that definition is getting
to be so"old school" now that the Republicans are acting
the same way, only worse, to my everlasting sorrow and
shame. So maybe the word that fits that definition should
be"Politicians and Federal Reserve Chairmen," which is
STILL a damn phrase, and so obviously I need Mr. Martin's
help more than ever in finding that perfect word.

Nonetheless, a buddy of mine named Kevin, aka Dr. O, (well,
he will be my buddy again if I ever pay him the money I owe
him, and the chance of that ever happening is very slim
indeed since if I had any money I would certainly use it to
buy a refill on some of my prescriptions so that I could
connect with reality long enough to at least open the mail
to see if I won the Publisher's Clearing House Sweepstakes,
and that would be sweet indeed, and maybe pay a few bills,
maybe a few of those that are marked"last notice" and
especially those that say"We're coming over there to your
house to shake some money out of you, deadbeat") has taken
my bad advice and obtained a copy of the book entitled
"Fiat Money Inflation in France," and now hates my guts for
it, because now he is scared of the future of America, too.

Furthermore, his marriage is probably starting to founder
on the rocks because of that book, as he did not take the
precaution, as I did, of marrying a woman who doesn't give
a rat's ass one way or the other whether he lives or dies,
or whether he is panicked and borderline suicidal about
monetary policy or not, and whose only demand is that if he
DID die, then just go ahead and do it and get it over with,
because she is getting a little more-than-tired of hearing
his whining about economics-this and economics-that, so
just go do it outside, for Pete's sake, so it won't make a
mess in here because she doesn't want to clean up any more
damn messes.

But he is right to be scared, because this is the book that
actually contains the blueprint for the disaster waiting
for us. Because, as Henry Hazlitt himself so eloquently put
it in his 1959 introduction to this book of extraordinary
horror,"The broad pattern of all inflations, historic and
modern, is the same. It is the persistence of delusions.
The arguments of the inflationists, then and now, are
essentially the same. The inflation in revolutionary France
was begun to pay off a debt, and finance a budgetary
deficit. Inflation was to be the short road to prosperity."

To which I will add, circa today, in my own little
foreword,"And the inflation in twenty-first century
America was begun to pay off a huge pile of debts, too,
debts so big that those wimpy French bastards would have
choked on their baguettes and hopped around comically
saying"Sacré Bleu and oui oui oui, I am - how do you
American swine say? - choking! Oui oui oui!" if they had
faced debts even HALF as big as we have right freaking now,
even a QUARTER as big, so don't get me started on how the
freaking French had it so bad, boo hoo hoo.

"And now we are doing the same damn thing, to finance a
huge, grotesque budgetary deficit, AND at the same freaking
time - and you will note by the way my eyes pop out of
their sockets and the spittle that flies off my quivering
lips as I say this, that this is something very bad - they
are proposing a new, massively expensive prescription drug
benefit on top of a massive, record-exploding budget
deficit! And tax rebates! And lower taxes! And waging
continual, low-key international wars! And paying more
money to the states! And the installation of a bigger
Police State both domestically and internationally, so that
government can keep its hobnailed boot on our nasty
proletariat necks in case we start getting uppity and maybe
out of line, and if you want to see how well THAT works out
then go and read George Orwell's book '1984' again."

To which I add, with a certain smug satisfaction, that in
eighteenth-century France, it was us proletariat necks who
eventually applied the guillotine to the wearers of the
hobnailed boots. So when it comes time to choose sides, and
it will, you might want to remember that fascinating little
historical tidbit the next time you're tempted to heed the
latest euphuistic freakin' hogwash to emanate from the
rabid denizens of the Fed.


Best regards,

The Mogambo Guru
For The Daily Reckoning

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• Euphuistic Claptrap / The Daily Reckoning - - Elli -, 30.06.2003, 20:44