The Bush Data Dump / The Daily Reckoning

verfasst von - Elli -, 22.07.2003, 10:18

-->Von gestern:
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The Bush Data Dump

The Daily Reckoning

Paris, France

Monday, 21 July 2003

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*** Can you 'muddle through' the end of the world?

*** Treasury bonds falling... Dow up 10% this year... The
real estate bubble... and its pin...

*** The End of the World? We may not be there yet, but
we're on the road... Mogambo on Monday!... and more.

--------------------

"You can't muddle through the end-of-the-world."

"That may be so," replied our houseguest for the weekend,
"but we're not there yet."

Sitting on the veranda with your editor was old friend John
Mauldin, who had stopped by on his way to Geneva.

"We may be headed in that direction, but we have a ways to
go yet," John continued.

Your editor thought he saw the end-of-the-world-as-we-have-
known-it when consumers started running out of spending
power back in 2001. Deeper in debt than ever before, losing
their jobs, we figured they would cut back. But like purple
mountains in the distance of U.S. 66, they were farther
away than we thought.

Instead of slowing down, consumers sped up.

They refinanced their houses... and went even further into
debt. While a million jobs were being cut, half the value
of all outstanding mortgages was refinanced in the last 18
months.

This gave the poor lumps the wherewithal to spend money on
autos and dishwashers... and new houses, the type of
spending that is supposed to put an economy on the road to
recovery AFTER a recession. What a freak; the recession, we
mean. It had three hip pockets to hold its wallets, and no
legs to stand on. And now that it's over, what can we
expect?

"More muddle through..." says John.

But the refinancing boom seems to have peaked. Long rates
are rising, not falling - even after Greenspan's latest
cut. ("Suddenly, Greenspan is, Well, Mortal..." admits a
Bloomberg headline.)

So far, Greenspan has muddled through, just like the
economy. A man can muddle through his whole life. But there
comes a time when even the most gifted lie in a hushed
room... and then the muddling is over. They take a trip to
the graveyard and don't come back, muddled or otherwise.

You can't muddle through dying. It's conclusive. Nor is the
world going to muddle through the collapse of the Dollar
Standard System. It will muddle through right up to the
end... but then it stops muddling.

Like a parent with a station wagon full of fidgeting
children, on his way to the mountains,"We're not there
yet," repeated John.

But we're on the road.

And now over to Eric Fry, who would probably like to be on
the road, instead of stuck in Manhattan in the summertime:

--------------

Mr. Fry on the Street...

- What's wrong with Mr. Market? He's been catatonic for
weeks. Gone is the vim and vigor he displayed in the late
spring. What has become of his youthful energy and can-do
attitude? Last week, Mr. Market muddled through five
trading sessions that lifted the Dow a scant 68 points
higher to 9,188. The Nasdaq slipped 1.5% to 1,708.

- Meanwhile, Treasury bonds crumbled. For the week, the 10-
year Treasury note's yield jumped to 3.97%, up sharply from
3.63% the previous Friday. The 30-year T-bond closed at
4.91%, up from 4.68% the week before.

-"It's worth noting," says Barron's,"that since the 10-
year yield bottomed at 3.08% on June 13, the stock market
has gone almost nowhere." Gee, maybe rising interest rates
aren't a helpful economic influence.

- Where did Greenspan go wrong? Wasn't he supposed to be
LOWERING rates...? Why, then, are long-term rates souring?
Is it because the Chairman has 'successfully' rekindled
inflation.

- Quit while you're ahead, the Taipei Times counsels
Chairman Greenspan."As it is, Greenspan's reign as
chairman of the Fed will be remembered for the asset
bubbles that occurred during his watch. His departure as
monetary helmsman for the world's largest economy should be
sooner rather than later so that the burden of blame for a
pair of other bubbles falls on his successor."

- Greenspan's opus was, of course, the stock market bubble,
epitomized by the sensational dot-com über-bubble. But the
mindless, panic-buying of Internet stocks is now a distant
memory. Just because the stock market bubble burst three
years ago, however, doesn't mean that Greenspan has retired
from bubble-blowing. No way!

-"Now loose monetary policy and the artificially-low
interest rates it brought have helped generate a double
bubble in the housing and bond markets," the Taipei Times
continues."If either of these doppelgangers blows up, the
U.S. economy could be blown out of the water. That would
certainly be a hit below the water line for the global
economy... Then the true legacy of the Greenspan years will
come to haunt. Better that he quits now before his legacy
is completely tainted."

- Clearly, the bond market and the housing market are
joined at the hip. A bursting bond bubble would certainly
send shock waves through the housing market. Even if the
housing market is not exactly a bubble, it is vulnerable,
nonetheless, to rising rates. Home sales have been booming
for years, and 2003 is on track to be a new record. But
buying a home is getting harder all the time, even when
rates are falling. Imagine what would happen if rates rose.

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

- The ratio of the market value of real estate to
disposable personal income is at an all-time high."At
1.73, the ratio exceeds the previous high of 1.6 in 1989,"
Bloomberg notes,"the end of the long housing boom in the
1980s that put a lot of savings and loans out of
business... In the past two years, mortgage debt has been
rising at two to three times the rate of personal income.
Mortgage borrowing rose $723 billion (annualized) in the
first quarter of 2003, according to the Fed's Flow of Funds
report. That compares with an increase of $667 billion in
2002 and $375 billion in the boom year of 1999."

- Making timely repayment on a growing pile of debt has
been little problem for consumers, as long as rates are
low... But the math changes when the rates rise.

--------------

Bill Bonner, back in Paris...

***"Without the normal lift from consumer durables and
housing (which already float, bubble-like, above the
ground), the only other possible source for a real recovery
is capital spending by business," explains Stephen Roach.

The corporate sector is poised for recovery, says Alan
Greenspan. But why would businesses invest in new
capacity... in America?"Domestic capital spending remains
limited to replacement," Roach continues,"and capacity
expansion is increasingly focused on China."

*** The recession is officially behind us, but the
headlines still appear like road signs, warning of hairpin
curves and steep slopes.

"Area jobless rate up," comes the news from Houston.

"Denver foreclosures skyrocketing," is the news from the
Rockies.

*** Meanwhile, a glimpse into the future... or at least into
Zimbabwe. Our South African reporter tells us that
inflation was recently clocked at a 365% pace. It"could be
750% by Christmas," said a local analyst.

Half the population of that sad place lacks the money to
buy food. Worse, the government has been driving off white
farmers in order to give the stolen land to its crony
friends.

Yes, it is democracy and paper currency in the hands of
impatient people. In North America, things like this take
longer.

Still, we look ahead at those majestic peaks looming ahead
of us - Mt. Insolvency, Old Slumpback, and Mt. Desperation,
of the End-of-the-World range. As our friend Mr. Mauldin
cautions, we may have a ways to go yet before we reach
them... but we can hardly wait to get over and see what's on
the other side.

[See also the following article from John Mauldin -
regarding deflation and the bond market - on the Daily
Reckoning website:

Are Deflation Worries Dead And Buried?
http://www.dailyreckoning.com/body_headline.cfm?id=3320 ]

***"We're the luckiest guys in the universe," said John
with characteristic understatement,"I mean, to be alive
now... watching all this... able to travel, and write... with
such nice families [John has 7 children; your editor has
6... if populations are falling in the western democracies,
it's not our fault... ]... and they pay us to do it."

"Let's go down to the wine cellar," said your editor,"and
see what we can find. The end of the world is coming. Let's
enjoy it."

---------------------

The Daily Reckoning PRESENTS: Mogambo on Monday! The
current administration wouldn't try to gussy up the
economic numbers, would they? No... that only happened when
the last bunch of weasels inhabited the Oval
office... didn't it?


THE BUSH DATA DUMP
by the Mogambo Guru

My mood is very dark.

The reason is simplicity itself; when one knows what the
future will hold, as I and the other Austrian economists
do, it is one thing to laugh and make jokes at the
impending calamity and the laughable ineptitude of
governmental forces - and the university eggheads that
caused it - but it is quite another thing to make jokes
when you see the rising stress on those you love.

And it is all very, very depressing. And I am seeing it all
around me. And I'm willing to bet that you are seeing it
all around you, too, because all the people around me are
seeing it all around them, and those people around them
report to the people around me that the people around them
are seeing it all around them, too. So you see how this
thing builds.

And the bad news is that it will just keep getting worse
and worse until it all collapses, as it must, as it always
has. And so I assume that my mood will keep getting worse
and worse until it collapses, too, or until I scarf down an
entire bag of Coffee and Cream Oreos, and then, as Rosanne
Barr said,"When you come down out of that sugar-coma, it
will be a whole new week!"

Philip Spicer, that handsome and debonair hotshot at the
Central Fund of Canada, sent along an article that appeared
in the National Post concerning pension accounting."The
financial economist's key charge against the actuaries is
this: their models for long-run pension performance assume,
wrongly, that over the long run investments in the stock
market will rise fast enough to overcome essentially
underfunded pension structures. Inevitably, when the
actuarial model breaks down, the pension plans engage in a
variety of techniques to try to cover over the shortfalls.
This is known as smoothing, allowing pension managers to
conceal losses and give the impression of long-term
health."

So what bunch of scared witless weenies is NOT concealing
losses and giving the impression of long-term health, huh?
Welcome to the real world, dude! And I shall leave it to
you, as a self-discovery exercise, to punctuate the phrase
"scared witless weenies." Personally, the one that really
puts some oomph in it for me is,"Scared? Witless weenies!"
by which I snottily infer that we are scared because of
witless weenies who are killing us all with their
weenieositude.

Nonetheless, as regards the original point, assuming that I
even HAD a point to start with, bad news and economic
calamity are being kept from view.

In that regard, Russ Baker wrote a very interesting little
essay posted on MSN Slate entitled,"Bush's Data Dump. The
administration is hiding bad economic news. Here's how."

"The administration muzzles routine economic information
that's unfavorable," writes Baker."Last year, for example,
the administration stopped issuing a monthly Bureau of
Labor Statistics report, known as the Mass Layoff
Statistics program, that tracked factory closings
throughout the country...

"Interestingly, President George H.W. Bush [Georger the
1st] buried these same statistics in '92, also a period of
job losses. They were revived by President Clinton."
According to Baker, a study predicting less than stellar
job growth from Bush the Younger's $674 billion economic
stimulus plan mysteriously disappeared from the Council of
Economic Advisers' website.

Baker names a few more frauds and cover-ups of government
globules of weenieositude, and reveals not only"how," but
"how much." And when you get a gander at the size of the
numbers that we are talking about, you realize immediately
that the homework assignment, the one where you had to
punctuate the phrase"scared witless weenies," is now
revealed to be more correctly written as"scared-witless
weenies," to signify that a bunch of weenies, who may or
may not be congenitally witless, are now de facto witless
as a function of their being so scared.

"We've seen the future," Baker concludes,"and it's been
deleted."

And for good reason, too! Because when I got a good look at
the actual numbers, all in one place, then I, too, became
scared witless. But since I have always been a weenie and
pretty witless as befits my peculiar personality, and am
now also scared, then I realize, to my profound dismay and
disappointment, that the scared-witless weenies that I
disrespectfully alluded to, with enormous Super-Sized
portions of loathing and disrespect, is, alas - and this
makes me feel really bad and I wish I did not have to say
it - and you cannot fail to notice how I am dragging this
out to keep from getting to the end and finding out who
this mysterious scared witless weenie is - and if you could
read my mind you would realize that I am desperately
praying that a huge meteorite will crash through the roof
and kill me before I have to finally say it, and it looks
like that is not going to happen, c'mon c'mon c'mon, damn,
so, okay, you probably figured it out already anyhow, me.

Yes, hear me, world!

My name is Mogambo and I am a scared-witless weenie! I cry
out in my pain! And I cry out for a federal subsidy to
compensate me for my pain, which I will state for the
record, and as many forms in duplicate as necessary, as
being chronic, and acute, and sharp, and dull, and 24-
hours-per-day, every day, and I suffer, suffer, suffer, and
- ouch! - there it is again!

And the problem is, these frauds and cover-ups of
government globules of weenieositude have not only managed
to cover up"how" and"how much," but also"where." As it
turns out,"where" is anywhere but in my pockets, or in the
pockets of anyone I know, or even of anyone I know they
know, and I assume that works itself out to mean that
"where" is not in YOUR pockets, either.

"Depression is seen as a product of systematic tendencies
for the distribution of wealth to become concentrated among
a few," wrote Ravi Batra back in the late 80s. If you have
ever read Ravi Batra's stuff, especially"The Great
Depression of 1990," you remember it. He makes a lot of
interesting points and brings up a lot of interesting
things, but I want to give you a quote from the foreword by
Lester Thurow, then one of the brainy profs at MIT. He says
that Batra believes that:"When this happens, demand
eventually sags relative to supply and long cyclical
downturns commence." A little glib perhaps, but when a few
people have lots of money and wealth and lots of people
have neither, things tend to happen. Bad things. The kinds
of bad things that happen when people do not have enough
money to get along from day to day.

Batra posits that societies go through four stages. The
last one, the one just before the big collapse, is"the
acquisitive age," and this is when the whole society is
engaged in getting money and making money and spending
money, and that single-minded acquiring of wealth is
predominantly what matters to the society. Does that remind
you of any society you know?

Anyway, without making a big to-do about the four groups
and their cycles, I am going to just sum up what Batra says
happens at the end of the acquisitor stage, which we are
bringing to a close."As wealth becomes concentrated, the
living standard of the other three classes progressively
declines, until there comes a time when society degenerates
into two groups - the haves and the have-nots... The
resultant crime, poverty and malaise eventually invite the
revolt of the masses."

Some other cheery things that will happen are not only
increased crime, as we have already stated, but also more
"drug and alcohol addiction, family breakdown, high rate of
divorce, child abuse, increasing poverty for the poor and
middle class, greater disparity in income and wealth, and
massive economic hemorrhage brought about by enormous trade
and budget deficits." He also figures that prostitution and
gambling would increase. And remember, he was writing this
in 1987. It is only now that his profound prescience is,
seemingly, being made monstrously manifest, which is a
sentence with two, count 'em two, alliterations. Two for
the price of one!

This concentration of wealth is why the tax code has been
altered to give the poorer people money, via the tax
return; the poor have so little spending power, and there
are so many more poor people. And as the rich are the only
ones with any money that the government can borrow, that is
who is loaning money to the government. And then the
government taxes everybody to give the wealthy lenders
their money back, plus the extra money to pay the interest.
This is one big way how the wealth becomes more and more
concentrated in the hands of the rich.

He also remarks that"the Fed can leash the money supply in
the short run, but not in the long run. In other words, man
can control his destiny at a point in time, but ultimately
has to operate within certain bounds set by larger forces -
forces which cannot be defied forever." Which fits
precisely with the observation that Greenspan produced the
boom of the 90s, but now, although he has cut interest
rates to lows that haven't been seen for fifty years,
nothing happened this time.

In fact, things are getting worse. And now interest rates
have started climbing, even as the Fed cut rates for the
13th time in a row! All for nothing! The Fed can't give
away money for the first time in history... and expect it to
work.


Regards,

The Mogambo Guru,
for The Daily Reckoning

Mogambo Sez: It just keeps getting weirder and weirder.


Editor's note: Richard Daughty is general partner and
C.O.O. for Smith Consultant Group, serving the financial
and medical communities, and the editor of the Mogambo Guru
economic newsletter, an avocational exercise the better to
heap disrespect on those who desperately deserve it.

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gesamter Thread:

• The Bush Data Dump / The Daily Reckoning - - Elli -, 22.07.2003, 10:18