The Daily Reckoning - Numerically Precise, Hysterically Rabid

verfasst von Firmian, 02.09.2003, 19:41

-->Numerically Precise, Hysterically Rabid

The Daily Reckoning

Paris, France

Monday, 1 September 2003

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

*** Greenspan speech leaves market unmoved... greatest
bamboozle ever...

*** Japan rebounding? Chinese calling their brokers...

*** The happiest place on earth... gold up $5.20... Print
money? Nah... and more!... including: Mogambo on Monday!

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

"Markets did not react" to Greenspan's important speech
last week, says a Reuters report. Most likely, they had no
idea what he was talking about. Had they known, the
headlines might have been different."Chairman's speech
triggers sell-off of dollar assets," the papers might have
reported."Investors abandon overpriced stocks," they might
have said.

Alan Greenspan was defending himself at the annual get-
together in Jackson Hole organized by the Kansas City
federal reserve bank. Critics have argued that the Fed
chief should have stopped the bubble on Wall Street before
it got too big three years ago... and that he over-reacted
to deflation fears this year. They suggest that the world's
most powerful central banker ought to rely more on specific
targets and specific formulae, rather than his own
intuition.

You will recall, dear reader, last September we also
commented on Greenspan's speech. Our best-known economist
was defending himself last year, too - explaining that he
couldn't spot a bubble until it blew up in his face. Even
then, he'd had to check the mirror for bruise marks to be
sure.

A bubble is the most exaggerated and dramatic event in the
market... the equivalent in politics is war... in romance, it
is falling head over heels in love. If it cannot be
detected until after it is over, what can? And yet, the Fed
chief says that while he was blind to the bubble, he now
sees a recovery coming, clearly. What is it about his
glasses that makes it possible to see positive developments
when they may still be far in the future, but not negative
ones when they are right in front of his nose?

If people really understood the deep context of Greenspan's
speech, they would have panicked long ago. Because they
would have known that the Fed chairman is nothing more than
the mumbling mouthpiece for the greatest bamboozle in world
financial history. Here we are, at the beginning of the
21st century, and the entire global economy rests on a
compound fraud: that American consumers can continue to
take up the world's excess production, forever... and that
Mr. Greenspan can see when the economy is headed for
trouble and take swift action to lead it to prosperity.

If people really understood what was going on, they would
be spooked and appalled. Mr. Greenspan just 'makes it up as
he goes along,' guided by theories that are mostly
disproven, relying on numbers that are dangerously
misleading and advisors who are recklessly lunkheaded.

"This speech puts the nail in the coffin of econometrics
and its promise of exactitude in economics," notes a more
accommodative John Mauldin."What Greenspan is asserting is
that the Fed models are simply not powerful or robust
enough to be able to predict anything with a real degree of
certainty, no matter how much economists would assure us
they do. He opens up a brave new world of uncertainty, and
for that candid admission, I say, Bravo!"

[Ed note: For a more charitable look at Greenspan's speech,
see Mr. Mauldin's article on the DR website:

The Greenspan Uncertainty Principle
http://www.dailyreckoning.com/body_headline.cfm?id=3407 ]

If people really understood how Greenspan and the Dollar
Standard work... they would sell their dollars immediately
and buy gold.

Gold, we note, rose $12 last week. Gold stocks were up
7.2%.

Over to you, Eric:

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

Eric Fry, back on the job in Manhattan...

- Your New York editor just returned from a five-day junket
to Southern California with his three children. Day number
three of the itinerary featured the obligatory visit to
Disneyland - a.k.a."The Happiest Place on Earth." But,
truth be told, your editor was much happier watching his
kids surf at Doheny Beach than he was dodging obese
American tourists at Disneyland.

- Walt Disney's world-famous theme park is certainly an
enjoyable destination for kids, but"The Happiest Place on
Earth" it is not. That moniker rightfully belongs to Wall
Street. What location could possibly produce greater
happiness than the New York Stock Exchange? And what
activity could possibly produce a more sublime joy than
buying overpriced stocks and watching them go up every day?
Wall Street is the 'E-ticket' of greed satisfaction.

- What's more, investors needn't select a specific
destination within this mega-monetary theme park; it is
Fantasyland, Adventureland, Frontierland and Tomorrowland
all rolled into one. Indeed, on Wall Street, Tomorrowland
IS Fantasyland. If Wall Street analysts did not encourage
the lumpeninvestoriat to fantasize about tomorrow, who
would dare to buy stocks selling for 35 times earnings?

- But the lumps are buying and buying and buying, as if
stocks were DVD players or microwave ovens or Mickey Mouse
caps. The difference, of course, is that DVD players don't
increase in value, but stocks ALWAYS do. Last week, stock
values increased once again as the Dow rose 66 points to
9,415 and the Nasdaq jumped 2.5%, to 1,810 - its highest
level in 16 months.

- The market has entered a delightful season - a time when
the living is easy and the weather is mild. Stocks of all
sorts are floating on the gentle breeze of bullish
sentiment... and so are bonds and the dollar. Indeed, the
entire suite of U.S. financial assets seems to be drifting
higher. Even gold is gaining altitude. The yellow metal
jumped $5.20 on Friday to $376.80 an ounce. For the week,
gold gained more than 3 percent.

- Why is the gold price coming to life, even while most
other U.S. financial assets are also rising? Does the Midas
metal 'know' something that the other markets don't? Or
maybe all markets know the same thing... Maybe they know
that the Fed's anti-deflation campaign is causing a
resultant INflation in the U.S. financial markets.

-"Although one of the two lowest-ranking governors of the
Federal Reserve Board by seniority, Bernanke has become its
thought leader," observes Jim Grant, editor of Grant's
Interest Rate Observer."It was he who first sounded the
anti-deflation alarm, unforgettably stating on Nov. 21 that
the marginal cost of producing a dollar bill is
zero... Bernanke is as plain-spoken a central banker as they
come. Yet even he did not just come out and say, 'Print
money.' But he actually said was, 'I hope we can agree that
a substantial fall in inflation at this stage has the
potential to interfere with the ongoing U.S. recovery, and
that in conceivable - though remote - circumstances, a
serious deflation would do serious economic harm.'"

- Reading between the lines, the particular strain of
deflation that Bernanke most fears is the sort that
prevents inflation on Wall Street. When share prices are
rising, all is well. Unfortunately, a little bit of
inflation - like a little bit of pregnancy - is the sort of
phenomenon that usually runs 'full-term' once it begins
gestating. And already, our embryonic inflation is causing
the gold price to stir... Keep your eyes on this baby.

- But inflation or no, the dollar, bonds and stocks are all
overvalued, or so we believe, and they ought to be sinking
like dinosaurs in a tar pit. Instead, they walk on
water... Now that stocks have been rising for nearly one
year, and the dollar has been rallying for a couple of
months, investors are beginning to trust in American
financial assets once again. Stocks, they believe, are a
reliable long-term wealth generator, and the dollar is a
reliable long-term store of value. We are dubious on both
counts.

- Stocks are a reliable wealth generator, as long as they
are going up. But when they are going down, they are a
reliable - and very efficient - wealth destroyer. And we
suspect that overvalued stocks are a much more reliable
destroyer of wealth than generator of wealth... But maybe
this is a new era.

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

Bill Bonner back in Paris:

*** $1 billion a week is the current cost of the Iraqi
adventure. But even this is not enough for NYTimes
columnist Thomas Friedman. We enjoy reading Friedman
because his point of view is so refreshingly loony. He
believes the U.S. is engaged in some sacred act in the
middle east which he calls"nation building."

And he believes we should spend even more money doing it.
Building a nation"on the cheap," says he, won't work. How
he knows what it costs to build a nation is anyone's guess.
We've never gotten a bid, nor ever even seen a nation
successfully built by outsiders. We try to think of
examples, but cannot find a single one. What did it cost to
build China, or France, or Canada? In every case, the job
was done by the people of the country
themselves... stumbling towards it over the course of many,
many years. Building a country for someone else seems like
it is destined to be a thankless task. Besides, if the job
were worth doing, shouldn't there be a profit in it,
instead of a loss?

*** Also in the NYTimes, another columnist, Paul Krugman,
laments what he sees as"an expensive war" getting more
expensive all the time. L. Paul Bremer, U.S. Proconsul for
Mesopotamia, says he'll need"several tens of billions" in
extra aid next year in order to keep the desert tribes
under control. And everybody except Donald Rumsfeld seems
to think more troops will be needed.

"Even the government of a superpower," Krugman elaborates,
"can't simultaneously offer tax cuts equal to 15% of
revenue, provide all its retirees with prescription drugs
and single-handedly take on the world's evil-doers -
single-handedly because it has alienated its allies. In
fact, given the size of the U.S. budget deficit, it's not
clear that America can afford to do even one of these
things."

*** Tax cuts are putting more money in consumers' pockets.
But where did this money come from? Nobody - neither
consumers nor government - had been saving any money.
Before and after the tax cut, 100% of the available cash
was being spent. But, what's this? Despite cutting taxes
(and revenue), government spending is actually going up.
Somehow, and all of a sudden, everybody is spending more
money than everybody ever had. We should ask Alan Greenspan
for an explanation. Maybe he could trace it to the
'productivity miracle.'

*** What is actually happening, of course, is that the U.S.
is borrowing more and more of the world's savings.
America's debt to foreigners increases by about 5% of GDP
each year. At the present rate, they will own the
equivalent of 60% of GDP in 2008, says Richard Duncan. God
bless 'em.

*** A quarter of a billion people now have cell phones in
China. They use them to check on the U.S. dollar
investments.

*** In Japan, a major turnaround seems to be taking place.
Bond yields have nearly tripled since May. They're up to
1.47%. Consumer prices are still falling, but not as
sharply. Stocks are up... it looks like the long-awaited
recovery. Or, another phony one.

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

The Daily Reckoning PRESENTS: Mogambo keeps one eye on Fed
debt creation and another on the cardiac resuscitation
unit...


NUMERICALLY PRECISE, HYSTERICALLY RABID
by The Mogambo Guru

The Fed has been unusually reserved of late, considering
that it has taken a back seat to the alarming activities of
the Treasury, which has been issuing, to use the
numerically precise term, 'scads' of debt. This debt
issuance is running towards $600 billion per, and by 'per'
I mean not just an ordinary 'per year,' but an hysterically
rabid"per freaking year, dude!"

This number is technically far outside the range of 'scads'
for those of you who are not conversant in the subtle
nuances of higher math, but it will have to do for the
nonce, since nobody had ever coined a word to describe that
much colossal issuance of debt, since historically it was
always deemed to be impossible that any government would be
so embarrassingly profligate and economically illiterate as
to actually do something like that.

But now, tired of taking a back seat to the Treasury, which
is having all the fun, the Fed has jumped back into the
fray. Last week, Total Fed Credit jumped by - and I hope
you are sitting down for this, because I was not and now I
have a big bump on the back of my head where I hit it when
I passed out from the shock of reading such a number - $14
billion. The dollar sign in the front indicates that those
are, yes, dollars. And the 14 billion tells you how many
dollars. So, yes, putting it all together and summing up,
it truly is $14 billion United States dollars, and it is
not some optical illusion.

Now I know that this doesn't seem like a lot, as those of
you who have had the misfortune of requiring medical
attention of any kind realize is only about a three-day
stay in any hospital, but remember that this is the
original high-powered money, which is the starting place
for that fractional-reserve multiplier, and so you need to
multiply that $14 billion by almost a hundred to get the
new multiplied total. When you do that, and I did, which
explains why my eyes are comically rolling back in my head
and trained attendants are applying the paddles from a
cardiac resuscitation machine to my chest and shouting
"Clear!" in my ear so loud that I am having trouble
listening for the pizza delivery guy to ring the bell, it
is $1.4 trillion.

Trillion! In one freaking week!"Clear!" Zzzzttt!

If that wasn't bad enough, the surprising jump of $14
billion was so high (cue audience happily shouting in
unison,"How high, Mogambo?") that it may set a new world
record, at least for us Americans! I'm not sure about
anybody else. But to repeat; maybe a new world record!

So what I decided I'd do, see, is just try and find out if
this is indeed a new record, and maybe put to rest some of
those ugly rumors that I am so lazy that I am actually in
some catatonic state or other, but anyway take the easiest
path possible to find out if it is even true, and not a
typo for crying out loud. But then I decided I didn't need
to do that, and for two perfectly good reasons.

Reason Number One, I am the Mogambo and I don't need no
steenking facts, and Reason Number Two is that I can
easily, and it is the 'easily' part that really swung the
deal, look at the MONTHLY level of Fed credit, because I
have it all graphed out. But not weekly data,
unfortunately. So I was feeling kind of glum about this
lack of proof, and then I remembered Reason Number One, and
then I felt better.

So, anyway, while I am fumbling around in the rat's nest
that I call my desk and files to try and locate these
graphs, I come across a lot of interesting stuff, like a
collection of letters from readers asking,"Are you some
kind of lunatic mutant or something?" (answer: yes), and
some random death threats from government agencies and
agents themselves, although their vile threats are cleverly
encoded into what appear to be ordinary advertisements for
toothpaste and stuff. It is a code that only I understand,
and the government knows that, and that's why you can't
read these coded messages, but they're there, all right,
and it proves they're out to get me! Trust me on that!

But you will be happy to know, or maybe not, depending on
your perspective, that, after I located said graphs, as far
as I can tell from this cursory and wildly incompetent
search of the data, there has never been a freaking MONTH,
let alone a freaking week, when Total Fed Credit jumped by
$14 freaking billions of dollars.

So now, are you happy to know that or not?

I must assume that the reason for the explosion in credit
is to produce, out of thin air, the money with which to buy
all of that new debt that the Treasury and corporations and
GSE's are issuing. I mean, somebody has to buy it, don't
they? And don't look at me, for as much as I love America,
I just don't happen to have a spare $600 billion sitting
around. And even if I did, I am not sure that I would have
ANOTHER $600 billion next year, or the year after that, or
the year after that, because even the official projections
forecast deficits in that range for the next, oh, few
thousand years or so.

And don't be fooled by that line of crap that the budget
deficit is some piddly $400 billion or so. Just remember,
nobody can remember the last time the government told the
truth about anything, so why in the hell would you believe
them about the level of deficits, when they admit that
there are things that are 'on-budget' and things that are
conveniently 'off-budget,' as if such a stupid thing could
even exist in reality?

But I know that you won't take my word for it, even though
I am trying desperately to say it with the most sincere
look on my face that I can muster, so I have quoted the
Mises.org's Jeffrey Tucker, who says:"Once you cut out all
the fancy counting methods, and think of the budget deficit
as the annual change in the government's debt (the old-
fashioned definition), we can see that the $500 billion
mark has been reached and passed in the first 10 months of
FY 2003." So there you have it; the only true way to assess
the deficit is the way Jeff and I do it; look at the total
level of indebtedness. And it is running at,
conservatively, $600 billion.

Considering other government monetary atrocities committed
during the week, it is surprising that my brain did not
burst into flames. The tables in this week's Barron's were
full of them. The banks are suddenly sitting on huge, eye-
popping increases in free reserves. The foreign holdings at
the Fed increased another $6.4 billion.

And the Gross Public Debt ballooned by $29.4 billion! This
may be part and parcel of trying to soak up the $44 billion
in government debt that the banks dumped.


Warm regards,

The Mogambo Guru,
for The Daily Reckoning

P.S. Mogambo sez: Internal statistical things that I look
at are all whirling around. Things are blowing up without
making a sound, but that doesn't mean you are safe from
shrapnel. Take the family and your gold to the storm cellar
and put on a brave face for the sake of the children.

Thread gesperrt

 

gesamter Thread:

• The Daily Reckoning - Numerically Precise, Hysterically Rabid - Firmian, 02.09.2003, 19:41