The Daily Reckoning - Mosey To The Hills (Mogambo Guru)

verfasst von Firmian, 19.11.2003, 00:12

-->MOSEY TO THE HILLS

The Daily Reckoning

Paris, France

Monday, 17 November 2003


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

*** Debt increases at $1 trillion per year... Squanderville
keeps squandering...

*** Frugality avoided! Sanity held at bay! Hallelujah!

*** What's the matter with the forces of evil? Noise from
the WSJ... and more...

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

It all seems so calm. So ordinary.

Like Europe before WWI, everything seems to be going so
well...

.. but just 4 short years after the Archduke went down,
practically everything else had fallen, too. Millions of
soldiers and civilians... currencies... manners...
architecture... and all the major governments of Europe.
Gone were the Hohenzollerns from Germany, the Hapsburgs
from Austria, and the Romanoffs from Russia. The Ottoman
Empire collapsed in Turkey. The British Empire was badly
damaged; it would fall, too... but it would take another
World War to bring it down.

Even more remarkable, hardly a single, solitary, sentient
human being saw it coming.

For what it is worth, here we are. Not quite single. Not
exactly solitary. And more or less sentient. And what we
see coming is not the equivalent of the Great War... but a
Great Disappointment.

Americans are in the process of ruining themselves. They
are transforming assets into liabilities, trading the real
wealth that was built up over generations for the quick fix
of debt. The 'equity' they own in their homes has fallen to
its lowest level since the government began tracking it in
1965. The asset - the home - has been replaced by mortgage
debt.

While new houses are going up on every empty lot, new
factories and office buildings are rarely built in America.
Instead, consumers borrow from foreigners in order to buy
foreign-made goods... thus stimulating a boom in factories
and offices overseas. Even the cash in our pockets has been
replaced - first with paper money of no real value, then
with credit cards, which allow the spender to pay for his
hamburger for the rest of his life.

You will recall, dear reader, that at the beginning of this
new millennium, it looked as though things were going to
change. The bubble on Wall Street had blown up. Americans
would be forced to cut back on spending... and save money,
we thought.

The consumer economy would have to do a little less
consuming and a little more producing, we hoped. But along
came the heroes at the Federal Reserve and U.S. Federal
government; with even easier credit terms, tax cuts and
billions more in new spending, the Feds managed to avoid
sanity for a while longer.

How much longer, we don't know. But for the moment at
least, frugality, prudence, and good sense have been staved
off. The perverse economy of Squanderville seems to be
recovering; its residents are squandering their assets at
the fastest pace in history.

Debt increases at the rate of 10% of GDP per year. Wal-
Mart, where Americans do much of their squandering, reports
that sales are not growing as well as expected. Buyers seem
to be shopping for cheaper alternatives and"timing their
expenditures around the receipt of their paychecks,
indicating liquidity issues."

Consumer sentiment rose in November. Consumer sentience
continued its decline.

Here's Addison with more news...

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

Addison Wiggin, from the banks of the Seine...

- Just as moving away from a painting in the Impressionist
school helps sharpen the image, so reading the day's
financial news through the magnifying lens of a 'debt-
detective' helps bring the big picture into focus. Only,
you have to do the investigating in reverse...

- Let's take a look. Using your lens from a wide angle, you
get a fuzzy picture... what a well-dressed man the U.S.
economy is. Nearly everyone agrees the economy is in
recovery. The Wall Street journal surveyed 53 economists
and found that they expected things to continue as they
are. Following the 7.2% growth in GDP in the 3rd quarter,
GDP growth of 4% is anticipated for the 4th quarter... and
4% again for the first quarter of '04.

-"House prices sizzle," reports the Dallas Morning News.
For the first time in 20 years, adds the LA paper, home
sales are up in every single state.

- Things are going so well that according to their plan,
the Fed sees no point in raising rates for a"considerable
period." Said Mr. William Poole, head of the St. Louis Fed:
"The standard forecast is still for good, but by no means
gangbusters, growth, which means we're only going to make
modest gains in reducing unemployment."

-"The real issue is," remarked Anthony Santomero,
Philadelphia Fed chief, fleshing out the details in the
Fed's PR campaign in the Financial Times,"to allow the
economy to grow and use up those unemployed and under-
employed resources."

- That's the fuzzy picture: The economy is expanding. But
not fast enough to put people back to work. So the Fed has
to keep rates low enough, long enough for Mr. Economy to
buff up a little under the suit.

- Let's move in a little closer. The magnifying glass picks
up a strand of hair, a bit blonde perhaps, and certainly
not intended to be found on the lapel. Food prices,
something you might expect to cause concern, rose at their
highest rate in almost 20 years. The Producer Price Index
grew by nearly one percent overall, revealing the effects
of the Fed's policy... in furniture, prices grew by one
percent... restaurant and drinking places were up nearly
2%... and building materials were up one and a half percent.

- Yet the Fed remains steadfast."We had a bad PPI this
morning, higher than anticipated," William Poole told
Bloomberg last Thursday,"but one month doesn't make a
trend." (You might think they'd apply the same reasoning to
the October job report, eh? Oh, well... )

- A closer look still, and we find a smudge of lipstick on
the collar of the shirt... and a small scratch on the
shoulder."Home foreclosures soaring in Wichita," the
Kansas City Star tells us."Bankruptcy filings swell in
Colorado," reports the Rocky Mountain News. Both Kansas and
Colorado are suffering the after-effects of collapsing
interest in technology companies. Through aggressive tax
incentives, Denver invited many of the nation's most
beloved techs to set up shop in their city. Wichita, Kansas
wooed some of the Boeing operation away from Seattle.

- They have subsequently suffered similar fates. A Denver
bankruptcy puts it this way:"During good economic times,
Colorado grew quickly, and people borrowed liberally for
new cars and to fill new homes with expensive appliances,
furniture and other luxury items. And if they get laid off,
it's hard to make a quick turnaround because they've still
got these purchases in place. Some of these large-ticket
items people have are locked in, and even though they see
the need to make short-term adjustments, they can't."

-"Filings [for foreclosures] have picked up and become
more volatile since the recession began," said Stanley
Longhofer, an economist with Wichita State University,
describing the rise in foreclosures in his state to the
Kansas City Star."But the increases started long before
then. It is not the housing market going into the tank that
is causing foreclosures. It is people that have allowed
themselves to get in way over their head."

-"U.S. consumer debt," reports the Rocky Mountain News,
citing Federal Reserve figures,"through credit cards, auto
loans and other non-mortgage personal borrowings, grew for
a third straight month in September to $1.97 trillion."
Throw in mortgage debt and Americans hold $8.4 trillion in
personal debt. The entire nation's GDP, by way of
comparison, is roughly $10 trillion.

- Now the well-dressed gentleman doesn't look so
impeccable, does he? In fact, he looks rather like a
fraud... hiding secrets... and telling more lies to cover up
the truth from those who would hold him accountable. When,
in fact, he already knows he's going to a certain rendez-
vous again, ce soir. He can't resist.

- Our prediction: He's about to get caught in the act."No
matter how much the Fed inflates, it can't force businesses
to borrow or banks to lend money," the Mogambo Guru quotes
Jim Puplava on Financial Sense online, looking at the
decline in the money supply numbers and the lack of lending
going on at the banks."When the appetite for credit
evaporates, the money supply starts to contract, which is
what it is doing now."

- But there is a downside to all of that, as Mr. Puplava
explains:"Now that the supply of money is contracting,
there is less money to keep the economy and the markets
expanding. This will become critical in the months ahead
because this is a liquidity driven market. As the supply of
money and credit contracts, so will the markets." More from
Mogambo, below...

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

Bill Bonner, back in Paris...

*** We are often accused of slandering our native land. An
intrepid reader sends the following note:

"As a fact check to your Daily Reckoning column, I checked
the economist country databank http://www.economist.com/countries
to verify exactly how the U.S. debt/GDP, deficit/GDP, and CA
deficit stack up against other nations. I was a bit shocked by the results.

"Europe has essentially the exact same debt problem as the
U.S. does. In both France and Germany, debt is 60% of GDP,
almost exactly the same as the U.S.. Deficits are lower (3%
versus 5%), but in the case of the U.S., at least
*some* of that 5% is due to the war, which, like all wars,
will eventually end. True, the current account situation is
much better (+2% versus -5%), but I am not sure how much of
that is already priced in to the current $/EURO exchange
rate...

"On the other hand, Japan has an absolutely horrific 145%
of debt to GDP, with annual deficits of 8% of GDP. I know
it's more fashionable to bash the U.S. these days, but
surely this is no role model.

"A friend (and former hedge fund manager) of mine would
also like to add that Italy has a 100% debt to GDP ratio
and the eventual inclusion of eastern Europe in the euro-
zone will clearly only make things worse.

"On the subject of pension liabilities - the situation is
also worse in Europe and Japan, where the age demo is
aggravated, and state pensions are bigger.

"Regarding equity valuations - it is very debatable whether
either Japan or European equities are 'cheaper' than the
U.S.. Both may have lower Price/Book ratios than the SP500,
but in Japan much of that is (still) inflated property
values and cross-holdings; in Europe growth rates are
significantly lower - and should command a lower P/E. Not
to say that the U.S. market is cheap, but neither is Sony
at an 90 P/E, or German banks in the mid 20's P/E, or the
French luxury good makers at P/E's of 30 or more...

"Clearly the U.S. is not the picture-perfect example of
fiscal responsibility. But Europe is at least as bad, and
Japan is worse. I would suggest including these two blocks
as Daily Reckoning 'editorial targets' going forward, but I
doubt it would increase your newsletter circulation."

Japan and Europe don't look good from many angles; their
economies are mostly in a pickle.

But our beat is America. We are American, and try as we
might, we cannot view the world through any other eyes but
our own. If we appear to be taking the fashionable route in
bashing the homeland, it is because we cannot help but
believe a nation that believes it can spend its way to
wealth will get not what it expects, but rather what it
deserves. And if it doesn't, well then, it should.

*** What is wrong with the forces of evil, dear reader?
Good news... bad news... it doesn't seem to matter; the price
of gold edges up. It now stands within $2 of the $400 mark.
We meant to buy more below $350. Then, below $370. And each
time, the price rushed upwards, just before we could get a
grip on it. Why can't the people who are supposed to be
holding it down do what they are supposed to do? We were
counting on them!

Our conclusion: The manipulators must be as incompetent at
keeping prices down as we are of taking advantage of them.

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

The Daily Reckoning PRESENTS: The largest debt load any
country, anywhere, in any era has ever seen... and a U.S.
consumer that just might have reached his limit.


MOSEY TO THE HILLS
By the Mogambo Guru

It has happened. Foreign holdings of U.S. debt held in
custody at the Fed increased that teensy, weensy, last
little bit, that last 6 billion smackeroos, and finally
topped $1 trillion last week. They had been waffling
around, probably trying to stay under that milestone
because it looks so bad. But last week, the need to keep
the dysfunctional U.S. economic system liquefied, and the
need to do something with all those dollars, that huge
tsunami of dollars, that avalanche of dollars, that
humongous freaking huge mountain of dollars that keeps
sloshing into the system, got to be too much, I suppose.

The Treasury printed up another $1.24 billion dollars for
the week (probably to give to Iraqis). The U.S. is
literally paying people their salaries, month after month,
for which many of them do literally no work. So while it
may be all humanitarian and all, it is, after all is said
and done, still giving money to people who do not lift a
finger to do any work. And the only reason I am so angry
about it is that I am eminently qualified to get paid for
doing no work, and often do no work at all for hours and
sometimes whole days at a time, and sometimes even when I
AM working I am doing it badly and am generally incompetent
in every thought and deed, like when I am writing the
Mogambo Guru for instance, but every time I go to the
mailbox, there ain't no check there.

And speaking of the Treasury, that bunch of government
spendthrift losers also floated another $15 billion in debt
for the week, hitting another new record for national
indebtedness, for the jillionth month in a row, I might
add. At this rate, the national debt will surpass $7
trillion just about Christmas time.

Now, it used to be that little boys and girls got toys, or
candy, or a piece of coal in their Christmas stocking that
was so carefully hung by the chimney with care. Now we get
a toys and an IOU from Santa Claus, played by Jerry
Mathers, oops, I mean played by John Snow, Secretary of the
Treasury. Which he will never pay, except with more IOU's,
and he is using the money to give toys and candy to his
little friends, who make the toys and candy. And then the
jerk sends us a bill for the whole amount.

But, hell, we Americans are so busy running up debts of our
own, and the government doling out money and benefits to an
entire constellation of various special-interest groups,
that we figure"What is one more big bill to pay? We'll
just tap equity in our houses, or borrow against our
retirement plans, or lobby Congress to give us more tax
credits, or just borrow the money outright, or something.
The government will think of something. The government
ALWAYS thinks of something."

Anyway, holidays are always Happy Holidays for low-IQ
losers like us! For example, September Consumer Credit
increased $15.1 billion, or 9.7% annualized, to $1.975
trillion. So it looks like that particular indicator of
debt will surge past its milestone, namely the $2 trillion
mark, pretty soon, too.

As the illustrious Martin Weiss expresses it,"Right now,
American consumers are more deeply in debt than any other
population in the history of mankind. But instead of
helping people find a way to dig themselves out of debt,
our government is perpetually looking for new ways to get
them to borrow, spend and speculate more."

In a similar vein, your own illustrious editor, Bill
Bonner, recently remarked:"For nearly 100 years, the ratio
of debt to GDP was between 120% and 160%. Only in the 1929
bubble did it ever become really grotesque... peaking out at
260%. Guess what it is today? Over 300% and growing."

Normally, I would hyperventilate and have some cardiac
event when I read something like this. But I am getting
older, I had heard it before, and had seen the graphs of
the same thing, so I am somewhat inured to the whole mess.
Nowadays, instead of co-workers trying valiantly to get my
heart started by jumping up and down on my chest with their
damn heavy boots, or that time where they threw me out the
window under the theory that the shock would re-start my
heart, I now calmly walk around checking to make sure the
doors are all triple-locked and the intruder
alert/intercept system is on and armed, if you get my
drift.

But that's not even close to all. Yes, the Fed is throwing
money at the economy with abandon. And yes, consumers have
lined up to get their greedy little hands on it as fast as
they can. But - a portentous, foreboding, ominous thought
fills my brain! - even as the Fed keeps the money spigot
pumping, could the consumer queue be growing shorter?

"No matter how much the Fed inflates, it can't force
businesses to borrow or banks to lend money," writes Jim
Puplava on Financial Sense online, looking at the decline
in the money supply numbers and the lack of lending going
on at the banks."When the appetite for credit evaporates,
the money supply starts to contract, which is what it is
doing now."

Well, that explains why the M's are going down. But there
is a downside to all of that, as Mr. Puplava explains:"Now
that the supply of money is contracting, there is less
money to keep the economy and the markets expanding. This
will become critical in the months ahead because this is a
liquidity driven market. As the supply of money and credit
contracts, so will the markets."

And that little bit of economics arcana explains one reason
why the government is not waiting for us doofus slackers to
borrow money and expand our businesses and keep the old
economic ball rolling. They are, instead, printing up the
money and spending it themselves. Lots of it. Oodles of it.
Lots and lots of oodles of it.

And why aren't we borrowing money and getting with the
economic expansion program? Mr. Puplava explains,"In
summary, debt remains one of biggest impediments to a
sustained economic recovery and continuation of this bear
market rally. It is one reason why we still remain bearish.
All of the malinvestments of the previous boom have yet to
be liquidated. The Fed has merely postponed the day of
reckoning not eliminated it."

And because he used the world"Fed," it calls for my usual
knee-jerk reaction, which it to heap a little gratuitous
disrespect on Greenspan and the Fed, with a really rude and
disrespectful undertone, since I am always looking for an
opportunity to do just that, because that is just the kind
of guy I am, and which probably explains why nobody likes
me and why everybody is out to get me. Mogambo fans sit in
rapt fascination, watching mesmerized as I draw back my
lips in a sneer of raw contempt, like Marlon Brando in"The
Wild One," only more cool, more rude, and much more
disrespectful, and say"They are all a bunch of jackass
chumps whose idiocies will culminate in the ruination of
the USA, you dig? Just as the idiocies of all other print-
the-money morons in" (insert waving of arm to signify a
broad expanse)"all of history have always ruined the
economies that pursued such a bizarre and thoroughly
discredited agenda."

And to add a nice little coda to the piece, I turn to the
audience, wink with my charming boyish charm, and say
"QED."


Regards,

The Mogambo Guru
for the Daily Reckoning

P.S. Don't take it from me. In an article called"The
Dollar Crisis: An interview with Richard Duncan," posted on
the Prudent Bear website, Mr. Duncan is right on:

"This state of affairs cannot continue indefinitely. The
United States cannot continue increasing its net
indebtedness to the rest of the world at the rate of 5% of
GDP per year. And, not even the US government can continue
running $500 billion dollar a year budget deficits
forever."

---Mogambo Sez: I'm not saying it is time to run for the
hills, but maybe moseying over in that direction would be a
really good idea.

Thread gesperrt

 

gesamter Thread:

• The Daily Reckoning - Mosey To The Hills (Mogambo Guru) - Firmian, 19.11.2003, 00:12
  • Re: Deutsche Fassung ohne Mogambo - Firmian, 19.11.2003, 00:15
    • Danke! Gruss (owT) - Tofir, 19.11.2003, 00:24
      • Re: Immer gerne! Es freut, wenn jemand liest, Gruß zurück (owT) - Firmian, 19.11.2003, 00:31
    • Danke auch von mir für die mühselige Ãœbersetzer-Arbeit (owT) - Galiani, 19.11.2003, 15:03
      • Re: Diese Blumen kann ich nicht annehmen ;-) - Firmian, 19.11.2003, 20:06