Re:The Daily Reckoning - Uncomprehending Disbelief (Mogambo Guru)

verfasst von Firmian, 02.12.2003, 20:11

-->Uncomprehending Disbelief

The Daily Reckoning

Paris, France

Monday, 1 December 2004


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

*** Euro hits all-time high against dollar...

*** Shoppers swarm to ruin themselves in post-holiday debt
orgy...

*** Europe isn't so sluggish after all... and more!

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

"You Americans did it right," said the taxi driver this
morning."You cut interest rates quickly. So, you were able
to keep employment up and keep the economy working
properly. Here in Europe, I don't know what's the matter
with our central bank. They don't seem able to cut rates.
They don't seem to do anything."

When taxi drivers begin giving macro-economic advice, you
know it is time to sell. But what?

Listening to the radio, our taxi driver, originally from
Morocco, had picked up the rudiments of the economist's
game. If Ben Bernanke ever injures a muscle from cranking
on the printing press too hard, he could fill in for him.
When growth turns sluggish, cut interest rates. What more
do you need to know?

"It's not quite that simple," we tried to tell him."When
you have a consumer economy where everyone is already
deeply in debt, all cutting rates does for you is coax
people even more deeply into debt. People can't go deeper
into debt forever; they'll run out of money to make the
payments. Sooner or later, they have to cut back - and
then, they're in worse shape than ever."

"Worse, in the U.S....since American consumers buy so much
from overseas, when consumer spending increases... it
doesn't really help the domestic economy very much. Only a
third of the additional consumer spending, since the
recession, has been used to buy U.S.-made goods. The rest
went to create jobs overseas... and stimulate foreign
economies."

The driver looked puzzled. It was as if we had told him
that Santa Claus did not really exist. Then, where did all
the presents come from, he wanted to know?"Maybe, but the
U.S. economy is doing much better than Europe," he replied.

Reuters tells us that sales using Visa (that is, on credit)
are up 12%."Shoppers swarm to Bargains," reports another
article."U.S. retailers heartened by holiday sales," adds
the Financial Times.

European shoppers, according to the International Herald
Tribune, are shirkers and malingerers in comparison. IHT
notes that industrial production in Europe is recovering
(Addison has more details, below,) but that consumers
remain"wary."

As a result, the world's taxi drivers are convinced that
America's consumer-led economy is far more dynamic and
buoyant.

Yes, the dollar hit an all-time low of $1.20/euro last
week."But that just hurts our exports and it helps you,"
our driver explained.

Daily Reckoning readers my be interested in this little
comparison from Kurt Richebächer, an economist without a
taxi medallion:

"We checked the numbers and found out that during the two-
and-a-half years since end-2000, that is, since the
creation of Europe's common currency, America's GDP has
grown in nominal terms by a cumulative 9.9%, or 4% at
annual rate. Cumulative, nominal GDP growth in the case of
the Eurozone since then has been 11%, or 4.2% at annual
rate."

Somehow, the chocolate-making countries of Old Europe
manage decent growth - without luring their people into
debt. So far, this little nuance has been missed by taxi
drivers in Europe and central bankers in America. It is
likely to come into vogue at about the time economics
ceases to be such a popular subject.

Over to you, Addison...

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

Addison Wiggin with a look at the day's financial news...

- Black Friday was"boring," a retailer in Connecticut told
the NY Times. Taxi drivers in Paris might think the tide of
spending in the U.S. is going to lift all boats, but
retailers aren't so sure.

- As you may recall, the day after Thanksgiving is
traditionally known as Black Friday, because it helps
retailers both shoot their accounts into the"black" and
judge whether the holiday consumption fest is going to be a
hit for the year... or not.

-"Consumers are telling me they don't have money in their
pockets," Marshal Cohen, senior analyst for the NPD Group
told the Times, echoing sentiments made by Wal-Mart's
accounting department after they missed projections by a
penny two weeks ago."The economy is recovering, but they
don't see it yet." Total sales for the Black Friday weekend
came in at 3% to 4% higher than last year's... but that
isn't enough, say retailers. Last year's 3-day spend-a-thon
saw 12% growth over the year before.

- What's at stake? Oh là là... dare we ask?

-"Why Americans Must Keep Spending" another NY Times piece
attempts to explain. The almighty American consumer spends
roughly $7.6 trillion a year in goods and services. By
comparison, the government dumps $2.1 trillion into the
nation's tills each year; businesses another $1.2 trillion.
"Nothing props up the economy more than consumers, and dips
in their spending frighten forecasters," says the Times.
Fortunately, for forecasters' tickers, going all the way
back to 1947 - 227 quarters worth of activity - the
American consumer has been prepared to chip in and do his
part.

-"In only 20 of these three-month periods," says the Times
"did a drop or weakness in consumer spending curb economic
growth or weaken an expansion. Most of that occurred in the
early decades. Only three times in the last two decades has
consumer spending faltered enough to damage the economy -
twice during the 1990-1991 recession and once as the slow
recovery got underway."

- But what will happen this year? As you might expect, the
consensus view is nothing but, well, rosy. An outfit who've
called themselves Blue-Chip Economic Indicators published a
survey in which all but 51 economic forecasters"grow more
strongly in 2004 than [they have] in the past 33 months."
The chief economist at Bank of America confidently
proclaims:"The economic upturn does have staying power."

- Of course, your editors can spot a wilting petal on any
short-stemmed American Beauty."It is hard to construct a
happy story for 2004," says Mark Zandi at Economy.com,
"unless we consistently create a significant number of
jobs, which we have not yet." The Fed's Bernanke says we
need about 150,000 jobs a month for an"considerable
period." Jared Bernstein at the Economic Policy Institute
says that figure is probably closer to 300,000. That's how
many it's going to take to put income back in the mits of
over 3 million would-be consumers who'd be more than happy
to get back work.

- While after-tax disposable income has risen by 3.2% over
the past year, the Commerce Department says most of that
comes from mortgage financings and tax cuts."Real wages"
have been stagnant since the nation was mesmerized by the
term 'dimpled chads.'"Nonlabor sources have been the sole
driver of real disposable [income]," the EPI's Mr.
Bernstein reports.

- The rest, of course, comes from the dreaded 'D' word.
Ever since 1973, personal consumption has risen at a faster
annual rate than personal income."What happens when income
falls short," the Times quotes Elizabeth Warren, author of
The Two Income Trap,"is that people start increasing the
risks they take to keep up their spending... Cut off from
mortgage refinancing, they turn to home equity
loans... [and] if they [still] cannot pay their debts, to
personal bankruptcy. Bankruptcies have risen in each of the
last three years."

- But that's okay... under the prevailing recovery scenario,
consumers only have to drive themselves deeper in debt
until their credit cards begin spawning hundreds of
thousands of jobs a month. They've done it with relative
ease since 1947 - why not this time, too?

- Of course, a thoughtful investor might look at this trend
and think,"Hmmmmnnn... that's a trend that can't go on
forever." Then, he might make plans to get his money as far
away from the fictitious rebound as possible. Last year's
spending season, for example, proved to be a big
disappointment for retailers. A more daring investor might
try to trade options on the retailers over the holidays or
into the new year. But beware."Bear markets are more
violent than bull markets," writes our new friend Dennis
Gartman, by way of John Mauldin's weekly e-mail"and so
also are their retracements."

- The markets barely moved on Friday... traders were sleepy,
and volume was light. In Europe, however, news that
European manufacturing was up for the third straight month
hit the benchmark red wine indicator hard. The dollar
closed at an all-time low against the euro: $1.20. Though
we pontificate and forecast it, your rouge-elixir-quaffing
editors at the DR HQ still find it a shock each time the
greenback finds its way to a new low.

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

Bill Bonner in, er, Paris...

***"I have a cousin who lives in Pennsylvania," continued
the taxi driver."She tells me how nice it is in America.
Anybody can get a job in America, she says. Here, it's a
different story. They practically make against the law to
hire someone."

*** We conclude little from this morning's taxi ride than
that Popular Economics is in a bull market, if not a
bubble. When taxi drivers start recommending stocks, you
know it is time to sell. But what do you sell when taxi
drivers recommend macro-economic strategies?

Everything, is our answer - stocks, bonds, real estate
.. and especially the dollar. Asset values depend on
investors' misplaced confidence in economics. They don't
seem to realize that economics - as currently practiced -
is only one part science, one part experience and 10 parts
flim-flam.

But if we sell everything, what do we do with the money?
But gold, is our answer. Gold is an antidote to humbug
economics. It makes no predictions. It makes no
recommendations. It offers no analysis, no prescriptions,
and no excuses. It is the asset-of-last-resort - to which
investors turn when they realize that their leading
economists are frauds.

*** We asked our friend and gold expert Paul van Eeden what
he thought of buying Durban Deep:

"I don't like it. If the U.S. Dollar gold price increases,
there is no reason to believe that the South African Rand
gold price will increase as well. Durban Deep's assets are
marginal and, in my opinion, the stock is grossly
overpriced even for a leveraged play on gold. Durban's
assets give you much less leverage to upside in the gold
price than, say, Harmony, which is a better company. Durban
is also almost always on the verge of bankruptcy and
management is not of the same caliber as other South
African gold companies that I would rather own if I was
going to invest in the country.

"It may sound like Durban could be a contrarian play on
higher gold prices but I don't believe it is. Sometimes
buying a poorly managed company with below-average assets
and a weak balance sheet is just not worth the risk."

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

The Daily Reckoning PRESENTS: Deeper and deeper in debt,
the U.S. founders... as the straw approaches the camel's
back...


UNCOMPREHENDING DISBELIEF
By the Mogambo Guru

The Fed, the Treasury and their willing co-conspirators
have all suddenly waded much deeper into the swamp of
monetary irresponsibility. The latest reports indicate that
they are still there, wading around in fetid and feculent
water up to their noses, but seem to be enjoying themselves
immensely.

For example, let's saunter over to the government debt area
and ponder the news that John Snow's Treasury borrowed
another $38 billion in one lousy freaking week! One week!
One! That's thirty billion, plus another eight billion, for
a total of thirty-eight billion dollars, in five business
days! If I was a Southern Belle instead of the Manly
Mogambo, I would surely catch the vapors at the news, and
would raise the back of my hand to my forehead as I gently
swooned, crying"Oooooh! Surely we are undone!" with a
voice that dripped honey, with an accent thick as molasses
and twice as sweet. But, of course, being the Mogambo, I
stomp around the house fully armed in a state of terror
mixed with anger, and just a touch of vengeful hatred for
piquancy, dressed in full-body armor, psyching myself up
for the assault by the government goon squad, which I
figure is probably pulling up in the driveway right about,
oh, now.

Like a little kid with a new toy, I think that I am getting
the hang of using a calculator and would like to, you know,
show off a little bit, so I had an interesting session with
a calculator. But for some strange reason, whenever I
multiplied $38 billion a week times 52 weeks in a year, I
got a wrong answer. Guess what I got? I know you are going
to laugh when you see it, and remember that the calculator
was obviously broken, as I kept getting the answer $1.976
trillion!

Seeing a number that huge is like getting hit with a
sledgehammer to the skull, as you realize that no sane
person would voluntarily plunge his own country farther
into debt at that rate - and I am talking about amassing
debt to the tune of 20% of GDP here! - so that is when I
realized that the calculator was obviously broken.

And then, and this is the really weird part, not wanting to
waste this opportunity for fame and glory, and maybe a
little interest from pretty girls would be a nice touch,
but I get up and start rummaging around in the house for
another calculator, and whenever I found one, I would, with
a single-mindedness and focus rarely found outside of the
chronically mentally ill, again enter those same two
numbers, and I would always get that same wrong number!
After this happened four times in a row, a little light
bulb went on over my head, and I said to myself"Hey,
doofus! All the calculators in the house are broken!" All
of them! I mean, don't you think this is weird, weird,
weird?

Anyway, the point is that all those calculators broke the
exact same way, and at the exact same time, and whenever
you multiply $38 billion dollars in one week times 52 weeks
in a year, every last one of those calculators all give the
ridiculous answer of $1,976 billion, which is $1.976
trillion. Dollars! In one year! Hahahaha!

And that comes to $7,057 for every man, woman and child in
the country. Every living being in the nation is being
plunged into more debt at an annual rate of $7,057. So if
you are a family of four, meaning you, your spouse and your
two charming children, then your total indebtedness is
increasing at a rate that would equal $28,228 a year. Nice
going!

But, and I find this hard to believe, no matter how hard I
rub my eyes, it never goes away, the really interesting
part is that the Congress, and this is one for the books,
just passed the Prescription Drug Welfare Plan, or whatever
it is called. Which is not even a temporary stimulus bill
in the usual sense, but a gigantic new permanent
entitlement, described by some as"the most sweeping
expansion of the Medicare system since its inception."
Hell, even the most wild-eyed, goofy optimists admit it
will cost $40 billion a year forever! And by"forever" I
mean"never," as this is just the start of a long, long and
expensive, expensive road, and we have many, many layers of
hell to transcend before we reach The Final Cost.

And then I look at the short one-year time frame wherein
all this borrowing would be taking place. And then I look
at the $7,057 per man, woman and child in the country. And
then I look at the one-year time frame. And then I look at
the money. And then at the time. The money. The time.
Money. Time. Money. Time.

Suddenly overcome by a dizziness that appeared out of
nowhere, I try and gather my senses, and I happen to notice
that a nice chunk of the money, which bought all that new
debt, came from foreigners with deposits at the Fed. And
when I try and imagine who the people are that decided to
buy that much U.S. debt, and who were so confident in
themselves that they are apparently not the least bit timid
or embarrassed to use $12 billion of their valuable money
to buy U.S. debt, which is denominated in the dollar, which
is a depreciating currency, meaning that it is not as
valuable as it was yesterday, and one that will be even
less valuable tomorrow and for many, many more tomorrows, I
am struck by the realization that these self-same foreign
morons are making a huge, I mean huuuuuuuuge, mistake.

Imagine that we turn on the TV, snuggling down in the sofa,
and are looking in on an episode of Jackie Gleason and the
Honeymooners. The scene opens with Ralph Kramden, entering
stage left, who just came home from his job of driving a
city bus. Throwing his jacket on the chair, he announces to
his wife Alice, played by Jerry Mathers, oops, I mean
Audrey Meadows,"Well, dear, I made a gigantic investment
in a debt asset today! I am proud to say that it is one
that is grossly overpriced, and so it already yields less
than the rate of inflation, which is good, because I want
to get away from that inflation stuff! And it is
denominated in a currency that is going down in relation to
ours, which I am told is a really classy move! So that in
the future when we cash it in to pay for golden years, we
will almost certainly get back less than we put in, in
terms of purchasing power!"

Now, being a real stupid guy myself, I am very familiar
with the scent of stupidity, and my sensitive nose - sniff,
sniff! - detects one that is particularly ripe. But it is
the look of stupefied, uncomprehending disbelief in Alice's
face that gets all the laughs.


Regards,

The Mogambo Guru
For the Daily Reckoning

P.S. As Doug Noland reports,"foreign issuers of dollar-
denominated debt continue to revel in unprecedented global
dollar liquidity." Hey! Maybe those doofus foreigners are
smarter than we thought! Borrow valuable dollars, with the
promise to pay back worthless dollars in the future!

But foreigners are not the only ones at that game.
Bloomberg figures almost $23 billion of corporate bonds
were issued this week,"one of the strongest weeks of the
year and the most in two months." Not to be outdone,"Year-
to-date junk bond flows of $25 billion are easily a new
record." And we already looked into the Treasury doing it,
too.

---Mogambo Sez: This is all insane, as I have read many
things about economics off and on through the years, and a
program to print money to finance borrow-and-spend
consumerism is pure lunacy.

And just because I can't remember the last time that I ever
heard of a lunatic's ideas working out, doesn't mean that
lunatics don't have a contribution to make on the altar of
diversity-for-diversity's sake. But, and you can't help but
notice, that they were also the ones who said that gold was
a barbarous relic, and which had no value. And now gold is
the best-performing asset for the last five years running!
Makes you scratch your chin and say"hmmmm" about all the
other things that they say, doesn't it?

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gesamter Thread:

• Bill Bonner und Wiggin in deutsch von heute - off-shore-trader, 02.12.2003, 18:09
  • Re:The Daily Reckoning - Uncomprehending Disbelief (Mogambo Guru) - Firmian, 02.12.2003, 20:11