The Daily Reckoning - Bargains? Off With Their Heads (Mogambo Guru)

verfasst von Firmian, 17.02.2004, 21:37

-->The Daily Reckoning

Managua, Nicaragua

Monday, 16 February 2004

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

*** Just like Japan....people will have to pay their
debts... if they can...

*** Sell tech... buy coal... Is Japan's 14-year bust over?

*** Wal-Mart - emblem of the consumer economy... Who wants a
war hero, anyway?

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

"What's really different this time," began fund manager
James Ferguson at dinner last week,"is that for the first
time in many, many years, people who are borrowing huge
amounts of money may have to pay them back..."

Americans have been borrowing and spending for a long time.
Since WWII ended, they've come to be more and more
comfortable with it... gradually transforming the entire
system from an economy that produced things to one that
consumed them. The caterpillar turned into a butterfly on
approximately the day that Wal-Mart replaced General Motors
as the nation's biggest employer.

The butterflies flitted from one debt to the next,
believing they would never really have to settle up.
Inflation has been a fact of life for so long, who imagined
that it might one day come to an end?

But inflation rates have come down for the last 20
years... and now threaten to sink below zero.

"It's just like Japan in 1994," Ferguson continued.

Japan! Aha... we had forgotten our own comparison. Here at
the Daily Reckoning, we noticed several years ago that the
U.S. economy was following Japan... with a 10-year lag. In
the late '90s, U.S. stocks rose - just like those in Japan
a decade earlier - to bubble levels. Then, the bubble burst
in January 2000... just as it had burst in Japan in January
of 1990.

But stocks did not go straight down in Japan. Nor did the
economy. It bounced... and then hesitated. By 1994, it
looked as though the worst might be over. But it wasn't. It
had only begun... with inflation rates sinking below zero -
despite short-term interest rates near zero, too.

Japanese debtors had to pay the money back... with cash that
was even dearer than the stuff they had borrowed.

Of course, Japan is not the U.S.. The Japanese still had
savings... and a positive balance of trade. Neither is true
in the U.S.. Savings rates are below zero. And the trade
deficit actually widened in the most recently reported
figures - despite the huge drop in the dollar.

The Japanese paid their debts. Americans won't be able to.
When that little detail derails the Japan-like sequence, we
don't know. But we will find out.

In the meantime, we wonder whether Japan's 14-year downturn
might have finally come to an end.

"Buy Paramount Bed," suggests Ferguson."It's a small
Japanese company selling at a 20-year low."

Over to our man in New York, Eric Fry, for more news:

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

Eric Fry in Lower Manhattan...

- Are Mr. And Mrs. Consumer losing their nerve?... Or are
they becoming stronger?... Are they becoming resistant to
that virulent strain of confidenceous Americanus that
causes otherwise reasonable folks to buy things they don't
need with money they don't have?

- The evidence is spotty, yet compelling, as Chairman
Greenspan might say. On the one hand, Americans purchased a
whopping $40 billion worth of mutual funds in January - a
product they certainly do not need - while continuing to
increase their borrowings from banks and credit card
companies.

- On the other hand, consumer confidence plummeted in
February, according to researchers at the University of
Michigan. The survey produced a reading of 93.1 for the
month, down sharply from the January reading of 103.8.

- Early in the week, Alan Greenspan sang the economy's
praises... implicitly praising, as well, the handiwork of
the current Federal Reserve chairman, a gentleman by the
name of Alan Greenspan. Investors responded to Greenspan's
circular self-adulation by bidding share prices to new 32-
month closing highs. But alas, investors' confidence waned
as the three-day weekend approached. The Dow closed out the
week with a slim 34-point gain to 10,627, while the Nasdaq
registered its fourth straight weekly loss by slipping half
a percent to 2,053.

- The dollar also slumped about half a percent to $1.2737
per euro. The gold market whipsawed investors during the
Friday trading session - first soaring to an intraday high
of $417.10, then falling to close down $3.40 at $410.80 an
ounce. But despite the one-day gyrations, the yellow metal
finished the week with a gain of $7.45 an ounce.

- To hear Alan Greenspan tell the tale, the U.S. economy
inhabits a kind of macro-economic Eden - a paradise so
blessed that investors need not possess any knowledge of
good or evil. Even seemingly diabolical iniquities, like a
$500 billion dollar trade deficit and a plummeting dollar,
are of no consequence to the inhabitants of this paradise.

- Sure, America runs a massive current account deficit, but
observe that no harm comes to her as a result. Sure, it
would be prudent to trim the federal deficit, but why wring
our hands over such minor foibles? And sure the dollar's
value is plunging faster than Satan into the fiery abyss,
but this phenomenon is actually a good thing, which will
impart even greater blessings to this economy of ours.

- So far, says the chairman, the"gradual" decline in the
value of the dollar has been helpful in easing the current
account deficit."No material adverse side effects have
been visible in U.S. capital markets," he coos seductively.

- In short, Greenspan's mellifluous message is to fear no
evil... All is well.

- Comstock Partners begs to differ with the chairman's
assessment."We still believe," Comstock scowls,"that the
economic recovery is not sustainable, as the monetary and
fiscal authorities are very close to having used up all
their ammunition with no results in the all-important labor
sector and consumers up to their eyeballs in debt... In
addition to the lack of wage growth, few hirings and a
plunge in REFIS, the economy is faced with record consumer
debt, a low savings rate and record consumer bankruptcies
at a time when further stimulus from fiscal and monetary
policy are not possible.

-"In the absence of further means of easing," Comstock
concludes,"the Fed is trying to use highly nuanced wording
to tell us that the economy is strong... while at the same
time trying to keep the fall in the dollar somewhat stable.
The Fed knows the economy is not self-sustaining, so is
trying to keep the stock and real estate markets pumped up
in order to give consumers the illusion of paper wealth in
the absence of jobs and income. In our view this is a house
of cards that is doomed to come tumbling down."

- OK, so maybe this house of cards won't come tumbling
down... But neither will it grow to the sky. Such fantasies
only exist in the Eden imagined by Alan Greenspan.

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

Bill Bonner, back in Latin America....

***"The world is overinvested in tech gadgets," said
another dinner guest last week, London fund manager
Jonathan Allum."But it's underinvested in infrastructure -
especially in Asia.

"Sell tech stocks. Buy coal in Australia... basic
commodities, infrastructure," he concluded.

*** While gold has held steady in the $400 range, zinc,
copper, lead and other commodities have continued to rise.

"That makes sense to me," Allum commented."The Chinese are
buying useful commodities by the shipload. No wonder prices
are rising. But gold? What use is it?" Allum wondered.

*** Hey, even leftist politicians are catching on to
America's economic predicament. Here's Representative
Bernie Sanders, the Independent democratic socialist from
Vermont, getting tart with the Master of the Universe, Alan
Greenspan himself:

"Wal-Mart has replaced General Motors as the largest
employer in America with over 1 million employees where,
instead of earning a middle-class wage, workers earn
starvation wages of $13,861 a year - a salary that is below
the poverty line. Meanwhile, 4 out of the top ten richest
people in America are relatives of Sam Walton, Wal-Mart's
founder, and are worth over $100 billion. Thanks to the
Bush tax cuts which you supported, the Walton family will
have their taxes reduced by more than $145 million.

"Last year, you suggested to this Committee that
manufacturing jobs in this country don't 'matter.' You
said, 'Is it important for an economy to have
manufacturing? There is a big dispute on this issue... If
there is no concern about access to foreign producers of
manufactured goods, then I think you can argue it does not
really matter whether or not you produce them or not.' In
other words, if we can buy goods from China where workers
are paid slave wages to produce the same products that
Americans manufacture at $20 an hour, it does not matter.
To hell with the American worker. To hell with the middle
class. If companies can hire workers in China for pennies
an hour, we don't need a middle-class manufacturing sector.
Let them work at Wal-Mart for poverty wages and no
benefits.

"Chairman Greenspan, since you made those comments in July
of 2003, America has lost another 146,000 manufacturing
jobs. It seems to me that you have the same contempt for
the American manufacturing worker as Jeffrey Immelt, the
CEO of General Electric, who said, 'When I'm talking to GE
managers, I talk China, China, China, China, China. You
need to be there. You need to change the way people talk
about it and how they get there. I'm a nut on
China....Outsourcing from China is going to grow to $5
billion. Every discussion today has to center on China. The
cost basis is extremely attractive.'

"Supporters of unfettered free trade, like yourself, have
told us, don't worry about the loss of manufacturing jobs.
Those jobs will be replaced with high-skilled information
technology jobs that pay better salaries, and the displaced
workers just need to be re-trained. Wrong again, Mr.
Greenspan. Over the past 3 years, we have lost over 540,000
information technology jobs as companies are shipping those
jobs to low-wage countries like India and China. And,
according to a recent study by the Haas School of Business,
14 million white-collar service jobs, representing 11
percent of the total U.S. workforce, are in danger of being
outsourced overseas. U.S. workers who have been outsourced
are not moving into better-paying jobs. In fact, industries
that are creating jobs in the U.S. are paying salaries that
are 21% less than industries that are downsizing and wages
for all middle and lower income workers have gone down.
But, just yesterday, according to the Seattle Times, the
Bush Administration believes that 'The movement of American
factory jobs and white-collar work to other countries is
part of a positive transformation that will enrich the U.S.
economy.' And, according to Bush's chief economic adviser
N. Gregory Mankiw, 'Outsourcing is just a new way of doing
international trade. More things are tradable than were
tradable in the past. And that's a good thing.'

"Chairman Greenspan, my question to you is this: do you
agree with President Bush and the Chairman of the Council
of Economic Advisors that it is a good thing for the U.S.
economy to outsource American manufacturing and white-
collar jobs overseas? [More on this question from the
Mogambo, below... ]

"Chairman Greenspan, as more and more Americans are working
longer hours for lower wages, are losing their jobs to
cheap foreign labor, and exhausting their unemployment
benefits, they are increasingly using their credit cards to
pay the bills and put food on the table. This has led to a
record-breaking $2 trillion consumer debt which has more
than doubled in less than a decade, and a record-breaking
1.6 million bankruptcies, an increase of 125% since 1989.
Even though the Federal Reserve has lowered the Federal
Funds Rate to a mere 1 percent, the Prime Rate is the
lowest level since 1958, and mortgage rates reached a 45-
year low last year, average credit card interest rates have
gone up since 2001 to 16.4%. In fact, at the same time the
Federal Reserve was lowering the Federal Funds Rate, credit
card issuers were increasing their average interest rates,
resulting in obscene profits. The spread between the
average credit card interest rate and the prime rate is now
at its highest level in nearly 20 years.

"Chairman Greenspan, you recently made the argument that
because interest rates are low, the record-breaking $2
trillion consumer debt 'is not a significant cause of
concern.' But, since the average credit card interest rate
is above 16% with some consumers paying in excess of 25%
interest, and credit card issuers are racking up a record-
breaking $7.3 billion in revenue from late fees, how will
lower and middle-class Americans ever be able to pay off
their credit card bills? What happens when the Prime Rate
and Federal Funds Rate go up? Won't this break the backs of
lower and middle-class Americans?"

*** And this from our friend, Byron King:

"As for GWB not being some kind of war hero with a chest
full of medals, well... maybe it is not everything it's
cracked up to be... Benito Mussolini was a war hero, badly
wounded at Caporetto and the recipient of Italy's"Medaglia
d'Oro" (Gold Medal). Adolph Hitler earned an"Eisenkreuz"
(Iron Cross) First Class on the Western Front. Hermann
Goering was awarded the"Pour le Mérite" (Blue Max) for his
aviation exploits. And did they learn anything from their
wartime experiences, such as from watching people die
horrible deaths? Look what happened when these brave
fellows became upper-middle-aged politicians with their
hands on the throttles of power in bureaucratic states."

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

The Daily Reckoning PRESENTS: Mogambo on Monday! Bernie
Sanders, above - and Lou Dobbs, below - may get hot and
bothered over the outsourcing of U.S. jobs... but the ever-
price-conscious, free-market Guru sees more silver lining
than storm cloud.


BARGAINS? OFF WITH THEIR HEADS!
by the Mogambo Guru

Lou Dobbs has got a strange idea into his head. Now you
remember Lou Dobbs - that avuncular and charismatic guy who
knows absolutely nothing about economics as far as I can
tell, but who wants to be helpful, as do all Leftists, as
do we all, and so hosts his own TV show about business and
money. Anyway, Lou has somehow got it into his head that
U.S. jobs going overseas is some huge calamity without any
saving grace.

Every night while I am channel-surfing like any normal
American, whenever I happen to hit on Lou's show, there is
inevitably some segment where he demonizes those companies
that are sending jobs offshore to take advantage of cheaper
labor. He even asks viewers to send him the names of
companies that are moving jobs offshore, which reminds me
of the Salem witch hunts, so that he can officially
demonize them or something. Maybe send them hate mail.

But Mr. Dobbs makes no mention of the fact that these
companies are sending jobs overseas so that they can sell
American consumers inexpensive stuff. So we get to buy
cheap stuff, made by foreigners, instead of having to buy
expensive stuff, made by Americans. But so certain is Lou
of the nefarious nature of this practice, that he is
(insert deep and moody soundtrack to indicate some evil
conspiracy),"keeping a list" of those companies who do
this huge favor for us consumers. Ooooh! Keeping a list!

And what is the exact crime with which these companies are
being charged? I bring this up as a point of law, as the
local constabulary is now aware that"locking me up and
throwing away the key" is not an acceptable punishment for
me"acting like an idiot and screaming about monetary
policy and fiscal policy idiocies and in general creating a
disturbance," because they could not pinpoint the exact
crime with which I was being charged, although everyone
agreed that"sending me up the river" for a long, long time
was a great idea.

So, what was the crime? For letting you buy bargains. You
are allowed to buy inexpensive stuff. Now I will insert my
expensive animated short, in which Lou Dobbs is all dressed
up as the Queen of Hearts in Alice in Wonderland and he is
shouting"Bargains? Off with their heads!"

Now Lou likes to showcase the AFL-CIO, who see themselves
as the glorious and brave vanguard of The American Working
Man And Woman Who Need To Pay Higher Prices For Everything
(TAWMAWWNTPHPFE), which is getting its members to march
around huffing and puffing about how this outsourcing of
jobs is so awful. And they are striding up the steps,
heroes into the fray, to the White House or something,
carrying signs and banners and making big noises, and they
want the President and the Congressional bozos to - hold
onto your hats -"do something."

So what do they want the President and the Congressional
bozos to do? Like every other grubby self-interest group,
they want Congress to give them something for nothing. In
this instance, they want Congress to pass laws making sure
that overpaid Americans can have their jobs as long as they
want them, regardless of the consequences, and while they
are at it, how about throwing in some more benefits?

And this sorry spectacle is Exhibit A, showing why there
are very few AFL-CIO people who win prizes for having
smarts. If they had any smarts, they would know that the
jobs are moving overseas precisely because the Congress has
ALREADY been"doing something," namely passing more and
more legislation mandating that employers provide more and
more benefits to more and more people, and passing
regulating legislation to make the very act of doing
business in America more costly and onerous. This drives up
costs to the company, which drives up the price of the
goods and services produced by the company. And that means
that union labor has to get higher wages to pay the higher
prices, and that makes the company raise prices some more,
and the next thing you know, those sneaky Chinese are able
to produce the same goods, but at a mere fraction of the
cost. And this is, somehow, unfair.

And since nobody wants to pay higher prices, they don't,
and sales fall. And then the company looks around, and says
"Hey! How come nobody is buying our products?" Then the
company goes down to the Wal-Mart and notices that every
boob that walks in off the street can buy the exact same
product the company makes at a Wal-Mart retail price that
is lower than the company's wholesale price! Then some
genius MBA figures out that the way to get the company's
costs down is to get rid of these high-priced employees and
then go someplace where they have low-cost employees! And,
in the bargain, they hopefully get a business environment
that is relatively free of the aforementioned legislated
regulatory burdens that are suffocating every business
transaction, too.

So they move offshore. And the customers love it! And the
company starts making money again! And management loves it!
The stockholders love it!

But then the AFL-CIO crowd and Lou Dobbs - and notice how I
have slipped into my childish mode and taken my crayons and
drawn mustaches on their pictures and blacked out some of
their teeth so that they look as intelligent as they sound
- arrive at the White House, indignant and demanding. And
then they find out that Congress is already working against
them by borrowing and spending, and the Fed is printing up
humongous gobs of money for this exact effort, and all this
monetary inflation is filtering through to prices, like it
always does, and this gives an added whammy to the upward
rise in prices, which makes the problem of the company
worse, and adds impetus to management's deciding to move
production offshore!

And you don't have to believe me, and I realize how hard it
is to believe anything that a raving lunatic like me says.
But perhaps you will listen to Jude Blanchette, who wrote
an article entitled"The Bogeyman of Lost Jobs" over at
Mises.org. In the same vein as the Mogambo, and please do
not hold that against him, he writes:"The regulatory
burden placed upon manufacturers leaves them at a severe
disadvantage with the rest of the global playing field.
Countries that don't have the list of draconian
environmental and workplace regulations, not to mention
mandated benefits and compulsory unionization, reap the
benefits of flexibility."

But Lou and all his buddies in the unions all decide to
ignore the Mogambo and ignore Mr. Blanchette, and in their
little pea-brains they decide that what they will do is to
stand around wringing their hands and sending up pitiful
wails of anguish, hoping that the hand-wringing will
produce a solution, and getting viewers to rat on companies
who are planning to sell production to customers at bargain
prices.

But it is all for naught. The Government Is On The Job
(GIOTJ) already! What the government has done, or well,
more exactly, what the Federal Reserve has done, is to
engineer a fall in the worth of the dollar by making it
worthless by virtue of their printing up so darn many.

Therefore, when the dollar has finally been debased enough,
the $50-an-hour job that the union people want will be
roughly equivalent to what an illiterate peasant Chinese
congenital idiot at the very bottom of the wage scale makes
for standing around in the rice paddies for an hour. Then
jobs will magically flow back over here, and the Chinese
workers will get to complain about how we Americans work so
cheap, and they can spend their time complaining to Lou
Dobbs and THEIR government about how Chinese jobs are
moving offshore to America. Problem solved!


Regards,

The Mogambo Guru
for The Daily Reckoning

P.S. Of course, there is a price to be paid, as there is
always a price to be paid. And I am reminded of this as I
notice that a targeting-laser beam from a government sniper
is wavering on the wall near my head, and this is the price
I pay for being a loudmouth malcontent, and in fact one of
my many charming personalities is Malcontent Mogambo, which
flopped as an Official Collectible Action Figure, and the
price to be paid is that I get John Ashcroft and his
Patriot Act goons getting all huffy just because I hate all
their guts for what they are doing to my country.

And the price for the devaluation of the dollar, and the
resultant inflation will be paid, as it is always paid, by
the poor, and the old, and the people at the low end of the
wage scale, and then people not so low on the pay scale,
and the people above them, until, finally, everybody is
feeling the pain.

As my snotty little coda, I will add that as prices rise,
the AFL-CIO will find that their incomes, even at $50 an
hour, are not rising as fast as prices. Like, for instance,
the price of oil. In that regard, perhaps it becomes
clearer why we invaded Iraq, killed thousands of Iraqis,
kidnapped their leader, and just took over the joint.

Thread gesperrt

 

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