The Daily Reckoning - Greenspan's Follies (Mogambo Guru)

verfasst von Firmian, 24.02.2004, 20:42

-->Greenspan's Follies

The Daily Reckoning

Paris, France

Monday, 23 February 2004

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

*** The Fed's superheroes... lies, fraud, and government
'adjustments'...

*** Dollar rallies on terror?! Gold falls sharply... stock
market slinks back... confusion reigns...

*** On the coast of Nicaragua... toxic growth... no"recipe
for sustainable vigor"... vendor financing... and more!

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

We often opine that the world is full of fraud. Today we
begin with proof.

Or rather, a few egregious examples - the first brought to
you by the Bureau of Labor Statistics, explicated by the
New York Post's John Crudele, courtesy of the great Mogambo
Guru:

"By now my readers should have a PHD (pretty high disdain)
for Capitol Hill math," writes Crudele."This one, though,
is a cake taker. I'll translate: Included in the 112,000
new jobs in January were 76,000 jobs that supposedly exist
because people who weren't hired in December couldn't be
fired in January. Got that? They didn't get hired in
December, or fired in January, so they showed up as new
employees in January as a statistical fluke. So, really
there were only an abysmally small 36,000 new jobs in
January."

In other words, the 76,000 jobs are a fraud."Weak holiday
hiring," wrote the Labor Department in its release,
"... meant that there were fewer workers to lay off in
January, resulting in seasonally adjusted employment gains
for the month." The key words here are 'seasonally
adjusted' - meaning that although holiday hiring was weak,
government quants went ahead and added imaginary seasonal
jobs to the total figures anyway.

Yet... on Friday, the governors of the Federal Reserve, like
so many comic book heroes, professed en masse their belief
that real"job creation" is on the way."It's just a matter
of time," Fred 'let's-all-join-hands-and-buy-an-SUV' McTeer
assuaged the huddled crowd of attendees at an economic
education conference in Texas.

"In all likelihood," Alan Greenspan (ranking former member
of Time Magazine's Committee to Save the World) soothed a
Chamber of Commerce group in Nebraska,"employment will
begin to increase more quickly before long as output
continues to expand." Ben 'Printing Press' Bernanke
messaged reporters in Washington by"expressing" the view
that"hiring will strengthen significantly this year..."

Speaking in St. Louis, William Poole suggested that if the
U.S. economy expands by 4 to 5 percent in 2004, as the
preponderance of the world's talking heads seem to agree it
will, then there will be"significant increases" in
employment.

Their post-huddle story in a nutshell: If U.S. GDP grows at
the expected rate... jobs will appear. Will they, we wonder?
Probably. In the U.S.? Not likely. India and China? That
would be our guess. But leaving aside the politically juicy
issue of"off-shoring" of jobs, let's consider the pedestal
on which the faith of the Fed's super-heroes is resting:
the growth in GDP figures themselves.

Rather than relying on annualized GDP growth rates,"a more
precise measure [of the strength of the recovery]," writes
Richard Freeman in the Executive Intelligence Review (also
by way of our friend the Guru),"would be to compare debt
to the productive portion of GDP."

The"productive portion" of the economy - manufacturing,
agriculture, construction, mining, public utilities, and
transportation sectors - produces the"actual wealth" from
which debt, both personal and national - both being racked
up at staggering rates - gets paid off. Yet according to
U.S. Commerce Department data, the productive portion of
GDP is now less than 30% of total GDP.

Perhaps the real reason new-hires are failing to show 'in
the numbers' as quickly as our friends at the Fed would
like is masked by using a flawed (or at least easily
manipulated) measure of 'U.S. growth.' Recent GDP reports,
after all, measure countless paper transactions following
an historic burst of government stimulus - rather than real
economic activity.

Hmmmn. Just a thought.

To make the case a little more poignant, Freeman sheds
light on another little 'adjustment' the government likes
to make use of:"The Commerce Department reports the
'manufacturing sector of GDP' in dollar terms, not output
terms; and it adjusts it by the notorious 'Quality
Adjustment Factor,' which artificially overstates
production." Thus, even the officially stated 30% of GDP
that is supposed to be the 'productive portion' is just a
statistical fluke.

"There it is in one compact sentence," excoriates the
Mogambo,"proof that the government is a pack of lying
weasels!" Mogambo unpacks his outburst... below.

In the meantime, here's Eric with the market news...

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

Eric Fry from New York City...

- The bull market marches steadily onwards. Year after
year, prices soar... but no one's happy about it. Your
Manhattan-based editor is referring, of course, to the
local bull market in private kindergarten tuition.

-"New York kindergarten tuition fees top $26,000 a year,"
Bloomberg News reports,"almost as much as the cost of
attending Yale or Princeton universities... Demand for about
2,300 kindergarten spots at such schools as Dalton and
Horace Mann is stronger than ever, with some getting 15
applications for every seat. Behind the surge in demand is
a growing belief among parents that the schools put their
children on track to make it to Harvard, Yale or other top
universities."

- Evidently, the boom times are back on Wall Street... or
maybe they never really left.

-"It's supply and demand," Ms. Nina Bauer tells Bloomberg
News. Ms. Bauer is a counselor at Ivy Wise Kids, a service
that charges $5,000 to coach parents how to prepare their
four-year-olds for admittance tests and interviews."Wall
Street got big bonuses this year," she notes."No one has
ever once asked me about tuition."

- Down on Wall Street, stock buyers aren't terribly price-
sensitive either. Demand is inelastic. So desperately do
stock buyers wish to gain admittance to the capital gains
fast track, they rarely consider the price. Unfortunately,
investors often discover that indiscriminate stock buying
gains them admittance only to the School of Hard Knocks.

- Last week, the nation's stock buyers exhibited slightly
less enthusiasm for stocks than normal. Indeed, many former
stock buyers became enthusiastic stock sellers, perhaps to
raise a little scratch for next year's kindergarten
tuition.

- For the week, the Nasdaq Composite slipped 0.8% to 2,037,
dragged down by the semiconductor sector. As Barron's
observes,"The failure of the semiconductor stocks to
capture any strength from then gaudy results of Broadcom
and Applied Materials was notable mainly as part of a
broader theme of technology stocks under-performing the
market in recent weeks.
Lagging technology shares - the SOX is down more than 8%
over the past month in a flat overall market - have been
the talk of the Street, giving rise to concerns that this
once-leading sector represents a troubling signal for the
continuing flow of risk capital into stocks."

- The non-techy blue chips fared slightly better, as the
Dow dipped a mere eight points to 10,619, while the S&P 500
slipped just one point to 1144. A rallying stock market -
like all of life's other earthly pleasures - is a fleeting
delight. Sometimes we investors forget that bull markets
are as mortal as man himself. But alas, the delight of a
rallying stock market does not last forever.

- Nor, it seems, does a rallying gold market endure from
everlasting to everlasting. Last week, the ancient monetary
metal plummeted $12.70 to $397.55 an ounce. The ignominious
plunge dragged the gold price to its lowest weekly closing
price since late November - ending the yellow metal's
eleven-week foray above $400 an ounce. Gold stocks also
suffered mightily, as Amex Gold Bugs Index tumbled 6%.

- Gold's collapse coincided with a ferocious dollar rally
that started mid-week. Wednesday morning, the dollar fell
to $1.293 per euro. But then, following a report that
foreign buyers of U.S. Treasuries increased in January, the
dollar sharply reversed course and rocketed more than 3%
against the euro. Boosted again by terror threats in Japan,
the revitalized greenback closed higher on Friday, gaining
nearly 2% to $1.2537 per euro.

- Is the gold rally over? Is a new dollar bull market now
underway? Most Big Picture trends would argue against that
conclusion. In the other hand, there is no denying that
bearish bets on the dollar and bullish bets on gold had
become very"crowded trades."

- As one salty investment professional told your New York
editor late last week,"Selling short the dollar has become
one of the most crowded trades I've ever seen during my
long career. From a contrarian standpoint, this trade has
to reverse for a while. In fact, I think the whole
'reflation trade' will reverse for a while. Of course,
longer term, I wouldn't mind seeing the dollar rally and
gold fall for a while. If gold falls, I'll be buying more."

- So will we.

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

Addison Wiggin, back in Paris...

*** Bill called early in the morning from Nicaragua to say
he was boarding a boat for a sail up the coast. But, he
says, it's still warm and sunny February weather... don't
worry about him; he'll be just fine.

*** Stephen Roach, Morgan Stanley's increasingly lonely
global recovery skeptic, wrote on Friday:"In the second
half of 2003, the U.S. grew at a 6% annual rate, Japan
surged by 4.75%, and the Chinese economy turned in a 9.7%
annualized gain. Collectively, these countries - which
account for 41% of world GDP on a purchasing-power-parity
basis - grew at an estimated 6.9% annual rate in the second
half of 2003.

"As impressive as this burst of global growth has been, I
maintain the rather lonely view that the jury is still out
on the key question of sustainability. My reservations go
back to the same two growth sparks - the American consumer
and the Chinese producer. For a jobless and income-short
recovery, the recent performance of the American consumer
is even more astonishing.

"With the internal dynamics of the U.S. business cycle
failing to deliver fundamental support to household
purchasing power, the consumer has instead drawn support
from more 'toxic' sources of growth - namely, open-ended
government deficit spending, ever-rising debt, reduced
saving, and the ongoing extraction of incremental
purchasing power from overvalued assets such as homes. If
job creation and income generation continue to lag - a
distinct possibility, in my view - the sustainability of
consumption will require increasing support from these same
toxic sources of growth. And the outcome in that case will
lead to ever-mounting imbalances - not just higher debt and
lower saving but the ever-increasing twin deficits of the
government and the balance of payments.

"This, in my view, is not a recipe for sustainable vigor in
the U.S. recovery."

***"One way to describe the willingness of Asian countries
to buy U.S. bonds and keep their currencies weak," writes
the Strategic Insider, Dan Denning,"is to call it what it
is: vendor financing. Loaning money to your customers so
they can afford to buy your products is a risky
proposition, however. So is keeping your currency cheap in
order to make your exports competitive, so Americans can
buy them on debt.

"Sooner or later," Mr. Denning continues,"you either lend
more money to your cash-strapped customer, or he stops
buying because he doesn't have the resources himself. As a
vendor, the sooner you realize this, the sooner you'll stop
lending. It looks like the Japanese are beginning to
realize that selling to Americans on credit has its own
kind of economic blowback. Bankruptcy for the customer,
non-performing loans for the vendor. Wasted capital for
everyone."

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

The Daily Reckoning PRESENTS: Mogambo on Monday! This week
our hero is rudely interrupted while trying desperately to
mind his own business...


GREENSPAN'S FOLLIES
by the Mogambo Guru

Last week, we were graced with the sight of Sir Alan
Greenspan himself on TV testifying before Congress, which
mainly consisted of Congresspersons demonstrating that they
are either clueless, or that they couldn't care less, since
they are there at the testimony apparently only as a
welcome respite from their regular duties of spending us
into the poorhouse, and passing more and laws that make
living in America more and more unpalatable and uneconomic.

Now, to tell you truth, I did not hear much of the
testimony, as I usually get so angry at the vapidity of the
questions or the glib evasiveness of Greenspan's answers,
or the outright lying, or his saying that he does not want
to discuss this in public and how the questioner ought to
drop by his office so they can close the door and that
Greenspan can tell him how things really work, or maybe he
would prefer to have some of Ashcroft's Patriot Act armed-
and-armored agents drop by the Congressperson's house, late
one night, so that THEY could explain it to him, if you
catch his drift, and so I usually just stop watching the
damn show, and missed most of the testimony. Almost all. I
hate it.

But Mr. Eavis says he watched the testimony, and Mr. Eavis
is the Senior Columnist for theStreet.com, and he wrote a
nice piece about Greenspan's testimony, which he entitled
"Probing Greenspan's Easy-Money Madness." With a title like
that you know he is probably as dyspeptic as I am about the
whole thing. He writes,"But one line in Greenspan's
testimony Wednesday shows that he is unfazed by the soaring
debt levels of the U.S. He said: 'All told, our
accommodative monetary policy stance to date does not seem
to have generated excessive volumes of liquidity or
credit.'"

If Mr. Eavis says that this is what Greenspan said, then I
have no reason to doubt him. So I'm going to believe him,
especially since Greenspan has already proved that he is
unreliable, and will lie to me just for the sake of lying,
as far as I can tell, like when I finally get through to
him on the phone, and as soon as he hears my voice he says
"This is a no Mr. Greeniespan. Him gone. Me clean office
plenty fine, chop chop" and then he hangs up, but I know it
was him. He isn't fooling anybody.

But I can see how he figures that he IS fooling me, since
he does it every six months in front of Congress, who are
supposed to be so bright and trustworthy and educated and
upholding the Constitution.

Anyway, I'll tell you what was spooky. One day last week, I
am just minding my own business, going through the motions
of the normal routine, when suddenly the meaning of when
Greenspan said becomes clear to me in all its glaring
treachery... and the next thing I know, I'm running down the
street screaming in fear, and banging on the doors of
neighbors, and when they make the mistake of opening the
door in response to my repeated knocking, and ringing of
the doorbell, and kicking the side of their house, and
peering in the windows and yelling"Hello? Hello? I can see
you in there! Why won't you answer the door?" then when
they do finally open the door, then I'm grabbing them by
their necks and screaming in their faces, yelling that
"Alan Greenspan has just testified that he sees no evidence
of excess liquidity! Do you know what this means? Do you?"

By this time my voice has risen an octave and gradually
working to higher and higher decibels, and in my
unfathomable rage I'm spraying their faces with flying
specks of spittle."Do you understand me?" I'm screeching.
"Do you have any idea of the profound and horrific
consequences of a chairman of the central bank to say that
he sees no evidence of excess liquidity?"

Never mind that Greenspan's denial gives Mr. Ben Bernanke,
he of the printing press, a green light to print up even
more money out of thin air that will find its way into all
sorts of nasty speculative bubbles. Never mind that it
means that even more bad credit will be given over to
debtors who will never pay it back, like the government.
Never mind that the future value of the Greenback - which
wasn't looking all that rosy to start with, especially
sharing the first syllable of its nickname with the most
profligate U.S. Fed Chairman in history, as it does - now
appears to be vanishing into nothingness.

No... this sort of deceit is all too close to another of
Greenspan's favorite lies, and let me give you the scoop on
that idiocy, namely that inflation is low. But it is too
easy to attack Mr. Greenspan on these counts, as they can
be successfully dismissed by anybody in the whole freaking
country who has spent money, as the prices of everything
are up, and many of them spectacularly so. So we have
proved that he is a clueless weasel about liquidity and
inflation.

But there is another one of Greenspan's follies that just
won't go away, and it has as much credence as Greenspan's
ridiculous insistence that inflation is low, and that is
the whole productivity thing.

So let's attack him about this productivity thing. But we
are again stopped at the front door of the Fed by some
tough-looking security guards, so we turn around and decide
that we will confine ourselves to attacking him verbally,
and by that I mean in writing, so you can see how confused
I am in my anger. But even in my current bewildered state,
I obviously have a lot more on the ball than this Greenspan
fella.

Anyway, suppose you, as a successful capitalist swine, hire
a hundred guys to make a hundred widgets, and sell the
widgets for a dollar apiece, and thus GDP is $100. So far,
so good. Then a few days pass, and we wake up with a
blinding headache in a strange, seedy little hotel on the
outskirts of town with a one-eyed woman who says her name
is Darla, and when we frantically call in to the office, we
find that you raised the price to two dollars, and you also
figured out a way to make widgets with only fifty
employees! The hike in price, unfortunately, reduces widget
sales by 25%. But GDP jumps to $150! And because you fired
half the employees, labor costs plummeted, and the next
thing you know Alan Greenspan jumps on an airplane and
flies down to visit your factory and give you an award as
Proud Poobah of Productivity, which you deserve because
productivity has soared. In the old days, it took a hundred
guys to make a hundred widgets. Now it takes only fifty
guys to make seventy-five widgets, and you doubled the
price to more than make up for it. You're a genius!

But unemployment is up by 50%, total sales volume is down,
and inflation has soared to 100%. Only a Fed chairman as
clueless as Alan Greenspan could possibly only see the
upside in this.

And so we have successfully debunked Greenspan's insistence
that productivity is a miraculous tonic for the economy,
that inflation is"low," and that the volumes of liquidity
and credit in the U.S. system are"not excessive."

Is there any lie Sir Alan has left untold?


Regards,

The Mogambo Guru
for The Daily Reckoning

P.S. I went to the Treasury website for the public debt,
publicdebt.treas.gov, and saw that the debt is $7.025
trillion, a new all-time record. Just for laughs I scroll
down to the bottom, and the list ends 9/30/87, when the
debt was $2.350 trillion. That is, oddly enough,
approximately the date that Greenspan took over the Federal
Reserve.

So, under this guy Greenspan, we have gone into debt to the
tune of another $4.675 trillion. One lousy Fed chairman has
tripled our debt in seventeen lousy years. I am appalled
and disgusted. Ugh.

Thread gesperrt

 

gesamter Thread:

• The Daily Reckoning - Greenspan's Follies (Mogambo Guru) - Firmian, 24.02.2004, 20:42
  • Dt. Fassung von Investor-Verlag - Firmian, 24.02.2004, 20:48
    • .....ein Pack von lügenden Wieseln mit dem Motto... - Tofir, 24.02.2004, 21:11
    • Der im letzten Abschnitt erwähnte Punkt werden die Amerikaner dieses Jahr... - Prosciutto, 24.02.2004, 22:07
    • Nützt den Japaner nichts mehr... - bernor, 24.02.2004, 23:45
      • dazu gibt es ein schönes Sprichwort - EM-financial, 25.02.2004, 01:36