Our Daily Day Of Reckoning - Of Alchemy And Other Farces (Mogambo Guru)

verfasst von Firmian, 01.03.2004, 19:15

-->Of Alchemy And Other Farces

The Daily Reckoning

Paris, France

Monday, 1 March 2004


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

*** 4.1% GDP growth... $45 trillion worth of payables... gold
still under $400 - Buy.

*** Introducing: INDEFLATION....a slithering, obnoxious
animal...

*** Clash of civilizations... watch out, the Mexicans are
coming! The Reconquista of California... and more...

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

We had just turned up a big rock on Friday.

Under it was a slimy, repulsive animal with an empty,
deflated head and a puffy, deflated body. It is neither
fish nor fowl... neither the deflation of America in the
'30s nor Japan in the '90s... but not your typical
inflation, either. Instead, it has the worst
characteristics of each, mixed together in some terrible
mutant shape so horrible to look at, we just couldn't bear
it - at least, not while we were still on vacation.

We dropped the stone immediately.

But now it is a new week, a new month, and our holiday is
over. So we return to work with a hoe in our hand - ready
to bruise the head of the serpent should it get out of
line.

And what an odd beast it is!

Last week, GDP figures for the last quarter were revised to
over 4%. Alan Greenspan appeared in public and said the
U.S. was on the road to sustained growth. Stocks went
nowhere, but they didn't have to; they were already at
boom-time levels.

If it were true that the U.S. economy really was headed
towards another impressive growth spurt, you might expect a
spurt in employment, interest rates and consumer prices,
too. Or to put it another way, investors should prepare for
inflation; that is what you usually get when you juice up
the economy with easy money.

But this weird thing in front of us looks very different
from a typical inflation cycle.

Some prices are up sharply. The cost of shipping, for
example, has risen 550% since 2001. It takes a long time to
build a ship, and with the new Asian trade, it appears that
there aren't enough of them. But the prices of the goods
shipped are not necessarily going up. Commodities on their
way to China have gone up... but the finished goods coming
out of Chinese factories have actually gone down.

House prices, too, are up sharply. But rents are going
down... for an obvious reason: rising house prices have
encouraged production of homes and apartments.

And while we are supposedly a year and a half into a
recovery, employment still hasn't bounced back... and bonds
still act as though the economy were in a slump.

"January's mass layoffs set record," reports the Kansas
City Star.

Consumers may have reached the limit of their ability to
add new debt and new expenses. We know we have said this
before... but we are bound to be right sooner or later. And
when consumers can no longer spend what they don't
have... prices on what they don't need are likely to fall,
not rise. Plus, about a quarter of factory capacity in
America is still unused. So, there is a long way to go
before supply limitations force price increases.

Prices that are rising seem to be doing so either because
of unique circumstances - such as shipping - or because the
dollar is falling. The dollar may fall much further... which
will put up energy costs. But this is not the inflation of
an 'overheating' business cycle. This is the inflation of a
falling dollar... which could get worse as the U.S. economy
goes into a prolonged Japanese-style slump.

What can we call it? Rising prices and falling ones
too... inflating prices in the midst of a recession...? What
name can we give this hideous new beast? Aha... let's call
it INDEFLATION, a period in which American consumers watch
their costs of living go up... even as their economy
collapses.

More on indeflation tomorrow...

Now, here's Eric with more news:

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

Eric Fry, on the ground in Manhattan...

-"See Dick take. Take, Dick. Take." Former New York Stock
Exchange Chairman Dick Grasso is refusing to return a
single cent of the $140 million compensation package that
led to his resignation last September. To the contrary,
Grasso may seek $50 million more that he says he is"owed."

- Grasso's attorney, Brendan Sullivan Jr., says that his
client has done nothing wrong in accepting the compensation
and"has no intention of returning any portion." True
enough; but did Grasso ever do anything that was so
supremely right that it deserved a $140 million windfall?

- Meanwhile, down on the same exchange that Grasso used to
fleece... ah... oversee, investors struggled this week to
reap even a single dollar. The Dow Jones Industrial Average
fell 1.1% to 10,584, although it still managed to close out
the month of February with a slim gain. The Nasdaq
Composite dropped 1.7% for the month to 2,030.

- While the stock market drifts aimlessly, the economy
continues to sail a steady course. Friday morning, the
Commerce Department confirmed that U.S. GDP expanded at a
4.1% rate in the fourth quarter. That's a notable pullback
from the too-good-to-be-true 8.2% pace of the third
quarter, but still not too shabby. A few moments after the
GDP report crossed the wires, the University of Michigan
disclosed that consumer sentiment rebounded slightly in
late February.

- Meanwhile, the National Association of Purchasing
Management's reports that business conditions in New York
City improved for the sixth straight month in February and
improved for the 10th straight month in Chicago."Overall,
purchasing managers were optimistic," the NAPM noted.
"Nearly 75% of those surveyed said they plan to increase
technology spending in 2004."

- The spate of bullish economic data powered the dollar to
one-month highs, while keeping pressure on the gold price.
The dollar ended the week at $1.249 per euro. April gold
slipped $1.20 for the week to $396.80 an ounce. Somewhat
surprisingly, however, gold stocks GAINED about 2% last
week. Are gold stock buyers onto something?... or are they
on something?

- The highest-flying commodities on the planet continue to
be the lowly base metals. Week after week, they're stealing
the shine from their precious counterparts, gold and
silver. Zinc advanced to a new 3-year high last week, while
copper soared 3% to a new 8-year high of $1.343 a pound.

-"Steel prices are soaring," your New York editor was
informed on Friday. The source of the observation is a
life-long friend who earns a handsome living selling
specialized steel products on the West Coast."We're seeing
some huge price hikes," he says."Some products will be
going up 40% over the next two months... It really sucks."

- Happily for us all, Chairman Greenspan has assured the
nation that inflation is non-existent. That's a good thing
too; otherwise we might have reason to be worried about the
surging price of steel and crude oil and gasoline. Crude
futures closed above $36 per barrel for the first time in
almost a year, and ended the week with a gain of nearly $2.
Average retail gasoline prices jumped to a 5-month high.

- Even if Alan Greenspan can't see any inflation through
his bifocals, the Chairman's employer might soon feel the
pinch of rising metals prices.

-"In 2004, the U.S. Mint will likely lose money minting
pennies and nickels," observes our learned colleague, Dr.
Steve Sjuggerud, editor of The Investment U E-Letter.
"Starting this year, pennies and nickels may be worth more
for their metal content than for their purchasing
power... So it might be time to start burying pennies and
nickels in your back yard," Sjuggerud suggests.

-"In 2003, it cost the U.S. Mint 0.98 cents to make a
penny. This used to be an easy profit game for the
government... In 2002, it cost 0.88 cents to make a penny.
And in 2001, it cost 0.80 cents. But now, in 2004, it is
almost assured that the government will lose money minting
pennies.

-"The U.S. Mint counts September 30, 2003 as the end of
its fiscal year. Since then, the price of copper has risen
by 62%. Copper, you may be surprised to learn, is the main
ingredient in a nickel. In 2003, it cost the government
3.78 cents to make a nickel. Easy profits right? But the
government didn't count on the dollar crashing. If the
price of copper, the main ingredient in a nickel, stays the
same, it's possible that the cost of could rise by 62% in
2004. Then it'll cost the government over six cents to
produce a nickel.

-"The situation is similar with the penny. The main
ingredient in pennies is not copper, but zinc. Actually,
zinc makes up 97.5% of a penny. Zinc is up nearly 40% since
the end of the 2003 fiscal year. So if the cost of
producing a penny rises by 40%, it'll cost the government
1.38 cents to make a penny.

-"How can the government get out of this mess?" Sjuggerud
asks rhetorically."Oh that's an easy one... change the
metal content of the coins. I'm sure it's only a matter of
time. Maybe next year we'll be spending poker chips instead
of pennies. And just think, someday down the road, even
those poker chips will have more intrinsic value than a
paper dollar."

- Please be advised, however, to prevent rotting you must
wrap poker chips in thick plastic bags before burying them
in the backyard.

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

Bill Bonner, back in Paris...

*** The price of gold rose slightly on Friday - to $396.80.
Still below our buying target...

*** A new book by economist Lawrence Kotlikoff puts the
present value of the federal government's future financial
commitments, obligations and debts at $45 trillion - more
than 4 times the size of the entire annual GDP. How can
Congress come up with that kind of money? We don't know,
but it won't bring it up from the ground, an ounce at a
time.

*** The dollar hit a new low against the European's money
last month - at $1.29 per euro. We remember when U.S. 88
cents would by a euro. At the time, we guessed that the
dollar would fall... to $1.50/euro. We still think so.

*** At about the same time you could buy a euro for 88
cents, you could also buy an ounce of gold for $253. Now it
is close to $400. What happens next? We don't know. But
just as there has not yet been a satisfyingly catastrophic
bear market in stocks, neither has there been a
satisfyingly pleasant bull market in gold. Gold buyers are
still kooks. Our advice: stick with it until they are
geniuses.

*** Poor Samuel Huntington. The man sees civilizations
clashing everywhere. And if there are no clashes... his
friends and followers whip up the mob to create them.

It was Huntington who invented the"Clash of Civilizations"
concept that got neo-conservatives lathered up for war in
the Mideast. He saw the Islamic world as a competing
'civilization' in need of a whooping. And now, in Foreign
Policy, a magazine that has provided a refuge for big-
thinking scoundrels for many years, Huntington sees another
clash coming:

"The persistent inflow of Hispanic immigrants threatens to
divide the United States into two peoples, two cultures,
and two languages. Unlike past immigrant groups, Mexicans
and other Latinos have not assimilated into mainstream U.S.
culture, forming instead their own political and linguistic
enclaves-from Los Angeles to Miami - and rejecting the
Anglo-Protestant values that built the American dream. The
United States ignores this challenge at its peril."

Of course, every group of immigrants to America soon acted
as if it owned the place. The Powhattan and Pomonky tribes
of Maryland must have resented the arrival of English
settlers in the 17th century. Then, the English worried
when the Germans, Italians, Irish and Jews showed up.
Efforts were made both to keep them out... and to prevent
them from seeming so foreign. But each group that came
ruined the place in its own peculiar way, and then sought
to keep out the next group of immigrants. Now it's the
Latinos' turn. Advice to Huntington: learn to speak
Spanish.
---------------------

The Daily Reckoning PRESENTS: Mogambo on Monday! In today's
episode, the mighty Guru makes clear his distain for
imaginary money... and real money that has no business
existing.


OF ALCHEMY AND OTHER FARCES
by the Mogambo Guru

I had a horrible feeling something truly awful would happen
last week, and I was right. The Federal Reserve - which
will in the future be known by foreigners as"The Filthy
Toilet That Flushed Our Money" - found it could not
restrain itself a moment longer. And so, they ramped up Fed
Credit by another $10 billion last week.

Now this is not just ordinary money! No, sir! This is the
fabled High-Powered Money of story and song (S&S). This is
pure, raw credit, the stuff that is literally created out
of thin air, and then used by the banks to expand by a
hundred-fold via the fractional-reserve multiplier! In his
film,"The History of the World, Part One," we saw the King
of France, played by Mel Brooks himself, winking at the
camera and saying"It's good to be king!" Which is, I gotta
admit, a lot better than being the Mogambo, since I can't
call down to my Treasury Department and say"Hey! I'm in a
spending mood! Bring me a few billion dollars. In cash! And
make it snappy!"

The good news is that I have decided to invest some money
in biologically engineering a Golden Goose that will lay
eggs of pure gold. Seems like a tech-savvy, hipper and
safer way of creating gold than what those guys who
practiced alchemy used to try. Remember? They breathed
poisonous fumes trying to turn base metals into gold via
chemistry and superstition and gossip, and they all ended
up insane and broke. And dead, you'll note, because nobody
believes that stuff anymore. Or maybe the jobs as
Alchemists have been out-sourced to India or something. I
dunno.

But now that I think about it, I look at my watch and I see
it is time for a little childish bit of ridiculous farce,
and ask how that old-time alchemy stuff is any different
from what Alan Greenspan is doing? He is trying to convert
base metals (fiat money) into gold (a prosperous economy)
via alchemy (using a little math, a little stupidity,
unreliable computer models, and rigid adherence to a stupid
and demonstrably false theory that disregards everything we
know for sure about how economics works, which is clearly
taught by Rothbard and Mises and that whole Austrian School
of Economics, which is the camp that I put myself in,
although when I go there and ask to come in, they turn off
the lights and pretend they aren't home, but I know they
are in there because I can hear them snickering and poking
each other and trying to suppress their laughter at my
expense).

Now all we have to do is find out who is going to end up
insane and broke. Who? Or whom?

Well, it ain't a-gonna be me! And if you listen to me, it
ain't a-gonna happen to you, either, because I know what is
going to happen, and thus I own gold and commodities, and
therefore I will end up with the riches of a king, just
like all the other guys in history who faced what we are
facing and who did what I did, and if you are taking my
advice, do what I do, because those guys ended up owning
everything and having all the money after the inevitable
collapse, and they ended their lives rich and happy and
actually squealing in delight at all the fun they were
having, and calling all the shots, and making themselves
into kings, and I'll bet if you could talk beyond the grave
to one of them right now, they would say"Mel Brooks was
right! It IS good to be king!"

Meanwhile, getting back to the Fed, which is what we were
talking about before I rudely interrupted myself, the Fed
is also allowing the banks to loan out everything they can
get their hands on, by reducing required reserves to the
point of silliness, as they try as hard as they can to get
this economy perking again. I thought that by last week we
would have seen the reserves/deposits ratio break the 1%
barrier, but it is still hanging out just above that
absurdly low figure.

Why do I care? Well, you let some of those assets of the
bank go south, and you will be given a Real Lesson In Life
(RLIL) about why the ratio of reserves to deposits has
never been allowed to get this laughably low. One percent!
I snort, and the sight of the snorting of the Mogambo is
not any prettier than it sounds, which has really damaged
my Hollywood career, but I don't want to get into that
right now, thank you.

And another reason begs to be mentioned, and that is, of
course, that all this absurd creation of Fed Credit and the
power of fractional banking turning it into Suddenly
Exponential Credit and the lowering of the
reserves/deposits ratio turning it into Unbelievably,
Horrendously Gigantic Credit, all that Credit action will
only lead to one thing - inflation. And you know what THAT
means... and if you don't, just see how you like paying your
utilities bill this month.

Notice that the consumer price index came out last week,
and prices were up 0.5% in a month. Most of it was blamed
on the rise on energy prices. A guy named Kevin Logan, who
says he is the senior economist at Dresdner, Kleinwort,
Wasserstein, opines that"Inflation still looks very low,
and it's likely to remain low. Most of the rise was energy,
and that's not likely to be repeated."

Huh? Says who? I say the exact opposite on both counts! But
then I am not a typical American economist, which is a
euphemism for"moron," a term that I use when some bozo
cuts me off in traffic, as in"Hey! Watch where you are
going, you filthy little American economist!" or when I am
advising visitors at my house to"Watch your step in the
back yard, as I have a dog and I have not gotten around to
cleaning up all the piles of American economist opinions."

Well, I am here to tell you, and this Logan fella, that the
prices of everything else will also go UP, because energy
prices are UP, and will keep on going UP, and so prices are
NOT expected to remain"low," as far as I am concerned, and
to tell you the truth it is my considered opinion that
prices are NOT low now, and are in fact going UP at
alarming rates, and if I have to I can bring in experts
with impressive credentials from prestigious, big-name
universities and colleges who can tell you, with eye-
catching graphs and charts and all that stuff, that prices
that are rising higher and higher are not, as you have
heard,"low," and furthermore, are not going to"remain
low," either.

And suddenly the music stops and I abruptly put my
fingertips to my temples, and in my mind's eye I can see,
yes, it's getting clearer and clearer, I can see through
the Parting Veil of Time, and I see that energy prices will
continue to go up, because oil producers will be
perpetually loath to keep selling us their oil in return
for increasingly worthless dollars, because everybody is
laughing at them for doing that."Ha ha! Stupid OPEC will
trade oil for less real, devaluation-adjusted dollars! Nyah
hyah hyah! OPEC is stoo-pid! OPEC is stoo-pid! Ha ha!"
Especially when China's economy is growing like
gangbusters, and when its appetite for oil is increasing
every single day, and will continue to increase
exponentially for a long, long time. And so it is child's
play to forecast higher and higher prices for oil until,
and you might want to get out your calendars and write this
down, March 27, 3455 at, oh, around just before lunch, I
figure.

And don't laugh at the ridiculous exercise of forecasting
out that far! The government, your own government, at the
request of guys you elected, is providing forecasts of the
American economy 75 years out. 75 years! Hahahaha! 75
years! Hahahaha! Let's see; that means we can go into the
dusty archives and take out the government's 1929 forecast
for the next 75 years, which is, coincidentally, 2004,
which is also, coincidentally, today. Perhaps it will prove
instructive to see how well the government economists of
1929 predicted what is happening today!

Oops. Just got back from the dusty archives where I looked
for that 75-year forecast, and boy, am I dusty! But as far
as I can tell there is no"Government Economic Forecast For
The Next 75 Years" published in 1929. And in talking with
historians of that era, the reason is that it was always
considered laughably stupid to even suggest such a stunt,
much less to waste time doing it. Sort of like alchemy, and
see how that references a previous section, pulling this
little essay together?

In short, the damnable Fed and the damnable Congress are
acting like, and have acted like, and promise to continue
acting like drunken sailors for the rest of your life. And
one of the Iron Laws of Economics, and I am sure that you
remember the Iron Laws of Economics, is that printing
excess money and credit has the effect of always destroying
the value of money, and in this case the dollar.

Now, if you are Alan Greenspan or any of the deliberately
obtuse dolts who work for the Fed or the U.S. government,
then this means absolutely nothing to you, or if it does,
then you are careful not to say anything. But if you are a
person who buys anything priced in dollars, then it almost
surely means a great deal to you, or it will very soon.


Regards,

The Mogambo Guru
for The Daily Reckoning

P.S. Gold had a nice sell-off recently, and that was a Gift
From Above, and all you had to do was walk over there and
pick it up. You did? Good!

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gesamter Thread:

• Our Daily Day Of Reckoning - Of Alchemy And Other Farces (Mogambo Guru) - Firmian, 01.03.2004, 19:15
  • Dt. Fassung vom Investor-Verlag - Firmian, 02.03.2004, 22:38