The Daily Reckoning - A Big Ol' Dumpola (Mogambo)

verfasst von Firmian, 24.08.2004, 19:54

-->A Big Ol' Dumpola

The Daily Reckoning

London, England

Monday, August 23, 2004

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

*** N.Y. Times says soaring oil is good news...

*** Sexual dysfunction on the golf course...gold, stocks
up...

*** Readers' investment philosophies...the IRS...and more
on Farmington, NM!

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

People seem to think they get richer by selling their
houses to each other...so do economists believe they get
richer by setting fire to their houses so they can build
them back up.

"Stimulus..." they say.

"Arson..." we reply.

When people reach the top of their optimistic delusions,
everything that happens is cause for celebration. Back in
the late '80s, for example, when Japan was riding high,
even an earthquake in Tokyo was interpreted as good
economic news. It would provide a"stimulus" for
rebuilding, said analysts.

Now, it is Americans who are delusional. In yesterday's New
York Times, even the soaring price of oil was reported as
good news. An oil shock might provide much needed"economic
stimulus," said the paper.

Stephen Roach notes that every previous oil shock was
followed by recession. You don't have to be an economist to
figure out why. When people spend more for energy they must
spend less for something else. Overall, spending goes down.

But along come the"all news is good news" analysts, and
all of a sudden higher oil prices - along with war,
pestilence, drought and traffic accidents - are
"stimulating."

The logic of it is that catastrophes need to be corrected.
After a war, for example, people get back to work
rebuilding houses, roads and train stations. But they do
not do so with nothing. They only do so by diverting
resources - people, machines, energy - from other
activities. In other words, they have to give up something,
actually lowering their real standards of living in order
to free up the resources. After a calamity, people
typically scrimp and save...and work like galley
slaves...in order to get back on their feet. That's what a
recession is, too...an interlude in which consumer spending
goes down while people put things in order.

Oil is now heading towards $50 a barrel...and the U.S.
economy is probably headed for recession. And, yes, it
should be very stimulating...but not in the way most
economists think. Higher oil prices should stimulate people
to add insulation to their houses...or to buy a more
energy-efficient automobile. If they had savings, this
could give a boost to the economy. But since they have
none...it is just another thing that must be financed by
borrowing from foreign lenders...and another milestone
along America's road to ruin.

More news, from Baltimore...

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

Tom Dyson, from the"gem of the Chesapeake..."

- Could this guy be the most shameless man in America? We
couldn't believe he was actually trying to sell the stuff,
but that's what it seemed like. His car radio was at full
volume, and all his windows were wide open...

- Pine Ridge is one of the most scenic golf courses your
editor has ever played. Cut into a pine forest and set
along the edge of a reservoir, the view from the golf
course was so stunning, it could have been made into a
jigsaw puzzle. Your editor was at the driving range - with
Porter Stansberry and James Boric - blithely slicing golf
balls into a herd of grazing deer. Suddenly the tranquility
was shattered...

-"Maybe you’re experiencing early libido disintegration
or you’re at increased risk of male droop," suggested the
radioman. A gray-haired old man was driving slowly past the
range, turning heads with the loud commercial."Are you
experiencing an early decline in bedroom prowess? If so,
you are not alone..."

-"Fortunately, there is a solution. It’s called the special
little blue pill. The special little blue pill contains a
proprietary blend of natural ingredients designed to improve
the strength of men’s rigidity." This ungodly racket was
drawing wry smiles from golfers all around."The special
little blue pill is available in stores, and contains quality,
natural ingredients. With the special little blue pill, you'll
have more confidence, improve size, and increase the length
of your lovemaking - all of which will make you happier and
more content as a result."

- Much like the old stud's wife, hedge funds have taken a
bit of a pounding recently. About three months ago the
influential Forbes magazine called hedge funds"The
sleaziest show on earth." They accused the funds of being
"rife with exorbitant fees, phony numbers and outright
thievery." And last week Pimco's Bill Gross did much the
same, criticizing the"risky" deals and high management
fees.

- So with hedge funds really taking the brunt of bad
publicity, are investors being put off?

- It would seem so, as figures out on Friday suggest hedge
fund returns may have fallen about 0.5% for July. This
follows falls in both April and May. Hedge Fund Research, a
Chicago-based data provider, says hedge fund income eased
to $7.5 billion from April to June - in comparison to the
average $21 billion in the previous four quarters. But is
this finally well-deserved justice for those greedy fund
managers?

- Oh, stop sniping from the sidelines, says MoneyWeek's Tim
Price. Yes, management fees for hedge funds could reach 2%.
And yes, performance fees may be up to 20% - but it's
largely a question of net performance.

- Price reckons he'd be happy to have after-fee returns of
10% per year, rather than after-fee returns of minus double
digits from the traditional managers. As for the"thievery"
that hedge funds are accused of? Well, more than 30 mutual
funds are currently being investigated by the SEC and other
watchdogs. Ah, but those hedge funds are still
unnecessarily risky, the analysts reckon.

- Not so. Look at the S&P 500 index, for example. The index
saw annualized volatility - a measure of risk - of 15% from
1990 to 2004. Yet the HFRI Convertible Arbitrage Index,
which tracks hedge funds, could only report annualized
volatility of 3.4%. But despite this, everything's not
creamy in the land of the hedge fund.

- Hedge funds need volatility - something we've certainly
not seen a lot of in the markets since April. But while we
may be lacking volatility, there's a lot of doubt around.
There are U.S. interest rate doubts, surging oil price
concerns, Iraqi fears and worry regarding a slowdown in the
Chinese economy.

- Oil came pretty close to breaching the $50 mark on
Friday, with U.S. light crude trading up to an intraday
high of $49.40 a barrel before"dysfunction" kicked in and
prices tumbled $1.10 to $47.60. The welcome slide in oil
prices set off a relief rally on Wall Street...the Dow
ended up 69, or 0.7%, at 10,110. The Nasdaq gained 18, or
1%, to 1,838. The S&P added 7 points to 1,095.

-"Hedge funds have never been good at managing transition
phases in financial markets," Partners Advisers' Luc
Esterne said."Going forward, hedge funds need volatility,
and it will come with a good or bad surprise." And without
this volatility, things have been rather stagnant in hedge
fund offices.

- Hedge funds have only made year-to-date profits of around
2%. And the rivals? Well, benchmark indexes have done
considerably worse, currently showing losses of around 6%
in London and New York. In fact, hedge funds have done
exactly what they're meant to - they've made absolute
returns in a bad market.

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

*** America's boom peaked out in the year 2000. New
evidence from the IRS:

"The overall income Americans reported to the government
shrank for two consecutive years after the Internet stock
market bubble burst in 2000, the first time that has
effectively happened since the modern tax system was
introduced during World War II, newly disclosed information
from the Internal Revenue Service shows..."

*** Ooh la là...America's attention is taken up by a
curious and sordid spectacle: an argument over John Kerry's
war record.

Was Kerry a hero or a war criminal? By some accounts,
Kerry's heroism amounted to little more than chasing after
an unarmed teenager in a"loincloth" and shooting him in
the back.

But we are not about to judge the man. We weren't there;
nor have we ever been in a shooting war. We do our best to
avoid them.

We take it for granted, though, that when you set out to
kill a lot of people, you can't be too careful about who
ends up dead. Mistakes are always made. The difference
between war and other activities is that mistakes in
wartime are deadly. Which is why men with any sense don't
go to war unless they have a very good reason...and why
both candidates for president are unfit for the role of
commander in chief. Neither has the necessary
apprehension...the proper respect...or the appropriate
disgust for killing people.

*** A reader comment on buying stocks:

"For a long time, my investment philosophy has been best
summed up by one of the more memorable film lines in recent
years: 'Show me the money.' When I invest in a company, I
expect to get a real, regular, dependable return - usually
in the form of a dividend, or, in the case of an income
trust, a distribution. In fact, I try to find companies
with a history of increasing dividends! Why else would I
want to buy a useless piece of paper otherwise known as a
share certificate? If I'm buying a piece of the company, I
want a piece of the profits.

"Of course, my friends think my investment ideas are old-
fashioned and out of style. They assure me that the best
strategy is to go for 'growth.'

"Funny thing though, most (all?) of my friends lose money
consistently; I make money pretty consistently. Not only
that, but my dividend-paying companies seem to outperform
their growth companies with amazing regularity - even in
terms of 'growth,' although that's not my objective.

"Show me the money, and throw in a little gold (real money)
while you're at it."

*** And another:

"This is just a response to Mr. Bonner regarding the chap
who is in love with Farmington [New Mexico]. I'll just say
that I have no such feelings for this place. Granted, I've
lived here a mere eight months now; but this place SUCKS.
New Mexico is NOT the Land of Enchantment, but rather of
Entitlement. I can't wait to move."

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

The Daily Reckoning PRESENTS: The Mogambo Guru gives his
dog a stool test...and discovers a big pile of steaming
dollars!

A BIG OL' DUMPOLA
by The Mogambo Guru


The consumer price index for July went down by 0.1%, said
the Labor Department."The consumer price index was up 3%
from July of last year," reported Bloomberg."Excluding
food and energy, it rose 1.8% from July 2003. The core
rate, which excludes food and energy, rose 0.1%."

"So far this year, consumer prices are rising at a 4.1%
annual rate, compared with a 2.1% increase at the same time
a year ago," added Bloomberg."Core prices are rising at a
2.4% rate, up from 1.3% in the first seven months of 2003."
So prices are rising now.

"Energy prices, which account for about a 14th of the
index, fell 1.9% in July, the first decline since November,
after a 2.6% increase the month before."

So the Saudis and OPEC and Great Britain and Yukos and all
the other producers of crude oil just have to pump their
little hearts out and the price of oil goes down! Wow!
Who'd have figured? But with refining capacity running
around 95%, who is going to turn that icky black goo they
all pump into premium high-octane go-juice for my car with
the giant V-8 engine?

Now, and follow along carefully here, because this is the
crux of my New Mogambo Plan (NMP): All the oil producers
have to do is gradually pump more and more and more oil!
See how easy this stuff is? But before you start clapping
me heartily on the back and congratulating me on
formulating this brilliant, brilliant plan to make the
price of oil go down, let's take careful note that the
price of oil is up 14.3% over the last 12 months.

On another sour note, consumer spending grew again last
quarter, but it grew at the weakest pace in three years
because sales of autos and other durable goods slumped.

So let me get this straight: Energy prices and commodity
costs are all higher, and a lot higher in some cases, and
yet producers are not raising prices enough to cover these
higher costs? So they aren't making as much money? And yet
people are buying and bidding up the shares of these
companies? Yow! What am I missing here?

The worst news, in my book, is that the average weekly
earnings of U.S. workers, after adjusting for inflation,
rose 0.7% in July, after falling 0.8% the month before.
This was the first increase in six months. So, at the end
of the day, inflation is eating up the wage gains of the
workers! Fabulous. Just freaking fabulous. It just gets
better and better! I can only imagine with horror the
declines in the real and imputed incomes of those who are,
in effect, wards of the states and the federal government!

So everybody is getting poorer in real, inflation-adjusted
terms.

And now I probably have to listen to another witless
lecture about how Alan Greenspan and the Fed are NOT
incompetent, mental-defective charlatans, and how it is a
Good Thing (GT) that people are suffering falling standards
of living, and how this is actually the earmark of
successful monetary management or something.

Fred Sheehan, in his essay"Impoverishment: Then and Now,"
hits the nail on the head when he says,"The methodical
impoverishment of the American people, particularly those
who are living on the edge, has been one of the few U.S.
government success stories."

Martin Weiss, of the Safe Money Report, took a look at the
trade gap and said,"It JUMPED by a whopping 19% to $55.8
billion - the single biggest increase in five years...and
the largest trade gap ever recorded in history."

So dimming the lights in the room, I turn on the slide
projector. Instantly, the screen is ablaze with a
photograph of my dog taking a big ol' dumpola on the lawn
in the backyard. I say, using a professional-sounding
voice-over,"But the American economy is a huge, festering
glob of government spending and monetary inflation, and
represents a third of global GDP. As a result, piles of
dollars are piling up all over the place."

With that, I click the button on the slide projector, and
in a series of perfectly apt slides, I photographically
present a sweeping, panoramic view of the whole back yard,
and there are piles of"American dollars" everywhere! And
if you look closely, in the one slide you can see my
neighbor, Mrs. Kravitz, peering over the fence, still
bitterly complaining about the smell of all those reeking
piles of"American dollars." She is making a really rude
gesture, just like she always does.

So you can bet your sweet butt that, to the rest of the
world, our trade deficit is a good news/bad news joke.
"Hey, the good news is that we sold more stuff to
Americans. The bad news is that after inflation and getting
paid in a devaluing currency, we ended up losing money! And
by the way, whose damned dog is leaving these stinking
piles of American dollars all over the place?"

Of course, as we have previously discussed, the world is
divided into two kinds of people. There are, on the one
hand, those guys who delight in cracking jokes like -"The
Mogambo will be delighted to pick up the check!" and there
are the people who say equally stupid/insanely ridiculous
things like,"The price of energy doesn't matter," or,
"Deficits don't matter," or,"The price of food doesn't
matter," or,"The trade deficit doesn't matter." All of
these things are, of course, wrong.

"As America's external imbalance widened in mid-1987," said
an analyst, whose name I can't remember because I got my
medications mixed up,"the dollar came under sharp downward
pressure and U.S. interest rates were pushed higher. Those
were the classic manifestations of a current account
adjustment that many (myself included) believe were at the
heart of the stock market crash of October 1987. Today's
external imbalances dwarf those of 17 years ago."

Need I say more?

Regards,


The Mogambo Guru
for The Daily Reckoning

*** The Mogambo Sez: Things are starting to really fall
apart, as evidenced by the insanely laughable things that
are coming out of the mouths of the presidential
candidates. The latest wheeze is to force people to invest
money, taken out of their paychecks, into the stock market
as part of a plan to save Social Security!

It just doesn't get weirder than that!

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gesamter Thread:

• The Daily Reckoning - A Big Ol' Dumpola (Mogambo) - Firmian, 24.08.2004, 19:54
  • Re: The Daily Reckoning - Kerrys Einsatz in Vietnam - Firmian, 25.08.2004, 10:24