Debt-Addled Consumers And The Little Shop Of Horrors
Mogambo Sez: Bad news for stocks must follow bad news about stocks. Go short.
dailyreckoning.com
The Mogambo Guru
MARCH 12, 2002 - The Fed bumped up credit by $4 billion last week, and vanished another $1.1billion in government debt, disappeared into thin air. The Treasury managed to print up only another $701 million in crisp, new fiat dollars.
I read somewhere that the US dollar is now the all-time longest-running fiat currency in the history of the world. All the other ones blew themselves up in a shorter time than it is taking the buck. The Fed has already engineered a 95% drop in it's value since 1913. And the Greenspan Fed is intent on demolishing that last 5%. The precipitate drop in the value of the buck has put the low-income person farther behind the eight-ball than at any other time in US history.
Nice work, Alan.
The Bush administration and Congress, always talking the happy-talk about free trade, are now putting tariffs on steel imports. But the basis of the whole free-trade thing was that we will ship all of our manufacturing jobs overseas, including steel-mill jobs, and we will reap the benefits of foreigners making cheap-o stuff for everyone, including steel.
Thus, and this is the best part, we will all make fortunes here in America by merely retailing these imported manufactures to each other, including steel, and this will finance the New Age economy of making money by providing personal concierge services to each other and doling out government benefits to a growing cohort of dependents.
So what happened? It's playing out exactly as planned, so what happened? You mean that the whole thing was just a lie? Shocking! You mean that we can't make an economy out of importing everything and then retailing the stuff to each other? Oops!
Oil is trending back up to over $24 a barrel, and only the government is saying that gasoline prices are going higher in the spring. Yawn. Apparently it is one of the Old Paradigm problems that no longer need vex us. For if people are willingly buying the stock market at these preposterous levels on sheer greed and steely-nerves, then the rising cost of basic energy must be a non-starter. Since everybody must pay the same high costs, then there is nothing to worry about, right?
This is probably going to be your last opportunity to buy gold at these prices. The almost-frantic buying by the Japanese people is the start of the rush. Those who look at price trends notice the rise in price. A few plunger-type entrepreneurs start jumping in, stimulating demand and creating a ruckus. The price rises a little. Everybody is making some money.
More market-followers and commentators start noticing the action in bullion and gold mining stocks. The people who are actually making some money start crowing about their shrewd investing acumen at cocktail parties and how fabulously much money they are making. And so it grows as it goes.
Much has been written about the herd mentality of people. Much has been written about how "the trend is your friend." Here is a trend developing right in front of our eyes, and the herd-mentality of investors has never been more entrenched.
The Beige Book came out, and sure enough there was some glimmering of activity here and there. Well, shut my mouth! You mean that the military buying tons more bullets, bombs and missiles produced some economic activity? You mean the Fed and the Treasury spending their every waking moment pounding money into every crevice of the banking system, driving interest rates to negative real rates, produced some weak economic activity?
You mean that Congress and the President colluding to once again massively deficit-spend us into Nirvana produced some inkling of economic activity? You mean that Fannie Mae and the other GSE's monstrously expanding their loan books and providing homeowners with spending money in exchange for encumbering the last scraps of equity actually had some slightly laudatory economic effects?
My, my, my! So what am I worrying about? Be happy.
Gary North has penned a clever and revealing commentary on Alan Greenspan entitled, "Alan Greenspan's Little Shop of Horrors." To imagine that the economic future of America is in this man's hands is unnerving. The Economist magazine had an article about who will replace the aging Greenspan. Once again I nominate a monkey that has been trained to wave it's little hand in the air and given the authority to create another wave of money in doing so. Anybody can do what Greenspan has done, provided they are as clueless, and as insouciant of the resultant disaster for such profligacy, as Greenspan himself.
He is the worst Chairman of the Federal Reserve in history, and finding a replacement as egregious is as simple as randomly choosing someone who was, until a moment ago, simply walking down the street.
The dollar has started rolling over. In a more perfect world, that woebegone currency would already be history. Look for the importation of inflation.
The debt-addled consumer added another $13 billion to their debt balances in January. The level of consumer debt has been at record levels for a couple of years now, but it just keeps going farther into record territory.
Unbelievable.
I get the feeling that these people believe that, somehow, the government will come up with something. But that only makes sense. After all, the government has been spending untold amounts of money and resources for as long as anyone can remember on solving somebody's problems. Now that all the BIG problems are taken care of, other untold amounts of money and resources are being spent on relatively piddly problems.
So why WOULDN'T the government come up with something to save them, too? "Some kind of tax write-off or deduction or credit or something."
Years ago I gave up any attempts to convey education on that incredible stupidity. Now I just smile and turn away. But that level of abysmal, unbelievable ignorance of adults about damn near everything is the root of the problem. And that brings up the problem of American kids being ranked as the morons of the class, developed-country status-wise. The new crop of American graduates are even bigger dolts than their parents, apparently. The
very thought brings up strange urges to just run, screaming.
But it may be why the indexes had been rising. The institutions don't have to wait for any information about consumer spending. As stockholders of the credit companies, they know each other, and get to inquire about that information anytime they want it. And I would like it before it is released by the government, thanks.
The recent decline in gold is another chance to buy near the low. Unbelievable! Thanks, whoever you are! But I think I know who. I suspect that there are central bank hands in this. If I were them, I probably would do the same thing. As the agency responsible for economic activity, would I want to have citizens buying gold and tucking it under the
mattress?
Wouldn't it be better to have the citizens buying shares, which are a productive asset? So slam the brakes on, boys! You're putting bigger money in my future pocket! Plus, the banks needed income on their gold, so they lent untold tonnes to guys who sold it forward against a long-term decline in gold. The decline was caused by the huge inflow of this very supply.
They all made out like bandits. For years and years.
Now, with a mother lode of effective short positions outstanding, a rise in gold would put those forwarders into deficit. Then they couldn't pay the banks the interest money on the borrowed gold. Oops. Ergo, in order to protect themselves, they gather together and do what they can to suppress the price of gold.
This is not as far-fetched as it may sound. Manipulating a market is what the central banks do, for crying out loud. Their usual market to manipulate is the short-term interest rate. But they also dabble in sterilizing government debt and influencing the bond market. Not to mention the brokering of large-but-bust enterprises, such as Long Term Capital
Management.
So central bank manipulation is just more of the same.
The revenue shortfall in the state's budgets is prompting some tax increases and some spending cutbacks, and sometimes some of both. But the problems of the states are their own making. They spent the high-rolling days of the 90's creating more and more social spending/Marxist programs.
The money was provided by the overwhelming credit excesses of the Fed, which cascaded like a raging torrent through the economy. With all of that sterile business activity going like gangbusters, windfalls of revenue poured into the state's coffers. Now these programs are all set in concrete, staffed by legions of career-minded people who are now friends and confidants of the legislators, at the same time that revenues to fund these dead-end, deadweight loss programs is drying up.
The close all the idiotic programs is anathema. "Save our phony-baloney jobs or we vote against you!"
Gary North, among others, has pointed out that the median CPI (i.e.inflation) is running at a disastrous clip of over 3.5%. This is at odds with the popular hue and cry that we are in danger of a deflationary economy that will sink us in a Japan-style recessionary spiral.
But there is nothing that says you can't have both deflation and inflation. Some things need to go down (e.g. stocks, bonds and houses), but there is plenty of room to move to the upside in lots of other things. A quick look at the charts of commodities and you will be see a definite, accelerating rise in prices. This inflation staring you right in the face, and staring right in Greenspan's face, whose freaking job it is to prevent inflation.
That there will be an inflationary crisis is already a dead-bang certainty. The explosive, persistent, world-wide, central bank-fostered growth in the money supply guarantees it. Whether or not this is it, right now, is all that remains to be seen.
The triple-witching expiration of options and futures is this Friday. And it is this quarterly event that has been causing the explosive rise in stock prices, as a wasp-nest of schemes involving puts and calls and futures have been bought and sold against various stocks and baskets of stocks, derivatives being created wholesale left and right.
But this is how money is transferred to the savvy from idiots. It is the same when a used-car salesman sidles up to you and tells you not to worry about whether you are getting a fair deal. "Trust me!" is the set-up to stick it to you good and hard. Ugh.
The Mogambo Guru Lives!
Richard Daughty is general partner and C.O.O. for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise the better to heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications. |
