Unholy Appetites
"...the IMF is a loser organization, staffed with losers, crooks, political hacks and dim-bulbs, making losing bets at every turn, forcing profoundly bad advice down the throats of recipients, squandering hundreds of billions of dollars of US money that will never be paid back, and is always poised to squander more on the theory that a million "wrongs" can make a 'right'..."
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The Mogambo Guru
- While the Fed managed to partially restrain its unholy appetites and only created another $500 million in new credit last week, it was able to commit yet another in a long, long string of frauds by creating another cool $2.3 billion of credit-created money and buying government debt with it.
- Hooray for Home Depot! They made the headlines and made my day when it was revealed that they have a policy not to sell merchandise to the government, even for cash on the barrel-head, since doing so automatically ensnares them in required expensive, time-consuming paperwork to show compliance with all those touchy-feely laws that a dysfunctional Congress exults in making. And, of course, this will always entail random audits of that compliance - legal fees, "fact-finding" fishing expeditions of any half-witted minor functionary with too much time on his hands, wishing to make a name for himself as some "champion of the little people," and tort lawyers out for a fast buck. As government interference in the market always drives up costs and prices, the actions of Home Depot helps keep prices down. Exult, homeowner!
- An article in the WSJ last Wednesday, "Brazil Gets IMF Money," had this timeless jewel: "Do you rescue a country whose economic policies are generally sound - but whose debts may be simply too large to pay off?"
First, a country whose economic policies are "sound" does not accumulate such massive, crushing debts. They accumulated the massive debts because they were pursuing unsound fiscal polices to engage in the collectivist idiocies that were all the rage for the last few decades. Secondly, the release of yet another $11 billion in IMF money - that they will never repay - merely adds to their debt problem. As any second-grade kid knows, you can't get out of debt by borrowing more money.
In short, the IMF is a loser organization, staffed with losers, crooks, political hacks and dim-bulbs, making losing bets at every turn, forcing profoundly bad advice down the throats of recipients, squandering hundreds of billions of dollars of US money that will never be paid back, and is always poised to squander more on the theory that a million "wrongs" can make a "right."
The underlying fear is that US banks made huge stupid loans, and are now in danger of losing that money. Boo hoo. Realizing losses on unsound investments is how the system identifies managers that are idiots so that they can be fired. For the US to underwrite more stupidities on the part of the IMF short circuits that discovery process, and leaves them in place to make more unsound lending decisions.
- Open interest on the SP500 contract ballooOOooned to all-time record levels this go-around. Something Major (notice that I used a capital "M" to indicate emphasis), and I mean MAJOR, is up. Man! Gigantic oodles of money was made and lost on THAT conglomeration of bets! And since only the Fed is stupid enough to keep plowing money into a rapidly losing bet, that's where I think the juice is coming from. Dim Duisenberg admitted that central banks do this "all the time." Or maybe there is some kinda derivative thing going on that I don't know about. And since there is no way of finding out, who the hell knows?
- But the specialists have taken a hit here lately, and I kinda suspect that they are being taken care of. For if the specialists go bankrupt (or simply can't make their required capitalization requirement), then they won't be there to make the market. Direct trading would probably result in chaos and market disruptions and volatility and wild swings and sudden large margin calls and upset investors and strains on the whole system and and and...Oh, it's just too horrible to think about!
- The tax revenues to the government must be trending to, oh, about zero. All those losses that have been taken in the stock market (paper losses) have yet to be claimed, and the total amount of the losses is staggering. And since deducting losses in excess of gains is capped at a measly $3,000 per year, tax revenues far into the future have yet to be reduced. Each and every year, damn near every financial entity in the country will be deducting prior-year loss carry-forwards against current gains (if any), thus reducing their total tax due, plus another three grand apiece.
Hey, you! Congressperson! What does THAT do to your precious budget? Must be about time to start telling bigger lies and declare that the budget is actually in surplus! The funny thing is how a $155 billion per year deficit looks so big now. But just you wait. In a short time, it will seem like a drop in the bucket.
And the guys who are buying long bonds paying, net of taxes and inflation, zero-to-negative interest rates? "Hahaha!" I laugh mirthlessly. "You trusted a government over the long-term? Hahaha! You bet the farm that your government wouldn't debase a fiat currency?" As a coda, the charts indicate that the recent rise in bonds is about over. Note: the long-bond topped out in 1998, four years ago.
- The latest tally of claims for unemployment showed 1) the number went down a little, and 2) there is some bizarre, secret statistical bias in the numbers. Company after company is slashing jobs, business is weak, the stock market is way off, sales are slowing to a crawl, tax revenues are decimated, and yet I am supposed to believe that people are getting hired? Gimme a break!
- Houses continue to rise in price, even though affordability is dropping because they are already high, and the incomes of buyers are not appreciating as fast. It appears that the underlying assumption is that Fannie Mae and some Greater Fool will always come along to bail everyone out. That theory obviously did not perpetually work in the stock market, or any other market in the history of markets, so why will it work in the housing market?
This is calamity with a capital 'C.' Losing a few bucks in the stock market or a back-alley crap game is one thing, but foreclosures on mortgages of these magnitudes will bankrupt us all from the sheer size of the leverage.
The real error is that rising house prices are not rising wealth. If you sell your house, you just have to buy another one at a high price, so you are obviously not better off. You are at a standstill. Further, ad valorem taxes are assessed on market value. So higher prices means more out-of-pocket expenses every year for the whole neighborhood. So more money goes to installing a bigger and bigger government, whose expenses always rise faster than inflation or your paycheck. The only way that this strategy could possibly work out is if you sell the house and then die, obviating your need for another house. It is like that old joke about the man who asks his accountant, "If I die right now, how much will I save in taxes?"
The optimal strategy for a healthy economy is if houses had perpetually zero price appreciation.
- I saw an article with a title that intimated that Treasury Secretary O'Neill was addressing the "debt crisis." The "crisis" turned out to be the lack of Congressional approval to issue more debt, somewhere in the range of another $2,000 per capita. This is American political thinking revealed in all it's glory; "Going deeper and deeper into unfathomable debt is not a 'crisis.' The only 'crisis' is when you can't go farther and farther into debt."
- The trade gap widened to $35.9 billion, and is accelerating. At this rate, the deficit will easily surpass a half trillion dollars this year. A half trillion!
The soothing analysis is that this will reverse soon, as the falling dollar will make imports more costly, and our exports cheaper. Okay so far. But then they go on to explain how foreigners will automatically step up their purchase of US goods. This is lunacy. It is on a par with the lunacy of the Greenspan Fed and the Chicago School of economics, who insist that lowering interest rates automatically and mechanically engenders a rise in investment. Morons.
It is our outsized deficits that are giving foreigners the money to buy our exports and assets. If we stop buying their stuff, where will they get the money to buy ours? It is no secret that the US is the "buyer of last resort" for the whole freaking world. In short, we are supplying the money that makes the whole world go around. Who are they going to sell to, if not us?
And what are we buying from them? Consumer goods. What are we selling to them? Capital goods to make the consumer goods that we consume. This is more disaster. That the manufacturing base of this country has been, to use the popular term, "hollowed out," is no secret. We don't produce, we consume. The populace is consuming final production by consuming future income, and the government is consuming the consumers.
At least the Romans produced a huge infrastructure whose ruins still draw tourists a thousand years later. The Egyptians produced the Pyramids that draw tourists thousands of years later. What have we created that will last even a few years? Except overdue bills, of course, and the ocean of lawsuits against the scapegoats of the financial industry, which will drag on and on for years and years.
- The Supreme Court ruled that executing the retarded is un-Constitutional because it was "cruel and unusual." How did they arrive at that startling conclusion? Reading the Constitution won't help; it's not in there. They merely noted that so many states had outlawed executing the retarded, that it was now "unusual." So therefore, there is a "consensus" that executing the retarded is wrong. Okay with me. The states are free to pass legislation making it illegal to execute the retarded. But that is not good enough for the lame-brain collectivists that constitute two-thirds of the Supreme Court. Instead, a majority of the Supremes have decided that the retarded actually have a Constitutional right to escape the death penalty. In short, the adage of "all men being created equal," the cornerstone of the Constitution, is being re-interpreted according to popular whim.
One of the jackasses from the ACLU went on TV and opined that this is just the Constitution "evolving."
So, to combat this, all we need is a consensus that it is permissible to take incompetent, Marxist Supreme Court justices by the scruff of the neck, drag them out into the street and run them out of town. "Live by the sword, die by the sword."
- Brazil, Argentina, Uruguay and the whole South American continent is falling apart, as the bill for decades of cozy corruption and pandemic socialist/communist stupidities comes due.
It is one thing to tut-tut about economic calamity in an erudite, dispassionate and sterile kind of way. But it is the sheer mass of innocent people whose economic lives are destroyed, and their angry response, that will be the Big Story.
The history of the world is essentially one of disenfranchised proletariat rising up in anger at being victims of government-caused misery that cause the sudden, revolutionary discontinuities of political stability. The French Revolution, the American Revolution, the Russian Revolution, etc., were all violent reactions against the economic idiocies of their respective governments. When the full impact of the avalanche of bankruptcies, starvation and abject poverty reaches some critical mass, there will be upheavals such as the world has never seen. And because the trans-national complicities, cronyism and sheer monumental stupidities left almost no corner of the globe untouched, the anger will also seep into every corner of the globe.
As evidence, violent crime is already spiking up again. Word to the wise: you ain't seen nothing yet. Decades of collectivist, leftist, Marxist rhetoric have pounded into our heads inescapable lessons: 1) Nothing is your fault. 2) The government will take complete care of you. 3) Violence is a "cry for help," and the only way to get the help you need or want is to be as violent as possible.
Who is ultimately to blame? The Congress and the Federal Reserve of the United States.
- Oil is trending somewhat higher, but not nearly as high as I would have thought. The oil-exporters are getting less and less buying power for the depreciating dollars they get for each barrel of oil, so OPEC is making a nice gift to us. And the hoard of US dollar-denominated assets they own are worth less, too, both as a result of the years-long fall in equity prices, but also as a result of the dollar falling in the forex market. So they are losing purchasing power and wealth with every gallon of crude that they sell to us at these constant prices. What a wonderful bunch of fellows they are! We ought to send them a big "thank you" card.
And with Bush being a big oil man, and his friends being big oil men, you can be sure that oil will be foremost on his mind. When the price of oil finally rises to reflect the devaluation of the US dollar, things will happen. Tip o' the day: accumulate oil stocks. Probably something to do with "Homeland Defense."
- The big question about the devaluation of the dollar was, "whose currency is going to appreciate in response?" The answer seems to be - everybody's.
- Anecdotal reports are that foreigners are lightening up, i.e. selling, part of their huge mountain of US assets. There are no anecdotal reports that foreigners are loading up, i.e. buying, any US assets. And how does that thing about more sellers than buyers go? Oh, yeah, I remember now; prices go down.
The question is, really, why did they wait so long? For the Japanese, the answer is that they needed those appreciating assets to shore up their books, as an offset to the unbelievable local losses they are sitting upon. Now they have nothing but losses, net net, and mounting. Everybody else had all this money burning a hole in their pockets, thanks to the monstrous trade deficit, and they wanted to get that money someplace "safe." Oops.
- In an interview on the Daily Reckoning website, Dr. Richebacher noted that last year the national income grew by $178.6 billion, but debt increased more than $2 trillion. People are buying stocks in an economy where debt increased more than ten times as fast as income?
- Why is the economy not collapsing? Because the economy is now a Big Government Economy, and as long as they can find desperate, corrupt ways to keep the cancer fed by paying all those employees, paying all those subcontractors, paying all that interest and paying on all those contracts, then things will limp along. The bad news is that thinking that the BGE will cure what ails us is ludicrous. "You're dying of cancer, but the good news is that the cancer is growing and spreading."
- This is the last week of the quarter and the last week of the half. If the market manipulators can't get some big rally going, mutual funds, brokers and assorted money managers are going to be forced to send out the quarterly statements that show more huge losses. Already there are anecdotal reports of capitulation by investors.
So you can be sure that whatever powers-that-be are going to do their
damnedest to get those averages back up. And there must surely be a large cohort of idiots who think that bull markets are permanent; look at the rallies!
Now that the market indexes are back near, or at, the lows recorded during the WTC attack, the average equity investor has had big losses for four years running. And the markets are still sitting at very high valuations as it is, and they would have to drop by half from here just to get back to the historical norms! So those who hold onto their positions, and even add to them, still have an excess of greed over fear.
But it could be worse. Imagine the shame you would feel if you had written the book "Dow 36,000." Well, actually, the Dow could reach 36,000. All it takes is a currency where it takes $100 to fill the tank in your car with gasoline or buy bread.
- New highs on the NYSE are finally being trounced by new lows.
- The Fed is meeting to hatch their secret plans, and the big question is what will they do? Raise rates? Lower rates? The answer is simplicity itself; they are going to screw somebody, and that "somebody" is anyone who has money. That's what the Fed does. The millions of people who rely on the interest from bank savings and CD's have been screwed for over a year now, and still make less than half the rate of inflation as their "reward" for their prudence. And what is the sum total of all the things that the savers did NOT buy, since they have had their incomes slashed to insignificance?
My bet: they leave rates untouched. This will play well with the "recovery" addicts, who see a bottom in every down-tick and urge you to buy stocks with every up-tick. And since rates are already lower than inflation, to no avail, another cut would be sterile.
- To show what weird times we are in, Rosie O'Donnell said that "Bill Clinton disgusts me."
- Consumer confidence dropped. Default rates on everything are soaring. Oil is climbing. Housing is more expensive than ever. And the Federal Reserve and the Congress are in session, meaning bad news is a-coming. Ugh.
Mogambo Sez: There will efforts to move heaven and earth to get this market up and quickly. But doom is still the long-term outlook for any system, such as ours, that has elevated abject stupidity to the status of "normal." Buy gold, and short any stock market rallies. This advice has been 100% successful for four years in a row now, so why switch horses in the middle of the stream?
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. |
