Hi Yiwu, this stuff is funnier than a bear market;0)
dailyreckoning.com
Speaking of the Great Depression...
The Mogambo Guru
- Greenspan testified before the Senate Banking Committee last Tuesday, and it was the same testimony that he always gives, and the same questions by the same members of the committee. There are "challenges ahead." There are "improvements" in some statistics. The economy "will recover in time." Blah blah blah. Judging by the complete lack of ability to learn from all his other appearances saying the same thing over and over and over, the members of that august committee must be the slowest learners in all of Congress. One comes away with only the impression that one sound-bite idiot being questioned by a whole group of sound-bite idiots does not make for interesting television.
I suspect it was the Put Protection Team that was able to keep the market relatively up while Greenspan addressed the Senate Banking Committee, and really got a nice little rally going before he addressed the House Financial Services Committee on Wednesday. After all, it would have been so unseemly for the markets to crash and burn at the exact same time as Greenspan was delivering his usual upbeat, everything-is-gonna-be-peachy, trust-me silliness. Then, as soon as it was all over, the markets fell.
At the same time as Greenspan was pronouncing his vision of the approach of Utopia, the Daily Reckoning website posted the following quote from the Harvard Economic Society, November 2, 1929: "Despite its severity, we believe that the slump in stock prices will prove an intermediate movement and not the precursor of a business depression such as would entail prolonged further liquidation..." Sounds so very Greenspan-ish, doesn't it?
The Senate was, as usual, insipid. But the House on Wednesday got a little testy with Mr. Greenspan. For one thing, he refused to address the value of the dollar in response to direct questions about it! This dude DIRECTLY affects the value of the dollar with his every action, and his constant debasement of the dollar has produced a pronounced slide in it's value, and here he is all puffed-up in self-righteous indignation, refusing to even talk about it! My God! Who the hell does he think he is? It's like watching Janet Reno and Bill Clinton doing their famous and disgusting dissembling act all over again. The astounding part is that the House let him get away with it! He decided that he didn't want to comment on his own execrable management, and the Reps just sat there and took it! They just moved on!
I know that they can't just walk over to Greenspan and slap his face hard, like he so richly deserves, but this guy has got to learn who's the hired hand and who is the boss around here. And a hired hand does not tell the boss, namely me through my elected representatives, what he will and won't talk about, especially when it concerns what appears to be an unbelievably incompetent job performance in an area that can, and will, ruin the whole country. Grrrr, I am angry.
But the highlight was Ron Paul (R-Texas) who read Greenspan's own words about the horrors of a fiat currency back to him, read Greenspan's own words about the necessity and worth of a gold standard back to him, and in general pointed out that Greenspan's actions are at odds with his own published philosophy and common sense! The most refreshing and pregnant moment in television that I've seen in a long time. Greenspan's face darkly clouded over like a thunderstorm, as he obviously does not like being shown proof that he acts like a schizophrenic jackass and/or fool.
In summary, Greenspan sees the future of America as wondrous and prosperous. Of course he does. He has never seen, in his own superannuated life, any other Fed chairman acting so completely contrary to the long-term economic interests of America. He has never seen another Fed explode the money-creation aggregates like he has done, he has never seen any other Fed slash reserves like he has done, jigger statistics like he has done, insinuate the banks into everything risky like he has done, destroy the entire interest income of savers like he has done, underwritten bubble after bubble like he has done, overseen the extinction of multi-trillions of dollars in assets like he has done, consistently ignored the persistent low-grade fever of simmering inflation like he has done, or underwritten the constant, cancerous Congressional excesses like he has done. No wonder he is so complacent; there is no precedent. And since the Senate and the House have shown themselves to be clueless lapdogs, it is up to you and me, I guess. It's almost November, the polls will be open, and perhaps ballots will be enough to kill the vampires that are sucking the very life out of us.
I've said it continuously for a decade, and I'll say it again now; Alan Greenspan is the worst, absolutely the abysmal worst, person that has ever parked his fat fanny in the seat of the Chairman of the Federal Reserve, and acts like a sworn enemy of America.
Now we provably know that a central bank, concentrating enormous power in the hands of a few self-appointed hotshots, is a guarantee of doom. Obviously, it is time to re-visit the Federal Reserve Act of 1913 and trash the whole thing. In less than ninety years it has produced nothing but the continual misery of inflation inflicted on the poor, financed war and war-related misery continuously throughout the world, devalued the currency by 95%, underwritten the bloated, explosive growth of a predatory government, and produced one, and probably two, Depressions.
- An interesting chart compiled by Ned Davis was sent over by Ty Andros, which showed the P/E of the SP 500 back to 1925. Superimposed over this graph were notations to buy that index when the P/S went under 15 or sell that index whenever the P/E went over 20. It worked pretty well. Using that paradigm, there have not been any "buy" signals since 1997. Not a one. And the SP 500 is where it was in 1997. Eerie, huh?
The most remarkable thing from the chart was the rise in the P/E at the height of the Roaring Twenties, which managed to climb to a P/E of around 26. That held the record for over-enthusiasm until the malignant Clinton years, when the P/E exploded off the chart. Never saw this on CNBC and the other market-puffers, I'll wager.
The P/E is still at nosebleed altitude today, indicating that a big, big downdraft in the SP 500 is still in the cards. When? When the alternative investment, namely long bonds, is no longer held down by Fed artifice. When interest rates climb again, as they must, the SP 500 is going to look even more stratospherically lofty. But in the meantime, a thirty-year bond paying a laughable yield holds sway. Yet, here are people locking up WHAT interest rates for a thirty-year period? Are we on drugs, supremely stupid, or so preposterously optimistic that it would make Pollyanna burst out laughing?
But will interest rates climb again? Maybe yes. Maybe no. Normally, all that glorious money, the mountainous tons of it, that the Fed has been creating all these years would foster inflation the likes of which we haven't seen in a long, long time. It is axiomatic that too much money, so unbelievably much money born of raw Fed actions, chasing a stagnant supply of goods should lead directly to inflation because it must. That's how things economic work. Each dollar is debased thanks to all the other dollars created by the Fed. And if each dollar is worth less, it takes more dollars to buy a good or service. And more dollars needed to buy a good or service is the very definition of price inflation.
But we are not normal nowadays. The borrowed money has not been converted into an asset that is paid off, freeing up money to go chasing after goods and bidding them up. The asset, as it began to pay for itself, was converted into more debt. That is the meat of the problem that is killing us. All equity was always turned into more debt.
And when those assets disappear into the Black Hole of Worthlessness, won't the money supply tumble, too? Hey! Who took my crystal ball?
- Canada raised interest rates by a quarter point, thus making our debt less attractive. I reiterate my advice to sell the stocks of US banks. Banks are the ultimate holders of all this debt that is not getting paid.
On the other hand, all of South America seems ready to implode.
- Oil continues to languish at these dollar-price levels, and I must admit I am beginning to suspect some secret quid quo pro between Bush and the exporters. They are taking a whack on each barrel. Are those guys morons or what?
But politics these days is Clinton-oid Politics, which translates loosely as deceptive and manipulative. What in the hell could possibly motivate oil exporters to allow us to pay for their oil with depreciated currency? We are making nice to the Saudis even though the terrorists who rammed into the WTC were Saudi nationals, and they are in turn making nice to us as a way of saying "Sorry?"
- Savings are still rising. Investment is still falling. Bankruptcies are still rising ominously. And since all the money that financed the glorious Nineties came from debt, a lack of new debt means less spending. Especially now that the returns from those debt-financed investments are not paying the bills anymore.
- Martin Weiss estimates that before the stock market finishes wiping out the ludicrous mal-investments and sheer stupidity over the next few years, one in three families in America will declare bankruptcy. Wow! One in three! Makes you wonder what THAT will do to consumer spending, eh? What is the mechanism that allows a Consumer Economy to thrive when the consumers are broke?
He also notes that "This is the first time in decades that all of the major world economies are sinking at the same time," and that deflation is striking for the first time since the Great Depression.
And as for the forecast low for the market, pandering to all those greedy people lusting after a new bull market to be made whole (and maybe make a few bucks, too), he notes that when the bear of market ended in 1974, the P/E of the SP500 was 7. At the end of the bear market in 1982, the P/E was 8. Right now, the P/E of the SP500 is north of 30! And the "E" part is still falling. So, when looking at this interesting factoid, do ya think that this is the market bottom? Huh? Do ya? Go look under your pillow, youngster. You'll have greater luck finding wealth deposited there by the Tooth Fairy than you will in the stock market.
And speaking of the Great Depression, three years after the market topped out stocks had lost 90% of their pre-crash value. And the excesses of debt, universal stupidity and greed are worse now than at the height of the Roaring Twenties. In light of that, the decline in the market hasn't even gotten started yet.
- Sale after sale is being announced, with the teaser of making no payments, no interest, no nothing for a year or more. I even got a plea from my credit card company that offers me twenty-five bucks cash just for using it to buy something! Anything! Literally paying me cash to buy things! And two percent cash back on those purchases after I do! Desperation is calling for desperate measures. But when is the last time you heard of desperation magically turning into rainbows?
- Now that the dollar has fallen by over ten percent, when will the $400-plus billion per year smorgasbord of imports start costing ten percent more, too? We dispensed with the Saudi's and their oil already. But what about everyone else? If prices of these imported gimcracks do not rise, ex-forex, then the foreigners who are selling them to us at the old prices are taking a whack to the head, profits-wise. How long can they keep it up? Is it the old "We lose money on every sale but we'll make it up on volume" joke?
And when will this stuff start showing up in the inflation numbers? Oh, I'm sure that Greenspan and his friends will find some hedonic way of massaging price increases to show that prices are actually falling. It SOUNDS like magic, but it is not magic. If a TV costs twice as much, you can bet that you will hear "The frame of the TV is made of better plastic. As a result, the TV will last longer and thus cost less per year, and so inflation is nonexistent." The TV still costs twice as much, but notice that you feel so much better paying twice as much for the TV, as it is such a "bargain." Oh? You don't?
Well, how about the idea that when you buy a faster computer you are automatically more productive? Don't buy that one, either? Don't tell the government, which spent millions of dollars having the Boskin Commission come up with these, and other, spiffy ways of jiggering inflation statistics to make itself look good and cut their costs. It would give them dyspepsia to find out that you, and any ten-year old kid, can see right through their shallow artifices.
- Judging by the lack of interest in long-bond futures, there is absolutely no, and I mean zero, faith that the long-bond will rise much anytime soon. Neither should you. The yield is pretty much nothing already, so how much lower can it go? Any? Is a capital loss associated with rising yield the price of a ticket on the Flight To Safety?
- Short interest on the exchanges is at big numbers. This is a large betting cohort who are going to have to buy the shorted shares back one day. And if there is one thing that you can be sure of, it is that big players are looking at that and planning something to get that money from the captive shorts. And that means goosing the market up to some level, with all the attendant media hoopla that they can manage, about how this is The Bottom. That will, theoretically, make these shorts cover in a panic, and lose their bets. THEN, after the market-goosing has performed its magic of transferring money from the pockets of the shorts to those of the manipulators, you will see the market tank. That's the plan, anyway.
- The phrase "jobless recovery" is making the hit parade, and rightfully so. What employer in his right mind is going to hire people? Unemployment insurance premiums are higher. Health insurance premiums are high and rising. There are a plethora of new taxes, fees and regulations imposed by governments. But pricing power, needed to pay for all of these costs, is absent, because the economy is toast. And profits are so low as to make the very viability of the business suspect, even with the current complement of employees. These are not the conditions that make employers want to hire. These are the conditions that make employers want to fire everyone, sell the assets, steal everything that is not nailed down, skip the country and retire.
- Speaking of gold, the guys who get keep getting calls for more margin money on their losing stock positions are selling their winners in gold to pay for their losers in stocks. Selling the winners and buying the losers to keep in the game Hahahaha!
- Mobius has come out and said that he figures the stock market is in for a few more years of losses. Years. Losses.
- Finally got Prechter's new book, "Conquering the Crash." Mostly it sounds like he has been religiously reading Mogambo Guru and has appropriated my narratives and insights. A more charitable interpretation is that "great minds think alike." The more likely interpretation is that I have never had an original thought in my whole life, and so seeing the ideas of someone else expressed by someone else is only natural.
- The caveat in reading this book is to pay close attention to the scales that accompany each graph and chart. They are mostly logarithmic. So while the lines show dramatic increases in horrors like debt accumulation, a conversion to linear, arithmetic scales would make each of the graphs so tall as to make them not fit on the freaking page. That's how bad, how profligate, how ridiculous, how scary they are.
- And Prechter says that gold is likely to be THE investment of the future, but maybe not right now. He figures that it first has to drop back down to its bottom, as assets will all deflate. And gold is an asset, so it must devalue, too. Only then will the zoom of gold begin. "If this deflation acts like the last one, at the coming bottom, we will have a great buying opportunity for gold and silver - maybe the greatest ever" he says.
- And he notes that, DESPITE the possibility of a near-term decline in gold, that you ought to buy bunches of it anyway, right now, and not to rely on another "buying opportunity" that may or may not materialize. That sounds so familiar. Who has been saying the same thing with a mania approaching hysteria for years? Oh, yeah, now I recall. Me.
- And here's Ned Schmidt of the Value View Gold Report saying "Gold to $1,255."
- The trade deficit hit a new record. But the decline of the dollar is being seen as some golden opportunity for exporters to get some healthy action, since American exports will be so much cheaper to foreigners. And if this is true, and the price of wheat and commodities goes up thanks to foreigners snapping up the bargains, ex-forex, offered by Americans (higher demand and stagnant supply), do you think that they are going to have a two-tiered market price, one for foreigners and a lower one for Americans? Ha! No, prices for Americans will rise too. And what is it called when prices rise? Let me look it up. Oh, yeah, inflation.
And higher-priced imports, thanks to the devalued dollar, will give domestic competitors of all those imports room to raise prices, too. No wonder gold is climbing and bond futures are unpopular; each of them is directly affected by inflation.
- Jonathan Karl had a nice piece in Monday's WSJ entitled "Cooking the Books is an Old Recipe for Uncle Sam." The short and long of it is encapsulated in his phrase, "Congress's questionable accounting schemes are so costly they make Worldcom's $3.8 billion overstatement of profits look like a rounding error."
- If the head of the nation, Congress, is sick and cancerous, oozing putrid pus from every diseased neuron, why do we expect the body of the USA to be healthy?
- Our current state of affairs is what you must come to expect from a fascist government like we have. Namely, private ownership of business, but government control of every aspect of that business. The abysmal lying, deceit, greed, conspiratorial excesses, and institutionalization of a police-state to assert command-and-control hegemony over everything are the earmarks.
- And make no mistake; any society that taxes/confiscates/regulates the lion's share of money of a country and metes it out again to a huge amorphous mass of connected "deserving" others is the antithesis of a "free" America. Even the phrase "From each according to his ability (to pay) and to each according to his needs" is about as pithy a way of describing the actions of generations of Congress as I have ever heard.
- Any country that has a government-directed confiscation and redistribution of money and power from the minority of affluent to the larger and poorer population, thus bankrolling pandemic parasitic dependence, is a fascist/communist country. I don't care what your precious politicians, leftist teachers and professors, the media, your children's leftist-leaning school books, or bizarre incarnations of the Supreme Court say. The very act defines the whole concept. But Americans don't even have the guts to stand up and admit it. Just do it but don't talk about it. I am ashamed of us all.
- On the Bloomberg website, the following blurb appeared. "US Lawmakers Seek to Calm Voters, Soothe Economic Worries as Stocks Drop." I was so startled that I spewed coffee on myself. Trying to access this amazing story, the attempt provided me instead with the perfect metaphor for such a bold headline; the article took forever to load, the screen finally went completely blank before displaying even a single word, and my computer seized up! Hahahaha! Theater of the Absurd and Comically Ironic, provided free on my own PC! Those Bloomberg people, who arranged this free dose of sublime humor, have surpassed themselves! Not even Shakespeare himself could compose such profound comic juxtaposition! It is so deliciously apropos, so smoothly subtle, that I am delighted beyond words! Pure poetry! Hahahaha!
Personally, and pardon me a moment while I wipe the tears of laughter from my eyes, I cannot imagine what "lawmakers" could possibly say that would calm my fears one iota. In fact, I cannot imagine anything they COULD say along that line that would not send me straightaway to the emergency room with a heart attack, probably ending up with me begging the doctor to let me die and get me the hell out of 21st Century America. Lawmakers are coming up with a new plan? With the Congress's record of hits and misses, any talk of more Congressional action is a harbinger of doom.
However, I found my curiosity un-assuaged, so I went back later to try again. The blurb and the attendant story had disappeared! Hahahaha! How perfect! How absolutely freaking perfect! The coda! The icing on the cake! My hat is off, and I bow in humble reverence to the comedic geniuses of our age, the writers of the Bloomberg website!
- Using the obvious trend, the SP500 ought to break the 750 mark before September, bringing that average back to where it was in 1996, six years ago. Six years of zero profit! Maybe even some losses! Nice work there, "money managers." Ugh.
Mogambo Sez: The disconnect between dreams and reality is captured in a WSJ story this morning which contained the phrase "yesterday's see-saw trading failed again to give investors the one thing they needed most: a clear picture of where the stock market is headed." The market has come straight down for two years, cut in half, wiping out seven trillion dollars of wealth, and yet investors can't see where the market is heading? The trend is your friend, the trend is crystal-clear by simple inspection, and the trend is down, occasional bouts of laughably-mindless optimism notwithstanding. |
