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Gold and 1,000 Frozen Pizzas

By: Bill Bonner, Chuck Butler & The Mogambo Guru, The Daily Reckoning

-- Posted Monday, 31 October 2005 | Digg This ArticleDigg It!

Ouzilly, France

Monday, October 31, 2005


*** We are all scientists snowflakes, no two crazy people are the same...

*** An expression of a collective madness...are home speculators simply howling at the desert moon?

*** Asian markets seem to be collapsing...the most anti-gold human being who ever lived...and more!

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Mars drew near to the earth this week; only twice in 60,000 years has it been so close.

Of course, we all now know that the planets have no effect on us. And certainly not on our financial lives. We're too smart for that. We are all scientists now. We look at the facts before us and make our decisions based on reason and logic...not the tug of some dirt ball out in space.

"I'm not so sure," said a guest at dinner on Saturday. "They must have some effect. I know that if I collect peach leaves by the light of a full moon, the liqueur that I make is better than if I collect them during the daytime."

"Well...yes," said another guest. "That is possible, but it is only because plants follow a daily cycle, with various photo-chemical switches turning on and off. At night, plants don't have the same chemical make-up."

"OK, but don't we humans have switches, too? Aren't we part of nature, and subject to natural forces?"

William Drummond, an English traveler in the 18th century had the good fortune to visit a French insane asylum. He reported that not all crazy people are the same. French lunatics act like French people, he noticed, not like English madmen. They were charming and mannerly; they made little jokes, he said. They were also cunning and untrustworthy. More French than mad, was his conclusion.

But he also noticed that the inmates at the Hotel Dieu became particularly agitated when there was a new moon or a full moon. This was neither an original nor unusual observation, nor does it bother the proud little man who thinks he thinks for himself. Of course they howl at the moon in a French insane asylum, because they are French...and mad to boot!

Occasionally, though, whole nations of supposedly sane and reasonable people seem to go mad. What else could you make of Germany during the Nazi period? What else could you make of the Tech Bubble in the late '90s? And what else can you make of Las Vegas, 2005?

A bubble is an expression of a certain kind of collective madness. People lose their senses and come to believe the most extravagant things. In Las Vegas, today it is pure bedlam; people believe that there is no limit to the upward movement in property prices.

Under construction, or in planning, are 93 luxury condominium projects, including 175 towers, says an article on Ten thousand new units are expected within the next 12 months. Vacant land prices have soared 88% in the last 12 months.

"The only thing we know is it's not going down in value," said a local realtor of the Las Vegas market.

And yet, about the only thing one can ever be sure of is that prices go both up and down. It is mad to think anything else.

Directly beneath the article were three "sponsored links," each one offering the same service: debt consolidation.

What do you think, dear reader? Are the condo flippers and house speculators making reasonable, informed choices? Or are they merely barking at the desert moon?

[Ed. Note: There is an interesting tidbit popping up all over the news: folks who refinanced a year or two ago are finding out their homes are worth less than the appraised value! All over the country, appraisals have been inflated by lenders eager to make loans and real estate agents eager to close the deal whatever it takes. You can get all the details of this scam here:

The Appraisal Scandal

More news from our currency counselor...


Chuck Butler, reporting from the EverBank trading desk in St. Louis:

"The dollar bulls are howling (it's Halloween!). This week we'll see a data deluge, with the data cupboard getting emptied, starting today with personal income and spending. It's my new favorite piece of data to follow."

For the rest of this story, and for more insights into the world currency markets, see today's issue of

The Daily Pfennig


Bill Bonner, back in rural France with more thoughts...

*** "Do you see a bubble?" asks Fed chief-appointee Ben Bernanke. "I don't see a bubble."

"Do you see a bubble?" asks Treasury Secretary John Snow. "I don't see a bubble."

Alan Greenspan leaves his post on the 31st of January. He desperately hopes that nothing goes too wrong until then. Most likely, nothing will, but we notice disturbing signs.

Bloomberg reports that wages are rising more slowly than at any time in the last 24 years. If Alan Greenspan has performed such a good job of managing the economy, you might wonder why people are not earning more money.

Asian markets seem to be collapsing. Are they not anticipating a drop in U.S. consumer buying?

*** Mortgage defaults are increasing.

And the price of gold is rising. Gold, we remind readers, was once Alan Greenspan's choice for a central bank reserve. He said he thought any money system without gold standing behind it was a fraud, designed to cheat savers out of their money.

But people come to believe what they have to believe when they have to believe it. As Mr. Greenspan realized his ambition to become a powerful mover and shaker in Washington, he found that believing in gold was inconvenient. So, he became a believer in managed paper currencies, with no gold backing of any sort. During his reign at the Fed, more un-backed dollars were created than under all the other Fed chairmen who ever lived. Thus, Mr. Greenspan became the most anti-gold human being in history.

Since there is no danger that we will be appointed to the Fed, we can believe what we want. We can believe that Mr. Greenspan and his successors have become so good at managing the value of money - which is otherwise completely worthless - that gold really has become a relic of an earlier age. Or we can believe that human nature - still under the spell of planets, emotions, and undiminished temptations - makes un-backed money suitable for the gods, but not for man.

Gold rises...

Pierre Lassonde, president of the biggest gold-mining company in the world, Newmont, thinks gold may hit $525 before Mr. Greenspan leaves office. (More on this below...)

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The Daily Reckoning PRESENTS: With Bernanke in queue for the next Fed chief, the Mogambo's list of worries is growing by the second. His solution may not surprise you...


by The Mogambo Guru

This Bernanke thing has me all a-twitter, and all I can think about is self-preservation... and that means gold.

Peter Brimelow, of, quoted Bridgewater Associates as saying, "Many of the world's oil exporters have a penchant for holding gold; if they only held 1% if their incremental wealth in gold, the incremental oil revenues flowing into these countries would raise the investment demand for gold by 25%."

Now this is really interesting to me, as I am a big believer in that old theory that says that since the supply of gold is relatively inelastic, then I know that the supply of gold cannot possibly increase enough to satisfy a sudden 25% increase in demand. So, the price must rise by enough to reduce that damned increase in demand until supply can increase enough to affect prices again. "Hmmm!" we say to ourselves. Remembering the wisdom we were given as young grasshoppers ourselves, we retreat back a few steps from all of this heavy theoretical action, and we realize that from an up-close-and-personal view, otherwise known as The Official Mogambo Creed Of Greed (TOMCOG), that this means that profits, maybe even huge profits, perhaps even gigantic profits, are to be made somehow! Hahahaha! Lovely, lovely profits!

Bridgewater ended with its own investment conclusions, further reinforced with a fundamental rationale: "We remain long gold and a basket of other commodities, largely from a monetary perspective, as central bankers continue to devalue money in order to create a cushion against deflation."

These Bridgewater guys did not mention Bob "Bongo For Brains" Bernanke by name, but this whole "preventing deflation" thing is pure Bernanke.

And believe me when I tell you that when guys start exiting the stock markets with losses, and they are being herded into bonds, which is the only other big market that can absorb so damned much money all at once, they are going to be upset that bonds are going down in value due to interest rates going up. Then they are going to be as angry as I was when I noticed that my entire portfolio used to be able to buy exactly 1000 frozen pizzas, but after all of this inflation, my quarterly statement shows that my portfolio can only buy 960 pizzas.

This is when they start saying to themselves, "The Mogambo was right! We're freaking doomed!" and then they start wondering what in the hell they could buy that would at least stop the deterioration in their buying power. And they will, as all the other people in history eventually have, finally realize that the only safe place to go, when things get like this, is gold.

And speaking of gold, the World Gold Council says, "India's gold consumption is expected to rise 33% in 2005 to 850 tons due to higher income, good harvests, and we will add, a booming stock market. Much of those profits are going into gold." And the buying of gold has already started, as they note that in India, "Consumption, excluding recycled gold, rose 57% to 508 tons in the first half of the year, up from 322 tons in the first half of 2004." Compare that to the 642 tons of gold that India consumed during the whole of last year! reports that there is more to this Indian buying of gold than meets the eye, "Indian households are on a record gold-buying spree as oil price-driven inflation threatens to wipe out savings from rising incomes in one of the world's fastest-growing economies." What, people flocking to gold to flee inflation? I thought that whole idea was a relic, as so loudly proclaimed by the Anglo-Saxon central bank bozos and the mutual fund salesmen for the last seventy years!

The problem is, as reports, "The income of middle class Indian families has been going up with the economy growing at a robust 7% to 8%, but putting their savings in banks is yielding little as the interest rate of 4% to 5% is barely on a par with the inflation rate." In short, they are getting screwed out of the purchasing power of their money, just like we are, and they, in response, are plowing their money into gold rather than leave it in the damned banks, while we Americans put more money into overpriced stocks, overpriced bonds and overpriced houses! Hahahaha! No wonder we get no respect!

They go on to report that the price of gold is expected to "rise another 5% to 10% by the year-end as more people invest their savings and demand for jewelry soars during the October to February festival and marriage season." Wow! Talk about a wealth of bullish factors!

As sort of an icing on the demand cake, it is reported that funds in Europe are now buying gold, too, because of inflation worries, which only adds to the strongly bullish case for gold.

But the world of gold is as full of crooks as everywhere else. As the World Gold Council also notes, the central banks are so desperate to keep the price of gold from rising and exposing the inflation that is actually roaring. "The Washington Agreement to limit gold sales to 500 tons is a farce. This past fiscal year ended 9/3/05, they sold at least 552 tons and the figure may actually be 574.6 tons. So much for transparency and veracity."

And it isn't even the Washington Agreement scumbags that are playing games with precious metals, as the Council notes that Comex warehouses show their gold holdings at six million ounces, "yet commercials have sold 20 million ounces."

Part of the gold mystery may be that the price of gold only ever went down because the gold lease rates went down. The way I figure it, see, some central bank with gold wanted to get the price of gold down because a rising price of gold is so unnerving to the investors of the world, particularly foreign creditors, that it might cause a panic and these foreigners would look at all those American stocks and bonds that they own and say to themselves "Yah so fong won hangsho ah-so!" which, if you permit me to translate into pidgin English, means "Dollar-denominated assets him stink like dead rat in rice bowl!"

So, to get the price of gold down, these central bankers dropped the rate for which they will lease gold, called the dealers on the phone and ordered them to lease and flood the market with gold, driving the price down, and thus making it look like nobody is nervous! In fact, all that gold selling looks like people are less scared! Hahahaha!


The Mogambo Guru

for The Daily Reckoning

P.S. Readers are constantly telling me that they want to follow my advice and invest in the yellow metal, but they aren't sure how. Here's one way to make investing in the gold market ridiculously easy: EverBank's MarketSafe Gold Bullion CD. From now until November 14, you can get the security of Gold, in an even more secure investment product...

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Editor's Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter, an avocational exercise 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. If you're inclined to read more, you'll find the whole Mogambo here:

Bernanke...Scary As Hell

-- Posted Monday, 31 October 2005 | Digg This Article

We'd like to offer you The Daily Reckoning, a FREE daily e-mail service written by entrepreneur and master financial newsletter publisher Bill Bonner. It offers a 'refreshingly witty, erudite... sensible' look at the day's stock news. One reader says The Daily Reckoning offers 'more sense in one e-mail than a month of CNBC.'

You can begin your free subscription by clicking here, entering your email into the box, and clicking 'Subscribe'.


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