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-- Posted Monday, 20 March 2006 | Digg This Article
London, England Monday, March 20, 2006 --------------------- *** The third anniversary of the war in Iraq...squandering borrowed money on a war no one really understands... *** "If you are going to be a benevolent hegemon, you had better be good at it..." *** Surprise, surprise, Americans are falling behind on their mortgage payments...investors' short memories...and more! --------------------- "Stop the War," said their signs. Or, "Bush is a War Criminal." We saw them as we passed through Westminster Square in a cab on Saturday. They were a small crowd of protesters, dressed in padded jackets, scarves and knit hats, for it was very cold. Tomorrow is the first day of spring, but it still feels like mid-winter in England. This weekend marked the third anniversary of the war in Iraq. Against whom the war is being fought, or why, has yet to be clarified, but the cost has risen to nearly $10 billion per month - including the on-going pacification of Afghanistan - but according to press reports, there are still "insurgents" in the Middle East who resist the U.S. Empire's benevolence. America is making history. It is not the first empire to rely on financing from its rivals - the English counted on the United States to pay for World War I - but it is the first empire, ever, to squander its borrowed money and its military strength in a war against nobody. And now, along comes the former prime minister of Iraq, Ayad Allawi, who says the country has fallen into civil war. Not so, claims the vice president of the United States of America. "What civil war?" asks the man who mistook a lawyer for a duck, "I don't see any civil war." A civil war was not supposed to happen. According to new conservative theory when a nation finally gets the golden gift of democracy, history comes to a halt. No more civil wars. No more revolutions. No more upheavals. Why bother with bloodshed when you can just go to the polls and rob your neighbors legally? But there on page five of Sunday's Times of London, is a photo of Mr. End of History himself - Francis Fukayama - standing up against a wall as though he were about to be shot. We had a lot of fun with the 'End of History' concept. It is so arrogant...so imbecilic...so preposterous, we chuckled every time we said the words. But, it helped explain why the options market had gone dead and why Americans are ready to go so deep into debt. It explained why investors buy 30-year U.S. debt at less than 5% yields, why people lend money to Third World countries at yields so low, you'd think they were going to pay the money back, and why Dow stocks still sell for 20 times earnings. Nobody expects history to cause any trouble. "End of history? Beginning of nonsense," Maggie Thatcher is said to have remarked. But investors and neocons loved the idea. They don't realize it themselves, of course, but the new conservatives are a species of Marxists - not followers of Karl, but of Harpo, Chico and Groucho - with the world-improving pretensions and messianic delusions of Lenin and Che. They think they can build a better world by telling other people what to do. They are not the first to believe it, but they must be among the most inept. But what's this? Even Francis Fukayama has come to see what conceited claptrap it is. "I'm an apostate," he tells the Times. In his new book After the Neocons, which is due out this week, Fukayama explains, "I have concluded that neoconservativism, both as a symbol and a body of thought, has evolved into something I can no longer support..." "When [Bush] stood for president, he talked about having a 'humble' foreign policy and attacked nation building, and since then has talked himself into believing [just the opposite]... "I'm not shocked, I'm completely appalled by the sheer level of incompetence. If you are going to be a benevolent hegemon, [a reference to America's status as the sole superpower], you had better be good at it." On the evidence, the Bush administration is particularly bad at empire. Neither the bread and circuses at home nor the wars around the periphery seem to go very well. According to Andrew Sullivan, also writing in the Times, in addition to "flawed structural decisions - to invade and occupy Iraq with half the troops needed, to add trillions to the national debt with no way on earth to pay them back, to expend a vast amount of energy on social security reform (and get no social security reform anyway) while Iraq went to hell..." Bush also launched a huge and expensive entitlement for prescription drugs as a way to win votes, and then so botched the execution that the elderly are just itching to go to the polls in November to vote Democrat." More news from our currency counselor ... -------------- Chuck Butler, reporting from the EverBank world currency trading desk in St. Louis: "There was big news, overnight, about India's currency, the rupee. Now, a lot of you know that we've shied away from the rupee because of its 'non-deliverable' status. Well, that could all change in the future, if the stories this morning are bang on." For the rest of this story, and for more insights into the world currency markets, see today's issue of The Daily Pfennig http://dailyreckoning.com/Writers/Butler/Articles/032006.html
-------------- Back in London, Bill Bonner reviews the papers... *** USA Today writes, "More Americans fell behind on their mortgage payments at the end of last year as they struggled in the face of hurricane damage, rising interest rates, higher gas prices and holiday credit card bills, the Mortgage Bankers Association said Thursday. "The percentage of Americans who were delinquent on their home loans rose to 4.7% in the fourth quarter, the highest level since mid-2003. Late mortgage payments soared in the hurricane-stricken states of Louisiana and Mississippi. (And homes going into foreclosure reached alarming levels in a handful of Midwest states - Ohio, Indiana and Michigan - that were once the backbone of industrial America but have seen an exodus of manufacturing jobs.") It's happening...more and more people can't pay their mortgages - people who had no business owning a home to begin with. These subprime borrowers had been propping up the faltering housing market for quite some time...and now they seem to be filtering out of the situation. The effects on our economy should be interesting to say the least. [Ed. Note: These homeowners are going to pack up their furniture and head for the hills by the millions, bringing down the world's biggest financial institutions and crashing the stock market while they're at it. Don't be caught off guard - there are ways to safeguard your wealth to prepare for this national catastrophe: Enron Times 1,000 http://www1.youreletters.com/t/344996/4459110/783270/0/*** Yes, the exodus of power and money continues. In the West, it is hard for a working stiff to find an industry with rising wages. In the East, employers are increasing wages by 10% per year - and more. Business Week reports on one factory in Dongguan, China, that has had to raise wages by 40% in 12 months - just to attract labor. There's a "talent crunch" in China, says BW. Skilled laborers without a job are harder and harder to find. Employers are forced to raise salaries and improve living conditions. *** But, factory work in America has not been completely eliminated. We read in the paper last week that a Korean automaker will build an assembly plant in Georgia. The factory will employ 2,000 to 2,500 workers. In order to attract the business, the state of Georgia, and the local community, we suppose, had to pony up $160,000 worth of grants and tax benefits. *** Now Buffett! Investors have short memories and a fixation on the here and now. No one cares what dead people think. No one bothers to ask their opinions. No stockbrokers solicit their business. Even before an old investor goes to his grave, the young whippersnappers assume he has "lost touch" with the modern, dynamic financial world. "Maybe it is his age, his probable retirement or the mediocre performance of Berskshire Hathaway's shares in the past two years," begins Matthew Lynn in the International Herald Tribune. "Buffet's most recent predictions leave the impression that he is out of touch. He looks at new, innovative trends in the market and condemns them as dangerous because he may not understand them so well." Our guess is that Buffett understands the dollar, derivatives, and hedge funds better than Mr. Lynn. No, the dollar hasn't yet gone down - not yet. And no, derivatives have not yet proven to be the "weapons of mass financial destruction" that Warren warned about - not yet. And no, people have not yet lost a fortune in hedge funds. But give them time. History has not stopped - neither in politics nor in finance. [Ed. Note: What Mr. Lynn failed to mention was that Berkshire Hathaway alone made more than 30 families worth over $100 million each - and that's just in the city of Omaha, Neb. Most investors can only wish that they had gotten in on Berkshire at the very beginning...but Capital and Crisis' Chris Mayer has discovered one stock that looks more comparable to an early investment in Berkshire Hathaway than any other investment opportunity in more than four decades. Get the full story here: The Next Berkshire Hathaway http://www1.youreletters.com/t/344996/4459110/784691/0/--- Advertisement --- Your Chance to turn $5,000 Into $1 Million With the Hot Streak of the Decade If you were one of this hotshot analyst’s loyal readers in 2005, you would have had a chance to make money on every single one of his recommendations. And not just small gains, either - the average gain was 100%. Catch this streak while it’s still hot - and learn how quickly you could turn $5,000 into $1 million. http://www1.youreletters.com/t/344996/4459110/785632/0/ --------------------- The Daily Reckoning PRESENTS: The U.S. dollar is declining...to the point that more than a few people have noticed and are looking elsewhere for their investments. Naturally, many of them are following our lead, and turning to the precious metals markets. The Mogambo Guru explains... BACK WITH A VENGEANCE by The Mogambo Guru The big news (and if you don't currently think it is big news, you will) is the announcement that Japan will end their longstanding zero-interest-rate policy!! Note the two exclamation points that I cleverly used to indicate emphasis. At Bill Fleckenstein's Daily Rap we read, "Overnight, the Bank of Japan officially ended its quantitative easing policy, with the announcement that it would cut the amount of reserves available to the banking system by about 80%." Cutting reserves in the banks by 80%! I am astounded! And frightened! Where in the heck are the banks going to get money to lend? The Japanese zero-interest-rate policy is the basis of the whole carry trade: Borrow money from Japanese banks at zero percent, and buy T-bonds, which pay four percent! Jim Willie CB, of the GoldenJackass.com site, writes, "The yen carry trade unwind is probably the biggest potential change factor in the financial world this year, whose unwind will last for at least two years with fits and starts. When it unwinds, the damage will be pervasive to investments bought with speculative borrowed money." He then quoted another guy, an HSBC analyst, who said, "[The yen carry trade] is going to come to an end later this year and it's going to be ugly, even if we haven't reached the shake-out just yet." And an economist from Monument opines, "The world has never been through this before, so there is a high risk of mistakes." Of course, the world has never been through this before! Nobody has ever been this stupid before! But my wife is in the room, so I don't want to talk about stupidity around Jim Willie, because it always comes around to her inevitable comparisons of how he is so smart and I am so stupid, and how she is crazy not to just pack her bags and leave. So, I say, "Go ahead!" and she says, "Maybe I will!" She never does, and then I have something else to be grumpy about. Instead, he says, "Down the road a vicious secondary cycle is certain, marked by rising rates, housing pain, economic strain, price inflation pressures, gold gains, and U.S. dollar suffering." But, the flight into gold has already begun, as Roger Wiegand, of TraderTracks.com, reports, "The World Gold Council's GFMS report update said gold demand hit a record of $53.6 billion in 2005 with a 26% rise in investment tonnage demand. Jewelry demand was overall 14% higher, in spite of those higher prices. What impresses us very much is the institutional demand, which means the big boys and the big money are coming into the gold game. "Since the current one began in say 2000," they continue, "we have possibly 10 more years of bullish gold and other commodities moving through an inflationary and volatile period of time. With each year we advance, gold prices can only go higher faster." Marc Faber, of the Gloom, Boom and Doom Report, hears this and says, "My target is for gold prices to rise to between US$5,000 and US$10,000 in the next 10 years." None of this is lost on the miners, as David Bond, of SilverMiners.com, reports that the 74th annual Prospectors and Developers Association of Canada convention at the Toronto Metro Centre drew "Fourteen thousand people, people! Seven hundred exhibitors. Mining is indeed back! And with a vengeance." And so, people have been asking me, "What the heck is going on with gold?" Of course, I laugh at them for thinking that I could possibly know anything about anything. For example, alert reader Hunter R. asks, "Why the recent correction when the bozos running our government are continually adding fuel to the fire that will eventually be consuming our fiat currency?" Good question! My reply was, "Think of rats trapped in corners. To think that they would not resort to extremes doesn't make sense to a cornered rat!" It is a rather pithy and nasty, yet descriptively accurate, way to put it, if I do say so myself! In short, they have been manipulating gold all these years by selling gold short, are now on the hook for more gold than actually exists in the world, and you think they are, now, just going to stop and take their lumps? Hahaha! If you don't believe that they have been manipulating the markets, then you haven't read how the Gold Anti-Trust Action Committee, known by their acronym GATA, wrote an interesting essay entitled "Bank for International Settlements Confesses to Gold Price Suppression Scheme." They write, "Alan Greenspan confessed to the gold price suppression scheme. The European Central Bank confessed to the gold price suppression scheme. Barrick Gold confessed to the gold price suppression scheme in U.S. District Court in New Orleans on February 28, 2003, the Reserve Bank of Australia confessed to the gold price suppression scheme in its annual report for 2003. And now, the Bank for International Settlements, the central bank of the central banks, has confessed to the gold price suppression scheme by saying, 'the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful.'" Leave it to the BIS, a shadowy collection of unaccountable international bankers and commie idiots, to think that manipulating prices, and thus distorting markets, all done with your money, is "useful." Hahaha! What a bunch of low-life creeps! No wonder I hate their guts! But it may have been that they were asking the wrong guy about what is currently happening in the gold market. For instance, perhaps they should have been asking Toni Straka at PrudentInvestor.blogspot.com, who suggests that the fall in price lately has been the result of central banks selling. "In the week ending March 3, three Euro area central banks sold gold for 133 million Euros after they had gotten rid of gold for 75 million Euros a week earlier." But, they are doomed to failure. Dan Denning, of the Strategic Investments newsletter, says that a higher price for gold is just part of the picture. "Soaring gold and oil prices will be accompanied by soaring interest rates and inflation. The convenient fantasy world where consumer prices don't rise and the dollar doesn't lose purchasing power will collapse. As oil rises in dollar terms - whether from geopolitical tension or the growing realization that Peak Oil is real - the run on the dollar will grow. Hard assets like gold won't just be fashionable: They will be indispensable to wealth preservation. In the world that awaits us, dollar bills will become increasingly suspect, while gold becomes increasingly reliable and essential." And, it is not just gold! Listen to Greg Silberman, at FinancialSense.com, when he says, "Silver had a low of $1.50 in 1973 and a high of $40 in 1980. Projecting forwards, silver has a price target of $675. That's a 6,600% increase from current prices. Gold had a low of $35 (1971) and a high of $850 (1980). Projecting forward, gold has a price target of $13,000. That's a 1,400% increase from current prices." Speaking of silver, Yusef S. wrote to say that the while there is some disagreement about how much silver there is in the world, "the relevant point about available silver is not that there are 500 or 600 million ounces. Even if we magically double the amount of total silver in the market to a billion ounces, that's only $10 billion dollars worth of metal, an amount that's less than what Americans pay annually for pet food: $15 billion." Yusef notes, "The informed minority has already started to stock up on silver, and increasingly the general public as well. In one bullion store I know, large amounts of gold are being bought. But silver is going like gangbusters. Just one of their customers recently put in an order for $300,000 of the stuff." As for the long-anticipated silver exchange-traded fund, Yusef notes, "The British already have approved a silver ETF. It's scheduled to start operations in a month on the LSE. And, lest we forget, the Chinese and Dubai Gold and Commodities exchanges are also starting to trade silver." Alert reader Ajit V. writes that this is exactly true, and says, "The latest news is that China is going to open up silver trade on the Shanghai exchange. The Shanghai Gold Exchange is preparing to start silver trade, which will set the benchmark for Chinese prices. Industry officials expect the exchange to start the silver trade as early as June, since world silver prices have stayed at multi-year highs and investors were keen to trade." Hmmm! I mull over the notion that Chinese investors "were keen to trade" silver! Suddenly, I am more bullish than ever! Until next week, The Mogambo Guru for The Daily Reckoning Mogambo Sez: Peter Spina, of the Gold Forecaster newsletter, says that he believes that the fall in the price of gold recently "is a healthy correction presenting 'buying' opportunities." And, I think that the whopping rise in silver is a buying opportunity, too, as the pleasant price increases in that particular metal is just getting started. So, I say, "Buy 'em both!" And you can buy both gold and silver - and not have to worry about annoyances like shipping costs and hefty storage fees - with EverBank's Metals Select. Click here for all the details: Trade Gold and Silver From the Comfort of Your Own Home http://www.everbank.com/direct.asp?idpage=pro_met_lan&referID=11639Editor'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: Commodities and a Crunchy Taco http://dailyreckoning.com/Writers/Mogambo/DREssays/MG031406.html
-- Posted Monday, 20 March 2006 | Digg This Article
Previous Articles by Bill Bonner, Chuck Butler & The Mogambo Guru, The Daily Reckoning
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