-- Posted Friday, 28 October 2011 | | Disqus
Chris Waltzek: Okay, so glad youíre back with us for another GoldSeek.com Radio Gold Nugget segment. My special guest today, Richard Daughty, aka the Mogambo Guru.
Well, my next guest is, perhaps, best known for his economic newsletter, The Mogambo Guru. Richard Daughty is general partner and the COO for Smith Consultant Group. Richard, are you basking in the warm Florida sunshine today or bivouacked in The Mogambo bunker of paralyzing fear?
Richard Daughty: Well, Iíll tell you, I actually crept out this morning and it looked the coast was clear. And so, itís the most beautiful day weíve had in Florida in I canít remember when. Itís absolutely gorgeous. I played golf all morning. Do you play golf?
Chris Waltzek: Actually, I gave my golf clubs to my uncle. Since then, I just havenít swung a club.
Richard Daughty: Another good deed. Youíre allowed to be on the senior PGA.
Chris Waltzek: Iíd like to begin, if we could, with the European Sovereign Debt issue. Moodyís downgraded Spainís debt recently, noting that thereís no credible resolution of the current Sovereign Debt Crisis. And theyíre also warning they could downgrade Franceís debt. They could lose their coveted triple A rating. Do you expect this crisis to continue? And, if so, what is that gonna mean for investors?
Richard Daughty: Well, it canít be resolved at all. Itís gotta, basically, collapse. The deal is itís too Ė so much money is owed and somebodyís gonna have to lose a lot of money that they are owed, and the people who owe the money are gonna not pay. Just, basically, thatís Ė well, who is gonna get hurt the most? So, thatís what theyíre trying to decide now.
Chris Waltzek: Richard, debt concerns has weakened investor demand for the Euro currency and that, of course, has boosted the U. S. dollar. And over the weekend, officials from the two European super powers, Merkel and Sarkozy, met to resolve the crisis. Theyíre also meeting again today, Wednesday. The market seems to think theyíve made some progress.
Richard Daughty: There is nothing that can be done. This is nothing new. This is the same Ďole thing thatís happened for thousands and thousands of years. Government borrow themselves into debt. People borrow themselves into unpayable debt. It goes over and over and over and over, every Ė all the way through thousands of years, through thousands of different governments and millions of different people. And nothing has ever worked out and they tried everything.
Chris Waltzek: Weíve been chatting now for six years on GoldSeek Radio. I think we have probably come to that conclusion Ė
Ė on practically every show and it still holds, doesnít it?
Richard Daughty: Yes, it sure does.
Chris Waltzek: At the end of the day, we have all of these folks in their ivory towers pontificating with their lofty notions of just how we can undo this terrible predicament in which we find ourselves.
Richard Daughty: Well, unfortunately, we started down the path of excessive fractional reserve banking and creating lots of money with debt and a lot of federal deficit spending. And so, it is far too late to go back to that now and just collapse everything. People have to spend more and more and more money. Thatís the basis of the whole system.
Chris Waltzek: It really is because it is based on false weights and measures. There really isnít any substance there as soon as they took away that sound money backing. And, you know, Richard, the market has enjoyed 11 consecutive quarters of positive earning surprises. The S & P 500 has rebounded about 15 percent from its October 4 low. About two-thirds of the S & P component stocks now have registered positive earning surprises, those that have announced that is. And analysts now project that third quarter earnings will be about 15 percent of above last yearís. The markets are generally forward looking. Do you think that stocks might be discounting an economic recovery here?
Richard Daughty: Could be. I just donít see how they can have such fantastic earnings if the earnings come from the United States because weíre not generating that much earnings at all. And so, itís coming from overseas and a lot of it, Iím sure, is currency translation, maybe derivatives of payoffs and whatnot, whenever youíre looking at earnings. But, it depends on what they define as earnings. For all I know, the Federal Accounting Standards Board have had a new ruling that debt can be counted as earnings.
I donít know what these guys are up to. I mean, itís all just a gigantic, corrupt system, depending on all the other little pieces of the corrupt system that keep on being corrupt.
Chris Waltzek: I think you may be right and, you know, one of the ways in which companies can inflate, if you will, their earnings per share is, of course, corporate buybacks and weíve seen that trend continuing here. For instance, Coca-Cola recently issued 10 year bonds to purchase about $2 billion of capital stock. And, of course, that boosts the earnings, but they really havenít created anything other than debt.
You know, next, stocks and commodities, they do have a cyclical component. A very favorable season is approaching. Do you expect investors might be treated to a year end rally?
Richard Daughty: Well, they Ė everybody knows that they always have one, so itíd be foolish not to want to participate in one, as Iím sure everybodyís looking for one and will leap on the first opportunity of seeing one Ďcause thatís what investors do. They want to make a short-term profit by anticipating a trend. Well, Iím telling you, these guys got it all wrong. The trend is there and for a long time, so just buy on a dollar cost averaging basis and you will make out like a bandit. But, you try trading, theyíre gonna eat you alive.
And take it Ė this is coming from a guy whoís tried to make a living as a trader.
Chris Waltzek: Iíve read statistics anywhere from 90 to 95 percent, even 98 percent, of folks who take that plunge into the trading arena, well, they tend to regret it by forfeiting most, if not all, their profits. China is an important component of this global economic growth story. Their National Bureau of Statistics announced that GDP is growing and itís remained high at about 9.1 percent last quarter. Their industrial output also surged about 14 percent versus last year. So, these are clearly far from recessionary numbers. Since China is now the worldís second largest gold consumer, do you agree with the statement that this could be a positive indication for gold demand going forward?
Richard Daughty: Of course, I will agree that it could be. Is it perfectly clear that this is a gigantic opportunity? Yes. I will even go that far. They have a long association with gold for long Ė theyíve even had Ė theyíve experimented with a fiat currency way back many centuries ago and it just ended disastrously like they all do.
And it makes perfect sense to me for China to encourage the importation of gold into their country so they can establish, once they have a lot of gold, a gold standard ___, make their currency instantly acceptable around the world. It can be traded in for gold. Itís gonna be based on gold and so, itíll be very secure. Itíll be stable. Inflation will drop to zero. But, getting back to the trading in gold too, itís mathematically imperative that the majority of people lose money so that a minority of people can make some money. And all the market insiders and the government and all that kind of stuff definitely will make a lot of money. So, the majority of people that tried this stuff have got to be wrong. Thatís one of the things so comforting about buying silver and gold. Everybodyís still kind of against it. Theyíre the majority. Theyíre wrong.
Chris Waltzek: From a contrarian perspective, I guess thatís a positive for most of our listeners. Domestic unemployment remains a big concern. The Labor Department announced that new claims in the last week or so, they did decline, but it still remains stubbornly over 400,000. And thatís generally viewed as a sign of stagnation. Is the economic typhoon passing or do you view this merely as the eye of the storm?
Richard Daughty: I really would think itís the eye of the storm. I agree that that news is only good in comparison to its being much worse. That is not good news. If unemployment is figured according to the new government metrics as being some benign figure, less than 10 percent, but Iíll tell you, you take a look at, like, John Williams at shadowstats.com, who figures unemployment and inflation the old fashioned way, staggering under 11, 12, 15 percent unemployment right now. The thing is that half of the American people who work, half the American workers, work for a government, federal, state or local, a school system, another government sponsored enterprise, or a non-profit agency. Thatís half of the workers that America work for something that not only make no profit, but actually consume money.
Chris Waltzek: Exactly. Weíre talking close to half of American workers. Itís right in the 49, 48, 49 percent. Roughly half of Americans depend on government subsidies.
Richard Daughty: There are only 130 million people in this country that have jobs and only half of those make money. So, 65 million people are supporting 230 million, a gigantic government, lost of overseas aid, a huge military.
Chris Waltzek: And the point here is not to pass judgment on government workers. The problem is when thereís such reliance on government employment, then one wonders how long before the economy can no longer support, you know, the private sector, can support the gargantuan Atlas-like weight upon its shoulders.
Richard Daughty: Itís like one of the candidates, Republican candidates, has said one of the things heíd like to get rid of is the EPA and he came under a lot of fire for that. Well, let me tell you right now, the problems that EPA was formed to combat disappeared long ago. This country is cleaner than itís ever been. There are more trees in this country than when Columbus discovered the place. We donít need a gigantic EPA anymore. A couple of dozen guys should be enough. But, no, every one of these guys wants to come up with something new to justify their phony baloney jobs. ďOh, letís take a look at carbon dioxide.Ē ďOh, letís take a look at arsenic left over from 500 years ago with the Native Americans and their rough hewn methods.Ē Just cut it way back. We donít need these guys. Some of Ďem, yes; all of Ďem, no.
Chris Waltzek: Well, you know, lastly here, the feds latest Beige Book noted that the U. S. economy continues to expand in all 12 of the fed districts. It looks like Operation Twist, QE2 and a half, might be having an effect on the economy. Do you agree that this could lead to upbeat holiday shopping? Perhaps that might increase domestic demand.
Richard Daughty: You know, I donít think the economyís expanding. The government measures GDP by adding up all of the sales. Prices are going up at 11 and 12 percent. Inflation is raging, and yet, the government only discounts prices to get the real adjusted GDP number by like 3.9 percent tops; 2.3 percent GDPís a ____. You can look it up. Itís a very low number. Itís less than three percent, I think. Oh, maybe around three percent. The government itself deflates the increase in GDP due to price rises only. Three percent when prices are rising nine percent. Oh, thereís a six percent growth of GDP right there. Even though prices are rising and your sales are going down, you can get a GDP _____ underestimating how much prices are rising.
Chris Waltzek: So, in laymanís terms, when you are discounting the true inflation rate, it inflates the national output figures, I think what youíre hitting at.
Richard Daughty: Sure. If I used to sell 20 widgets at a buck a piece, but now Iím only selling 3 widgets at $10.00 a piece, it looks like GDP went up, but I only produced three widgets, right? So, like 20 Ė I laid everybody off. Itís all due to price increases. If I say no, the price of widgets only went up one percent, then you can take a look at GDP going through the roof.
Chris Waltzek: Anything else on your radar screen youíd like to share before this discussion comes to a close?
Richard Daughty: Just to pass on my timeless advice to buy gold and silver, but particularly silver. Silver is so grossly underpriced, itís laughable. It is the biggest bargain of the century. Itís selling at like 30 bucks an ounce. Gold is $1,700.00. Itís Ė the silver should be selling at least $120.00, $130.00 right now. So, itís gotta go up 400 percent just to achieve its historical 1 to 15 ratio to gold. What do you want out of an investment? Itís been 1/15th, 1/16th the price of gold for thousands of years and, suddenly, itís not; and itís gotta increase fourfold just to get back to its historical norm?
Chris Waltzek: And thereís even less of it above ground than there was in 1980.
Richard Daughty: Yeah. The fundamental case for silver just goes on and on and then this, yeah, these are just two of things.
We could go on for another hour. Buy silver.
Chris Waltzek: Richard, itís always fun hearing your thoughts and we very much appreciate your time today, sir.
Richard Daughty: Well, itís certainly a pleasure being here with you. Thank you very much.
[End of Audio]
-- Posted Friday, 28 October 2011 | Digg This Article | Source: GoldSeek.com