-- Posted Thursday, 19 June 2003 | Digg This Article
"...Extrapolating in a simple-minded, linear fashion like I am forced to do because it is a symptom of that undefined something that is tragically wrong with me, I realize that when I have more assets, this increases my total costs when I add in maintenance and depreciation. Bad enough. But if I compound my misery by borrowing money to buy the asset in the first place, then I am exercising - and here is another of my arsenal of potential Nobel Prize gems - "anti-leverage." The reason I have not submitted this "anti-leverage" theoretical masterpiece, this Mogambo gem of genius, to the Nobel Prize people is that 1) I just now made it up and 2) I have no idea what the hell it means. But it just seems so, I dunno, pregnant with potential somehow. It sounded right as it sprang - pop! - out of my mouth, and if you are like me, then if it sounds right, then by golly it must BE right!..."
The Mogambo Guru
As the economy is slowing, I am more desperate for cash than usual, and so I am making another pathetic, emergency bid for a Nobel Prize, and that lovely million bucks that comes with it. Not to mention, of course, the income from the CD I've been fantasizing about recording, "Nobel Prize Winner Yodels Songs From ZZ Top!" which I consider an annuity, you know, in case I actually do live through this whole thing without my brain exploding. Now, to those who really know me, it is obvious that I have never had an original thought in my whole life, and so the chances of me winning any prizes for my intellectual accomplishments, much less a Nobel Prize, is such a big stretch that few can even imagine such a thing. Surprisingly few, I might add. Plus, I am also the laziest, most responsibility-shirking bastard in town and always have been, and the vector produced from those two particular forces results in me not doing any research whatsoever, and indeed my whole research modus operandi is to shoot my mouth off at the least provocation, about things which seem novel and important only because I have a congenital blind spot for the blatantly obvious, without thinking anything through, and loudly tooting my own little horn while doing it. Then it is just a matter of waiting for the inevitable snotty letter from some snotty lawyer informing me that I have plagiarized the work of his injured client. Then I say, "Oh, yeah? Well, I say that your client is a worthless lying bastard, just like you, you slimy little weasel lawyer scum, and you're both trying to rip ME off! Show me your proof, jackass!" And then I make a noise that I describe in polite company as the sort that a whoopee cushion makes, and slam down the phone. In a few days, and often overnight, I get a huge box of books and references and materials, and so I get to read the guy's stuff, and all the references HE used, and so I get a little free education. And then I obligingly print a retraction, and grovel with such unctuous and pathetic servility about how I was forced to do it out of desperate need to feed my starving family, please please please give me a break here, I'm at the end of my rope, we're all living in my car we're so poor, boo hoo hoo, and the guy ends up feeling real bad, you know, for me and my family and all, and sends me, hopefully, a little cash or maybe some coupons for some free restaurant food, which would work out peachy-swell as regards my financial situation, which is still deteriorating, as I referred to earlier. Well, from a scientific standpoint, I will admit that it is not the most elegant methodological paradigm that I ever heard of, but it works for me. And if you want to send me a few bucks, you know, to sort of tide me over until this whole Nobel Prize thing gets worked out, that would be swell, too.
Anyway, my startling and ground-breaking theoretical insight came to me as I was recently applying large amounts of cash to a mortally wounded asset, the latest example of an asset going to Asset Heaven, in this case the air conditioner. Before that it was the brakes on my wife's car. And before that it was the lawnmower. And the month before it was the washing machine, and then there was the increase in health insurance premiums, and before that it was something else, yada yada yada. Every freaking month it's something. And then last night the smoke detector started beeping that it needs a new 9V battery. So like I said, it is always something.
But as I was trying to control the involuntary shaking of my hand as I reluctantly made out the check, it occurred to me, suddenly, in a revelatory moment that I liken to the apple falling on Newton's head, that if I didn't have all these assets, see, I wouldn't be spending this huge chunk of money on maintaining them or replacing them. But - and this is the crux of the matter - there was no money in the damn accumulated depreciation account, because, like the other spend-o-holic financial managers of the last decade, I did not actually set aside any cash, and now I have to use the woefully short stack of money that is listed on the books as "Petty Cash Account - Sex, Drugs and Rock and Roll" to plug the sudden income-expense gap. Ginger and Barbie, down at Stud-Land, which bills itself as America's Lap-Dancing and Cheap Porno Emporium, are not going to be happy about THAT.
Then, extrapolating in a simple-minded, linear fashion like I am forced to do because it is a symptom of that undefined something that is tragically wrong with me, I realize that when I have more assets, this increases my total costs when I add in maintenance and depreciation. Bad enough. But if I compound my misery by borrowing money to buy the asset in the first place, then I am exercising - and here is another of my arsenal of potential Nobel Prize gems - "anti-leverage." The reason I have not submitted this "anti-leverage" theoretical masterpiece, this Mogambo gem of genius, to the Nobel Prize people is that 1) I just now made it up and 2) I have no idea what the hell it means. But it just seems so, I dunno, pregnant with potential somehow. It sounded right as it sprang - pop! - out of my mouth, and if you are like me, then if it sounds right, then by golly it must BE right!
Getting back to the point, expenses are rising but income does not go up as much, and now if I have to borrow the money to buy the new asset, which makes the original problem of "more assets and linearly more maintenance and depreciation expense," into one of "more assets and compoundingly more maintenance and depreciation expense," then there is some multiplier effect. Yow! An excited twitter goes through the crowd. It's that compounding of cost thing that is the big theoretical breakthrough. Famous economists, even dead ones who now sit bolt upright in their graves at the revelation, slap themselves on the forehead, and say, "Of course! It is so obvious now! Thank you, Mogambo! Praises to Mogambo!"
I hope to call it the 2M, which stands for the Mogambo Millstone. I chose the word "millstone" because it began with an M, like Mogambo, and it just so happens, what a lucky break for me, that a millstone is a huge rock that is so damn big that it is used to crush cereal grains into powder. But this is the shortened, popular version. The full title, as it will appear in the textbooks, will be "The Mogambo Millstone Around The Neck Of You Debt-Addled Proletariat Jackasses For Whom It Will Feel Like A Freaking Millstone When You Start Swimming In Debt That Has Finally Risen Over Your Head And That Heavy Weight Drags Your Worthless Butt To The Bottom Of The Ocean of Debt And Drowns Your Sorry Ass Because There Is No Freaking Way In Hell That You Can Swim With a Millstone Around Your Scrawny Neck, You Ignorant Bastard You."
And then - and this is the part that I think will swing it for me with the Nobel Prize people - I make the leap to the concept of government as an asset, and one whose maintenance costs make it also so, so, so, it is hard to think with your enthusiastic applause still ringing in my ear, subject to an exponentially approaching natural limit.
As a corollary, this wonderful new theory of economics also concerns us because the acquisition of a permanent asset, or more particularly the maintenance and inevitable depreciation of the asset, namely government, itself directs and controls FUTURE spending. Namely, and please ignore how I give my explanation though gritted teeth and a kind of seething hostility, the installation of an air conditioner ten years ago has led directly to me here, ten years later, to deposit a big freaking chunk of my money into the accounts of guys who sell air conditioners today.
This is how the mere owning of an asset directs future income streams to itself, especially as concerns government.
Because, believe me, if I did not have to, I would not be writing those guys a check. I would instead, in the little dream-world I call Richard Land, be taking that large sum of money out of an over-worked ATM in some loud, smoky, alcohol-besotted, sleazy and deliciously decadent strip joint, with which to bestow on bevies of scantily clad beauties, even though I am not sure how many is actually IN a "bevy," but it has to be more than one, meaning two or more, and then you could always weave in a little of that girl-girl action that seems to sell tickets. As an aside, I don't know why I call it Richard Land, anyway, because in that fabulous place everybody knows me as "Hunka Hunka Burning Love," especially Wanda-Sue, the transvestite hooker with the golden heart, who steals the show.
"Therefore, ipso facto," I say, and grabbing a piece of chalk, I suddenly wheel around and scribble furiously on the blackboard as I emphatically expound, "So there is a natural limit, L, to how many assets, A, you can manage on a given income, Y, and there is a corresponding lesser limit, L-max, when you borrow the money, M, for the asset, which, as we have previously seen, was A, and is still A. And if the asset, A, is financed at rate I, for time T, then the total cost, TC, goes non-linear, there is a shift at the intersection with the applied exponential multiplier, and with a few arrows, thus, a few dashed lines, thus, and a few regular lines all gloriously curving and criss-crossing multivariate graphs in the defined n-space, I am finished! Behold!" I imperiously throw down the chalk. I step back. I turn. I await your roar of approval. Applause applause applause! I close my notes, I bow slightly at the waist, and bask in your boisterous acclamation. As Mr. Nobel himself presents me with the bouquet of roses and the diamond tiara, whose twinkling diadems are shamed by the iridescent twinkling of my blue eyes, I say, with tears of joy cascading down my cheeks, "Thank you! Thank you! Thank you all so very much! When do I get the money?"
Later, at the press conference, I notice that the beautiful reporter in the mini-skirt, the bright red lipstick and ankle-strap high-heels has a question. "The answer to the question that our readers want to know," she asks in that charming and slow-as-molasses Southern-drawl that invokes sultry images of Lauren Bacall at her sultriest best, "how can we make a bunch of lovely," and here she pauses to slowly, agonizingly slowly, lick her lips provocatively, "lovely money on this? Because we are hot, so insatiably hot, sweating and moaning in our unquenchable lust and lascivious cravings, for making sweet, luscious money."
Naturally, I am enthralled and delighted to see that at least one stinking newspaper in this whole stinking town will sink far enough into the proverbial gutter to pander to my petty, adolescent weaknesses in such a blatant way. Glancing around the room to see if my wife is in attendance, or anybody that may know my wife, and not finding either, I smile broadly and say, "If you are wondering how to make a profit on the inevitable, my dear," and here is where I pause to lick my own lips provocatively, but am secretly displeased with the gagging response invoked in the rest of the crowd, I continue, "then you ought to turn your money over to someone to manage for you, and I would be happy to talk to you about it. Later. In my room."
I thought to myself, "If this beautiful piece of fluff is so stupid that she cannot figure out how to make a profit on the inevitable, then this could be a lot of fun!" But apparently she was not as stupid as she sounded, since not only did she never show up, but now I have yet other restraining orders lodged against me, not only by her, but by all the rest of the people who were in the room, who were so disgusted by my behavior that they are all demanding that I never be allowed to lick my lips like that again, at any time, anywhere within fifty miles of them or their families, and everybody is now laughing at me behind my back, and I think that my wife is on the phone with that damned temptress reporter right now, who is ratting me out with her lies. Damn.
Anyway, how to make money on the inevitable? Jeez! I get so tired of this question that I am currently soliciting bids on some tattoo work, so I can have, permanently written on my forehead, the words "Buy gold, you freaking moron!" and then I would not have to say anything at all, which would be a big productivity-booster. I could write this Mogambo drivel with one hand, and with the other hand, at the same time, point to my own forehead in answer to that perennial question, "So tell me, you egghead doofus; how can I make some money by investing?" And since productivity-boosting is so dear to the heart of Alan Greenspan, and if you know him, then I would appreciate it if you would tell him I'd be happy to enlighten him to this ground-breaking productivity-through-tattoo thing, and while I have him on the phone I can tell him how every thing that he is doing is wrong, because I am sure he really, really wants to know what I think, even though he never calls me and he won't answer my calls when I call him anymore, and he has that same snotty receptionist tell me that he is not at home, and I say that I KNOW he is not at home, and that is why I am calling him at work at his freaking office at the freaking Federal Reserve, where YOU are working, you irritating worthless skank, so let me talk to Alan pronto, or I'll come down there and strangle the whole lot of you, and then she says "No" and hangs up on me. Man, I hate dealing with the government. They are so rude!
But, on the bright side, I have told you why we are doomed, I likened the economy of the USA to air conditioners, and I have told you how to make some money on the inevitable. Now, all I have to do is get that tattoo on my forehead and wait for Alan Greenspan to call. Or the Nobel Prize people to call. Whichever one comes first.
My hand is on the phone, and I am waiting for it to ring.
Turning Japanese
Speaking of the inevitable, a nice little essay by Jörg Guido Hülsmann, a senior fellow of the Mises Institute, wrote a dandy article entitled, "Deflation: the biggest myths." He is unapologetic when he says, "Public debts are on an exponential growth path and no official even talks about paying them back. Fact is that our western governments are already on a slippery slope that will inevitably end up either in hyperinflation or in state bankruptcy. It is just a question of time until they will have destroyed their credibility all on their own - deflation would merely speed up this process."
And if you don't believe Mises, and you don't believe this guy Hulsmann, and you don't believe me, then you come up with the $44 trillion dollars to pay the accumulated benefit that the government is pledged to pay over the next, oh, decade or so. And then add in the hundreds of billions more, per year, in new government debt, which makes that $44 trillion look even worse. Now add in the new prescription-drug benefit. Okay, we are all quietly sitting in our chairs, and our bright, upturned faces look to you to show us how in the hell you are going to make it all work, how we can do something that nobody in the whole history of the world, and this includes going back to the caveman days when Neanderthals were borrowing money to invest in dinosaur farms, could do.
- Be on the lookout for more analogies to the Japanese, a nation of poor souls who have had THEIR government screwing them over for the past twelve years by forcing them to accept interest rates on their savings that were less than inflation, and are thus suffering the indignity of being treated like dirt.
What makes that prospect so alarming is that there is a new idea floating in Japan-land to tax any money that is sitting idle. This is not a new idea. It is an old idea. It has been proposed at various time in history, and recently in this country, too.
The idea is that economies depend on people buying things, so that factories can produce things that get sold. So, to facilitate this paradigm, either you spend the money, or the government taxes it away from you, and then THEY spend it. How elegant.
Banging Down The Debt Door
Doug Noland, he of the Prudent Bear website, says that anybody or any legal entity wanting to sell debt has a ready market. Well, perhaps "ready" is too mild a word to describe the enthusiasm. How about using the phrase "slavering" instead? Turkey, Ukraine, Mexico, Brazil and Belize are just a few of the countries that he mentioned that sold roughly, let me add them up and here I hit the "enter" button on the calculator, and it looks like, if I am reading the answer correctly, a billion jillion gazillion dollar's worth of debt, last week. He quotes some unnamed guy, who is, according to Doug, an analyst, and he says, "The market is wide open for pretty much anybody. Every deal is oversubscribed in emerging markets."
Now, when people are banging down the door for the chance to buy the debt of these nations, all of whom rely on us Americans as their major market, a bunch of guys who are, I might add, already so far in debt that we cannot afford to buy postage stamps to put on the letter carrying the unsigned check I am sending off, hoping that this tried-and-true stalling maneuver will buy me a little time.
I say "a little time" because if you have ever watched old Perry Mason television shows, you know that this is important. A lot of the time, and I mean a LOT of the time, Perry uses his powerful brain-muscles and courtroom legal wizardry to entrap the murderer, and the murderer realizes he is undone, he always stands up confesses at the end of the show. And that is when we learn he only committed murder because he needed, and I quote, "a little time."
I'm not sure it ever saved the murderer from prosecution, of course, but the point is NOT on hypothesizing about some exonerating legal defense as seen on TV, but to show you that people are perennially in need of a little time. They all apparently actually believed that in the time so desperately wished for, a miracle of some kind would happen.
But even that is not the point I was going to make. No, the point I WAS going to make before I got sidetracked into that Perry Mason confessions and needing time thing was to say, before I rudely interrupted myself, was that Ray Collins, who played Lieutenant Tragg on Perry Mason, was an unappreciated genius who made his scenes come alive, and he was the best part of those old shows and I love watching those episodes that have Lt. Tragg in them.
No, wait! The point was that all that money that all the governments of the world are printing up has to go somewhere, and therefore something has to show incredible inflation as a result, and in this case it is, in case you have spent the last couple of years in a cave on Mars and are unaware of what has happened here on Earth, it has produced roaring inflation in the bond and stock markets. And houses. And size of government, too.
Thank your lucky stars that the money is not going into commodities such as wheat and stuff you need to eat. Too bad about that taxes and health insurance thing, though.
Pointless and Surreal Remarks About Saving
I was going to criticize Gene Epstein, economics biggie in Barron's, and since he knows more about economics than I ever even freaking knew about both economics and everything else combined, which is a pretty lopsided ratio, this would seem a dangerous thing to do, career-wise. I considered having professional medical personnel give me the old once-over for even considering it, but with an uncharacteristic courage, I plunge ahead.
Mr. Epstein is apparently in the camp that says savings are unimportant, or so I gather by the way he refers to these people as "lamenters," how he is amused to hear "grown men groan," and their concerns about the lack of savings are "pointless" and "surreal." Funny, as I was just going to use those exact words, about his disparaging remark about savings! Talk about great minds thinking alike, eh?
Anyway, he goes on to say that it is reasonable to look at net worth as a figure of your financial picture. Okay. But you be the judge; are the following two people, whom I will call Mister A and Mister B because of convention, equivalent?
Mister A has $50,000 cash and no liabilities. Net worth: $50,000.
Mister B has zero cash, but two Edwardian chairs that are appraised at $100,000, a stock portfolio carrying an average P/E of 70 and currently valued at $100,000, and a clutch of new bond holdings to the tune of $200,000 yielding two percent. Total assets: $400,000.
He also owes $100,000 in car and boat debt, and a lot of other miscellaneous debt totaling $250,000.
Mister B also has, believe it or not, the same net worth as Mister A, namely fifty grand apiece. Each of them have a net worth of exactly $50,000. Are they equivalent?
They are? Well, let's look at what happens if people decide that those darling Edwardian chairs, which would look so darling in your parlor, by the way, or maybe those overvalued stocks, or those overvalued bonds, are not worth as much. What happens to that net-worth thing then?
First, we will dispose of the liability side of the net-worth ledger, since that is so easy; it is unchanged.
The changes in net worth all occur on the asset side. If the assets go up in price, then Mister B shows a nice gain in net worth. And Mister A is unchanged. Neither one loses. And if you don't lose, then I guess you can say they both win.
Now, and you can tell from the sudden dark and gloomy music in the background that this is not going to be good, if these assets go south in price, Mister B's whole net worth is suddenly The Big Enchilada Made Out Of Crapola. Mister A, the guy who has just cash, on the other hand, still has his fifty grand, nice and neat and intact. In this case one wins, and the other loses big time.
So, are Mister A and Mister B equivalent? No freaking way!
And now you comprehend-o mucho good-o, to use the original Spanish, why the USA and all the other governments are printing up money so damn fast, hoping to get some inflation going in asset prices, so that Mister B doesn't have to eat that crapola enchilada after all.
And I will take this opportunity to again say that savings are not synonymous with investing. Mister A is saving. Mister B is investing. The difference becomes crystal clear when you realize that Mister A's money is guaranteed to be there tomorrow. Mister B's money might have been in, oh, say, Enron stock. Which he had margined.
The Crew from the River Styx
Michael Boskin has returned from the Stygian depths of that undisclosed hell where he lives. The last time he was here, it was at the government's necromantic bidding, too. See, what happened then was that the dim bulbs in Congress mandated that Social Security payments and benefits would be indexed to inflation. Then inflation went up, and so since Congress cannot possibly, ever, never, not in a million years take back some benefit to a big slab of voters, no matter how preposterous the promise was, their only option was to get rid of the inflation statistic. If no inflation, then no problem-o!
The Boskin Commission dutifully came up with all kinds of clever ways to prove that price increases had no relationship to price inflation. "Things cost more, but there is no inflation!" Then, I assume, they all jumped back into their coffins and were shipped back to be re-buried in their native land, or region, or zone, or dimension, or whatever it is.
But now they are back! And if you listen really closely, you can hear wolves howling way off in the distance. And now they are going to show that all that pre-tax IRA and 401(k) money stashed has a big pot of tax that will be due one day when the retiree starts drawing down and living on the accumulated stash. But now, tired of waiting like vultures for people to get old and start drawing that hoard of financial assets down so that they can tax it, which will be too late to help George Bush secure the Presidency next November, Boskin and crew have been summoned to concoct some scheme to let the government their hands on that money now. The idea is that everything should be rolled into a Roth account, which requires that money invested in the account be after-tax money. Ergo, taxes are due at the moment of rollover.
And you think that this irrational, money-grubbing, insane intelligence-insulting desperation-inspired greed is some sign of a healthy economy that is poised to have long- term growth prospects, justifying P/E's and debt prices that are beyond the range of "historic highs" and better described as "six-sigma outlying less-than-once-a-generation long shot"?
- At the same time as the mind-boggling levels of debt issuance, money and credit creation and debt excesses of every stripe, the damnable Congress is proposing a prescription drug benefit for seniors that is, is, is, I am at a loss for words, and so I must resort to the use of the word "incomprehensible."
Patriots, Monsters and Other Guys Like Me
John Henry Lyons, one of those guys who can effortlessly draw entertaining parallels, writes, "Half way or so through the movie Aliens, after the discovery of the 'nursery' wherein most if not all of the eggs are scattered about, Ripley dares ask the question: 'So, who's laying all these eggs?' I've been following precious metals for several years, noting with arched eyebrow Great Britain et al disposing of their barbarous relic. So, who's buying all this gold?"
Guys who see the value in it, John Henry. Like me, for one. And guys who recognize that price inflation is the result of monetary inflation. Again, like me, for one. And guys who see that owning gold will make you a lot of money. Again, like me, for one.
For as George Soros so famously said, you can make money if you take the time to, "Identify the trend whose premise is false, and then bet against it."
- Dennis Gaudet, an alert reader wrote to caution me about writing about instigating nuclear strikes on the Fed and the U.N. and in light of the Patriot Act and the Ashcroft Police State that is being assembled, he is right. I should not have threatened that kind of violence, not because I am the panty-waist coward that I really am, but because the last thing I need in this world is dealing with another agent of the government.
But I will state, and for the record in case you are reading this Mr. Ashcroft, that while in reality I would never detonate a bomb of any kind to kill anybody that was not threatening me personally, I guess I should apologize for the politically-incorrect humor. I would, on the other hand, gladly drag Alan Greenspan, almost any member of Congress, or the Supreme Court, or the U.N. out into the street and slap their nasty little faces until my hand was bloody and raw. But not to worry. In a little while, the line of people waiting to slap Greenspan et al will be so long that I would die of old age before I got my chance.
Then I would hoist them up bodily into the air in a classic clean-and-jerk movement, to the accompanying cheers of the crowd chanting, "Go go Mogambo!" and then I would throw them unceremoniously into the gutter, spit on them - ptui! - as a sop to the film-at-eleven crews, march into the office of the Fed Chairman, plunk myself down in the seat, grab the phone, take control of the situation, and then, quick as a bunny, put everything aright again. That is how the real Mogambo would do it, and not with some stinking, cowardly nuclear strike.
But, since the passage of the Patriot Act, perhaps this is all just a matter of "too little too late," and unmarked black helicopters are already circling, like those buzzards up there. Wait a minute. Those aren't buzzards. They are helicopters! Black helicopters! Unmarked black helicopters!
- You know that I am a scornful critic of almost everybody in every government in every country on the face of the planet, and that one day this animosity was going to get me into trouble. Well, guess what? I got a letter from the IRS, and they said that I owed them a nice cool $1,440.78 in penalties and interest from some mix-up from a carry-forward in 2000. Naturally, I immediately concluded that my political enemies are using the IRS to harass me. I knew, I just knew, that this was another case of the handsome and innocent David, superbly played by me in one of my finest performances on the silver screen, against the evil, faceless monster Goliath, played by the IRS. I look into the future and I see "Movie of the Week," with the part of me, the hero of the story, played by some appropriately handsome and rugged guy. I see Oscars! I see Emmys! Book of the week! Talk shows! Featured keynote speaker! Brave, heroic taxpayer fighting the evil, murderous IRS Goliath!
So you can imagine how disgruntled and disappointed I was to discover, after talking at length to a very nice woman on the phone at the IRS who deserves some reward for the way she was able to conceal the contempt she had for me as a whining, grubby, dimwitted taxpayer, that I was wrong and they are right, dammit, and that I really AM a lunatic, brain-damaged nitwit, and that is why I fill out my income tax forms with crayons and have to sign my name with an "X."
Quickly trying to salvage the situation, I told her, "Me no speakee English" and she said that of course I spoke perfect English because she has been talking to me for a half an hour, and not only that, but I still owe them the damn $1,440.78, so if I knew what was good for me, I'd cough up the cash pronto. But she told me that she will make a note to put it all on hold, whatever that means. I am hoping that what she means is that she is issuing a hold on government agents coming over and "having a talk" with me.
The End of the World
Got an e-mail from some guy, Bob Woods, who, for some bizarre reason, thinks I have a freaking clue about anything, and wants to know if the end of the world is here, and "Where can I watch how much depreciating American coin is being used to support the markets?" He signed it "Thanks, Bob." Well, it happens that I know this guy personally, and I call him "that sorry little bastard" behind his back because he is young and good-looking and smart and educated all the things that I am not, which includes the fact that no government sniper ever even drew a bead on his forehead with a laser sight, so naturally I am so jealous and petty that I will shun him for just for spite.
But I already went over that IRS thing and how I had to pay them, as I recall, thousands of dollars, maybe tens of thousands, I forget exactly, and all just because a) I do not pay attention to details, which leads to b) I make a lot of mistake filling out tax forms, and c) they're all bloodsucking hyenas who are out to get me. So naturally I thought this would be a good day, a great day, the perfect freaking day to write this guy and let him have it with both barrels, because this the one guy in the whole world who would probably appreciate getting a little dirt kicked on his shoes, because it would be such an interesting change from how everything else in his whole damn life is so idyllic and perfect all the damn time, and how boring that gets when everything is always working out just perfectly, blah blah blah. So this was in this mood in which I replied to a recent e-mail from him, in one of my rare moments when I apparently had both a pretty fair grasp of my remaining few marbles and a burst of inspired eloquence, although the prosecuting attorney is bound to leap to his feet and enter the predictable objection at the use of the individual words "inspired" and "eloquent" as being preposterously prejudicial, and also lodging a separate objection to the entire phrase "inspired eloquence," in that when applied to the Mogambo Guru is both repugnant to him personally and makes a mockery of the term, to which the judge agrees and - bang! - there goes another fifty bucks for contempt of court and another lecture from the judge about my attitude, which did not get into the transcript, but just between you and me he said some very naughty words to me. Anyway, here is what I said to him, so you decide.
Anyway, first I told old Bob that yes, this IS the end of the world, but right now it just looks weird because our canoe is just now tipping over the precipice of the waterfall, and it will actually be quite a while before we plunge into the volcano down at the bottom.
Then, these immortal lines, "No one in the history of the world has ever doubted that printing up money and buying things with it would do wonderful things in the short run. It's only because the longer-run consequences are so inescapably disastrous, verily I say nigh unto ruination, that there is a natural bias against the practice, and usually a lot of laws, too. And as for the question, 'Where can I watch how much depreciating American coin is being used to support the markets?' I have no real answer because I am not sure that it is even knowable. It's everywhere, but not all at once. Today here, tomorrow there. And each days actions and reactions produce changes in the actions of non-government players, which produces corresponding action by government, back and forth and back and forth and, well, you get the picture.
"I assume that what is really at the root of things is the phone calls that they get from moneyed interests, be it the banks, the government, GSE's, the United Nations, the Word Bank, the IMF, foreign central banks, foreign holders of dollar-denominated assets, the forex market, Wall Street, friends, neighbors, blackmailing prostitutes, mistresses, underworld extortionists, enemy agents, evil invaders from other planets, and a wide assortment of the stinking lowlife flotsam and jetsam that characterizes politics in general, and always so grossly more so at the ends of long booms, all begging for help of the kind that only a central bank can render."
Then I signed it with a name I made up on the spot, and told him that I had hidden a computer virus in the text, threw in a ransom demand, made vague threats against him personally and hit the "send" button.
Notice the way that I merely cut that whole thing out of the e-mail that I sent him, and pasted it in here, instead of actually typing anything. That's the kind of impressive productivity that is going to carry this American economy forward, Alan Greenspan says, and he is the head of the Federal Reserve, so he should know, and look how well everything is turning out. But harken to my words, and gather about my feet, and don't worry because you will get used to the smell, and I shall wax yet more eloquent, and then we shall... nah. Never mind.
And I say "nah. Never mind" in that the latest issue of Strategic Investment arrived, and as usual it was very interesting. Because they agree with me, for the most part, and that is that we are doomed, Doomed! Doomed, I tells ya! Dooooommmmmed!
Well, maybe they don't put it like that exactly, or even believe that for all I know, but I say it loudly and plainly. But we all agree, as I probably shamelessly put words into their mouths, that commodities and China are the bets for the future, and Lord Rees-Mogg has some very encouraging words to say about gold. The new idea that I had not considered was that epidemics that kill a goodly portion of the population, in the neighborhood of a third or even a half of the people, are NOT a thing of the past, and Marc Faber figures that southern China will be "the epicenter of infectious diseases" for the a long time to come.
But we do have our minor points of disagreement. One is that Dan Denning, the brilliant managing editor and big-shot at SI, writes "The mistake behind this kind of bone-headed tax policy is that it's based on the premise that the government can give businesses better incentive to invest than the market place."
It ain't no mistake, Dan! It is true! And all one has to do its look around. And there is no limit, except that of the limits of imagination, as to how true it can be. For example, I will personally start the biggest investment program in my whole life, in any business you can name off of the top of your head, if the Congress gives me two dollars in tax credits for a single dollar in losses! For every dollar I lose, I get two bucks back! Investing money to make money by losing money! Let's see you try and find THAT incentive in your precious private market place, Dan!
And how about government actually signing contracts to buy your stuff, without regard as to whether they need it, or want it, or even have some place to store it? Where in your precious market place are you going to find a buyer like that? Out here in the real world, guys who are rich AND stupid are very rare indeed. Lots of rich, of course. Lots of stupid, to our dismay. But NEVER rich AND stupid at the same time.
And since there is no way that the real economy can possibly recover, since no economy has ever recovered in the whole history of "man's eternal struggle to try and make a few bucks," there arises a call that there is no recourse other than to have the government step in! Calling the cavalry to come riding to the rescue!
And if there is one thing that Congress like to do, it is come to the rescue! Bugles blaring! TV cameras recording for posterity how elected officials are deadly earnest! And thus, with the natural bias of Congress to Do Something, abetted by the greedy and grubby insiders who could game the system, and maybe, you know, make a few bucks, and maybe cut you in on the action, all that is now needed is compliant people in charge of the banks! And in that, they have succeeded beyond their wildest dreams!
Time for Confession
- Saw an article where the author was expressing surprise that people would tie up their money in two-year Treasury notes at a yield that was the same as the rate of inflation. The author said that the investor merely broke even.
Not so fast there, my cute little Buckeroo! Reporting live, from out here in beautiful downtown Hysteria-ville, we read that the yield on the T-bill has now dropped below 1%, and the rate that banks are paying on certificates of deposit are hovering around 1%, too. In contrast, the CRB index is at 183.8, up 2.2% from a year ago. Recent core inflation figures out to 3.6% annual rise. Just from a cursory examination of the evidence, I say, in that irritating nasal and snotty way that I have, that these investors are NOT breaking even, and by a long shot. And I am shocked - shocked! - to learn that somebody thinks that taxable debt paying one percent is breaking even when price inflation is over three percent. And rising!
To which the two-year note holder would, I am sure, agree, as in, "I wish! After commissions and fees and charges, and the huge chunk payable as income taxes, I am losing my freaking shirt here!"
So why do it, you ask? They must. There is almost nothing else into which you can put that much money, other than government debt of some kind.
And while it does wonders for the balance sheet of the guy who bought a long bond when interest rates were higher than here, it now means that the poor sap who is buying that long-dated debt right now, and the doofus who is buying that debt from him in the future, will get creamed if interest rates ever rise. So interest rates are very sensitive to inflation, and positively correlated to a high degree.
Well, and you can tell by the way I am hanging my head to avoid your gaze and shuffling nervously from foot to foot, it is time for confession. This is what I once USED to think happened when price inflation rose. But, somehow, everything I know is now wrong, like in one of those Twilight Zone episodes where the guy wakes up in a strange place.
Because the evidence is right in front of my eyes that this is not so. It has been finally been revealed to me that price inflation can rise, but interest rates CAN stay low. Also, I must accept that monetary inflation can rise, but interest rates can stay low. Thirdly, I have learned that deficit spending and grossly expanding debt loads can go up, but interest rates can stay low. Fourthly, my eyes have been opened that there is no upper limit on debt, and interest rates can stay low. Fifthly, I now believe that the strength of the dollar is immaterial, and interest rates can stay low. Sixthly, I have been enlightened that we can have a monstrously bad current account deficit, literally consuming the total output of the globe by accumulating more debt, and yet, wondrously, interest rates will stay gloriously low! I now stand proudly as a man, and declare to the world that I fervently believe, to the very depths of my everlasting soul, that none of these things can affect interest rates, and furthermore I loudly proclaim that there are no things that can EVER affect interest rates, and not even all of these things and many more bad things COMBINED could possibly affect interest rates, and even Kryptonite, which has the power to kill Superman, cannot possibly have any affect whatsoever on interest rates!
Flotsam and Jetsam
Oil is up around $32 a barrel, but you wouldn't know it from a reaction from the markets, as bonds and stocks continue their bizarre rise. Inflation is now officially rising, but you wouldn't know it from a reaction from the markets, as bonds and stocks continue their bizarre rise. The dollar has continued to fall to fresh lows, but you wouldn't know it from a reaction from the markets, as bonds and stocks continue their bizarre rise.
- And, yes, I am still predicting, in the next few weeks, the huge downdraft in the stock market as predicted by the Fabulous Mogambo Indicator, a mutant forecasting device that I stumbled upon when trying to cross the DNA of financial apples with that of economic oranges in the light of a full moon, during an electrical storm. This little Frankenstein of an indicator seemed to be prescient both times it ever appeared before, especially if you hold the graph at a little angle like this.
And yes, I still think that gold is going to shine, no pun intended, but I thought of it being a pun before I actually wrote it, but wrote it anyway, so maybe the pun IS intended.
- John Mauldin, a real smart dude who manages a lot of money and probably hobnobs with Hollywood movers and shakers and dates starlets for all I know, has a disagreement with some other smart guy, who says that stocks will go up from here, and John says probably not, and then they get into a fistfight, and things were said, and things were done, and now it is all over with and in the hands of the proper authorities. Well, not really, I was just trying to punch it up a little for you.
But oddly enough, they may both be right. I can easily see the Dow rising to100,000, especially if the price of a double cheeseburger rises to $1,000. Are you happy now that the market has gone up? Are you freaking happy now that annual $2,000 you used to sock away in your IRA all those years, when two grand was a big chunk of real money, and is now barely enough to buy you and your date each a lousy cheeseburger?
You are? Then fine! Because these are but some of the rewards of the debasement of the monetary unit. Ugh.
--- Mogambo Sez: As an economist, it is the most amazing time to be alive.
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.
-- Posted Thursday, 19 June 2003 | Digg This Article
