-- Posted Friday, 28 September 2007 | Digg This Article
I was "on vacation" last week, combining a few days of Mogambo crap with a few days of touring around Glacier National Park and environs, and purposely did not catch much news; no email, no Internet, no news, work, although I did inadvertently catch the news that the freaking Federal Reserve massively reduced (as was easily predicted) interest rates, by lowering both the Fed Funds rate (the rate at which banks lend overnight to each other, secured by collateral, to meet the requirements that they balance their books for the day, because you can't be in arrears, by law, and you don't want to end up sitting on truly idle cash, either, earning literally nothing, when the other bankers are down the street making more money than you by another 0.000003%, and you have already screwed up so much other stuff this year that your lack of profits make you look like a complete moron ("What are you, some kind of Moron Mogambo Thing (MMT) or something?"), and you are practically dead meat right now as a result, and your own mortgage is eating you alive because you believed your own lies and nonsense and invested heavily in real estate, and you are losing your stupid little butt and are now getting fired, too) and cutting the discount rate (where the stinking crook banker trash comes up, with their hats in their hands, and admits that they screwed up and they have to borrow from the Fed to balance their books for the day).
As to magnitudes, the Fed lowered them both by 0.5%, which for those of us who are Decimal Recognition Impaired (DRI) and yet who cannot get any government money to compensate us for our crippling handicap, no matter how loudly we protest their stupid little arbitrary bureaucratic decision to screw us out of the little bit of money we need to overcome our tragic handicap, comes out as one-half of one percent. One lousy half of one lousy percent. It doesn't sound like much.
Another way of looking at this is they lowered interest rates at the rate of one penny per two dollars, payable at the end of the year. A dime on twenty bucks. One dollar per two hundred dollars. Not very significant in this day and age, especially when a couple of simple high-calorie, high-cholesterol, bacon-heavy, fried egg, hash browned, Hollandaise-drenched breakfasts is running 25 bucks!
So, seemingly paradoxically to the layman, I am instantly yelling out of the window my outrage and horror, although it is obvious that most people think it doesn't seem like much, like George out there, saying, "What in the hell are you yelling about now, you Irritating Mogambo Moron (IMM)? What are the interest rates to start with? Five lousy percent or something? A half of one percent of nothing ain't nothing! So shut up, shut up shut up, shut up, for the love of God, just please shut up!"
That's the moment when I realize, again, what a moron he is, and I tell him so, again, because I figure that he will be glad to learn that he is still a moron, no matter how much I try to educate him. And so I yell at him until he goes back into his own house and minds his own business, "You're a moron! You're too stupid to understand that it is BECAUSE it's a half of a percent of nothing is the actual reason why it is so important! As a percentage of the old interest rate of 5%, it is actually a 10% cut, you numerically-defective twit! A 10% cut in interest rates!"
Rudely, his back is turned to me now, as he stomps off, but I gladly continue educating him, "And I know that you are WAY too stupid to understand that everything is about what is happening at the margin. The margin, moron! If a billion bonds sold all day at $10 apiece, but the last (1,000,000,001th) bond of the day sold at $11, all the rest of that whole billion bonds are, now, also "worth" $11! Hahaha! It's all happening at the margin! What in the hell is the matter with you that you can't understand that, you drooling, halfwit, lowlife creep?"
Usually they either finish getting away or (one time each) advance a few paces onto my property, only to hear the unmistakable sound of a bunch of weapons cocking and/or loading a fresh round into the chamber, and even I admit that if it was me out there, stomping around with that stupid baseball bat in my hand and I had that stupid look on my stupid face like I'm new around here and I ain't heard of some Pathological Lunatic Named Mogambo (PLNM) and how I think I am such hot stuff, like I'm going to march over there and kick, you know, A Little Mogambo Butt (ALMB) to teach him "a lesson", I would be crapping in my pants at the sound of that much firepower coming online! Big time!
And one thing I learned over the years of being a hateful, insulting, paranoid, angry psychopath is that if you can get somebody to involuntarily crap their pants in fear, they usually just want to go someplace and hose off, then go home, and then take a bath, and then put on some fresh, clean clothes, and then try to sneak up behind me, like I'm new at this and I don't see that silly, suicidal crap coming or something.
So I never actually get to explain how if you had just bought a bond, see, or maybe a million dollar's worth of bonds, or a billion dollar's worth in bonds, or a trillion dollars in bonds, what would those bonds be worth if interest rates dropped by 10%? You would make (theoretically) a stinking pot full of money - we're all freaking rich! - as the market price of those bonds zoomed!
And then think of how much profit you would make if you had leveraged a lousy, oh, say, $59.62 into the $5.962 billion in bonds you leveraged to buy the whole wad! Wow! Modern finance is amazing!
And the bonds would zoom because even if one stinking bond, of some type, somehow connected via derivatives over to the toxic crap debt you are thinking of buying, goes up in price! And not only goes up in price, but as the last trade of the day! My God! The change at the margin has made us all rich! This is a huge profit bonanza, pleasing Wall Street! Upon which taxes are due, pleasing the government! And the banks! And investors the world over! "Whee!", they all think to themselves! "Whee! Whee! Whee! Thanks, Federal Reserve!"
If you think that any of this means "Whee", then you don't know squat about economics, although you are plenty savvy for trading and speculating and working in slimy cahoots with the government and the Fed to generate short-term profits and jobs for us and all our families and friends, which is proved when one learns that 70% of all profits in the USA are made by (the bugle toots a fanfare "ta daaaaaa!") the financial services industry!
As an aside, I have learned over the years not to pound too heavily on the idea of how stupid they are (no matter how much they deserve it), and to NEVER include their mutant children, as in, "And you are probably why your kids are morons, too!", even though it makes perfect sense from genetics standpoint to me! Hahahaha!
And by this time I am exhausted from yelling and carting spare ammunition about, and IU never get to explain how a dollar going down in purchasing power, relatively precipitously compared to the historical ebb and flow of things and other currencies, makes it all better or worse, depending on your perspective and whether or not you believe in "happily ever after" endings.
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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.
-- Posted Friday, 28 September 2007 | Digg This Article
