silver at 5,000 year low & more

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    from The Mogambo Guru

    Running Around Armed To The Teeth And In A Very Bad Mood
    "...And when prices rise so high that us proletariat trash can no longer afford to eat or pay the rent, this is typically when the course of civilization is suddenly altered. And perhaps that is why the ownership of guns is always under attack by the forces of the Left, which love to remove barriers to total government control. And if there is one thing that the government wants to control, it is crowds of us unthinking, uneducated, ill-tempered, bankrupt, starving bozos, like me and you, well, maybe not you since you are so sophisticated and wealthy, but me anyway, running around armed to the teeth and in a very bad mood, being angry about what the government weenies have done to us..."


    The Mogambo Guru

    St. Petersburg, Florida - As usual, we start off by taking a nervous look at the things that are going to kill us, like the condemned prisoner who morbidly looks out of the window of his cell to watch the scaffold being built that will be used to hang him, and we note that the Treasury is still issuing debt at the rate of about $52 billion per month, and therefore about five hundred bucks a month is added to the burden of every lunchbox-toting private-sector job-holder in the country. Five hundred bucks a month! Each! PER MONTH!

    - Now that bonds have collapsed in price and the chumps of the world have taken a big bath on U.S. debt, perhaps they will use it as a learning experience. It seems natural that if you are money manager and are now underwater on American debt, any debt, acquired over the last year, that you would sit back, scratch your chin and say, "Hmmm. Maybe old Mogambo was right after all; I AM an idiot, and that is why I lost all this money for my clients." But, naahhh, probably not.

    But the moneyed people, whose money these money manager guys are losing with their massive wrong-way bets on interest rates, have almost certainly learned something. And if I know anything at all, it is that people with money have a real poor sense of humor when they are handed big losses and end up with less money than they had going into this thing.

    - Michael Checkan, President of Asset Strategies International, Inc, writes, "Silver's price is close to a 5,000-year inflation-adjusted low. Over 90% of all the silver that's been mined in the past 5,000 years has been used up by industry. Today, the world's silver inventories are at the lowest point in 200 years. At the same time, demand for silver is greater than ever. Therefore, it should come as no surprise that 2002 marked the 14th straight year in which silver was produced at a significant deficit to demand!"

    Now, I don't know about you, but when something is selling for a price that is the lowest in 5,000 years, at the same time that there is a supply-deficit that has lasted fourteen years in a row, little bells go off - ding ding ding - in the part of my brain that I use for greed. Of course, this is the same part of my brain that I use to detect brownies and cake in the environment, but since I have already investigated that happy possibility and was sorely disappointed, then I turn morosely to the idea that perhaps 5,000 years from now the price of silver will be even lower than it is now, and that clueless investment weenies like me will be writing that silver is at the lowest price in 10,000 years.

    But being naturally suspicious and paranoid, there is something pretty weird about this whole precious metals complex that I have difficulty understanding, and is so out of sync with reality as we know it, and instead of enumerating all the places where it is out of sync, I will sum up by saying that it is out of sync with the entirety of the A-through-Z history of markets, metals and mankind.

    In Any Event, The Swiss Will Get Burned

    - The Swiss, who are relative newcomers to the area of currency debasement and acting like idiotic, brain-damaged children, are making up for lost time by continuing to drive their currency in to the toilet by the expedient of printing up humongously more currency, sorta like we are doing and the Japanese are doing and the Germans are doing and the French are doing and Canadians are doing and the Chinese are doing and like every other freaking country on the freaking planet is doing as far as I can tell. It's just that when you line everybody up according to size, then somebody has to be the Numero Uno on the list, and right now the Swiss are it.

    I cannot remember the last time that I read that any country was expanding the narrowest measure of their money supply by 24% percent in some heroic-yet-suicidal effort to keep their currency from appreciating against the damn dollar and the Euro, but the Swiss are doing it right now. Predictably, inflation in Switzerland is rising. Last year it was the Australians who were the poster-children for money supply madness. Now their inflation rate is rising, too.

    So, how is the USA doing as concerns the money supply? Well, lately it seems to be cooling off, but the trend has been running about 7% annually, which is about 500% faster than the economy has been growing. And, of course, that means that inflation is sure to come tootling down the expressway to a price tag near you. Bet on it.

    And the amazing thing to me is the almost complete lack of concern, especially when it is within recent memory that the Gnomes of Zurich were supposedly such economic and financial hotshots and everybody went "Ooohhh! Ahhhh!" and nodded their heads in solemn agreement whenever the Swiss had something to say about money. But not anymore. It is almost like all the economic-hotshots around the globe, who can usually be counted on to prance and preen and run their mouths about how educated and smart they are, are completely unaware of what is going to happen to generalized, aggregate prices in just a little while, measured in a few days or weeks or months, as all this huge freaking global oversupply of money works its evil, horrible way into rising prices.

    And when prices rise so high that us proletariat trash can no longer afford to eat or pay the rent, this is typically when the course of civilization is suddenly altered. And perhaps that is why the ownership of guns is always under attack by the forces of the Left, which love to remove barriers to total government control. And if there is one thing that the government wants to control, it is crowds of us unthinking, uneducated, ill-tempered, bankrupt, starving bozos, like me and you, well, maybe not you since you are so sophisticated and wealthy, but me anyway, running around armed to the teeth and in a very bad mood, being angry about what the government weenies have done to us.

    This is the kind of scary stuff I was thinking about, and decided that I needed to get my mind on something else, and overcoming my paralyzing paranoia with a superhuman effort and handfuls of psychotropic medications of every hue, I decided to try to finish up another home-security perimeter-control project, in this case wiring a flame-thrower into the doorbell circuit on the front door. So I'm trying to figure out what in the hell this green wire is for, see, and out of the corner of my eye I see, coming up the walk, the know-nothing busy-bodies who work in the city's code-enforcement department, who seem to know zilch about even the basics of the theory and practice of self-defense, and I just know that they are going to get into another snit about this flame thrower thing. So I quickly just tie the mysterious green wire into the first circuit that is handy, namely the nearest hot circuit where the electrical tape is coming unwound and I can easily see exposed bare wires, and then I hang a sign on the doorbell that says, "If you are from the City Building Code Enforcement Department, or are a Swiss monetary official, ring the bell." Of course, at this point there is nobody locally in the whole county who would dare to ring my doorbell, which saves me a bundle by not having to buy any candy every Halloween, and rumor has it that new city employees are actually given a special in-service training about me, but the Swiss are not so wise to the ways of Mogambo. So either I get them, or their debasement of their currency gets them, but in any event the Swiss will get burned.

    On the Precipice of Disaster

    - Gold fell eight bucks an ounce at the exact same time as oil went up over a dollar, which means that oil is now selling at over $32 a barrel, government deficit spending is at record-setting levels, and the central banks are creating monetary mayhem. And yet gold fell in price! Huh? The dissonance causes my brain to overheat and go into overload status as it heroically tries, in vain, to comprehend how such a thing is even freaking possible, and if you put your ear right up against my forehead, you can actually hear brain synapses sizzling and popping! Zzzzttt!

    - I really get a kick about how government spending for national defense went up so dramatically much, and then the GDP also went up fractionally as a result, and this is supposed to be such swell, so freaking fabulous! I mean, just look at how prosperous and wealthy and happy the North Koreans are, who have this exact same economic model!

    - How can prices fall when costs are rising? Too much capacity, which means there are too many vendors, which means that some or all of them will cut prices to less than the cost of production, as they have nothing to lose. If they don't sell any product, they go bankrupt. If they sell at a loss, then they go bankrupt. Either way, being the sharp-eyed little devil you are you have noticed that there is a constant in there somewhere, and that constant is, eliminating redundant terms and finding the least common denominator, that they are going to go bankrupt.

    So when there is excess supply, there will be plenty of people who will happily sell production at a loss, for as long as they can, borrowing as much money as they can, in a desperate attempt to hold onto the precipice of disaster, and with equal amounts of desperation believing that there is going to be a recovery one day, soon, in the "second half" or something, and then things will be better and better forevermore after that, which means that we will soon be making so much money can pay off the debts we are running up today in order to stay alive. In the meantime, aggregate prices come temporarily down.

    Then, as these losers actually go bankrupt, one by one, then there are fewer and fewer competitors supplying less supply, and then the road is clear to increase prices, and this is when things start getting really, really interesting.

    So the recent rises in capital investment can be, I figure, chalked up to managers and CEO's desperate for something, and who are thus susceptible to the hypnotic siren-call of a Fed's bullish bias, money that is extraordinarily cheap, with foreign central banks willing to participate in the fraud, at the same time as the Bush Administration is gearing up one monumental swindle after another to make sure that Dubya will be re-elected in November 2004, although for the life of me I cannot think of a reason why ANYONE would want to be the President for the next, oh, fifty years, much less for the next term.

    All this at the same time as a coordinated global expansion of budget deficits, printing of excess money, granting of excess credit, bank reserves being lowered to insignificance, blatant lying and deceit on a monumental scale, selling of gold by central banks, and just about every other government economic malfeasance you can name. So why not be bullish, too? It we don't borrow and expand, we go bankrupt. If we DO borrow and expand, we will still go bankrupt. So what's to lose? Which alternative course of action is more fun and more popular?

    No matter what anybody does from here on out, there will be many more losers than winners, and it will get worse and worse and worse with each passing year, until one day there is some cataclysmic event which kills the last lingering spark of life. And then we will be conquered or something by somebody, probably the Chinese, and then history will have made one of its famous discontinuities. And I say this not because I am such a hotshot, but because I can read. And this calamitous misery is the lugubrious result of what happened every time in all of history when governments acted so bizarrely, so predictably poorly, so brazenly brainless as regards money and economics.

    - It looks like, in a few moments, that we will see whether or not the derivatives market, which dwarfs every other market on the planet, works like Greenspan and the rest of the derivative-loving crowd thinks it will. Theoretically, all the money that was lost in the recent bond market disaster was made back in the derivatives market, because every risk for everybody was hedged somehow. My bet is that it will not work as advertised, and I can hardly keep from laughing out loud at the very thought of grown men, much less educated grown men, even thinking such a thing could actually work. Hahahaha! Look! Now I AM laughing out loud! Hahaha! Grown men! Hahaha! Hedging all risks! Hahaha! The total elimination of risk of loss! Hahaha!

    The Demon Economist From Hell

    - Michael Boskin is one of those arrogant PhD Princeton professor type-guys that can I figure can be legitimately called a Demon-Economist from Hell, and he admitted that he goofed big time in his assessment of how much tax money is going to come rolling into the government's coffers when retirees start cashing in their holdings to finance their Golden Years during the next twenty, or fifty, or hundred or thousand years or something. I forget the actual number. He was called upon to perform this analysis to allow government wonks and weenies to respond to the critics who have been horrified to learn of the $44 trillion deficit between what the government has promised as benefits and how much they have on hand, namely zero.

    But, getting back to the latest Boskin fiasco, he didn't personally goof, but he blamed some doofus assistant who apparently goofed in entering data or formulae or something. But this alone ought to tell you something about the ridiculous nature of the whole piece of work; the damn thing is so impossibly big and so impossibly complex that it takes teams of assistants and acolytes to even set the thing up! And it rests on an immeasurable number of assumptions, guesses, theories and extrapolations about something that is so far in the future as to make the whole exercise completely worthless, as has been proved by chaos theory. And the Iron-Clad, Money-Back Guarantee of chaos theory is that even the smallest change in any of the millions of assumptions, guesses, theories and extrapolations will soon change the answer Boskin is looking for. In short, it is a fool's errand. And now he has admitted that he made a teensy-weensy mistake, at the Day One at the very beginning, and already the answer has changed dramatically! This does not bode well for whatever idiotic prediction he has made, based on his preposterous model, about what in the hell will happen years and years hence.

    The good news is that his whole project is no more worthless than it was, since it always had zero significance anyway, except to other arrogant bozos who are spending taxpayer money on the vain hope that there is some pot of gold at the end of the rainbow. And perhaps, if there is any justice in the world, the taxpayers will rise up in angry rebellion that valuable taxpayer money is being spent on something as ridiculous as this whole Boskin thing.

    But as for gold at the end of the rainbow, there isn't any, and all the computer-generated sophistry in the world, even with all of the King's horses and all of the King's pointy-headed economists in their little wizard's hats working feverishly twenty-four hours per day at it, won't make it so.

    For a real-world example, let me enlighten you that just two stinking years ago the OMB calculated that there would be a couple of trillions of dollars in budget surpluses right now. And, to the contrary, right now, two lousy years later, there are a couple of trillions of dollars of deficits, for an error rate of $5 trillion dollars, or over 200% of the original estimate, which ought to be enough to convince you that the OMB has no idea what in the hell they are talking about, and it should be more than enough to convince you that Michael Boskin likewise has no idea what in the hell he is talking about, either, because it is unknowable.

    But the real danger of this whole Boskin thing is that the instant that you start to formulate and implement expansionary monetary and fiscal policy based on this worthless numerical garbage, you have sealed your fate.

    And, even worse from a practical standpoint, the government of the USA has already implemented the expansionary monetary and fiscal policies, and are just looking for Boskin to come up with a mumbo-jumbo explanation that justifies it ex post facto. And Boskin is just the guy to do it, since he has shown he has the requisite arrogance about committing these kinds of frauds. This is, after all, the same guy who codified the asinine idea that could can adjust and eliminate actual price inflation by jiggering the assumptions, the favorite ones being the substitution effect and adjusting for quality.

    For example, he developed the quantitative methodology to allow the adjustment in the price of eating meat, and therefore lower the cost of living, if you would merely assume that people would stop buying meat from butchers and grocery stores and would start, as an exercise in the substitution effect, slaughtering and eating stray dogs, which can be had very cheaply. And vegetables? Same thing! If you would stop the nonsense of buying fruits and vegetables from the grocer and start eating lawn clipping and getting lesser-quality vegetable matter from the dumpster behind a nearby restaurant, you would save big money every week! And, after utilizing both of these assumptions in his model, Boskin showed his government employers that the cost of living for us proletariat trash out here in the real world actually went down!

    In short, substitute dog and cat meat for beef and pork, and move farther down the quality scale by eating actual garbage, and in this way you can show that the cost of living has actually gone down, and therefore you can eliminate cost-of-living increases from transfer payments to Social Security and welfare recipients, and keep inflationary assumptions from playing hob with your need to borrow enormous sums of money. THIS is the kind of silly crap these Fed and government jackasses and their willing whores, like Michael Boskin, do all day long, and who get paid with outrageous amounts of taxpayer money to do it, and which is why I actually go out of my way to heap scorn on them all.

    It is true that Keynes famously quipped, when commenting about the short run and the long run, that "In the long run we are all dead." What he did not say, and what you should remember because it is implied, is that until that doleful day when you ARE dead, it probably matters a great deal to you whether or not you are eating good food in a warm place, or eating garbage in a freezing alleyway.

    And to also realize that at every step along the way the government will try and statistically deceive you, using arrogant and evil guys like Michael Boskin to do the actual dirty work, that you are NOT eating garbage, and that the alleyway IS a home, and that you are NOT freezing but instead you are, quality-adjusted, relatively warm and cozy.

    Cautious Optimism Debunked

    - Jobs are still being eliminated left and right, and the latest report showed that somewhere between 44,000 and another 92,000 of them went "poof." And if there is one thing that I am pretty sure of, it is that people who do not have jobs or any prospect of getting a job are not going to be doing much spending for very long.

    And on that very subject, Gene Epstein, the high-IQ guy who writes the "Economic Beat" column in Barron's, is struggling to exhibit a bullish pose, as is presumably required by his job, as in "Get in optimist mode, Epstein! People buy our magazine for good news as regards their need for greed, and not because they want to be depressed!" So he does what he can, I suppose.

    For instance, he says that the oft-stated statistic that there were a half million jobs lost since January and 72,000 jobs lost in July was simply not true, and the reason is that the numbers are seasonally adjusted. And then he goes on to refer to charts, thoughtfully provided by him, that show both the nominal and seasonally-adjusted numbers.

    This is when we are hit with so many disconnects. For one, the seasonally-adjusted payroll employment has, yes, been going down since January, and this is the half-million job loss that we were talking about.

    Then, we jog down to the accompanying NOT seasonally-adjusted payroll, and we see that, yes, Epstein is right when he says that the line is always moving up and to the right, indicating that jobs were not being lost. Unfortunately, this last month's bad news data has wiped out HALF the freaking non-seasonally adjusted jobs that have been causing that line to move up and to the right. In one month! Half!

    And Mr. Epstein only goes back to January, and does not bother to show that private-sector jobs have been disappearing for the last several YEARS in a row, but government payrolls have been steadily increasing, and so the piddly little slice of time since January of this year is not anywhere indicative of the longer, disturbing trend.

    Agents in the field have filed reports that this is where I let out a high-decibel scream of stark terror that rattled teacups and nerves for ten blocks around, but he then says, as some calming explanation, like he is talking to some bozo children who aren't too bright, "And more than 90% of the fall in private sector jobs has been in manufacturing." This is to preface his remark that the recent pickup in the ISM manufacturing index in July portends some pickup in employment in that area. As if we are just so damn stupid that we don't know that jobs in manufacturing have been steadily disappearing for, oh, I dunno, like the last fifty freaking years in a row or something like that. But now, thanks to a tiny little one-off increase in the ISM index, suddenly, this was all that was needed to get employment in manufacturing back in the pink and now everything is going to be fine. Hahahahaha!

    But no matter how critical I am of what Gene calls his "cautious optimism," there is a warm place in my heart for him, as anybody who despises John Kenneth Galbraith and that creepy little communist Michael Moore scores big, BIG points with me, right out of the blocks.

    Egregious Errors

    - Sean Corrigan, who is one of the intellectual superstars of Capital Insight, wrote a nice little article entitled "It's Dishonour, Sir!" He, like me, is increasingly dyspeptic about the dim bulbs and pea-brains that infest the Fed, except he does not overtly advise taking the obvious next step of locking all the doors and windows, drawing the curtains, turning off the lights, making a fort out of the cushions on the couch, sitting quietly in the dark, and seeking solace in the feeling of safety afforded by having a loaded high-powered handgun in each trembling hand. He writes, "The hardest thing about analyzing one of Cranky-Bernanke's headline-grabbing (and increasingly Greenspan-upstaging) speeches, is knowing where to start when dissecting out the tangled web of ill-formed logic and how many of his groundless suppositions and how much of his erroneous theorizing to refute, without either taxing the reader's patience or losing the will to live oneself."

    To those of us who spend waayyy too much time thinking about the egregious errors made by the Greenspans and the Bernankes of the world, writing about the egregious errors made by the Greenspans and the Bernankes of the world, and predicting the well-deserved devastation and ruination caused by the egregious errors made by the Greenspans and the Bernankes of the world, this is kinda good, as it would be very difficult to maintain a high degree of acrimony if these people only did one stupid thing or believed only one stupid thing. But, fortunately, almost everything they believe, think, do, or say is unbelievably and irresponsibly stupid, or, as Mr. Corrigan says, which I probably quote completely out of context because that is the kind of low-life loudmouth plagiarist bastard I am, "... pseudo-academic, muddle-headed, neo-Keynesian bits of macro-economic hogwash."

    By demonstrating that kind of keen, irrefutable insight, I recommend that all sentient beings strew fragrant rose petals in the path of Mr. Corrigan when he condescends to walk amongst us, as our humble way of demonstrating profound respect.

    - Adam Hamilton is a guy whom I have never met but whose disrespectful attitude I find disturbingly similar to my own, writes in his essay entitled "Inflation or Deflation?" that I found on the website, that, "Franklin Roosevelt was without a doubt the worst president in America's history. After destroying the solid golden foundation of the US dollar, he built the immoral foundations of the modern Welfare State which steals 50% of the income of the productive today to subsidize the lazy and unproductive in order to bribe them for votes. Almost all of the huge financial and debt problems America faces today would have never happened if Franklin Roosevelt hadn't betrayed the very US Constitution that he swore to protect. May history curse him and his blighted memory forever." I leap to my feet, shouting "Bravo! Bravo!" and clapping my hands together in wild applause. Yaayyy!

    And the answer to the question that he posed in the title to his essay, namely "inflation or deflation?" is that the eye-popping explosion in the money supply automatically insures inflation.

    And I will add, in that snotty, irritating and disturbingly childish way that I have, that while I also think FDR was the worst President in US history because he was a commie creep and was the antithesis of everything good and decent that made America a great nation, Greenspan is likewise the worst Fed chairman in US history, and that this whole deflation thing that he keeps yammering on about is a cheap trick to keep you from paying attention to the slow spiral of economic death that he has caused to whirl around us, on a par with "Hey! Look down! Your shoelace is untied!" When my wife pulls that trick on me, I always end up noting that my shoelaces are NOT untied and that I am soon going to get a whack on the head - bonk! - and when Greenspan says it, it means that he is going to hit everybody in the wallet with something equally as painful, only much longer lasting. Ugh.

    --- Mogambo Sez: The Cryptoquote in last Saturday's newspaper was, "The market is a place set apart where men may deceive each other," which was identified as a Greek proverb. To the Greeks I say, "If only it was just the marketplace, dudes!" I cannot remember the last time that somebody WASN'T trying to deceive me about something!

    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.

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