Provided as a courtesy of Agora Publishing and DailyReckoning.com.
-- Total Fed Credit expanded by a measly $1.8 billion last week, made even more insignificant when compared to the big news of stock markets around the world going down a hefty percentage. The commentary is usually about "what caused it?" My answer, in response, is precise; "Who the hell knows?"
Bill Bonner at DailyReckoning.com says "Anyone who says he was 'surprised' by the big drop in stock prices just wasn't paying attention." When he said "not paying attention", I naturally think he is talking about me. So, being Mister Nice Guy Mogambo (MNGM), I hung up my cell phone, turned off my iPod, paused the videogame I was playing on my computer and stopped thumbing through the latest steamy issue of "Discount Hot Chicks" magazine. I let out an audible sigh, too, to let him know that I am irritated at the interruption of my impressive multi-tasking.
Anyway, he went on to say that the bursting of the bubble was almost preordained, as he correctly asked "When was the last bubble that didn't pop? Never. It has never existed. All bubbles pop. All living things die. All paper currencies become worthless. All empires are destroyed. All politicians lie."
With my Amazing Mogambo Precognition (AMP), I knew that he was going to add "And The Mogambo is a stupid, idiotic, fathead jerk, and there are lots of very good reasons why everybody hates his guts!" which, although painfully true, is a real downer for me to have it constantly thrown in my face. And it is a career killer, too, when people hear him say that and then think to themselves "Hey! That's what I think! And now that guy thinks so, too! And he wears a suit, so it must be true!"
So I cleverly leap up and, as a way of heading him off, mischievously say "What about the money supplies around the world, Mr. Bonner? Are they growing? Are they? Huh? Are the money supplies growing? Whatcha think? Are they?"
I secretly smile smugly to myself about how clever I am when he falls neatly into my trap and says "Just this week we discovered that the euro money supply is now going up at its fastest rate in 17 years - nearly 10% per annum. Dollars are increasing at about the same rate. And in India, the money supply is going up at a 21% rate. And yuan? We don't know, but we bet it would take our breath away." He later learns that "Money supply (M1) in China is increasing at a 20% rate", which does take one's breath away, just as Mr. Bonner uncannily predicted!
He then asks what he thought was a rhetorical question, "Why so much money?" At this, my mind instantly harkened back to this morning, when all the members of the family are multi-tasking by eating breakfast, whining about prices, demanding more money, and talking on their cell phones to one of their weird friends about how I am mean, cheap and hateful. And I discover that since I seem to have slept on my hair all wrong, making it stick out weird and dorky, it makes them, for some reason, hate me even more! Weird!
Anyway, this morning I was the one asking that exact same phrase, "Why so much money?", but with a dismissive, sarcastic and demeaning sneer meant to convey my feelings of "Don't make me laugh, you hateful little parasite! I'd let you starve in the street if it wasn't against the law!" and they are using their nasty little spoons to flick pieces of some kind of soggy breakfast cereal at me to convey their feelings of "And we'd kill you in cold blood if it wasn't likewise against the law, you miserable, hateful old man (MHOM)!"
Since their problems all stem from the fact that things cost more and I won't give them more money, I say it is all an inflation thing. But, apparently, things are different around Mr. Bonner's household, and he says that it reminds him not of vicious familial infighting and vague, thinly-veiled death threats, but that "we are in the bubble phase of a credit expansion", although "Manufacturing is already in recession. Housing looks like it is headed for recession, too. January new house sales, for example, were down 16.6% - the sharpest decline in 13 years. Subprime lenders are going broke. And the LA Times says, 'Mortgage Delinquencies [still] Rising.'"
Then he says, ominously, "And now the central banks are threatening to pull the plug on this tub of liquidity", to which I unexpectedly laughed out loud and said "Don't you worry about it, bub, as no stinking central bank is going to pull any damned plug on any tub-a-dub-dub of liquidity!"
I don't know if it was me calling Mr. Bonner "bub", or the fact that I rudely interrupted his speech, or that "tub-a-dub-dub" thing (which I thought lightened the mood), or I may have violated some stupid restraining order or something, but anyway, the next thing I know, I am being hustled out by these two burly bullies, to whom I keep insisting that I have never seen them before, even though they are muttering to me "Ahhh, Mogambo! We finally meet again, you stinking little weasel!" which, for some reason, seemed darkly foreboding, especially with that "finally" thing in there like that.
As they haul me out of the door, I am yelling, "With a fiat currency and a banking system that can use a fractional-reserve ratio of zero, nothing is impossible! It's money from thin air! All they want! Without limit! And you think that the central banks WON'T try to keep filling that proverbial tub-a-dub-dub with liquidity forever and ever?"
Witnesses say that my voice grew faint as I was dragged rudely and roughly away, but I was crystal clear enough when the last thing they heard was "There is no reason why they cannot keep juicing the markets higher and higher, literally forever! The government and the Federal Reserve could create all the money necessary for someone, or even them, to buy stocks, and bonds, and houses, driving their prices relentlessly up! The only thing that can stop them is the roaring inflation in consumer prices that will inevitably destroy the economy as people get tired of the deprivation and misery of inflation in prices, and sooner or later they erupt in a fury! A fury, I tells ya!"
I never got a chance to mention, as Zimbabwe so clearly demonstrates, that even prices going up by 200% in a week is not enough to stop a corrupt, desperate, idiotic, goon-squad government from creating more and more money, which creates more and more inflation, as long as they can keep getting away with it.
"So what," you innocently ask, "is causing the market turmoil?"
I assume that something caused someone to do some outsized selling, which happened to correspond with some other outsized selling, and then the selling grows and grows as all the little computer trading programs and anomaly-identification algorithms in all the little computers around the world start beeping and flashing to indicate that that this sudden increase in selling has caused something significant like, I dunno, the 47.572-day cycle exponentially-smoothed RSI crossover ratio stochastic variable Bollinger-band flow-channel indicator reaching a second-derivative Fibonacci inflection point or something.
Or, since the downdraft seems to have started in China, perhaps it has something to do with the fact that we are moving into the Year of the Pig in the Chinese calendar, which is characterized as "fire sitting on top of water." The Chinese are famous as a very superstitious and gambling-loving lot, and this may have real significance.
Or it might have something to do with the Japanese having to (finally) start raising interest rates from the near-zero range. But uh-oh! This would cause the unwinding of some of the enormous Yen Carry Trade (where you borrow yen, paying almost-zero percent, and with maximum leverage buy something paying a higher percent, such US government debt paying 4.5%, and pocketing the difference) at a loss. A big loss! Which necessitated more selling.
This astonishing, zero-percent interest-rate policy of the Japanese is just the Japanese acting like the incredible buttheads that they are, as they deemed it "necessary" as a desperate response to their previous butthead juicing of the Japanese stock and real estate markets which (thanks to their stupidity in creating the bubbles in the first place) imploded more than 16 long years ago, and they have been limping along ever since, never seeming to get any smarter.
In fact, the ever-affable Chuck Butler of DailyPfenning.com writes that the carry trade "has become so popular that there are actually ETFs that have been developed to take advantage of the carry."
Or, back to market swoons, it may reflect that people have stopped taking so many anti-depressants, mood elevators, and tranquilizers, and now they see things as the really are, and are thinking to themselves "What in the hell am I doing in the stock market? This thing is selling at damned near 20 times trailing earnings! And from the look of things, everybody's earnings are heading down! Get me out of stocks right freaking now!"
So what is causing the market turmoil? Actually, it is all of these things, and more! That- That! That! -is the lesson of Chaos Theory! All things influence everything else, and any change, no matter how slight, will alter the system's future outcome from what it would have been otherwise. And with an almost infinite number of variables, interacting in variable degrees of influence, there is, thus, no way to predict that a butterfly flapping its wings in the Amazon causes rain in Chicago five days later.
But there no denying that there is turmoil all over the place, as is shown in the wild gyrations in the VIX. But Jim Willie CB of the Golden Jackass website don't need no steenking VIX to tell him that "Fires rage everywhere one turns."
What does one do in a situation like this? My answer is that I immediately go into Mogambo Fire Panic Mode (MFPM), make a mad dash for the nearest door, knocking down and running over anybody that gets in my way. Mr. Willie was, apparently, not talking about a literal fire, but about economic fires, and answers "Gold rises from the heat."
So why hasn't gold risen? If you are the kind of person who wisely gets clues from the soundtrack, then you have noticed that the background is filled with the sound of cackling and muted screams of pain and horror. Thus you are prepared when the honeyed voiceover says "Evil people are doing evil things with our economy and money. And manipulating the price of gold to keep it from rising alarmingly, which would provide stark testimony of their staggering incompetence, is just a relatively benign part of their nefarious activities!"
And by this I mean the infamous Plunge Protection Team, where the Treasury, the Federal Reserve, big banks and unnamed others all get together to bail us out of any market mishap by buying, buying, buying, using money created by the Federal Reserve expressly for the purpose.
And you can be sure that they are out there, right now, doing exactly that thing, in response the to recent market losses. And furthermore, the market will obediently go up as long as they keep buying, buying, buying and all the money floods into the economy, which will also, theoretically, benefit from this deluge of new spending, and thus, they think, mission accomplished, applause, applause, applause.
But whether or not they succeed this time or not, their efforts to prevent the collapse of such a preposterous economy will one day fail, and the dollar will fall to relative worthlessness, and money and wealth will be lost by the supertanker-full, and there will be misery and suffering to extents beyond your nightmares. This is the classical end to an eternally-classic situation; a government spent a country into bankruptcy.
And, as if you had to be told, that is the lesson preached by the classical Austrian school of economics, which warned that the economic lesson distilled from history was that inflation in prices will destroy a country that allows wanton growth in the money supply.
But this stupidity is everywhere, as I gather from the article "Gov. auditor says fiscal outlook is 'spiraling out of control'" by Michael Roston at rawstory.com caused another Mogambo Aneurism Of Outrage (MAOO) when I read that the embarrassing, vicious, delusional, and worst-ever President Bush came out and said, in an address of some kind to somebody, I forget who and don't care, that he is a neo-Keynesian, econometric moron, just like all his fellow economic morons at the Fed and Congress, and that if you had any smarts at all you would be following the advice of The Mogambo and be amassing huge stores of gold, silver and large-caliber armaments aplenty because we are freaking doomed!
Well, he didn't actually use those exact words, but he said essentially the same thing when he said "low taxes means economic vitality, which means more tax revenues." What a load of crap!
I don't know where to attack this lunacy first, but I guess that I'll go ballistic with the econometric silliness, because to those who believe in such equations-to-describe-behavior foolishness, it is an axiom of econometric theory that there is no upper limit on how much debt you can accumulate. It is assumed to be limitless! Hahaha!
And anyway, he's only talking about a few hundred lousy dollars a year to the average American. It's chump change compared to the sheer tonnage of money we owe! And I am here to testify (as if you needed one more witness), that we are up to our bloodshot eyeballs in debt, and every dime that is not spent on yummy tacos, ice-cold beer and greens fees at the golf course is spent paying the minimum monthly payment on our many, many bills, and we don't much care if you lower taxes to zero! A few hundred lousy dollars a year won't even make a dent in our problems, doofus!
And, since I never seem to tire of ragging on econometric theory, another of their bedrock assumptions is that a decrease in interest rates will always produce more borrowing for investment, which will turn out to be a good thing for everybody. To this I also say "Hahahaha!"
For one thing, bitter experience has proved to the banks that loaning money to The Mogambo Corporation (TMC) is a BAD thing, because I am incompetent and a crook, as what I don't lose by my managerial worthlessness, I steal and then run away, to another state, changing my name, changing my appearance and solving crimes in my spare time.
And for another thing, if nobody is buying Mogambo Discount Baby Formula (MDBF) because it is made out of industrial by-products and tastes like crap, you can lower interest rates literally to zero and I won't be borrowing money to expand production! Hell, all my time and money is being spent on defending myself against lawsuits as it is!
And it is not just me or my fellow Americans that are dodging process servers and collection agencies because I can't, or won't, pay my bills, as is seemingly attested to by John Stepek, of the Money Morning newsletter, who reports that "The UK consumer's average credit card spending fell on an annual basis for the first time ever last year, according to Euromonitor International." Ever! The first time ever!
The details are that in 2005, the typical cardholder spent £1,978, but in 2006 only £1,900. And it gets worse, as "Spending is expected to fall further next year, by another 3%."
Well, this is bad enough, but you console yourself by thinking to yourself "Well, maybe the economic pain will be worth it, if people are finally getting smart about over-consumption and debt, and soon the world will be a happier place, and that will be really nice for a change!"
No such luck; "Now Euromonitor says while "UK consumers are now less willing to get into debt on credit cards with high APRs, turning instead to longer-term...loans which offer better value for money.'" Hahaha! More idiotic than ever! Who comes up with this "better value for money" as some new benefit that accrues to long-term debt, taken on for the sake of immediate consumption? Hahaha! "Better value"! Hahaha!
-- I could not believe my eyes at an excerpt from a recent Kiplinger Letter sent to me by Tom L., whom I assume is as flabbergasted as I was at it, and that is why he sent it to me, probably hoping that it would kill me and then I'd finally shut my loud, fat mouth for once in my life, and the world would be a better place, and my surviving family would worship him like a god for the rest of their lives out of sheer gratitude. Maybe send him a few bucks as a nice way of saying "Thanks!"
Well, no such luck, Tom, even though the excerpt was indeed shocking when it read "January's inflation numbers aren't as worrisome as they appear. The 0.3% rise in core inflation, although higher than expected, was 0.256% before rounding." Hahaha! 0.3% price inflation in one month may be "worrisome", but 0.256%, 46/1000ths of one percent, makes all the difference and so, now, for the first time in all of history, inflation is okay? Hahaha!
They were obviously miffed at my outburst of hilarity, and there was a sudden new edge to their tone when they went on "And sharp increases in costs of medical care and retail items aren't likely to continue in subsequent months. The same goes for food costs, which jumped because of the freeze in California."
And I absolutely love the line "And sharp increases in costs of medical care and retail items aren't likely to continue in subsequent months. The same goes for food costs, which jumped because of the freeze in California." Hahaha! How can these guys know a thing like "sharp increases in costs of medical care and retail items aren't likely to continue"? They've been going up for years now, but they are soon going to stop now for some reason? Hahaha! And they call ME arrogant!
And as for food, I guess prices will not go up since the farmers can just go out and harvest some more food, and send it to the stores. I personally was not aware that science had made the time-consuming drudgery of planting and growing obsolete! Wow! This is exciting!
- Paul Craig Roberts writes "Immigration Numbers Outnumber US Job Growth By 7,000,000." He gets this from the news that "Last week the Bureau of Labor Statistics re-benchmarked the payroll jobs data back to 2000." The result is that, as he says, "If you are worried about terrorists, you don't know what worry is. Job growth over the last five years is the weakest on record. The US economy came up more than 7 million jobs short of keeping up with population growth."
Our economy has, thanks to government spending, has morphed into a grotesque monster, as he seems to indicate when he says "Over the past five years the US economy experienced a net job loss in goods-producing activities. The entire job growth was in service- providing activities--primarily credit intermediation, health care and social assistance, waiters, waitresses and bartenders, and state and local government. US manufacturing lost 2.9 million jobs, almost 17% of the manufacturing work force. The wipeout is across the board. Not a single manufacturing payroll classification created a single new job."
One result is that "There are now hundreds of thousands of Americans who will never recover their investment in their university education."
He concludes that "No sane economist can possibly maintain that a deplorable record of merely 1,054,000 net new private sector jobs over five years is an indication of a healthy economy. The total number of private sector jobs created over the five year period is 500,000 jobs less than one year's legal and illegal immigration!
I leap up and say "Whoa, there pardner! How can it be that the total jobs created in five long years is less than one year's immigration?"
I thought I had him, as this was pretty unbelievable stuff, but he was ready for me, and immediately says that according to the December 2005 Center for Immigration Studies report based on the Census Bureau's March 2005 Current Population Survey, a guy named Steven Camarota reports that "there were 7.9 million new immigrants between January 2000 and March 2005."
He strongly feels, as do I, that "The economics profession has failed America." And ditto the egregious conduct of the schools, the governments and the media (who are supposed to be the public's watchdogs, but are now their willing lapdogs).
Mr. Roberts, in case you did not know, is the coauthor of book with the most delicious of titles; "The Tyranny of Good Intentions." It reminds me of when the bartender says, with "good intentions", that he is not going to serve me any more alcoholic beverages because I am plenty drunk already. Big mistake!
If we had done it my way, see, the bartender would be happy because he sold more drinks, I would be happy because I can buy my new acquaintance here, Lulene, a drink, and then she would be happy, I would be happy to have one myself to prevent my sobering up enough to see how ugly she really is, and the government would be happy because they made more tax money, and it's a wonderful, wonderful world for everybody.
But now, because of "good intentions", he's got a shot-up bar, I'm being led away in handcuffs, the cops have all my guns, I'm sobering up, I feel sick, Lulene is long gone, and the whole day is freaking ruined as far as I am concerned.
And don't get me started on the "good intentions" of government, which is think is best summed up by a terrific quote sent to me by my ol' buddy Phil S., which won some kind of contest, and which was originally presented as a definition of "Political Correctness", but it clearly applies to most of what government does these days. So whatever it is, it "is a doctrine fostered by a delusional, illogical liberal minority, and rabidly promoted by an unscrupulous mainstream media, which holds forth the proposition that it is entirely possible to pick up a turd by the clean end". Ugh.
****Mogambo sez: Ahh, the serenity of gold! I love having an asset that would rise to the moon if the government and Federal Reserve were not actively suppressing the price, as the history of successful perpetual price suppressions is the same as the history of successful perpetual anything coercive; zip point zip.
So, my Adorable Mogambo Cherub (AMC), use history to your advantage for a change. You'll be very glad you did, and very sorry you didn't if you don't, as another Timeless Mogambo Lesson (TML) is that another investing constraint is that "Too late smart and too soon old!" becomes very meaningful as time just ticks, ticks, ticks away. Tick. Tock. Tick. Tock.