Even more surprisingly, as statistics go, the deficit in silver “is equal to the entire global production of silver in 1982!” which you’ll notice is already punctuated with an exclamation point, as everybody can see the exceptional, startling, scary nature of the statistic!

Jeff Clark, in his essay “How Much More Demand Can Silver Handle?” here at The Daily Reckoning, notes that “The numbers for silver demand are starting to make some market-watchers nervous. The US Mint sold over 6.4 million silver Eagles in January, more than any other month since the coin’s introduction in 1986.”

Well, playing the devil’s advocate, I say that “Maybe it’s because economic things are worse than at anytime since 1986, and there are so many more vampire-related things in the popular media than there were in 1986, so it is only natural to expect more people to be buying silver!”

Mr. Clark, obviously having been instructed to ignore me, ignores me, and goes on to trump my stupid theory with the awesome fact that “China’s net imports of silver quadrupled in 2010, to 122.6 million ounces, roughly 13.7% of global production.”

Already “mine production can’t meet worldwide demand,” and since I never hear of central banks dis-hoarding silver, nor of any stockpiles of silver being drawn down, maybe that is why he says, “the only way demand gets fulfilled is from scrap supply.”

As to what this means in precise dollars and cents, I don’t know, but he may be giving us a hint when he reminds us to “Remember that silver rose over 3,646% from trough to peak in the last precious metals bull market; it’s up about 630% in our current run. A return matching the 1970s advance would push the price to $152.”

From $33 an ounce to $152 an ounce? Wow! That seems like investing at its best, while the truth is that the gains in silver just get better from there, because the evil Federal Reserve is going to keep creating more and more money from there, which explains why I was spending more and more time alone in the Mogambo Big, Bad Bunker (MBBB) a few weeks ago, nervously watching the Federal Reserve creating another $28 billion in credit, which means that the Fed is creating more inflation in prices, which means that the time when people get desperate is not far away.

And this $28 billion in bank credit turned, seemingly magically but actually just a coincidental accounting thing, into $26 billion in cash with which to buy $26 billion in government debt! All in One Freaking Week (OFW)! Astounding!

The reason I bring this up is because it means, We’re Freaking Doomed (WFD) to die a horrible, horrible economic death because of inflation in prices that must necessarily result from all this creation of new money, which is obvious once you strip away all the confusing jargon, acres of spreadsheets and idiot editors rejecting your work with caustic comments like, “Utter trash” and, “Thank you for your recent submission. However, we have no present need for worthless ramblings of a paranoid lunatic.”

Paranoid lunatic, eh? Ha! Sharp Junior Mogambo Rangers (JMRs) are instantly on alert at a “dog that didn’t bark” – as in this case the sentence fragment “to die a horrible, horrible economic death because of inflation in prices that must necessarily result from all this creation of new money” did not end with an exclamation point, or two, or three, as would seem to be indicated.

The reason is that the long-forecasted inflation, which the use of an exclamation point would indicate as an impending calamity, is not only impending, but it is here, which does merit an exclamation point thusly!

I involuntarily looked around the bunker in a kind of scared paranoia when I read The 5-Minute Forecast boiling it down to, “Wholesale prices jumped 0.8% in January, according to the Bureau of Labor Statistics. The Producer Price Index has now jumped 3% over the last four months. And no, that’s not an annualized figure.”

Suddenly feeling nervous and paranoid again, The 5 continues, “Note that the PPI headline number is for ‘finished goods’ – stuff that’s ready to be sold direct to consumers. In the category of ‘crude goods,’ the figures are far worse – up 3.3% in January, and up a staggering 15.8% over the last four months.”

This is the ugly start of the price inflation horror that results from the horror of the Federal Reserve creating so excessively much money, and if ever there were a clearer signal to buy gold and silver with the last of your Federal Reserve Note money, I never heard of it.

And I am a guy who has heard many, many things over his lifetime that will curl your hair, or, if already curled, straighten, and I am not even talking about any of that REALLY scary stuff about genetic mutants being manufactured for the Pentagon (which is under control of UFOs from outer space) that are computer-controlled and can shoot laser beams (“zzzzt!”) out of their eyes.

And if that last stuff turns out to be true, too, then it will be just one more reason, on top of the other thousands of reasons, to buy gold, silver and oil, and which would perhaps add just that little bit extra jollity to your jaunty step as you realize, as you walk along, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Buying Silver to Combat the Vampire Craze originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

It turns out that the announced $600 billion, in six measly months, as perfectly horrific as it is, is not the whole story, as we later find out when Bloomberg later in the article reports, “Including Treasury purchases from reinvesting proceeds of mortgage payments, the Fed will buy a total of $850 billion to $900 billion of securities through June, or about $110 billion per month, the New York Fed said in accompanying statement.”

$110 billion per month! Per month! Per freaking month! Gaaahhhh!

Economicpolicyjournal.com has some dire analysis, and says, “The key is to realize that supermoney can have a multiple impact on the money supply. In 2008, just before the financial crisis broke out, the multiplier impact on M2 was 10. Got that 10? Although, I don’t necessarily expect it to go that high at this point (there are all those excess reserves). A multiplier impact of 2 or 3 is certainly not out of the question. That would put the M2 money supply increase in the range of $1.6 trillion to $2.7 trillion. In other words, an annualized money growth rate of over 20%. And this is conservative.”

By this time I am so freaked out that I am feverishly double-locked in the Mogambo Bunker Of Absolute Fear (MBOAF) and am now curled up in a fetal position on the floor, whimpering, petrified at the horror of such inflation in the money supply, because inflation in prices always results from an increase in the money supply. And such a whopping increase in the money supply means a whopping inflation.

In all the noise and racket, I almost missed it when they went on, “If the multiplier is higher and money starts to flow out of excess reserves, you could see M2 grow at record high rates, possibly 30% to 40% on an annualized basis. In other words, the amount of new money hitting the system could be [a] huge amount.”

I was going to use this as an opportunity to call out on the Mogambo Secure Line To The Cruel Outside World (MSLTTCOW) to tell you to drop everything and run out to buy gold, silver and oil stocks as a defense against such ruinous inflation, but it was done for me when they wrote, “Folks, the dollar is now securely on the road to major devaluation. Price inflation at the consumer level by the end of 2011 will be well into double digits. Way, way into double digits. Prepare yourself now. Start with some gold and silver.”

In case you were wondering, the purpose of the QE program is to create the money that the government needs to borrow this year. Otherwise, the Treasury has to try and sell $2 trillion in bonds to the few people who have saved some cash money, but it is ludicrous to think that these few people could possibly come up with $2 trillion! Hahaha!

And then more next year, and the year after, and the year after! Hahaha! Insane!

And if you think that this will not end Very, Very Badly (VVB), then I am pretty sure that I am on safe ground to say that you don’t know squat about economics. I say this without fear of contradiction for two important reasons.

Firstly, I say that I do not fear being contradicted because nobody knows where I am, and even if they did know where I was, they would not have the guts to say anything to me because of the lessons learned from TV, which proved conclusively that “facing down” an armed lunatic is a Bad, Bad Idea (BBI) unless it is in the last 10 minutes of the TV show, and even then it is often “iffy.”

And I also say this without fear of contradiction because there is not one example in the last 4,500 years – 4,500 years! – where any of the thousands and thousands of corrupt, dirtbag governments that borrowed themselves into such overwhelming bankruptcy and/or created so much new fiat money to spend that had ever, ever, ever, either magically or miraculously, succeeded in preventing total disaster by (unbelievably) creating, borrowing and spending more money!

And this goes “doubly-especially” when the government is borrowing another staggering chunk of money that equals a mammoth 14% of GDP, which they do by having the Federal Reserve print up a lot of new money for them to borrow, which (all other things being equal) increases the money supply by 14%! Gaaahhh!

If you are within a few blocks of me, then you no doubt noticed that I am Screaming My Guts Out (SMGO) in outrage and hysterical fear because of such monetary and fiscal insanity, which will cause a devastating inflation in prices that it will probably wipe this country off the economic map, which is a metaphor, or more probably wiping us literally off the map, since this is always when a lot of wars break out.

To even suggest otherwise is Sheer Freaking Lunacy (SFL), and if you do, then you will be shunned by decent people and end up in the gutter, career-wise, writing about economics for The New York Times or be a laughable egghead university professor at Princeton (“Them that can, do, and those that can’t, teach, or end up as chairmen of the Federal Reserve where they can prove that they can’t, but they thought they could because they were willingly gullible halfwits who could not see the utter stupidity of their preposterously simplistic neo-Keynesian econometric crapola of equations and computer models, which is such an absurd idea that it makes me guffaw in a Loud Mogambo Laugh Of Scorn (LMLOS) for Ben Bernanke, Paul Krugman and all the lowlifes who agree with either of them about anything.)”

And so I say, unless they also urge you to buy gold, silver and oil, in which case it shows that they are intelligent in ways other than economics, or it shows that they are just lazy, because buying gold, silver and oil when the Federal Reserve is creating So Damned Freaking Much (SDFM) money is so easy that you gotta say, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Prepare for Mass Inflation originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

So far the markets have not seemed to notice, but there are not one…but two bulls in this china shop.

First, the US government is going broke.

Second, we’re at the beginning of a Great Correction.

As to the second item, here’s this update from Bloomberg:

Sales of new homes in the US unexpectedly fell in February to a record low as blizzards, unemployment and foreclosures depressed the market.

Purchases decreased 2.2% to an annual pace of 308,000, figures from the Commerce Department showed today in Washington. The median sales price climbed by the most in more than two years.

The new-home market is vying with foreclosure-induced declines in prices for existing homes in an economy where unemployment is forecast to average 9.6% this year, close to a 26-year high. Treasury Secretary Timothy F. Geithner yesterday said it would take a “long time” to repair the housing market as the administration takes steps to overhaul real-estate financing and regulation.

“It’s going to be a long, slow slog and the lagging sector will be new home sales because they have to compete with existing sales and foreclosures,” Bill Hampel, chief economist at the Credit Union National Association in Washington, said before the report. “New home sales probably have until the fourth quarter until they start recovering.”

What happens in the 4th quarter that makes the housing market recover? A sudden influx of immigrants? A sudden increase in employment?

We don’t think there will be a recovery…not in the 4th quarter…not this year…not next year…not for 10 years.

Instead, housing prices are probably going to sink. Why? Because they’re a consumer item, not an investment. For 100 years, a house was a place to live in…and housing prices more or less kept pace with inflation. Then, beginning in the mid-’90s people came to see a house as “the best investment you can make.” They began buying houses as a way to make money…and as a way to save for retirement. It made sense. What would you rather have, a mutual fund growing at 10% per year…or a house that goes up by 10% per year? The house! Because you can live in it…and show it off. So you leverage up…you buy twice the house you can afford. You live better. And you make more money.

Those days are over. But, not everyone realizes it. Some wait for the housing market to ‘recover.’ Some may imagine that they will once again see profits from their houses. Others just hold on…waiting for an up-tick so they can get out.

There are still millions of people living in houses they can’t really afford…and millions of others who are “underwater” and running out of air. That’s why the number of houses facing foreclosure rose in the last quarter of last year. And it’s why the inventory of unsold houses continues to rise.

Gradually, people are coming to see houses in a new light. Soon, they’ll see them as money-pits…as expensive follies…and as a pain in the neck. Instead of being proud to have a McMansion…they’ll be embarrassed…like having a car with tail fins in 1985…or wearing a mullet in 2010.

Not only that, it will also be seen as a big waste of money. As the Great Correction continues, unemployment will remain at high levels…savings will increase…and people will want to cut expenses. Among other things, they’ll want smaller, cheaper houses. They’ll want to dump their suburban castles and walk away from their country palaces.

Houses will be losers.

Bill Bonner
for The Daily Reckoning

Housing Market Recovery: On the Same Schedule as Godot originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

One of my favorite ways to invest in the rapidly growing emerging markets is through the back door, so to speak. Invest in companies, wherever they are, that have what these economies need or want, but don’t have. Airliner production is a classic example.

I bet most Americans would be surprised to learn, for example, that the Middle East is a very important market for new jets. The Gulf’s leading airlines – Emirates (out of Dubai), Etihad (out of Abu Dhabi) and Qatar Airways have become big reasons why Boeing and Airbus make any money. “The Middle East is still the hub of aviation growth,” says Airbus CEO, Tom Enders.

According to informed guesses, the Middle East will buy 1,400-1,700 planes over the next twenty years, at a cost of $240-300 billion. These planes will support passenger growth of nearly 5% annually over that timeframe. Many other developing nations around the globe are also becoming active buyers of passenger jets. Airbus just signed a $1.8 billion deal with Vietnam Airlines for four A380 super-jumbos and two A350s. Ethiopian Airlines recently put in an order for 12 A350s, at a cost of $3 billion. These are just two examples.

The Asia-Pacific region, despite the impressive growth out of the Middle East, is still the largest buyer of aircraft. Over the next 20 years, for instance, the Asia-Pacific region will require close to 9,000 planes, at a cost of over $1 trillion.

I’ve focused mostly on civil aviation. But there is also defense spending. In the Middle East, defense spending will probably rise to more than $100 billion by 2014, from only $36 billion now, according to a new study by consultancy Frost & Sullivan. That’s why Lockheed Martin recently announced it would double its capacity to produce the C-130 Super Hercules – because of increased demand from the Middle East.

Also, I can’t end without saying a word about the world’s urge to lower carbon emissions. The industry has pledged to cut its carbon emissions in half by 2050 – an effort that will require new planes with lighter material, different design and innovative engines.

Despite all the good news on the aviation front, there is a fly in the soup that Boeing and Airbus will have to fish out before long: They are having a hard time making the planes on time. This is a rather fascinating subject on its own, given the history of aviation. In 1944, for example, Boeing used to crank out 16 B-17 bombers every 24 hours. Today, it’s having a hard time producing one of its ballyhooed Dreamliners after more than two years of trying. Airbus has had its share of delays as well.

Eventually, they’ll sort it out. Eventually, they will build the new planes. There are lots of ways to play on these ideas as an investor, as these new planes ripple through the supply chain.

My favorites are the titanium producers. Titanium is a lightweight metal. In fact, it has the highest strength-to-weight ratio of any metal, making it ideal for aircraft. The newer planes are titanium intensive, more so than in the past.

Our play here is Titanium Metals (NYSE:TIE), the second-largest producer of titanium in the world. It has a solid financial position with lots of cash and no debt. It’s stayed profitable, even through the slump. And Wall Street doesn’t expect much from it, as analysts rate the stock as a poor performer. The potential upside when it comes makes it worth hanging onto. In TIE’s heyday back in 2006, it was a $40 stock. Today, it’s about $13. All cycles turn, remember. And this one will, too. The company only recently signed a new agreement with Boeing that will keep it as a key supplier through 2015.

Titanium Metals has the potential to be a big winner once the aviation cycle gets in full swing again.

Regards,

Chris Mayer
for The Daily Reckoning

Titanium Metals (NYSE:TIE): Investing in Aviation Growth originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

One of the reasons for my bullishness and bullheadedness about silver is the large short position, which is the number of ounces already sold (opening the short position) but which have not been bought yet (closing out the position), which means these shorts are going to get clobbered if they have to cover their short position by buying silver at a higher price than they sold it.

So I was very interested when Ed Steer’s Gold and Silver Daily reports says that the commodity futures market report shows that bullion banks’ “silver net short position now stands at 213.6 million ounces…about a third of world silver mining production…all held by ‘four or less’ bullion banks.”

He characterizes this as “grotesque beyond description”, which I guess it is, since it is hard to even imagine such a thing, which implies that these “four or less” banks are so stupid that they would be short silver when the fundamentals are so compelling that my throat is bloody and raw from screaming, “The fundamentals of silver are compelling!”

And this is even ignoring the headline “Gold & Silver Market Alert – Buy before the Breakout!” from Julian Phillips at Goldforescaster.com, which reflects my sentiments exactly.

In gold, the situation is similar, in that Mr. Steer says, “The bullion banks’ net short position now stands at 211,342 contracts… 21.1 million ounces. This is well over 25% of world gold production. This is also grotesque beyond description”.

Suddenly I see an opportunity to hide my rising excitement and get a quick laugh! So I said, “This means it is NOT ‘beyond description’ when it is perfectly described by silver, which is also ‘grotesque beyond description’ and which can be described as ‘like gold’! Hahahaha!”

Well, I am laughing at my own joke and having a wonderful time when I looked around and noticed that nobody else appreciated my little joke about circular reasoning, which, upon reflection, I admit is pretty bad, and I am pretty embarrassed about it.

I don’t know why I thought it was funny, except for maybe it’s these new pills that are supposed to keep me from screaming my guts out in fear about the coming collapse of the dollar and the attendant horrific rise in consumer prices that destroys America and plunges us into a post-Apocalyptic nightmare. And, parenthetically, they work pretty well, too, except for the catatonia and the, you know, drooling.

Mr. Steer sees my embarrassment and starts talking about how many of the owners of futures contracts in gold and silver said, “We want our metals!”

People with inquiring minds want to know, “How much gold and silver was delivered so that we can maybe see if the Mogambo Who Thinks He’s So Hot (MWTHSH) is actually turning out to be right about gold and silver going so much higher in price because the despicable Federal Reserve is creating so much money and credit that inflation in consumer prices is guaranteed, which would be indicated by a rising price for silver!”

Well, it turn out that “The final totals for August are as follows… gold 5,728 contracts [572,800 ounces] and silver 91 contracts [455,000 ounces]”, which doesn’t seem like a lot, but what in the hell do I know?

So, I report these things without knowing what they mean because I am pretty stupid and I am just in it for the money, so all I can ever see is the obvious, especially when it is pointed out to me, which he apparently does when he says it means, “August was a big month for gold deliveries…but not for silver. September is a big month for silver deliveries…but not for gold.”

I still don’t know what it means, but a big buying of gold and silver every other month is plenty enough to keep their prices rising and demand growing, which is Another Good Reason (AGR) to buy gold and silver beyond the obvious good reason that they always soar in value and price when the government is acting so irresponsibly, or when the Federal Reserve is acting so irresponsibly, but especially when both of them are acting irresponsibly, like now!

It’s enough to make you squeal with delight, “Whee! This investing stuff is easy!”

Until next time,

The Mogambo Guru
for The Daily Reckoning

Speaking Silver’s Language originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

I am driven (no pun intended) to do this because any idiot can see that it is ridiculous to be penalized because your ball mysteriously and inexplicably disappeared in the middle of the fairway, or in the rough, or in the woods, or out of bounds someplace, all because the ball came down out of the sky and disappeared into some animal burrow or wet spot or something, never to be seen again.

I mean, a penalty for losing a ball actually introduces random luck into the game, which subtracts from golf being purely a game of consummate skill and shot-making artistry, made possible by liberal interpretations as to what legally constitutes “winter rules”, “do-overs”, mulligans, “gimme putts” and who can actually prove that I kicked my ball out of some stupid sand trap when nobody was looking, instead of just shooting his loud mouth off about it.

But who among us can concentrate on niceties like “Rules of Golf” like that when, on July 31, the world seemingly changed forever when Bloomberg reported that “The value of shares traded in China surpassed the combined amount in the US, UK and Japan for the first time on record, a sign of ‘speculative mania’ among investors who pushed the Shanghai Composite Index up 82% this year, according to Grantham Mayo Van Otterloo & Co.’s Edward Chancellor.”

What this actually means is that a whole lot of money is pouring into the hands of a bunch of Chinese people who are going to get a real education in the famous Mogambo Law Of Markets (MLOM), which is, “The majority of investors must lose money so that a small minority can make money, then pay a lot of the gains in taxes to reduce the actual gain, assuming any is left after the rapacious, monstrous, sprawling, incestuous snake-pit known as The Financial Sector have taken their cuts.”

And it should not be too long in coming, as stock prices are so high and earnings are so low that price/earnings ratio of Chinese stocks is somewhere off in the stratosphere of Bizarro World, setting them up for the inevitable fall and massive losses.

Because of the way I am a paranoid, suspicious little creep, I naturally assume that the fall will be after a lot of us Occidental types put a lot of money into the Chinese stock market so that the Chinese locals can end up with it, although why they would want any more dollars is beyond me! Hahaha!

The nice way I laughed like that is just to show you the kind of nice guy I am, which I further prove when I volunteer to try and do these Chinese guys a nice favor by calling one of them up at random (and at 2 AM Chinese time so that I can make sure that somebody is at home, can pay full attention to me, and will not be distracted by other competing activities!)

The phone rang for quite a while but, instead of saying “hello” like everyone else, the guy answering the phone says something I don’t understand, something like “Mishy Moy” but I understood his angry tone right away, which I chose to calmly just ignore, instead of angrily asking, “What in the hell is that supposed to mean? You want me to come over there and maybe slap your stupid face until you understand that you are stupid by not buying gold and silver right now in the face of such rampant creation of money and credit, you moron?”

Instead, I merely ask, “Do you Chinese idiots know the famous Mogambo Law Of Markets (MLOM)? Well, for your information, it says that ‘The majority of investors must lose money so that a small minority can make money and then pay a lot of the gains in taxes, assuming any is left after the rapacious, monstrous, sprawling, incestuous snake-pit known as The Financial Sector have taken their cuts.’”

Then, in a model of efficiency, I just said, “Now you tell somebody, and then they will tell somebody, and pretty soon everybody will know that they are acting like morons in bidding up stock prices so high!” to which he replied with something that sounded like “How cho long been hoo choy!” but which I instinctively interpreted as meaning, “You’re exactly right, Mysterious American Stranger (MAS)! Thank you for waking me up and educating me!”

So I hung up, satisfied at my Mogambo Good Deed (MGD) for the day, although I could have saved my breath by just telling him what Bill Bonner here at The Daily Reckoning said.

While Mr. Bonner does not actually mention the Mogambo Law Of Markets (MLOM), he does say almost the same thing, but without mentioning me, what I said, or even my surly undertone of arrogance and hostility, but who instead said, “The purpose of a bear market is to correct the errors of the preceding boom. Most prominent among those errors is to think you can make money by speculating in the stock market.” Exactly!

I thought, since he has ignored me so far, he would then, at least, go into how The Mogambo laughs and laughs at the whole concept of “investing for the long term”, my eyes twinkling with merriment and lips slobbering with the Spittle Of Disgust (SOD), all because the existence of Black Swan Events makes long-term forecasting using standard statistics into a fool’s game, unless it is your money, and then it is more than a stupid game because your Whole Freaking Life (WFL) is riding on the preposterous premise that every day, for the rest of your life, will mostly be like the day before it, only imperceptivity better and better as the days, months, years and decades play out which, as Mr. Bonner did not mention but which we have seen over and over again, is so preposterous that it makes me laugh.

Instead, he goes into what creates booms and bull markets in the first place; people and government borrowing money to spend. Exactly, also!

He says, “That’s the moral lesson: borrowing makes you poorer. Unless you’re using the money to increase output, there’s no economic health in it. In other words, if a factory sees an opportunity, it might borrow to expand. The extra output should produce enough profit to allow it to repay the loan…and come out ahead. But if you borrow to consume, at the end of the day you’re poorer. That’s the lesson of the Bubble Years. That’s the lesson consumers need to learn every couple of generations.”

And another lesson that people need to learn is the Lesson Of The Butts (LOTB), which is that “Gold has saved people’s butts for thousands of years, while the dollar stopped saving butts and started kicking people’s butts in 1913 when the damnable Federal Reserve took over and gradually destroyed 96% of the dollar’s buying power in the interim by their stupidly over-creating money and credit, which drives up prices, which negates any nominal gains you think you made and makes everybody poorer in terms of buying power of their money.”.

As unwieldy as that LOTB is, it naturally reminds me of my constant admonition to buy gold, silver and oil when your government is debasing the currency like this, and debasing it more and more today, and promises more and more debasement tomorrow, which gives you a lot of time to think about butts, namely your own, as pertains to the LOTB, especially in light of Black Swan Events, until you reach True Mogambo Enlightenment (TME) and exclaim, “Buy gold, silver and oil! Whee! This investing stuff is easy!”

Losing Money So Someone Else Can Make It originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

 I wear it because it looks so snazzy and I get a lot of attention, which I crave because I am a weird guy with a mental problem that I don’t want to talk about, mostly because I am sick of talking about it since it is the only thing anyone ever wants to talk about, unless it is how my wife is such a “saint” for putting up with me all these years, like living with her has been some freaking picnic at the beach or something, especially after she started spewing out kids one after the other, each needier and more demanding than the last.

And besides, if I am ever anywhere that I suddenly need aluminum foil to, for instance, save a tasty bit of calorie-laden food or form a makeshift tent in the event of a sudden downpour, I am ready!

But this is disputed by Barron’s, which says, “Those who contend that the expansion of central bank balance sheets is inflationary ignore the contraction of balance sheets in the banking system, as well as the so-called shadow banking system of assets and liabilities not recorded on banks’ books.”

“Like what?” I ask suspiciously, as befits talking about “shadow” banks. Well, like Barron’s having data from the Bank for International Settlements suggesting that the wild expansions of the money supply by the Fed and the Treasury were peanuts compared to the record contraction in the global banking system as defaults cascaded through the system.

According to the BIS, total bank claims shrank by $1.8 trillion in the fourth quarter (or 5.4%), to $31 trillion, which is the biggest fall in bank assets in history. Yikes!

I decided to rudely interrupt in protest, perhaps including some amusing-but-hysterical arm waving and a few up-close-and-personal horror stories about inflation in prices, like how you listen to your spouse and kids whining on and on, day after day, about how things cost more money, and they want more money, but you don’t have any more money, and how they just won’t (pause) let (pause) it (pause) go, and it’s all the time “gimme, gimme, gimme” all day long until you finally, one day, just snap.

Before I could, however, get up a good head of outraged steam about how the worst thing that could happen to us is inflation in the money supply creating inflation in consumer prices, Barron’s admits that “Inflation, as Milton Friedman taught, is always and everywhere a monetary phenomenon.”

This is exactly right! And exactly my point! How disconcerting for them to say that, given their initial argument that monetary excesses are not necessarily inflationary, which is (if you read between the lines) also that I am an idiot and that is why they are out to get me like everybody else.

So I sit back down, puzzled, and deciding that I am truly, truly lost and confused, and so I might as well go home and grab a snack. Maybe take a nice nap!

But as soon as I decide to do that very thing, they go on to say that this insane monetary excess seems to be, astonishingly, working!

Believe it or not, it actually looks like “the current central-bank expansion is offsetting the contraction in the banking system – which Friedman criticized the Fed for failing to do in the 1930s,” which is the theoretical straw at which we have successfully grasped! Amazing!

To say I am stunned is an understatement! Now, to hear it told, for the First Freaking Time (FFT) in all of history, a country bankrupted from its own gluttonous, low-IQ redistributionist excesses, paid for by an over-creation of fiat money and credit, was able to – insert huge blare of trumpets declaring victory “taaaa-daaaa!” – actually spend its way out of bankruptcy! Wow! Beyond wow!

And, even better, overpriced assets did not collapse in market value to their true value! Wow!

Naturally, Barron’s reports that “new BIS data bear out the justification for the Fed’s actions, notwithstanding the critics’ claims.” They do not name these “critics” or (as I am usually known) a “fringe lunatic,” but judging by my own criticisms, such gigantic creations of fiat money will produce killer inflation in prices, and that the dollar, and the economy, have been murdered by the imbecilities of grubby, greedy, corrupt idiots infesting the Federal Reserve, Congress, and the Supreme Court, none of whom listened to me when I urged them to go back to the gold standard to eliminate inflation completely, and to get our nation’s scientists working to develop a good 25-cent taco.

And on that score, all that new money produced a huge inflation, just as predicted; it has started the re-inflation of an entire stock market bubble, a bond bubble, a government bubble and (maybe!) a housing bubble!

Naturally, I leap up and scream, “Inflation! It just killed Zimbabwe, and soon it will be on us, and inflation will kill you, too, unless you buy gold, gold, gold!”

The next thing I knew, there were security guards swarming everywhere, and I soon found myself outside, dejected for having been ejected, which gave serendipitous rise to my boffo ending:

As the lights lower, I slowly sink into a very theatrical heap of collapsed humanity to visually portray mankind’s complete loss of hope, dreamy dreams dashed on the rocks of despair, the very essence of a desperate man who wants gold to immediately shoot up in price so that he can get so suddenly rich that he can skip town and start life over, someplace new, perhaps finding real happiness, and without the three huge millstones of family, “friends” and career around his pathetic neck, choking him until his twinkling blue eyes bug out in fear (“boing!”) as they drag him down, down, down to the cold, cold, cold, dark, dark darkness and doom.

A moment of complete inactivity, and then, springing to my feet, I pass the hat and remind everyone that gold can give deliverance from the predations of government!

And with the low quality of people we have in Congress, the Federal Reserve, the media, the schools and the Supreme Court, gold has the Mogambo Freaking Guarantee (MFG) to not only deliver deliverance, but more! Much, much more! More and more, as in, “Do you know how much an ounce of gold will buy in Zimbabwe, the world’s biggest idiots in terms of over-creation of money who have now officially destroyed their own money? Hahahaha!”

In short, “Whee! This investing stuff is easy!”

Inflation and the Mass Confusion to Follow originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

Geithner just reaffirmed this, though not in so many words, in an interview with Charlie Rose.

Asked about the possibility of letting a major bank fail, he said, “I’ll say again, they play a critical role in our markets, in our financial system. We want to continue to make sure they play that role. Now, where they need temporary assistance through the government to get through that, we’re going to make sure it comes with appropriately tough conditions so that they emerge stronger and that we’re providing a level of conditions and accountability that’s appropriate in this context.”

Translation:  They can continue screwing up indefinitely, and we’ll still come to their rescue.

The “stress tests”?  That’s just a sham to make it look as if the banks are being held to some sort of standard.

Working from the same playbook, Fed chief Ben Bernanke said yesterday, “We have reiterated the U.S. government’s determination to ensure that systemically important financial institutions continue to be able to meet their commitments.”  And if it that means the Fed has to buy up Treasuries (and print money for that purpose), so be it.

Consider yourself warned.

Consider also that the Zombie Policy isn’t even achieving its stated aims.  Weren’t we promised that if the Fed and Treasury kept pumping money into these banks, the banks would lend more freely, and businesses could borrow more easily, and so businesses could create more jobs?

Well, not so much.  “Banks that have received billions of federal dollars to encourage them to make loans — JPMorgan Chase & Co., Goldman Sachs Group, Citigroup Inc. and Bank of America Corp. — are lending money to Pfizer and Merck” so they can buy out Big Pharma competitors, according to the Los Angeles Times.  The mergers could result in 35,000 jobs lost.

Heckuva job, Timmy.  Heckuva job, Benny.

Zombie Policy Reaffirmed originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

But minefields abound.  For starters, the derivatives exposure of the biggest banks exploded during the last quarter of 2008.

“Citibank, Bank of America, HSBC Bank USA, Wells Fargo Bank and J.P. Morgan Chase reported that their ‘current’ net loss risks from derivatives — insurance-like bets tied to a loan or other underlying asset — surged to $587 billion as of Dec. 31,” according to McClatchy Newspapers. “Buried in end-of-the-year regulatory reports that McClatchy has reviewed, the figures reflect a jump of 49 percent in just 90 days.”

Oh, and those numbers don’t yet account for the derivatives risk that BofA took on by acquiring Merrill Lynch, because that deal closed January 1.

“Because of the trading in derivatives,” says McClatchy, “corporate bankruptcies could cause a chain reaction that deprives the banks of hundreds of billions of dollars in insurance they bought on risky debt or forces them to shell out huge sums to cover debt they guaranteed.”

In other words, the credit-default swap monster still looms large out there.  “Trading in credit-default contracts has sparked investor fears because they are bought and sold in a murky, private market that is largely out of the reach of federal regulators. No one, except those holding the instruments, knows who owes what to whom. Not even banks and insurers can accurately calculate their risks.”

Doesn’t exactly inspire confidence, does it?

Which brings us to the matter of credit-default swap king AIG.  We now learn that AIG scored its fourth bailout “by telling regulators the company’s collapse could cripple money-market funds, force European banks to raise capital, cause competing life insurers to fail and wipe out the taxpayers’ stake in the firm,” according to a memo dated February 26 and obtained by Bloomberg.

Knowing this, what are we to make of Ben Bernanke’s statement to Congress last week — after he no doubt read the memo — that, “If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one other than AIG.  AIG exploited a huge gap in the regulatory system, there was no oversight of the financial- products division, this was a hedge fund basically that was attached to a large and stable insurance company.”

Of course, Bernanke himself had oversight of the banks that lent money to AIG’s financial products division.  But he was MIA.  And as long as he wants to draw the hedge fund comparison, it’s worth pointing out that hedge funds are likewise unregulated, but Bernanke has oversight of the banks that lent them money too.  And again he was MIA.

Doesn’t exactly inspire confidence, does it?

And on top of all that, Tim Geithner says it’ll be a few more weeks before we know more details about his bank “rescue” plan.  During which time there will endless leaks and trial balloons to see what might stick to the wall and what might not.

No matter.  The Dow’s up 122 points as I write, and we might well be at the start of a rally.  A bear-market rally, but a rally nonetheless.

More telling of the longer term picture is a forecast from UBS that sees $2500 gold “as some hedge fund investors who made money last year by betting against investment banks are now buying gold as a way of betting against central banks,” according to the Financial Times.

Yup, that sounds more like it.

Inspiring Confidence originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

"What if the crisis of 2008 represents something much more fundamental than a deep recession?" he asks.

So he’s just now figuring this out.  Well, when the family fortune you marry into shrinks from $3.6 billion to a mere $25 million, I guess it’s natural to start wondering such things.

But since it’s Tom Friedman we’re talking about, it’s also natural to reach the wrong conclusions.

We have created a system for growth that depended on our building more and more stores to sell more and more stuff made in more and more factories in China, powered by more and more coal that would cause more and more climate change but earn China more and more dollars to buy more and more U.S. T-bills so America would have more and more money to build more and more stores and sell more and more stuff that would employ more and more Chinese …

We can’t do this anymore.

Yeah, I know — I too had to read it a couple of times so I could follow the logic, such as it is.

Is Friedman saying the whole globalization model as he’s portrayed it for the last couple of decades is falling apart?  Not that he would admit that, of course — "We’ve always been at war with Eastasia!"

Note too how he writes with the conviction of the converted.  I suppose if the family fortune you marry into has shrunk by more than 99 percent, and that family fortune is based on shopping malls , and you’re already of a world-improving mentality, it’s natural to adopt an outlook that meshes the worst of consumer-culture contempt and climate-change hysteria.

It is also natural in light of those circumstances to be utterly blind to the real causes of the crisis.  He writes about China’s purchase of Treasuries as if it were a phenomenon in isolation.  There’s zero acknowledgment that what we face is a debt crisis — a crisis of excess credit fomented by the Federal Reserve that metastasized through the financial system and then the wider economy.

Friedman actually quotes an expert who says, "We have not generated real wealth," without realizing what’s actually happened in the 20 years he’s been extolling the virtues of globalization (as he defines it):  The art of money-shuffling was elevated above the craft of producing real goods that people can use.

No matter.  Friedman speaks for the Davos crowd he’s hung out with the whole time that’s managed to screw things up so royally.  And their message now is:  Suck it up.  Learn to live with less.

You know, I think most people are probably able to figure that out without Tom Friedman’s help.  But he’s bound and determined to help anyway.

The Conviction of the Converted originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".