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, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

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, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

 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, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

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, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

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, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

"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, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

We’re hearing a lot lately about earmarks — DC-speak for pork-barrel spending.  Whether it’s the “stimulus” bill signed into law last month, or the $410 billion spending bill that’s supposed to tide over Uncle Sam for the rest of fiscal ‘09, it seems we can’t get away from them.

Nor can we get away from complaints about some of more ludicrous-sounding pet projects for individual lawmakers — like research into malodorous hogs.

In fact there’s so much caterwauling about such line-items, you’d think that if it weren’t for earmarks, we’d have a balanced budget.  Heck, we’d have had a balanced budget for years.

Not so.  Earmarks typically make up about 1% of the federal budget.  In the spending bill being debated right now, it’s a little under 2%.

Yes, it’s a great opportunity for certain politicians to posture about their colleagues setting aside money for golf courses and leashless dog parks.  John McCain has put this to great use in crafting his political identity.

But really, we’re talking about a pittance in the big scheme of the federal budget.  Slaughter all the earmarks, and it would barely put a dent in runaway spending.

Well actually, it wouldn’t even do that.

That’s because earmarks come out of a total amount of federal spending that’s carved in stone before the earmarks are ever doled out to the lawmakers.  In other words, the money’s going to get spent anyway.

The only difference is that with earmarks, individual lawmakers get a little bit of say in how it gets spent.  Take earmarks out of the equation, and the decisions get made within the executive branch, or at best, among the Congressional leadership — whose primary concern would be rewarding friends and punishing enemies among the back-benchers.

From a sheer separation-of-powers standpoint, earmarks are actually a good thing:  Remember, the money’s going to get spent anyway.

The new president talks about earmark “reform,” but leaders in his own party promise to resist.  “I don’t think the White House has the ability to tell us what to do,” says Rep. Steny Hoyer (D-Maryland), the House Majority Leader.  Hoyer is about as hacktastic as they come, but he’s got it right here.

So why is there so much screeching about earmarks?  Well, it serves a very useful purpose for our political masters:  If you get the public in a lather over golf courses and dog parks, they’re less likely to ask questions about bailing out failed bankers, or mega-deals for defense contractors, or even wider questions about the proper role and size of government.

Next time you hear a politician or a pundit railing against earmarks, you might want to ask yourself:  Does this person have a clue how little difference earmarks make in the big picture?  Or does this person know full well how little difference it would make, and wants to create a distraction?

Earmarks: Much Ado About Nothing originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

You can actually do something about it.  And I don’t mean write your congressman or buy a bumper sticker.

You can stop paying your own mortgage, free of fear that you’ll be kicked out of your home, provided you play it right.

And that’s not me making the suggestion.  In fact, it was all over the place just last fall.

You say you missed it?  You find the suggestion morally offensive?  Just hang with me a bit.

In October Peter Schiff wrote an op-ed for the San Diego Union-Tribune titled, simply enough, “Stop Paying Your Mortgage.”

After supposedly bailing out the fat cats on Wall Street, no politician wants to be accused of evicting struggling families. Once you understand this, all of your anxiety should melt away. Why pay your mortgage if foreclosure is off the table, and if you know that lower payments, and possibly a reduced loan amount, would result? A tarnished a credit rating is a small price to pay for such a benefit…

If your mortgage does become the property of Uncle Sam, the growingly popular impulse to “just walk away” should be replaced by “just stay and stop paying.” No one will throw you out. After a few months, or years, of living payment free, you will get a call from a motivated government agent eager to adjust your loan into something affordable.

One could argue Schiff was being tongue-in-cheek.  But Karl Denninger, writing the same month, was dead serious, offering an explicit and audacious justification for stiffing your mortgage holder:  If the mortgage holder was benefiting from TARP money, you’re essentially reclaiming some of your own tax dollars.

Since our government continues to pursue the idea that everyone from the imprudent speculator and even the fraudulent buyer who overstated his income, along with the bankers who literally stole billions, can and will be allowed to rip off the public treasury, creating tax burdens forever for ourselves and our children in a futile attempt to prop up home prices along with screwing future buyers by keeping homes unaffordable, I am forced to advocate that you, The Prudent American, do back to the bankers and your neighbor what the bankers and your neighbor did…

I know, its a radical step.  And one more time, you need to consult with both a CPA and attorney before taking any such step – spend the couple hundred bucks to get both in the same room and go over exactly what this entails and what sort of impact it may have on you.

But it would appear to me, at this time, that this is the only way you can recover at least some of the tax burden that you have been thus far and will be in the future assessed for our government’s idiocy and pernicious theft of taxpayer dollars.

By the following month, November, the suggestion had gone mainstream.  “Should you keep paying your mortgage?” asked Kathleen Pender, the San Francisco Chronicle’s personal finance columnist.  “If you have significant equity in your home, absolutely.  If you don’t, it’s getting harder to answer that question, especially when our government keeps giving people who owe more than their homes are worth so many reasons not to pay.”

Pender went on to quote Schiff and to outline precise, practical steps a homeowner could take.

Now again, all of this was last October and November.  So here’s my question:  Now that the Obama administration has rolled out a $275-billion “homeowner rescue” plan, why aren’t we hearing more about this?

What Schiff and Pender and Denninger laid out is a concrete plan of action in which you can reclaim what’s rightfully yours.

But we don’t hear any of that now.  All we hear instead is what might be called “resentment rhetoric.”  A long, dragged-out whine, and a misdirected one at that — targeting not the banksters, but solely the irresponsible homeowners.

Typical of this is the Tennessee Republican Party, which has begun selling bumper stickers saying “Honk if you’re paying my mortgage.”  4000 have been sold in five days, at $5 each, or three for $12.

This is the source of my frustration with Rick Santelli’s infamous “rant.”  It really doesn’t matter whether he nailed it last fall on the insolvency of the banks.  In popping off about the homeowner bailout, without taking the banksters to task at the same moment, he took his eye off the ball.  Especially because the plan doesn’t even help the people it claims to help — because it won’t enable them to build equity in their homes.  Indeed, they’ll likely end up further in hock to their lenders.

Imagine if someone could harness the frustration of these underwater “homeowners” (glorified renters, really) with the frustration of the people who’ve managed to keep up with their payments… and directed all that outrage toward the banks and the Federal Reserve that created the whole mess.

Instead they’re divided along red state-blue state lines — resentful right-wingers fed up with “deadbeat” homeowners who only followed the advice of esteemed leaders like Alan Greenspan and can’t understand why they’ve become an object of such vitriol.  Just look at the comments thread in the Wall Street Journal blogpost about the bumper stickers to see what I mean.

If I were more conspiracy-minded, I’d think it was all a bankster plot.  Divide and conquer.

It’s a sorry state of affairs in this country when they don’t even have to resort to such efforts.

On another matter: The Fed just told Bloomberg to go jump in the lake.  Bloomberg sued the Fed under the Freedom of Information Act to find out just what sort of toxic “assets” it was taking onto its books, and from whom.  The Fed’s rationale is fascinating — that the New York Fed, where most of the relevant documents sit, is not subject to FOIA requirements.  Is that because it’s not really a government entity?  The mind reels.

The Treasury can’t make that argument.  It’s under court order to comply with a similar FOIA filing by Fox Business.  The deadline is March 23.  We shall see.

What Happened to the “Stop Paying Your Mortgage” Meme? originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

The sound bite that got all the play yesterday was this: “What I’m looking at is not the day-to-day gyrations of the stock market, but the long-term ability for the United States and the entire world economy to regain its footing. And, you know, the stock market is sort of like a tracking poll in politics. You know, it bobs up and down day to day. And if you spend all your time worrying about that, then you’re probably going to get the long-term strategy wrong.”

Leave aside the particulars of his economic policy, and that’s a fair enough statement.  But then, what prompted him to say this in the next breath?  “On the other hand, what you’re now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long-term perspective on it.”

This sounds like someone trying to have it both ways: “I don’t give a flip about the stock market… but you know what, there are some mighty good buys out there right now.”  Mixed messages, if not necessarily a blatant contradiction.

There, in a nutshell, is the reason the S&P has tanked 30% since Election Day, and roughly 13% since Inauguration Day.

The scholar Robert Higgs sums up this phenomenon with the delicious expression, “regime uncertainty.”  It’s when investors choose to sit on whatever money they have rather than put it to work creating wealth, because they have no idea what the rules are going to be day to day.  Higgs applied the term primarily to the New Deal, but we’re seeing the phenomenon at work today.

We see it when the administration chooses to run up record deficits, but then Tim Geithner says it’s “crucial” to bring deficits under control.

We see it in every speech Geithner gives about the shape of TARP II, in which the parameters change as quickly as those of TARP I under Hank Paulson.

We see it in Geithner’s commitment to go after “tax cheats,” a declaration shorn of any self-awareness or irony.

Conventional wisdom has it the broad stock market won’t recover its losses for three to six years.  But if this administration continues to take its cues from the New Dealers, we’re looking at another 16 to 23 years.  Figure it this way: The Dow finally returned to its 1929 levels in 1954 — a 25-year gap.  Assume the market topped in 2000 and the 2002-07 runup was a bear-market rally, then we’re looking at a recoup of the losses by 2025.  If the top came in 2007, then it’s 2032.  A “long-term perspective” indeed, Mr. President.

And if the president is focused on P/E ratios, perhaps he should ponder this: If P/Es are near historical norms right now, and if Q4 earnings are about to take a major hit, doesn’t that imply P/Es are about to grow?  And prices will have to fall further to come back in line?  Just asking.

Regime Uncertainty originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

What makes him so confident?

The answer might lie in a fascinating article in the Moscow Times, an English-language daily.  Now I can’t speak to the publication’s credibility; according to Wikipedia, it’s under foreign ownership and isn’t afraid to take an anti-Kremlin line.  But the Wikipedia article is thin, to say the least.  So if all of what follows turns out to be a crock, I won’t be too surprised.  But it’s too intriguing to ignore.

The paper reports the president of Sakha Republic, in Siberia, came calling on Putin recently.  Vyacheslav Shtyrov brought ill tidings: The swoon in world energy markets has hit Sakha hard.  But rather than continue to paraphrase the article, l’ll let the rest of the story unfold on its own:

Sakha is having trouble keeping up with its investment goals for 2020 and the region’s labor market is suffering, Shtyrov said at the meeting.

Putin listened and then took a breath.

“Vyacheslav Anatolyevich,” he said, addressing him by his patronymic, “the global prices of coal, gas, metals and even diamonds have fallen. But the price of gold is rising — and gold is mined on your territory.”

When Shtyrov called attention to miners’ problems with creditors, he was once again rebuffed. “We’ll solve the problem with gold mining,” Putin said. “Especially since — I’ll say it again — I’m well aware that the price of gold is rising on world markets.”

The paper attributes this account to a transcript of the meeting released by the Kremlin.  Assuming this is correct, and the transcript is accurate, Putin is making a remarkable bet here, not just for Sakha, but for his whole country: What low energy prices have taken away, high gold prices will restore.

According to the article, Russian mining firms have been at least as attractive since last fall as names more familiar to Western goldbugs’ ears.  Shares in Polyus Gold have risen 172% since bottoming on November 18; Polymetal is up 207% since its low on November 20.  By comparison, the HUI index is up a little under 80% since its lows last October, the XAU up a little over 65%.

I have no idea whether Putin’s big bet is true, or whether it’s plausible.  But it’s out there.  And it’s fascinating.

Putin’s Fascinating Bet originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.