Gold, In a Nutshell

The Daily Reckoning PRESENTS: There has been a lot of debate lately on whether or not our favorite yellow metal will be able to withstand – and even flourish – in the event of a economic meltdown. Luckily, we have the Mogambo to set us straight. Read on…

GOLD, IN A NUTSHELL

I have been getting a lot of panicky e-mail lately, because I am such a gold bug. There are, unbelievably, some people who will listen to an idiot like me and do what I say. And these pathetic, gullible people have been accumulating gold and silver, per my persistent, insane screeching for them to do so immediately or face the Wrath Of Economic Mother Nature (WOEMN). Now, they’ve made a few bucks, and they want to keep it.

But their latest concern is that they have read some recent articles about how the coming recession/depression/end-of-the-world will be accompanied by deflation in prices, including – gasp! – gold.

And these gold-bug people don’t care about the incredible suffering, misery, wars, crime and police-state, fascist repression that will rip the country apart as increasingly desperate people and increasingly desperate governments do increasingly desperate things because of inflation. Nah! All they want to know how their gold will do! Ahhh! I am so proud!

Why am I proud? It is a given that the majority of people must suffer greatly from inflation. If they did not have to suffer, then there would not be any problem with inflation! And so, even though most people must suffer being totally miserable and utterly destroyed financially, there is nothing I can do about it, except to constantly recommend that they demand that the Supreme Court finally uphold the Constitutional requirement that money be only of silver and gold. That will solve the problem of price inflation by making monetary inflation impossible.

Failing that, I have absolutely no sympathy for the idiotic people who must suffer. And therefore, it is all the more delicious that some of the more Mogambo-Attuned (M-A) amongst us can make some money on their utter, utter stupidity, simply by buying gold.

But this is not about suffering or Supreme Court treachery, but about some people saying that gold will go down in price. For example, Chris Laird, who is the editor in chief of PrudentSquirrel.com, penned the essay that got a lot of people all lathered up, which carried the title “Expectation of U.S. Recession a Hand Over Gold Market.” He writes, “The fact is, if economic activity – in the world’s largest economy by far – collapses, as I suspect it will beginning in 2007, gold will find that inflation vanishes, industrial production drops precipitously, and all those expensive commodities now are going to tank starting in 2007.”

That is, of course, very interesting. He could be right. I dunno. And my Worthless Mogambo Rebuttal (WMR) represents the laziest kind of economics. I simply note that the entire historical record of economic mankind shows that gold has always done very well – very well indeed, when the economic idiocy of creating excess money and credit was unleashed. And thus, I assume that gold will go up again, when measured in the currency that is being destroyed by over-issuance, only because it always has. Always.

As Bill Bonner of DailyReckoning.com writes, “Let me put it to you straight. How many times have paper currencies – unbacked by gold – become worthless? Answer: every time. And how many times has a gold currency lost its value? Never.”

Mr. Bonner went on to say, “We like gold because while we cannot predict the future, eventually and always, paper currencies disappear and gold remains.” I was extremely happy to read that he confesses he cannot foretell the future, as this is an opportunity for me to say that although Mr. Bonner is smarter, better educated, better looking, taller, better liked, better better better in every thing you can name…and, has fewer enemies and neighbors coming over offering to knock my block off if I don’t shut off the taped Truth About Inflation (TAI) message blaring from the pulpit of the Tabernacle Of The Mogambo (TOTM), let’s see how he likes to stand in my shade for a change. I proudly announce, “I, The Mogambo, am arrogant enough – nay, more than arrogant enough – to say that I can predict the future! And to prove it, I confidently predict that one day an ounce of gold can be measured in tons of $100 bills, yet gold will, as he says, remain!”

I was expecting a spontaneous round of applause for my stirring speech, but there was only an awkward silence. In desperation, I change tack, and citing from memory, say, “The strongest don’t always win the battle, and the swiftest don’t always win the race, but that is the way to bet!”

Even that falls flat, and I suddenly know what you are thinking. You are saying to yourself: “How stupid! Why do I read this stupid Mogambo stuff? What is wrong with me that I would completely waste my time like this?” And while I do not know what kind of a twisted deviant you are that compels you to read the trash you do, I do, however, know a guy who has a more official rebuttal. Thus, I introduce James Turk, chairman of GoldMoney.com, who knows a lot about this gold thing. “In a nutshell,” he writes, “in the coming decade, as the dollar suffers one of the great meltdowns in monetary history, gold will reclaim its place at the center of the global financial system, and its value, relative to most of today’s national currencies, will soar. The result: Gold coins, gold-mining stocks, and gold-based digital currencies will be vastly better ways to preserve and/or grow wealth than dollar-denominated bonds, stocks, or bank accounts.”

He sums up with the nutshell thing, and says, “That, in a nutshell, is the story.” And indeed, he is right, as that is always the story. And not only that, but he is nice enough to tell you how long it will take: at most, 10 years! Start now and theoretically, in 10 years you will be rich in dollars!

We aren’t making up for inflation in prices by working, as reflected in the grim news that personal saving, which is defined as “Disposable Personal Income less personal outlays,” was negative again, meaning that people are spending more than they make. Thus, they “save,” not zero, but literally less than zero! In terms of record-setting behavior, savings “remained in negative territory for the 16th straight month at a negative 0.9 percent for July.”

And sure enough, on Yahoo.com we read that spending is still increasing, as “The Commerce Department reported that spending in July rose by a healthy 0.8 percent last month, double the 0.4 percent gain in June.”

As far as “healthy” is concerned, I snort in derision, and caustically remark that this reported “healthy spending” is merely measuring “dollars spent,” but when things cost more (thanks to inflation), then you will seem to be “healthily” buying more stuff by spending more money, when in actuality you are buying less stuff, because everything costs more money!

Offsetting this, I suppose, according to the government, was this item: “Incomes also were up, rising by 0.5 percent in July, reflecting stronger wage growth.” Stronger wage growth? Hahaha!

My amused and mirthful laughter turned to whimpers of fear when they went on to say, “A gauge of inflation tied to spending showed that consumer prices, excluding energy and food, have risen by 2.4 percent over the past 12 months, the fastest rate of increase in nearly four years.” Yikes!

But even if I concede that wage growth was, indeed, “healthy” and “stronger,” how does this mitigate any of the damage done by the higher prices to those people who don’t have a job, or who literally have literally fixed incomes? They get punished by inflation! They suffer from inflation! And then, they want to borrow money from me, or make me to pay higher taxes. So, I get doubly punished!

As usual, they don’t want to talk about inflation, or maybe they are still illegally discriminating against me because I insist on calling them “lying, thieving, traitorous, government human garbage.” But whatever the reason, they don’t want to get into that inflation thing. Instead, they hurriedly go on to say, “Disposable incomes, the amount left after paying taxes, rose by 0.7 percent in July but by just 0.3 percent after inflation was taken into account.”

My Sensitive Mogambo Glaring Discrepancy Filter (SMGDF) beeps a coded signal, indicating that these guys now say that inflation measured 0.4% for the month! So, the government says that, annualized, inflation is now 4.8%? Wow!

And it is worse than that, as you will gather when you read “Real Inflation,” by Stephen J. Church of Piscataqua Research. He writes for SafeHaven.com and reports, “Our research indicates that inflation is approximately 3% to 4% per year higher than the CPI.” And, they even include a nice chart to show where real, hit-’em-in-the-wallet inflation has been – mostly, higher than six percent ever since the 50’s! Yow!

The rest of the paper is some math, the Fisher equation and lots of clever whiz-bangery, which is soon beyond my depth. But it doesn’t mean squat to me anyway, as it is just another example of really smart guys doing incomprehensible things. To us, the drooling class of mental defectives just trying to make a fast buck, the terrifying conclusion is enough: If the CPI measures inflation at an incredible 4.8%, but this is 4% too low, then inflation is actually running closer to a devastating 8.8%! In fact, they actually say, “It appears that real inflation has been close to 8% per year during the last few years. Based on our calculations, real inflation only exceeded this level during the 1970s.”

The reason why we have so much inflation? They say, and I agree, “It appears that the Federal Reserve has run an aggressive monetary policy for the last 15 years and a very aggressive monetary policy for the last 7 years.” Brother, I heard that!

All that monetary inflation has shown up as roaring inflation in stock prices, roaring inflation in bond prices, roaring inflation in housing prices, roaring inflation in insurance prices, and roaring, blistering inflation in the size and cost of government, all of which was financed by the Federal Reserve providing the money so that everyone could borrow themselves into an unfathomable black hole of credit-hell and bankruptcy.

And inflation is everywhere, according to Bob Wood of KMA, who reports in his newsletter that three articles in the same newspaper were headlined “Higher electric bills are likely,” and, ”For some, Allstate wants 75% hike.” Another was entitled: ”Homeowners plead for mercy on taxes.” If that ain’t inflation, then what in the world is it?

And yet, all I hear is that inflation is “tame” or “benign” or “low” or “falling” or “targeted.” Bondholders, without a doubt the most stupid class of people on the freaking face of the freaking planet, are still bidding up bonds so high that bonds yield less than five percent – for up to 30 years! Hahahaha! Morons! Hahaha!

Until next time,

The Mogambo Guru|
for The Daily Reckoning
September 11, 2006

Mogambo sez: I keep being amazed every time the dollar is up for the day, as I cannot imagine why. And I am equally amazed when gold and silver end down for the day, as I cannot imagine why, either.

It is a mysterious gift to you from just one of the many desperate, life-or-death struggles of the market manipulators and their government pimps, the Federal Reserve and all the other central banks of the world.

So, load up on gold, silver and oil, as it is guilt free. That is, how can legally taking money from bad people be wrong? It teaches them a lesson they will never forget! They should thank you!

Editor’s Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter – an avocational exercise to heap disrespect on those who desperately deserve it.

Nature abhors a vacuum…

(although apparently not in Washington…where the empty heads proliferate without check.)

Thus, when the centralized economic gulag called the Soviet Union collapsed under pressure from the mixed economies of the West, the United States stepped up to the plate as the world’s only great empire – with legions garrisoned in every hot spot and proconsuls spouting off at every diplomatic watering hole. No sparrow could flap a tail-feather in any Third World hellhole without setting off sensors at the Pentagon, we have noted.

But nature doesn’t tolerate a monopoly for very long, either.

The United States, with a monopoly on conventional military power, has stood up against nature…and against history. It cannot be long that she does so, unless history and nature are both to come to a complete stop. Instead, since there are no conventional powers outside to challenge her, her destruction is being wrought unconventionally, from within.

You see, empire running is a serious trade. It can’t be done on borrowed money, especially money borrowed from incipient rivals. Only, look at Britain at the beginning of the 20th century. As soon as it exhausted itself in World War I, the helping hand from across the Atlantic grew stronger and bolder. Eventually, Uncle Sam had snatched the imperial mantle from the shoulders of the Queen.

No, an empire that can’t turn an imperial profit had better get into another business. It can provide all the security, peace, and rule of law it wants, but if it means to stay in business, it had better not provide it at a loss. Mind you, imperial profits are not hard to show. Your common or garden empire could do it. Just impose a tax on vassals, or if in a hurry, simply steal what’s needed. Thus did Augustus feed the mobs in Rome…after the defeat of Anthony and Cleopatra….after taxing grain from the Egyptians.

But Americans have never really gotten the hang of empire. From the very beginning, their heads have been fogged up with earnest hallucinations of the Wilsonian species. They think they are making the world safe for democracy and capitalism…for adultery and market-rate lending.

And the Pax Americana that U.S. troops have imposed on the world has been an expensive undertaking. It might have been worthwhile until the 1970s, but since then, neither U.S. business nor U.S. labor has been truly competitive. So, the more the military has opened the door to globalization, the more the economy has lost market share, as foreigners have rushed in. American working stiffs can no longer expect salary gains – not with three billion Asians salivating over a tenth as much. They may continue to believe in the American dream and in the federal hacks and financial hoodlums who rule them. But the only way they can improve their standard of living now is by working longer hours, taking on greater debt, and buying products made by their rivals overseas.

The empire – as is the wont of empires – was bound to wend its way to the trashcan anyway. But George W. Bush, Alan Greenspan – and the whole host of movers and shakers, hustlers and dissemblers, the massed ranks of seraphim and cherubim on the banks of the Potomac and the Hudson – have all hastened along the moment of its undoing. And so, today, while other publications may carp and complain about the incompetence and stupidity of the president and his neo-con advisors, we do not join in, for we believe that the U.S. Empire needs to be taken down a notch and that our rulers have merely found a novel way to do it, turning a rag-tag bunch of terrorists into a world-beating brand…and the rest of the world into anti-Americans. Thus has the world’s most expensive military force been squandered on a war that cannot be won…and the world’s richest treasury been emptied on bread it doesn’t bake…debt and dependence.

At least Washington still provides homemade circuses.

[Ed. Note: Many empires have come and gone since man first stood on two legs. None, as far as we know, ever went in such an absurd way as this, floundering in a war against nobody, financed with money it doesn’t have. Read more about it here:

Empire of Debt

More news:

————–

Chuck Butler, reporting from the EverBank world-currency trading desk in St. Louis…

“Gold has fallen below the $600 figure as the media is reporting that the talks with Iran are progressing. While I find this news comforting, I just have to question if this is just a trap.”

For the rest of this story, and for more insights into the world currency markets, see here:

The Daily Pfennig

————–

And more thoughts from Paris…

*** We are now living in our new digs in Paris. We bought a very modest apartment in the city, for a very immodest sum of money. The whole transaction seems strange and incomprehensible to us. We hasten to add: it was not our idea, dear reader.

We looked out our bedroom window this morning and realized that we were living in a tenement. We could smell what other families were having for breakfast, see what clothes they were putting on, and hear what mothers were saying to their children to get them ready for school.

“What makes this place so pricey?” we wondered.

The average house in Aspen, for comparison, still costs less than this apartment. But Aspen is special. This apartment is nothing special. It is the opposite of something special. It is something very common. A thousand times so, for there are literally thousands of others just like it in the 16th arrondissement alone.

Why are people willing to spend so much money for them? Where do they get the money to spend?

Have we become just another statistic of the worldwide housing bubble?

*** The Chicago Tribune shows us the company we may now be keeping:

“David and Erin Kerpel of Deerfield are representative of the statistics…In July they bought a bigger house across the street from where they have lived for three years.

“They expected a quick sale of their former residence because their next-door neighbor’s nearly identical home sold easily a few months earlier.

“But after a few showings they are still waiting for an offer.

“‘It’s dead. The market is dead,’ David Kerpel said recently. ‘There are no buyers.'”

The explanation, according to the Tribune, is the flood of homes for sale, with the Chicago area alone having more than 95,000 properties on the Multiple Listing Service of Northern Illinois – a 40 percent increase in a year.

The realtors blame potential buyers for stalling for a better deal and predict a drop in price from two to five percent for a couple of quarters. But, they argue, a national downturn will be short-lived, probably no longer than a quarter, because the market must pick up once sellers begin to cut prices.

According to the Chicago paper, the Kerpels are now offering a lease-to-buy to sweeten their offering and stubbornly plan to wait out the market. They, like others, blame the media for hyping the bubble and the bust.

Meanwhile, David Lereah, an economist with the National Association of Realtors, points the finger at speculators who pushed up prices “higher than they should have been,” to quote the Tribune piece.

But now, Lereah and his co-mavens in the housing business are themselves objects of derision.

“In October 2005 Lereah was busy calling the bubble believers `Chicken Littles,'” goes one post in a blog devoted solely to criticizing the gentleman, davidlereahwatch.blogspot.com. “Many of the predictions espoused by the `Chicken Littles’ are fast becoming closer to reality.

“David Lereah has lost credibility because of his irresponsible cheerleading.”

*** Of course, there remain a few creative ways to puncture the housing bubble even more swiftly. One came to us over the weekend.

“You know, I just read in the paper,” said an English friend, “that there have been 11 terrorist incidents or attacks since the World Trade towers…and seven of them have been done by British citizens. If we wanted to make war on terror, maybe we should have attacked London rather than Baghdad.”