04/22/10 Tampa, Florida – It was too late that I remembered that having margaritas for lunch was a bad idea, and I was now sleepy and argumentative, my eyelids drooping, when my eyes suddenly few open when I read the Bloomberg headline, “Leading Economic Indicators Index in US Rose 1.4% in March”. Wow!
Bloomberg said, “The 1.4 percent increase in the New York-based Conference Board’s measure of the outlook for three to six months was more than anticipated” which would seem to be an understatement of the first order! Wow!
In searching for explanations, the article went on that “Seven of the 10 indicators in the leading index contributed to the gain”, with which they followed, “led by the interest-rate spread.”
To me, it became clear: Inflation in prices is causing the long end of the interest rate curve to rise, while the loathsome Federal Reserve manipulates the short end of the yield spectrum to insane lows by creating excess money and offering insanely low Fed rates, making the yield curve steepen, and yet this crazy crap is considered so bullish that the economy is going to enjoy some wonderful Golden Age of growth and prosperity instead of a terrifying inflationary hell? Hahahaha! What a stupid country full of stupid people! Hahahaha!
Wiping the tears of laughter from my eyes, I should just end everything right there and tell you to buy gold, silver and oil because the current state of intellectual prowess is beyond bizarre, and there is no point in going on.
Of course, there was also “an increase in factory hours, slower supplier deliveries” plus, a rising number of new building permits and “gains in stock prices”, which are up a startling 8.5% this year, or more, depending on where you start measuring, and it is no surprise to me that such a big move in the stock market would affect the leading index, even though, when you discount for inflation in prices which is running at about 9.5% (according to John Williams at shadowstats.com), everybody has had a Big Freaking Loss (BFL) when gains are adjusted for “loss of buying power” of the dollar! Hahaha! Surprise!
Sure enough, Bloomberg goes on that there is a “shrinking money supply”, which makes sense, because a shrinking money supply means Somebody Is Taking A Loss (SITAL), plus “fewer orders for capital goods and a drop in consumer expectations weighed on the index”.
With such a big, happy augur of a burst of future activity, it is kind of surprising that “The Conference Board’s index of coincident indicators, a gauge of current economic activity, rose 0.1 percent in March for a second month”, even though the index “tracks payrolls, incomes, sales and production”, which I figure must mean increasing “inventory “ which has, perhaps not coincidentally, increased.
Now, to show that you truly understand the Way It Works (WIW), and for double bonus points on your way to winning that Fabulous Mogambo Prize (FMP) that is so fabulous that nobody even knows what it is or even how you play the game, identify the penalty that one pays for allowing the despicable, lying Federal Reserve to create So Freaking Much (SFM) money, and where can we discern a hint of its presence?
Of course, the answer is, as any Junior Mogambo Ranger (JMR) knows, that inflation in prices is the penalty for such expansions in the money supply! The judges affirm the correct answer by hitting the little bell, “Ding!”
And for the answer to the second part of the question, whiffs of inflation can be detected in the Conference Board’s Lagging Indicator, which “measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit”, which are, I bring to your attention, inflationary burdens and future burdens, and hassles and future hassles, like when prices have been rising and rising, and the number of employees asking me for a small raise in their miserable pay is rising and rising, and their tales of need and despair are heartbreaking, so that when I tell them, “Shut up! Get out of my office and get back to work, you slacker scum!” their reactions are, it seems to me, ratcheting higher and higher, too. “Interesting times”, eh?
Anyway, the gauge of these lagging indicators increased 0.2% from the previous month, which ain’t much, but it ain’t hay, either, which is a sure indicator that inflation is rising in that “ain’t hay” is such an odd expression, sort of like the expression, “Buy gold, silver and oil with everything you got, because if you have them not, then something something something about crapping a lot in a pot” which is likewise oddly incomprehensible-yet-unmistakable, and – as a bonus! – says a lot of Very Important Things (VIT).
Maybe that’s why I say, “Whee! This investing stuff is easy!”
The Mogambo Guru
for The Daily Reckoning
The Mogambo Guru
Richard Daughty (Mogambo Guru) is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise to better heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning , and other fine publications. For podcasts featuring the Mogambo, click here.
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Love your posts, Mogambo!
Funny how the economic indicators grew last month, but 1 of 8 homeowners are either foreclosed or deliquent.
http://www.prnewswire.com/news-releases/lender-processing-services-february-2010-mortgage-monitor-report-shows-pace-of-delinquencies-slowing-but-delinquency-rates-at-all-time-highs-87645382.html
This might be a recovery for the Goldman Sachs group (aka: Government), but there is a great deal of pain for everyday folks.
Thank you for investing your time in writing these articles, Richard. It is very much appreciated.
Hey Mogambo! I want you to explain how hyperinflation is going to explode when disposable incomes keep dropping, unemployment and foreclosures keep rising, small fry banks keep going bust. Except you know who.
What would higher prices be based on? Food and fuel perhaps, but that’s not at hyper level.
If all or most of the newly printed money is spent by government in foreign markets (paying for external spending, i.e. military) and is not allowed back into the domestic economy in the form of new deposits (as was done with Eurodollars), then new money will have no domestic effect because there are no new loans to multiply the money supply! Externally the value of the dollar can be manipulated by suppressing gold and silver, as usual.
Anyone to the contrary?
The reverse is also true. Gold and silver are manipulated to suppress the dollar. In other words its all manipulated. Mostly for the benefit of a few.
Like .99 cents is so much lower than $1.00. Pathetic
Proof that the government thinks we are a bunch of electric robots for them to control. They exclude food and gas in the PPI.
I agree with Lester – what we are seeing is not a flooding of dollars into the consumer market but a mass transfer of wealth to the banks that have the “right” to borrow newly printed money at 0.75% interest from the Americans whose good name is being used to float those new dollars. That money is either being lent back to the government to try to keep the leaky boat afloat or invested in overseas carry trade ventures and commodity speculation; thus it does not get into circulation in the American economy – there is essentially no “velocity” to that new money at any but the highest income and governmental levels
A reply to Lester-
How can hyperinflation explode when incomes keep dropping, unemployment keeps rising, and banks keep going bust?
We will have to ask the people of South Africa, Venezuela and Iran that question, since all three nations have rising unemployment, falling incomes and are Still facing inflation (maybe not hyperinflation, but to someone who is unemployed any inflation feels like hyperinflation.)
Junior & Lester – Very hard to understand inflation vs. deflation today. Adding to what Lester said:
Housing prices way down, and that’s a huge part U.S. wealth. Commercial real estate is supposed to be contracting, and certainly will be in a big way in short order. Wholesale prices slightly up, but were down before that. Dollar on uptrend. Yet inflationary argument easy to make with food, gas, … Stocks, too but that is probably targeted inflation by manipulation.
Also, money supply is shrinking, due to private credit contraction that simply overwhelms any monetary policy.
Much of what we call inflation, or point tas evidence thereof, seems to be a correction lows caused, or causing, GFC.
You can see I am more persuaded by delationary camp, but people way smarter than me are on either side. More are on inflationary side, I think, but so what? What did more say right up to the bubble?
Very confusing.
Inflation is also caused by a LACK of goods. The money supply does not need to increase by a huge amount for inflation, or even hyperinflation, to occur. It could be also be defined as more money chasing fewer goods.
Dear Great Mogambo Guru you are always saying:-
“Whee! This investing stuff is easy!”. Everyone who reads your stuff knows by now it’s a no-brainer to buy Gold and Silver. The difficult bit will be when to sell. What are your thoughts? We want the big ride up but we don’t want to crash back down again because we didn’t frigging-well know when to sell.
George,
A good way to tell when to sell is to look at historic values of gold and silver. Look to see the DOW to gold (1oz) ratio at 1:1. Or buy a house in the neighborhood of 1000oz of silver +/- 500oz. If there is extended inflation or hyperinflation you need to look at the value of Gold/Silver in comparison to other tangible assets or historic daily wages to see if you are selling at a high. Silver has an unprecedented potential for gains which make it more difficult to know when the best time to sell.