Mogambo Guru: Of Course We're Freakin' Doomed!

“I thought I was such a hot shot,” explained Richard Daughty, “that I was going to come up with a new way to trade options on the S&P 100 because I had a system — a real system. I had worked on this thing, I made all the data, I had gone on with it for a year. I was going to make a million bucks.

“And I needed to prove that I did what I did before actually trading — I’m talking about paper trading. The only way to prove that would be to send it to somebody including myself so that I could get a postmark and I could prove that I said what I said when I said it.”

They are questions only suited for a Saturday, when you’re in the right frame of mind. Like… who is the Mogambo Guru… and why?

If the phrase “We’re Freakin’ Doomed!” rings a bell, you know who and what we’re talking about.

If not, you could venture to The Daily Reckoning’s home page… click on the “Authors” tab… select “Mogambo Guru” and learn that Richard Daughty, AKA the Mogambo Guru, is “the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise to better heap disrespect on those who desperately deserve it.”

One part Groucho Marx… one part Gary Busey… and one part F.A. Hayek could be an equally accurate biography.

“I picked the name ‘Mogambo,’” reminisced Richard in a recent conversation we had, “because it was the name of a gigantic dessert at a delicatessen that I always wanted to go to, but I never had the money to take a girl there because I was in college. It was called the Mogambo Extravaganza. And it was the biggest and the best!

“And I figured I was going to be the biggest and the best. I’d become such an arrogant guy so what better name than Mogambo just for something to put on there. I never thought the writings would go as far as they did though. If I had, I would’ve chosen a better name then ‘Mogambo Guru’!”

Heh. About how that happened… “One of the people I sent my work to was the MarketWatch column in Barron’s,” related Richard. “And after a while, they actually published one or two of them. I was real thrilled to be in Barron’s, and that’s when Addison Wiggin must have seen it and talked to me about writing for TheDaily Reckoning. And I had nothing else to do. I was about to give up on the whole thing, to tell you the truth!”

Thus, a decade-long editorial relationship rooted in rants, effrontery and creative acronyms began.

Read on for a full transcript of our discussion…

Peter Coyne: Mogambo… welcome to TheDaily Reckoning!

Mogambo Guru: Well, thank you very much. It’s great to speak with you.

Peter Coyne: I’m going to lob a softball to start us off. Are we really “Freakin’ Doomed” and why?

Mogambo Guru: Oh, yes we are, of course we are! Anybody that thinks we aren’t must be living in a fantasy world. This is the same thing that’s been going on for thousand years already. There are not many things in economics — there’s money, interest, debts, jobs and taxes. There’s really not that many variables in it.

Every government that has tried this silly fiat currency stuff and vastly expanding the money supply has become a total disaster. So, who does not think that we are doomed? It’s happened every time in history.

Thousands of times. Ask Addison how many currencies have collapsed to zero value. He looked at them all — there’s hundreds of them — and he got halfway through the currencies starting with the letter B and they had all crashed. Not one paper currency ever lasted. And here we are with the dollar and the euro and all the rest of these fiat currencies.

Peter Coyne: So, what does the aftermath look like? Do we live in caves and eat canned food?

Mogambo Guru: I think it basically means that assets are going to go to a very low value. What’s the value of a company when nobody has any money to buy anything with? So things are going to collapse to their actual value. Food and commodities are where you should be. Energy to keep warm…food to keep alive…water to drink.

It’s going to be people growing things in their backyard again and I don’t know. The government thinks they can keep this thing going with printing more money but they’ve always thought that. Every government that has got themselves into this mess has thought that.

Peter Coyne: You always talk about gold, silver and oil. All three are relatively depressed — is now a good entry point in your estimation?

Mogambo Guru: Oil because of the energy and the sheer number of things you can do with a pure energy source like that. I mean, you can burn it right out of the ground for crying out loud. And silver and gold because that’s what everyone has always turned to throughout history.

All of these failures in currency and economy are because of the government overspending and debt getting out of hand and collapsing in value. Gold and silver reigned supreme every time. So, I expect it to work that way this time, too. It’s as simple as can be. I’m no genius about this stuff. But I can read history.

Peter Coyne: In what form do you recommend readers own those assets?

Mogambo Guru: Well, as time goes on, I imagine that the counterfeiting of gold coins is going to be going on. And American Eagles have so many things about them that are hard to counterfeit; that it doesn’t make any sense to try. So that’s one of the more liquid forms.

The only thing you can do about oil of course is oil stocks. There’s really no way to do oil. But there will always be a market for oil in one form or another because you can’t do without. You can do without a lot of things but oil is not one of them.

Peter Coyne: I take it you don’t care for bitcoin?

Mogambo Guru: Oh, no way José! I can’t believe anybody is doing bitcoin. The only reason you might want to use bitcoin is for the anonymity of the thing. If you really want to be that anonymous, fine, jump in.

But you visit your money in some kind of hyperspace based on someone’s inability, suppose it inability to hack into your account and steal everything. Man, oh man! With what the NSA can already do, the CIA and all those computer geeks! Those brilliant computer geeks around the world can do these amazing things. So I don’t think the people in bitcoin are going to be happier over the long haul…

Peter Coyne: Okay. Here’s another softball… why do you rail so hard against Keynesian economics?

Mogambo Guru: I went through years of economics in graduate school, I had to go through macroeconomics twice. It was a Keynesian school. And then I just wasn’t getting this stuff. And I just couldn’t. I tried as hard as I could. And then after I got out of graduate school and started looking at economic theory again, I had the same experience.

And then one day, just by accident, I ran across Economics in One Lesson by Hazlitt and my eyes were opened. This stuff made sense. This is the way it really works. That Keynesian crap, no wonder I couldn’t get it. It’s insane! So I’m a big “Austrian economics” kind of guy now. A good book to read for that is Henry Hazlitt’s Economics in One Lesson.

Peter Coyne: You said that in the end that assets would fall to a very low value. That’s seems like deflation. At the same time, many Austrian economists say that government policies will end in inflation or hyperinflation. Do you think one outcome is more likely than the other?

Mogambo Guru: I think we’ll get both. Things will change in relative value; the things that are now undervalued compared to everything else will become more valued.

You are starving to death… nobody has any money… the economy has ground to a standstill. I’ve got a hamburger and I’ve got a ton of molybdenum. Which one do you want for your money?

It’s that commodity of food, energy or shelter, the things that people really need to survive that are going to go up. The subsistence existence if nothing else will go up in value. Look at all of these African countries and other poor countries in the world. Basically that’s where all their money goes, their food and energy.

Peter Coyne: What’s happening in the meantime?

Mogambo Guru: Well, the money has to go somewhere. It’s not going into commodities because everybody’s got all they need. They’ve got food and whatnot.

We’re talking hundreds of billions of dollars at a crack. We’re talking over a trillion or two a year from the federal government alone. That money has to go somewhere. It has to land in somebody’s hands. Eventually, it’s going to end up in somebody’s hands who doesn’t have to pay anybody else. There’s nothing else that absorbs that much money except the asset market; stocks and bonds.

Peter Coyne: Do you think the rise in asset prices is commensurate with the policy that the Federal Reserve has had?

Mogambo Guru: Of course it is! Look at how high the stock market is. 500% higher than it was. And in the bond market – they’ve driven prices of bonds so high they are yielding 1% or 2%. This is insane stuff.

Look at the price of houses go up. And even food. If they hadn’t done these hedonic adjustments to actually increase the price of food — do you know how much a taco costs me these days, Peter? A lousy taco!

I want to get a chicken dinner, two piece, dark meat, the cheap stuff and let’s go. How much!? This is just insane! Prices have gone up in damn near everything but the government doesn’t want to admit and they have lots of reasons why they don’t think they have to.

But the taco now has a fancy shell and it’s got carbon enhanced sauce and extra vitamins and salsa, I don’t know what. I’m getting more value for my money they say. And I didn’t want that value and bottom line is, that thing cost me a lot of money these days.

Peter Coyne: Well, what’s the deal? Why are all the other taco eaters sticking with this narrative that there’s little if any inflation?

Mogambo Guru: Well, they have been lulled into a false sense of security. There’s nothing really in the news except for us crazy people out here that are screaming doom and gloom at them.

And so the government is not upset about it. If the trusted left wing broadcasters aren’t upset about it, there must be nothing to be upset about. It’s not on Twitter. Where is it on Twitter? So nobody’s alarmed…

Peter Coyne: They’re in for a rude awakening then. Jim Rickards likes to say it’s “three strikes and you’re out.” He looks back to 1998 and then 2008 and leans forward to say the next crisis is going to be the third strike — which we won’t recover from. His reasoning is that there’s a confidence limit in the Fed. During the next crisis, he wonders, how could the Fed take their balance sheet to $8 trillion or $10 trillion without destroying confidence. Do you agree with his assessment?

Mogambo Guru: Well, that’s kind of a loaded question. Can they do it, yes they can and easily. Just about at their whim they can do that. Will they do it without consequence? No, they will not. It’s insane to even think so.

Why would you even have such a subject as economics if you could just increase the money supply and the government could spend all that money without consequence? That is what government has wanted all these hundreds and thousands of years.

Every government wanted to increase the money supply, give everybody money, let’s have lots of money going everywhere and have it done without any consequence. It doesn’t happen.

Peter Coyne: So are you of the opinion that this next crisis will it be it or do you think the Fed still has dry powder left to backstop the system?

Mogambo Guru: Oh, no, I don’t know if this next crisis will be it. That’s one of the big mistakes. I always underestimate the sliminess of government. People are talking about doing away with physical currency. How crazy can you get? And they report to the government every in or out of your bank account; $10,000 or more which thank goodness isn’t me.

But come on here. What’s going on with this crazy country? Is the government getting crazier and more slimy than I ever gave them credit for?

And so can they actually think they can print their way out or have martial law this way out or pass new laws about getting themselves out of this mess? They’re going to try. You bet they’re going to try. And it will work for a while because if nobody sees it on their Twitter account, nobody sees it left wing news shows, not in the newspaper so there must not be any panic.

Peter Coyne: Are you optimistic about anything in the economy? We’ve been writing a lot recently about innovation as a counterbalance to government meddling. What are your thoughts on that?

Mogambo Guru: I think there will be benefits to be sure. But can they stave off a systemic, gigantic, overwhelming bankrupting problem like this because they have a new penicillin? No, I don’t think it’s going to happen that way. There will be pockets of that, of course there will be.

There are people investing money so not everybody is going to be broke. There’s going to be lots and lots of money around. Bankers and the people in the financial services industry, you can break every securities law known to man, none of them goes to jail and their company pays a little fine. What kind of a deal is that?

So you think the government can’t orchestrate anything they want as far as printing money and causing things to go up, asset price to go up? Sure they can for a long time.

Peter Coyne: Are you monitoring any potential triggers for the next crisis?

Mogambo Guru: No, the thing is everyone always tries to find what the proximate cause was. What caused all of this? What was the thing? We all say World War I was caused by Archduke Ferdinand getting assassinated so everything else should be as simple. But it’s not. It’s always something different. Something no one expected. That’s Taleb’s Black Swan.

It could be an asteroid strike. It could be a volcano erupting. Barack Obama says he’s a communist so we are all communists. Who in the world knows? But I wish I – it’s something that’s going to have a big, long cascading effect.

That’s Jim Rickards’ avalanche. Yeah, it builds and builds and builds and builds. How long are you going to hold onto debt when all around you, everybody who owns debt is going bankrupt.

Peter Coyne: What’s the fix? I’ve lost track, but I think the 40th person or thereabout piled into the Republican presidential primary… do you think it will be a matter of having the “right person” in political office?

Mogambo Guru: Wouldn’t that be nice? I would love that to happen! But it’s not going to happen…

There was a book; I forget the guy’s name, but basically saying that things like this go through four stages. And in the last stage, which is going on now, people are acquiring things. It’s the acquisition stage.

We are just getting more things and more assets and buying things and buying things. And it will collapse and then, we’ll start all over again. And a strong man will arrive. It’s like Hitler. Germany had basically collapsed because of the Versailles Treaty. They couldn’t pay all that money so they printed the money they needed to pay the people.

Then, of course, that created a crippling inflation. It killed them. And so a strong man arose and he said “I can solve all your problems. Vote for me, put me in charge and all solve all your problems and Germany will be wonderful.”

Someone will do that here. They’ll say “vote for me” and they’ll have everyone believe that you they’ve been given strong man powers. People will believe dictatorial powers can actually make things right. And that’s basically what’s going to happen.

Peter Coyne: Do you think a military exercise like Jade Helm is a precursor of what could happen during the next crisis?

Mogambo Guru: It’s much bigger than that. I imagine they are really doing what they say they are doing. That’s what their job is. They don’t want to be unprepared for those things. Think of the criticism. They need to repel Mexico and the Canadians if they start hassling us. So they have to have plans in place.

My dad was in the Air Force. He said they’ve got plans for all kinds of things. You wouldn’t believe the number of plans they have. Contingency after contingency, there’s just whole rooms full of these. And any problem that comes up, they’ve thought about it, they’ve analyzed it and they have a plan. So, I’m sure that they are doing the same thing here.

Peter Coyne: Thanks, Richard. It’s been great catching up with you. Readers can catch your last featured essay right here. And we’ll have more in the coming weeks, too.

Regards,

Peter Coyne
for TheDaily Reckoning

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