Morons, Dimwits & Symmetrical Yin-Yang Banking

Mogambo on Monday! Stream of consciousness banter on the ill effects of government intervention in the free market…

For the first time in a long time, two things happened at the same time. First, I wasn’t lashing out at a cruel world when I woke up, and the second thing is that Foreign Custody Holdings at the Fed decreased last week. In fact, it went down by a whopping $16.8 billion. I will pause a minute while you rub your eyes in disbelief at both of these revelations, as I think I speak for us all when I say that we are all dumbfounded that the Mogambo even HAS any mood other than "bad" or that foreign central banks would not want to continue to fund the appetites of a consumption-addled bunch of financial and economic dimwits like us Americans. What in the hell could they have been thinking?

The banks, since we are speaking of a real dimwitted bunch of losers, soaked up $18.2 billion of government debt in the same week, taking their holdings of that toxic asset to a new, all-time record, which indicates that their supply of smarts has hit a new all-time low, in a kind of symmetrical yin-yang banking thing. But then again, I am sure that you remember that the whole history of macroeconomic crises is always the result of banks acting like greedy morons, and that this sordid history lesson goes all the way back to caveman days, when the First National Bank of Og financed the Great Depression of the Thirteenth Year of the Rule of King Ga the Merciless, and I am sure that I do not have to recount for you the terrible aftermath, wherein all the mastodons, well, why go into that unpleasantness all over again?

Buying Long-Term Debt: Banks Increasing Reserves

And, for reasons that will probably become clear very soon, and as soon as it does please let me know what it means because you know how-thickheaded I am, and I will need to have it explained me over and over about a dozen times or so, but the banks have suddenly increased their reserves! Of course, I see this as proof, from the perspective of the paranoid whacko, that they, too, are seeing the light at the end of the tunnel, and it is the headlight of speeding train that is barreling down upon us at full speed, and we poor schnooks are tied to the tracks, and pretty soon now that train is going to get here, and there aren’t any Canadian Mounties within miles, and it is only the Mogambo who is watching this happening, and he screaming and yelling, and making what are supposed to be merely threatening phone calls, but which always end up as long strings of obscenities being screamed into the phone at the top of my lungs, and then they always just rudely hang up and report the Mogambo to the authorities, and then those dour sourpusses come knocking on my door, flashing their little badges and waving their court orders, and then I have to deal with THEM, too, as if I didn’t have enough hassle in my life already! I mean, where is the justice?

And since we are speaking of dimwitted losers, it certainly behooves us to include the Treasury Department, which kept on chugging down the road to bankruptcy and ruination, and who is actually rumored to be one of the engineers on the train that is about to run us over, spent their week issuing another big clot of debt, to yet – need I say it? – another new record of $1.132 trillion! Another, as I said, new record! This is to fund the raft of idiocies that the government loves rolling around in. But remember that doing that is what government does, and when the government gets to be this big, here at the end of the massive boom, the sheer size, scope and cost of government is the biggest since, and I throw this out as my candidate for the worst year in the history of America, 1913. Why 1913? The Fed was established in 1913, Woodrow Wilson was elected in 1913, and the Sixteenth Amendment was passed in 1913, and the seventeenth, too, and it has a 13 in it, which has that sinister feel to it, and if you don’t think so, then go rent "Friday the 13th" and see how much fun THAT was!

Morons, which we were talking about before I digressed into another of my ranting hissy-fits – as I am doing again right now! – which should PROVE that I am very disabled in a weird, mental way, but that is STILL not enough to get a lousy handicapped parking sticker for my car. But anyway, the morons of the world, and you can tell who they are by noting who is buying long-term debt to garner yields that are actually less than inflation, knowing that bond prices will fall one day, handing them a big ol’ loss that will easily swamp the paltry yields that they are getting on the bonds, which were, if you have been paying attention, already returning a real, after-inflation yield of less than zero, allow, and actually encourage all the other morons. In the long run, this group of bond-buying bozos will take many, many whacks to the head before this is all over. It’s called "Getting what they richly deserve."

Buying Long-Term Debt: Constantly Fed Bad Ideas

My God! Do I really have to tell you to look at what the government doing to us?

For one thing, I have not noticed any "price stability" for the last ninety years, as the dollar has depreciated over 95% of its value in that time, and here lately it has really gotten bad. And for another, we are constantly being fed the idea, probably by having the bloodthirsty Janet Reno and a team of armed thugs with uniforms and badges come to our houses and smash down our doors and kill us in cold blood or something, that money and capital are to be "managed " As, I suppose, all things are supposed to be managed by the government. And that 1) people with money to lend are to be required to achieve only a standstill against loss of purchasing power, and that 2) borrowers are not to be allowed to overbid for money, and that 3) the Fed – the Fed of all people! – should be empowered to enforce such a foul philosophy! My mouth is filled with the taste of bile, or maybe it is just a taco that has gone bad. But it looked good and it didn’t smell too bad. The taco, I mean.

And when the government, let me change that to "the damned government," or better yet let me change that to "The damned government that is bound and determined to destroy us and everything we care about," increases its size and scope to monitor and dispense this increase in money flowing through its hands, then you will get another burst of malignant growth in the cancerous tumor, aka government, that ends up killing economies, all economies, even our economy.

Regards,

The Mogambo Guru,
For the Daily Reckoning
April 12, 2004

The Mogambo Sez: As Larry Edelson of The Real Wealth Report puts it, "I’m more excited about gold now than I have been in nearly three decades." So that is the asset I recommend most highly, and now all we need to do it determine a dollar figure top put into that asset that I, you know, recommend most highly. Or, as Tom Webber, a loyal reader, asks, "How much gold is enough gold?" My answer is poetry itself when I reply "You’ll know when you get enough."

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

The Mogambo Guru is quoted frequently in Barron’s, The Daily Reckoning, and other fine publications. If you’re inclined to read more, you’ll find the whole Mogambo here:

Be Patient And Enjoy The Sunny Days

Here’s a heartwarming story from the TIMES of London: Jan Berry died.

Only in the death notices do you get any honest or uplifting news. A man is dead or he is not. There’s no way to put a spin on it. No point in lying about it.  And even the worst hack in newspapers can get the story right; although very few actually see the body to make sure.

What is uplifting about the obituaries is that they often confirm our faith that things turn out, at least often enough to keep us hoping, as they should.  A man who annoys his neighbors by playing loud disco music at all hours of the night gets run over by a bus; because he can’t hear it coming. A tort lawyer dies of lung cancer after winning a big settlement with the tobacco companies. A woman abandons her family, runs off with the guy who put a swimming pool in her backyard, and later drowns. These little vignettes cheer us up; not because they are entertainingly ironic, but because they remind us that people don’t get what they expect from life, but what they’ve got coming.

No man ever dared his wife into the arms of another man…

No central banker ever urged consumers to mortgage their homes and ruin themselves…

No president ever invited his enemies with a "bring ’em on" taunt…

…without tempting irony. The obituaries are where you see how the story turned out.

Jan Berry, for example, made the papers back in the 1960s as one half of the Jan and Dean duo, which rivaled the Beach Boys in creating the West Coast Sound and recording the good life in California during the early Consumer Binge Epoch. Their music seemed to herald the reckless, la la la live for today, ‘we’ll think of something’ for tomorrow spirit of the whole Baby Boomer generation. It was Berry who wrote "Surf City," with its delightfully delusional refrain: ‘Two girls for every boy.’

Jan & Dean hit it big in 1964 with "The Little Old Lady from Pasadena" and "Dead Man’s Curve."  But the latter song must have given the gods an idea. Hardly 24 months later, driving at 90 mph, Berry crashed his Corvette Stingray into a parked truck, not far from the ‘Dead Man’s Curve’ he had made famous.  The poor man survived, but his brain was damaged. His speech was slurred; he could no longer play the guitar or remember the lyrics of the songs he had written. And finally, on March 26th, Jan Berry took that last ride, ending in a seizure brought on by his injuries of 38 years ago.

R.I.P.

Over to Eric Fry, in New York, with more on the market news…

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Eric Fry, from the Street…

– The "Coalition of the Unwilling" is fleeing Iraq even more swiftly than its "willing" counterpart stormed into the troubled Middle Eastern nation one year ago. Over the last 12 months, the non-U.S. component of the Coalition of the Willing had been very willing to build bridges, fix potholes, drill wells and direct traffic, as long as the local belligerents were targeting US GIs…and only US GIs.

– But now that the Iraqi militiamen and terrorists are broadening their range of potential targets to include Italians, Japanese and Ukrainians, many members of the coalition are becoming less willing to stand behind the U.S. but ever more willing to turn tail and run. Singapore’s troops returned home this week and Norway is planning to "focus on peace-keeping in other parts of the world."

– President Bush must be hoping that no one near the Baghdad airport resurrects P.T. Barnum’s infamous sign: "This Way to the Egress!"

– "In 1841, entrepreneur extraordinaire P.T. Barnum opened a museum of oddities and immediately ran into a logistical problem," explains Professor Janet Davis, author of "Under the Big Top: History of Circus as a Mirror of American Society." "Customers came in and liked what they saw so much that they didn’t want to leave. Barnum couldn’t fit new customers into the museum."

– "To solve the problem, Barnum posted a sign that read ‘This Way to the Egress.’ Most visitors, unaware that egress meant exit, eagerly walked through a door, expecting to see an animal straight out of their nightmares, and found themselves outside. To re-enter the museum, they had to relinquish another quarter.

– "In that little anecdote," says Davis, "lies a lot of Americana and a nugget of what the circus means to some – ballyhoo, deception, sleight of hand, exotica, spectacle, illusion and good old American salesmanship."

– President Bush now finds himself the ringleader of a different sort of circus. For the last 12 months, the Bush Big Top has featured an exotic collection of clowns, along with a dazzling array of spectacles and "good old American salesmanship."

– Unfortunately, many of our foreign allies are tiring of both the spectacles and the salesmanship and are becoming increasingly eager to rush for the exit.

– Perhaps we should simply annex Iraq as the 51st state, or perhaps we should pack up our duffle bags and leave tomorrow. We here at the Daily Reckoning do not know…finance is our beat. But curiously, no one else seems to know exactly what we Americans are – or should be – doing in Iraq, which brings us right back to the financial markets.

– Up to this point, neither the ill-defined rationale for invading Iraq, nor the ambiguous outcome of our efforts-to-date has troubled stock market investors. As long as U.S. casualties merely trickled in and our exit from the troubled region seemed imminent, investors paid little attention to news from Iraq.

– Much more troubling to the mutual-fund buying lumpeninvestoriat has been the months-long barrage of poor employment reports and the ever-present threat of rising interest rates. But now that hostilities are escalating and our allies are "bugging out" and the likely timetable for exiting the country is lengthening, investors may worry anew about the economic and geopolitical consequences of our Iraqi campaign….

– Recent polls conducted here in the States reflect a change of heart toward our Commander-in-chief, which could presage a change of heart toward the richly priced U.S. stock market.

– "Three surveys released Friday reflected growing doubts about George W. Bush’s strategy in Iraq and overall lackluster support for his presidency," the Associated Press reports. "With pictures of dead and wounded soldiers splashed onto television screens, a new Gallup poll showed that 64 percent of Americans now believe things in Iraq are going either ‘very badly’ or ‘moderately badly’ for the United States, up from 43 percent who felt that way a month ago.

– "The findings are borne out by a survey conducted by CBS News," the AP continues, "[in which] fifty-seven percent said the war in Iraq was not worth the costs, compared to 34 percent who said it was." A survey by Fox News/Opinion Dynamics produced virtually identical results. It showed backing for the war at 50 percent, down from 65 percent last summer.

– The bloody TV images from Iraq produced a fitful, fretful week on Wall Street, where the Dow slipped 38 points to 10,442 and the Nasdaq slumped 4 points to 2,053. The gold price also slipped slightly during the week – down $1.80 to $420.70 an ounce. But crude oil surged 8% to its biggest weekly gain in a year – up $2.75 to $37.14 a barrel.

– Given the hostilities in Iraq, the nervous trading in the stock market and the rebounding oil price, it’s little surprise that hedge funds are adding to their gold positions. According to the Commodity Futures Trading Commission, hedge funds raised their gold holdings for the fifth straight week. "Hedge funds and other large speculators bought 144,252 more gold futures than they had sold [last week]," Bloomberg News reports. "It was the biggest amassment of gold futures by hedge funds in more than 20 years."

– Hmmm…what do the hedge funds know?

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Bill Bonner back in London…

*** "Consumer sentiment sinks in U.S.," says an Associated Press headline. Elsewhere we find out that consumers in California are especially gloomy.

Perhaps it is the rising mortgage rates that are bothering people. The average fixed 30-year rate rose to 5.79% last week.

*** Businesses are said to be feeling more confident, by contrast. The Financial Times reports that business spirits are being buoyed by higher than expected earnings.

*** Readers are hereby warned: with little market news to discuss, we default to politics. Not that we know anything about it; but it is more entertaining than celebrity gossip.

*** Friday night’s dinner discussion – in fact every dinner’s discussion for the last week or so – was dominated by the situation in Iraq.  We have a tremendous advantage in these arguments: almost total ignorance. We never understood what the war was all about. We merely read Thomas Friedman’s marvelously loony editorials and laughed. There may or may not have been some good reason for going to war in Iraq, but whatever it was, nobody in the media seemed to know. Typically, Friedman had many opinions, but no clue.

Knowing no more about the facts than Friedman, we fell back on theory.

"Nature hates vacuums, monopolies, and bubbles," we explained to a Frenchwoman who wondered how Americans could be so stupid. "I liked Bush," she had begun. "But I just can’t believe he knows what he’s doing. He seems intent upon rousing every Muslim in the world to join a holy war against us all."

We continued:

"After the collapse of the Cold War in 1989, Americans found themselves in the same position as Napoleon after the treaty of Tilsit. No power in Europe could oppose him; so all of them had to.

"Americans currently enjoy a bubble in debt…a bubble of confidence…a real estate bubble in some areas…a near-bubble in the stock market…and a military bubble. All bubbles have to find their pins as best they can.

"With no conventional forces capable of standing against American military might, we had to find unconventional ones. Somehow a balance of power has to be reestablished. In this regards, the country has been making great strides economically, ruining itself at great speed.  But militarily, it has been a challenge, because the rest of the world is so weak and feckless. The Europeans don’t want to fight…and the Arabs can’t.

"But along came 9/11. Only a handful of homicidal fanatics were actually involved in planning and executing the attack – and many of them were dead – but if the event could be turned into a "clash of civilizations" nature might be appeased.

"The trouble with declaring war against terrorism was that there were so few terrorists around and those that were still alive after 9/11 were apparently not very good at it. After pounding Afghanistan and chasing the world’s leading terrorist into caves…and then stomping through Iraq…killing thousands of people – the vast majority of whom had nothing to do with terrorism – the terrorists were not able to land a single blow to the U.S. Not even a rural post-office or volunteer fire department was hit.  Even in Iraq itself, it was a struggle to generate significant opposition. Saddam Hussein had so terrorized the dominant group – the Shiites – that they practically welcomed the invasion.

"But the pin seems to be getting sharper. The newspapers tell us that everybody now hates America…including our own allies. Today’s TIMES tells of a huge demonstration in Madrid. "Murderers!" shouted the crowd. Against the terrorist bombers? No. It was against the U.S. for stirring up so much trouble.

"Throughout the Islamic world, young men are now preparing for war with America. The U.S. has unified people who wouldn’t talk to each other before. We’ve helped to bring a sense of purpose and common cause to the whole region; they’re all determined to kill us.

"In Iraq, for example, against all odds, the U.S. seems to have turned an important Shiite leader against us. That was an achievement. Because the man’s own father and two brothers were killed by Saddam’s regime. You’d think he would be grateful."

*** "Can a third party nation really "give" democracy to another people?" wonders our unpaid correspondent from Pittsburgh, Byron King.

"Can any nation really "make the world safe for democracy" per Mr. Wilson? What if these other people don’t want democracy, or
collectively don’t understand it, or culturally can’t deal with it?

Heck, do we really understand it here in the U.S.? By comparison, in the early days of the U.S. Republic only property owners could vote (ie, relatively wealthy, white males). State legislatures were usually owned by railroads, coal companies, banks, etc., certainly in Pennsylvania! It took until 1921 for women to get the vote. And it took until the 1960s for blacks to be able to vote in significant numbers in some states. So we are going to do "Instant Democracy" in Iraq? Just add water and stir? Voila, democratic process to rival Vermont town halls? Or is it more like: Voila, democratic process to rival Tammany Hall? Hitler and Mussolini both were "voted" into power. Stalin held frequent elections, with predictable results. So what is this "democracy" thing that we are doing?

The deep-thinkers of the E-Ring talk about Iraq as if we can "rebuild" that nation in a better way, similar to reconstructing Germany or Japan post-WWII. I think that they are thinking so deep that they forgot to come up for air.

But I do not want to be accused of being without hope. I have to wonder if the U.S. presence in Iraq is more akin to a large version of the British-Australian invasion at Gallipoli, 25 April 1915 (89 years ago this month). Seemed like a good idea beforehand. Invade and seize land. But then, it turned into… Hold for a while. Take casualties. Take more casualties. Get tired of taking casualties. Then pack up and leave. A few years later, one of the Turkish heroes of the campaign, Kemal Ataturk, who commanded the 19th Turkish Division, took power, threw the Mullahs out of politics and secularized Turkey. And then he forgave the invaders, and honored their graves saying: "You
the Mothers, who sent their sons from far away countries, wipe away your tears, your sons are now lying in our bosom and are in peace. After having lost their lives on this land they have become our sons as well."

I wonder if, among the young militiamen and jihadists fighting the Coalition Forces, there is a budding Ataturk?"