Richard Daughty

DWS Funds is a “member of Deutsche Bank Group,” which I assume because it says so right on the cover of DWS Active magazine, an outfit which has somehow, without me actually noticing, over the years taken over some holdings of mine, so that now I sit, locked in a bunker and peering out at a hostile world through a periscope, wondering how a bunch of foreigners, who almost certainly hate my guts, in this case Germans, took possession of my American mutual fund, and thus took possession of my money, probably like somebody took possession of the Federal Reserve and thus took possession of America’s money, in which case we know exactly who it was, and it was Alan Greenspan and then Ben Bernanke, two villains who chaired the Federal Reserve and whose names will live in infamy because of the inflationary terrors unleashed by their irresponsible creations of more and more money, even more treacherous so than the attack on Pearl Harbor in 1941, which gave rise to that “live in infamy” phrase, as these are The Guys who destroyed the buying power of the dollar and destroyed the USA.

Anyway, the magazine doesn’t get into any of that, or even mention how I hate the Federal Reserve with an incandescent, white-hot fury, and instead presents an interesting graph titled “Where are interest rates headed next?” which showed the yield on 10-year Treasury bonds graphed from 1954 to 2009.

It is interesting in many ways, I suppose, but the only one I am interested in is the one where the only logical conclusion one can draw is, “Head for the hills! We’re freaking doomed!”

In this particular case, in 1954, where the graph begins, the yield on the 10-year bond was about 3%, and it gradually increased exponentially, rising and rising, faster and faster, exponentially, until reaching its high in 1981, when the 10-year bond yielded a juicy 15.32%! Nice!

Thus 1981 would have been the perfect time to buy longer-term bonds yielding around 15%, because ever since 1981, rates have been falling in a mirror-image exponential fashion until they are now, 28-years later according to the graph and 29 years according to the calendar, again yielding around 3%!

The lesson is in the knowledge that because the price of a bond changes inversely with the yield, the guys who bought long-term bonds in 1981 have gotten BOTH the 15% yield AND a huge increase in the value of the bonds as interest rates fell!

Taking the completely simplistic interpretation, this means to not buy bonds now, or at any time in the next 28 years, if there is anything to this 55-year cycle thing, which I doubt because nobody has ever suggested that there is such a thing as a 55-year cycle, and I just made it up because it sounded alarmist and I am actively trying to get people freaked out enough to say, “Throw Obama and his coterie of incompetent One-Worlder socialist government-hacks who have never had a real job or started a real business, and thus have no idea of how anything works outside of academia and government, out of office, down the stairs, and out, out, out into the slimy side streets and fetid back alleys, to live with the other diseased vermin found there, and where they shall be forever shunned as unclean,” which I admit is a little too stilted in language, for one thing, and I don’t think it is going to happen for another, although it should, and would, if I could get “The Mogambo Omnipotence Act” through Congress, whereby I could seize complete dictatorial power.

And if you are, indeed, buying government bonds now, then you are indeed a big idiot, and people are justified in laughing at you derisively, pointing at you and saying, “Look, children! There is the moron that was buying long-term government debt at the end of the 55-year interest-rate cycle that the Wonderful And Wise Mogambo (WAWM) first introduced to the world in a paragraph above!”

Well, I know that it seems cruel to belittle such morons and mental defectives, especially since the losses they will suffer from doing such a stupid thing as buying bonds at the lows of the new Mogambo 55-Year Cycle Theory (M55YCT) will destroy them, which makes adding Stinging Mogambo Insults (SMI) to their very real injury seem petty and vicious, which, I admit, it is.

In my own defense, “petty” and “vicious” are actually just two of my more prominent Mogambo Personality Traits (MPT), along with related other characteristics such as angry, paranoid, surly, sarcastic, cynical and (depending on your definition) borderline psychotic.

In case you were wondering, the average yield on the 10-year government bond since 1954 until 2009, from the 55-year period’s opening and ending lows of 3% and including the 15.32% high right there in the middle in 1981, is, according to these guys, 6.36%, which means that the current 10-year yield of 3.3% is about half of the long-term average! Who the hell would buy bonds now, except the mentally defective or government, as redundant as that is turning out to be?

I make this point only because I am obsessed with inflation in prices because I am obsessed with the way people go crazy in response to inflation in prices, mostly because I am obsessed with how these bankrupted, starving morons are going to see how high gold, silver and oil have risen as their poverty and misery increased, and then they will remember how I was always yelling at them to buy gold, silver and oil for all those years, and how I called them “morons” when they didn’t.

And then I am obsessed that they will figure that I must have a lot of gold, silver and oil, and that maybe they would come over to my house and assault the Big, Beautiful Mogambo Fortress (BBMF) to get a little of that sound money and valuable assets with which to relieve their wretchedness, and I will watch with my finger on the trigger while my wife and kids will be grabbing at my arm, pleading, “Don’t shoot! They are our friends and neighbors, and I see grandma in the crowd, too!” while the mindless mob keeps getting closer and closer, step by step, more menacing by the minute, and you don’t know what to do!

And in my panic I will remember the last time this kind of situation came up was when the minister said to me, “Do you take this woman to be your wife, to love and to hold, in sickness and in health, blah, blah, blah?” and how THAT turned out!

So, desperate for some good news, I was gratified when I turned the page to see another spiffy graph, titled “Positive Correlation”! Something positive!

Well, it shows what appears to be the coefficients of correlation, where everything ranges between 0.0 (no correlation) and 1.0 (perfect correlation), as applied to inflation in consumer prices over the last 5 years versus various interest-sensitive things, like short-term bonds, large-cap equities and TIPS bonds, with the numero uno – number one, top dog and winner by half a length! – asset showing the highest correlation with inflation being (may I have the envelope, please?) floating-rate loans!

The rate on these loans correlates the highest with subsequent inflation, with a correlation coefficient at just under 0.5, swamping the second-place entrant, commodities, which came in at about 0.28!

I say, “Hmmm! Interesting!” in that low, mirthless, hollow laugh of Pure Mogambo Greed (PMG) as I perceive, perhaps, some interesting advantage in the use of these particularly interesting facts!

Unfortunately, I, as a pathetic genetic freak, deserve a Handicapped Parking sticker because I lack, through a genetic defect that is no fault of my own, the requisite intelligence to understand how to take advantage of the facts, further hampered by a genetic defect of a complete lack of ambition, overlaid with a genetically-determined lazy streak a mile wide.

All of this tragic genetic mumbo-jumbo prevents me from ever being rich enough to ever finally get out of this little stupid nowhere town, where all the stupid people are so stupid that they don’t buy gold, silver and oil in response to the horrific inflationary implications of the unholy Obama/Federal Reserve alliance creating and spending So Freaking Much (SFM) money, a situation that makes whole swaths of neurons in your brain sputter (Zzzt! Zzzt!) and die horrible deaths from merely contemplating it!

Fortunately, I found a better investment than shorting bonds, which is a guaranteed winner in itself: buy gold, silver and oil, which are all unbelievably undervalued by a Long, Long Shot (LLS), and getting longer, shot-wise, with every new dollar created by the Federal Reserve to feed the insatiable, grasping maw of the government.

All of which make gold and silver and oil go up in price, which is the whole point of investing, and again proving that “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Richard Daughty

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.

  • JMR in Miami

    Ha, government hacks sawing away at our economy! I say hire 40,000 more IRS agents! Let them increase audits 10 fold!! Let the slimy cap-n-traders reach into all pockets!!! Only then will American Fury be white hot and incandescent enough to slap the smarmy socialists as far down and they need to be slapped. Lucky for us, in their grand arrogance, the government hacks aim to deliver all this agony with the double-quick-time . . . now where is that receipt for that double cheese pizza I ordered while ‘entertaining’ my accountant?

  • Bennet Cecil

    A nice flat tax of 25% would clean up this mess. If every American from the richest to the poorest had to pay 25% on all income and transfer payments the federal government would magically shrink.

  • Mike Horne

    In the immortal words of Chevy Chase, “Jane you ignorant slut.”

    Three reasons why it’s a waste of time and money to invest in gold:

    1. It’s a hedge against the economy itself. You’re thinking, ‘well duh,’ but imagine the worst case, which is the best case, for gold: The economy is in shambles, the dollar worthless, the value of gold somewhere between the stratosphere and mars. You’re rich! Well, on paper anyway; and paper is what you wanted to avoid in the first place, isn’t it?

    What are the chances that, after gold has gone on a 5000% run, you’re going to convert the mother of all investment payoffs *back* into a paper currency that is inflating faster than Mariah Carey at a Sandal’s resort? Zero! Nada! Zilch! It would be like putting on a life jacket and stepping aboard the Titanic telling everyone, ‘It’s gonna go down, it’s gonna go down, it’s gonna go down’ and when the iron beast finally does slip under the waves, you’re telling me you’re just going to sell your life jacket to the schmuck thrashing in the water next to you? Not bloody likely. You’ll keep that jacket on till you freeze to death in the water and wondered why you bothered. Give that thick Mogumbo head (TMH) of yours a shake.

    2. What are you going to do after the economy really starts waving the white flag? Get out the cheese grater and start shaving off slivers of the yellow stuff to buy a few slices of five thousand dollar a loaf bread down at the Gulp and Blow for the youngins? Nah. See reason number 1. You’ll be in the bread lines, same as everyone else, telling everyone how rich you are; everyone else wondering why you’re in the bread lines if you’re so rich, then maybe giving you a good tolchoking for being so boastful. Get his wallet droogies! What’s in it Dim? Nothing Alex, just these gold certificates. Throw em away Dim, the miloko bar doesn’t take that kind of crovy. Give that starry veck another tolchok for being so boastful.

    3. Just before the plane crashes, you’ll see them trying to lighten the load a bit. And after they toss out the Irishman, Limey and the Frog, they’ll start tossing out the bars of gold in a desperate attempt at paying their bills – flooding the market and crashing the price. Investments are for people with money to burn, not for paper certificates to burn to keep the house warm.

    Sorry Mogumbo, but you’d be better off investing in shotguns and canned goods and skipping the middle man.

  • GE Naughton

    Dear Great Mogambo Guru (GMG),

    It doesn’t seem quite accurate to say:

    “…the guys who bought long-term bonds in 1981 have gotten BOTH the 15% yield AND a huge increase in the value of the bonds as interest rates fell!”

    inasmuch as they either would’ve had to hold the bonds to collect the yield (eventually redeeming at par), or sell at the increased value to get the capital gain but thereafter losing out on the 15% interest stream.

    Otherwise, keep ‘em coming, and don’t let the conniving bastards talk you into taking your medicine.

    Cheers!

  • Mark G

    Dear M.G.

    You don’t need to be omnipotant. Just get
    a bill through Congress and past Obama’s
    veto that ends the withholding tax. Make
    government send us a monthly bill. When taxpayer Joe sees the size of that bill,
    he’ll figure out to reduce it: vote the
    b_stards out!

  • Miles Teg

    You are just amazing, actually besides you the other people I like reading are David Harvey (a Marxist lo and behold – not that I am one, but reality is complex) and Martin Wolf…

    Keep up the good stuff, just wish more Africans read your stuff cos if things are bad up North, they are positively chilling down South

  • frankania

    Mike Horne is right; what good is gold? You cannot eat it, sleep in it, easily trade if for things (in today’s worold).

    Better–secure real estate, liquor and food that lasts decades, weapons,used clothing; in short anything that can be traded or used by your ownself.

  • Ricpent

    Not that he needs it, but I will defend ” The Great One.” Because in doing so, I am defending Me! Gold is used for large purchases. Autos’ or real estate. Silver is for small purchases. Food, clothing, medicine, ammo etc. Today, June 25, my birthday, a junk silver quarter is worth $3.50. It is recognizable. How would anyone propose to make transactions in a world where a one dollar bill, or a one thousand dollar bill are the same, except for meaningless numbers. Silver and gold have been currency for thousands of years. Thank you Mogambo Guru

  • John

    How much better to get wisdom than gold! And to get understanding is rather to be chosen than silver. Prov. 16:16

  • blogmaster

    As a journalist I find it hard to read your articles. You have broken every rule of journalism, and your ‘sentences’ make it hard for me to breathe! There are such things as periods at the ‘end’ of sentences, commas are a breathing mechanism – even a semi-colon would be helpful! This may well have been an interesting article, but, I found myself holding my breath in order to finish a ‘paragraph’.

    Try punctuation Mr. Guru, shorter sentences, and give your readers the opportunity to get the gist of a 17 word sentence and a 30 word paragraph before passing out from not breathing!

  • Malcolm Wolfgram

    Joseph Schumpeter talks about a 54 year cycle.

  • Rick the Brick

    I’m in the liquor, guns and canned food camp, with a pinch of seeds, including pot of course.

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