From Beyond the Grave

The Daily Reckoning PRESENTS: This week, The Mogambo visits Zimbabwe, where inflation is running at 2,000% per year. And given his colossal fear of inflation, it is no wonder apparitions of the worst possible kind plague him. Read on…

FROM BEYOND THE GRAVE

Chapter eight of Michael Panzner’s book, Financial Armageddon, is titled “Hyperinflation” and he opens the chapter with a quote from Robert Mugabe, the moron who has destroyed Zimbabwe by creating so much money that inflation is running at hundreds of percent per month. The quote is, “I will print money today so that people can survive.” Hahaha!

And speaking of inflation in Zimbabwe, a reader asked, “Hey, Big Stupid Mogambo (BSM)! How much has an ounce of gold risen in Zimbabwe, the country with the highest inflation in the world, and which is now running at almost 2,000% a year? Did gold rise enough – as you claim all the damned time with your Big, Fat Stupid Mouth (BFSM) yammering, yammering, yammering until we are sick of hearing it – to preserve buying power in Zimbabwe? If not, drop dead, you miserable, filthy little creep!”

Instantly, I realize that this sounds exactly like the way my mother used to talk to me! But since she died a long time ago, I figure that her ghost has taken over the writer’s body, and is using his fingers and email skills to dig at me, one more time, from beyond the grave.

And since the only way to ever shut her up was to prove that her accusations and lawsuits were baseless, we go to People’s Daily Online to discover the fact that “the Reserve Bank of Zimbabwe is offering a gold support price of 28 U.S. dollars per gram.”

And how much is that in ounces? Google says that “1 troy ounce = 31.1034768 grams.” The Mogambo Arbitrage Sensor (MAS) instantly realizes that if the Reserve Bank of Zimbabwe is willing to offer $870 an ounce for gold, where are the arbitrageurs buying gold in the USA for $660 an ounce and selling it to these idiots in Zimbabwe for $870? It seems (I say with arched eyebrow) too nice of a juicy plum to turn down!

The fact is that there are surely tariffs, duties, fees, legal issues and taxes enough to make a complete mockery of the bank offering a “support price of $28 U.S. dollars per gram”, or else that bank would be up to its knees in gold bullion right now!

In a more realistic vein, AllAfrica.com writes, that in local currency, “current gold producer price stands at Zim$16,000 per gram.” This is the producer price, which works out to Zim$497,655.63 per ounce.

Zimbabwe Miners Federation (ZMF) president George Kawonza, says “with the inflation rate standing at 1,729.9% we agreed that the gold price should be pegged at around Zim$180,000 per gram”, which comes out to Zim$5,598,625.86 per ounce. Although with inflation raging at almost 2,000% per year, there is no exact “price” for anything, although I imagine that gold selling for around Zim$6 million per ounce comes close enough.

So, given the fact that less than twenty years ago the Zimbabwe dollar and the U.S. dollar had roughly the same value, and thus gold was priced the same in U.S. dollars and in Zimbabwe dollars, I would say, “Hell, yes, the value of gold has preserved its buying power! And not only that, but everything else in the damned country has turned into worthless crap, which makes the miracle of gold even more spectacular! Hahaha! In your face, mom! Hahaha!”

So, the lesson is clear; those Zimbabweans who put their savings into gold, instead of Zimbabwean dollars and assets that can be easily seized and devalued by a government, made out very well, just as the theory predicts!

I got an email from Junior Mogambo Ranger (JMR) Tom D. that clearly explained one of the finer points of the modern voodoo of Hedonic Indexing of inflation statistics when he wrote, “Dear Mogambo, I’m afraid you still don’t have this substitution thing down. You see, as the cost of food rises, people will ‘substitute’ eating (which is expensive) with starvation (which is free)! Therefore, as the price of food rises, the CPI decreases. I hope this helps.”

Boy, did it ever! In this bizarre, alternate-reality world that I commonly refer to as “beyond Kafka-esque”, it actually DOES help make sense of what is happening with the Federal Reserve and Congress! We’re freaking doomed!

Michael Nystrom is the Editor of bullnotbull.com, and as such, is my natural enemy, because after awhile you just get fed up (up to freaking HERE!) with editors angrily crumpling up your creative sweat and blood right in your face and saying things like “What in the hell is this trash? Do you call this ‘writing’? This is crap! You are crap! Everything you do is crap! What in the hell is wrong with you, you Worthless Mogambo Moron (WMM)? Get out of my office! Go someplace and die, you stinking no-talent hack!”

Since I can never actually dispute the dismal facts of their argument, I can instead take delight in plotting and seeking revenge. So you can imagine my delight at running across some essays written by this same Mr. Nystrom! I think to myself “Aha! At last, the tables have turned!” Prepared to gloat in glee as I mercilessly rip into him, hammer and tongs, I was horrified to note that they shared a terrific title: “Three Bears, No Goldilocks”! Hahaha! Fabulous! I love it!

The bad news is that now, instead of just being mad at him from a purely irrational distrust of editors in general, I now also hate him out of pure, shameful envy for coming up with such a great title and exposing my creative incompetence. “Three Bears, No Goldlocks!” Hahaha!

Anyway, even better is that in Parts I and III he reviewed each of the new books by Peter Schiff (Crash Proof, with the subtitle “How to profit from the coming economic collapse”) and Michael Panzner (Financial Armageddon, with the subtitle “Protecting your future from four impending catastrophes”), and did a terrific job. Now I hate him for that, too, the little bastard show-off!

I am currently reading both books, but the news is so horrific and bleak that, after just a few paragraphs of either one, I have to drink bourbon and other alcoholic brown liquids just to calm my ragged nerves, more and more, until my nerves are, at last, comatose. The time-line data shows, in case you are interested, some lagged vomiting, too.

And believe me when I tell you that you will want to know what happened to the economy, as that is what everybody will soon want to know, and it will be a very popular subject on the TV news shows and with Congress for a long, long time. Or, as Mr. Panzner himself put it in his book, “The dangers that a few observers had foreseen – which were discounted, misunderstood, or overlooked – will be the only thing that growing numbers of Americans will be able to think about.”

Such as Junior Mogambo Ranger (JMR) Tim J., who writes, “Dear Mogambo, I too am angry about this inflation. The dog food which killed six of my elderly friends was up 10% from last year.” Hahaha! Sublime!

Until next week,

The Mogambo Guru
for The Daily Reckoning
April 2, 2007

**** Mogambo sez: If you ain’t got gold or silver (or even oil), then we cannot be friends, as one day very soon, my fellow precious-metals fanatics and I will be rich because we own them, and you won’t be because you don’t, and we will have nothing in common anymore, unless you are a young and pretty girl who is desperate enough to do anything, and then maybe we can work something out. Otherwise, scram, moron!

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.

“That’s why I wish again

that I was in Michigan

down on the farm…”

Those are lines from a Laurel & Hardy movie, where the two were in prison and being serenaded by the prison glee club.

We remember them from a childhood spent watching old movies on television. In fact, our head is so stuffed with trivia from movies made in the ’20s, ’30s, and ’40s that we feel out of place in the modern world. Hollywood fantasies from two generations ago are where we belong.

Now, of course, the singing groups in wide horizontal stripes have disappeared. At any rate, a friend of ours who was released from a federal pen recently, reports that what bothered him most during his three-year stay was the radio.

“You couldn’t get away from the thing. And it was never tuned to the classical stations, never even NPR, but to horrible, loud noise…24 hours a day. Talk about cruel and unusual punishment. I thought I would go crazy.’

We had our own encounter with horrible, loud music on Saturday night when we went to Edward’s first theater production…(more about which below).

But now, back to Michigan…by way of California…Irvine, CA, to be exact.

Irvine has had the good fortune of being home to what must have been the go-go industry of the last five years – lending money to people who couldn’t pay it back. Two of subprime’s leading lenders have their headquarters there – New Century Financial and Ameriquest Mortgage Co. And as recently as nine months ago, Irvine was booming. Office vacancies were near a three-year low…and home prices were at an all-time high (anybody who couldn’t find a job in Irvine just wasn’t trying). People were bullish on the city.

But aw shucks…here cometh the decline in subprime, and all of a sudden Irvine is feeling a little down in the dumps. Before, you could barely get a reservation at a good restaurant. Now (if you believe the press reports) you can walk into the best places anytime.

And everyone has reservations about Irvine’s future. More than 3,000 people have been laid off by the two hometown lenders, office vacancy rates are expected to double this year, and house prices are down 17% in the last nine months.

Meanwhile, in Michigan, a bigger, older industry is in trouble – automobiles.

A total of 305,000 jobs have been lost in the state since 2001. Naturally, people who live in Michigan are losing their homes too. According to theory, this is no cause for concern. When one industry dies, another arises to take its place; that’s just progress. Unfortunately for the poor lunch-bucket proles of Detroit, the new industries are arising in India, China and Korea – not in Michigan.

So people are loading up their Chevrolets and setting off to the see the USA.

More than 65,000 people left Michigan during the 12 months from July ’05 to July ’06. For the first time since the Great Depression, Michigan is officially a “poor” state – with income below the national average. Where are the new jobs that are supposed to make the next generation of Michiganers rich? Why…they are in Seoul…or Shanghai…or Mumbai! And what, then, can the poor folks around the Great Lakes do? Learn to speak Chinese and get jobs washing the cars of Chinese billionaires? Send their daughters to do the washing for Indian auto magnates? Start a website of auto memorabilia and Motown remembrances…and get rich from the Google revenue?

We don’t know…so we’ll keep moving.

Still, an interesting little note came up in our look at Michigan. It seems a lot of people who are losing their homes are not very happy about how it happened. A little item in the New York TIMES tells a typical story…this one about a couple in Washington State that needed to refinance a mortgage loan. They went to a mortgage broker, who got them a $267,200, 30-year loan at an 8.5% fixed rate with NovaStar Financial.

But when the couple got to the closing, the documents showed a change – to an adjustable-rate mortgage with a higher initial rate, of 8.62%, that would reset in two years.

“They reluctantly signed the documents because they had pressing commitments to pay debts and home renovation contractors. It was only later that they discovered that their mortgage broker was paid a commission of $5,344 by NovaStar to put them into the riskier and more expensive loan. That commission added $200 to their monthly mortgage bill.”

Like a lot of people, they must feel abused by the credit industry. But what can they do to get even…short the mortgage lenders stock? Go to court?

No, it’s simpler than that. As they go out the door, simply pour motor oil onto the carpet, stop up the sink drains and turn the water on.

Which makes us wonder if what the collateral lenders are getting back isn’t worth even less than we thought. And if the sub-prime hole could turn out be deeper than people expected.

About which, more tomorrow…

First, more news…

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Chris Gaffney, reporting from the EverBank world currency trading desk in St. Louis:

“Currency markets sell the currencies of nations engaged in protectionism, and the U.S. dollar got sold as soon as the announcement was made. As an email sent to me on Friday pointed out, the recent peak of the U.S. dollar occurred in February of 2002.”

For the rest of this story, and for more market insights see today’s issue of The Daily Pfennig

And now, more views…

*** Several of our children seem headed for careers in the entertainment industry – Maria is in her final year of acting school in London; Jules is studying music and film in Boston; Henry gives piano recitals in Paris; and Edward, 13, asked to take a theater class at an independent school not far from our apartment. Maybe it is the drama of our family life that inclines them towards the arts. Or maybe it is a desire to lose themselves in a fantasy world – as their father does in his role as editor of The Daily Reckoning.

In their roles as parents, meanwhile, Pater and Mater Familias have endured some rather painful performances. We recall a ballet in which one little fat girl in a pink tutu whirled right off the stage…and a church pageant in which Jules tumbled over on his head. We remember sitting through Lear performed with Southern accents…and we’d love to forget Maria in an avant-garde production in which she showed off more of her body than her father wanted to see…and far more than he wanted the boys in the audience to see!

But nothing had quite prepared us for Saturday night. The play itself…a kind of ‘Scenes from a Disordered Family’ was merely boring and stupid. And Edward, to his credit, performed reasonably well. At least, he didn’t forget his lines; what he forgot was his cue. He came onto the stage too soon and then had to retreat behind the curtain for another go at it later on.

But the real problem was the music and dance. It was the sort of thing that would have put our friend from prison over the edge.

The idea was to interrupt the play with other displays of talent. But there were three major problems. The directrice had no taste. The instructors had no skill. And the students had no talent. Instead, they all seemed to be trying to imitate trashy American music videos.

A group of five girls, dressed in tight t-shirts and hot pants, for example, gyrated in ways that would have embarrassed the Hottentots. And they did this to a kind of music that made you wish you were deaf…and that was so loud it never let up. We probably could have gone deaf. And God forbid that you listened to it carefully:

“I’m gonna’ loosen my buttons…

“I’m lookin’ at your wheinwhien…

“I like to see your wheinwhien…

“I wanna play with your wheinwhien..

‘Wheinwhien’ is not a word, we hasten to add…but the sound made by what seemed like a machine badly in need of repair.

Over and over again, hour after hour, we suffered…while one young person after another made a fool of himself.

Then, when the adolescents had done, the directrice came up to take the microphone herself. Here was a blonde woman of about 40…dressed in a black outfit she’d obviously purchased at an Elvis memorabilia garage sale…with a silver belt that attempted, vainly, to hold back her Elvis-like excess…and a big tattoo on her right arm…who began to yell into the microphone. She sounded like a nightclub singer who had gotten fired for smoking too many cigarettes, drinking too many martinis, sleeping with too many customers and missing too many performances.

She was a pro…you could tell that, but the kind of pro you wouldn’t want to learn from. It would be too much like studying interior décor from a connoisseur of lava lamps, avocado green toilets, and rust colored curtains. She was not so much an artist, as an artifact…of bad ’70s taste…superficially updated to the ’90s.

When we saw her…we realized what had gone wrong. Her idea of music, dance and theater had been imported…from America.

Next to debt, culture is the USA’s biggest export. Everywhere in the world, people turn away from traditional entertainment in order to watch Britney…or Paris on music videos. Everywhere in the world, people tuck their old clothes into the back of the closet to put on blue jeans and t-shirts. Everywhere in the world, people are trying to bump and grind like Madonna…trying to rap like Snoop Dog…trying to get rich like Donald Trump. Everywhere in the world, in short, cultural standards are slipping and sliding…along with credit ratings.

More to come…

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