Let Them Eat Cake!

The Daily Reckoning PRESENTS: Surprise, surprise – comments from the Federal Reserve has the Mogambo on the verge of hysteria. Find out what has him in a tizzy, below…

LET THEM EAT CAKE!

I am always depressed when I read about San Francisco Federal Reserve Bank President Janet Yellen. And there was, I am sorry to say, a new item about her on Bloomberg.com, where she “defended the central bank’s pause from two years of interest-rate increases and said inflation may decline ‘faster than many forecasters expect.”’, and that “it appears that the current stance of policy will move inflation gradually back to the comfort zone while giving due consideration to the risks to economic activity.”

My less-than-charitable interpretation is that the Federal Reserve, as exemplified by this horrid woman, is not interested in the welfare of anybody who cannot offset inflation by raising wages or prices. If I call her Janet “Marie Antoinette” Yellen, is she not saying, “The poor, the unemployed, those on fixed incomes? Let them eat cake!”? Or, less satirically, “The poor, the unemployed, those on fixed incomes? The pain of inflation will rise over the coming years, worse and worse every year, but hopefully it will one day stop getting worse and more painful, and so inflation now is okay.”

This philosophy does not, in case you were wondering, work at my house, as I found out when I tried to offset the higher greens fees at the golf course by cutting my family’s one-bucketful-per-day ration of inexpensive (“It’s tastes like crap! That’s why it’s cheap!”) gruel by a lousy pint (about 2%), even though I told them that as soon as I start making the Big Golf Bucks on the PGA tour, they would eat better food.

This, of course, brought up their inevitable observation that I am a dismal failure as a father, husband and human being, which I defended by noting that the Federal Reserve has completely failed in its mission, too, which is to achieve “stable prices.” And we are both (in case you are keeping score) still failing, as inflation is heating up and I cut their damned gruel rations by TWO pints!

The article goes on to say “In her last speech, eight days before the Aug. 8 Fed meeting, Yellen said the current fed funds rate was ‘in a vicinity that is roughly appropriate’ to temper inflation pressures without choking off economic growth.” Hahaha! In short, she says that they are homing in on the mythical Holy Grail of economics! Hahahaha! What an idiot!

On the other hand, this is great, great news, as now I know that the Federal Reserve will believe ridiculous fairy tales and fantasies, like finding an interest rate that will “temper inflationary pressures without choking off economic growth.” I say this because I have a Fabulous Mogambo Magic Amulet (FMMA) that I can sell (for top dollar) to the Fed that will not “temper inflationary pressures without choking off economic growth”, in case that interest rate thing, you know, doesn’t work this time like it has never, ever worked in the past, either.

The article notes, “New research by John C. Williams, an economist at Yellen’s bank, shows less evidence of the ‘persistence’ of inflation over the past 10 years.” One of her toadying underlings finds “less evidence” that inflation is “persistent”? Hahaha! Either it is, or it isn’t, dude! And the real answer is that it is, and that the Fed has been a miserable, persistent failure for at least “the past 10 years.”

But my eyes bug out in stunned disbelief as she uses this idiocy to say, “Inflation has tended to revert to its long-run average, which, over that period, is within my comfort zone.” Hahaha! What a despicable, loathsome woman! Not only is she an ignorant twit about statistics (in that ALL things have to revert to their long-term averages, unless it IS the average, as that is how the simple mathematics of averaging work), but even beyond that she is saying, “Inflation may be killing you now, and getting worse, but I don’t care because over the next ten years it will come back down!” Hahahaha!

In “Marie Antoinette speak”, that means she is “comfortable” with causing more misery, per year, every year, for those who cannot offset inflation with higher wages or prices because of some mathematical oddity. This is exactly the despicable kind of trashy people who are running the Federal Reserve banking system. And they are, I am extremely sorry to say, all just like that.

To prove it, I have to merely point to a Bloomberg.com news report by Kathleen Hays and Scott Lanman, who report that St. Louis Fed President William Poole said, “The Federal Reserve can be ‘patient’ in considering whether to raise interest rates again, even while inflation stands above the comfort level of policy makers.” His actual remark was “If we believe that we’re headed off in the right direction, then we can be patient and sit there and not create a disturbance in the economy.” Hahaha! What a (to quote Daffy Duck) maroon! Eliminating inflation, that he and his filthy Fed friends have wrought, might create a “disturbance” if they stopped creating inflation? Hahaha!

Or how about Boston Federal Reserve President Cathy Minehan, who bizarrely thinks that inflation comes from oil or something, and not from her and her precious Federal Reserve creating excessive amounts of money and credit. According to Reuters, she actually said, “If energy prices stabilize as is indicated in futures markets, then core inflation will subside.” Hahaha! Morons!

To illustrate how even “low” inflation of 3% is a terror, Money Morning newsletter writes “Over the last seven years, living under ‘benign’ inflation as the Bank of England has the cheek to call it, your wealth has evaporated at the rate of more than 3% every year… turning £100 into just £79.60 by January 2005.”

And don’t get the bright idea that you can just go down there with your shiny Mogambo Ranger Badge (MRB) and gun to arrest them for treason, because bitter experience has shown that bigger guys with bigger badges and bigger guns will come and take them back, and then put ME in jail, like I’m the one that has done something wrong!

Until next week,

The Mogambo Guru
for The Daily Reckoning
September 18, 2006

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.

“Bids are drying up. Many potential buyers are simply waiting for lower prices. The word is that ‘it pays to wait.'”

Thus Richard Russell on the impending end of the housing bubble. Readers might notice that he does not call for a bust…yet. Nothing in the data coming out of the housing business, he says, indicates a hard landing. Or a soft one. The jury is still out; he thinks, even in San Diego, the city that has traditionally been the canary in the housing coalmine.

We are regular followers of his Dow Theory Letter, but we are not so sanguine as Mr. Russell. We are much more inclined to pay attention to the experience of the retired couple in California who refinanced last year to an option ARM with a low teaser rate of 2.6%…who are now making minimal monthly payments of $919 on their $180,000 loan that don’t even cover the interest on it.

Since March of last year, when they took out the loan, the principal has grown to more than $183,000 and the interest rate is now 8%. And, according to their loan documents, it can go even higher – to 9.95%. When the principal hits 115% of the original loan, the bank will start forcing them to pay it off. The question is, how does, Louis, a retired worker for Colorado public services, manage to do that on his fixed income? Wiggling out of the loan wouldn’t help because of prepayment penalties – refinancing before the end of three years could cost the couple $11,000. The trap door will have sprung shut.

There are other smoke signals coming out of the coalmine: a leading U.K. pension fund, for instance, is moving as much as 1/3 of its U.K. equity – amounting to $5.6 billion – into alternative investments…including hedge funds and private equity. And, Credit Suisse now believes that the commodity crash is really, really over…

Contra Russell, we are inclined to believe that the ailing avian in the housing mine will soon be thoroughly woozy.

Speaking of woozy…we are enjoying a business get together with our colleagues and friends this week at two elegant old piles south of Paris. The one we are housed in, the Chateau Malesherbes, is richly decorated with tapestries and oil paintings of French royalty including, among others, Louis IV. The Sun King, we learn, was a natty dresser who liked to display his well-turned out calves in ballet performances.

Malesherbes, itself, might be translated loosely as “bad weeds.” We don’t know what precisely the term refers to…a noxious tobacco habit or ungainly attire…but knowing the French, we are inclined to believe it is the latter. We have some evidence for our suspicion. It is how a strange contretemps that took place last Friday originated. This has no direct bearing on our financial ruminations…but we reckon it says something indirectly about them…. we leave it to readers to decide.

It began when we boarded car #12 in London for the trip back to Paris on Friday evening. Friday is always a busy time; whole armies of bilingual businessmen make the trip home for the weekend…along with the usual assortment of clumsy, disoriented tourists.

We had changed our ticket at the last moment, so we had to buy a business-class ticket and still had no assigned seat. Thus were we waiting at the door of the car when the drama unfolded, along with a tall, fit and very French man, who looked as though he might be a either a professional golfer or a TV personality…and the Eurostar employee who presided over the carriage.

Along came a group of dark-skinned people – perhaps North African – a mother, her handsome son of about 18, then, perhaps the grandmother along with an older man.

“The definition of elegance,” the Frenchmen muttered, in French, with the kind of diffident sarcasm that only the French can pull off. We did not know whether he referred to the way the group was outfitted or the way they bulled into the car. We were also surprised that he spoke in French. If they were North Africans they would understand what he was saying.

They were dressed in a rich but gaudy fashion and proceeded to enter the cabin as if they had a police escort. In fact, the escort was performed by a trio of Eurostar employees, who quickly led the group to seats…and moved the luggage at the end of the car in order to accommodate the new arrivals’ enormous bags.

When the bags were stashed away, the young man we took for a North African came back and, speaking in broken English, gave one of the porters a tip – which must have been an impressive one, judging by the many thank-you’s he received in return.

Then came another Eurostar man…up to the door of the car…reproaching the car’s attendant for letting the group on.

“Look, I have 10 people in my car waiting for seats…these people jumped the line.”

“What are you yelling about? I didn’t give them their tickets. They just showed up at the door. What was I supposed to do…send them packing?”

“How did they get on here?” asked another Eurostar functionary, running up to get into the fight.

In a matter of seconds, the discussion had turned into a shouting match with arms raised. For a moment, we even thought the two Eurostar employees were going to duke it out right on the platform, one yelling in French, the other in English. Our money was on the former, he looked more muscular and more like a fighter, but you never know in situation like this.

“This is scandalous,” said our companion. “They do this right in front of the clients. Of course, the whole thing is scandalous. We’ve been waiting here for seats and they push these Saudis in ahead of us…it’s obvious that they spread money around everywhere to get seats. They were behind us…and they told me there were no more seats. That’s why we’re waiting. But these people came after us…and they have seats. It’s amazing what you can get away with if you have enough money. But what do you expect? We’re in England.”

Thus is the veneer of Eurocratic rationality spread thin on the wayward irrationality of humanity.

More news…

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Chuck Butler, reporting from the EverBank world currency trading desk in St. Louis:

“Years ago I had the opportunity to sit and listen to the famous economist, Hy Minsky, and he talked about how when complacency becomes the norm, watch out! That’s exactly what I think is going to happen with the dollar at some point…”

For the rest of this story, see today’s issue of The Daily Pfennig

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Back in France…

*** We love Europe. It is an area as big as the United States, but it has not been homogenized like the 50 states. People speak different languages. They have different ideas about the way things should be done. They jealously guard their cheeses, their beers, and their manners. You can get on a plane in Paris at 8AM. By 11, you can be in one of a dozen different countries – each one with its own particularities. Today, for example, we began the day in Ireland, we then went to London to work in the office, and now we are on our way to dinner in Paris.

Europe is supposed to be united, but we have our doubts. Their chiefs may meet in Brussels, but each tribe feels itself menaced by the eurocrats…and charges its own politicians not to figure out how to go forward hand-in-hand with colleagues from other countries to build a better Europe…but merely to protect the nation against the foreigners! Even in Brussels, the clans don’t really mix when they don’t have to. The French stick with the French…the Germans with the Germans…and the English? Don’t even mention it… “The wogs start at Calais,” the Brits used to say. Now, even though they don’t say it, they still believe it.