Worthless Virtue

Mogambo on Monday! In an emotional, heartfelt performance, the great Mogambo discusses the mighty virtues of education, work, thrift and the horrible little misfit in charge of the Fed…

To demonstrate the utter insanity of Alan Greenspan, I present you with this recent quote from the Fed chairman:

“We have, I believe, a reasonably good understanding of why Americans have been able to reach farther into global markets, incur significant increases in debt, and yet fail to produce the disruptions so often observed as a consequence.”

Well, well, well! For the first time in history, somebody has figured out how to amass a crushing debt load and NOT have it destroy the economy! And not only that, but Greenspan thinks he has a GOOD understanding of it! And the answer is…(give me a drum roll please)…market forces! He rhetorically asks, “Can market forces incrementally defuse a buildup in a nation’s current account deficit and net external debt before a crisis more abruptly does so?”

After spending his entire freaking career providing more money and credit so as to finance the world’s all-time record-setting bubbles of debt in every market that you can name, NOW he takes the time to ask if market forces can take care of debt? Hahaha!

Alan Greenspan: Market Flexibility

Don’t you want to know how “market forces” can perform this miracle, when such a towering achievement has eluded every other dirtbag government and every other dirtbag economist and every other dirtbag central bank in the entire history of the world? The answer is “market flexibility!” You heard me! He actually says: “The answer seems to lie with the degree of market flexibility.” Market flexibility! Of course! Market flexibility! Greenspan goes on to say – and I know he is hard to hear over my insane hoots of laughter and cackles of utter contempt – “In a world economy that is sufficiently flexible, as debt projections rise, product and equity prices, interest rates, and exchange rates presumably would change to reestablish global balance…”

My God! Why didn’t I see it before? I slap my forehead in wonder! It all seems so simple when he explains it! In every other instance of the build-up of huge, bankrupting debt in the past, we did not have – let me check that list again – product and equity prices! And interest rates were, of course, completely absent! And let’s not forget that exchange rates were also completely non-existent! So NATURALLY the “global balance” could never have been restored in those bad old days!

Doug Noland of the Prudent Bear website seems to echo my sentiments that Alan Greenspan is a preposterous and incompetent old fool, and the fact that economists are not rioting in the streets in protest at these comments by this clueless, horrible little jackass who is in charge of our central bank is a damning testament to the stupidity of economists in general and American economists in particular, and it says something pretty ugly about everybody else, too, that he could say such stupid things and get away with it. Mr. Noland says, “History will not be kind. Absolutely no degree of ‘market flexibility’ will mitigate our financial and economic misdeeds. There will be no painless defusing of U.S. imbalances. There has been no repeal of the Law of Economics. Finance is finance is finance.”

Alan Greenspan: Always Destructive, Often Fatal

And that is exactly WHY these kinds of debt and asset-inflation bubbles have never before, in all of history, EVER been “defused” by market forces or anything else. They are always destructive and often fatal. That is why we are supposed to have nightmares about getting into these situations, and that is why the Founding Fathers wrote this thing about money being backed by gold and silver into the Constitution, just so we would NEVER get into this mess…and yet here we are!

With the rise in interest rates, and with the breadth in the advance-decline line of the NYSE now dropping like a stone, and with the ratio of insider selling to outsider buying of shares, and with the negatively toned activity of NYSE Specialists and Members, and with the price of gasoline rising, and with a war, and with history being what it is, and the Laws of Economics being what they are…

The lights suddenly dim, the audience is instantly hushed, and all eyes are upon The Mogambo as he tragically drops to one knee, raises his arm in weary entreaty, and looks forlornly into the distance. With the haunting heartbreak of deep, gloomy emotion dripping from every tortured syllable, he says, “How do I fear thee? Let me count the ways!”

The face of the Mogambo is truly a work of performance art, with the sadness of wretched, aching, loneliness etched in each line and shadow of his manly face. With a voice that trembles oh-so-slightly – audience members later reported that they could literally feel his pain – and a wistful stare, he breathes life into the words of Mr. Noland: “I hope future historians will grasp the essence of what went astray and comprehend that there were poor decisions made all along the way. It didn’t have to happen this way. It shouldn’t have.” And with that, the Mogambo Guru wept.

But the lesson is learned, and I might offer solace to Mr. Noland. I say, “Rest assured, Doug. They will. They will learn, and they will laugh at us, and they will marvel that human beings could, on the one hand, have so virtuously extolled the mighty virtues of education, work and thrift while striving, at the exact same time, to debase the same virtues to the point of worthlessness.”

What filthy hypocrites we are.


The Mogambo Guru,
for The Daily Reckoning
May 6, 2004

— Mogambo Sez: Take a deep breath. Let it out. Relax. Say “ommmmm.” There is nothing you can do to save us. But the fact that you bought gold and oil and commodities means that you have saved yourself. Be content with that. Ommmmm.

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.

Eric Fry, from the Empire State…

– “The markets are confused, the Fed is confused, we are confused,” say Tom Dyson and Addison Wiggin, the Baltimore-based brain trust of the Daily Reckoning. “Good news is bad news for stocks; inflation is bad news for gold and good news for the dollar…of course, there are explanations for all these phenomena – though mostly far too complex and overly thought-out for our wine-addled brains.”

– The Daily Reckoning’s New York bureau offers a suggestion and an observation. First, the suggestion: Reduce the wine intake to less than one bottle per night. Now the observation: Sometimes the markets do what they want, not what they should. Over the short term, “should” is about as irrelevant as a stick of chalk in terms of market influence. Over the long term, however, “should” tends to prevail.

– Cheap stocks that should rise in value do rise in value, while expensive stocks that should fall do fall. Likewise, currencies that possess no underlying collateral besides cellulose and ink tend fall relative to the gold price…as well they should.

– Recently, however, the dollar has been rallying, while gold has been struggling. Will the monetary metal soon resume acting like the safe-haven asset it is rumored to be? Or will rising interest rates cause a problem for gold? John Hathaway, manager of Tocqueville Funds, explores these questions in a brilliant essay entitled, “Interest Rates and ‘The Death of Gold.'”

– “How does gold do in any period of rising interest rates?” Hathaway asks. “The casual and perhaps superficial answer, and the one already reached by supposedly savvy street-smart traders over the last several weeks, is that it does poorly.”

– Hathaway rebuts this made-for-TV perception by pointing out that the WAY in which interest rates rise is much more important to the gold price trend than the degree of interest rate increases. For example, if the inflation rate is increasing even faster than interest rates are rising, gold is still a winner.

– Hathaway suspects that today’s true inflation rate is running well ahead of the rise in interest rates – a phenomenon that reminds him of 1968, the eve of the great 1970s bull market in gold.

– “It does not seem far-fetched to suggest,” Hathaway writes, “considering the level of existing and prospective budget deficits, the unprecedented buildup of data, the open-ended nature of American military commitments, and the disinclination among political leaders to restructure Medicare and Social Security entitlements, that the year 2004 bears a strong resemblance to 1968. In that year, the Dow Jones industrial average peaked at 1000, a level it would not exceed until 1982. The Fed Funds rate was 5.66% in 1968 and rose to 16.39% in 1981. Returns on financial assets were poor during those 14 years. Gold and gold shares, on the other hand, turned in a stellar performance.”

– That’s because the inflation rate was accelerating much faster than short-term interest rates. “By the end of the 1970s,” Hathaway reminisces, “bonds had been dubbed ‘certificates of confiscation’ and being bullish on America was hazardous to one’s financial health. The idea that stocks could provide positive investment returns was radical and socially risqué at the proverbial cocktail party.”

– Today, stocks are the widely adored, mainstream investment, while gold appeals only to the lunatic fringe. “The end of gold as an investment has come a little closer,” says the Financial Times, reflecting the mood of the moment.

– It’s true that few investors worry about the ravages of inflation, while most continue to embrace the notion of stocks-for-the-long-haul. Perhaps the trends are about to change…perhaps 2004 is the monetary twin of 1968. If so, put a flower in your hair, some love beads around your neck, and buy a little gold.


Bill Bonner, back in Nicaragua…

*** It would be easy to criticize Las Vegas. A cheap shot, almost. So, we will take it.

We’ve heard the suicide rate in Las Vegas is unusually high.

The noise, commotion and never-ending tawdry vulgarity of it must be too much for delicate souls to bear. No wonder people off themselves. Even a life of sin holds no impediment; there must be corners of Hell that are more appealing.

The city seems divided into two species. There are the fat people from out of town. And there are the tartly strumpets who work in the city’s bars, hotels and casinos. The tourists look so bad and the hookers look so good – it is amazing that more of the former don’t drop dead when they get together.

It is almost surprising that there is anyone left alive.

*** “Freedom” is so popular in American public discussion that it makes us suspicious of it.

One of the highlights of the FreedomFest conference in Las Vegas last week was a showdown between Dinesh D’Souza, representing neoconservative views on the spread of freedom worldwide, and Harry Browne, often a candidate for president on the Libertarian Party ticket.

“Freedom is not just an American value,” began D’Souza. “It is a universal value.

“We imposed freedom on Japan and Germany after WWII,” he explained. “We don’t know if we’ll be successful in Iraq or elsewhere, but at least we’re trying.”

Harry then took the podium and argued that freedom is so important we shouldn’t just preach it, but practice it.

“If you want to go fight in Iraq, you should be free to do so,” he offered to his debating opponent. “But let’s liberate America first; let’s not force others to pay for your stupid wars.”

Both men seemed to go wrong almost from the get-go. Each had his own idea of what freedom meant…and each took it as if it were of paramount value. But so what?

On the evidence, people don’t care much about freedom, Americans included. A loudspeaker in the Houston airport told us several times that ‘inappropriate remarks’ would be prosecuted.

We went through the line with everyone else and took off our shoes as ordered. We were told that this was for our own safety, but we knew it was a lie; we knew perfectly well that our shoes would not explode.

The neocons imagine that individual, universal ‘freedom’ is western civilization’s proudest achievement and most treasured value. But the idea of universal ‘freedom’ can scarcely be found in the classics.

“Slavery was the rule, not freedom,” says our friend Michel. It was accepted as a fact of life by the Greeks and Romans. Neither in the Bible nor in the entire classical canon do we find much mention of it. And not a single condemnation.

The Iraqi people submitted to Saddam Hussein with about as much grace as they now submit to the U.S. Army. In the first case, you might say they freely went along with Saddam’s slavery. In the second, you could add, they are now slaves to the Bush administration’s concept of freedom.

*** “We know that the world turns around each one of us,” explains Lucian Boia in his new book. “Each individual and each community see the center of the universe right where they find themselves.”

Every dominant civilization figures that it is at the center of everything…and that its values are universal – no matter how ding-dong-esque they actually are. Greece, Rome, France, Britain, China (which even calls itself the ‘Middle Kingdom’ or the ‘Empire of the Center’) all came to think their civilization was superior to all others. Their food was better…their climate was more conducive to success…their attitudes, their people, their laws…everything about them was thought to be not merely relatively superior, but absolutely the best it could be, the best it would ever be.

*** “More crimes have been committed in the name of liberty than tyranny ever produced,” said a French aristocrat viewing the revolution. Here at the Daily Reckoning, we don’t know. We don’t care much about Freedom. We just don’t like anyone telling us what to do; and we’re happy to reciprocate.

Thousands have already been killed in the Iraq war, most of them innocent soldiers and civilians who happened to be in the wrong place at the wrong time. But D’Souza doesn’t worry about the blood on his hands; he hardly seems to notice. ‘Isn’t the cause of freedom worth it?’ he seems to ask.

We don’t know. But if we were going to blow someone’s brains out, we’d want a better reason.

The Daily Reckoning