The Mogambo Guru

09/26/07 - Investors Sheared by Sharp Dealers

09/27/07 - Educating Morons About the Margin

09/28/07 - The Indeflating Sub-Feral Government

10/01/07 - The Not-So-Tragic Tale of Dollar/Oil Disparity

10/02/07 - Demand Sacrifices Quality Packaging

If you want an example of schizophrenic disconnect other than my extensive medical transcripts, you need go no further than Total Fed Credit, which was down last week! By $4.2 billion! Down! Markets are zooming up, bonds are going up, and yet the very source of the excesses of fiat money and credit, TFC, was down! Down! And even the Federal Reserve's personal stash of government debt was relatively unchanged! What in the hell is going on? Where in the hell is the money coming from to do all of this buying?

Well, perhaps we need look no further than the line item labeled, "Foreign holdings of U.S and agency debt", which zoomed by a hefty $6.2 billion last week.

And if my yelling right in your face is not enough, and you want yet some more proof that not only is the economy flat, the future weak and (horror of horrors!) inflation rising, then you are in luck, as the latest readings of the Leading, Coincident and Lagging Indicators from the Conference Board have been released.

The future (Leading Indicator), was actually down, dropping to 137.8 from 138.7. Bummer! What is happening right now (the Coincident Indicator), wasn't much better, and it was up by the Least Bit Possible (LBP), rising to 124.6 from last month's 124.5.

The Big, Big, Bad, Bad, Big Bad News (BBBBBBN) was that the indicator of inflation and burdens (the Lagging Indicator) had (again!) the biggest rise, rising to 129.4 from 129.0!! Inflation is rising faster than anything! Again!

Put it all together and it stinks from an economics standpoint, and if you think that this adds up to higher stock prices, at this late-cycle stage, at these already-high prices, at interest rates that are at all-time lows, at debt levels that are at all-time highs, at inflation rates in prices that are raging, then you are born to be sheared by sharp dealers.

In that case, I realize you are not going to be able to send any money to me, so I appeal to your sense of fair play, and ask you to please stop sending your money to your retirement plans where the same old sharpies and liars and hustlers and crooks can have it, but instead send it to me, who is every bit as greedy, but pathetically not as sharp, nor as good a liar, nor as sleazy a hustler, nor as clever a crook as any of those Financial Services industry hoodlums, but I need money just as badly as they do! Even more so!

I can see that you are not interested in my not getting rich because you are not stupid enough to send money to me, but you are mostly interested in what to do with the money. If you are thinking that your little account manager is right in saying that corporate bonds are the place to be, I get the impression that this will be a bummer from reading ft.com, which reports that "Moody's Investors Service warned that default rates among high-yield-rated companies - one of the best indicators of the health of the world economy - will rise sharply because of the turmoil in the money markets."

And let me remind you that corporate bondholders are paid before everybody else gets a dime, and that means that by the time they default, the company has paid no dividends, the stock went down, you got squat, and you have lost your big, fat butt in both their equities or bonds.

How many defaults? Moody's reports, "Company default rates are forecast to rise nearly 300 per cent as the credit squeeze hits the wider economy and raises the prospect of a global recession. Moody's predicts that the global speculative-grade default rate will rise from 1.4 per cent - meaning only 1.4 per cent of the companies rated have defaulted in the past year - to 4.1 per cent in a year's time and 5.1 per in two years' time."

This tripling of defaults and losses is part of the phrase "We're freaking doomed!" And it is unstoppable because of the excesses of money and credit issued by the ridiculous Federal Reserve, especially by the Greenspan Federal Reserve, and especially, especially by the Greenspan Federal Reserve in the ten years since 1997, which have gradually driven the prices and number of stocks, bonds, real estate and government services to astronomical heights, so much so that such a huge load of financial crap can no longer be supported.

This is where it gets ugly, and where you realize the importance of gold, and you realize the importance of guns, and how you realize, perhaps too late, that you made a mistake for getting neither, although your real sin is that you did not realize that you were an idiot for believing any of that Wall Street "investing for the long-term" crap in the first place.

I was "on vacation" last week, combining a few days of Mogambo crap with a few days of touring around Glacier National Park and environs, and purposely did not catch much news; no email, no Internet, no news, work, although I did inadvertently catch the news that the freaking Federal Reserve massively reduced (as was easily predicted) interest rates, by lowering both the Fed Funds rate (the rate at which banks lend overnight to each other, secured by collateral, to meet the requirements that they balance their books for the day, because you can't be in arrears, by law, and you don't want to end up sitting on truly idle cash, either, earning literally nothing, when the other bankers are down the street making more money than you by another 0.000003%, and you have already screwed up so much other stuff this year that your lack of profits make you look like a complete moron ("What are you, some kind of Moron Mogambo Thing (MMT) or something?"), and you are practically dead meat right now as a result, and your own mortgage is eating you alive because you believed your own lies and nonsense and invested heavily in real estate, and you are losing your stupid little butt and are now getting fired, too) and cutting the discount rate (where the stinking crook banker trash comes up, with their hats in their hands, and admits that they screwed up and they have to borrow from the Fed to balance their books for the day).

As to magnitudes, the Fed lowered them both by 0.5%, which for those of us who are Decimal Recognition Impaired (DRI) and yet who cannot get any government money to compensate us for our crippling handicap, no matter how loudly we protest their stupid little arbitrary bureaucratic decision to screw us out of the little bit of money we need to overcome our tragic handicap, comes out as one-half of one percent. One lousy half of one lousy percent. It doesn't sound like much.

Another way of looking at this is they lowered interest rates at the rate of one penny per two dollars, payable at the end of the year. A dime on twenty bucks. One dollar per two hundred dollars. Not very significant in this day and age, especially when a couple of simple high-calorie, high-cholesterol, bacon-heavy, fried egg, hash browned, Hollandaise-drenched breakfasts is running 25 bucks!

So, seemingly paradoxically to the layman, I am instantly yelling out of the window my outrage and horror, although it is obvious that most people think it doesn't seem like much, like George out there, saying, "What in the hell are you yelling about now, you Irritating Mogambo Moron (IMM)? What are the interest rates to start with? Five lousy percent or something? A half of one percent of nothing ain't nothing! So shut up, shut up shut up, shut up, for the love of God, just please shut up!"

That's the moment when I realize, again, what a moron he is, and I tell him so, again, because I figure that he will be glad to learn that he is still a moron, no matter how much I try to educate him. And so I yell at him until he goes back into his own house and minds his own business, "You're a moron! You're too stupid to understand that it is BECAUSE it's a half of a percent of nothing is the actual reason why it is so important! As a percentage of the old interest rate of 5%, it is actually a 10% cut, you numerically-defective twit! A 10% cut in interest rates!"

Rudely, his back is turned to me now, as he stomps off, but I gladly continue educating him, "And I know that you are WAY too stupid to understand that everything is about what is happening at the margin. The margin, moron! If a billion bonds sold all day at $10 apiece, but the last (1,000,000,001th) bond of the day sold at $11, all the rest of that whole billion bonds are, now, also "worth" $11! Hahaha! It's all happening at the margin! What in the hell is the matter with you that you can't understand that, you drooling, halfwit, lowlife creep?"

Usually they either finish getting away or (one time each) advance a few paces onto my property, only to hear the unmistakable sound of a bunch of weapons cocking and/or loading a fresh round into the chamber, and even I admit that if it was me out there, stomping around with that stupid baseball bat in my hand and I had that stupid look on my stupid face like I'm new around here and I ain't heard of some Pathological Lunatic Named Mogambo (PLNM) and how I think I am such hot stuff, like I'm going to march over there and kick, you know, A Little Mogambo Butt (ALMB) to teach him "a lesson", I would be crapping in my pants at the sound of that much firepower coming online! Big time!

And one thing I learned over the years of being a hateful, insulting, paranoid, angry psychopath is that if you can get somebody to involuntarily crap their pants in fear, they usually just want to go someplace and hose off, then go home, and then take a bath, and then put on some fresh, clean clothes, and then try to sneak up behind me, like I'm new at this and I don't see that silly, suicidal crap coming or something.

So I never actually get to explain how if you had just bought a bond, see, or maybe a million dollar's worth of bonds, or a billion dollar's worth in bonds, or a trillion dollars in bonds, what would those bonds be worth if interest rates dropped by 10%? You would make (theoretically) a stinking pot full of money - we're all freaking rich! - as the market price of those bonds zoomed!

And then think of how much profit you would make if you had leveraged a lousy, oh, say, $59.62 into the $5.962 billion in bonds you leveraged to buy the whole wad! Wow! Modern finance is amazing!

And the bonds would zoom because even if one stinking bond, of some type, somehow connected via derivatives over to the toxic crap debt you are thinking of buying, goes up in price! And not only goes up in price, but as the last trade of the day! My God! The change at the margin has made us all rich! This is a huge profit bonanza, pleasing Wall Street! Upon which taxes are due, pleasing the government! And the banks! And investors the world over! "Whee!", they all think to themselves! "Whee! Whee! Whee! Thanks, Federal Reserve!"

If you think that any of this means "Whee", then you don't know squat about economics, although you are plenty savvy for trading and speculating and working in slimy cahoots with the government and the Fed to generate short-term profits and jobs for us and all our families and friends, which is proved when one learns that 70% of all profits in the USA are made by (the bugle toots a fanfare "ta daaaaaa!") the financial services industry!

As an aside, I have learned over the years not to pound too heavily on the idea of how stupid they are (no matter how much they deserve it), and to NEVER include their mutant children, as in, "And you are probably why your kids are morons, too!", even though it makes perfect sense from genetics standpoint to me! Hahahaha!

And by this time I am exhausted from yelling and carting spare ammunition about, and IU never get to explain how a dollar going down in purchasing power, relatively precipitously compared to the historical ebb and flow of things and other currencies, makes it all better or worse, depending on your perspective and whether or not you believe in "happily ever after" endings.

Of course, nothing could be more insane than the news from the AP, "Senate panel sets national debt limit at $9.82 trillion, $4 trillion higher than when President Bush first took office".

Now put this together with Goldmau.com saying, "The debt growth rate is now higher than GDP growth, a recipe for eventual hyperinflationary outcome."

And all this new debt is certainly needed, as my buddy JMR Phil S. sent a chart from some guys that calculate that it now takes $5.53 in debt to create $1 of GDP growth!

And sometimes not even that, as JMR Dan B. sends a pithy little summary saying, "China has increased their money supply 53% while the U.S. has increased it 12% during the same time period. I don't know if that implies some level of corruption, but it must bring tears of joy to the eyes of Helicopter Ben."

Well, I am happy to report that the situation DOES bring tears of joy to the eye, as the same thing recently happened around here! I mean, at one moment, there I was, mentally cleaning out my desk after being canned, and I was imagining that my boss was there ("I've waited a long time for this, you Worthless Mogambo Human Trash (WMHT)") and the security guard ("I've waited a long time for this, you Worthless Mogambo Human Trash (WMHT)") and all the people from the other offices ("We've waited a long time for this, you Worthless Mogambo Human Trash (WMHT)") and how, this one time, I'd like to go with pride and dignity, with my head held up high, instead of being dragged out, screaming and fighting and crying and slobbering all over myself ("Please, please, please don't fire me!"), by cops working as enforcer-goons for the mental health workers ("We've waited a long time for this, you Worthless Mogambo Human Trash (WMHT)".

My keen, analytical mind realized that, if that was truly my plan, I ought to at least clean out all the old pizza boxes and pornography from all the desk drawers. So I gathered up a big box of the stuff out of the bottom drawer of the desk, but then I realized if I did that, then there would be nothing else in the damned drawers, and they would be empty, and then everyone would say, "We were right! He really WAS stupid!", whereas with the pizza boxes and porn everywhere, they would naturally say, "He was, we admit, smart enough, talented enough, even brilliant perhaps, but he was just too distracted and sleepy from eating all that pizza, and maybe we ought to hire him back! And at a big increase in salary and benefits! And a secretary with great legs and short skirts to look at, so that he could at least have some empty desk drawer space!"

Well, that is the way I had it all planned out, but it didn't work out that way after all. I took the box of porn and pizza mess and put it all over the office of my assistant, and HE got canned when I fired him! You should have heard him scream about how he was innocent! Hahahaha!

Anyway, without anyone at the executive level around here to take over, I am still employed and holding my own, just like the dollar against the yuan (CNY)!

Anyway, Dan didn't seem the least bit interested in my crafty career moves as a parable on the changes in the money supply, and instead says "on another note" that foreigners stopped investing in U.S. bonds as sales "dropped from $97 billion to $19 billion in August. That was before the interest rate cut!!" He calls attention to the two exclamation points, which I take as a secret signal to look for conspiracies and corruption everywhere, trust no one, and prepare to take refuge in a bunker of some kind, like the Mogambo Ultimate Bunker (MUB), shooting first and asking questions later.

Probably sensing with dismay the direction the discussion has suddenly taken, he changes course and says, "California is already $750 million in arrears in collections versus commitments. Do you expect foreign pullback to be Sudden Mogambo Death (SMD) for sub-feral…no no no, I mean sub-federal government?"

The answer is, "Yes. Yes, of course", and was preparing to preface my remarks with a long, haunting death-wail, which seemed so symbolically appropriate, when I was interrupted by an email from David K., which began with the customary salutation. "Oh, Mighty Mogambo," it read, "if you will take a moment to go to Lew Rockwell's site, lewrockwell.com, you will notice that there are two articles, one entitled 'The Fed Is Deflating' by Gary North, and the other, 'The Fed Is Inflating' by Murray Sabrin.

"My question to you is: What the French, Toast? Dr. North makes some very good points, and I agree with his conclusion. Mr. Sabrin makes some very good points, and I agree with his conclusion.

"So what in the hell is going on? Is the Fed deflating? Inflating? Indeflating?"

I immediately wondered, "Indeflating? What in the hell is indeflating?" I figured it was a secret message of some kind, so I didn't let on that anything was amiss, and replied, "Dear JMR David, They are both right! Did you think that my wife's love for me, dropping like a stone until one day I can see her, hiding behind the hedge, looking at me through the crosshairs of the telescopic sight of a .30-.30 deer rifle and smiling to herself, means that neither you, nor anyone else, cannot find true, everlasting love? Of course not! You can exult, waxing prosperous, happy and sleek, whilst I sulk and wither and die of a broken heart and a knife in my back.

"Except for the 'everlasting' part which is, of course, a big load of crap, as there is very little of an evolutionary advantage in it after the kids are big enough to be put to work hunting, begging, stealing or working, and yet still too young to legally keep you from stealing them blind, or too little to keep a crazy man bigger than them and with a baseball bat from coming over there and taking any damned thing he pleases, including not only a damned full tank of barbeque propane in exchange for my empty one, but anything else I take a fancy to, because you probably stole it from me to start with."

At this point I realized that I was getting off the track and into one of my paranoid persecution delusions, which never seem to end well. So I hurriedly changed back to the topic and continued "Nevertheless, the answer to your question is that some things will go up in price until you are squealing like a stuck pig, and some other things will go down in price until you are squealing like a pig, too", which summed it up perfectly.

Junior Mogambo Ranger (JMR) Juan O. writes to call my attention to the disquieting fact that "oil trades at a higher number than the USD index. How funny is that? Or maybe it's just tragic."

Naturally, I craftily respond, "Tragic? What in the hell are you talking about? Who the hell are you? Where am I? Why am I tied up like this?"

JMR Juan then says, seemingly by way of explanation, "USD 79.51. Crude Oil 79.91", which I naturally take to be a code of some kind, probably a message that he is sending help and that the odds are even.

I was relieved to hear this, and thus I was relaxed enough to idly notice that if the dollar index, which has been falling, was at rough parity to the price of oil,  which has been rising, and now they are crossing, and that made sense, too! Oil exporters don't want dollars, see? They want units of buying power that they can use right now (like ordering some pizza and liquid refreshments for everybody), or to use in the future (to order some pizza and liquid refreshments as soon as The Mogambo goes home so he won't be hogging it all and we won't watch him eat, or (even worse) listening to him slobbering and gulping and belching while he gorges on it all).

And because these oil exporters, like everybody else, don't see the U.S. dollar getting stronger in a real sense (because of economic vigor) or in a relative sense (because everybody else is debasing their own currencies even more tragically than we are), then the dollar going down would automatically make the price of oil rise, even though the true "value" exchanged would remain, theoretically, a constant!

So oil going higher as the dollar goes lower makes perfect sense, and I am glad that those stupid oil-exporting morons don't wake up and say, "Hey! We're getting screwed here by not raising the price of oil to compensate for the reduced value of buying power and reduced store of value of the damned dollar with which these deadbeats are paying for our oil, especially the part about the dollar being a 'store of value', so that by the time the damned Mogambo goes home and we can order some pizzas and beverages to get this party really started, the purchasing power of the dollar has dropped so much that we can't buy as much pizza and beverages as we can right now!"

They have a point! I mean, what Big Economic Moron (BEM) can't see the profound inequality of the value exchanging a barrel of oil today, which will be more valuable in the future, for 10 pizzas consumed today, versus the value of 9 pizzas consumed tomorrow? Or what is the relative value of 10 pizzas today worth, versus only 8 pizzas consumed next week? Or 6 pizzas next month? Or 1 pizza next year? What kind of idiot would hold dollars?

Likewise, what oil-selling nation would be so stupid as to constantly accumulate dollars, by exchanging a tiny bit of a finite amount of oil for them? Who would exchange their irreplaceable natural inheritance for a foreign currency when the value of that currency power was going down, down, down, down in buying power? Hahahaha!

Who would voluntarily accumulate dollars, and all your friends are laughing at you and chanting, "Hahahaha! Big oil-export moron selling oil for dol-lars! Devaluating dol-lars! Devaluating dol-lars! Mogambo him right! You are a big stupid oil-selling moron who doesn't get any pizza, and doesn't deserve any, because he was so stupid that somebody ought to come over there and slap your face until you stopped being so silly!"

I don't know if it is coincidence or what, but Kate "Short Fuse" Incontrera at DailyReckoning.com writes, "Also wearing on the greenback are rumors that the Saudi Arabian government are batting around the idea of de-pegging their currency, the riyal from the U.S. dollar - a move that would be a disaster for the already down-and-out U.S. currency."

And, even worse, it is not just oil and other imports that will cost more, but everything will cost more, too, even though it was made here, because our domestic production and exports will be so cheap to foreigners (thanks to their strong currencies) that prices will be bid up, tariffed-out, taxed, and boosted by demand.

For example, the CRB Index is a basket of 28 different tangible assets and other natural resources, and in the past seven months is up 14%! Hell, the Economist magazine's Dollar Index on the back page reports that "percentage change on one year" for "All items" is 21.5%!! Note the double exclamation points, which is a sure-fire way of detecting importance!

Worse, the Economist's category of "Food" lists the "%age change on one year" as 40%! I gasp in absolute horror! Prices for food, priced in dollars, are up by almost half, almost 50%, from 12 months ago!

Suddenly, I realize that this means that I'm literally paying for 1.5 items, but the snotty little cashier is waiting until my back is turned while I am unloading the shopping cart onto the little conveyor belt, and then she steals every third item that comes along! But when you turn around real fast to try and catch her and her thievery, she flashes that stupid little smile at you that she thinks will make me think that she is NOT stealing my food, but it just proves her guilt, as far as I am concerned.

And I have seen enough Star Trek episodes to know that videos can be altered in the computer, so it doesn't surprise me that the store's security cameras can't catch her stealing a third of everything I buy. Probably some kind of Klingon cloaking device or something. I dunno. Nothing that a photon torpedo couldn't handle, anyway.

One of the problems with debt-as-money and excesses-of-debt-as-excess-money is that not only do prices of some things soar, and then the prices of all things soar as the money diffuses through the economy, but that there is a huge disparity of wealth created, to A few very, very, wealthy, wealthy people and a lot of poor people.

The situation arises because the poor cannot borrow money to buy government bonds! It's that simple! The middle class gets to buy a few, but mostly out of savings and through their retirement plans at work, which are (as I gather from a lot of nervous emails from people unlucky enough to be stuck in them) seen as a looming death sentence for accumulated wealth.

But the rich already have lots of money and assets, and bankers like to loan lots of money to guys who have lots of money and assets, because if the rich guy defaults on the loan, then maybe the bank can get its money back by suing them in court.

So the rich guys borrow all this money from the bank (which creates the money on the spot - poof! - out of thin air), and the rich people take the money to buy government bonds, which the government will pay back WITH INTEREST! The rich get all their money back, and more, besides!

This, then, is how the rich get richer! And the poor get poorer because they are the ones paying the "silent tax" of higher prices (inflation in prices) caused by the inflation in the money supply, which was created to buy the bonds in the first place! And more and more of the middle class start hurting, too, and start slipping down to the class known as "poor" because things cost so much more.

For example, at atimes.com we read the headline, "Inflation eats into China's mooncakes" which means that, "The beloved national tradition of nibbling sweet pastry mooncakes and admiring the fullness of the harvest moon in the Mid-Autumn, or Moon, Festival has been hit by China's runaway inflation, forcing vendors to opt for frugal variations of the rich treat.

"The pastries are round, and traditionally eaten and given away as gifts during the lunar festival, and have been affected by to inflationary pressures along with 'all other food products', as 'the cost of raw materials to produce the cakes has increased by 15-30%.'

In fact, "Annual inflation in China hit an 11-year high of 6.5% in August." Only from Antoaneta Bezlova from Inter Service and atimes.com, perhaps, will you read the real reason WHY this inflation thing is such a big deal; the inflation is "raising fears of rapid erosion of living standards and potential social unrest." Social unrest! Exactly right!

Naturally, "producers of mooncakes have found themselves in a bind" because, on the one hand, the government is "worried that surging prices could touch off unrest across the country" and so the government has, "issued stern edicts warning against price gouging and dictated that the prices of the traditional treat should be kept stable."

Now, after "Once splurging on luxurious packaging of wood, silk and even gold to entice their customers to choose from a tantalizing variety of mooncakes, vendors now have to reduce production costs by settling for plain and down-to-earth packaging."

Of course, the government and all of us rich people think that the poor and the middle class are a bunch of whining, stupid, stinky suckers, and it is their lot in life to be abused by their betters because they dress so badly, and nothing ever matches, and they are always crossing the street in front of you when the light turns green, and when you honk your horn at them and yell at them to get the hell out of your way, they act all surprised, like, "Who? Me?" and actually stop right in front of your damned bumper and look at you, and say stupid things like, "I am sorry, but I can't move as quickly anymore because I am poor, and old, and sick, and disabled", like any of that sob story crap is going to make my wait any more pleasant while I have to wait, wait, wait, burning valuable, valuable gasoline, and waiting and waiting for them to move their old, lazy butts out of the way of my nice, shiny car!

And if I inch forward and let my bumper kind of, you know, hurry them along, the old guy falls down! This is the kind of insensitive crap I have to put up with all the time! Jeez!

I bring this up because do you know on whom the government is going to spend this borrowed money? This old man! And where is this extra money going to come from? The only places it CAN come from: borrowed, printed or collected from more taxes!

The American government chooses to deficit-spend. And thus the rich get richer, faster and faster, more and more, as the amount of money and the amount of debt and the amount of government bonds and the amounts of money being paid as interest on those bonds rise faster and faster and more and more, all of it going to the rich, and the amount of inflation in prices that the poor and the middle class have to buy rises faster and faster and more and more as all of this money creates inflation in prices.

In this regard, I got a real charge out of Theonion.com, which had the headline that, "Widening Gap Between Rich And Super-Rich Threatening American Dream" Hahahaha! Now the über-rich are forcing the not-so-über-rich to suffer the pangs of falling behind! The absurdity of the rich getting poorer, but still being rich! Hahaha! Ugh.

Mogambo sez: Through the steel-reinforced walls of the Mogambo Bunker Of Incredible Defensive Capabilities (MBOIDC, I think I hear people screaming in fear as they watch their accumulated paper wealth of financial assets and a little bit of equity in their houses disappear.

And then I realize that they are too fixated on their own pathetic, little lives to hear me chuckling in self-satisfaction as my gold, silver and oil keep holding their own in value, meaning that those of us inside the bunker are winning the rat race, while those of us outside are losing, but they are the only ones who do not know how bad it will get for them, or how good it will get for me.

And then I chuckle again, which they didn't hear, either. And that makes me laugh all the more! Hahaha! Good ol' gold, silver and oil!

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The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications.

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