The Mogambo Guru

10/03/07 - A Potent Inflationary Cocktail

10/04/07 - Oil Produces Expensive Caesar Salad

10/05/07 - Take My Buying Power…Please

10/08/07 - The Rodney Dangerfield of Commodities

10/09/07 - Gold Hoarding Greedy Pigs

Finally, the Federal Reserve showed its true inflationary colors, and Total Fed Credit went up by $6.6 billion last week. The significance of this is when you take another $6.6 billion in bank credit and multiply it times the current fractional-reserve multiplier (infinity), this calculates out to (according to my rough calculations) exactly 6.6 jillion gazillion umpty-ump quintillion dollars that can be created by the banks, which is just about enough money to bail out everybody in the Whole Freaking World (WFW), which (according to the bizarre current economic theory and practice) is the new purpose of a central bank; create a bubble by creating too much money and credit (which finances the bubble) and then bail everybody out of the ensuing bust by creating another bubble by creating too much money and credit again and again! Hahahaha!

This is the "genius" of Alan Greenspan? Hahaha! What a moron! Hahaha! I laugh in Utter, Utter Mogambo Contempt (UUMT), which unfortunately sounds like a sick raccoon retching and coughing, and which probably explains why, as John Hoefle at Executive Intelligence Review says in his essay, "The Bankers Know: Something Catastrophic This Way Comes", that, "By now, most people are aware that former Federal Reserve chairman Alan Greenspan is on a 'not my fault' tour, proclaiming to everyone who will listen that he is not to blame for the collapse of the financial system. By saying he 'didn't really get it,' Sir Alan is choosing to cloak himself in the mantle of incompetence, in the hope that he won't go down in history as the worst central banker of all time."

But incompetence and inflation is what a central bank is all about! According to the Inflation Calculator, it takes $21 in 2007 dollars to buy the same stuff that $1 would have bought in 1913 when the monstrous Federal Reserve was created! And even using these biased statistics, the dollar has lost half its value since 1984! That's 14% inflation per year since just before Alan Greenspan took over the Federal Reserve! 14%!

And we are getting ready to create more money and more inflation, as the U.S. Senate approved a bill to raise the national debt limit by another $850 billion, taking the National Debt to a stunning $9.815 trillion dollars, which the government will dutifully spend as soon as they can. As Anthony Cherniawski at the Practical Investor newsletter noted in astonishment, "What is intriguing is that none of the U.S. news services are covering this event." Indeed!

And it is not that the world needs more money or the inflation it causes, as we learn from the front page of Tuesday's Wall Street Journal about a rare Puer tea, which went from $5 a cake last April to $35 in China recently. "Puer's popularity," the Journal explains, "reflects how China, awash with cash and slim on investment outlets, is primed for speculation."

In short, too much money looking for somewhere to go! No wonder stock markets are going up, despite the utter idiocy of it!

And now add to this potent inflationary monetary cocktail the news that Chinese workers' wages rose by 21% YOY in the first quarter, and are even higher now, and how that is going to add to a Chinese wage-price spiral of monetary-inflation, price-inflation, monetary-inflation, price-inflation that they already have, and how that means that the prices of stuff are going to freaking go to the moon for them and everybody else, and how I am going to lead off the Mogambo Evening News (MEN) with this horror tonight, and maybe deserve a Pulitzer Prize for it, that I will not win, again, because 1.) I have no talent and 2.) Everyone is against me.

Now add in the news from Tony Sagami of MoneyandMarkets.com about "The Official Launch of the China Investment Corporation." He reports, "The China Investment Corporation (CIC) is the new $200-billion sovereign investment arm of the Chinese government." $200 billion! Wow! The government is going to invest $200 billion sometime soon!

Along with now allowing Chinese citizens to invest in foreign countries, "All this new money is going to add even more fuel to the already red-hot China markets." And world markets, too!

And if that is not enough, on the same page was a headline that said the same thing, namely that all of this money being created will-nilly means that "Global Scramble for Goods Gives Corporate Buyers a Lift."

In short, grossly excessive amounts of money and credit are constantly being created and spent with unbelievable abandon, and that means inflation in consumer prices heretofore found only in nightmares, history books and old newsreels is (standing up with a groan and looking out of the window) just over the horizon over there, and is here today in the form of stock markets setting insane records and bond markets setting insane records.

It's going to get really weird, and really ugly, really soon.

For days and days I had been watching oil go down and down in dollar price - down to $82, to $81, to $80, to less than $79 a barrel - while watching the dollar go down and down in terms of purchasing power, and it is such a cognitive dissonance that my Puny Little Mogambo Brain (PLMB ) refuses to accept the input. After a little consulting (Me: "Is it me, or is something seriously amiss?" She: "Your breath stinks."), I easily diagnose that the problem is that the systems in my Earth body are somehow misaligned, causing me to perceive incorrect data.

Naturally, I wisely and sagely decide to "adjust" my Earth body by drinking cheap tequila with Margarita-mix chasers, straight from the bottle, like the macho, he-man, swaggering hunka-hunka-burnin'-love kind of guy that I really am.

Then, last Thursday, I was pretty well "adjusted" and could barely hold my head up off the bar, when… Wham! The oil future shot up over $2.79 to $83.09! Hahaha! I was right! Absolutely correct, from an investment perspective, but unfortunately I was too poor to do anything about it then (e.g. like buying more oil stocks, oil ETFs, oil futures, and oil options on the way down), although not too smashed to do anything about it now (loudly whining, complaining and raving about a conspiracy against me).

The Desidooru Saloon at The Daily Reckoning notes that "Whatever the ministers of OPEC decide at their meeting in Vienna, this much is for certain: OPEC production has been rising for weeks now, even as prices approach a record. Yes, surprise surprise, OPEC members are cheating on their production quotas - just as they have for decades. And more to the point, does it make any difference? If oil prices have been rising the whole time OPEC output has been rising, is demand outstripping supply even as supply grows? That's the real story that's getting lost amid the speculation of what's going on behind closed doors in Vienna."

And in MoneyWeek.com, I was captivated by their headline, "Why the end of cheap oil could spell death to suburbia" which is oddly reminiscent of Jim Kunstler's "The Long Emergency". As the editor-in-chief around here, I find that I disagree with the use of the word "could" to describe the probabilities of the phrase "death to suburbia" when oil (and thus gasoline) get to be horrendously expensive, the economy is in the toilet and nobody makes enough money to buy the energy necessary to ride around in their cars when they can't even afford to keep their damned little houses warm in the winter!

So I am looking for my red pencil to make the changes to the sentence so that it will read "Why the end of cheap oil will definitely spell misery and suffering and the death of suburbia, although everywhere will be aflame with inflation in prices like you will not freaking believe, with people rioting everywhere, and the people in suburbia will say, 'At least we're out here in suburbia! The rioting city dwellers don't have the money to buy gasoline, either, and so they can't get out here to harass us! And if they ride the bus out here, we'll send them over to The Mogambo's house and he'll shoot the stinking bastards for us! Hahaha!"

But I can't find the damned red pencil, and then I think how long it will take to make the corrections even if I found it, and so I decide "To hell with it!" and decide to just abuse MoneyWeek.com by calling them "worthless, gutless cowards" for using the word "could" instead of something more appropriate. Like, for instance, "certainly will", probably because it inexorably leads to, "We're all freaking doomed!"

I think my incessant carping got to them, as they suddenly acquiesced enough to say, "there are rising concerns about petrol and heating costs. At most, 10% of suburban households face incipient crisis in the short-term." Ten percent! Yow! This is the literal definition of the word "decimation", for crying out loud!

The article goes on to reveal that it is not just suburbia, either, but asks you to remember that oil is a big part of everything these days, and to, "Just ponder this… the average Caesar salad travels 1,500 miles to the supermarket shelf."

And I have to make a trip of the last few miles to buy it. Where's the justice in that crap?

John Stepek at MoneyWeek.com writes, "As Evans-Pritchard points out, the dollar's collapse is all very well - but which currency is it going to be allowed to collapse against? Most of Asia relies to a significant extent on exports to the US, so they have no desire for a strong currency. In Britain, we have much the same problems as the US, so a jump into sterling from the dollar is a case of frying pans and fires, many would say."

I look up from my notes and I realize that he has not mentioned the fall in the value of the dollar against the yuan (CNY), either, and how the stupid Congress - as un-freaking-believable as it sounds - wants to impose tariff sanctions on Chinese imports to "punish" them for not allowing the dollar to fall in buying power, ignoring the fact that higher prices punishes us, too! Hahaha! It would be more entertaining to burn our money and wear signs around our necks that say, "Take our buying power! We're freaking morons!"

Well, Mr. Stepek doesn't seem to appreciate the significance of the "sign around the neck" imagery, and neither does Samantha Buker writing at Whiskey & Gunpowder, but she says the same thing when she says that the "yuan is undervalued by anywhere from 15% to more than 40%."

I look at Mr. Stepek and he looks at me with a disdainful look that I instantly recognized as, "We both hate you, Mogambo!", then cuts through all of that theoretical "the yuan will rise and cause us lots of inflationary problems" crap by reiterating essentially the same thing by saying, "Indeed, the most recent statistics show that the cost of imports from China in the US have risen in dollar terms for three straight months now. The price of imports in July was up 0.9% on a year ago - the highest ever rise."

And all of this money was created so that the American government could slide into the stinking swamp of communism, as over one-half (the majority) of Americans get their income from government, which (I guess) is the bizarre reason that the majority of people keep electing collectivist commies!

On the other hand, the childish American whine of "take care of me!" will teach us that Winston Churchill was right when he said, "The inherent vice of capitalism is the unequal sharing of the blessings. The inherent blessing of socialism is the equal sharing of misery."

And all of this money will, of course, cause the dollar to fall in value without doing us much good as expoters, as Stephen Roach of Morgan Stanley (NYSE:MS) says, "Optimists may draw comfort from the vision of an export-led renewal arising from a more competitive dollar. Yet history is clear: No nation has ever devalued its way into prosperity."

First he says, "So far, the dollar's weakness has not been a big deal", and then he bursts into a bit of mortgage-related wit and says, "That may now be about to change. Relative to the rest of the world, the United States looks painfully subprime. So does its currency." Hahaha! Subprime America! How apropos!

And speaking of currency devaluations, Michael Nystrom at BullandBear.com asks, "Have you noticed? Chairman Ben (not to be confused with that all-powerful chairman from another time and place, Chairman Mao) has recently acquired a new nickname. No longer is he referred to merely as 'Printing Press' or 'Helicopter' Ben, those playful nicknames of yore, which poked fun at his threats to stave off deflation via massive inflation. Those silly nicknames no longer accurately depict the amount of inflation he is prepared to produce, nor the destruction that such inflation will inevitably cause."

As to the moniker "Helicopter Ben", JMR Joe R. calculates that "Bernanke's first problem would be that $38 billion in $100 bills weighs 836,000lbs. The Huey helicopter has a payload capacity of 3,000lbs, so Ben would need 278 Huey helicopters." Oops!

Mr. Nystrom, who isn't worried about 278 stinking helicopters, proceeds onward with, "Ben won't merely be tossing money from helicopters, content to let it flutter to the ground. His new nickname signals that he's deadly serious about his mission and he's pulling out the heavy artillery to prove it. The new nickname references the destruction the Fed's policies will inflict. Say hello to B52 Ben, who stands on the ready to carpet-bomb the world with the catastrophic effects of the inflation bomb."

B52 Ben! Hahaha! Perfect I like that! However, trying in vain to top him, I proffer Brainiac Ben, as his mind is like an old computer proving the old adage, "garbage in, garbage out", as he is proved to be unparalleled at remembering facts and equations, but has absolutely no capacity for critical thought or independent reason, for if did, his mind would have long ago rebelled at the incomprehensible stupidity of his precious little economic theories and his arrogant little econometric idiocies, and he would be an Austrian school economist, like all intelligent and good looking people of the world. But he is not!

Martin Hutchinson, writing "The Gotterdammerung of Central Banking" at PrudentBear.com, is apparently appalled that I would think myself either intelligent or handsome, and merely says, "It is now clear that all the intellectual advances in central banking of the last 300 years have disappeared. Gone with the wind are the concept of 'moral hazard,' the idea that central banks should be independent of political control, the idea that lowering interest rates might cause inflation and the knowledge that widespread deposit guarantees and bank bailouts impose huge long run costs on taxpayers and the economy. In 1720 when the financial world was young and innocent this would have been forgivable; today as then it is likely to bring economic chaos in its wake."

I am getting tired of this reluctance to be mean-spirited, gratuitously malicious or just plain hateful about Alan Greenspan or Ben Bernanke, but before I could leap to my feet and shout, "Alan Greenspan was a vicious monster who has destroyed the dollar and the United States! And Bernanke, too!", Bill Fleckenstein interrupts me to write, in the Contrarian Chronicles, the perfect headline; "Bernanke: The anti-Robin Hood", with the subhead, "By slashing the federal funds rate, the Federal Reserve chief robbed from the country's future to give a gift to Wall Street. And a lot of ordinary Americans will end up getting hurt." Bravo! Perfect!

And you will be seriously hurt unless you bet against such a stupid move on the part of the Fed. By buying gold, silver and oil, you will not be hurt, as their prices will rise to offset the inflation that is killing everyone else, but you will make so much money that you can hurt other people by saying, "Ha! You were stupid and are now poor! I was stupid and am now rich!" The difference is who you are going to pick to believe is correct; all of human history or a couple of dirtbag, lying Fed chairmen, no matter how stupid you are.

The Rodney Dangerfield of Commodities

JMR Andrew H. has a question about silver. He starts off saying, "Most everyone agrees that silver has a monetary value, yet it seems no one can agree on how to determine it. If silver will have a greater value over time, why are so many people looking at it as an industrial need and not a monetary one?"

My answer to that is that silver does not have any monetary value, and I say this with complete assurance, since no country or economy has a currency tied to silver (except the Liberty Dollar folks!). You can buy silver and sell silver using official "money" to effect the transaction, but silver is not "money." Ergo, silver has no monetary value. It's as simple as that.

Hugo Salinas Price seems to agree with that, and says, "Today, not a single currency in the world has a valuable content; all of the one hundred and eighty or so currencies in the world have absolutely no intrinsic value at all."

As for the apparent disrespect for silver, it's the vector you get from history (it's been low for a long time), bias (the silver cartel and government interests), real industrial demand met through dis-hoarding government stockpiles, zero real monetary use, and the suspicion that comes from an enigma, wrapped in a mystery, wrapped in a corrupt, stinking, filthy Comex/Nynex/government mess, so that now we are freaking doomed.

In short, I dunno why silver is selling at such a discount. I only know 4,000 continuous years says it can't last, the problem is huge, without an explanation it can only be explained in retrospect, and thus it qualifies as a looming, dooming Black Swan event, and people who buy silver now are going to make a lot of money!

This brings up Bernard Baruch (1870-1965), who was an arrogant, dictatorial, fascist creep of the first order, sort of like The Mogambo without a mustache. Nevertheless (according to Wikipedia.org), he made a fortune in the stock market, most famously by going massively short against companies that he thought were overpriced, and "he amassed a fortune before the age of thirty via speculation in the sugar market. In 1903 he had his own brokerage firm", and "By 1910, he had become one of Wall Street's financial leaders."

In short, he knew what he was doing and had the guts to risk it all.

I bring this up because a quote of his appeared in a Cryptoquote puzzle in my local newspaper, and it is what seems to be the precursor to George Soro's famous dictum to "Identify the trend whose premise is false, and then bet against it."

Mr. Baruch is quoted as saying, "I am a speculator. The word comes from the Latin 'speculari', which means to 'observe'. I observe." Hahaha! Perfect!

So, putting these together, observe what in the hell is going on, find the error, and bet real money that errors and stupidities cannot last very long. Case in point: silver is selling at the lowest ratio to gold, or anything else you can name, in 4,000 years of history. It should be selling - at a minimum - for $40! Right now! Can this trend continue?

And it's not just silver, but gold, too, because when you read between the lines, you can see that both of these guys - both of them! - are saying to buy gold, as Alan Greenspan's enormous blunder in letting Congress spend all that excess money and credit for all those years is now beginning to reap its just desserts, which sounds really nice, bringing up visions of pies and cakes like it does, maybe with a little ice cream on top, until you look it up in a dictionary, and then made even more remarkable since Bernard Baruch has been dead for more than 40 years! Yet he knew! What a guy!

Antal Fekete, at Memorial University of Newfoundland, writes, "gold is good", even if huge new finds of gold are found. It will not change things, as, "It is not the absolute change in mine output that has an impact on the value of a monetary metal, but the relative change as a percentage of existing stockpiles. For this reason gold is more valuable than silver: the huge stockpiles of gold make the impact of a change negligible. Ergo the value of gold is more stable. In technical language, the marginal utility of gold declines more slowly than that of silver.

"As a consequence," he continues, "the specific value of gold is higher. This means that the value of the unit weight of gold is higher than that of the same weight of silver. The monetary metal with the higher specific value is more portable both in space and time."

In other words, if I was going to loot the employee pension fund and run away to start life afresh, I would be best served by converting the traceable money into gold, because I could carry that much gold, but not into silver, which I can't.

Mr. Fekete, obviously taken aback by my sociopathic corruption, agrees with me, however reluctantly, and says, "In more details, the cost of transporting the unit of value as represented by gold is lower. For example, if the bimetallic ratio is 15, then the cost of transporting the unit of value as represented by silver is about 15 times higher. Roughly the same rule applies to the cost of storage as well. This makes gold superior to silver as a monetary metal. It is more suitable as a vehicle to transfer value over space as well as over time."

I held up a finger to indicate that I wished to add that since silver is selling as a stunning, amazing, historically low percentage of the price of gold, then silver has more upside potential! But, as usual, like everybody, he didn't want to hear what I had to say, and he left, but he gave me a finger on his way out. Just like they all do.

And I am buying silver to see who laughs last!

George V.P. was the first to send me to Sprott.com, in which the entire commentary contained only two words. On arriving at the site, on the first page, in very large typeface, is written the word "BUY".

I kept looking at it expecting, you know, something to happen. So I sat and waited, patiently staring at the word "BUY", and I waited and looked at this word some more, and nothing happened, and after awhile I started thinking that it looked pretty weird. Maybe it should be pronounced "boo-ee"! What an insight! And so I call my wife over to look at it, and naturally she doesn't think it looks like "boo-ee" at all. So we get into a big fight about it, and about who is REALLY the "weirdest, most stupid lunatic jerk in the whole freaking world" around here, and pretty soon everybody in the office is agreeing with her!

And then they'll turn around this December and wonder why I don't give them a Christmas bonus this year, either!

So I'm naturally thinking, "Eric Sprott and Sasha Solunac are telling me that they also think that 'buy' is a weird word, and that it really IS pronounced 'boo-ee', and everybody has been pronouncing it wrong all this time?

"Or are they telling me to buy something? Buy what?" And then I started thinking of all the things we could buy, like a pizza! And then I am thinking, "And if we could buy a pizza, and if they were going to buy a pizza, how about, you know, getting with the program?"

So I decide to help things along by stealing their identities and one of their credit card numbers, and use it to order a pizza, charging the whole thing to them, which was only fair since it was their idea to have pizza in the first damned place!

So I grab the mouse to start my Internet search, and as I did so, the screen flipped to the second page, whereupon I saw what they wanted me to buy! "GOLD", it read, in big, gold-colored letters, and punctuated by a big, black exclamation point!

Gold!

This is apparently not news to Mark Lundeen, who disdainfully says, "For your information, the Barron's Gold Mining Index (BGMI) hit a new all time high last week". Which it did in spite of the fact that, "In 1980 when the BGMI last hit its all time high, all the world was paying attention," although "in 2007 no one cares - yet," which includes "the staff of Barron's who published the new all time high of their own gold & silver mining index with no comment."

And the reason that "no one cares" is that, "In 2007 the reality is that very few professional money managers bother with the gold mining shares."

He thinks that it "is unfortunate that one of the greatest bull trends since 2000 has been gold and silver mining and the general public is unaware of this fact." I laugh! I don't! I don't think it is unfortunate at all! I think it is the natural order of things, which is that for me (the minority of investors) to make a lot of money, the majority (the ignorant bozos he is talking about) must NOT be buying gold while I am buying gold! The majority must always be wrong! Therefore, it is crucial that they remain clueless at this stage of the coming gold, silver, oil and commodities boom, while the Wily, Scheming, Greedy Pigs (WSGP) of us buy gold, silver and oil at bargain rates!

Greg Grillot at Whiskey and Gunpowder senses my greed and gluttony for gold, and suddenly asked, "if America has 8,180 tons - or nearly 261.7 million ounces - of gold in reserve…how many dollars does that buy?"

Immediately I thought of my calculator, mostly wondering where it was. Then he said "The answer will shock you", which was shocking enough in itself, as I don't remember taking my calculator to anyplace shocking, and I find that I don't like it when people say "This will shock you" because it is always Really Bad News (RBN) for one reason or another, and usually shocking.

Thankfully, Mr. Grillot decided to offer an introductory preamble, giving me a chance to fasten my seat belt and bite down on a rubber dog toy (which tasted like dog hair for some reason). He said that following Nixon's severing the tie of the dollar to gold in 1971, "When dollars became unhinged from gold, the printing presses at the Fed cranked up. By 1980, for every ounce of gold in America, the financial system carried $6,966 in cash. That's $1.8 trillion total. But get this, by the end of 2005, the total real money supply shot to over $10 trillion", and that means that there is "$38,349 in circulation for every ounce of gold in reserve!"

And that probably assumes that all the gold held by the Fed is still there and still owned free-and-clear, which is the preposterous, barefaced lie that the Gold Anti Trust Action Committee is having so much fun exposing. So, if half the gold has been sold or leased out, as they postulate, then there is $76,698 of money supply for every ounce of gold!

And gold is selling for less than $800 an ounce right now? Wow! What a bargain, huh?

The ignorant will, one day, without fail, be desperately buying gold and driving the price to unheard-of levels, and I will be much, much richer when they do, and they will be wiser, much wiser, though poorer, and there is nothing "unfortunate" in that at all from my perspective! Hahaha! Chumps! Or, from their perspective, "Ugh."

Mogambo sez: Ah! Another day, another load of money created, and more inflation to produce a coming windfall in gold, silver and oil, which the central banks and governments of the world will try to forestall by manipulating it away, keeping prices unnaturally and temporarily low so that we can buy more. Could life get any better?

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

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