Richard W.
Posted on 01/30/2003 2:07:15 PM PST by arete
"...Is the Fed buying shares and futures and indexes to get the stock market up? You bet! How could they not? If they did not, and the economy does get really bad, and I mean "bad" as in Depression and Vast Human Suffering kind of bad, then some wise-ass in the future, maybe the grandson of Milton Friedman, who, according to some, has won the argument as to what caused the Great Depression of the 30's and that is that the Fed did not create enough money, is going to make his career out of the comment, "What? They did NOT buy stock futures and indexes and they did NOT buy stocks and bonds? That is The Reason why the Millennium Depression happened! Look! I've proved it on paper! I've even written a book! Take a look, adopt my theory wholesale, and give me a big ol' government job so I can put Something Wonderful into action!..."
- Starting out with a look at the Fed, as we almost always do, we note that Greenspan and crew held themselves to only $4 billion dollars of new, out-of-thin-air credit last week. The Treasury, bumping up against that pesky debt limit imposed by Congress, had been issuing debt with furious abandon. In the last twelve months, in one lousy year, the Treasury has issued $463 billion in new debt. And now has only a $10 billion standing between it and the new, higher debt limit.
Now, that $463 billion in new debt is big chunk of change, especially in one year. The awesome magnitude of it makes the piddly tax rebate stimulus programs being vetted seem paltry, doesn't it? Looks to me like we already have had a huge stimulus program already, and it just made everything predictably worse.
- James Turk, obviously one of the bravest men on the planet, has squared his jaw, stepped up to the plate, laid his reputation on the line and came out with both a price AND a date for gold. I open the envelope, pull out a slip of paper and announce, "And here they are, ladies and gentlemen: October 2004. $934 an ounce!" This startling announcement, at once both precise and unambiguously clear, seems deserving of a salute in sheer awe.
- If Congress really wanted a stimulus program, they would allow the premature withdrawals, without penalty, of money currently locked up in retirement plans. If they REALLY wanted to goose the economy in mega-watt ways that I cannot even begin to fathom, they could actually encourage the premature withdrawals by imposing some nominal tax rate on the withdrawal. For a limited period, say. Maybe, oh, how about a tax rate of a nice, round zero, no tax at all, on, oh, say five thousand dollars of withdrawals from retirement accounts, regardless of age, until December 31, 2003? The bad news is that all that selling of, presumably, stocks could drive the price of stocks down in the short run. Admittedly bad news, especially since the entire economic health of the USA, both present and future, has egregiously and stupidly been made dependent on stocks always going up. Which they won't, because they never have and never will.
And lest anyone suppose that I have hit upon something wonderful, let me hasten to add that there will be negative consequences, perhaps even profoundly negative consequences, and it will probably be soaring inflation engendered by all of that artificial stimulus to abet raw consumption. Remember that there is never a free lunch, and there never, ever will be.
- I have noticed that the disparity of wealth, or more particularly the disparity of income, or even more particularly the envy and animosity about disparity of income, is at the heart of the progressive nature of taxes and the current debate about who should get tax rebates.
Let me say, even though I am certainly not rich by a long shot, I do not think that the rich owe me or anybody else anything. Their taxes should be the same dollar amount as every other American pays, because they are receiving the same, per capita level of services, theoretically. Anything else is patently unfair. "Soaking the rich" is just the Orwellian NewSpeak version of the communist credo of the loathsome Leftists, namely "From each according to his ability to pay, and to those who could benefit from services which we and our friends will give to them via lucrative jobs dispensing bad advice, aid and regulation to keep them in our thrall, and maybe even slip them a few bucks just to shut them up."
Having said that, let me also say that the growing wealth disparity between the rich and the poor is the result of the constant government program of deficit-spending. It is therefore tax-financed, in that people who have money to lend are the only ones lending to the government, duh, and then the government taxes everybody to pay the rich guys back. And then next year, when the government borrows money again, the rich guys are the only ones with money to lend the government, again duh, and the poor have been made to pay, either through direct taxation or through inflation, the whole bill for the borrowing binge and blah blah blah. At the end of the day, all the money is transferred, dollar by dollar, one monthly or quarterly payment at a time, to the rich. That is why the rich are richer and the poor are poorer.
Well, that was the was it used to be. But nowadays we "owe it to ourselves," as the popular phrase goes. But in trying to comprehend the enormity of the theoretical economic significance of owing money to myself as a path to prosperity, I cannot for the life of me remember where I read that the collective "ourselves" had enough money to loan it to the government. My memory is so bad here lately that all I can recall is how the collective "ourselves" is some pitiful, financially-strapped rabble in such desperate straits that government programs are being expanded and new programs are being proposed, all to deliver "ourselves" from the evils besetting us.
Additionally, since foreign devils, as opposed to domestic devils, now own about half our outstanding government debt, I'm not sure how far the word "ourselves" reaches anymore. We "owe it" sure enough, but to whom? As for the other half, at least, we owe it to some entity in the USA, probably lots of pension funds and banks all sorts of public-trust type stuff.
The net result is that we are sending 16% of annual gross government spending just on the freaking interest already. Half of that is going to those foreign devils overseas somewhere, and thus only half is going to domestic devils. This seems, from an economic standpoint, that the domestic members of "ourselves" is suffering a net-loss situation. And since none of that constitutes any repayment of any principal at all, which is implied, how much are we taxpayers going to be sending overseas eventually? "How much?" you ask. Let's see, taking sixteen percent of $2.2 trillion in total spending is...
Hey! Wait a minute! You forgot to count the rest of the total debt. You remember, the rest of the $33 trillion total indebtedness here in the good old USA. I'm not sure that there is any reason not to suspect that about half of that is owed to foreign devils, too. And, by mathematical necessity, half of the interest money owed and paid on that debt is going overseas into the pockets of these same foreign devils.
So what is the annual vig on $33 trillion? Well, moving the decimal point one place to the left, as loath as I am to even contemplate thinking about moving anything so much as an inch to the Left, which is this week's gratuitous slur of the Leftists here in the USA, that means it is $330 billion on EACH percentage point of the average interest. So, say, an average interest rate of ten percent? $3.3 trillion. Five percent? $1.65 trillion. Please note in your Star-Trooper Junior Astronaut notebooks that we have now departed the part of the financial galaxy that was measured in billions of dollars. If you look out the porthole windows of our Starship Central Bank, you will notice that we have moved into the more-expansive universe, where things are measures in glorious trillions of dollars, a thousand times bigger!
Anyway, if we didn't SPEND more money than we had, then we wouldn't have had to BORROW the money from the guys with money, and then we wouldn't OWE money to these same guys with money, who are now richer, see, and then we would have no reason to TAX the working stiffs of the nation, taking their money AWAY, to give these guys ANY of our money, and then they wouldn't HAVE any of our money, and they would have to finance terrorism with the profits from their OWN stinking economies. Is that what you are telling me, Bubba?
So, then, how long will it be before you see a television commercial that goes, "If you are deficit-spending, you are supporting terrorism"?
But the point was, and I have re-read that pile of garbage that I wrote in the paragraphs above to verify it, the disparity of income problem. This was brought into the sharp focus of frontal-lobe consciousness by a news report that the SEC was assembling an accounting oversight board, yes, another one, and the salaries of directors and, I quote "Top staff." The proposed salaries are in the half-million or so variety. The idea was that you have to pay the big bucks to attract the necessary talent to catch the new corporate criminals, dey be so smart and we be so dumb.
I say crapola. First, they are already getting invaluable status, prestige, a real resume-stuffer, and the heady power of being able to enlist the entire legal power of the United States government.
Second, if the threat of prison for corporate wrong-doers is not enough to prevent them from doing this, then we should ratchet up the punishment! By God that is the way that things have been going for years and years in the land of the free and the home of the brave! Plenty people are getting sent to prison, and for extended stretches, and that is why we have the most prisoners per capital of all the countries in the world. And when is the last time you heard of a punishment going DOWN? So, let's give the corporate malefactors some good old America lock-em-up justice! Minimum sentencing of twenty years, with no maximum! Complete confiscation of all assets, including every dime they can scrape up from anywhere. Loss of citizenship. Banishment. Death. I dunno, something in the "revenge of the sheep" scenario, maybe. But it would have the salutary effect of insuring that no executive in his right mind would even think of even entertaining the idea of even considering even talking about the possibility of even associating with anybody who HAD possibly, however briefly, ever in their life, even when they were a kid, idly considered the possibility of thinking about committing corporate crime. And then we wouldn't need the services of this greedy bunch of Top Staff people.
Third, if these SEC guys want to make some big money the honest way, let them work on commission only, instead of salary. Now, given the potential pile of rich-guy assets that the government could seize, it would appear that the lawyers could figure out how to get a little of that action, too. Because these guys can't pull of a huge corporate swindle like this by themselves, and there has to be a whole freaking nest of the greedy rich guy criminals! And that could add up to a nice commission check that would make the half-million seem like chicken feed. And the government could seize a large fraction of the assets to pay for some "needed government spending!" And if I am sure of one thing in this world, then that one thing is that the government loves meeting "needs", and that means spending, and the more the better.
- It has been a while since I quoted Doug Noland and his column. The reason is simplicity itself: I have not had any movement on my plan to have cardiac resuscitation paddles installed on my PC, and if there is any equipment that I consider necessary to read his stuff, it is machines that will re-start the heart at the touch of a button. Remember the first step of the laboratory scientific process: Put On Your Safety Equipment!
Anyway, cardiac emergencies are exactly the kind of thing that drift through my pathetic little brain, the few remaining live cerebral neurons firing their brave little hearts out, whenever I dare to read the financial insanities that he routinely unearths in disturbing quantities. Now just between you and me, so don't let this get around, but I think he seems to get some weird pleasure in exposing things economic that he knows will turn my heart to stone in stark fear, which I also figure he does because he is secretly in love with my wife and hopes to get me conveniently out of the way by cleverly killing me with his research, knowing how deleteriously it affects me, so he can finally make his move on her, even though she SAYS that she has never even MET the man for God's sake and for me stop acting like an idiot, which all sounds just a little too glib to suit me, if you catch my drift. I understand that I may be just another of your average, run-of-the-mill paranoid wacko gold-bug gun-toting oppressor of minorities keeper-downer of women tormentor of children and enemy of all things unusual or foreign, but with a resume like that, it doesn't take a PhD in Brain Stuff awarded by a Prestigious University to realize that I don't know who to trust anymore. And so the original question remains, and that question is, "If Doug Noland is NOT trying to kill me, then why does he insist on writing all that stuff that he knows WILL kill me?" Huh? Answer me that! I rest my case!
However, I have enough heart muscle left, and with one finger poised to dial 911, that I am able me to sorta scan his column quickly. It is only when I make the mistake - big mistake! - of pausing on things that at first seem to be interesting tidbits until the enormity of it sinks in, and then I end up screaming "No! No! A thousand times no! This cannot be true! Nooooo!" while my heart pounds wildly and attempts to jump out of my chest.
I have deliberately delayed getting into the lurid details, but in between gulping nitroglycerine pills and putting a cardiac needle full of adrenaline where I can reach it quickly, how does one convey it all in a brief way? So, I will sum it up for you: enormous sums of money are bouncing around and around, up and down, showing up here, disappearing there, debt levels everywhere setting records at every turn, losses accelerating, profits declining, making the whole bowl of financial jello violently shiver and shake. And each datum factoid - bang! - seems to reek of proof positive that - pow! - calamity is nigh, and - wham! - that apparently very, very stupid people, or - crash! - very, very scared people, or maybe even very, very scared stupid people are in - whump! - tenuous control of very - kapow! - large sums of money, and that they are in full panic - boom! - mode at the extremes of fear.
Believe me, I can imagine how they feel. If I was investing money in the menu of overly risky garbage available today, at these high prices, in a monetary environment like this, with a fiscal environment like this, I would be simultaneously setting new world records in the 100-meter panic, the 200-meter hysteria, and the 26-mile marathon of terror.
On a lighter note, and this is the part that tickles me so much, I will pass along Mr. Noland's most exquisite phrase that sums up the behavior of the government, meaning the Fed and Congress together. And that perfect phrase is that they are "Putting coins in the fuse box." This is, to those who have never actually handled fuses, an emergency maneuver in which it is dangerously possible to restore electrical power to a circuit in which a fuse has blown, due to a short-circuit or overload in the electrical system, by putting a copper penny across the gap that the fuse normally bridges. The dangerously unfortunate thing is that the short that caused the problem is probably still there, and may almost certainly cause a fire, quickly, in again-dangerously overheated electrical wiring, but now without a fuse to provide any margin of safety. The house will probably burn to the ground long before that copper penny melts. Bummer. That's why it is illegal to put a penny in a fuse box.
But, and as it always is with government, this is exactly what they do. At the first sign of a blown fuse in some remote section of the empire, signaling the short-circuit of some mal-investment device or another, the government puts a penny in the circuit. In the real world, without the government doing that, the things that short circuited the system would be taken out by investors and financiers and thrown in the trash, and then the overheated circuit wiring would eventually cool down, and the fuse would reset, and the freed-up juice would power some other investment section of the empire. Sort of Adam Smith's Invisible Hand as electrician. Oooh! Clever! And in case that ever catches on, let me say that I think I just thought of it. Sitting right here, typing like this, tap tap tap it just popped out! Just like that!
But moving on and keeping with this delicious new allegory, when the government puts a penny in the economic/financial circuit, it also means the same thing as putting one in a real fuse box. The first thing in a government emergency response is to inject more money, the penny, to replace the money lost when the fuse melted. Then attention is turned to the short-circuited mal-investment device itself. Then some brainy-type in government proposes to spend more money on making the device more impervious to melting. It does nothing for the wiring or the original short in the device. Fires break out due to the overheated wiring.
And then more fuses blow. And the Fed puts in more pennies. And then more and more!
So then, and this is the part where it seems to resemble some scheme cooked up by Ralph Kramdon and Norton, the government puts in heavier wiring and heavier fuses. Big spending and tax breaks! Which, unfortunately, eventually overheat, too, since the short circuiting mal-investment devices are trying to melt from sheer glow of white-hot overheating, each suffering little molecule desperately wanting to commit suicide to escape the torment, but the government keeps creating more ways of making the now-toxic mal-investment device even more melt-proof. With heavier wiring.
"Putting coins in the fuse box." So perfect. So elegant in brevity. I wish I had thought of it. And, in case I can actually get away with it, I think I shall, in future, say I did. That ought to teach Mr. Noland what happens when he messes with people's wives and tries to kill their husbands with his gambit of Death By Economic Mal-investment Data; they steal your stuff!
If ever caught in the lie, I will explain that what I MEANT was, of course, that I was extolling Mr. Noland's clever origination, and it all comes down to, using a tactic that will come to be called Classic Clinton Defense, is defining WHAT I, personally meant when I said I had said what I said at the time when I said it, as in "Is it easier in the greater sense to define 'I said' than it is to define 'is?' I am a victim, too! Can you not feel my pain? Love me like I love you! And never even criticize me, as I have suffered enough!"
- It seems that you cannot open a newspaper and not read that some company finally made some measly profit by cutting costs. This is the classic "good news, bad news" joke.
And, this is the part I really love, they are actually making more money by making less money! Man, oh man! If I could only get some of these corporate hotshots to do that for me! But, alas, every cost of every company is a revenue to somebody else. So what these reporting companies are saying is "We are driving other companies into bankruptcy by starving them of income, because we are being starved of income, too. But we are cutting expenses faster than our income, and booking the whole thing as making a higher profit!" Which, of course, brings up that nagging "going concern" problem, as in "Will it be one?"
When the stock market responds to this news with bidding up the price of the stock, the implied reason is that the macro economy is thus poised to prosper because these other companies are going to respond to their death-by-starvation by spending more money to buy stuff from you! Hahaha!
If you really wanted to have some good news, you would read that every company was making less money because they increased their expenses! Then those other companies would be bloated with money, and then they would turn around and buy stuff, and with everybody was buying everything from everybody, the velocity of money thus goosed past red-line, the economy would zoom! At least in the short run. I will not mention that there are always long-term consequences to booms of any kind. That damned "free lunch" thing again.
Producing, buying and selling is what makes the world go around. The next time you go in for a new tattoo, consider having that immortal phrase inscribed on your hand so you can see it every day. And if you are not producing and you are not buying and you are not selling, and nobody is producing and nobody is buying and nobody is selling, what in the hell do you think could possibly make the world keep going around?
Well, to be fair, the execrable Leftist jackasses here and around the world all believe that the cloying treacle of compassion in their huge hearts is all you need, as evidenced by their tiresome mantra of "All you need is love and a government program." But common sense is more than enough to disabuse you of that ridiculous idea, which will come when you first try to pay for a sack of groceries with love. And to be sure, the Congress thinks that all you need is stimulus programs and more spending and more and more laws. But the sorry condition of the current economic situation, on any metric you choose, should be more than enough to disabuse you of THAT stupid notion, too. And the Fed believes that all you need is to print up lots and lots of fresh dollars, when all you need to do is leaf through any book in elementary economics to see that this particular idiocy is wrong, too. Each of these is as absurd as the other.
- Eric Fry over at the Daily Reckoning writes that The Washington Times reports: "A letter signed by 110 economists, including three Nobel Prize winners, urges Congress to support the main elements of President Bush's $647 billion tax-cut plan."
Terrific! The assumption is that, surely, the collective brainpower of these guys is so immense that it rivals Hoover Dam in pure horsepower, so if I had any sense at all, which I apparently don't, I should listen to what these guys are saying. My only question is, why should I, a regular, dues-paying member of the class of struggling proletariat mouth-breathing trash and the very same guys who will end up paying the taxes necessary to fund these programs and repay that debt, listen to them?
How about, and I hate to appear crass, showing a little something in the way of credentials? Oh, not your diplomas and your titles! You can get those anywhere. But for example, let me see some of the other letters written by any of these 110 guys and dated, oh, most anytime in the last forty freaking years where they advised against the government's wildly expansionist policies that got us into the mess that we, and the world, are in! I want to see some documentation of any of these same 110 guys offering advice about preventing this problem, the one that they are advising the same government to address now, which they apparently never even saw coming!
Please note that I am NOT shouting that somebody "Show me the money!" I am shouting "Show me the competence!" And in case you are so hard-nosed that you insist that it DOES comes down to the money, because everything always comes down to the money, then let's see their personal portfolios. A simple, elegant solution to instant credibility, although admittedly fraught with insurmountable problems and privacy issues. But is there a way to show that they, personally, due to the profitable exercise of their enormous intellects and Olympian economic savvy, correctly deciphered the errors obviously being made in monetary and fiscal policy, and thus made the decisions that literally made money in aggregate, in the last, oh, year? Two years? Three years? Four? Well, how about the companies and mutual funds and banks and think tanks and investment firms or wherever in the hell they work? Did THEY make money on the advice of these hotshots? If they did, then how in the hell is it that only dork-face losers who had any money in stocks LOST freaking money?
And finally, if they are so brilliant, then why ARE we in the mess we are in? Where in the hell have they been all this time? We are talking about, and these 110 weenies are signing letters about, unbelievably massive, historically-significant and long-term deficit budget programs here. What the hell is going on? Only something truly catastrophic could possibly be enough justification for such a hugely expensive, coordinated, massive emergency measure. We are talking about a synergistic monetary and fiscal stimulus wallop that is in the dollar-range that can stun a cow from five yards away! Why in the hell are they writing letters NOW? What went so damnably wrong and why didn't one of these 110 losers see it coming?
But, now, I am supposed to believe that this group, this signatory roster of 110 esteemed hotshots, is competent to advise anybody about anything? Hahahahaha!
And I personally take a lot of comfort in that Eric Fry at the Daily Reckoning thinks so, too, and in terms so refreshingly unequivocal, "Can any idea that's applauded by 110 economists NOT be a bad idea?"
Yes, Eric, it is a bad idea, and the reason is exactly as you ponder; they are wrong. And the reason I know they are wrong is that they are mainstream economists educated and trained in the USA, and thus every one of them was taught voodoo economics, and mesmerized as they are by the IS-LM model and all it's Frankenstein-like modifications, where the only three things that are important in the whole world are interest rates, interest rates and, of course, interest rates. If they have even casually read Austrian economics for more than two minutes at a stretch and were not instantly converted, then it is my loudmouth contention that they not only do not have the vaguest idea what in the hell they are talking about, but lack even the rudimentary intelligence necessary to understand what is going on, even when it is explained to them!
In short, I figure that the value of the advice contained in a letter signed by 110 modern, mainstream economists is not worth the paper it is printed on.
- Is the Fed buying shares and futures and indexes to get the stock market up? You bet! How could they not?
If they did not, and the economy does get really bad, and I mean "bad" as in Depression and Vast Human Suffering kind of bad, then some wise-ass in the future, maybe the grandson of Milton Friedman, who, according to some, has won the argument as to what caused the Great Depression of the 30's and that is that the Fed did not create enough money, is going to make his career out of the comment, "What? They did NOT buy stock futures and indexes and they did NOT buy stocks and bonds? That is The Reason why the Millennium Depression happened! Look! I've proved it on paper! I've even written a book! Take a look, adopt my theory wholesale, and give me a big ol' government job so I can put Something Wonderful into action!"
Then, and this is the part that resounds through the nightmares of Greenspan, all the economics textbooks of the future will contain, as dogma, that "Messrs. Greenspan and his Federal Reserve personally caused the Millennium Mother of All Depressions, the most horrifying and devastating economic collapse in all of history, because they perversely did not buy stock and bond futures, nor actual stocks, nor bonds, nor houses, nor land, nor even a single Beany Babies collectible! The lesson for all us modern economists is that if only the Fed had bought everything, and printed up all the money to pay for it, then everything would have been fine and we would all be millionaires right now. Maybe even billionaires. And everyone would have lived happily ever after. But Greenspan was too stupid, and now we are all suffering because of him."
And besides, maybe it WILL work! Maybe printing up floods of money WILL, for the very first time in all of history, work! Maybe it will work when it has failed miserably every single time it has ever been tried for 6,000 years in a row! But now, for no particular reason that anyone can really see, maybe this time printing money will produce a healthy, growing economy! Man, oh man! That would be so cool!
That is why I am sure that the Fed, and everybody who can be coerced or bribed into playing along, is doing everything they can do prop up the dying corpse of the equity asset overvaluation via debt monster. And they are doing it by means both legal and illegal, ethical and unethical, above board and in back alleys, propping things up like they did to poor old El Cid at the end of the movie of the same name. Well, I'm not sure if El Cid was already dead or not, but I'm pretty sure that they propped him up in the saddle so that he looked like he was alive, and ran the horse down the beach or something and it brightened everybody up so much that, as I recall, they all cheered, and then somebody sang a song, and then they had a big old-fashioned kegger beach party and Annette Funicello rode a red mo-ped. Maybe blue.
- I am typing this at my office at home, and as I went downstairs to get a cup of coffee, the TV was on, and some old movie was playing. The heroine, in what was apparently a very dramatic moment, excitedly exclaims, "Yes! That's what we must do! We must believe in miracles!"
Hollywood. Harrumph. Holden Caulfield, the hapless hero in Catcher in the Rye, was right; the movies will ruin you.
- While perusing the WSJ last Thursday, my attention was arrested by an article entitled "Profitable Way to Spread Risk." The title itself was a clue to the contents. In short, it was the same sad story of middlemen who make money by arranging the spreading of somebody's risk to lots of other somebodies.
One guy trying to offload risk and paying a fee for the privilege, and another guy taking the risk and getting the fee to offset the new risk, with middlemen taking a nice fee for setting up the whole collateralized debt obligation scheme.
Note, and this is the crucial detail, so kinda skoonch your chair up real close so that you can see this clearly, that there is no systemic reduction in risk whatsoever! None! Risk has not been reduced one iota. The only difference is that instead of one guy having a lot of risk to bear, now we have a dozen guys, each with a piece of that risk, and some money changed hands that offset the risk. But at the end of the day, all the risk is all still there, and net money has been lost from the system, via expenses and costs and lawyer fees and God only knows what all. So how does one enter into a CDO and make a profit? The answer can be obtained by inspection: you don't. And you don't because this is obviously a net-loss deal. And if there is one investment certainty in the world, it is that it is difficult to show a long-term profit by constantly entering into net-loss deals, and that is why entering into net-loss deals is never mentioned in any books as a way to get rich quick.
So while it is profitable for the middlemen to make a profit on this risk spreading scheme, it is also equally true that, for the two actual parties in the transaction, "Spreading risk is unprofitable."
But then banks, who got this whole thing going, and remember that the banks are part of the Federal Reserve System and as such have to swear a blood oath, some say signed in their own blood at the stroke of midnight, to Alan Greenspan and the Knights of the Board of Governors, should never known as brainiacs, anyway. They are strong, but not bright. Clever, but not intelligent. The Fed was established to combat, as some desperation gamble for an extra layer of protection, all the serious economic problems caused by the jackasses running the banks in the first place. Time after time, banks got themselves in trouble, and the depositors were decimated and the economy suffered. Since then, the Fed has bailed out one damn banking disaster after another, so how bright can they be?
Well, brighter than the chumps who bought the risk! And who might that be? Oh, the money manager guys running money and retirement funds around. Your money. So, guess what they are doing with your money! Go on! Guess! Hahahaha!
So let me append an old maxim, "Fools and their money are soon parted, and they never seem to learn a damn thing from it."
- Probably the only topic in economics that I have not touched upon in one manic burst of loud, disjointed incoherence or another, and thus added my stupid two-cent's to the argument, is '"What is the motivation for economic activity in the first place?" The short answer is found in the Second Noble Truth of the Buddha, namely, unhappiness and suffering are caused by the desire for pleasure or power, and conversely that the desire for pleasure or power are caused by unhappiness or suffering.
And in modern times, money is how one gets most pleasures and power. So, we desire money because we suffer, and we suffer because we desire money.
Mises himself said essentially the same thing when he said that economic activity results as man acts to deliver himself from the present state of uneasiness to a more desirable state of satisfaction.
- Since 1997, every single rally has failed, except one. Let me write that again, in case it kinda went "whoosh!" over your head because you weren't paying attention. Since 1997, every single rally has failed, except one.
So, to sum up, if you bought the SP500 anytime between now and January 1997, six long, long, long years ago, you have officially lost money. Except for what you bought between October and November last year. On that little sliver you are still in the black. And, of course, that means you also lost money if you had put any money into the SP500 on any day since November of last year.
Now, a little pop quiz. Put your notes away and answer these questions:
What do you figure is going to happen to that gain from that one little, one-month period? Right!
And what do you think of the current calendar benchmark January 1997, the last time when the SP500 was lower than it is now, sort of the equivalent of "You must be born before this date to buy beer?" Right!
And what do you think the NEXT calendar benchmark is going to be? Well, right, obviously 1996. The question is; how long before it becomes 1995? Or 1994?
And what was the SP500 trading for in 1994? Ha! Gotcha back, you little smart-aleck! Answer: it was flat at about 460 all year. It was the next year, 1995, when that average started zoom zoom zooming.
And, finally, what is the SP500 trading for today? Right, about 860. Then I look at the 460 from 1994. Then at the 860. Then at the 460. I look at the two numbers and think, "uh-oh." And in looking at the table in this week's Barron's, I mentally note that earnings of the SP500 went down by one percent. And then, in some weird coincidental thing, I notice that dividends were increased by a little less than one percent.
Now, I am the first to recognize that changes over one stinking week, which may be just a typo for all I know, or it may be anything or nothing. But it is a change, and as the human brain is hard-wired to detect change, this kind of stuff naturally elicits an automatic, autonomic response. In my case this is a left eyebrow that blips up with a mind of it's own, and an uttered "huh?" with that constant tone of perplexed confusion.
But remember fractals? You know, the way that the big picture, say the beach, with it's irregular shoreline, exhibits the same general outline or elements that are seen in smaller and smaller and smaller units, like the outline of a grain of sand under magnification. So, putting two and two together, in a manner of speaking, what does THIS little picture looks like what? And isn't this just a fractal of some big picture? Huh? I certainly don't know, since my understanding of fractals is so superficial, as befits my shallow nature, but 860 and 460 doesn't fit with anything I know, upon realizing that lower earnings usually doesn't fit with anything I know about bull markets.
Believe me, I suppose that if I was running some big company, and had the fatalistic view of the future that I do, and wanting to also look out for old Number One here, if you know what I mean, I would declare dividends out the wazoo, hopefully hoping, using a phrase which seems oddly redundant, that people would chase dividends so hard that it would actually drive the price of the stock up despite our lower earnings. Which would, under normal circumstances, have driven investors AWAY in droves. Nowadays, it doesn't even matter!
- One of the new urban legends is that in 1997 the members of the Fed wanted to raise interest rates to cool off the bubble, but Greenspan said "no." His new theory was that increasing productivity would solve everybody's problem, and they all buckled under. They, in the polite vernacular, went along. This will be their defense. They "went along" with Greenspan, which they now, of course, regret. So, it wasn't any of THEIR fault. I was that man Greenspan forcing them to do things that they knew were wrong!
I say this is probably the biggest load of crap I ever heard. If you take a look at the Fed's total issuance of credit, 1997 is the same year that it really took off like a rocket. And since I am now fifty-five of your earth-years old, I am SURE that I would remember reading something, anything, about anybody, anytime, I mean anyone within six freaking degrees of separation of the Fed ever, ever standing up and saying something on the order of Howard Beale at this finest moment, namely "This economic insanity makes me mad as hell and I am not going to take it any more!!
But no. What we get, instead, is documentation that Greenspan had such a low opinion of them and their opinions that he dismissed them out of hand, quarter after quarter, year after year, and they didn't raise a peep.
And we now also know that, since 1997 at least, not one of them could refute the productivity myth. The reason for this is, I assume, that they were real busy with other real important things, things so seminal that they would cause us blissful morons out here to crumple under the pressure of just one hour in their jobs, but the fact is that the productivity myth can be pretty much dismissed with just a glance at the evidence. Thus is proved that the idea of productivity as a savior at the micro level cannot be presumed to exist at the macro level, which is known as "the fallacy of composition."
The chilling fact is that the Fed was creating new money with both hands, starting in 1997 and continuing to this very day, creating more and more and more money ever since. In short, pressures were raising rates, but the Fed pounded mountains of liquidity into the system at record-setting rates to try and keep them down. My God! Are these guys telling me that they really, really believe that there would be a free lunch from all of this constant, ever-growing monetary stimulus? Now, I already KNOW that they were busy doing other real important things, and I stipulated as much somewhere in a paragraph above, but jeez Louise! Can't they hire an assistant or something to tell them that they are creating mountains and mountains of money and to remind them that this is a Very Bad Thing To Do? Is that so freaking much to ask? Is it?
And for these butt-covering weenies to release some doofus documents that purportedly show they wanted to cool anything off, or raise any interest rates, is to insult my intelligence. And when you have as little intelligence as I do, then you are very sensitive to insults about it. I shall return the favor by making extremely rude noises and flipping the finger at the lot of them, which ought to provide you with a clue as to when my maturational development was abruptly arrested. Ugh.
--- Mogambo Sez: Perhaps I am being too, um, pessimistic. If so, let me say that I, will... no! Wait a minute! No I'm not! YOU are being TOO optimistic! And if you do not get your lazy, procrastinating fanny into gold bullion and gold shares or something connected to gold right now, and I mean plenty quick there my little buckeroo, you will be a loser.
The problem, and you can quote me on this, is that it is too, too, tooooooo big and too late to fix. The time to fix it was decades and decades ago, when it was time to pay down the debt incurred during those other stimulus programs. But noooOOOooo! We kept on spending and borrowing, and borrowing and spending. And now, predictably, nobody can fix the huge, amorphous glob of over-priced mal-investments, distorting social mal-adaptations and the literally crushing debt that will devour us all, courtesy of the Fed which provided the fabled punch bowl that made us all so drunk we were not aware what in the hell we were doing.
Never, and that includes not only this day and time, or the foreseeable future, or the intermediate future, or the not-too-distant future, or the pretty-far-away future or even the infinite-future future that extends past a million zillion expansion-contractions and Big Bang reincarnations of the universe will it be possible to painlessly fix anything. And that is a long, long time.
And in case you are wondering, yes, it is waaaayyyyy past "Investing for the long haul."
To even imagine an escape scenario to is imagine a grotesquely fat man, sitting in the doctor's office, explaining that he was not going to accept the doctor's diagnosis of morbid obesity or the prognosis that it has progressed to the point where it will kill him within a week. After explaining how he is not going to stop eating everything he wants, because he never has, Fatso demands that the doctor quit wasting time and come up with a pill or something that will instantly reverse a lifetime of gluttony, saving the patient's life, and producing a slim and trim picture of health. And the doctor does it. Hahahaha!
The Mogambo Guru Lives!
Richard Daughty is general partner and C.O.O. for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher 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.
Neither do I.
Richard W.
Comments and opinions welcome.
Richard W.
No doubt, various segments of the market are in pure wild a** speculative mania mode. It's like the late 90's all over again and will end very badly for many -- but what do they really care? Mutual and hedge fund managers play in the casino with other people's money. Why not roll the dice for a chance at wealth and fame?
Richard W.
.....if the Fed is buying up shares and futures why wouldn't it show up on their books......even the Fed must be audited from time to time, are they not?
Thanks for the post Richard, and good luck to everyone!
Stonewalls the Ant
That is why I am sure that the Fed, and everybody who can be coerced or bribed into playing along, is doing everything they can do prop up the dying corpse of the equity asset overvaluation via debt monster. And they are doing it by means both legal and illegal, ethical and unethical, above board and in back alleys, propping things up like they did to poor old El Cid at the end of the movie of the same name.
When their own political power is endangered, politicians will do, or will overlook, anything that will keep them in office.
Richard W.
If they in fact do such things, then it should show up in the money supply figures, but it would hard prove the Feds were buying stocks with it.
All of the above is just a layman's opinion.
Yeah, the guy overwrites everything but he is funny and makes some really good points in the process. Lucky he only write once a week though.
Richard W.
We're in the end game now. No way are we going to make it 15-20 years at the rate that it would be necessary to create new debt. If we are lucky, very lucky, we might make it another 5 years.
Richard W.
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