If you are a new Junior Mogambo Ranger (JMR), then you may be unaware that the “Gaaahhh!” appended to the foregoing paragraph is a secret coded signal, and according to the highly secret Mogambo Highly Secret Code System (MHSCS), the three “a’s followed by three “b’s after the original “g” is a secret code, a “highly secret” secret code, that means “Some moron is jerking monetary policy around willy-nilly, and that kind of stupidity is so highly dangerous that not even professionals should try this at home, which means that you should be buying gold, gold, gold!”

And if you look at the bottom of the MHSCS entry, you will see the Three Best Mogambo Action Recommendations (TBMAR) to respond to this situation are “Buy gold and silver. Hole up in a bunker. Trust no one.”

Now you know why I spend such an inordinate amount of time locked inside the Mogambo Hopefully Impregnable Bunker (MHIB), although it does not explain why the price of silver is so low as to be absolutely ludicrous, what in the hell any of this has to do with silver in the first place, or why I spend so much of my time telling other people to buy silver to take advantage of these low, low, insanely-low prices when I should take the advice given to me so, so many times by so, so many people throughout my life, which is to “Shut your Stupid Mogambo Mouth (SMM),” especially since I recall that the alternative was usually a veiled threat in the form of a “knuckle sandwich” to stick in my SMM.

I think that the reason that I cannot keep the secret of silver being so under-priced to myself is because it does not matter! Nobody is going to listen to me anyway, and that means that I can keep buying silver at these low, low prices until finally reality catches up with the silver market, and when it does, I will be Sitting Mighty Pretty (SMP) with more money than I ever imagined, and people will say, “Why didn’t you tell us to buy silver, too, so that we, would have a lot of money, too? Or at least have enough to buy dinner instead of having to stand here, broke and hungry, watching you stuffing your Stupid Mogambo Face (SMF) with succulent appetizers, entrees and desserts, and watching pieces of food are falling out of your mouth, down your chin, bouncing off of your shirt, and into your lap; you are a disgusting, filthy pig!”

Ted Butler, independent silver market observer, has never commented on my seeming lack of table manners or has actually told me “Shut your Stupid Mogambo Mouth (SMM),” and if you call him up to verify it, he will immediately reply “What? Who is this? What’s a Mogambo?” before hanging up, which ought to prove it to everyone’s satisfaction as it does mine!

Anyway, Mr. Butler has been a long time looking at the obvious manipulation in the silver market with just a few “players” actually controlling the price so as to, I figure, run a scam, and up to now it has been up to Mr. Butler to identify the blatant criminality in the Comex futures market, while it has been up to me (as the other member of the team) to call all the people involved in the scam a bunch of “lowlife scumbag thieving cheating lying pieces of crap” and demand that they all be taken out and shot or given prison terms of 150 years each, ala Bernie Madoff, who was also a “lowlife scumbag thieving cheating lying piece of crap.”

But while I am doing this, see, I am buying more and more silver more and more cheaply and Mr. Butler is, I assume, buying more and more silver more and more cheaply, and everyone who has looked at the insane imbalances in silver are buying more and more silver more and more cheaply since the price of silver does not rise even though the purchasing power of the dollar is in a downward trend, thanks to the seemingly-impossible amounts of federal government borrowing and deficit-spending that will be financed by the Federal Reserve creating the seemingly-impossible amounts of money and credit to loan to the government.

But those halcyon days may be over, as things may be changing, as Mr. Butler notes that “On June 24, the US Senate Permanent Subcommittee on Investigations issued a 247-page report entitled, ‘Excessive Speculation in the Wheat Market’ where they found that ‘the CFTC failed to uphold commodity law, by allowing large index traders to hold long positions in wheat well above the proscribed speculative position limits of 6,500 contracts.’” The Senate found that the CFTC “failed to uphold commodity law”!

The problem, beyond mere criminality and fraud, is that traders with large positions can cause prices to be distorted, which Mr. Butler phrases, “If a futures market position grows too large it will affect the underlying cash market.”

He goes on that this is serious business, in that “The report indicated that the large long positions of index traders caused the price spike in wheat and other markets last year” by which they intend to remedy the situation by recommending “that the CFTC scale back their permission to hold positions above the limits, and lower those limits if necessary.”

In wheat, Mr. Butler says that there are “roughly 25 to 30 long index traders operating in the Chicago wheat market at any time,” which is plenty enough to prevent collusion, and even so, “the Senate report concludes that in wheat the limit should be no more than (the existing) 6,500 contracts and perhaps 5,000 contracts.”

And if you are thinking, “How did the report determine this number of contracts?” he explains that while it seems kind of arbitrary, “the 6,500 contract position limit in wheat is equal to 32.5 million bushels (5,000 bushels per contract). The total US annual wheat crop is 2 billion bushels. World annual wheat production is ten times that, at over 20 billion bushels. Therefore, the position limit of 6,500 futures contracts represents 1.6% of the total US wheat crop (32.5 million bushels vs. 2 billion bushels).”

And to the effect that US speculative markets influence world markets, “Relative to the total world wheat crop, the 6,500 position limit represents 0.16% of the total 20 billion bushel crop”, which pretty much rules out any global plots, schemes or scams to corner the wheat markets.

On the other hand, things are ripe for plucking, because “In silver, there are no hard position limits in force. There used to be, but the CFTC allowed the COMEX to replace hard position limits many years ago. Instead, now there is an ‘accountability limit’ of 6,000 contracts.”

The trouble is that “Since there are 5,000 ounces in a COMEX futures contract, the accountability limit is equal to 30 million ounces”, which means that “Whereas the position limit in wheat was 1.6% of the US crop, the accountability limit in COMEX silver is almost 52 times larger, at more that 83% of total US mine production (estimated at 36 million oz by the USGS).”

As for the chance to stick it to the whole world, “While the position limit in wheat was 0.16% of the world wheat crop, the COMEX accountability limit is 28 times larger, at 4.5% of the world silver mine production (660 million oz. per the US Geological Survey).”

The point of all of this is that the Happy Days for the slimy insiders in the silver futures and options market, and those glorious days when you and I could buy ounce after ounce silver at these low, low, unheard-of low prices, are almost certainly all gone, now that the Senate has found willful corruption, and so the day will soon come when silver, free from the slimy manipulations of insiders that one could even argue violate the 14th Amendment, will rise, perhaps a dozen-fold, in price, re-establishing the 16:1 ratio of silver to gold, which will also be, almost certainly, up.

At that point, which you will know from the newspaper headlines proclaiming, “The Mogambo was right! We’re freaking doomed!” the population of the world will be divided into people who either say, “Oh, of course I am so smart that I always saw the inexplicable and unsustainable 70:1 ratio of silver to gold, which is far outside the historical ratio of 16:1, but I was just waiting for the perfect moment to make my move into silver and I, like all the other experts, missed the boat because of some excuse, and people who followed our advice missed the whole thing and did not make a dime”, or they will be the other people, the ones who were buying silver the whole time and who were now saying, “Whee! This investing stuff is easy!

This article originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets. Follow the Daily Reckoning on Twitter.

A Master Stroke of Silver Manipulation

Anyway, I keep hearing some doofus or another prattling on and on about deflation, and how prices will be going down and how this is a terrible idea, sort of like saying, “Shopping during a sale means you will pay lower prices, and that is bad for you!”

Actually, it is not the falling prices that are bad, but that the falling prices means that producers are losing money, which means that some, many, or most of them will go out of business, firing everybody, wiping out investors, thereby reducing supply until it meets the level of demand.

Actually, the deflation-hawks say that this falling of prices is so bad, so terribly bad, that we should fall to our knees and pray that prices rise, which really scares the hell out of me because I have read a lot of things in two main categories in my life: Hate mail and economics tracts, and they have one thing in common, which is that in neither do you ever read something as stupid as advocating inflation in consumer prices.

In fact, most of theoretical economics is actually dedicated to preventing inflation in consumer prices and what to do if inflation appears! Hahaha! What a kick in the head, huh? Hahaha!

And my paranoid panic about inflation is because inflation in consumer prices is what destroys countries because the people rebel against starvation and deprivation when they can no longer afford food and energy, and it destroys families because somebody (like, for instance, the father) finally, one day, just snaps at the constant demands from his, for example, wife and, for example, kids, who are all persistently yammering yammering yammering about how they have to have you give them more money, always more and more money, just because, “things cost more and more” like I can just wave a magic wand to make money appear in my wallet and that is why I am here at home watching TV instead of being down at Nasty Natasha’s paying off my bar tab and getting hammered running up a new one.

Naturally, my instinct is to jump up and grab them by the collar so that I can scream in their faces, droplets of Disgusting Mogambo Spittle (DMS) spraying out and hitting their stupid faces, “No, no, no, you moron!” and shaking a Financial Times piece at them that reads “Concerns Mount Over Sharp Rise In Food Costs”.

That news that food is costing more is Very, Very Bad (VVB) to someone whose income is limited, as it means that the person must either buy less food, or buy the same amount of food but less of something else like electricity, which shoots the hell out of the argument of the “deflation-hawk” morons that falling prices for their overpriced, bubble-assets is worse than rising prices for food and energy (where oil is back over $70 per barrel), or the JOC -ECRI Price Index which is up a whopping 4.1% in the last week alone! One Freaking Week (OFW)!

And this doesn’t even count the inflation in other costs, such as how my health insurance went up by another 8.8%, taking me to over $13,000 a year in premiums, which doesn’t count the $2,000 deductibles that my wife and I must each pay, or the co-pays, which means I am out of pocket over $15,000 a year before they start picking up any of my needed medical costs!

I was thankful that Bill Bonner here at The Daily Reckoning did not comment on how my health insurance premiums probably reflect the immense amount of professional help that I desperately need, even though my policy obviously does not cover the category of “mental illness” enough to do me any good, and instead writes that my clinically hysterical over-reaction to inflation is destined to get worse, as “The US money supply growth was fairly constant for the last 45 years. Then, under pressure from the stimulus/bailout programs, it exploded. Art Laffer says it is meaningless to compare it to anything in our history; nothing like this has ever happened before. He argues that inflation this time could be much worse than the inflation of the ’70s, when the prime rate hit 21.5%. This is a new era!”

And while this may be a “new era” for most things, I’m betting that the “buy gold when your government is acting like spendthrift, corrupt morons” philosophy that has served the “old era” of the last 4,500 years of human history so well will continue to do so now, which makes it all so easy that I happily say, “Whee! This investing stuff is easy!”

This article originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets. Follow the Daily Reckoning on Twitter.

Deflation Hawks Pray for Inflation

Or like James Coburn playing the role of Z.O.W.I.E. agent Derek Flint, America’s top secret agent in the ’60s and who could easily kick James Bond’s butt, which could explain why beautiful women were always throwing themselves at him, and while James Bond might score with one or two chicks the whole film, Agent Flint was up to his ears in hot babes, literally having to use karate to hack his way through throngs of adoring hard-body hotties in bikinis lusting after him, many of whom may have had foreign accents but were docile, so you can see what I am talking about.

Anyway, we were talking about the chart, and to get back to the point, the chart has “number of calendar days” down along the horizontal, bottom, x-axis, and “Stock Market Rally (% change)” vertically up along the y-axis. It is the answer to the questions “How big (measured in percentages) and how long (measured in days) were bear market rallies, what is the average percentage gain and have it on my desk immediately!” which you gotta admit is pretty handy!

Anyway, and again with the “anyway,” the chart shows that we are about 100 days into a rally, and looking at the chart, it looks like a stock price rally of about 34%, slightly higher than the statistical average of the percentage-change/days for the six bear market rallies that occurred over the three beginning years of the Great Depression.

In another couple of months, we’ll be at about the record “longest rally” 155-day mark, where we also find the old record stock price gain of about 48% that occurred in November 1929.

Another thing that occurs to me, looking at this chart, is that our current little stock market rally of about 34% of the Dow Jones Industrials is already higher than 4 of these rallies in terms of percentage gains, and is older than all but the biggest and the best of the bear market rallies, and which started in November 1929 and lasted about 155 days! Yikes!

In other words, if there was a third dimension on the graph to indicate time in both Newtonian dimensions and in some weird time-warp where the starship Enterprise, on her five-year mission to explore strange new worlds, seek out new life and go where no man has gone before, is bearing down on the last outpost of previous highs, Scotty would be yelling up to the bridge, “Captain! We’re coming to the edge of Previous Known Highs (PNH) at hyperspace speed, and you know what happened the last time this kind of thing happened!” and Captain Kirk says, “No, what happened?” whereupon Mr. Spock, all calm and logical, would say, “The whole thing collapsed, Jim, sort of like a Glornassian Crapworm when you hit it with a hand phaser,” which would be enough for Kirk to scream out, “Captain’s supplemental log! This is the captain! Abandon ship! We’re going to freaking crash and burn! All hands buy gold!” which, if you knew Captain Kirk like I do, would end up being the smart thing to do by the end of the episode.

In short, all things end, including the phase where a national idiocy prevailed where everyone “invests for the long term” by putting all their money into stocks, bonds, houses, bigger government and an orgy of over-consumption, which is proven to be the wrong thing to do, and where people did not put their money in gold, which is the proven right thing to do, as even a Glornassian Crapworm knows.

And if everybody from a starship captain to a stupid Glornassian Crapworm knows this, then, “Whee! This investing stuff is easy!”

This article originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets. Follow the Daily Reckoning on Twitter.

Where No Bear Market Rally Has Gone Before

And to prove it, I deftly subtract one from the other and get – voila! – $48 billion, which is not only factually correct, but more than enough to quiet any naysayer saying, “Nay, I say!” as regards my computational skills.

Then, to add that essential touch of surreal whimsy that seems to permeate all things fiscal and monetary these days, I additionally note that not only did Total Reserves go down in the banks by $48 billion to $828 billion, but I will note that Total Reserves one year ago were a miniscule $41 billion! Hahahaha! They fell last week by more than they totaled one year ago! Hahaha!

In fact, Required Reserves are only now starting to rise from “nearly zero” to “slightly more than zero,” and banks are now “required” to have a miniscule $56 billion in reserves against their zillions of dollars in assets and liabilities, while meanwhile, a mere couple of lines up on the same Barron’s page, the Federal Reserve reports that “Reserves F. R. banks” went down by an astonishing $125 billion last week to $692.6 billion! Wow! Big move!

These huge tsunamis of money, joining all the other tsunamis of money sloshing back and forth around the banks and the world, around and around, getting everything all wet, are not only ruining the patio furniture and making a mess of everything, but are such that even the World Bank has revised its estimates, and now says the global economy will contract by 2.9% this year instead of their previous forecast of 1.7%, which is an error of 41%.

Well, when I show up at an executive board meeting sporting a 41% error on a forecast I made just a few months ago, all I hear is people all demanding that I be fired or killed for bringing the company to the edge of bankruptcy and ruination, which of course I seize upon to show that precision economic forecasting is a ridiculous exercise everywhere you go, especially since economics is, just as the Austrian school of economics always said it was, human behavior with a huge random element, which is not even to mention Taleb’s Black Swan Hypothesis of unforeseen catastrophic events making a complete mockery of using bell-curve probabilities to forecast long-term expected results.

It’s like expecting, but not getting, what you would expect from the statement from the Federal Open Market Committee after their recent meeting, which apparently showed that they are incredulous of the generally low level of intelligence of Americans, which they demonstrated when they said, “As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year,” which I figure would be $238 billion a month for the remaining six months of the year, which would normally make my heart start fibrillating with fear at the inflationary implications of such irresponsible monetary policy.

My snotty interpretation is that by saying “as previously announced” they mean, “we say again so that you can’t say we didn’t tell you that you morons are sitting there while we at the Federal Reserve are going to buy up the losses of our friends at a rate of $12,500.00 for every one of the 100 million non-government workers in the USA, which is admittedly a lot of money at $12,500.00 each, but which is almost certainly grossly understated so that we are going to keep coming back for more and more and more! Hahaha! Suckers!!”

Whether or not they meant that, it turns out that I was right, and this is all part of some nefarious plan, as they later slipped in, almost as an afterthought, that “In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn,” which made my eyes pop out painfully when I realized that this means that we are suddenly talking about buying up almost $350 billion a month in worthless assets and handing over the cash to the lucky current holders (who are making out like bandits!) of those toxic assets, which means that these guys will suddenly have a lot of cash in their pockets looking for a home, and the prices of something, or some things, are going to go up as this $350 billion of new cash Per Freaking Month (PFM) gets plowed into “investing” in some asset or another.

This is where some people think it gets tricky, but it is not. This is, in fact, the easy part, as all you have to do is buy gold, silver and oil when your government is acting so impossibly stupid.

At least, that is the lesson of the last 4,500 years of history! And like the saying goes, “The race is not always won by the swiftest, nor the battle by the strongest, but that is the way to bet!” which is just another way of saying, “Whee! This investing stuff is easy!”

Until next time,

The Mogambo Guru
for The Daily Reckoning

This article originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets. Follow the Daily Reckoning on Twitter.

Money Tsunami Capsizes the Global Economy

Instead of this pathetic human-interest story, the Times reports that they come to this ugly “U.S.’s Debtor Status Worsens Dramatically” conclusion because the Commerce Department reported that “At the end of 2008, America’s net international investment position was minus $3.47 trillion. That represents the difference between the value of U.S. assets owned by foreigners ($23.36 trillion) and the value of foreign assets owned by Americans ($19.89 trillion).”

The net result is that “At the end of 2007, the U.S. net international investment position was minus $2.14 trillion. Thus, America’s net indebtedness with the rest of the world increased by $1.33 trillion, or 62 percent, during 2008”, which was, they say, “by far the biggest annual increase in data that go back to 1976.”

Well, I got a Hot Mogambo Bulletin (HMB) for these Times fellas, because during that same time the national debt was about $9.2 trillion at the end of 2007, and by the end of 2008 it was $10.7 trillion, for a gain of $1.5 trillion in SOMEBODY’S “net investment position”! Hahaha!

And Doug Noland of the Credit Bubble Bulletin reports, “Combined outstanding Treasury, GSE and MBS obligations surged $1.949 TN, or 15.3%, in 2008 to $14.709 TN.”

And perhaps it is this increase in foreigners’ “net investment positions” in dollar-denominated assets that is why, as Michael Kosares at usagold.com reports, “China recently expressed its interest in purchasing $80 billion in gold (about 2600 tonnes).”

Now, although I am a greedy guy who would love to be able to buy 2,600 tonnes of gold because I would be Set For Life (SFL), it is almost nothing in the Big Scheme Of Things (BSOT), and he notes that with “nearly $1.4 trillion in dollar-based assets, and almost $2 trillion in total reserves, $80 billion would consume a paltry 6% of China’s dollar reserves. At the same time 2600 tonnes translates to roughly one-third the U.S. gold reserve – a significant ambition by any measure.”

And if you think that the Chinese are bluffing, then it becomes hard to explain why although “China has quietly become the world’s leading gold producer”, it is also a fact that “most of that production never leaves China’s borders, but goes instead to the national reserves as a hedge against its currency holdings.”

This is where it becomes interesting, as “China, by the simple expedient of defending its own interest, accomplishes much for the gold mining industry as a whole. By posing as a gold buyer of last resort, ready, willing and able to scoop up any sizable offer, China may have very well put a floor under the market price”!

And it is not just gold, as Junior Mogambo Ranger (JMR) James R. sent an article titled “Chinese Strategic Plans; Control of the Supply of Rare Earth Metals” from the Contrarian Investor’s Journal.

The article says, “Rare earths are the 15 elements within the lanthanide series of the periodic table, plus the elements yttrium and scandium. The best known are lanthanum, cerium, neodymium, praseodymium, gadolinium, europium and samarium”, which I gotta tell ya, I never heard of any of them, but they have all kinds of important, specialized, strategic uses and blah, blah, blah, none of which I understand, and I would not be telling you about them now except that I am intrigued by the sentence “China is the largest producer of rare earths. In fact, it is said that China is the Saudi Arabia of rare earths.” Hmmm!

In fact, “While about 42% of worldwide rare earths resources are outside China, there are NO non-Chinese sites with any significant processing or refining capacity”, and it is likely to stay that way because although “Many people are looking at establishing alternative refineries and sources outside China”, they soon learn that “the investment is not necessarily a sound one because of the threat of price revenge by China. If new projects emerge, as they have recently in Malaysia and Australia, China could just drop its prices and force rivals out of business.”

This is, of course, predatory pricing, an illegal activity which is “an anti-competitive practice by monopolies to bankrupt their competitors by slashing price so much that everyone makes a loss. Since the loss-making monopoly will eventually outlast their loss-making competitors, it is only a matter of time until competition is eliminated and the monopoly can increase prices.”

This, then, is the kind of competitor that we face! And one that is keeping all its own gold and wants to buy more! Wow!

And you want to bravely face what looks like a developing gold standard yuan in the hands of ruthless, unrestrained Chinese competition with a fiat dollar in the hands of a corrupt, spendthrift American government and a Federal Reserve that thinks that creating more money and credit to reflate the bursting bubbles caused by creating too much money and credit is “prudent monetary policy”? Hahaha!

All I can tell you is that if you are not that brave, then forego those wistful, wishful ways, and buy gold, silver and oil, because that is what I am doing and I am not so brave as you!

This article originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets. Follow the Daily Reckoning on Twitter.

Nothing Rare About Chinese Rare Earths

For awhile, I thought that I was the only guy in the world who could not believe that people are somehow saving so much money, and I was going to use this fact as an excuse to go to a bar and get really plastered since I obviously have no idea what in the hell is going on.

However, as I am heading towards the door, I see where Rob Parenteau of The Richebächer Letter writes, “Oddly, along with flat consumer spending, the gross personal saving rate has surged to nearly 7%, yet the unemployment rate has kept climbing. How is that combination possible? Specifically, where is the household sector getting the income growth to both increase saving and stabilize spending levels when job cuts remain alarmingly high?”

Well, the answer may be that they aren’t buying anything at all! I came to this startling conclusion from an email from Junior Mogambo Ranger (JMR) Diane S., who sent a spreadsheet that she said was “taken off the S&P website” at www2.standardandpoors.com that shows that the actual 12/31/08 “As reported earnings per share” for the S&P500 index is a startling loss of $23.25! Yow!

It takes a moment to sink in that the earnings of all 500 of the companies in the S&P500 index, the 500 biggest corporations in America, are negative, which, of course, makes the price-to-earnings ratio a negative number, which has the bizarre result of the P/E ratio now being the amount of money you will spend for a share of the S&P500 to buy a loss of $23.25! Hahahaha!

Then I thought to myself, “Hold on there, Mogambo! Maybe with all the drugs people can get or make these days, maybe there is enough brain damage extant in the world to make this work!”

Excitedly, and hastily, I left work, jumping into my car and speeding to the mall, radio blaring, whereupon I started offering people in the parking lot the latest Hot Mogambo Investment Idea (HMIA), which is, “Give me a dollar and I will give you a 23 cent loss!” which I quickly learned was a failure of a business venture, so I went inside and got some egg rolls from the food court and went back to work.

Pondering what went wrong, I see that maybe there is literally no money to invest in my HMIA, as JMR Diane S. notes, “they really buried it, but the estimated ‘As Reported’ P/E for the S&P500 is 1920 this quarter! For next quarter it’s a negative number, -436!! That’s beyond infinity!!!”

Her three exclamation point punctuation that really got my attention! This must be huge!

Intrigued, I took another look at the table in Barron’s, and I see that the P/E ratio for the S&P 500 is now an astounding 127.45, which is already so outlandish that I get the odd sensation that I am in some kind of dream world, a place where morons somehow get wads of cash and decide to spend it on an asset whose earnings are so low that it would bizarrely take 127 years to break even on buying the stock, and when the average lifespan of the average investor is less than 80% of that, which is such a weird, disorienting concept that it takes me Over The Freaking Line (OTFL) when it is all compounded by noting that the companies in the index are paying out $21.69 in dividends while only making $7.21 in earnings!! Gaaahhh!

So if you are one of those people who currently own the S&P500 and you are saying to yourself, “Yow! These guys are bankrupt! I gotta get out of stocks, and into something else! But what?” then let me tell you that all the other people in the last 4,500 years who came to this place in their lives either bought gold (and fared very well), or they did not (and did very badly, mostly starving to death in the streets and dying of exposure while the cries of their hungry children were ringing in their ears).

In short, “Whee! This investing stuff is easy!”

This article originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets. Follow the Daily Reckoning on Twitter.

Dead Before You Break Even

I noticed that he was right, in that it did merit an exclamation point!

And in gold, Ed Steer of Casey Research writes that the latest Commitment of Traders report from the CFTC “was, in a word, depressing.”

The details are that “Despite the price decline in gold during the prior week, the bullion banks in the Commercial category only decreased their net short position by 1,474 contracts…a number hardly worth mentioning”, so you wonder why he does, unless there it is a secret code that, when run through a Junior Mogambo Ranger (JMR) secret decoder ring, gives the secret message, “The Mogambo was right! Buy as much freaking gold as you can get your hands on because this is bizarre!”

But before we could ask, he provides the answer that “The Commercial [bullion bank] net short position in gold is now at a staggering 22.5 million ounces…almost at record levels.”

And in silver, the situation is about the same, as “bullion banks continue to add to their short positions”, and the “bullion banks added a whopping 3,976 contracts to their net short position. As of Tuesday’s cut-off, the net short position in silver was 46,950 contracts…that’s 234,750,000 ounces.”

This is certainly getting my attention! Then he says that his opinion is that “the bullion banks will, as they have in the past, most likely use their gargantuan gold short position to beat the living crap out of the silver price once again”, which is good news to us guys who would actually, literally salivate over the prospect of being able to buy more silver at ridiculously low prices thanks to a slimy manipulation of futures and options because we know that slimy manipulations have a limited lifespan, and we WOULD salivate, too, if we didn’t think about the ugly reality that after bills, taxes, and family demands, all denominated in higher and higher prices, there is no money left with which to buy silver. Damn!

So I wonder, “Is there something else in which I could speculate and make a Big Freaking Fortune (BFF) when the price soon zooms up?”

As if to read my mind, Chris Mayer of the Capital & Crisis newsletter says that the smart play right now is to “Buy what China needs, but can’t make enough of for itself”, which makes sense since China has already announced its own monstrous “quantitative easing” to flood the economy with new money, and “the very best places to be” are in the staples of “potash, soybeans, iron ore and oil.”

Since Mr. Mayer is not here to stop me, to these selections I add, “Don’t forget silver, as all of those Chinese (one-third of the population of the world!) are going to want a lot of electronic and electrical devices, all of which need silver, by which I mean Every Freaking One (EFO) of them, of which there is very little left in above-ground stockpiles since it was all used in creating the cornucopia of electronic and electrical devices manufactured since World War II for the Western world that we used up and threw away!

It’s enough to make you want to shout, “Whee! This investing stuff is easy!”

This article originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets. Follow the Daily Reckoning on Twitter.

Silver Takes on Gold Supremecy

As for inflation, his calculation of the Consumer Price Index “reflects the CPI as if it were calculated using the methodologies in place in 1980”, which I note is back when inflation was a measurement of the change in prices of things that you buy, and not, as it is now after the villainous Alan Greenspan and Michael Boskin came up with their ludicrous “hedonic” measurements of inflation with which to disguise it.

Anyway, Mr. Williams’ honorable and time-honored methodology shows inflation in prices running about 6%, which is a horrendous rate, which is a big shock to those who have just swallowed the government’s estimate of CPI as being a negative 1.3% over the last year!

Mr. Williams’ estimate of the M3 money supply (the broadest definition of ‘money’) shows that it is growing at about 6%, which, although startling to those of us who are seemingly predisposed to getting hysterical about such monetary idiocy because it causes inflation in consumer prices and which is the Worst Thing That Can Happen (WTTCH), is actually down from the boiling 17% growth in M3 money supply at the beginning of 2008!

Wow! What a deceleration! This certainly has something to do with his calculation that year-over-year change in GDP is down by a whopping 5%.

Even worse, M1, which is the narrowest definition of money since it is essentially defined as “cash”, has exploded to an outrageous 16% growth since the beginning of 2009!

This is plenty bad news if you are afraid of inflation in consumer prices, which is different from being afraid of the CIA tapping into your computer and discovering all that pornographic filth and hate mail (e.g. “Dear Federal Reserve, I always hated you morons for creating so much money and credit that it caused roaring bubbles in the stock market, the bond market, the housing market and the size of government, and now your outrageous excesses to stupidly supply the financing to let the federal government try and buy its way out of a well-deserved bankruptcy will soon cause roaring inflation in consumer prices as the value of the dollar tanks, and my stupid relatives are getting laid off and are coming over here asking me to loan them some money, and I reply, ‘Why don’t you sell some of the gold and silver I have been screaming at you to buy all these years? It’s way up in price!’ and they admit, ‘We didn’t buy any’ and then I say, ‘Then why would I loan money to someone who is so stupid that I hate everything about you, including hating that stupid look on your stupid face’ and then they say to me, ‘We always thought you were kidding when you said you hated us’ and then I say to them, ‘Now you know, you moron!’ all of which has caused a lot more tension at home, as you can imagine, which is the last thing I need right now”).

And as bad as that is, the really bad news is that measuring unemployment the correct way shows that it has now shot past the 20% mark! One out of five unemployed! This is Great Depression stuff! Yikes!

All of which brings me to one of the stories that you don’t hear about when discussing the Great Depression, which is that the people who did not own gold or shares of gold miners all wanted to own them, and would have, too, if their paper assets had not taken all their money away!

“Which is kind of like right now!” I thought to myself after getting the news after I had finished the scheduled Perimeter Security Check outside of the Mogambo Bailout Bunker (MBB), whereupon I was settling down to read an essay by Gary Gibson, managing editor of Whiskey and Gunpowder, who had done a little research and found that the Federal Reserve just reported that “U.S. household wealth dropped $11.1 TRILLION since 2008 – $5.1 trillion of that in the last three months alone.” Yikes!

I assume that he has not mastered the use of the exclamation point, which would have made his sentence end, more appropriately, “the last three months alone!!!!”

And lest I be remiss in giving to you Earthlings another heaping helping of Secrets Of The Cosmos (SOTC), which is my mission here on your miserable planet, way out here in the middle of what we sophisticated interstellar travelers call “No Freaking Where”, here it is: Buy gold when your government is acting irresponsibly, which is, admittedly, most of the time, which should make you Squeal With Glee (SWG), “Whee! This investing stuff is easy!”

Until next time,

The Mogambo Guru
for The Daily Reckoning

This article originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets. Follow the Daily Reckoning on Twitter.

The Ups and Downs of Money Supply Growth

To start off the festivities, it opens with a photo of the odious Christopher Dodd, the self-important arrogant loudmouth from Connecticut who milks the job for special “favors” and personal aggrandizement, actually chairs the House banking committee and, as a long-time member of Congress, is directly responsible for the economic catastrophe befalling us and the world, a sorry fact that I hope is a complete and utter embarrassment to the voters of Connecticut.

But the article was not about Christopher Dodd or how something is obviously wrong with this guy, and naturally it did not mention the fact that if I thought, for even a minute, that I could get away with it, I would go to Washington, D.C., walk into this guy’s office, grab him by the lapels of his coat and slap, slap, slap the hell out of his smarmy face until whatever in the hell is wrong with him has been knocked out of his stupid Leftist, economically-illiterate head.

Instead, we read that now that his incompetence is evident, “Congress will take a second shot at the derivatives industry after its decision nine years ago to forgo regulations led to a $592 trillion market that brought some financial firms to their knees.”

Then, to show you that Mr. Dodd, the bank or the Federal Reserve don’t have an exclusive on economic illiteracy, the article quoted Mark Halverson, “a staff director for Senate Agriculture Committee Chairman Tom Harkin”, as saying that “One of the key underlying problems in the whole lead-up to the meltdown was too much leverage, too little capital or too little collateral.” Hmmm!

Well, while he is exactly right that there was too much leverage, where the buyers of these toxic assets were putting up a few cents in chump change and borrowing the rest, he apparently doesn’t know what leverage is, even though I just explained it, which shows how much people pay attention to me around here. Morons.

The fact is that Mr. Halverson is being merely redundant when he says there was too little capital, as distinct from leverage, but I got a Real Hot Mogambo News Flash (RHMNF) for this Halverson fella about “too little collateral”, as there was lots of collateral, dude! All the collateral you want! More than you could ever want!

You want more collateral? Hell, give me a couple of minutes and I can whip a lot of IOUs and vague promises into a package and give you all the freaking collateral you want! I’ll give it a fancy title, too, like “Collateralized Debt And Vague Promises Obligation.” Too little collateral, you say? Hahaha!

Then, just when I thought it could not get funnier, I got to a funnier part where, as part of the overhaul of the entire economic and financial system of America, the Obama administration has a proposal that would “require standardized over-the-counter derivatives contracts to be guaranteed by a clearinghouse.” Hahahaha!

And if the clearinghouse decided it could not, or would not, pay? Hahaha! Hell, we got that system now! Hahaha!

The scary part was that the Obama administration is revealed as clueless, too, and Bloomberg remarked that the White House “said in its regulatory proposal that while derivatives didn’t cause the financial meltdown, they ‘became a major source of contagion through the financial sector during the crisis,’ instead of dispersing risk as intended.” Hahaha! Wrong!

I was just getting ready to fire off a lot of scathing emails about such a ridiculous stupidity, when I realized that here was the perfect solution to my problems at work!

No, not my main problem of calling employees and customers “morons” for not buying gold, silver and oil when their own stupid government is ruining the dollar right in front of their eyes by allowing the Federal Reserve to create such excesses of new money and credit so that the government can borrow the money and spend it, now that people are not borrowing and spending money with their customary élan because they are broke and unemployed.

Nor was it a solution to any of my many, many other personal problems which are, I might add, all the result of other people acting like they have a lot of brain damage. Wasn’t it Sartre who said, “Hell is other people”?

Instead, this could be the solution to the problem of how I am probably going to get fired because I have alienated the customers and made enemies of the employees, which was not part of my Fabulous Mogambo Plan (FMP), which was to take the customer’s orders, demand a big deposit, and then just say, “Screw ‘em!” whereupon Sales would always be bringing in new customers, whereupon I would take a little of that new deposit money and settle out-of-court with the irate customers for pennies on the dollar. A real moneymaker of a plan!

So, obviously, the financial problems of the company are not my fault. The sales department fell down on the job, ruining everything.

As I watch her face turn red with anger, I remember that I am just hoping to stall for time, as it will not be long before gold, silver and oil shoot upwards in price and I, who have these things, will have enough money to buy the damned company and fire them all, including my boss and her “Get out of my office or I’m calling Security!” crap!

Actually, I am thinking, “Whee! This investing stuff is easy!”

This article originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets. Follow the Daily Reckoning on Twitter.

All the Collateral that’s Fit to Print

I groaned aloud, and as my head fell forward and hit the bar, I was thinking that this $29.4 billion in new credit would be considered huge if Alan Greenspan (horrid former chairman of the Federal Reserve that created the economic catastrophe that is unfolding) had done it, and such outsized creations of new credit would have been horrifying, producing rioting in the streets, if any Federal Reserve chairman in all the rest of US history had done such a thing.

The bartender came over to see if I was passed out, and as he poked me and said, “Hey! Hey!” I looked up at him and said, “But for Ben Bernanke and his outrageous excesses of creating new money so that the federal government can borrow and spend it, it is not that much! Hahahaha! Hell, this is the weenie that increased credit by over a trillion dollars in the last year alone! Gaaahhh! We are so freaking doomed!”

If you, too, are like me and have consumed a lot of various things so as to calm down enough so that your freaking brain doesn’t explode at the Fed’s astonishing, irresponsible government-lapdog excesses, then you are probably ready to know that, surprisingly, the monetary base abruptly contracted $46 billion, a hefty 2.6%, in the last week or so, probably having something to do with the simultaneous $48 billion contraction in the recent $800 billion Federal Reserve addition to bank reserves, which may have something to do with the Fed buying up last week a whopping $42 billion in government and agency debt! Last week! Gaaahhh!

I notice that I am still using exclamation points to express my profound stupefaction that the damned Federal Reserve is creating so much money, which means that the value of the dollar will go down, and we are on the same path as the morons running Zimbabwe who, I guess you heard, finally created so much money – which created so much inflation in prices as the oversupply of new money completely diluted the existing stock of money – that the Zimbabwe dollar is now officially worthless. Worthless!

So how does an economy keep on operating with no money? Well, the local poor-folks have been begging from foreign sources and furiously digging flakes of gold from the rivers, but the more well-heeled have adapted, and as Golf Digest reports, “Despite hyperinflation, cholera and hugely unpopular President Robert Mugabe, golf survives in Zimbabwe. At Bulawayo Golf Club (founded in 1895), members have been paying with gasoline because local banknotes are worthless.”

And China will not be far behind us, as it looks like it is not only the Western world that has a plan to pound money into the system to benefit its friends and insiders, as Bloomberg.com cited Vice Premier Li Keqiang as saying that “China will stick to its proactive fiscal policy and appropriately loose monetary policy,” and that China “will focus on boosting domestic demand, particularly individual consumption, to fuel economic growth.”

And they have plenty of money to spend, although most of it is in US dollars, and it is reported that the Chinese have about $780 billion in US bonds, and another $700 billion or so in other dollar-denominated assets.

Their problem, perhaps giving impetus to the Chinese decision to flood their own economy with money so as to “stimulate” demand, is, as Bill Bonner here at The Daily Reckoning writes, “that China has lost more than $200 billion so far this year, thanks to the fall of the dollar and US Treasury bonds.”

I’ll leave it to you to figure out how such increased demand by one-third of the world’s population coupled with world-wide, pandemic “quantitative easing” flooding of economies with money and government debt leads to inflation in prices and what that all has to do with buying gold, silver and oil Right Freaking Now (RFN), but when you do, I am sure that you will think, “Whee! This investing stuff is easy!”

This article originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets. Follow the Daily Reckoning on Twitter.

Worthless Money from the US to Zimbabwe