A few of the more sensitive detectors in the Mogambo Economic Alarm System
(MEAS) were registering conditions up near the Red Zone. There was, however, no
real activity in Total Fed Credit last week, when it was down by another US$1.4
billion, which isn't much, especially when compared with the usual $10 billion
a month that the US Federal Reserve has been creating since, I am sorry to say,
1997.
On the other hand, the system components that monitor the Federal Reserve's own
stash of government bonds was loudly going "gong, gong, gong!", as US
government securities owned
outright went down another $22.3 billion last week, taking the Fed's total down
to $502 billion, which is itself down $220 billion from a year ago.
Quickly summarizing, in just a few weeks, a third of the Fed's entire stash of
government debt, accumulated bit by bit since the Fed was first authorized by a
few Congressional conspirators on Christmas Eve, 1913, has been used up by the
Fed trying to paper over its own horrific mistakes! Yikes! Ron Paul was right;
we have to abolish the Federal Reserve!
Apparently, everybody is cheered that the new official, government-determined
and government-sanctioned inflation is 3.9%, which makes me laugh to think that
anybody in their right mind would believe that, and then which makes me howl in
anger because the damned Federal Reserve and a willing co-conspirator Congress
(except Ron Paul) allowed this to happen by allowing the banks to create so
much excess money and credit, so astonishingly much excess money and credit, so
stupidly and criminally irresponsibly much excess money and credit, for so many
months, so many years and so many decades, which doesn't even mention the fact
that throughout all the rest of human history, 3% inflation was considered to
be the cut-off between "High" and "Emergency! Emergency!", but which is
actually ignored today!
This brings up a laughable "letter to the editor" of the Financial Times from
David Nowakowski of Atlas Management, who wrote, "For 25 years, the Fed has
kept inflation at an average of 3.2% a year - that should be applauded"!
Hahaha! You will go a Long, Long Time (LLT) long time before you hear something
so ridiculous! Hahahaha! Applauded! Hahahaha!
But even 3.2% sounds good right now, as even food and energy, and everything
else we have to buy, are increasing at rates of inflation that are multiples of
the "official rate", which means that the horrifying 3.9% inflation is,
unbelievably, the residual inflation after the government ignores the things
that went up a lot in price, and then lies about the rest! Hahahaha!
My laugh is nervous and dry, and for a little comic relief we go to this week's
Barron's and look in their "Indexes' P/Es & Yields" table to see that the
price-to-earnings ratio for the Dow Jones Industrial Average is now up to
87.07! This is, incredibly, up from last week's P/E ratio of 85.97! Hahahaha!
And while that is funny enough, get a load of this; the dividends paid by the
DJIA companies to their stockholders was $317.88, while earnings were only
$149.16! Hahahaha!
Naturally, my stupid kids come running into the room with that very fact in
hand, and they want to know why it is that the 30 companies in the Dow Jones
Industrial Average can pay out three times as much as they earn, and yet I
can't let them have a tiny fraction of what I make with which to buy decent
food, or shoes that are not held together with duct tape. My eyes narrowing, I
pointedly ask them, "And who pays for the duct tape?" and they have to admit
that I do. Naturally, I think this closes the whole point of discussion, and so
I provide the denouement by saying, "So shut the hell up and go to hell!", but
they, of course, don't.
So I ignore them, and since I am already in the "Indexes' P/Es & Yields", I
take a look at the S&P500, and see that the P/E ratio there is 22.89, which
is up from last week's P/E of 20.89, even though earnings dropped to $62.28
from last week's $66.28, which are both down from last year's earnings of
$83.39! Hahahaha!
This S&P 500 thing is oddly at odds, as oddly odd as that sounds, oddly
oddly oddly, when we read, also in Barron's, that Alan Skrainka of investment
firm Edward Jones says that buying the stocks in the S&P500 index "is
inexpensive", as it is selling at (he says) a P/E of 14 times earnings, which
is "based on a rolling 12-month estimate for the period ending next April".
At first, I was struck by the metric "a rolling 12-month estimate for the
period ending next April". Initially, I wondered, like you, "What in the
freaking hell is a 'rolling 12-month estimate', and how can I use it to
advantage?"
That is why I am sitting in this bar, excitedly planning my next crucial move,
but being distracted by the irritating bartender yelling at me to pay up, even
though I keep explaining to this moron that when I said "Drinks on the house!",
I did NOT mean that I am "the house", and I thought he was just being a nice
guy for letting us drink free all afternoon.
Nevertheless, with Powerful Mogambo Powers Of Concentration (PMPOC), I tuned it
all out, and the plan came together: The deal is that I will tell my wife that
I am not "worthless scum" like she has written in the dirt on the back of my
car, but I am actually a "buy" based on making an unspecified small improvement
month after month in my husband-and-father skills, compounded, using a rolling
12-month estimate for the period ending next April. Or June. Or maybe November.
I love this stuff!
But speaking of Barron's, I recently wrote that the trade balance a year ago
was a positive $63 billion, and then I got an e-mail from Bob Wood of Kaizen
Asset Management, who asked "Are you sure?", and I say that I got it from
Barron's, and that is good enough for me because I am too lazy to do research,
because research is work, or fact-checking because it is ditto.
Thinking that I must surely be joking, he said that it surely must be a typo,
and so I naturally thought "Who freaking cares? Anybody stupid enough to read
my stupid Mogambo Guru newsletter deserves what they get!"
And so with sheer sloth and complete lack of interest easily outweighing my
curiosity or any sense of professionalism, I ignored him, and thus it was by
fortuitous happenstance that I happened to fall upon a Barron's from June 2007,
which showed that Mr Wood was right; one year ago the trade deficit was a
negative $63 billion, not the surplus shown in Barron's today. It was a typo!
So, now you know the real story, which doesn't change either the fact that
regardless of the surplus or deficit a year ago, the trade balance is running
at a negative $823 billion a year (according to The Economist magazine) right
freaking now, which makes my complete lack of work ethics beside the point.
Well, I say it does, anyway. And I am not going to work to convince you,
either.
Richard Daughty is general partner and COO for Smith Consultant Group,
serving the financial and medical communities, and the editor of The Mogambo
Guru economic newsletter - an avocational exercise to heap disrespect on those
who desperately deserve it.
(Republished with permission from
The Daily Reckoning. Copyright 2008, The Daily Reckoning.)
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Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
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