* * * * * * * * * * * * REMINDER * * * * * * * * * * * * * On the days that I don't publish, like today, you will receive Bill Bonner's DAILY RECKONING. This will help you to keep pace with the changes in the markets. Bonner and I agree on most things in the field of economics, so the two letters will reinforce each other. * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
The Pungent Smell of Fear The Daily Reckoning London, England Monday, December 06, 2004 --------------------- *** Foreign investors are playing chicken with the oncoming freight train of U.S. currency... how long will they grin and bear it? *** Analytical nonsense and meaningless gibberish... turkey of the year... *** Attention chairs everywhere: Fat Americans are doing some serious damage... and more! --------------------- The euro hit a new record last week - $1.34. This train keeps coming... and no one gets out of the way. By no one, we mean the big overseas holders of U.S. dollar asset - particularly U.S. Treasuries. The Japanese have $720 billion of them, for example, the biggest pile in the world. But are the Japanese worried? Yes! (We have an extraordinary story for you, dear reader, but it will have to wait until tomorrow... when we have time to write it.) Every time the dollar loses a penny, the Central Bank of Japan loses more than $7 billion. We have not been counting... but in the last two weeks alone, the Japanese must have lost more than $40 billion. How long can they bear it? What can they do about it? More about that tomorrow... On the other hand, there are a lot of people who think the dollar has gone down too far, too fast... and is ready for an upside correction. We had dinner with a group of them last Thursday night, in Paris. It was a group of technical analysts, which included our friend, Philippe Bechade. Technical analysts are not concerned with the trade deficit, the national debt or the consumer's delusions of grandeur. Instead, they look at the charts . And now, according to Thursday night's speakers, the charts say "Sell the euro... .sell gold... .buy the Dow." Both gold and the euro look like they have hit their short-term cyclical peaks; both should begin downturns, say the techies. As for the Dow... on Friday, the index rested at a key breakout point. "After a long period of consolidation," said an analyst, "the Dow looks as though it is going to break out to the top." Walking to a taxi after the meeting, we were accompanied by an investor from Italy. "I find this very interesting," said he. "But I don't really believe a word of it. Technical analysis is mostly nonsense. Someone tested it by giving technical analysts a series of numbers that had been generated completely at random, like picking numbers out of a jar. Of course, the analysts saw 'head and shoulders' patterns. They saw Elliott Waves... they saw trading channels and resistance points. But it was all meaningless gibberish." More news, from our currency counselor: -------------- Chuck Butler, reporting from the Everbank trading desk in St. Louis... "Since we seem to be re-living 2003's results, I can tell you that not only 2003, but in 2002, we saw the dollar circle the bowl in November and December. Looks like that's happening again! And no sell-off or intervention in Japan overnight either! The euro is trading around 1.3445! WOW! UNBELIEVABLE!" For the rest of this story, see today's issue of The Daily Pfennig: Reliving 2003! http://dailyreckoning.com/body_headline.cfm?id=4319 -------------- Bill Bonner, back in London: *** "Turkey of the Year"... that's what a taxpayer watchdog group has coined Fannie Mae. Things haven't been looking good for the mortgage-lender since September... and we're watching, popcorn in hand, as this Public Spectacle unfolds... Late last month, the Attorney General of Ohio filed a suit against Fannie on behalf of the state's pension funds... just another grain of salt rubbed into the growing wound that is the nation's second largest financial institution. More recently, Fannie Mae was ordered by a district court in North Carolina to forfeit $6.5 million in "criminally derived" gains. Apparently Fannie was playing fast and loose with its government-operated offspring, Ginnie Mae. Not wanting to miss out on the fun, the Federal Reserve Bank of New York ordered Fannie's assets frozen in accounts they hold with the bank. "Turkey of the year, indeed... " our intrepid analyst Dan Denning observed. "More likely, the decade." See Dan's report: Total Destruction of The Housing Market http://www.agora-inc.com/reports/DRI/WDRIE704 *** What do they think of us, dear reader? We turn to page 15 of today's Daily Mail to find out. We discover that Americans are being blamed for breaking the chairs on the Queen Mary II. The chairs "are splintering under the weight of fat American passengers," writes Peter McKay. "They've killed more than 100,000 people in Iraq but the 'insurgency' - i.e. Iraqis, who don't want Americans in their country - is worse than ever... "The only logical reason the invasion was an attempt to protect America's supply of cheap oil so that its citizens can fill up their gas-guzzling SUVs at around a quarter of what it cost in Europe... . "They consume a disproportionately large amount of the world's natural resources as well as sucking the lion's share of its consumer goods. To do so, their government has taken on historically high levels of debt... But "Americans aren't all chair-busting monsters," Mr. McKay concedes. He lauded Ole Anthony... "a lean East Dallas missionary who exposes crooked TV evangelists... " --- Advertisement --- Inherit $3.5 Billion Worth of America's Most Attractive Real Estate... And Get Paid for Owning It For less than $30, YOU can be just like a real estate tycoon -- and own some of the most attractive properties in America. But unlike a tycoon, you'll never have to visit it... manage it... or even pay property taxes on it. Best of all, you could multiply your money by as much as five times over the years ahead -- while adding rental income to your portfolio! http://www.agora-inc.com/reports/FST/catB03 --------------------- The Daily Reckoning PRESENTS: The Mogambo and Alan "EZ Money" Greenspan go head-to-head in a battle of the wits. Who will back down first? And who is that, screeching and snarling like a jungle cat in the background? Read on... THE PUNGENT SMELL OF FEAR by The Mogambo Guru Paul McCulley, of PIMCO, has a nice essay entitled "A Debtor's Blessing." In answer to Ron Paul asking Alan Greenspan about fiat currencies, and how they always fail, and all that stuff that makes me crazy when I think about it, Alan Greenspan is quoted as saying, "Well, Congressman, you're raising the more fundamental question as to the issue of being on a commodity standard or a fiat money standard. And this issue has been debated, as you know as well as I, extensively for a very significant period of time." I leap to my feet and shout, "That is not true! In the whole history of currencies, the desirability of using a fiat currency has been debated very few times, because the evidence is overwhelming that every freaking time you mess with the stupidity of using a fiat currency as money, the economy gets ruined!" But he does not pay attention to me, but he knows I am here. I can see him sweat. I can smell his fear, (or, I THOUGHT it was fear, but it turns out that I was smelling the evidence that adult disposable diapers are not as absorbent as they claim, unless you put on a fresh one every once in awhile). Suddenly, he reverses course, throwing me off the track, which was easy to do because I could still smell fear, and was thinking to myself "Hmmm! I did not know that fear smelled so pungent!" He surprisingly tells the truth when he says, "Once you decide that a commodity standard such as the gold standard is, for whatever reasons, not acceptable in a society and you go to a fiat currency, then - unless you have government endeavoring to determine what the supply of the currency is - it is very difficult to create what effectively the gold standard did." Well, duh! No kidding? That is probably why nobody in history has ever pulled it off! Gosh! Ya think? (Note to self: Find out how much we pay this Greenspan bonehead, because whatever it is, it is too much!) Then, seeing as how everybody is now saying, "See, Mogambo? The guy knows what he is talking about! So shut up and sit down!" and I realize that the guy IS telling the truth now, and so I sullenly sit back down in my seat with a big "Squiiiissshhhhhh!" and that is when I found out about the diaper thing, and I was mumbling something under my breath, I forget exactly what, but I remember that there were a lot of obscenities in it. Then, seeing me distracted, he goes out into la-la land again and says, "I think you will find, as I've indicated to you before, that most effective central banks in this fiat money period tend to be successful largely because we tend to replicate what would probably have occurred under a commodity standard in general." What? This is absurd! There has NEVER been an "effective central bank" in this, or any other, "fiat money period," you blockhead! And I am here to tell you that if you think that the simmering, constant inflation since 1913 has been a replication of the stability of a gold standard, or even a reasonable facsimile, or a rough approximation, or even a vague resemblance, then you are lying right though your stupid teeth! The dollar has lost 96% of its value in that short time, you butthead! It is absolute lunacy to even SAY such a thing, and it is damned insulting for Alan Greenspan to think that we are so stupid that we could possibly believe such an outrageous lie! By this time, members of the audience are now physically holding me back, pinning my arms behind me, and I am straining to break free of their grasp, and I am trying to gently persuade them to release me ("Let me go, you bleeping bastards, or I'll kill you all!) so that I can leap on the stage and slap the hell out of this Greenspan person, and you can tell by the way I spit out the word "person" that The Mogambo is in one of his Mogambo Hollywood Modes (MHM), and I am actually snarling like a jungle cat for some reason, which is a bizarre plot twist, but we have had script problems from day one. Seeing that I am liable to break free, he quickly goes on to say, "I've stated in the past that I've always thought that fiat currencies by their nature are inflationary." And I say, "No, they are not, you ignorant butthead! You just have to keep from creating a boom by expanding the money supply via credit and debt! The currency itself is not inherently inflationary, you pompous dolt, because paper and electronic accounting digits have no mind of their own! It takes arrogant, ignorant, twisted, mentally ill morons like yourself to create an unsustainable boom that ends in a bust, and the the only reason we insist on a gold standard, you butthead, is that we because we can't trust government, and we sure as hell can't trust you, either!" Sweating profusely, he throws what he thinks is the debating equivalent of the Vulcan Nerve Pinch, and if you have ever seen Spock using this technique on Star Trek, you know that it immediately causes the victim to collapse, unconscious, and thus further argument is pointless and thus you have - voila! - won the debate. He says, "I was taken back by observing the fact that from the early 1990s forward, Japan demonstrated that fact not to be a broad, universal principle." Wow! Let me get this straight! Just because one stinking country, one that had a gigantic trade surplus and a population that saved huge wads of money in the banking sector, and who had a government that bizarrely went on a huge, budget-busting deficit-spending boom, did not quite collapse for fourteen whole years after their bubble burst? Bubbles caused, I might add because that is just the sort of kick-them-while-they-are-down lowlife bastard that I am, by their own idiot central bank creating scads and scads of money and credit, namely doing the same damn thing as us American dolts are still doing right now? And now you are ready to immediately discount the rest of the entire 5,000 years of economic history? The same history that heretofore dictated that a ruinous collapse always follows credit-financed booms? Wow! Are you gullible or what? Or what arrogance! I can't make up my mind which one! Ugh. Regards, The Mogambo Guru for The Daily Reckoning Editor's Note: 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 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. If you're inclined to read more, you'll find the whole Mogambo here: The Ultimate Blonde Joke http://dailyreckoning.com/body_headline.cfm?id=4320 --- Advertisement --- Get Ready For a Shocking Glimpse... "China, 2050" The year is 2050. China is the richest, most powerful nation on earth. And America's Golden Age has come to a crashing end. Impossible? Don't be so sure... Protect yourself now, and you can not only "China Proof" your money... you can also use these two simple investments to multiply your wealth by as much as 794%... http://www.agora-inc.com/reports/DRI/chinaB22 ------------------------------------------------------ MAKE YOUR OPINIONS COUNT! Visit our Discussion Board at http://www.agora-inc.com/forums/index.cfm?cfapp=3 and submit your views or read what others are saying. Our writers and contributors also welcome your questions and comments. Simply reply with the word 'Question' or 'Comment' in the Subject of your e-mail. ------------------------------------------------------ If you'd like, please e-mail this issue of the Daily Reckoning to a friend: http://www.dailyreckoning.com/emailfriend.cfm?id=10955 ------------------------------------------------------ ADDRESS CHANGE? WISH TO CANCEL? You can administer your account online. 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