Subprime meltdown finally affects
beer drinkers By The Mogambo
Guru
If you are one of the nervous people
who have spent a lot of time tracking me down to
get information about your investment in the
Mogambo Super-Secret Hedge Fund (MS-SHF), you are
wasting your time trying to get your money back
... or what's left of your money back ... or even
finding out if there is even any money to get
back.
In fact, if there IS any money left,
I will probably give it to myself as the bonus I
deserve for hanging around here all day, listening
to
you stupid investors whining about how my
incompetence means you "are ruined" and how you
have "lost everything" and blah blah blah, like I
care or something, and then I voluntarily compound
my misery by going home at night to listen to my
hateful little family saying the same thing, only
using the term "sadistic, nasty psychopath" more
often.
I will give you no specific
information regarding your money, or what country
I have escaped to, or whether or not there are
extradition treaties in effect here, but I will
let you know that we stand by our press release,
which said "MS-SHF operating results are in line
with industry standards and averages in terms of
both Fund performance and general attitude of
management towards moron investors."
Most
investors were happy with hearing that uplifting
message (as it is nice to know that you are at
least "average"!) until George Ure of
UrbanSurvival.com revealed that "The data seems to
suggest that out of about 10,000 hedge funds
operating worldwide, some 30% of firms reportedly
have losses of 40% in their portfolios." Yow! A
40% loss!
Tired of pretending to be a
foreigner and hanging up the phone on callers
("Mogambo him no live here! You go to hell now,
okay, GI?"), I decide that it's time, once again,
to visit the Mogambo Mailbox (MM) and perhaps
answer emails from thoughtful readers who ask
things like, "Dear Mogambo, Why is the cost of
housing removed from the Consumer Price Index,
which distorts inflation, or do you not even
understand what I am talking about, you lowlife
jerk?"
I am proud to say that I actually
DO know what you are talking about, you rude and
hateful little bastard, and I am even more proud
to present Robert Hardaway, who is a professor of
law at the University of Denver Sturm College of
Law, to tell how this started.
He relates,
"In 1983, the Bureau of Labor Statistics [BLS] was
faced with an awkward dilemma. If it continued to
include the cost of housing in the Consumer Price
Index, the CPI would reflect an inflation rate of
15%, thereby making the country's economy look
like a banana republic. Worse, since investors and
bond traders have historically demanded a 2% real
return after inflation, that would mean that bond
and money market yields could climb as high as
17%."
Yikes! What to do, what to do, what
to do whattodowhattodo? "The BLS's solution was as
simple as it was shocking: exclude the cost of
housing as a component in the CPI, and substitute
a so-called 'Owner Equivalent Rent' component
based on what a homeowner might 'rent' his house
for." Hahaha! The government resorts to lying!
"Wow! Why didn't we think of this before?" they
are heard to ask among themselves.
Fortunately for the government, it worked.
"The result of this statistical sleight of hand
was immediate and gratifying," Mr Hardaway writes,
"for the reported inflation index quickly dropped
to 2%", down from the real, and horrifying, 15%
which was due "in part" to the drop in rents
caused by speculators wanting to "offset their
holding costs by renting out their homes while
their prices skyrocketed, thereby flooding the
market with rentals that pushed down the cost of
renting a house or apartment." Hahaha!
You
can almost hear the contempt in his voice when he
says, "While the BLS was correct in assuming that
this statistical ruse would fool the average
citizen into believing that inflation was only 2%
(and therefore be willing to accept a meager 4%
return on his bank savings), what is remarkable is
that the ruse also fooled the bond traders, and
apparently continues to do so, leading analyst
Peter Schiff to describe these supposed savvy bond
traders as the 'hormonal teenagers of the capital
markets'."
Putting it all together, he
concludes, "The present subprime credit crisis can
be directly traced back to the BLS decision to
exclude the price of housing from the CPI. It is
now clear that the 'benign' inflation figures
reported over the last 10 years" were, (using my
awesome editorial powers to insert my own words
for special emphasis), "A big stinking load of
lying crap by the corrupt Federal Reserve and the
despicable government (except Ron Paul)." 1
I think that there is a link between this
inflationary monetary nonsense and the bad
economic news that, as columnist Ernest Hooper
reports in the St Petersburg Times, a restaurant
owner friend of his is saying that around this
part of Florida the usually slow summer business
season, "is so bad this year that even beer
distributors are noticing a difference".
There are probably a lot of theories why
St Pete customers aren't going to restaurants to
swill beer like they used to, and he cites a
marketing director saying that beer sales may be
down because "people are consuming at home"
because of "declining real estate values and other
economic factors". Hahaha! Gosh! Ya think so?
Hahaha!
Apparently they both think that we
dummies who eat in restaurants are too stupid to
notice the menu prices going up (or the portion
size going down, or both) as inflation in labor
(higher minimum wage), supplies and taxes are
devouring the income statements of restaurants,
who must raise prices and in turn devour the
incomes of us patrons, or they think that we are
too thick to understand the fact that our incomes
with which to pay for our tasty menu selections
are not going up and so it is stupid for us to go
into a restaurant if we don't have any money, or
that we failed to notice that their menu now
indicates a charge of $6.95 for a lousy beer, when
right down the street at Dangerous Dan's Dank And
Dark Den Of Scandalous Iniquity you can, for three
bucks cash, not only get a cold, frosty brew, but
listen to a fantastic sound system played at high
volume while watching attractive young ladies
undulating and dancing around in their underwear,
performing various gymnastic feats on a shiny
brass pole, all thrown in for free! Three buck
beer! So, the ball's in your court, restaurant
owner!
We are not here to argue the finer
points of marketing, but neither Mr Hardaway nor I
bother to point out that nothing about inflation,
or government lying about it, has changed to this
very day, except to get worse, much worse, and
that is why, as I never seem to tire of pointing
out, "We are freaking doomed!"
Editor's
note 1 Ron Paul is a US congressman and
candidate for the Republican nomination in the
2008 presidential election. He is popular with
some readers of The Daily Reckoning.
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 2007, The Daily
Reckoning.
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