Drowning in inflation is never
popular By The Mogambo Guru
I am becoming quite unnerved by the fall
in the value of the dollar, as I know that it is
only a matter of time before the falling buck
affects the price of imports, and especially
imported oil when priced in dollars, and in an
energy-dependent economy like we have, oil going
up in price means energy costs going up, which
means business costs going up, which means retail
prices going up, which means inflation in prices,
which means that a heap of big misery is in store
for us.
And all of that graciously assumes
that global demand for oil will
not
increase, which is a stupid thing to think because
China's General Administration of Customs reported
that China alone imported 39.3% more crude oil in
July than it did in July 2006. Not only that, but
Liquefied Natural Gas (LNG) imports soared
five-fold too! 500%!
My God! These are
unbelievable increases in consumption! And if the
yuan is 40% undervalued - as is commonly read in
the popular press - this means that if oil were to
miraculously stay at $80 a barrel while the yuan
strengthens by 40% against the dollar, then the
price of imported oil will go down for the Chinese
by 40%! Wow! The cost of oil would be almost cut
in half for the Chinese! Wow! Talk about an
economic stimulus and an inflation-fighter rolled
into one!
And even if it were possible to
hold the price of oil at $80 per barrel through
some kind of magic, an editorial in last Tuesday's
Wall Street Journal reports that "Energy bills
moving through Congress tax oil companies", so
that about $25 billion more is going to be wrested
from them, which will be given to "wind, solar and
Midwestern biofuels companies", which means that
the oil companies are going to raise the prices of
their oil and oil products enough to recoup this
new $25 billion tax! We're freaking doomed!
So how much was the actual increase in
China's use of oil? A lot! China's crude oil
imports in July hit a record monthly high of 3.5
million barrels per day, which means that another
40% increase in oil imports would have them
importing 4.9 million barrels a day next year, and
6.8 million the year after that!
The
importance of this is that we Americans are no
longer exporting inflation with our strong dollar,
and the tide has just started turning. The "tide"
imagery is intentional, as this is not only an apt
description of the inflation that is starting to
swoop down upon us, but I am happy to report that
this also describes part of the script of my next
film, which is going to be XXX-rated. The working
title is The Sins Of The Flesh And The Pain Of
Inflation.
The gist of this
groundbreaking cinematic masterpiece is that The
Mogambo is being slowly carried down the beach to
the water's edge by a whole crowd of naked,
writhing, beautiful demons, leisurely following
the retreating tide, as the water's edge moves
gently farther out into the warm, blue sea. Each
actor and actress has, beyond a complete lack of
shame, a small weight of debt chained to them at
the ankle.
The movie is the story of how
along the way, all kinds of weird, sensational
XXX-rated stuff happens concerning The Mogambo
getting kinky while being pleasured with a whole
wicked cornucopia of goods and services by the
attentive demons, individually or in concert with
slavering, panting others, for which The Mogambo
pays by taking some of their weight and adding it
to his own.
On and on it goes, each scene
more gratuitously obscene than the last, salacious
debauchery piled upon fresh fleshly outrage, the
crowd of sordid revelers inexorably traveling
outward towards the beckoning retreating tide,
until finally the crucial moment when I calculate
that the excesses of raw degradation will finally
cause the mind of the average theatergoer to rebel
in horror.
The audience members, finally
overcome with revulsion, involuntarily think to
themselves, "Bah! This is sick, twisted, filthy
garbage! This filthy-minded man should be in
prison! I cannot watch another minute of this
disgusting trash!"
It is at this precise
point that the movie draws to its exciting
climactic moment, which is that the ball of debt
fastened to my leg has now grown so big that I
cannot move it alone, and (with a soundtrack of a
distant gong tolling out a dirge of death in a
deep rumbling tone) the tide of inflation starts
turning! The water stops going out, and is now
coming in! And I am alone because my heretofore
slavishly attentive demons, who have condemned me
by granting my every wish so that I might assume a
weighty debt, are running away!
My big
dramatic scene is when the camera pans in for a
slow-motion shot of my big, lazy, lopsided grin of
extreme satisfaction as it is replaced by a look
of profound horror when I see the oncoming tide
rushing towards me, and the waves begin to lap
around my ankles! I frantically spin around to see
the beach a long way off in the distance, with the
high-water line above my head, and the shot zooms
into a close-up of my terror-stricken face! The
soundtrack has a big, booming gong sound!
Gooonnnngggggg! I scream in horror! Another gong!
Another scream! Gong. Scream. Gong. Scream. Slowly
fade to black and silence.
I wait for the
applause, but Byron King of Outstanding
Investments is apparently not a movie fan, and
apparently cannot appreciate the staggering genius
of my new film, and merely says, "Many news
reports attribute the recent rising prices for oil
and gold to tensions in the Middle East. This may,
in fact, be the immediate reason why the prices
for oil and gold are rising. But this reason is
far too facile, if not convenient. The root cause
is the declining value of the dollar."
I
look to Goldmau.com, but they, too, are
unimpressed with my new movie, and say that the
decline in the dollar means that "Gold and the
RMB's (Chinese renminbi, or yuan) rise will be the
final chapter to the dollar's status as the
world's reserve currency, and the end to an era of
low priced Wal-Mart goods made in China. Welcome
to the American peso."
So I took their own
words, added some gong sounds and some screaming,
and then faded to black. I don't think they liked
it any better. But then, drowning in inflation is
never going to be popular. Ugh.
Mogambo
sez: Tonight's homework assignment is to take two
lousy minutes of your wasted, dissolute life to
devise two easy trading methodologies to
capitalize on the proposition that "The dollar
will keep falling long-term, and that means that
gold and oil (and commodities) should keep rising
long-term as an inverse function of the dollar,"
which is so easy that you ought to be able to do
it no matter how stoned or drunk you are, which I
assume will be plenty, given how easy the homework
is.
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.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
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