There must be a slowdown in buying going
on, as John Stepek at MoneyWeek.com reports that
''wholesale inventories rose 0.8% in September,
far more than the 0.2% that analysts had been
expecting", and that the "Institute for Supply
Management's survey for October suggested that
customer inventory levels were at their highest
since January 2001, which was two months before
the US's last recession began."
"Hmmmm!" I
think to myself, suddenly realizing that a
drop-off in
consumer spending, resulting
in a drop-off in middlemen buying inventory, would
be a good predictor of recessions!
But
before I could develop this idea, Mr Stepek quotes
David Rosenberg at Merrill Lynch as saying the
same thing; that with consumer consumption slowing
and retail businesses responding by ordering fewer
goods because inventories are rising,
fourth-quarter GDP could come in "perilously close
to flat, or even negative".
And if you
think that this subprime, inflationary,
recessionary mess is bad for us ordinary weenies
out here in the real world, imagine the effect on
tax revenues for all the spendthrift governments
out there as a result of all those sales that
didn't take place, and all those fees that were
not paid, and all those fortunes that were not
made, and thus all those taxes that were not
collected.
And the thing that makes it all
worse, so Very, Very Much, Much Worse (VVMMW) is
that not only were grubby fortunes not being made
nor taxes being paid, but these are losses, and
all these losses will be netted against whatever
pitiful little gains people managed to make! If
any! And deducted against ordinary income if not!
And for years and years to come, the
government will receive less tax revenue, as all
of today's losses will be netted out against
future gains or income until they are completely
deducted by taxpayers!
For the American
federal government, this is the Ultimate Triple
Whammy (UTW); not only are taxes not being
collected now or future profits be taxed, but it
comes at the same time as the rising social burden
of taking care of the victims of inflation means a
"need" for higher government spending!
And
at a time when the federal government alone is
already deficit-spending US$500 billion a year,
and the states are selling bonds for a few hundred
billions of spending-dollars a year! Hahaha! We're
so screwed!
And it will get worse and
worse, as is implied from the title "Is $100 Oil
Cheap?", which is a question asked by Chris Gilpin
of the Casey Research Speculator newsletter. My
immediately response is, of course, "No! Now let
me ask YOU one! What in the hell makes you ask a
question like that? You trying to start something
with me? You want a piece of The Mogambo? You want
to maybe go a couple of rounds with me? Is that
what you want?"
Mr Gilpin apparently took
some offense from my gratuitously sarcastic
attitude, and disdainfully says, "Your average
economist will tell you that once you correct for
inflation, crude prices reached their actual peak
in 1980 during the energy crisis spurred by the
Iran-Iraq war."
For that, I thank Mr
Gilpin for verifying that I am not your "average"
economist, as I haughtily admit that I could not
have told you that at all, as the details are all
news to me, but it seems about right.
Mr
Gilpin unmasks me when he suddenly realizes that I
am just another ill-informed blowhard, and I have
to be spoon-fed the data. So he says that from
April to July in 1980, "a barrel of oil sold for
US$39.50. Using the government consumer price
index (CPI) numbers, that record-high price per
barrel is estimated at between US$90-US$102 in
today's dollars."
Well, Casey Research's
chief economist, Bud Conrad, has (like me) some
reservations about using the government's Consumer
Price Index for anything other than toilet paper
because that index of inflation has been openly
distorted and bastardized by the satanic Alan
Greenspan and the detestable Michael Boskin.
Using a rate of inflation calculated the
old-fashioned way, as by John Williams at his
shadowstats.com site, instead of the lying,
distorted way that Greenspan and Boskin created to
do it, Mr Conrad has confirmed with his own
calculations that real, in-your-face, pay-me-now,
price-rising inflation is actually running at or
above 10%.
Using this inflation data, he
has thus calculated "the oil price history using
the 1980 CPI method. It turns out that 1980 barrel
of US$39.50 crude is the equivalent of over US$200
per barrel in today's anemic dollars." Yikes! Oil
would have to rise to US$200 a barrel just to
reach the old high price in inflation-adjusted
dollars! Yikes! US$200 per barrel, thanks to a
falling currency!
And since I am always on
the lookout for ways to illustrate how inflation
causes the loss of buying power of dollars, it is
fortunate for me that MoneyandMarkets.com happened
to come along and write: "Suppose you put
US$500,000 into a money market account earning 4%
a year back on November 7, 2002. Compounded daily,
you'd have US$610,694.69 as of yesterday."
Immediately I know that he and I travel in
totally different circles, as all my hoodlum
friends and me TOGETHER couldn't come up with
US$500,000 to put into some stinking money market
fund. So I was getting ready to say "Bah!" and
leave, when he says: "But wait! Over that same
five years, the dollar has lost another 28% of its
purchasing power. So, what one dollar bought in
2002, will only buy US$0.72 worth of goods and
services today."
At that, I start sensing
something sinister and important here, but I know
that I am too stupid to understand exactly what,
so I will keep my mouth shut and my hand inching
towards the pistol I have under my jacket, just in
case. This "freezing like an armed deer in the
headlights" tactic turned out to be very
fortuitous, as he was somehow persuaded to go on
to explain: "So that US$610,694.69 in savings that
you accumulated and thought you protected so
wisely in a money market fund? Well it will only
purchase US$439,700 worth of goods and services -
28% less than you thought!"
It's a
frightening Twilight Zone moment when you realize
that you started with US$500,000 in buying power,
and you ended up with, after waiting five long
years, with only US$439,700 in buying power!
That's US$60,300 LESS than what you started with!
And that is before you pay the capital
gains/income taxes on the phantom "gains" on that
additional US$110,694.69 in account value, turning
your total real loss in buying power into a
bigger, much bigger net loss! Hahahaha! Ugh.
Mogambo sez: Everyone has lost their minds
in their desperation to keep the markets up until
at least December 31, so that taxes are fixed in
amount, bonuses are paid, money is made, and
end-of-year account statements do not tell a
shocking tale of horrifying loss and financial
terror to trusting investors.
Money and
corruption will be coming out of every pore of the
body economic, and hopefully driving the prices of
stocks, bonds and houses up, which pleases them,
but driving gold, silver and oil down, which
pleases us, because then we can buy more and more
and more and more at cheaper and cheaper and
cheaper prices, which is the essential first half
of the immortal phrase, "Buy low and sell high."
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,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
