I am not the only guy who knows that it is impossible for the vast majority of
people to make a long-term profit in the stock market, and in fact the majority
of people must show a loss, which I infer from Howard S Katz of thegoldbug.net,
who handily calculates the proof, in that "From 1966 to 1982, the DJI dropped
22% in nominal terms, but correcting for the depreciation of the currency, this
was a drop of 74%." Yikes!
In fact, he says that "if you took the establishment's advice and bought 'good,
sound stocks for the long pull' in February 1966, then you had to wait until
1995 to get back even in real terms, and today you have a miniscule average
annual profit." Hahaha!
It took 29 years, and all that inflation, before you broke even? And
this does not even account for the expenses or taxes you have to pay? Hahaha!
So, tell me: How many people financed their retirement on that that kind of
gain? Hahahaha!
Mr Katz's title was, "Why I Am a GoldBug", and towards that he writes, "The
10-year commodity upswing of the 1970s was preceded by a (much milder) easing
of money and credit from 1963 to 1971", which comes out to eight years, but now
"the current commodity pendulum was preceded by a 20+ year easing of money and
credit"!
He concludes that the new commodity bull market "therefore has the power to go
twice as long. If we date it from 2001, then we can be looking for the ultimate
commodity top around 2021." That's 13 years from now! A 13-year bull market!
Whee!
I can sense that you are wondering "What does this have to do with gold and how
I can make a lot of money in gold?", which is what I was wondering, too. It
turns out to be easy; since gold is expected to again be the numero uno
commodity in a commodity bull market of 13 more years, he says, "So I plan to
be a gold bug until approximately that date"!
Junior Mogambo Ranger (JMR) Jeffrey M says that since we are talking about
gold, in a manner of speaking, the US economy has been in a recession since
2002, since "GDP as measured in gold has dropped from 33.8 billion ounces of
gold in 2002 to 19.9 billion ounces of gold in 2007," which is about a 41%
decline! Yikes! That's a big drop in GDP!
But this makes perfect sense if you are unlucky enough to listen to The Loudly
Irritating Mogambo (TLIM) droning on and on, relentlessly pounding, pounding,
pounding the same belabored point, which is that "gold rises in value to the
extent of the devaluation of the currency in which it is priced," which has a
big, fat QED at the end because this rise in gold that produced the 41% drop in
GDP when measured in gold, is perfectly reflected by the 40% drop in the
exchange value of the dollar (as measured by the dollar index), which has
recently broken below the 72 level, down a similar 40% from about 120 in 2002!
It's almost magical! I waited and waited for the applause that never, alas,
came, and everyone else in class was looking at me with this look of
ill-concealed contempt on their stupid faces, which is distinguished from their
usual disrespect for me and my Fabulous Mogambo Ideas (FMI), which in turn
explains my self-righteous vengeful hostility to them all, which is another,
more disturbing, subject entirely, so let's not go there.
I soon learned why they were so unusually antagonistic to me; I had not read
the homework assignment like I was supposed to, and they had. Big deal! They
did not know that I had to spend a lot of time last night arguing with the wife
and kids about the financial benefits of them eating what appears to be a
really, really cheap canned dog food imported from some weird country, with a
label written in a language nobody even recognizes, thus generating real
savings in the food budget! It seemed like a no-brainer to me!
Their ears were, unfortunately, rudely deaf to my helpfully translating the
label to prove to them that it will provide adequate nutrition to their stupid
lives, especially considering that they don't need a whole lot of energy to
just sit around on their fat butts all day, watching TV and playing video
games, talking on the phone with their stupid friends, yak yak yak, about (I
suspect) what a horrible father I am, and how much they hate me, and how they
are going to kill me by putting poison in my food. You know - the usual.
But I did not have to read the stupid assignment to know that BEA.gov says that
in 2002, GDP was $10.5 trillion, while in 2007 it was $13.8 trillion, for an
economic gain of 31%, but the punch line is "But you're a big fat loser (BFL)
because the dollar's buying power went down by 40%! Hahahaha! Loser!"
The class is quiet, too stunned and bewildered to respond. Seizing the
initiative, I explain, "Okay. Putting your petty little Earthling grievances
and stupid ideas aside for one moment, if you can, imagine that you invested
$100 in the stock market in 2002."
Most of the class was already bored and confused, and I hated them all the more
for it, but I relentlessly droned on, "Now, fast forward five years, and I
laugh when I notice that the passage of time has not been kind to you!"
Hahahaha!
"But I laugh even harder to see that you are still stupid, as you happily drool
on your brokerage account statement when you notice that you 'made' a $32 gain
on that original $100 investment, notwithstanding all the money which you had
to pay in expenses (of at least 2% a year on ALL the money you have invested,
in order to have your account 'managed'), for a total of about 3.2% of your
money, but you also have to pay 15% of the long-term capital gain as a
deduction from the $32 'gain', or $4.80!"
By this time, even I was getting pretty confused, but I managed to bluff my way
through a little more by saying, "And it doesn't take a smart-mouth accountant
rudely telling you that your records are a 'mess', because you are an
incompetent boob about accounting, to make you realize that you netted, after
all is said and done, a lousy $27.20 on the original $100 investment after five
years!"
There were a few impatient calls from the audience to "Shut the hell up! A 27%
gain is pretty good!" and "Is there a point to any of this, you Revolting
Mogambo Halfwit (RMH)?" To this kind of rude audience response I rudely say, "I
laugh uproariously, 'Hahahahaha!', at you and your stupidity! But I already
knew you were all stupid, or else you would have realized what a warm,
charming, and perfectly delightful person I am, a real peach of a guy, a
'darling' some would say, but none of you did! Proving that you are all stupid,
stupid, stupid! Hahahaha! Stupid!"
Judging by an onslaught of spit and obscenities hurled at me, I knew I had hit
a nerve with them, so I helpfully went on, "And to show you the price of your
stupidity, the buying power of the whole $127.20 wad, including both the
original $100 investment and the $27.20 net gain, has lost 40% of it's buying
power! This leaves you, the idiot 'investor', with a measly, pathetic $76.32 in
real, inflation-adjusted 2002 buying power! Less than you invested!"
They all inexplicably shut up, obviously confused, which made me laugh all the
louder. I patiently explained, "You invested $100 in 2002 buying power to get
back, after five years, $76 in 2002 buying power! Hahaha! Your 'fabulous'
investment made a paper gain, but produced a real, inflation-adjusted loss of
25% of your money! Hahaha!"
My voice dripping with acid and sarcasm, I smile and say, "Nice investing
there, Mister and Ms America! You can fund a REALLY nice retirement by losing
25% of your buying power every five years! Hahaha!"
Well, JMR Jeffrey was apparently not ready for my scathing criticism, biting
humor, witty asides, clever rejoinder, or Raw, Seething Mogambo Hatred (RSMH).
Trying to quickly defuse the situation, he adds that "The situation is even
worse in terms of silver", in that GDP measured in ounces of silver went from
2,276.5 in 2002 to 1,034.2 in 2007. A 54% fall in GDP in five years! GDP
declined by over half!
I howl in fear. I howl in dismay. I howl in outrage. OwwwWWWWWwwww!
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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