The week was a bad one from start to finish, what with bonds selling off so
much that, according to Barron's, "the yield on the two-year Treasury, which
moves opposite its price, had the biggest weekly rise since '82". This means
that the price of bonds went down! Think of it: trillions and trillions of
dollars in bonds, and even more bonds all around the freaking world, all
impacted by these huge sudden losses, the biggest move in 26 years!
Maybe this had something to do with the latest inflation figures from the
Bureau of Labor Statistics, from which we learn the ugly news that the
unadjusted producer price index for finished goods increased in price by 7.2%
year-on-year in May! This is inflation in spades!
The door to the Bunker De La Mogambo (BDLM) automatically slammed shut at such
terrible inflation news, accidentally trapping me outside and feeling very
vulnerable, and I was so busy trying to claw my way back inside that I almost
missed the news that
producers of intermediate goods raised prices by 2.9% in May, which seemed a
relief after that 7.2% finished goods report, but which didn't last but a
second before we read that the crude goods index increased 6.7%! Gaahh!
And, lest we be misled by the facts that inflation is eating us alive, the new
"official" rate of annual inflation from the government's wonks is 4.2%, which
makes me laugh at the incongruity of the new BLS figures in relation to this.
But this is horrendous news!
Hell, John Mauldin of FrontLineThoughts.com reminds us that 3% inflation was
once considered so bad (and it is so bad) that "President Nixon instated price
controls on the 15th of August, 1971. Inflation was a little over 4% at the
time."
This terrifying news of rising inflation and rising bond yields had the curious
effect of producing a sort of fight-or-flight reaction in the Mighty Manly
Mogambo (MMM), in that I start involuntarily crying like a baby, screaming my
guts out in fear and anger, and clutching my chest in agony as my heart was
pounding, pounding, pounding, because the world is chock-a-block full of "black
boxes" that have mysterious algorithms and equations to dictate buying and
selling.
And every single one of these computers is now looking at the higher consumer
prices and higher yields on Treasury bonds, and factoring them into the implied
yields/returns of their various investment options, like stocks, and suddenly
stocks and everything else look like the proverbial crapola.
And that explains a graph from the Federal Reserve, courtesy of BNP Paribas
Economic Research, forwarded by Junior Mogambo Ranger (JMR) Phil S, showing the
terrible news that growth in household real estate assets and growth in their
financial assets have both plunged to literally zero! Zero! The chart goes back
to 1960, and it has never, ever happened before!
In fact, the latest report is that the combined net worth of all US households
is $56 trillion, which is (as Bill Bonner here at The Daily Reckoning notes
with, I assume, controlled horror) less than the $57 trillion accrued federal
government's liabilities, meaning that we are technically bankrupt.
So, with wages stagnant, prices rising dangerously, government spending out of
control, Federal Reserve creation of money and credit out of control, debts of
every kind at record levels, and now this? My God! And you think that we're not
freaking doomed?
Hahahaha! Thanks! I needed the laugh!
The Mogambo sez: You have two choices. For one, you can buy silver and gold and
watch in delight as it goes up in price as the value of the dollar goes down,
and make delighted squealing noises ("Whee") as you wax rich.
Or you can not buy silver and gold (thus reducing demand and making it cheaper
for me to buy your share, for which I say thanks!), and then watching in horror
as the purchasing power of your precious dollars and dollar-denominated assets
go down and down, making prices go higher and higher, month after month, until
it reaches a crescendo and everything collapses in chaos and brutal mayhem,
after which things really get really, really bad.
It's nice to have a choice, eh?
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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