I look out of the periscope of the Mogambo Bunker Of Security (MBOS), and when
I see my neighbor crying, and I remember that the new estimate of real
unemployment is almost 20%, which comes out to one person unemployed out of
every five people who needs a job, which they need so that they can pay some
bills and maybe have enough left over to have a little fun for a change, like
maybe having a few drinks and a few laughs with my barstool buddies, just to
get away from the wife and kids for just a few precious hours so that I don't
Freaking Lose It (FLI).
Then I swing the periscope around and see another neighbor getting yelled at by
his wife, who keeps shaking some papers in his face as she is screaming, which
makes me think it's some kind of a bill, which makes me think of the amount of
debt that is being carried today by public and private entities that totals
more
than 350% of GDP, a new, all-time record of irresponsible stupidity.
Then I make a final sweep of the perimeter, secure from the "Battle Stations"
and settle down to await a reply from Xxanthaan, new Supreme Overlord of this
sector of the galaxy, who had emailed me to find out what was going on here.
I already told him that the economy is crappy; nobody has any money with which
to buy things because all of their money is being used to service a
backbreaking load of debt that was accumulated to fuel the booming bubbles in
the stock market, the bond market, the housing market and the growth in the
size of government that are all bursting, all thanks to Alan Greenspan and the
Federal Reserve when he was chairman creating so, so, so much money and credit,
leading us to here, a place I lovingly call "The gates of economic hell!"
I had previously explained the idea of an afterlife in heaven to him, which is
kind of like Arthgenoor, but without the glammglobs or smarmies, to which he
said, "What? No glammglobs in their afterlife? Then who in the hell would want
to go there? Hahaha!" which showed he already knew about economic hell, as the
Laws of Economics are universal, as is the hell that results from violating
them.
And it is going to get worse, as Charles Duhigg of the New York Times reports
that the problems of the credit card business - made worse by renewed meddling
of Congress - are such that they "are expected to withdraw $2.7 trillion of
credit by the end of 2010".
Since being recently stung by my own poor research, bad work habits, a
faltering memory and a complete lack of concern, I feebly try to make amends by
precisely looking at a $2.7 trillion contraction in available credit, and then
mentally comparing that to the $14 trillion in total gross domestic product
(GDP) of the Whole Freaking Country (WFC) and saying, with Typical Mogambo
Inexactitude (TMI), "That's a lot!"
And how much "a lot" is, depends on whether this $2.7 trillion is unused
credit, in which case it will not make any difference, or if this $2.7 trillion
is to be a reduction in currently outstanding credit, which would be
calamitous.
But it could be made worse if the money was used to buy stocks in the S&P
500 index, and I was telling the Emergency Medical Technician that the last
thing I remember is that I was eating a piece of pizza that had been warmed up
perfectly in the microwave, a Mozart piano concerto was playing on the stereo,
and one of the kids was predictably whining, "Give me back my pizza! Mom! Dad
stole my pizza!" which would normally have prompted a rude response from me had
I not, just at that very moment, seen that the earnings of the S&P 500 went
down to an astonishing $7.21 last week, having lost $7.67 from the month before
when earnings were $14.88, which is down by half in One Freaking Month (OFM)!
And this last batch of Bad News On The Earnings Front (BNOTEF) is at the tail
end of a long string of lower and lower earnings since the end of 2007, and
this latest drop in earnings is down from January, when earnings were $45.95,
which were down from this time last year when earnings of the S&P 500 were
$62.28, which is down from September 2007 when the earnings of the S&P500
were over $85.00!
The really eye-popping result is that with the S&P 500 selling at 940, this
means that the index has an astonishing price-to-earnings ratio of 130! Hahaha!
Insane!
If you are not laughing in total disbelief, then an instructive way of looking
at a P/E ratio of 130 is that if the company pays you all of the money it earns
for the next 130 years, you will break even! Hahaha! 130 years to break even!
Hahaha! Now you know why the laughter!
But, then again, maybe gold, silver and oil stocks would be a good idea, since
they must rise in price in response to all this new money that is being poured
into the economy, and they sell at P/E ratios far less than this! Whee! This
investing stuff is easy!
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 2009, The Daily Reckoning.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
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