Discussion in 'Financial Cents' started by melbo, Jun 5, 2006.

  1. melbo

    melbo Hunter Gatherer Administrator Founding Member

    by The Mogambo Guru

    I keep looking in wonder at the action in precious metals, and I wonder to
    myself: "I wonder what in the world is going on?"

    If I was the head honcho in China, then I could tell you what I, Emperor
    Mogambo, would be doing that could explain it. I would be accumulating
    gold (and lots and lots of it), because my clever Asian reasoning ran
    along these lines. "Confucius say; 'Do you honestly think that foreign
    investors are interested in long-term investments in China, when Chinese
    history is one long and sad tale of xenophobic, confiscation-loving,
    imperialist, repressive government, just like all the rest of the world's
    governments, only this time we are communists, too? Why in the world would
    anyone trust China or Chinese money?'"

    To answer the question, I would cleverly review American history,
    especially that part where America rose from nothing to be an economic
    superstar and dictatorial overlord of the world. In doing so, I would
    discover ("All hail Emperor Mogambo for his discovery!") that it was done
    by gold being money.

    Then perhaps, as the new Chinese leader, I would take a few grudging
    minutes away from auditioning pretty dancing girls for my new Fabulous
    Mogambo All-Girl Review (FMAGR) to read the Sandra Ward interview of James
    Turk, founder of Gold, in Barron's magazine. It is entitled
    "Yes, $8,000 An Ounce," which is a real nice way to get my attention. And
    it did. She writes that Mr. Turk, speaking about Ben Bernanke, says, "he
    seems to be focused on the deflation in the 1930s, and this is quite
    alarming. What we don't need today is a greater supply of dollars. What we
    need is a greater demand for dollars. The way you improve demand for
    dollars is to take those steps that will give people confidence in the
    dollar and its purchasing power for a long, long period of time."

    With typical Chinese logical precision, I merely come to the conclusion
    that since we Chinese own so many dollars and dollar-denominated assets,
    and since gold is cheap, cheap, cheap by any metric, then the optimal
    strategy would be to accumulate all the world's gold, starting with the
    biggest hoarder of gold, the U.S. Federal Reserve.

    And as the All Powerful Mogambo (APM), glorious new emperor of China, I
    would instruct my ministers to tell that little pipsqueak Bush that I want
    him to pack up all the gold and ship it to me, collect, or I'll sell his
    stupid bonds and stocks so fast that he will probably make a mess in his
    Occidental pants as he re-discovers exactly who is actually the boss in
    the creditor/debtor relationship.

    And, to make matters worse for the dollar, there are also indications of
    an Asian Currency Unit forming, mostly consisting of China and Japan, to
    trade goods and services their currencies, too.

    It is not just the Chinese setting up shop, or the Iranians, or the South
    Americans - now we also see that the Russians have decided they want to
    open an exchange to trade in oil, gas, and other goods. They desire that
    it all be paid for with rubles.

    Another big reason, aside from the prestige, is that the velocity of money
    will, necessarily, increase as it comes pouring through the many
    intermediaries in the Russian marketplace. No doubt Mr. Putin was looking
    at the past century, where gigantic money flows in the American oil market
    produced American-made fortunes, as each American intermediary raked off
    another few bucks as the money went boinka, boinka, boinka through the
    system, and then, multiplied by the Required Reserve Multiplier, into the
    economy as "growth." And that is good for profits, higher local real
    estate values, wages, economy, standard of living and a feeling of
    prosperity that makes for easy-pickings in the corruption department.

    How soon will all of this happen? Well, Julian Phillips of the reports that Putin said, "work on making the national
    currency fully convertible should be completed by July 1, almost six
    months ahead of the original January 1, 2007 deadline." July first! Of
    this year!

    So, are foreigners ganging up on us? Yeah, I figure they are. And for good
    reason: We Americans treat every treaty like the ones we made with the
    American Indians. Without exception (as far as I can tell), we Americans
    gave them the short end of the stick. From there, we lied, broke every
    treaty, stole everything they had, and then killed most of them if we ever
    had the slightest reason - no matter how slight or temporary, to do so.

    And (fast-forwarding to today) like the dirty, deal-breaking, little
    back-stabbing crooks that we now are, we have also allowed Alan Greenspan
    and the Federal Reserve to renege on the international deal whereby every
    country gave up pegging their currencies to gold and instead, pegged their
    currencies to the dollar, while we, (aka "Great White Father in
    Washington") would promise to faithfully hold the dollar constant, in
    terms of buying power, thus achieving the stability of the gold standard
    without all those inconvenient gold-standard duties (not to mention the
    restrictions on government spending and bank revenue).

    Although nobody literally said, "We smoke-um peace pipe. Make mark on
    white man's treaty paper," the result was exactly the same. And now these
    foreigners are angry and simply want their money back. Or at least get the
    heck out of the system.

    One result is how Jim Willie CB, of, sums it up when he
    writes, "World finance ministers have lost confidence in the U.S. dollar.
    The G7 Meeting communiqué, announcements by Japanese leaders, statements
    from European bankers, warnings out of Beijing, outcries from South Korea,
    criticisms from Russia, agreements in Asia, even statements by the IMF,
    they all add up to a global banker revolt. U.S. imbalances are not being
    rectified. The Russian finance minister Kudrin openly questions the U.S.
    dollar as worthy, given substantial and chronically dangerous deficits."

    Alert reader John P. is walking by, and I shout out, "Hey! John! What's
    happening, dude?" He says, laconically, "the world is sending loud signals
    that that support is about to end...and badly."

    And what happens next? Mr. Willie says, "Expect a rocky several months to
    contain turbulence, minor panics, and some derivative accidents (likely in

    And let's remember that derivatives are merely big, big, big bets used,
    theoretically, as insurance against movements in interest rates or
    currency exchange rates for contracts that contain fixed notional amounts
    of money. How big is this market? I thought you would never ask! Estimates
    put it somewhere around, oh, say $300 trillion to maybe $450 trillion
    dollars, which is 10 times or 1,000% bigger, than the entire global GDP of
    every person and every company in every country on the face of the planet
    added together!

    Julian Phillips says that this Russian ruble thing is "the second most
    significant step in removing the U.S.$ from the throne of sole global
    reserve and trading currency! Should any more oil producers take this
    step, it will precede a U.S.$ crisis and create massive potential
    instability in the globe's foreign exchanges." He goes on to say that this
    is "important to gold."

    I raise my hand and ask, "Why is the ruble trading in the markets
    'important to gold?'" Mr. Phillips immediately realizes that I am the
    "slow one" in the class, and wouldn't understand the answer even if he
    explained it to me a dozen times. So, he answers by merely repeating,
    "Needless to say, these moves are very, very positive for gold." And it
    worked! Now, I am fixated on the use of the phrase "very, very" as a
    modifier to the subsequent phrase "positive for gold." My Grubby Mogambo
    Greed Antenna (GMGA) actually tingled! OooOOOoooh!

    Then he asks, I assume rhetorically, "If Putin keeps his word on the gold
    front, we should expect Russia to enter the gold market as a buyer soon,

    I almost broke an arm, waving it in the air, excitedly crying out, "Yes,
    it does! It means exactly that! They had better be accumulating gold! And
    the reason that I think so is simplicity itself: Would you trust the
    Russians, the Chinese, or anybody to maintain exchange stability, using a
    fiat currency, so that you could invest long-term with confidence? You
    would? Hahahaha! Why in the world would you do that?"

    I notice that my laughter rings hollow in the empty room. They have all
    gone. Nevertheless, I provide, as a coda, "You can ask all the experts you
    want, but not one of them can name one instance where, long-term, people
    who trusted governments came out ahead. Go ahead! Name just one! Hahaha!
    They can't! Hahahaha!"

    Until next week,

    The Mogambog Guru
    for The Daily Reckoning

    Mogambo sez: If you are not buying gold, silver and oil stocks now, then
    you are either a) not as bright as you look, or b) already up to your
    eyebrows in gold and silver. There are no other permissible excuses.
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