From the Daily Reckoning archives — my first encounter with globalisation in India (we used this in the book). My note is down in the middle of the newsletter.
Mon, November 13, 2006 02:24:26 PM
From:
The Daily Reckoning
Subject:
Today’s Daily Reckoning:
Worthless Dollars in a Drafty Shack
The Daily Reckoning
Baltimore, Maryland
Monday, November 13, 2006
———————
*** What’s that? Greenspan isn’t always right?! We are shocked!
*** Toll Brothers CEO worries that there is no recovery in sight for the
U.S. housing market…
*** A special report from India…cars are now competing with people for
the same agricultural commodity…and more!
———————
*** Lila Rajiva sends us this note from Tamil Nadu, India: “Not only are the happenings here varied across industries, they are also
geographically diverse. Chennai prices and infrastructure are looking more
and more attractive next to the skyrocketing real estate and moribund
roads in Bangalore. But far-sighted companies are already looking past
Chennai to smaller towns. There is a lot of potential here, since the
growth that has taken place so far seems concentrated in the larger
cities. Foreigners writing about the country sometimes forget that there
are over a billion people here, and that most of them live in the
countryside and in villages and small towns.
“Small, of course, is a very relative term. A small town in India can have
a couple of hundred thousand people. And it can have wayward dirt roads
and power shortages at the same time as it has cutting-edge technology.
“That’s the case with Vellore. A dusty town ringed around by desolate,
rain-worn hills; and until recently known mainly for its Christian mission
hospital and college. Today, it’s a bustling overcrowded educational hub,
sprouting engineering colleges, the latest electronic gadgets, and a
supermarket. World Bank money has poured in to refurbish the old fort from
which the rebel Hindu prince Shivaji once fought the mighty Mughal Empire.
The Vellore Institute of Technology, which gets 7000 applicants, has been
featured in the Washington Post, and computer support and technical help
abounds. Getting on the net was a cinch. It only took a quick call to a
computer center that charged me a hundred rupees (less than three dollars)
for the cable and the house call.
To read this article in its entirety, see our site: The Yonghy-Bonghy-Bo Only Got Half the Story http://dailyreckoning.com/Featured/Lila111306.htm.
Bill is traveling, so we’ll take it easy on you today, dear reader. We
realize it’s Monday.
We will point out a headline that caught our eye this morning on
MSNBC.com: “Greenspan Sometimes Fumbles His Forecasts.”
The article makes a plea for the financial markets to stop hanging on the
former Fed chair’s every word – because ol’ Maestro isn’t always correct
in his forecasts.
Case in point: the real estate market.
Back in October of 2004, Sir Alan said, “A national severe price
distortion (in housing) seems most unlikely in the United States.”
Then he relents – a bit – in 2005: “There’s a little froth in this
market,” but “we don’t perceive that there is a national bubble.”
Now that it is clearly apparent there was a national bubble in housing,
Greenspan tries to brush away worries, saying earlier this month that,
“This is not the bottom, but the worst is behind us.”
Well, that’s wishful thinking at its best. This past Tuesday, Beazer Homes
USA Inc. posted a 44 percent decline in quarter earnings due to lower
demand for new homes. In addition, reports MSNBC, “luxury home builder
Toll Brothers Inc. forecast a 10 percent drop in quarterly construction
revenue due to rising order cancellations. It sharply cut its production
forecast.”
“We continue to look for signs that a recovery is imminent but can’t yet
say that one is in sight,” Robert I. Toll, Chariman and chief executive
office of the Horsham, Pa.-based company, said in a statement.
He should borrow Greenspan’s glasses if he wants to see that recovery.
More news…
————–
Chuck Butler, reporting from the EverBank world currency trading desk in
St. Louis:
“Late last week there was a discovery that there was an error in the data
that was used to compute inflation. As a result, The Fed has kept rates
too low for too long. Well…as a Pfennig reader, you know that I’ve held
them accountable for that, long before this ‘discovery.'”
For the rest of this story, and for more insights into today’s currency
markets, see
The Daily Pfennig
http://dailyreckoning.com/Writers/Butler/111306.html
————–
More views…The AFP reported this weekend that a boom in ethanol use in the United States has led to a surge in corn prices and changed the landscape for
farmers now producing for both food and energy markets.
“The Renewable Fuel Association said it projects total corn used for
ethanol production to increase from 1.6 billion bushels in 2005 to nearly
three billion bushels by 2015.”
However, as we’ve said many times in these pages, ethanol is not the
band-aid for our energy problems in the United States. For one, it takes
30 percent more energy to make ethanol than the fuel itself gives out, and
as Lester Brown, president of Earth Policy Institute points out, the
increased demand for corn pose a threat to “world food security and
political stability.”
“In some corn-growing states such as Iowa, Indiana, and South Dakota,
completion of the (ethanol) plants under construction and those planned
means distillery requirements would take virtually the states’ entire corn
harvest,” Brown said in a research paper.
“The milk, eggs, cheese, chicken, ham, ground beef, ice cream, and yogurt
in the typical refrigerator are all produced with corn and their prices
could go up in the months ahead,” he added.
Brown also told AFP: “Cars are now competing with people for the same
agriculture commodity.”
[Ed. Note: As the prices of commodities rise, the opportunity for smart
investors to make a nice profit in the natural resource sector rises as
well. In fact, subscribers to commodities expert Kevin Kerr’s Resource
Trader Alert are prime examples…those who followed his advice made 126%
on orange juice in 68 days, 400% on silver in 34 days and 379% with sugar
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———————
The Daily Reckoning PRESENTS: The U.S. debt and equities owned by
foreigners have fallen in value, thanks to the collapse of the dollar, by
a third! A 33% loss in five years! Our Mighty Masked Economist
explores…
WORTHLESS DOLLARS IN A DRAFTY SHACK
by The Mogambo Guru
Ken Y. sent the Treasury link that he thinks he may explain where some of
the enormous money is coming from to fund the bloated, dysfunctional
system we call Home Sweet Economic Home. It is a lulu, too!
The link describes the Term Investment Option (which has the acronym TIO).
“In April 2002, the Treasury, through the Federal Reserve System, piloted
a new investment option to test the viability of placing excess cash
balances with Treasury Tax and Loan (TT&L) depositaries for a defined term
and rate determined through a competitive auction process. [The] Treasury
announced in October 2003 that the TIO program would become a permanent
cash management alternative for investing Treasury’s excess cash
balances.”
Why are they doing this? They say “The program is designed to increase the
rate of return earned on Treasury investments, add investment capacity to
the TT&L Program, and to provide TT&L participants certainty in the terms
of these investments.” Ahh! So the Treasury Department is going to make
more money by investing temporary excess estimated-tax remittances in an
expansion of “investment capacity” of the banking system, and provide
moral hazard underwriting to the whole thing, too? Wow! Things are worse
than I thought, as this is too bizarre for words.
And after hearing that, you are not buying gold now? And I mean right
freaking now? Then you had better start writing down all the reasons that
you are not, because one day your little children and grandchildren are
going to be groveling around in the worthless dollars covering the dirt
floor of your drafty shack, and they will want to know why you did not buy
gold when you could have and should have. In response, you can use that
list of reasons to entertain them and keep them distracted from their
miserable situation, and you’ll also have something to brush the flies
away from their filthy faces while you do it.
As an example of the greed of government that is coming to gobble us all
up (because a government that is steadily increasing the amount of dollars
it spends on an increasing number of people will always need increasing
amounts of money) from Reuters we learn that “Toronto’s main stock index
plunged 2.4 percent on Wednesday after the Canadian government announced
plans to tax the once-booming income trust sector. Ottawa said trusts that
begin trading from now on [would] face the tax in the 2007 tax year, while
existing trusts will have a four-year transition period. The S&P/TSX
Income Trust subindex, which tracks the prices of 75 of the 253 trusts in
the Canadian market, was down 11 percent on Wednesday.”
To put it in cold, hard Canadian dollars and cents, “The drop represented
a loss of more than C$20 billion ($19.5 billion) in market value for the
income trusts, and more than C$24 billion including BCE and Telus’s
losses”, which are two of the biggest trusts most devastated by this
change.
And the insanely ludicrous thing is that this is, as I understand it, to
prevent the government from losing a few billion Canadian dollars in tax
revenues from corporations, as the profits of the trusts are
passed-through to the shareholders, who are taxed anyway! Hahaha!
So, the net effect is an immediate C$24 billion in losses to investors,
plus another few billion in higher taxes sucking your investments dry,
every year from now on!
But it’s all because the government needs money, and this may explain why
Bloomberg.com reports “Retail-sales growth in the dozen nations sharing
the euro accelerated in October as cheaper oil prices and increased hiring
bolstered consumer spending.” Well, retail sales growth may have had
something to do with those things, but Bloomberg also reported that
“German industrial production fell in September for the first time in
three months as companies made fewer consumer goods such as washing
machines and refrigerators and as energy output dropped.”
I figure this all means that the Germans, already facing another announced
3% hike in the VAT tax starting in January 2007, thereby putting this
“sales” tax up to around 20%, are buying like mad, right now, before the
tax (and thus the total price) goes up. And now everybody else in the EU
is thinking to themselves, “Oh, my God! That stupid Mogambo was right!
Governments really ARE a brain-dead bunch of commie/socialist
re-distributionist morons who are going to destroy me with taxes and/or
inflation!”
From DailyReckoning.com we read, “Who is the world’s biggest supplier of
oil and gas? Russia. The west may have knocked out the old Soviet Empire,
but now Russia has emerged in control of the world’s most strategic asset
– energy. Saudi Arabia supplies 18% of the p***t’s oil and gas exports.
Russia puts out 19 percent.”
And Russians, still smarting from the humiliation of us destroying their
stupid communist economy and inflicting more than a decade of misery and
suffering on them, are probably not going to be cutting any sweetheart
deals with us Americans any time soon. And if I know the cunning, evil,
treacherous Russians as well as I think I do (from the way they are
portrayed in James Bond movies) they are going to try and destroy us right
back, putting THEM on top! Then can SMERSH be far behind?
Thanks to John Rubino of DollarCollapse.com and this excellent compilation
essay “Best Quotes of October 2006” we discovered that we missed Adam
Hamilton of Zeal Intelligence when he said, “From its peak in mid-2001 to
its trough in late 2004, the U.S. Dollar Index lost a staggering 33.3% of
its value in the world currency markets! A dollar spent internationally in
late 2004 would only have purchased two-thirds of what the same dollar
spent in mid-2001 would have commanded.”
A third! The U.S. debt and equities owned by foreigners have fallen in
value, thanks to the collapse of the dollar, by a third! A 33% loss in
five years!
Even more significantly, he says, “Since currencies usually move with all
the sound and fury of a glacier, this is a staggeringly large move,
especially for the world’s reserve currency.”
And from Mr. Rubino we also get Captain Hook of TreasureChests.info, who
enlightens us that “According to the Bank for International Settlements
(BIS), the combined turnover in the world’s derivatives exchanges totaled
USD 344 trillion during Q4 2005. No, that’s not a typo, that’s $344
trillion of notional value, where if one were to annualize a total, it
doesn’t take long to figure out the world is now trading in excess of a
quadrillion worth of this paper every year. Is that a big enough bubble
for you? And it goes without saying this has been a boon to the brokerages
and banks that deal in these formerly exotic financial instruments.”
Of course, we galactic observers stationed on this p***t are not too
surprised to learn that slick operators and colluding bankers on yet
another p***t in the cosmos have rigged up something slimy to enrich
themselves. But the horror comes when he goes on to say “Whether you
realize it or not, even if you don’t participate in them directly, simply
by owning a mutual fund, or a bank account for that matter, indirectly you
too are captive to this trend.” Yikes! Now you know another good reason to
hold gold and silver bullion, which is NOT even remotely connected to any
of this crap!
Until next we meet,
The Mogambo Guru
for The Daily Reckoning
Mogambo sez: The day is almost at hand. “What day?” you ask. The day when
you realize that The Mogambo was right, and now you hate my guts for not
forcing you to do the right thing and buy gold and silver.
Check out EverBank’s MarketSafe Gold CD to get your hands on some yellow
metal:
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Editor’s Note: 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.
The Mogambo Guru is quoted frequently in Barron’s, The Daily Reckoning and
other fine publications. If you’re inclined to read more, you’ll find the
whole Mogambo here:
Clap if You Believe in Multipliers
http://dailyreckoning.com/Writers/Mogambo/DREssays/MG1113061.html
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