by The Mogambo Guru
Sean Brodrick at Money and Markets writes that it appears Peak Oil has
affected Mexico, as, "In December 2005, Mexico sent the U.S. 1.7 million
barrels of oil per day (bpd). This past December, Mexico only exported 1.2
million bpd to the U.S."
He asks, "Why is Mexico sending less oil?" For some reason, I thought that
he was really asking a question, so I leap up and say, "Because they are
selling it to China and India and everywhere else, but they don't need the
money, anyway, because my appetite for tacos is off the charts here lately,
and they are making plenty of money that way! And speaking of tacos, that
sounds good!
Let's break for lunch! Your turn to buy! Let's go! Hup!
Hup! Move it! Let's go, go, go!"
This was, as I interpret the pained and angry look on his face, the wrong
answer, probably because it is only 9:30 in the morning. He pointedly
ignores me and explains, instead, "Because it's producing less oil. Total
oil output fell to just below 3 million bpd in December 2006.
That's down from nearly 3.4 million barrels at the start of the year, and
Mexico's lowest rate of oil output in seven years."
This is bad news for Mexico because "Mexico relies on oil exports for about
40% of its revenue." Notice the complete lack of exclamation points in those
four previous sentences. When it is reported in the Mexican newspapers, you
can bet your burrito supremo that headlines will have PLENTY of exclamation
points all over the damned place. For example (showing off my impressive
command of Spanish), "Ustamos Mucho Grande Freaking Doomed, Just Exacta
Mundo Para El Mogambo Habla!!!" which got three exclamation marks, since
they understand the true significance of, "Mexico relies on oil exports for
about 40% of its revenue"!!!
It seems that half of the revenue of the whole economy of Mexico is
unhealthily dependent on just one source of revenue! Hahaha! If the Mexican
government had taken the time to look, they would have seen that my family
is dependent on me as their sole source of revenue, and as I am as similarly
corrupt, stupid and worthless as the Mexican government, they should have
noticed from the chaos and hostility that it clearly hasn't worked out here,
either! I mean, the parallel is obvious! What in the hell is the matter with
those people?
Even worse, "55% of Pemex's sales revenue went to the Mexican government
last year".
And it is not just the Mexicans that seemed to be gripped by the looming
terrors of Peak Oil Syndrome, as "Kuwait's giant Burgan field has also
peaked. Iran's energy use is rising so fast that its oil exports are being
crimped badly. And despite the fact that the Saudis are supposed to be
sitting on a thousand years of oil, their oil production declined 8% last
year". Of course, "The Saudis will say they made their cuts to 'stabilise'
the market."
Hahaha! "stabilise" the market! I did not realise the generous beneficence
of the Saudis! They will sell less oil and make less money, while their
competitors wax rich by continuing to pump furiously, so that the cost to
the ultimate consumer, mainly Chinese and Western infidels, doesn't rise!
What can I say, except "Thanks, dudes!"?
But the underlying message is that (and pay particular attention here)
demand for oil is going up, but supply is going down. And I am sure that
something flickered in your Fledgling Mogambo Mind (FMM) about the effect on
the price of oil (an absolute energy necessity) resulting from such a
falling supply/growing demand imbalance, which is actually getting worse
rapidly, and which will continue to get worse for a long time.
And if you are a Junior Mogambo Ranger (JMR), then you are probably
salivating, literally, at the prospect of reaping a lot of those enormous
oil riches for yourself so that you can easily afford to stretch your Second
Amendment rights to include getting some tactical nuclear weapons. That'll
show that pesky Skyview Neighbourhood Association who's REALLY the freaking
boss around here, and it will be very educational to see if the threat of
imminent nuclear obliteration will make my decrepit hovel seem a little less
of an "eyesore" and "public nuisance"
to them! I'm betting it will! Hey! I love this investing stuff!
Doug Noland's Credit Bubble Bulletin at PrudentBear.com starts out this week
with some interesting graphs. All of them are bad news, of course, but the
one that really grabbed my attention was the one labeled "Balance Sheet of
Household Sector". Going back to March of 1989, the average household had
$19,000 in net worth, which was, back then, about the average household
yearly income.
Now, as our bloodshot eyes nervously scan across the graph, we see that the
average household net worth is about $55,000, which is, again, about the
average household yearly income! Hahaha! You are right back where you
started, in terms of buying power, and yet you think that the stock market
and the housing market and the bond market are going to provide you with a
decades-long comfortable retirement? Hahahaha!
I'm laughing so hard that I am actually spitting up blood! Hahaha! I can't
stop! Hahahaha! With a burst of Mighty Mogambo Self-Control (MMSC), I gain
dominance over my giddy emotions, and with rasping, gasping breath I say,
"If you believe that everyone will make money and retire in comfort by
investing long-term in the stock and/or bond markets, then that is the
biggest load of hooey that a gullible, dim-witted population has ever
swallowed without even gagging."
The ugly truth is that the majority of investors will not only suffer a loss
in strict dollars ("the majority is always wrong"), but even those who
manage to get marginally ahead, in nominal terms, will have the purchasing
power of the money stolen by the ravages of the inflation caused by the
Federal Reserve constantly creating so much money and credit, which is,
ironically, where the money came from that enabled them to buy the stocks
and bonds!
The bottom line? The best that you can expect to do is to invest one
dollar's worth of buying power to get, in the future, an equivalent amount
of buying power. The majority, alas, will lose both nominal money AND the
buying power of what's left!
Until next week,
The Mogambo Guru
for the Daily ReckoningBill Bonner in London:
Yesterday, the markets seemed to return to 'normal' - or, at least to what
is taken for normal by today's investors. That is to say, things that were
already over- priced became more overpriced. And investors who were already
over-stretched, reached a little further.
Time heals all wounds...and wounds all heels. Got a problem? One way or
another, time will solve it.
Something not right? Someone getting away with something?
Don't worry...time will take care of it.
And if we can't sort out what is going on in the financial markets, time
will have to do it.
The Dow rose 115 points. "Investors regain an appetite for risk," says the
Financial Times.
Regaining an appetite is a good thing when you are sick.
We are not so sure it is a good thing when you are about to explode from
over-eating.
And if time can heal things...it can rot them too.
"Oh time...won't you spare me over another year? I'll give you my gold
coins. I'll give you my stocks. How 'bout my beach house?
"I'm not asking much. Just make my face look like it did in '68...just let
me buy a gallon of gas for 25 cents, like I did in '72...just let us stay up
all night and howl at the moon like we did in '82...just make my dot.com
stocks worth what they were in '99...
"That's not asking too much is it?"
Yes, you can ignore time, but it won't ignore you.
Time sorts out everything and everybody. Nothing and nobody is missed.
You can't hide from it.... You can't escape it. You can't outrun it. You
can't make a deal with it.
If only we could arrange time...chivvy it into place where we want it, we
would have ourselves a bit of fun.
We would set the highway traffic back to the levels of '50s. And our
automobiles back to the '50s too...but then, let's put 21st century
technology under the hood.
We don't want to have to fool with carburetors like we did back then. And
consumer prices...let's put them back into the early '60s too...before the
first big wave of inflation hit. We recall buying a hamburger at The Little
Tavern in Annapolis for 25cents. Another quarter got us a coke. And what did
it cost to go to the movies? We can't remember, but we think it was about 60
cents a ticket.
Everything was cheap. Of course, it didn't seem cheap back then. So, since
we're rearranging the sequence of things, let's set incomes at 2007 levels.
And let's go back to the Eisenhower era to find a political system we can
live with. There were real conservatives back then - people who were
reluctant to spend the public's money...and reluctant to meddle in the
public's affairs. Now, we have only phoney conservatives - people who
preach 'conservatism' while pushing the most
activist agendas since FDR.
'Turn the desert tribes of Mesopotamia into Dixie democrats?' the old timers
would have joked. 'Why not turn them into Baptists too? Ha ha..."
Meanwhile, the front page of the USA Today tells us that this latest attempt
to remake the world in our own image is running into problems. A few months
ago, Iraqis held up their purple fingers and proudly supported democracy.
But now that they've had some experience with it, a new poll shows that the
majority of them are against it. Only 43% think democracy would be good for
Iraq. The rest have other ideas. By contrast, a majority of Iraqis think it
is 'acceptable' to kill U.S. soldiers. These are the same people - at least,
according to the fiction of it - that U.S. soldiers are trying to protect.
Take them out of the picture, said America's president last night, and the
Iraqis might start killing each other.
Oh, if only we could rewind the tape. If only we could go back to the
Eisenhower era when US presidents still had wit and charm! Yes, those were
the good old days - at least they seem pretty good looking from a half a
century later. America was still a free country, as near as we can recall.
No phoney wars against terror...no Sarbanes...no Oxley...no Hillary...no
George... And who was chairman of the Federal Reserve in 1956? Who knew?
Who cared? The dollar was still linked to gold. You could trust it. America
was the world's biggest factory...the world's biggest creditor...the world's
biggest exporter...the world's fastest growing economy. All people cared
about was that 'Ike & Dick... 'were 'Sure to Click' - no kidding, we have an
old campaign button.
Of course, public life was as full of humbug as it is now...but the humbug
seemed more innocent, less intrusive...and ultimately, more humane.
But enough of this reminiscing...no point to it. Time cuts no deals for no
one.
Not even for the New York Stock Exchange.
Let's see. According to the press reports, three things helped investors
chow down again.
First, Chinese stocks took off. After a brief and feeble panic attack a
couple of weeks ago, the Shanghai stock exchange is as fat and happy as
ever. The index is nearly in record territory again.
Second, a whole new selection of merger and acquisition targets was added to
the menu. How could investors resist? All that delicious, syrupy, rich sauce
floating around! There is even talk of a major acquisition in the gold
mining sector. Barrick is said to have its eye on Newmont whose shares are
expected to bring in the mid-50s.
And third, investors are coming to terms with the whole sub-prime issue. Tim
Harris, a strategist at JP Morgan, put the matter in perspective:
"It is estimated that the US mortgage market is worth some $10,000 billion,
approximately 10 per cent of which is cumulatively classified as sub-prime;
12-15% of which may be in or approaching distress/default."
No biggie, in other words. But wait! Ten trillion dollars is still a lot of
money. And 10% of it is still $1 trillion...and 15% of $1 trillion is still
$150 billion.
Who's got $150 billion to lose?
And the problem - again, according to the press - is the risks now
overflowing into other segments of the mortgage market - notably into Alt-A
and Jumbo loans. The same stretch for profit that led lenders to make loans
to people who couldn't pay them back...led investors to buy the loans
packaged as debt-back securities...along with high priced stocks in a
communist country...and a great deal more. They will keep stretching until
something snaps, we figure. Maybe it already has.
Time will tell.
More news:
--------------------------
*** Adrian Ash, emptying his wallet into the bin in
Hammersmith:
- Money, money, money...the more we get - £13.9 billion more last month than
in January according to the Bank of England today - the less anyone wants
it.
- Stuff your cash in the trash, gentle reader; the bin men will be round in
a fortnight and cart it off to the landfill. It's not even worth trying to
recycle. Paper money's so smelly, ugly, bulky, out-dated...ugh!
- Hence the rise and rise of stock markets, vintage wines, junk bonds, real
estate prices, fine art, race horses, physical gold bullion, beachfront in
Central America, English soccer teams and African mining resources. So much
money's now flooding the world that anything and everything looks a safer
bet for growing your wealth - or merely preserving it - after tax.
- The price of terraced housing in West Belfast, for instance, has risen 45%
year-on-year. It doesn't matter where the money has come from; it's wound up
on the Falls Road. Prices there have trebled since 2002.
- No matter that two-thirds of Ulster's economy is run by tax-funded
government programs rather than private enterprise. No matter that Tony
Blair think peace in the province has to mean giving Stormont to a pair of
class idiots who won't shake hands with each other. Paisley and McGuinness
will conspire for as long as murder alone fails to put new patio doors on
the pebble-dashed bungalows out in Donegal and Spain.
- The real estate agents certainly don't care either way, and nor do the
lenders. Prices are up, Up, UP...and all because the value of money has
shrunk to nothing.
- Cross the 'Peace Line' (if you can) onto the Shankhill Road, and prices
for Loyalist home-owners have more than doubled over the last 12 months
alone. There's a legacy for Tony Blair to be proud of! Priced at up to
£150,000 according to The Independent, houses on the Shankhill now draw
bidders routinely offering 10-20% over the asking price.
- Sail across the Irish Sea to the mainland, and the cheapest housing in the
UK now sits in Nelson and Burnley, according to the BBC, heart of
Lancashire's industrial waste land. These bargain-priced terraces are all
empty, vandalized, boarded up, and due for demolition or arson - depending
on whether the government's "compulsory purchase" scheme gets there first.
- But empty shells that are utterly worthless, these abandoned terraces are
STILL worth 22,000 times the Pound in your pocket!
- Just what might it take to restore confidence in currency today? During
autumn 1992, the Bank of England hiked UK base rates to defend the Pound
Sterling.
Somebody had to. Speculators across the world, most famously George Soros,
were betting that Europe's exchange rate mechanism - the precursor of
today's Eurozone currency system - was about to collapse.
- The Pound, thought the traders, couldn't defy the UK's housing collapse
and broad-based recession forever. But the Bank of England tried to defy
gravity regardless. On
16 Sept. 1992, the Old Lady took base rates from 10% to 12%. She then
promised to take rates to 15%, too!
- Speculators continued to sell Sterling, however...and by the end of that
terrible day, George Soros had made £1 billion betting the Pound would be
forced to devalue. He was right, and the Bank of England was wrong, in
short.
Higher interest rates failed to revive confidence in the value of Sterling.
- The same problem hit Mexico in late 1994. Following the Peso's devaluation
in December, the Mexican government struggled to find foreign investors to
stump up at its monthly bond auctions - despite interest rates exceeding
40%.
- And this same hatred of cash at any price whacked the US Dollar even as
deflation hit and the value of money seemed to be rising during the Great
Depression of the early 1930s. As Sam Hewitt of Sun Valley Gold noted in a
paper of 10 years ago, the risk of a Dollar devaluation led Americans to
hoard gold rather than cash. It was appreciating much faster.
- It took the Presidential executive order of 5th April
1933 to force US citizens - at gunpoint - back into the Dollar. President
Roosevelt made gold ownership illegal, punishable by $10,000 fines and/or
imprisonment.
- Today, we hazard, it will take more than a few 0.25% hikes in interest
rates to restore the world's faith in money. But at least in 2007, investors
have the option of hoarding physical gold overseas at low cost...beyond the
reach of their own government's caprice and diktat.
And more thoughts, views, ideas from Bill...
*** The dollar! Is anyone paying attention? The greenback is slipping. But
in all the commotion hardly anyone seems to notice. We checked this morning
and found the euro priced at nearly $1.33.
What could go wrong? Well, the dollar could continue slipping.
Now, let us imagine that you have the world's biggest stash of money, which
today is more than $1 trillion. No one ever had such a big pile. But let us
imagine that the money isn't really yours. You have been put in to manage it
on behalf of the People's Republic of China. And if you lose it, the people
aren't going to be very happy.
Now, about 70% of that money - $700 billion or so - are in dollars.
You have already gone on record saying you intended to diversify out of
dollars. You expect to do it in an orderly way. But with the dollar going
down, you realise that when you finally do diversify you're going to get
less for your dollars than you could get now. In fact, if the dollar falls 5
cents against the euro, you have effectively lost 5% of your dollar holdings
- or $35 billion. Hmmmm...what will the people say?
What if the dollar goes down 10%? Hmmm....now you're talking serious money.
Of course, this is not the first time we have posed this
question: why don't the people with serious money at stake move to protect
themselves? And how come the dollar has, so far, resisted our predictions.
With a current account deficit at 6% of GDP...it seems obvious that the
dollar must fall. So must it fall when the carry traders unwind their
trades? Many borrowed yen to buy dollars.
When they get out of their positions they will have to sell dollars and buy
yen. The dollar should fall. But it doesn't. Or it hasn't. Yet.
**** Mogambo sez: Oil is getting so cheap that I am drooling at the glaring
bargain. And gold and silver?
Don't get me started, as I could go on for hours and hours about why you
should buy as much as you can, as soon as you can, turning the exercise into
a long, angry harangue which will end with you desperately trying to get
away from me. Of course, I'll be grabbing you by the sleeve and hitting you
up to loan me a lousy twenty bucks so that I can save up to buy some gold,
too. But you say "no", you selfish little bastard, and we get into a big
fight, and it's all real, real ugly.
Anyway, like I said, don't get me started. Just buy the stuff and save us
both a lot of hassle.
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.
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