The Daily Reckoning PRESENTS: The Mogambo Guru, aided by
the Economist magazine, puts the U.S. central bankers and
prime financial authorities to a little test... with dismal
results.
AN EXCELLENT CONTRARIAN INDICATOR
By the Mogambo Guru
Fed officials believe that the U.S. economy is gathering
strength, a Washington Post headline tells us. Keep this
thought in mind, because it brings up a very interesting
sidebar that appeared in the January 3, 2004 issue of the
Economist, entitled "A Bet Comes Due." It is priceless, and
follows another similar article, in the same magazine,
about the same guys, and which I noted in a prior Mogambo
Guru, and I would have to be crazy to do a search to tell
you which issue and the date and all, because I would have
to read through all of those back issues, and very soon I
would be more confused than I already am, and wondering
what in the hell I was talking about, and "What in the hell
did I mean by that?"
But the point was, for the past few years at least, the
Economist magazine has asked the attendees at the Jackson
Hole conference a few questions during their annual
symposium of what is supposed to be the smartest and
brightest and most powerful financial people and financial
institutions in the country, including the Fed, and is
actually sponsored each year by the Federal Reserve Bank of
Kansas City. In 2001, the Economist writers asked these
hotshots, "Is this a bubble?" and they all said - and you
will want to keep score, so go get a piece of paper and a
pencil - "no." Now, that period of time is now definitely
proved to have been a bubble, so the fact is plain: they
were wrong. Now to keep score, you write a "zero" for every
time these laughable idiots are wrong, and a "one" for
every time they are right. So far, they have scored a
single zero.
They were also wrong when they unanimously said in 2001
that they "ruled out an American recession," to which I
shout "Wrong-o again, you ignorant weasels!" which is an
audible signal for you to score another zero, and they also
got it wrong when "Last year they predicted that interest
rates would not fall to 1%." So that's another wrong
answer, as indicated by my jumping up on the table and
screaming, "Nice going, chumps! I got your economic savvy
right here, you pathetic morons!"
Now, on my score card I have recorded three zeroes, and a
little drawing that looks kind of like a bagel, but with
lightning bolts coming out of it, which does not mean
anything to me or to you, but is apparently highly
significant to the people assigned to my case.
The story goes on, as an Economist "update," and thus the
reason for the sidebar I mentioned in the first place. This
time, the Jackson Hole weenies were asked in 2003, "Will
the dollar fall to $1.25 against the euro at any time in
the next twelve months?" They all, except one, said "no."
They were wrong about that, too, so they score another big,
fat zero. So getting out the calculator and a pot of coffee
for some marathon calculating, I add zero plus zero plus
zero plus zero, hit the "equals" button, and I peer at the
readout in puzzlement, and this is just the preliminary
result and I am performing some statistical tests on the
data to verify the answer, which is roughly, ummm, zero.
Now since this is a binary system, we can convert these
data to indicate competence in economics, with "zero"
signifying zero competence and "one" signifying complete
competence. A few quick calculations later, we find that
the Fed, and the dimwits they hang around with, score the
lowest possible score, zero, indicating a complete lack of
competence.
So you can see why I have no respect for the Fed or any of
the dimwits that they hang around with. And now that I
think about it, when the Mogambo is elected President, my
first Executive Order will be to require that all the
officials at the Fed and all their - what did I call them?
- dimwit friends all have to wear a large conical hat with
the word "dunce" written on it all the time. In this way,
it will warn other people about their abysmal, arrogant
incompetence. Nah. Now that I think about it, I will just
fire them all, and use the resources to hound them to their
graves, which is a hell of a lot better than they deserve.
And, I am happy to note, the Economist magazine has the
same degree of disrespect for these pompous, arrogant
weenies as I do, as evidenced when they write: "In short,
they provide an excellent contrarian indicator."
With that background, you can appreciate the humor in a
headline that appeared in the Wall Street Journal on
Thursday, January 15th, which was: "Upbeat Fed Sees U.S.
Economy Improving and Inflation Tame." The aforementioned
excellent contrarian indicator, which the Economist
uncovered, says that you will make some big money if you
bet against the asinine opinions of the Fed, and wager that
the U.S. economy is deteriorating, and that inflation is
not, ummm, tame.
The Fed's most recent beige book came out and said that
wages are not rising, which wouldn't be so horrible if the
Fed had, in fact, "tamed" the Inflation Monster. But
separately, the Producer Price Index of the Labor
Department was also recently released and showed that, in
one year, Finished Goods are up 4% in price, Intermediate
Goods are up 3.9% in price, and Crude Goods are up 18.5% in
price.
To put a spin on it, the Fed decided to take the 4%
increase in the price of Finished Goods, ignore the hefty
inflation in Intermediate Goods, and ignore the roaring
inflation in Crude Goods, and back out food and energy out
of what is left, and that brought that index down to an
inflation reading of 1%. They think this is real clever.
Then the CPI came out, and it was up 0.2%. Food prices were
up 0.6% for the month, education costs rose 0.4 percent,
health care costs rose 0.6 percent and housing prices rose
0.3 percent. But, and this passes for good news, I suppose,
apparel prices fell 0.4 percent and transportation costs
fell 0.2 percent. These are MONTHLY increases in prices, so
to get the annual increase, multiply each number by twelve,
which I would do for you, but given my adroit handling of a
calculator it would take the rest of the afternoon for me
to do that, and I would get it wrong anyway. But I will get
you started, and will conscript a passing fourth-grade kid
to do the math, and tell you that multiplying 0.6% by
twelve equals a 7.2% annual inflation in food.
Of course, the lying weasels in the Fed and in the
government proper are all strutting around saying how
inflation is tame, quiescent, and non-existent. To which I
say, as you knew I would, "What a load of crap!" Three-
percent annual inflation in food and energy used to be
enough to cause heart attacks in bankers and bond holders,
and here we are looking at a trend that is more than TWICE
that!
If you have a heart problem, now would be the time to make
that doctor's appointment you've been putting off.
Regards,
The Mogambo Guru
for the Daily Reckoning
P.S. On a happier note, I am sure that you, like me, are
anxiously anticipating tomorrow, January 27, which is
Mozart's birthday, and you are now busy with the
preparations, what with all the buying and decorating the
Mozart tree, and hanging the Mozart lights along the eaves
of your house, and dying eggs for the big Mozart egg hunt
and all.
And this happy time of year, as an example of how it is
always feast or famine around here, also coincides with the
annual Girl Scout Cookie bonanza, and so the Mogambo will
soon be indulging in an orgy of sugary, chocolate treats
while listening to the magical, incredible Mozart on the
stereo. And I suggest that you do the same, because it just
doesn't get any better than that.
And the added benefit is that you get to forget about the
Fed's stupendous, incredible, ineffable idiocy while you're
happily munching and listening... for a day, anyway.
