Delusional Friday, Is Gold a Ponzi Scheme?, Jobs Report Breakdown and More!

by Addison Wiggin & Ian Mathias

  • The 12-million barrel delusion: What’s up in Iraq
  • Citi chief goes to Capitol Hill, blames short sellers, hilarity ensues
  • Faber on whether gold is a “Ponzi scheme,” Casey on the future of the euro
  • Unpacking the Census’ impact on February job numbers
  • Enron memories, yours for a mere $11,900,000

  Iraq will pump up oil production from 2.4 million barrels a day now to 12 million barrels by 2017. That’s the promise of Prime Minister Nouri al-Maliki, who’d like to hold onto his job after elections on Sunday.

Welcome to the Delusional Friday edition of The 5.

  It’s not 2004 anymore. And it’s no longer in Washington’s interest to play up purple fingers in Iraqi elections. So let’s bring you up to speed on what’s been happening there since the “surge” was deemed a success:

  • A bevy of suicide bombings this week went underreported in the U.S. press. Three explosions just today killed 12 people. Chances are it’s the work of the Sunni minority, who’ve stayed quiet the last couple years because U.S. troops paid them off to lie low — a key reason “the surge” has kept the fighting to a dull roar
  • The Sunnis are restless because the Shiite majority maneuvered recently to keep hundreds of Sunni candidates for parliament and local offices off the ballot. Of course, we were told the whole idea of “the surge” was to give Iraq’s factions breathing room to settle their differences. So much for that.


We still have 100,000 American troops in Babylon trying to make sure that non-American oil companies like BP and China National Petroleum Corp. have reasonably secure access to the giant Rumaila oil field. (ExxonMobil got a small consolation prize in the bidding.) We marvel at the spectacle.

  The delusion that “short selling” is what nearly took down Citigroup in 2008 was being peddled on Capitol Hill yesterday. Citi chief Vikram Pandit blames that foul, unpatriotic trading strategy…. but paid no mind to the reams of foolish loans made by his employees.

Even in Congress, the idea didn’t fly. Elizabeth Warren, chairwoman of the Congressional Oversight Panel bird-dogging the TARP program, wondered why Citi was the only bank that needed a second bailout after the first. “I just want to understand why Citi is special,” she quipped.

“His bank has got the highest [credit] loss rate of any of the big four,” Christopher Whalen from Institutional Risk Analytics added. “The shorts were just responding — the emperor had no clothes.”

Our own stock market vigilante would do the same. For more on Dan Amoss’ Strategic Short Report and a 62% discount, read here.

  Another delusion gaining traction this morning: Gold is “the ultimate Ponzi scheme.” Honestly, the folks at CNBC are starting to become unhinged.

Gold is “an inanimate object that sits in a dark, damp cellar somewhere,” host Simon Hobbs posited to Gloom Boom & Doom Report’s Marc Faber, “that may or may not be in short supply, may or may not glitter in the correct light, but really has no productive power. Isn’t gold the ultimate Ponzi scheme?"

Faber was entirely too polite in smacking this down: "No, I don’t think it’s a Ponzi scheme, and it’s not a liability of someone else… its quantity cannot be increased at the same rate as you can print money… I’m not saying that the dollar will go straight away down, because other currencies, apparently, like the euro, are even worse at the present time. But eventually, if you print money, the purchasing power of money will lose."

If you can stand it, watch the whole thing here.

  Faber and our friend Doug Casey agree on the outlook for that delusion in currency collectivism known as the euro. Greece will get an indirect bailout from the European Central Bank, says Faber. And it won’t work. And the rest of the PIIGS countries will follow. Lather, rinse, repeat.

“I think it was inevitable,” says Casey, “that the euro would burst apart at the seams, sooner or later. This isn’t the first straw in the wind, by any means, but it’s a major, unmistakable sign that the EU currency union is going to break up and the euro itself is on its way out. And the EU itself will meet its inevitable doom not too long after that.

“When you stop to think about it, the EU was really a stupid idea to begin with. It started out as a coal and steel free-trade zone, which made a lot of sense. But as time went on, as people in general often seem to do, and Europeans in particular seem to love to do, they bureaucratized the thing and made it into a pseudo-government.

“They wrote a constitution hundreds of times longer than the one that served the U.S. so well until it was abandoned. They took on micromanaging everything, down to producing huge, phone book-sized regulations on the composition of French cheeses, and so on. There’s a burgeoning bureaucracy in Belgium trying to consolidate the 27 member states into one giant country, and it’s absolutely not going to work.”

Both Doug and Marc Faber will join your editors and a host of Agora Financial regulars in Vancouver this July at the Agora Financial Investment Symposium in Vancouver. David Walker, Bill Bonner and Petrobras veteran Marcio Mello will be there, too. Our symposium chief Bruce Robertson has outdone himself this year. Register here. Early bird discounts still apply.

  And of course, this morning, it’s time for that ritual exercise in delusion that comes on the first Friday of the month, otherwise known as the Labor Department’s monthly employment report. Let’s go to the tape…

· Payrolls fell about 36,000 — less than mainstream analysts expected

· The worthless U3 unemployment rate held steady at 9.7%

· The U6 figure that includes discouraged workers and part-timers who want full-time jobs grew from 16.5% to 16.8%.

Amazing how 15,000 temporary Census jobs can take the edge off an otherwise-lousy report, huh? And those temporary government jobs are just starting to ramp up.

  Still, from the stock market’s standpoint, these are Goldilocks jobs numbers — stronger than expected, but not so strong that anyone expects the Fed to go and do something crazy, like, you know, raise the fed funds rate.

The major U.S. indexes opened up 0.5% in the first few minutes of trading. And the airwaves were filled with fund managers heralding the good news.

  Gold is holding up nicely at $1,133. Oil has perked up a buck, to over $81.

  So much for the delusion that extending the homebuyer tax credit would keep pumping up the housing market. Pending home sales fell 7.6% in January, according to the National Association of Realtors — which is already trying to lower expectations for the February number by pointing out that people tend not to look at homes when they’re buried under three feet of snow.

  From the “times are tough all around” department comes word that the widow of Enron chief Ken Lay is having trouble shopping her Houston penthouse among private buyers (showings by invitation only) for $12.8 million.

So it’s been publicly listed for $11.9 million.

“Italian Renaissance-inspired,” the listing says. Reminds us of that gag about the Holy Roman Empire: It’s not Italian, it’s not Renaissance and it’s definitely not inspired.

The 12,827-square-foot spread features six elevators, five half-baths, four balconies, three fireplaces and two toilets in the master suite. No partridge in a pear tree, alas.

A spokeswoman for Linda Lay says only she’s looking for a smaller home. It’s also possible she’s trying to come up with some scratch to generate a couple of pennies on the dollar for Enron’s creditors. But if she’s made any sort of deal with the Justice Department, we won’t find out about it — the court records are sealed.

  “Once again, your unchecked facts are designed to match your preconceptions, instead of reality,” scolds a reader. “In fact, the inauguration date was changed for Roosevelt’s second term, in 1936, not his first in 1932. His first term was actually shortened by about six weeks due to this. Here are the particulars from WikiAnswers:

“The date of Jan. 20 for the presidential inauguration was established by the 1933 ratification of the 20th Amendment, which changed the start date of the new presidential term from March 4.

“The reason given was that due to the modern conveniences of better communications, the election results could be confirmed faster than in olden times. They did not want to make our Congress and president wait until almost the end of the first quarter of the year to begin their service.”

The 5: We stand corrected on the dates. Of course, we were merely being flippant. If you choose to believe the unchecked facts are designed to propagate our own delusions, that’s your prerogative. That particular factoid is a matter of pride, actually. March 4 is this Wiggin’s birthday. Thanks for setting us straight on the details.


  “I have to take exception to the comments by the reader about UPS giving the package to the post office,” writes another, “I worked for UPS for 30 years. UPS delivers to every address, while the postal carrier will leave the mail at the mailbox, UPS will take it to the door.

“As a driver in rural Arizona, I delivered to ranches that were 10 or more miles from the mailbox. The postal carrier would leave the package or mail at the mailbox and I would drive to the ranch, leaving the package at the door.”

  “The Postal Service cannot be fixed,” writes another reader, who gets the last word. “It is hopeless. I know, I worked at USPS headquarters in Washington, D.C. They do not even understand how horribly inefficient they are. I could fill an entire Web page and not scratch the surface, but you wouldn’t believe it. Needless to say, I was blown away over at the incompetence.

“By the way, why should we all subsidize mail delivery to people who choose to live in the boonies? They pay more for just about everything else in life (fuel delivery, groceries, etc.), but expect the same mail service, for the same price, we get in densely populated areas.”

Have a good weekend,

Addison Wiggin

The 5 Min. Forecast

P.S. “It’s emerging markets that are driving the bull market in this [commodities] cycle,” comments our managing editor Chris Mayer in a MarketWatch piece out this morning. More of his thoughts here.



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