-->The Daily Reckoning

Ouzilly, France

Christmas Eve, 2003

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*** Christmas is a capitalist plot!

*** The whole hullabaloo is a fraud - the recovery, GDP
growth, THINGS...

*** Our countrymen... and more!

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"Christmas is a capitalist plot."

The message was scrawled on the wall of the Paris subway. We
are still puzzling over it.

The 'recovery' depends on Americans' willingness to buy more
things. But who doesn't have enough things already?

If Americans buy enough new things, the reasoning goes, the
GDP will go up and we will all be so much better off.
Consumer spending is 70% of the economy, we are told, so
buying things is the key to growth."Go out and buy a new
SUV, preferably a Navigator," urged Robert McTeer of the
Dallas Fed, a couple of years ago. If consumer spending fell
off, he explained, the whole economy was doomed.

But we can't help but think that the whole hullabaloo - over
the 'recovery,' growth, consumer spending, THINGS, and even
the idea of consumer 'wealth' itself - is a giant practical
joke that must have the gods clutching their stomachs and
rolling in the clouds. Christmas is no fraud... but holiday
spending surely is a plot against capitalism.

We only bring this up because trading is slow on Wall Street.
There is little news to annoy and distract us."Shoppers out
in Force," is the best Reuters can do. Why not take a moment
to think about THINGS?

We have pointed out - so often that you must be getting sick
of reading it - that the 'recovery' is a fraud. The Feds
never allowed a real recession... so there was never anything
to recover from... and no savings or pent-up demand to recover
with.

But even if there were a real pick-up in consumer spending -
what good would it do? If I drink a bottle of whiskey or take
a vacation to the south of France, am I a richer man for it?
Or a poorer one? Real wealth is the ability to produce
things... not consume them. The man who makes the whiskey is
increasing his wealth. The man who drinks it is giving
himself a handicap... he is consuming his wealth.

Now, imagine that the man has no savings and is already
living beyond his means. How can he buy whiskey without going
deeper into debt? For him, every purchase not only makes him
poorer, but brings him closer to his own ruin. He cannot
borrow forever. Sooner or later, his creditors will wise up
and stop spotting him money. Then, he'll be in a serious
jam... with no way spend... no way to borrow... and no way to
get out of his hole without trimming his expenses and paying
off his debt.

What a disaster! And yet... what difference would it make if
the average American had to forego buying more things? Would
his life really be less agreeable with fewer gadgets from
China cluttering his house? Would he be worse off if he drove
a Kia rather than a Navigator? Would his family be less
happy... would his life be less rich or less interesting... if
he read a book from the library, rather than going to the
movies? Would his wife really be disappointed if he passed a
romantic tête-à-tête at home... rather than watching his new
big screen TV or going out to a basketball game?

That is why we are such optimists, dear reader - we look
forward to our own ruin. We welcome the end of the consumer
economy. Americans will be able to afford fewer things. Which
would not be a bad thing, in our opinion.

Here's more news, from Addison:

----------------

Addison Wiggin writing from New Hampshire...

- The lesser of your two evil Parisian editors had to
interrupt his study of the days market news this morning for
a noble purpose: he had to feed a brood of hungry children a
hearty New England breakfast.

- The family has gathered deep in the Mink Hills of New
Hampshire's lakes region to fête up the holidays. Your editor
rose early to beat the morning din. And almost succeeded.
Alas, while contemplating the pointlessness of covering the
markets on Christmas Eve, a little voice said:"Uncle Addy,
can you help us decide what to make for breakfast?"

- The children (six of them this morning, more on the way)
set the table themselves, then began to wonder what to do
next. There wasn't an adult to be found. Undaunted, we stoked
up wood stove, fired up the griddle, threw on some bacon and
eggs, slathered maple syrup on whole wheat pancakes, sliced a
few apples, corralled the troops... and voilà, adults began
popping out of the woodwork.

- Back at his post, your editor discovered that Mad Cow
disease has been discovered on the homeland soil and is
threatening the U.S. markets this morning. Now that's a
wonderful Christmas story, isn't it? And sure to be the
subject of many a Christmas table discussion tomorrow. How
many, we wonder, bovine spongiform encephalopathy experts
will be spontaneously generated overnight?

- Of course, nobody save the odd farmer whose herd will have
to be destroyed will ever be affected by the"news." Still,
if the scare two years ago in France is any indication of
what to expect, at every holiday table in America the family
know-it-all will be putting the fear of God into ignorant
steak and hamburger eaters. Beef producers will suffer the
consequences.

- Yesterday, McDonald's - the behemoth beef consumer - got
whacked for 6.6% and dragged the Dow down 17 points with
it. Of the 30 companies that make up the Dow, 25 suffered
losses. The Nasdaq lost 7 points to 1,967 and the S&P 500
fell 2 points to 1,094.

- Ahhhh... life in the age of information... beware the Mad
Cow expert at a table near you.

-"Looks like your doom and gloom predictions are going to
pan out," your editor's mother said yesterday, referring to
the themes in our book. The evidence? Consumer spending, upon
which rests 70% of the fraudulent recovery, is lagging this
Christmas season."Durable goods orders plunge in November,"
reads a headline on CBSMarketWatch.com. Wal-Mart reported
that a slight uptick in last-minute shopping would not be
enough to offset the weak holiday season thus far.

- The current ray of hope for retailers? A 49% increase in
gift certificate sales. These sales will be logged when
cashed, presumably in January. Hopes now rest on the post-
holiday sales season... to save the world as we have known it!
And so it goes.

- Here's more evidence, too:"Any assessment of Alan
Greenspan's long tenure at the Federal Reserve has to present
the stock bubble as his biggest failure," writes Dean Baker
of the Center for Economic & Policy Research."After his
failure regarding the largest financial bubble in the history
of the world, [which destroyed more than $8 trillion in paper
wealth] it looks like Greenspan is now actively promoting the
world's second-biggest bubble: the housing market."

- Comparing the rise in prices in the rental market v. those
in the homes sales market, Baker sees not only a bubble in
real estate - but a bursting one on the horizon."From 1998
to 2001, rental prices rose more rapidly than the overall
rate of inflation, but not nearly as fast as home prices. If
higher home prices are the result of a real shortage of
housing, then rental prices should continue to rise to catch
up with homes prices. That isn't happening. Rental prices are
barely moving as record vacancy rates nationwide force
landlords to hold the line on rents. In bubble areas, such as
Seattle and San Francisco, rents are falling."

-"Where does Greenspan fit in?" asks Baker."He has promoted
the housing bubble by reassuring people in public statements
that there is no bubble. He also helped drive mortgage
interest rates to 40-year lows earlier this year - allowing
people to spend more money on houses, which adds to price
inflation and to the bubble."

- Well, at least it's Christmas... enjoy the holiday (while
you still can, heh heh)...

----------------

Bill Bonner back at Ouzilly...

***"I was amazed," commented our French teacher last week.
"I mean by the reaction of my American students. Here in
France there has been a lot of discussion about whether it
was a good idea to show those photos of Saddam Hussein all
over the world. I don't know, of course, but what is amazing
is how the Americans react. If you ask Europeans you get a
mixture of reactions. Many think it was a mistake to
humiliate the man that way. The entire Arab world might feel
a little humiliated. It was a little vulgar... a little
unseemly... a little unbecoming a great and gracious world
power. So, you could at least have mixed feelings about
it..."

We raised no objection in defense of our countrymen. Sylvie
continued...

"But my American students all said it was a great thing. They
all thought that it would finally allow the Iraqis to feel
free from the tyrant. And after I explored the issue a bit
with them, none seemed willing to even consider a more
nuanced view. That is what is so astonishing about Americans.
They are so sure of themselves. They see things in black and
white and are completely unable to admit that they really
don't have any idea.

"Present company excluded, of course..."

*** Elizabeth is an optimist.

The kitchen was a hive of activity this afternoon. Your
editor, down with the flu, watched it, barely conscious, from
the couch in front of the fire.

"How are you feeling, Daddy," the girls would ask.

"Would you like to try a piece of the fruitcake or a
chocolate chip cookie?"

"Can I get you a glass of punch?"

His mother, daughters and wife had made mulled wine,
Christmas cookies tarted up in red and green sugar,
fruitcake, egg nog, brownies and little salmon sandwiches.
But all the Daily Reckoning scribbler could do was to groan
and shiver.

Later in the day, we put on our traditional Christmas
caroling party for friends and neighbors, as we have done for
the last few years. There are no other Americans in the area
but several English families have moved in. We invited them
over along with our French friends.

We sing some carols in French and some in English. This year,
as every year, the French could not sing the English carols,
nor the English the French carols. Nor did the English sing
the English carols to the same tunes we do.

Still, Elizabeth keeps trying... and after enough fruitcake
and eggnog, no one seems to care.

*** There is no place like home for the holidays. This place
in rural France, thousands of miles from our native mud, has
become our home. With all the family gathered round, it has
become the perfect place to adjourn for Christmas - serene,
beautiful, enchanting.

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The Daily Reckoning Presents: Part II of the Daily
Reckoning Christmas Trilogy, first broadcast on December
24, 2000...



THE GHOST OF CHRISTMAS PRESENT
By Bill Bonner

"Fezziwig, not Scrooge."

This was my mother's advice when I began my business
career.

Hard to imagine, but that was already more than two decades
ago. We celebrated our 22nd annual Christmas party on
Friday evening.

It seemed as though everyone had the same idea for Friday
night.

On Mt. Vernon Square, people dressed in gowns and tuxedos,
suits and jeans, often carrying shiny, wrapped presents
under their arms, made their way to parties. The Engineer's
Club was lit up with holiday lights... so was the women's
club next door. We outdid them - we had so many Christmas
lights strung up that the whole city of Baltimore seemed to
go dim when we turned on the switch. And whatever power we
didn't consume in light was promptly converted to decibels
- Thom's blues band entertained us with holiday favorites
like"Dead Blind Man's Christmas Blues" and"Mean Mrs.
Santa's Got Her Clause All Over Me."

It was not the kind of Christmas music I recalled from my
childhood. But we have among our employees Muslims, Hindus,
Jews, Kwanzaans, nail biters, skinheads, and vegetarians.
The nice thing about Thom's band is that it was equally
offensive to everyone, which seemed to be in keeping with
the spirit of Christmas. The music was so loud that we
couldn't hear ourselves talk, which was okay, inasmuch as
we had nothing to say anyway. So we shouted out our holiday
greetings and lip-read best wishes for the new year,
neighbors a block away called the police to complain - and
the party was a big success.

When I began my business the bubble du jour was in the gold
market, where the price of the yellow metal had just hit
its zenith - reaching above $850 an ounce. Just as, today,
we recall Lenin's prediction of using gold for the floors
of public lavatories, back then we spoke of using stock
certificates to paper the walls of our storage closets.
Stocks were beneath contempt.

People were less interested in getting rich than they were
in avoiding poverty. They did not dream of becoming
millionaires so much as they had nightmares about dying
paupers.

In the 2nd year of Jimmy Carter's presidency, America's
perch on top of the world seemed much more precarious than
it does today. It was not at all obvious that the greatest
bull market of all time was about to begin.

At that time, stocks yielded as much as bonds yield today -
more than 6%. But investors wanted neither stocks nor
bonds. They wanted hard assets and natural resources. Oil
seemed like the investment of the future. Buying Exxon
seemed like the"sure thing." Buying gold seemed like an
even greater"sure thing," for even if the economy
collapsed, as was widely predicted, the price of gold would
rise as the dollar became worthless.

Stocks generally were viewed as a dying asset class in
1980... one that was given last rites by the classic
Business Week cover of a couple years later... the very
bottom of the market..."The Death of Equities."

It was hard not to recall these things as I saw many of my
old friends at the party, many of whom you may know, if not
in person, by reputation.

Jim Davidson was there. So was Lynn Carpenter. I have known
both of them from childhood. We all failed to grow up
together. Jim has grown a little more distinguished
looking, and a lot richer. But otherwise, I wondered how
much had really changed.

Jim and I got together with Mark Hulbert to launch the
Hulbert Financial Digest, back in 1978. That was the
beginning of our publishing business. We were curious about
what kind of investment advice really paid off. We thought
investors would be, too. Mark Hulbert, a student of
philosophy whom Jim had met at Oxford, took up the project
with enthusiasm and continues to do it even now.

In 1980, our contrarian instincts told us that gold and
natural resources were probably overbought. Doug Casey
predicted a bull market in stocks in the early 80s. Gary
North even recommended buying Microsoft in 1986 - an
investment that turned out to be the call of the decade.

Still, we were all"gold bugs" - more or less. We were
convinced that inflation would destroy the dollar, bonds
and the stock market - it was just a matter of time! And
maybe it still is. But in the 20 years since, gold did not
rise. Not $100. Not $10. Not $1. Not even a penny. Instead,
it fell - in real terms - by about 80%. The dollar did not
move into Weimar-style hyperinflation. Inflation declined.
The federal budget deficit did not fly out of control. It
almost turned into a surplus. Stocks did not die. They
enjoyed the greatest growth cycle ever...

And here we are - Christmas, Anno Dominus, [2003]. Richer?
Maybe. Wiser? We can hope. Older? Definitely.

"Mishter Bonner," said one young woman, in a red velvet
dress, late in the evening, slurring her syllables a bit,
"I've wanted to say this to you for a long time. I love
this company. I mean it's great."

She was standing near the fireplace in the front room, with
the Christmas lights adding a glow to her cheeks. I had
just finished my annual ritualized humiliation. Thom had
invited me to join the band. I sang the lead to that
Christmas morning classic,"You Can't Always Get What You
Want." I couldn't quite remember the words... or the music.
But other than that I'm sure my performance was smashing.

Holding a drink in her hand, the young woman looked like
someone I had seen in a liquor ad. Who was she? I didn't
know. Someone's wife? Someone's girlfriend? An employee in
the accounting department?

"But y'know something... there's just one problem..."she
went on.

"Oh?" I replied, Fezziwigishly.

"C'mon..." she continued,"I mean, no offence, but this
business sucks. Newsletters are gonna be out of business
soon. Everybody's giving away information on the Internet.
Like, you can get, I mean, like all you want."

"Oh no," I reminded her,"you can't always get what you
want. And you definitely can't get all you want of it."

Then, worried that I had placed an obstacle in her path... a
puddle of repartee she couldn't cross gracefully... I laid
down my cape:

"Tell me more..." I said, honestly. I wanted her to go on
talking. She was talking nonsense, but a man never tires of
nonsense from a beautiful woman.

* * *

While this was happening, Ebenezer was being set upon, too.
But his was no earthly beauty. No beauty at all, in fact.

"Come with me," said the spirit."I am the ghost of
Christmas Present. Look upon me. Touch my garment."

Ebenezer did so and instantly found himself flying through
the streets of Baltimore. Even from what seemed like
hundreds of feet up in the air, he could hear the music
blaring on Mt. Vernon Square."What a strange time for a
rock concert," he muttered to himself.

Christmas lights were run up the tower of the monument to
George Washington and caused the whole square to glisten
festively.

But the ghost did not pause. He continued his flight across
Charles Street and over to East Baltimore. Finally, he
stopped in front of a modest row house.

"What is this?" asked Ebenezer of his guide.

"This is a house."

"Yes, I can see that," Ebenezer pursued the issue,"but why
are we here?"

"That is for you to answer," replied the phantom.

Ebenezer looked in the window. It was a very modest house,
of the sort you could have bought with a few shares of
Cisco in 1999. Now it would take twice as many shares.

And there was a family... and yes... he recognized now where
they were. This was the house of his old trading partner,
Bob. He had not seen Bob in 15 years - not since the two of
them split up after their hedge fund went bust.

Poor Bob, he had given up investing altogether and got a
job at a mining company. Silly bugger, thought Ebenezer, he
saved his few pennies and bought gold coins. He probably
has hundreds of them buried in the yard. Not worth the
trouble of digging them up.

And he could have bought growth stocks...!

Bob's wife and three daughters were talking in the front
room. How pretty the girls were. And so full of life.

"Martha," said Bob's wife,"Dad will be so glad to see you.
We have so much to do to get ready for Christmas. But sit
down in front of the fire. It will be so nice... now that
you're here."

"Oh... there's Dad's car," said another of the girls, with
red, curly hair like that of a doll,"Hide, Martha! Let's
surprise him."

So Martha hid herself, and in came Bob. And there upon his
shoulder was Tiny Tim. Alas, he bore a little crutch, and
had limbs supported by an iron frame.

"Now, where's our Martha?," asked Bob, looking round.

"Not coming," said his wife.

"Not coming," said Bob, with a sudden deflation of his high
spirits,"not coming for Christmas?"

Martha didn't like to see him disappointed, even if only in
jest; so she came out from behind the closet door and ran
into his open arms."Oh there you are! I knew you wouldn't
disappoint us. It wouldn't be Christmas without you and all
the children."

"And how did little Tim behave in church?," asked Bob's
wife.

"As good as gold," said Bob,"and better. Somehow he gets
thoughtful, sitting by himself so much, and thinks the
strangest things you ever heard. He told me, coming home,
that he hoped the people saw him in the church, because he
was 'disadvantaged' and it might be pleasant to them to
remember upon Christmas Day, who made lame beggars walk,
and blind men see."

Ebenezer could barely suppress a"humbug." For he knew
there were advances coming in the biotech and
microtechnical sectors that would cure cripples and blind
people. He had seen the IPOs go up by 10 times. It was just
a matter of time until all of life's inconveniences were
done away with. And anyone who cared to could be rich too -
they just had to stop being so stupid and stubborn, like
Bob. Get with the program, for Pete's sake.

The evening dinner progressed, with Ebenezer and the ghost
watching. The table was set, the whole family seemed in
motion. Everybody had something to do... and something to
say, well, about everything!

And such merriment!

"A wonderful dinner," said Bob to his wife."And the
pudding was sensational."

His wife confessed that she had doubts about the pudding.
Even in a low-inflation world, Christmas puddings can be
expensive. And, in truth, it was a rather humble pudding,
Ebenezer thought, for such a large family. He had seen that
much left on the used plates at the Deutsche Bank/Alex
Brown party the day before.

But no one said a word to suggest that it was a small
pudding. Any member of the family would have blushed to
hint at such a thing.

And when it was over, the cider was brought out and passed
around. Bob proposed a toast:"A merry Christmas to us all,
my dears. God bless us."

Close by his side sat his son, Tim. Bob held the withered
hand in his, as if he feared the boy might be taken from
him.

"Spirit," said Ebenezer, with an interest he had never
before felt,"tell me if the boy will live." Even with all
the advances of medical science, Ebenezer somehow sensed
the answer was by no means certain.

"I see a vacant seat," replied the Ghost,"in the poor
chimney-corner, and a crutch without an owner. If these
shadows remain unaltered by the Future, the child will
die."

* * *

By the time the ghost of Christmas Present left Ebenezer,
our own Christmas party was coming to a close. The guests
were leaving, one by one, and in small groups. Arm in arm,
many of them made their way up to the top floor of the
nearby Belvedere Hotel where they continued to enjoy a
night of good cheer - until the good cheer was gone and the
night itself was used up.

But I was worn out and retired to my small apartment around
midnight. In less than 10 minutes, I was asleep in my bed,
with visions, perhaps not of sugar plums but maybe of some
kind of plums, dancing in my head.

Around about 4am - I looked at the clock - my sleep was
disturbed. There was a tremendous racket on the steps. What
ghosts were these, I wondered?

Bill Bonner