-->The Ghost Of Christmas Present

The Daily Reckoning

Ouzilly, France

Tuesday, 24 December 2002

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*** Mortgage refinancings put $2.5 trillion into economy...

***"It sucks everywhere..."

*** Christmas in the country...dead pigs...and more!

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"Mortgage financing helps economy stay out of abyss," says
a headline from an Oregon paper. The article quotes
economist Mark Zandi who calculates that the $2.5 trillion
in refinancings in the last 2 years has added 20% to GDP
growth. GDP rose at a 4% rate in the 3rd quarter of this
year - thanks largely to mortgage money, he says.

Homeowners are still refinancing and still taking the money
and spending it, with consumption rising almost twice as
fast as incomes over the period. Spending actually
increased recently. Even so, retail sales look week for the
holiday season.

"This could be the worst Christmas ever," said an analyst
with W.R. Hambrecht, perhaps forgetting 1943, 1942,
1941...and so forth.

But that is the problem with us humans. We tend to forget
how lucky we are. In this Christmas season, even the
poorest people in America have enough to eat...and enough
televisions. In fact, our problem (since it is Christmas
Eve, we permit ourselves a gratuitous reflection...) is not
too little, but too much.

But thank God people are still interested in getting and
spending! Here at the Daily Reckoning, we view it with the
same cynical amusement with which a farmer enjoys watching
his hogs eat. And what would we do without it? (More on
hogs...and more gratuitous reflections, too, below...)

Eric...?

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

Eric Fry, reporting from Manhattan...

- The former World Heavyweight Champion of the global
equity markets came away with a split decision yesterday.
The Dow dropped 18 points to 8,493, while the Nasdaq gained
18 points to 1,382. Gold, the new reigning heavyweight in
the commodity pits, advanced $1.10 to $346.70 an ounce.

- Fed Chairman Alan Greenspan assured the nation last week
that the economy is emerging from its"soft patch." So
what's next? A hard patch? A rough patch? A nicotine patch?
Whatever warm, fuzzy feelings the Chairman might be feeling
about the economy, hopeful economic auguries remain scarce
these days.

-"It's just not there," a livery car driver told me
yesterday as we motored down Park Avenue."The business
just isn't there. One of our biggest accounts is Merrill
Lynch and they've cut way back on their car service...It
used to be that the holidays were a great time of year for
us. There were so many office parties and people going
shopping. It was great. But not any more. The big companies
aren't throwing Christmas parties like they used to.
Business is bad all around."

- Business is bad out on the golf links as well. This
month's Washington Golf Monthly examines America's Japan-
style golf course glut. The magazine quotes an executive at
the United States' largest builder of golf courses who says
bluntly,"It sucks everywhere. That's pretty much our
bottom line right now." Conditions in the golf industry
could probably"suck worse," but the latest statistics show
plummeting prices for existing courses, flatlining numbers
of golfers and reductions in rounds played per year.
Despite these sluggish demand trends, 285 brand new golf
courses opened for business this year.

-"We're still dumping hundreds of new courses on the
market each year," another golf industry exec tells Golf
Monthly,"when the numbers say we should be adding zero."

- Reduced demand for rounds of golf and for rides across
town in a chauffeured Lincoln are but two signs of a
spreading white collar retrenchment - a phenomenon formerly
known as"thrift." This hot new"thrift craze" is catching
on throughout the entire macroeconomic strata - from
McMansion dwellers to double-wide dwellers.

- It turns out that nervous, indebted consumers do not
consume with the same abandon that confident, indebted
consumers do. The anxiety-inducing effect of rising
unemployment, a dicey stock market and the prospect of
intensifying conflict in the Middle East are finally
starting to take their toll on consumer spending, as
evidenced by the worst holiday-season sales growth in 12
years. Greenspan can cut rates until there's nothing left
to cut. But that's no guarantee that Americans will keep
flocking to malls to buy their third and fourth redundant
VCR players.

- In fact, the Christmas retailing season this year is
decidedly lacking in good tidings. Bellwether Wal-Mart has
already announced disappointing same-store sales for
December - it's"Sam's Club" division reported and honest-
to-goodness DECLINE in sales! Meanwhile Federated
Department Stores and Target both chimed in with discordant
sales forecasts for the holiday season.

- Not to worry; the economy is just in a soft patch...
The stock market, meanwhile, has been stuck in a little
soft patch of its own - but he stock market's soft patch
has seemed more like a Bermuda Triangle, into which about
$7 trillion has disappeared...and the money is still
disappearing.

- Greg Weldon, of Weldon's Money Monitor, points out that
the world's largest actively managed equity fund, Fidelity
Magellan, has fallen more than 23% year-to-date. By
contrast, the world's largest bond fund, PIMCO Total Return
is up 9.64% for the year, while the Fidelity Select Gold
Fund has chalked up"a massive" 59.9% gain year-to-date.

- Past performance does not guarantee future results,
Weldon readily admits."But in this case, we believe
that...this year's overall performance provides a `guide'
to future results." In other words, says Weldon, shun
stocks and cozy up to commodities."Reverend" Weldon is
preaching to the choir.

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

Back in Ouzilly...

*** Ah, Christmas in the country...

***"Dad, I can't believe it," Maria came running into the
kitchen this morning, nearly in tears, and looking as
though she had just seen the ghost of Christmas Past..."I
can't believe you put a dead pig in the laundry room!"

Indignation is the 16-year-old's favorite sentiment, and
she does it well.

"I was going to wash some clothes...and I go into the
laundry room...and you and the gardener have hung up a dead
pig right in front of the washing machine."

Her facts were correct. But the emotion seemed misplaced.

"What's the problem," your editor replied,"what's wrong
with pigs?"

The pig in question happily inhabited one of the sties on
the farm - until yesterday. But Christmas is coming and the
local tradition is to kill a pig a few days before so that
you can eat the blood sausage on Christmas morning.

So, with their usual incompetence, the gardener and his
boss went about their work. After a few blows of the sledge
hammer, and some quick work with a sharp knife, the living
pig was turned into meat...

"You have to cut off the testicles, right away," said
Pierre, who had come over to offer advice."Otherwise, the
meat won't taste good."

And so the deed was done...and the carcass hung up in the
laundry room for further attention today.

Animal rights partisans and health department officials
would have been appalled. Your editor was a bit appalled,
too - but he is getting used to the rituals of the French
countryside, and rather likes them. Like average P/Es and
the Ten Commandments, traditions are ignored at your peril,
he believes.

*** Today marks the anniversary of the famous"Christmas
Eve truce" during WWI. Spontaneously, British, French and
German soldiers began singing 'Silent Night.' They lay down
their weapons, walked across no-man's land and exchanged
cigarettes and tins of canned meat. Senior officers could
barely get them back at their work - trying to kill each
other.

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The Daily Reckoning Presents: a DR Classique, 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, 2000. 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 a year ago. 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 make 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 4 AM - 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

P.S. I will conclude this story on Wednesday - Christmas
Day.