The God Of War / The Daily Reckoning (Nachtrag von Freitag)

verfasst von - ELLI -, 24.02.2003, 17:31

-->The God Of War

The Daily Reckoning

Delray Beach, Florida

Friday, 21 February 2003

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

*** Gold drops back...

*** Stocks go down...bonds go up...

*** Heard at the Green Owl...in bed with Saddam...and more!

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

Coming back from a vacation in Latin America is like
awaking from a coma. We are rested, relaxed...but
completely ignorant. What has happened in the last two
weeks, we wonder?

Nothing much.

Stocks fell again yesterday...with the Dow ending the day
down 85 points.

Bonds are still near their recent highs. Commodity prices
may signal inflation...but bond investors aren't worried
about it. They're too busy trying to protect their capital
from a bear market in stocks. The risk of inflation -
whatever it is - seems slight compared to the risk of
losing another 20% in equities this year.

International investors continue to allow Americans to live
beyond their means; the U.S. trade deficit hit a new record
last month. But they are getting edgy about the dollar -
gradually turning towards the euro and gold for refuge. The
euro rose again yesterday - and is now above $1.08.

Gold, meanwhile, pulled back from recent highs, but still
acts as though it were beginning a long-term bull market.

Here at the Daily Reckoning, we are delighted to see the
price of gold fall. We are accumulating it; the cheaper it
is, the more we get for our money. At $353 per ounce, gold
is not nearly as cheap as it was a year ago...but it's
probably a lot cheaper than it will be in the years ahead.

For while the Bernanke Fed produces more and more dollars
"at virtually no cost", each new ounce of gold arrives on
the market stained with the blood, sweat and tears of
millions of miners, geologists, truck drivers, smelters,
speculators, Vancouver stock promoters and gold bug
investors.

"Nothing comes from nothing," we sigh. We prefer the
something of a rare metal to the nothing of federal reserve
notes in electronic form...So we hope the price of gold
goes down again today, so we can get more something for
less nothing than we got yesterday.

More idle comments below...

But first, here's more market news from Addison...

-----------

Addison Wiggin, back in New Hampshire, making his way
toward the DR HQ in Paris...

- In a bizarre twist, yesterday, investors on Wall Street
took bad news for...um, bad news...and knocked stocks flat.

- The Dow shed 85 points to close below 8,000. The Nasdaq
dropped 3 to 1331 and the S&P 500 fell
effortlessly...closing at 837. Dismal economic numbers
released early in the day helped cast a pall over the snowy
streets of New York.

- Oh...and there's that Iraq thing, too. Analysts all over
- TV, radio, newspapers, Internet - are conveniently
placing blame for the US' economic malaise on 'geopolitical
uncertainty'. (As if 'geopolitical uncertainty' is
preventing companies drowning in a glut of IT from buying
new computers, laying cable and engaging in their annual
'technology rotations'.)

- Never mind that the economy is drowning in credit. Aided
by the inflationistas at the Fed, interest rates remain
artificially low. Mortgage rates, for example, and by
extension, dropped to their lowest point since 1971.
Housing prices - in 39 key markets around the nation -
continue to soar.

- Yesterday we pointed out the growing relationship between
the record trade deficit and the 'mortgage bubble'...today,
we notice another polyp growing on large intestine of the
U.S. economy: wholesale price inflation and its effect on
stock prices.

-"Naturally the jump [in PPI] set tongues wagging about
how inflation is just around the corner," observes
CNNMoney,"But for investors, the real worry is that those
costs are eating into profits.'

- Trouble is, companies already suffering from earnings
shortfalls, and under pressure from slowing consumer
spending, can't pass those costs to consumers."You can see
a margin squeeze there," frequent Daily Reckoning
contributor Paul Kasriel told CNN."Higher prices are
making it into the pipeline, but they're not making it to
the faucet."

- Corporate earnings are getting pinched between the rock
of falling consumer spending and the hard reality of
inflationary Fed policies. The CRB Index - a measure of the
price companies have to pay for raw materials to produce
goods - has recently climbed over 250...its highest level
in 5 years. In the current race for a dwindling supply of
consumer capital, corporations are going to have to eat
those costs and expense them out against future earnings,
too.

- The real concern for wage earners is a little more
immediate. Unemployment numbers also 'surprised' analysts
by jumping up 402,000 last week. Claims for the week before
were also revised higher, marking the third increase in a
row."The labor market is not improving," remarks
Economy.com."Initial jobless claims remain at a level
consistent with a rising unemployment rate." Meanwhile,
'real wages' in December and January remained unchanged.

- One of the great myths of the Great Bull Market of '82-
'00 was that rising stock prices would help bring
prosperity to all strata of society. Au contraire! While
researching our book (to be published by Wiley & Sons), we
discovered that 'reality' has the appearance of a different
beast altogether.

- From 1947-1973, there was a steady increase in household
productivity and compensation. But from 1973 through 1993,
the years heralded by the press as"the decades of greed",
there was zero family income growth.

- To stay even, more wives entered the work force. But it
had an unforeseen consequence: the real wages of men fell.
In 1979 a man earned $677 a week, on average. In 2000, 21
years later - he earned $33 a week less. Women, on the
other hand, saw an increase of only $47 per week over the
same 20-year period. And their incomes remain lower than
those of men.

-"The total hours worked by American families increased,"
Gary North shows. But as a review of median income growth
reveals,"joint family income stagnated, except for the
richest fifth of Americans".

- The richest families continued to work more hours as a
group throughout the 21-year period, but all other income
groups increased their working hours dramatically. Yet
family incomes did not increase.

-"No explanation for this reduction of per capita income
has been widely accepted by economists," says North.
"[These statistics] are some of the most discouraging in
recent economic history."

- More to come...

----------

Back in Delray Beach...

***"Pretty good for a fat, homely bastard..."

The question was,"How're you doin', Bob?" The answer came
from a huge man with tattoos, a pony tail, a black leather
motorcycle jacket, and enough chains and rings to set off
metal detectors in neighboring states.

The big man took a seat at the counter at the Green Owl, a
popular breakfast spot in Delray Beach, next to retired
Wall Street stockbrokers in wire rim glasses... and another
big man with a big gold watch who was speaking into cell
phone while eating his eggs and bacon.

The man on the cell phone was working a real estate deal.
We could not hear the conversation, but caught words such
as"condo,""financing,""points""cost-per-square-foot"
and so forth.

Your editor used breakfast to catch up on the zeitgeist of
America in the 3rd year of the 3rd millennium. Seated with
two men named Mark, he listened:

"I think this war thing is a personal vendetta," said the
first Mark."These U.N. inspectors are doing a good job.
And they haven't found anything. Yeah, it's possible that
Saddam is moving stuff around...but how much of that can he
do...?

"Besides, Iraq is probably the last country that will do
any harm to America. Saddam is a survivor. And he knows
that if there's even a hint of trouble from Iraq, the U.S.
will blow him off the face of the earth...Bush would love
any excuse to eliminate the guy...

"And what's really behind it is probably oil..."

"Oh, I don't know," said the second Mark."I think Bush has
been told that he can pull this off and be a hero. It will
only cost, say, 1,000 American lives and, say, 40,000 Iraqi
casualties. He figures he will then have control of a place
there and can shape it into a model for the whole
region..."

*** Meanwhile, Chris Ruddy of Newsmax.com has launched his
own war effort - against France!

"Our national 'Boycott Cowardly France Campaign' will
expose France, support our President, and tell the truth to
America and the world," says Ruddy's remarkable email.
"Ultimately what's at stake is nothing less than the lives
of thousands of soldiers and millions of Americans.

"This campaign can also rally all those people now sitting
on the fence and provide our men and women in uniform with
the support they need to win.

"The French claim they are fighting for peace and taking
the moral high ground by attempting to block support for
America's campaign to eliminate Saddam Hussein.

"That's a pack of self-serving lies.

"The reality is that France has been in bed with the
genocidal Iraqi dictator Saddam Hussein for decades."

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

The Daily Reckoning PRESENTS: Plus ça change, plus c'est la
même chose... This DR Classique was originally aired on
October 12, 2001.


THE GOD OF WAR
by Bill Bonner

"Americans are walking right into a trap," said a friend at
lunch the other day.

"Terrorists don't expect to defeat the U.S. They know they
can't do that," he continued."These people are not
dumb...I lived among them for many years. They have a
different idea of how the world works.

"They had a reason for striking the U.S." he explained."It
was very simple. They wanted to show the rest of the
radical Muslims that they could reach right into the heart
of the 'Great Satan.' More importantly, they wanted to
provoke a response. As big a response as possible. They
don't care if they live or die. They will measure their
success by the extent they set the world on edge and
radicalize other Muslims."

Here at the Daily Reckoning our beat is money. But we look
to the rest of life - love, war, poetry - for instruction.
A man may be driven wild by love, or by war, or by a bubble
market. He may act wisely...or foolishly...depending on the
circumstance.

And he may be ruined or saved, often as not, by the grace
of the gods as by his own perspicacity.

What turns our attention to war is the fact that we seem to
be in one. And what causes us to comment is the fact that
the nation's bellicose spirit seems to have formed a grand
alliance with its wishful bullishness...thus are we drawn
into the war by alliances...like Germany and Russia into
WWI.

That war, too, began with a terrorist incident. Gavrilo
Princip, too, wanted to stir things up...to provoke the
authorities. He succeeded beyond his wildest dreams. By the
time the war was over, the major monarchies of Europe had
all fallen - the Hohenzollerns in Germany, the Romanoffs in
Russia and the Hapsburgs in Austro-Hungary - and every
major government of Europe had been replaced.

Ninety-three years later, Wall Street and the Pentagon
march to the same drummer. One of the causes of yesterday's
169-point increase in the Dow was a rumor - that Osama Bin
Laden had been captured or killed. In the group mind, the
"war on terrorism" (the war of"infinite justice" has been
quietly dropped...) is as certain as a bull market on Wall
Street. It may take time. There may be ups and downs...but
the inexorable march of history is towards higher prices on
Wall Street and an American victory against terrorism.

We do not know better, or worse. But a victory over bear
markets and terrorism is so widely anticipated and so
little questioned that we cannot help but wonder - in
today's letter - what surprises the gods may have in
store.

"Surprise lies at the foundation of all undertakings, [in
war] without exception," wrote Carl von Clausewitz, in his
tome"On War" in the early 19th century. Clausewitz, a
Prussian soldier, had seen Napoleon's army sweep through
Europe. He, too, wondered who the god of war might favor,
and why.

A general who catches his enemy off-guard has control of
the field, Clausewitz noticed. Not only does he cause
confusion and discouragement in the opposing troops, he
also determines the place and terms of battle - an
immense advantage.

In the present war, such as it is, it was the enemy who
made the surprise move. The American response, as far as we
can tell, has been as predictable as a teenager's slouch.
It is not only the response the enemy expected...but the
one he wanted.

Sometimes you can win by doing what the enemy intends. But
few enemies are gracious enough to set traps for
themselves. More often, they set traps for their opponents.

That is why it is rarely wise to attack an enemy head-on.
Instead, a smart commander, Clausewitz explains, attacks at
the unexpected point - on the enemy's flanks."By directing
a force against the enemy's flank and rear its efficacy may
be much intensified," the Prussian continues.

Military history - like the history of markets - is a sad
chronicle of mob-thinking inspiring people to do moronic
things. Among the common stupidities is the direct attack
against fortified positions."The defensive form of war is
in itself stronger than the offensive," Clausewitz
believed. Military strategy should be focused not on how to
attack the enemy, but how to get the enemy to attack you.
The enemy then exhausts himself - like the Confederate army
at Gettysburg...or the French in the early days of WWI -
against the defensive barriers.

This principle is especially relevant in cases of guerilla
warfare. The guerilla knows he cannot beat his enemy in a
pitched battle, so he hits with limited resources at
carefully-selected targets - blowing up trains...shooting
archdukes...or driving commercial aircraft into skyscrapers
- inviting his opponent to strike back with massed force.

"The immediate object here is neither the conquest of the
enemy's territory nor the defeat of his armed force,"
Clausewitz observed,"but merely to do him damage in a
general way." If the god of war smiles on your enterprise,
the enemy is provoked to attack in force and then he is
worn out by"a gradual exhaustion of the physical powers
and of the will by the long
continuance of exertion."

That is what happened to the Soviets in Afghanistan. Could
it happen to U.S. forces too?

I don't know. But, occasionally, the gods go over to the
other side.

Your editor, American, and flaunting it...

Bill Bonner

P.S. I have nothing against people killing themselves for
what they believe in - especially if it is something
insane. But, given my preference, I'd rather die of natural
causes...and I'm not even very happy with that.

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• The God Of War / The Daily Reckoning (Nachtrag von Freitag) - - ELLI -, 24.02.2003, 17:31