The Daily Reckoning - Armistice Day (Bill Bonner)

verfasst von Firmian, 12.11.2003, 19:18

-->Armistice Day

The Daily Reckoning

Paris, France

Tuesday, 11 November 2003

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*** Residents of Squanderville - listen up!

*** Consumer debt rises at fastest pace since January... to
almost $2 trillion...

*** Remembering the Great War... the brave
Newfoundlanders... Short the tech corridor! Dulce et decorum
est... and more!

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

Oh, dear reader... it's not easy.

The press... the headlines... your neighbors... economists...
brokers... analysts... maybe even your spouse - almost
everyone in the entire financial system tells you not to
worry. There it is on the front page of USA Today:"New
data point to growth for jobs... Fed chief, public spot
reasons for optimism..."

There has been a"sea change," they say. Now, everyone
thinks that clear skies and favorable winds will take them
where they want to go - to effortless prosperity, gain with
no pain, a free lunch and dinner every day of the year.
Debt? Don't worry about it, they say. This economy is so
dynamic, so prosperous, so innovative - we'll work our way
out of debt, no sweat.

How could it be, dear reader? We reported yesterday that
debt was increasing 6 times faster than income. In the
month of September, consumer debt increased by $15.1
billion - bringing the total to $1.97 billion. How do you
work your way out of debt while adding $6 of new debt for
every new dollar of income? The nation already owes nearly
$3 trillion more to foreigners than foreigners owe to it.
And that amount grows by half a trillion each year, thanks
to a trade gap that is 10 times as large this year as it
was 10 years ago. As a percentage of GDP, American debt
levels already beat anything the world has ever seen - and
get larger every day. For nearly 100 years, the ratio of
debt to GDP was between 120% and 160%. Only in the 1929
bubble did it ever become really grotesque... peaking out at
260%. Guess what it is today? Over 300% and growing.

Yes, GDP growth was recently clocked at more than 7% per
year. Yes, productivity numbers came in at more than 8%.
And yes, the latest numbers appear to show employment
increasing.

But these bits of information are nothing more than random
noise... or worse, intentionally misleading drivel.
Employment numbers may be up - but compared to every past
recovery, they are pathetic. And next month might show
unemployment falling again. A close inspection would show
that the productivity numbers are as phony and meaningless
as an election campaign. And the GDP? A humbug... a
charlatan... a flim-flam... a false shuffle."You give me a
trillion dollars and I'll show you a good time too," said
Buffett of the current boom. Pump enough new credit and
federal spending into the system, in other words... and
something is bound to happen.

What has happened is that the flood of new money and Lazy-
Boy credit enabled Americans to make even bigger fools of
themselves - borrowing and spending money when they
desperately need to save it.

Buffett, writing in Fortune magazine, describes the buildup
in debt as though it were equivalent to selling the
nation's assets to foreigners."My reason for finally
putting my money where my mouth is [by buying foreign
currencies] is that our trade deficit has greatly worsened,
to the point that our country's 'net worth,' so to speak,
is now being transferred abroad at an alarming rate."

According to the Sage of the Plains, we live in
"Squanderville"... where we've been wasting our national
wealth year after year. Buffett estimates that the total
wealth of the nation is about $50 trillion. But year after
year, we spend more than we make and mortgage a little more
of our capital stock to foreigners. Already, 5% has moved
into foreign hands...

"More important," he writes,"is that foreign ownership of
our assets will grow at about $500 billion per year at the
present trade-deficit level, which means that the deficit
will be adding about one percentage point annually to
foreigners' net ownership of our national wealth."

For the moment, the Feds seem to have succeeded. They have
lured the citizens of Squanderville deeper into debt,
encouraging them to spend more money they don't have on
things they don't need.

But long can this go on? Doesn't each dollar of new credit
(debt) make the situation worse... adding to the bills that
someday, somehow - either by creditor or debtor - must be
paid?

What kind of 'recovery' is it when you are merely
squandering your wealth at a faster rate?

We are killjoys and spoilsports for even asking the
question.

Here's Eric with more news....

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

- A terrorist bombing in Saudi Arabia over the weekend
killed 17 people in Riyadh, while blasting a hole through
investor complacency on Wall Street. The Dow Jones
Industrial Average fell about 55 points yesterday to 9,755,
while the Nasdaq Composite dropped 1.5% to 1,942.

- For months, investors have been wallowing in the warm
fuzzies of a recovering economy, while ignoring the cold
realities of escalating violence in the Middle East. A
steady stream of bullish economic headlines here at home
has made it much easier to ignore the steady stream of
bearish headlines from 'over there.'

- But the bad-news headlines are becoming much more
difficult to ignore. Certainly, one or two random sniper
attacks in Iraq or Saudi Arabia won't reduce the S&P 500's
earnings. On the other hand, escalating terrorist activity
is hardly bullish... except for commodities.

- Yesterday, crude oil rose to a fresh three-week high of
$30.88 a barrel, while gold jumped $3.30 to $386.70 an
ounce."The commodity bull market is just getting started,
especially for oil," says John Myers, editor of Outstanding
Investments."Saudi Arabia is in big, big trouble. Within
the country's own borders, undeniable tensions are rising.
Not only do they threaten the future of the Royal House of
Saud, Saudi Arabia's ruling family... but they also
jeopardize the future of every nation that depends on Saudi
oil. Especially, of course, America.

-"Our future and the Saudis' is so intertwined, we will
HAVE to get involved. But in the midst of the crisis,
there's also opportunity. If I'm right, petroleum prices
will once again lock into a steep rising trend. Only this
time, it will be permanent..."

- We suspect that the stock market's"disillusionment
phase" is about to begin. The problems in the Middle East
are probably worse than they appear, while the strength of
the U.S. economy is probably less than it appears.

- Here in the States, the economy is registering some
impressive growth."[But] the obvious and important
tactical question is whether this newfound vigor is
sustainable," says the ever-bearish Stephen Roach."The
latest U.S. employment numbers are hardly in keeping with
the vigorous hiring-led upturns of the past. In the
recoveries of the mid-1970s and early 1980s, for example,
the great American job machine was generating new
employment of around 300,000 per month within six months
after cyclical upturns commenced... In this broader context,
job gains of 125,000 over the past two months remain
woefully deficient. Normally, at this stage of a cyclical
upturn - fully 23 months after the trough of a recession -
private-sector hiring is up about 5.5% (based on the
average of the six preceding business cycles). As of
October 2003, the private job count was still down nearly
1% from the level prevailing at the official cyclical
turning point in November 2001...

-"The detail behind the hiring improvement of the past
three months bears special attention," Roach continues.
"Fully 78% of the employment growth over the past three
months has been concentrated in three of the most sheltered
segments of the workforce - education and health services,
temporary staffing, and government. That hardly qualifies
as a full-fledged upturn in business hiring that lays the
groundwork for a classic cyclical revival... For a saving-
short, overly-indebted, post-bubble US economy, I continue
to think it's entirely premature to issue the all-clear
sign, there's a limit to the potential vigor of a U.S.-
centric global growth dynamic."... or at least, there ought
to be.

- Again, most investors don't seem to care. Job growth may
be anemic, but speculation is all the rage. The volatile
Nasdaq Composite has soared more than 75% during the past
year, while numerous penny stocks have become dollar
stocks.

- For more than a year, reckless speculation has excelled
over plain-vanilla forms of speculation... This too shall
change. During the disillusionment phase of stock market
cycles, caution excels over reckless speculation.

-"While past performance suggests that the current bull
market, which celebrated its first anniversary Oct. 10, is
still young, it also alerts investors to the sobering fact
that a market peak may be looming," USA Today reports."If
this bull market turns out to be a short-term rise in a
longer-term bear market - often called a"cyclical" bull
market - history says time might be running out on the
current uptrend. Ned Davis, found that the 17 cyclical bull
markets since 1900 have lasted 371 days. The current bull
market is already 394 days old."
Let's keep the hearse nearby.

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

Bill Bonner, back in Paris...

*** For some reason, many of the fastest-growing, fastest
talking communications tech companies in the nation have
installed themselves in the techland paradise between
Washington DC and Dulles Airport. Making our way to the
airport last night, we passed Computer Associates, Oracle,
Nextel, Juniper and dozens of others - many of the
companies that blew up so spectacularly in 2000-2001... and
now have ballooned again.

We don't know one from another... and have done no
research... but our guess is that you could sell short any
company between Dulles and the Beltway... except for maybe
the Days Inn... and turn a nice profit.

*** Today is Remembrance Day in Canada... Veteran's Day in
the U.S... and Armistice Day in France. At the 11th hour of
the 11th day of the 11th month the bells will toll
throughout France - remembering the end of the nation's
most costly war, which ended on this day in 1918.

It was on this day, too, that Wilfred Owen's mother
received a telegram informing her that her son had been
killed. Coming as it did on the day the war ended, the news
must have brought more than just grief."What was the
point?" she may have wondered.

Wilfred Owen had wondered, too. His poetry mocked the glory
of war. He described soldiers who had been gassed as
'gargling' their way to death from"froth-corrupted lungs."

"You would not tell with such high zest
To children ardent for some desperate glory
The old lie: Dulce et Decorum est
Pro patria mori."

Owen saw many men die; it was neither sweet nor glorious,
he observed, but ghastly.

Still, men seem to want to kill one another from time to
time. In the Great War, millions died. You can ask people
today why they died, and no one can give you a good reason.
No nation had anything to gain... and none gained a thing.
But the dead men were no less dead for want of a good
reason.

"Don't forget to spend a moment on Remembrance Day," the
Canadian Broadcasting Company reminded us on Sunday,"to
recall those many Canadians who died protecting our liberty
and our country."

Here at the Daily reckoning, we believe in honoring the
dead, too. But not with humbug. Canada had even less stake
in the war than the major combatants. No matter which way
the war went, it would have made little difference in the
far north. But we appreciate bravery for its own sake -
even if it is in an absurd cause.

One of the last Canadian WWI veterans died last week at 106
years old. There are only 10 left. (In France, there were
36 still with a pulse as of last week.) But the old
soldiers are dying fast. Soon there will none left.

Canadian soldiers were among the best colonial troops... and
the most likely to be killed. If dying in war is sweet, the
Newfoundlanders were particularly blessed. One out of 4 of
the 6,000 men of the Newfoundland Regiment never returned
home. But"nothing matched the toll of the massacre at
Beaumont-Hamel on the western front on July 1, 1916,"
reports the Toronto Globe and Mail."About 800
Newfoundlanders charged out of their trenches into the
teeth of German machine-gunfire. They had been told that
the Germans would be weakened by intense bombardment, that
the lethal strings of thick barbed wire strewn across no
man's land would be gone and that another regiment would
join them. None of it was true. The next morning, only 68
members of the regiment answered the roll call.

"One eyewitness said the Newfoundlanders advanced into the
hail of bullets with their chins tucked into their necks,
as they might weather an ocean storm."

Then, the old lie swallowed them up, like a tempest. More
below...

*** Maria is a hit in Germany. Two months in a row, she has
appeared as the cover girl of a German magazine called
Madame. But she is giving up her modeling career to become
an actress. Yesterday, she went for an important audition -
to determine whether she will be admitted to London's Royal
Academy of Dramatic Arts. We'll find out later today how it
went...

*** Her father, it seems, is also turning into somewhat of
an international hit. We have just received an offer from a
German publisher to translate our book, Financial Reckoning
Day, into German... we are 'tracking' on the bestseller list
at the National Post in Canada... and we're told by our
publishers in New York that their offices in Australia and
Singapore are out of stock.

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

The Daily Reckoning Presents: A DR Classique, written four
years ago today, in honor of the departed.


ARMISTICE DAY
by Bill Bonner

"Like a wet, furry ball they plucked me up..."

- Rupert Brooke

In August 1914, millions of young men began putting on
uniforms. These wet, furry balls were plucked from towns
all over Europe... put on trains and sent towards the
fighting. Back home, mothers, fathers and bar owners
unrolled maps so they could follow the progress of the men
and boys they loved... and trace, with their fingers, the
glory and gravity of war.

I found one of those maps... with the front lines as they
were in 1916 still indicated... rolled up in the attic of
our house in France. I looked at it and wondered what
people must have thought... and how horrified they must have
been at what happened.

It was a war unlike any other the world had seen. Aging
generals... looked to the lessons of the American war
between the states... or the Franco-Prussian war of
1870... for clues as to how the war might proceed. But there
were no precedents for what was to happen. It was a new era
in warfare.

People were already familiar with the promise of the
machine age. They had seen it coming, developing, building
for a long time. They had even changed the language they
used to reflect this new understanding of how things
worked. In his book,"Devil Take the Hindmost," Edward
Chancellor recalls how the railway investment mania had
caused people to talk about"getting up steam" or"heading
down the track" or"being on the right track". All of these
new metaphors would have been mysteriously nonsensical
prior to the Industrial Age. The new technology had changed
the way people thought... and the way they spoke.

World War I showed the world that the new paradigm had a
deadly power beyond what anyone expected.

At the outbreak of the war, German forces followed von
Schlieffen's plan. They wheeled from the north and drove
the French army before them. Soon the French were
retreating down the Marne Valley near Paris. And it looked
as though the Germans would soon be victorious.

The German generals believed the French were broken.
Encouraged, General von Kluck departed from the plain;
instead of taking Paris, he decided to chase the French
army, retreating adjacent to the city, in hopes of
destroying it completely.

But there was something odd... there were relatively few
prisoners. An army that is breaking up usually throws off
lots of prisoners.

As it turned out, the French army had not been beaten. It
was retreating in good order. And when the old French
general, Galieni, saw what was happening... the German
troops moving down the Marne only a few miles from
Paris... he uttered the famous remark,"Gentlemen, they
offer us their flank."

Galieni attacked. The Germans were beaten back and the war
became a trench-war nightmare of machine guns, mustard gas,
barbed wire and artillery. Every day,"The Times" (of
London) printed a list of casualties. When the generals in
London issued their orders for an advance... the list grew.
During the battle of the Somme, for example, there were
pages and pages of names.

By the time the United States entered the war, the poet
Rupert Brooke was already dead, and the life expectancy for
a soldier on the front lines was just 21 days.

One by one, the people back at home got the news... the
telegrams... the letters. The church bells rang. The black
cloth came out. And, one by one, the maps were rolled up.
Fingers forgot the maps and clutched nervously at crosses
and cigarettes. There was no glory left... just tears.

In the small villages of France hardly a family was spared.
The names on the monument in the center of town... to"Nos
Heros... Mort Pour La France" record almost every family
name we know - Bremeau, Brule, Lardeau, Moreau, Moliere,
Demazeau, Thollet... the list goes on and on. There was a
bull market in death that did not end until November 11,
1918... at 11 A.M.
For years after... at 11 A.M., the bells tolled, and even in
America, people stood silently... recalling the terrible
toll of four years of war. Now it is almost forgotten.

We have a new paradigm now. And a new war. The new
technology has already changed the language we use... and
is changing, like the railroads, the world we live in. We
think differently... using the metaphor of free- wheeling,
fast-moving, networked technology to understand how the
world works.

We are fascinated by the new technology... We believe it
will help us win wars with few casualties, as well as
create vast new wealth... and a quality of life never before
possible.

And yet, we are still wet, furry balls, too.

I will observe a moment of silence at 11 A.M.


Bill Bonner

P.S. The effects of WWI lasted a long, long time. In the
1980s, my father got a small inheritance from his Uncle
Albert."Uncle Albert?" I remember my father saying."Who's
Uncle Albert?" The man in question was indeed an
uncle... but he had been forgotten for many years. A soldier
in WWI, Albert had suffered a brain injury from an
exploding bomb... and never recovered. He spent his entire
adult life in a military hospital.

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gesamter Thread:

• The Daily Reckoning - Armistice Day (Bill Bonner) - Firmian, 12.11.2003, 19:18
  • Der Tag des Waffenstillstands - Firmian, 12.11.2003, 19:20
  • Re: The Daily Reckoning - hier auf deutsch - geza, 12.11.2003, 19:30
    • Re: The Daily Reckoning - hier auf deutsch - sorry - zu spät (owT) - geza, 12.11.2003, 19:32