The Daily Reckoning - Beyond Nietzsche (Bill Bonner)

verfasst von Firmian, 17.11.2003, 19:19

-->Beyond Nietzsche

The Daily Reckoning

London, England

Friday, 14 November 2003

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

*** How much ruin is there in America? We're going to find
out...

*** Consumers still borrowing... and spending. Debt
increasing by 1/4 of GDP annually...

*** Dulce et decorum est... protesters...

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

"There is a lot of ruin in a country," said Lord Keynes.

How much ruin is there in America? That's what we are
finding out.

Each day, more and more of it is sold off, mortgaged,
wasted and eaten up. The trade deficit widened again in the
most recent period. Consumers are still borrowing - at a
rate of nearly $1 Trillion per year. Add that together with
corporate and government borrowing, says Richard Russell,
and you get about $2.5 trillion in total new debt added
this year. The current account deficit alone adds $1
million per minute to America's debt - with no end in
sight.

The Land of the Free has become the Land of the Free
Lunch... where people will go along with almost anything as
long as the cash and credit flow, and as long as they're
able to make the monthly payment. Thus does the nation sink
into ruin at a rate equal to a quarter of the entire
national GDP each year.

"This sputtering economy requires an ongoing stream of new
stimulus just in order to keep it afloat," writes Jim
Puplava."Compared to past recoveries, economic growth has
been half of what it has averaged over the last half
century.

"What makes this situation more worrisome is that it has
taken 13 rate cuts, three tax cuts, massive government
deficits, and record growth in money and credit just to
keep the economy growing. In economic terms, it is the
largest fiscal and monetary stimulus the world has ever
seen. What does the Fed have to show for its efforts other
than multiple bubbles and the return of speculation to the
financial markets?"

Any other country would have already suffered a run on its
currency. Investors would have dumped its bonds and sought
refuge elsewhere. In the time of the gold standard, even
America could not have gotten away with it. Foreign dollar
holders would have lined up at the 'gold window' at the
Treasury and asked to have their paper redeemed in gold.

For decades, America kept its promise - it paid off foreign
dollar holders at the rate of one ounce of gold for every
41 dollars tendered. But now, the gold window is shut. The
only way to trade dollars for gold is to go onto the open
market - where, at last count, you would have to put up
more than 390 dollars for an ounce of gold.

Woe! Woe! Woe! America is not sinking into ruin... it is
diving into it. Headfirst. Recklessly. Wantonly.

There is nothing we can do about it, of course. Nature must
have Her way. Night must follow day. An open can of beer
must go stale. A fool and his money must be separated.

But what a wonderful world it is."Find the trend whose
premise is false," says George Soros,"and bet against it."
Rarely have so many people believed so much that wasn't so.
Their premise is that they can borrow and spend
forever... without every having to settle up. They believe
there is no limit to America's ruin.

In that, we think they are wrong. The premise is false. Not
that we know what will happen. But we know what won't
happen. There is a lot of ruin in a nation. But not an
infinite amount.

Over to Addison, with more news:

-----------

Addison Wiggin, taking cover in Paris...

- Look out for falling prices! Stock prices, that is... Wal-
Mart, the world's largest retailer and therefore a
bellwether for retail stocks, reported less-than-stellar
3rd-quarter earnings yesterday. Investors took advantage of
the lowering price of the stock... and sold even more of it.
The stock fell 4% and helped the Dow put in a 10-point
loss... to close at 9,838.

- The Nasdaq Composite, S&P 500 and Russell 2000 index of
small-cap stocks all barely budged for the day, each
falling by a fraction, closing at 1,967, 1,058 and 541
respectively.

- With the stock market asleep at the wheel, the financial
media turned its attention to the big macro stories we so
like to comment on here at the Daily Reckoning: Gold
pushing $400... the dollar dangerously close to new lows
against the euro... the trade deficit widening to a record
$41.3 billion in September... the Fed re-confirming they'll
keep rates low for a"considerable time"... and China
coughing up $1.7 billion dollars for some U.S.
airplanes... all of these stories being related. Naturally.

- Our favorite story, for the first time in about 20 years,
is dangerously close to becoming everyone's favorite:
ggggoooold!

-"Everybody is waiting for the $400 level to be tested," a
gold trader in Germany told Reuter's."Together with the
euro, U.S. dollar, renewed fears about terror attacks and a
very bullish chart pattern, the [$400] level does not
appear to be too difficult. Reuters reports in the COMEX
options trade there has been significant interest in $400
December calls on gold... which are basically bets that
that's where the gold price will be by December.

- On Wednesday, gold topped $397... Yesterday, the price
inched its way ever closer, reaching an intra-day high of
$398.40 - its highest point since Bill Clinton was first
reviewing applications for future White House interns. But
then, alas, the yellow metal lost its nerve and demurely
shed 70 cents... dropping wistfully to the floor at $394.30.

- The world's 15 largest gold mining stocks, as measured by
the Gold Bugs Index, are up 489% in the last three years.
"That 489% moon shot," writes our friend Steve Sjuggerud in
his weekly address to the students of the Investment U e-
letter,"is just one indicator of gold's shining
performance - to say nothing of its even brighter future.
Take a look at these nuggets: the price of gold itself is
up over 50% from its lows in 1999; graded gold coins are up
70% in the last three years; and futures and options on
gold have soared..."

- The story has even made its way to the mainstream pages
of USA Today's money section."Investors snap up gold as
dollar sags," reads the headline. Gold soars when the
dollar weakens, is the gist of their original and piercing
argument."Uncertainty about the economic recovery"..."Low
interest rates"... and"perception" are blamed for the
dollar's weakness.

- Traders believe that the Bush administration wants the
dollar weaker to help bolster manufacturing and exports
going into the election year. The smart money is beginning
to chase higher returns than the piddly 1% it can get on
U.S. Treasuries... thereby moving out of dollar-based
assets. Many traders believe the third-quarter GDP growth
numbers are smoke and mirrors... a mirage. All of which, say
the writers at McPaper, provide good reasons to own gold...

- But, according to Dr. Sjuggerud, the biggest reason to
buy gold right now is:"it's super cheap." Gold is
cheap... stocks are expensive."In January of 1980, both the
Dow and the price of gold were at the same level: 800. Now,
nearly 24 years later, the Dow is near 10,000, while gold
is less than half its January 1980 value." This is a trend
which is bound to reverse.

- The dollar, which fell back to 1.17 against the euro over
the course of this week, is headed for its worst week
against the euro in more than six months. The greenback has
now fallen against 14 of 16 major currencies in the past
week, according to a Bloomberg report."The top four
currencies year-to-date versus the dollar," writes Chuck
Butler in the Daily Pfennig, a daily e-letter he authors
for the Everbank World Currency unit,"are, in order, the
Aussie, South Africa (up 28%), Canada and New Zealand." Not
coincidentally, these are all countries with commodities-
based economies... and a strong predilection for gold.

- There's a slew of economic reports coming out today... not
least of which are Retail Sales... the Producer Price
Index... Industrial Production and the University of
Michigan's Consumer Confidence report. Each one of these
reports will bring a clue as to how much smoke and how many
mirrors will be used in concocting the witches' brew of
economic growth in the U.S. economy for the 4th
quarter... There will be lots to cover in the Daily
Reckoning's Weekend Edition. Look for it tomorrow, with
Eric Fry...

-----------

Bill Bonner, back in London:

***"We must be the most idiotic investors in the whole
blooming world," we agreed in the Daily Reckoning office
yesterday. We have been expecting a rise in the price of
gold. We have seen it coming for 3 years. As forecasters,
we have done well. But as investors, we are zeros. We
nibble at gold... and wait for it to drop before we take a
bigger bite. And each time, it doesn't drop... it goes
up... farther away from our buying target. Then, we move the
target up....but again, the yellow metal bobs up to a
higher level... leaving us with our mouths open and are
hearts sunk.

***"Americans seem to be getting ready to pull out of
Iraq... as soon as possible," was the comment on British TV
last night.

Meanwhile, on the street, demonstrators are gathering from
all over the kingdom... to protest. Last night, we saw one
of them with a Vietnam-era jacket."I know I'm going to
heaven, because I've served my time in Hell," said the
embroidered message on the back.

George W. Bush is to come to London next week. The papers
seem to know exactly what he is going to say:"Your sons
die in noble cause," is the TIMES headline guess. It is the
'old lie,' as Wilfred Owen put it,"Dulce et decorum
est..."

*** And here's a little item from the Times of London:

"Villagers in Fiji wept yesterday as they apologized to
descendants of the Rev. Thomas Baker for eating the British
missionary 136 years ago." They said they wouldn't do it
again.

"Humans," says the Times,"were called 'long pigs' because
their flesh was found to be similar to pork."

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

The Daily Reckoning PRESENTS: A DR Classique, originally
aired on 9 Aril 2002. This essay inspired themes found in
Chapter 6 of Financial Reckoning Day.


BEYOND NIETZSCHE
By Bill Bonner

We humans flatter ourselves. We believe we are reasonable
people. So successful are we at applying reason to the
things close at hand that we cannot resist applying the
same process to things far afield about which we haven't a
clue.

We try to make sense of the events around us by describing
the"reasons" they happen... and then we
extrapolate... looking logically forward to what those
reasons will produce next.

From an investor's point of view, the events we see coming
are uninteresting. For there is little profit in them. The
company that earns 20 cents per share every year, year in
and year out, for an entire century, offers few surprises.
Investors rarely get carried away with enthusiasm or
despair.

And yet, there are times to buy the shares and times to
sell them. For the world does not stand still. Beneath the
obvious and predictable trends are less obvious ones... some
that seem wholly unpredictable, and yet have patterns of
their own. It is these trends that produce the tragic
surprises, the comic moments and the pathetic scenes that
inspire artists and historians.

Here at the Daily Reckoning, it is these latter patterns
that interest us. Not merely because they are more
entertaining, but also because they are most profitable. It
is the unexpected events, after all, which are most mis-
priced. It is the unseen menace which causes the most
damage. But seeing the unseen and expecting the unexpected
isn't easy. Even here at the Daily Reckoning, we have our
hits and misses.

Still, we go about our work with the patience of the proto-
economists - the two Adams, Adam Smith and Adam Ferguson,
the Scottish moral philosophers of the 18th century. We do
not try to predict the future, but only to understand the
nature of man. We study him as if he were a bug or a maybe
a honey bear - adorable, dangerous, and moronic all at once
- and try to guess about what he will do next.

What is unique - more or less - about man is his ability to
reason. Unlike the tse-tse fly or the wallabee, man can put
2 and 2 together. Up close, working with things that make
sense to him, he comes up with 4 more often than not. But,
when he applies these same reasoning
talents... collectively... using compound abstractions... to
other people's business - such as how to achieve peace in
the Mideast or a boom on Wall Street - 2 somehow becomes
5.245 or a swamp in Indonesia... and the whole equation soon
degrades into complete nonsense.

Reason, as it turns out, is man's greatest strength. It is,
alas, his greatest weakness.

Nietzsche identified two different kinds of knowledge.
There are the things you know from personal experience and
observation, which he called"erfahrung." There are also
the abstractions you think you know - the kind of thing
that is reported in the paper and discussed on the
editorial pages - which he called"wissen."

Today, continuing in the Nietzschean tradition of erudition
and the Daily Reckoning tradition of pseudo-
intellectualism, we expand Nietzsche's insight. Not only
are there two forms of knowledge, there are also two
entirely different ways of reasoning.

The first is the type of reasoning you do with things you
know about. If you see someone climb too far out on the
limb of a tree, for example, and see the limb break... you
might reasonably conclude that the same thing could happen
to you in similar circumstances. We'll call this kind of
thinking"schwer uberlegen."

But if you turn your thoughts to the WAT (War Against
Terror) or the next election, you are using a different
thinking process altogether. Instead of thinking about
things you know... you are thinking about things you cannot
know and cannot even explain. We call this type of thinking
"leicht denken." For example, yesterday's International
Herald Tribune offered an editorial comment from Zbigniew
Brzezinski, entitled"Time for America to intervene."
Immediately, we are in a different world.

America cannot intervene, because the nation exists only as
an abstraction. An American soldier can shoot someone... an
American plane can drop a bomb... but America itself is much
too big. Whatever"America" does will only be done by a
tiny percentage of the whole thing... most Americans will
play no role, some will be opposed... and more than a few
will be completely unaware of what is going on.

"The U.S. response... has to be guided by a strategic
awareness of all the interests involved..."

Who is Brzezinski kidding? Take America's interests, for
example. What are they? Who can say? Americans have various
interests - relatives, vacations, business connections -
but they are not necessarily the same.

You could say, broadly, that"America has an interest in
peace" in the Mideast. But so what? At what price? Under
what conditions? Even if it were true... there is no way of
knowing what actions might bring it about.

But people take this kind of thinking seriously. They think
they can understand big issues as well as small ones and
manipulate world events as though they were rubbing two
sticks together.

"Germany must pay..." voiced an editorial from 1919 in Le
Temps."The enemy must pay for everything... that's the
fundamental principle." Philippe Simonnot continues his
long slog through the errors of economists during the 20th
century. At the end of WWI arose the third big one - the
illusion that Germany would, or could, pay for the huge
losses incurred by the allies during the course of the
world's most costly war. All the combatants had borrowed
heavily to finance the war. Now, they wanted Germany to pay
off the debts.

What would it pay with? Germany was falling apart. Her
economy was ruined. She had borrowed colossal sums to pay
for the war - an amount equal to 3 times her GDP! German
political and social structures were tottering. It looked,
in fact, as though the country might be on the verge of
revolution.

Besides, as Keynes pointed out, the cease fire was achieved
by explicitly promising (he called them"sacred
engagements") Germany that she wouldn't have to pay more
than her fair share of the war's costs. But the argument
fell on deaf ears... except those of the young Nazis, who
used it to show that Germany had been stabbed in the back.

Asked his opinion of the war debts, Calvin Coolidge reduced
the matter to a simple and ineluctable logic:"They
borrowed the money, yes or no?"

Of course, Germany would never pay the war debts. Of the
152 billion marks demanded, only 23 billion were ever paid.
And even this modest amount came with a very high price tag
-"the crisis of '29 was engendered, in part, by the
financial illusions of 1919," Simonnot says.

And so, Norman Angell was almost right, after all. War does
not pay.

But from the beginning of the war until its end, leicht
denken helped people believe what they wanted to believe -
that there would be no war, that it would be short, that
the costs would be borne by someone else. World War I took
a course that hardly a single person in the whole world
expected. And that no one - save perhaps some lunatic
fringe revolutionaries - would have wished.

How is it possible, dear reader? The world's finest minds -
millions of them - focused on an issue of life-and-death
importance... and still, barely a solitary person was able
to understand or even predict it.

What to make of it... when the result of their aggregated
efforts is the biggest catastrophe ever to befall humanity?
For WWI was no natural catastrophe. No Vesuvius buried
people in ash. Instead, they were buried by millions in the
mud of Europe by cannon and machine gun fire. No freak
storm... no asteroid hit the planet... no drought or
pestilence. Still, by the war's end, millions lay dead.

A third of France's capital was used up. A third of
Britain's. A fifth of Germany's. And then, mankind went
back to its business... on its way to its next big mistake.

Your editor, on his way to his next big mistake...


Bill Bonner

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• The Daily Reckoning - Beyond Nietzsche (Bill Bonner) - Firmian, 17.11.2003, 19:19
  • Re: Deutsche Fassung - Firmian, 17.11.2003, 19:21