The Daily Reckoning - The Ghost Of Christmas Past (Bill Bonner)

verfasst von Firmian, 25.12.2003, 16:55

-->The Ghost Of Christmas Past

The Daily Reckoning

Ouzilly, France

Tuesday, 23 December 2003


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

*** Things, things, things - how things get in the way of
wealth

*** Dollar hits new record lows... stocks go up!

*** Watch out, gold could go down! We hope so... High alert
against Latin... Precious metals funds up 64%... and more!

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

There seems to be some natural cycle to the way societies,
and even families, think about money - not seasonal, as
Eric explains below, but epochal. It is not so much an
economic cycle... as a moral one.

At first, early in the cycle of wealth building, people are
careful. They work hard and save as much as possible.
Americans once saved 20% of their incomes. Even after WWII,
they saved more than 10%. Now, in the degenerate phase of
American capitalism, the figure for net national saving is
less than 1%. The Chinese, apparently just setting out on
the road to wealth, are said to save as much as 30%.

As time goes by, people tend to forget that hard work and
self-sacrifice is the way to build wealth. They confuse
wealth with what money will buy... and begin to think they
are wealthy when they are not building wealth, but
consuming it. A man drives a big car, lives in a big house,
eats at fancy restaurants, and enjoys frequent vacations
and big screen TVs - he is said to be a wealthy man. In
fact, he may not have a spare dime. Instead of conserving
and accumulating riches... he may be using every penny that
comes his way - and more!

We mentioned yesterday that the 'recovery' was a double-
fraud. Now, we add another fraud. People have come to
believe that if they are able to shop, they must be rich.
They think that THINGS mean prosperity.. As long as they
can bring THINGS home, they must be rich.

But a man's possessions - and all his expensive habits -
are not wealth at all; they are anti-wealth... obstacles to
wealth... handicaps that prevent him from actually getting
anywhere. Each one takes money away from his savings, and
out of his wealth-building capital. And each one takes time
and maintenance... distracting him from his goals and
burdening him with on-going costs. Late in the cycle,
however, no one seems to notice. They no longer know what
wealth is; all they see is THINGS.

Typically, following a wintry recession, there is 'pent-up'
demand for things that fuel a recovery. Consumers have put
off spending, preferring to pay off debts and build
savings. So, when the first crocuses of a spring recovery
appear, the consumer is ready, willing and able to buy.

But rather than give the consumer economy a breather during
the recession of 2001... Alan Greenspan and George Bush
turned every knob and pulled every lever they could get
their hands on to keep the big spending machine running at
peak power.

With interest rates at Eisenhower levels... and government
spending increasing at levels reminiscent of the New Deal
or Great Society (despite tax cuts)... the machine whirred
and belched. Millions of jobs were lost. Investment
spending by businesses collapsed. But the consumers didn't
care. They kept on spending, buying THINGS and believing
themselves wealthy. The consumer had long since forgotten
how to save; he had forgotten what real wealth is. As long
as he could make the monthly payment, he asked no
questions.

Now, economists wonder what's wrong with the 'recovery,' as
if you could have a proper recovery without ever having
something to recover from. There is no real pent-up demand;
consumers have saved no money. So, they can only continue
to spend by borrowing... that is, by making a bad situation
worse, buying more THINGS on credit, bringing more
impedimentia... more anti-wealth... into their lives.

The day will come when the dollar standard will have
collapsed... when Americans will find no more money and no
more credit to buy the things they want. Then, at last, the
recession will become real... and they will rediscover the
virtues of savings... and real wealth. We cross our
fingers... and wait.

Eric... more news?

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

Eric Fry from the islet of Manhattan...

- Sellers swarmed around the dollar yesterday like tourists
around the Christmas tree at Rockefeller Center. Rarely has
the world observed a sight as dazzling and awe-
inspiring... as the dollar's collapse. For seven straight
weeks the dollar has tumbled against the euro. Yesterday,
the dollar slumped another 0.3% to $1.241 per euro, which
boosted the gold price a bit. The yellow metal gained $1.10
to $410.45. Despite the dollar's woes, the Dow jumped 60
points to 10,338 - a new 19-month high. The Nasdaq added 5
points to 1,956.

- Like the majestic, 79-foot tall Norway spruce towering
above Rockefeller Plaza, the dollar's slide is awe-
inspiring. But unlike the famous Christmas tree, the
dollar's collapse is not a seasonal phenomenon; it's
epochal. The greenback's century of monetary hegemony may
be drawing to a close...

- But perhaps we are being overly melodramatic. Perhaps
foreign investors and central banks will continue shipping
cratefuls of euros, yuan and yen to our shores in exchange
for ever-larger cratefuls of dollars. And maybe they will
also continue buying billions of dollars worth of Treasury
bonds every month, even though they receive less than 5%
interest per year in a currency that is falling about 15%
per year... Or maybe foreign investors will tire of their
financial masochism.

-"There are rumors on the market," the Japan Times
reports,"that China... is turning to the euro for part of
its foreign currency reserves... The markets are
worried... because of the worst-case scenario - that funds
could start flowing out of the U.S."

- Americans have become so accustomed to the daily miracle
of receiving $2 billion dollars in fresh financing from
foreigners every day that the miraculous seems utterly
ordinary. Unfortunately, a merely ordinary supply of
foreign capital would not be sufficient to support the
prevailing dollar exchange rates. In other words, the
dollar's value would continue to fall.

-"Few are expecting such a doomsday scenario," Reuters
chimes in,"but with the dollar at a seven-year low against
the Swiss Franc, an 11-year low against the British Pound
and the euro enjoying an 18 percent gain this year,
investors are hoping that the dollar is closer to the
bottom than not."

- The dollar has been sliding - and gold has been rallying
- for so many months now that buying gold is no longer a
contrarian investment idea; it's almost mainstream... Behold
the arrival of the contra-contrarians: A category of
investors who love gold for the long run, but expect it to
fall over the short run.

-"The same factors that lead us to believe a correction is
overdue in the euro, have us worried about a similar move
in gold," says one anonymous commodity analyst.
"Overwhelming bullish sentiment and positive press have us
worried about the short term. Does that mean we are no
longer bullish? No. We remain as long-term bullish as we
ever were and consequently, would not recommend completely
abandoning long-term positions.

-"Thin holiday markets have the potential to exacerbate
any corrective down moves," says the analyst."Like the
euro, gold can correct a long way without fundamentally
damaging its long-term uptrend. $370 per ounce is not out
of the realm of possibility. Recent rumors that one or
another central bank may begin selling the Midas metal
again probably won't help matters either."

- It's true, rumors of renewed central bank gold sales next
year are starting to surface. But at this point, they are
merely rumors. As for the euro, investor sentiment is
beginning to shift in favor of the dollar. Some of the
short-term - repeat, SHORT-term - sentiment indicators are
showing that the dollar is overdue for a rally.

- Figures from the Commodity Futures Trading Commission
show that the large speculators, also known as the"dumb
money" have amassed some very large bullish bets on the
dollar. The difference in the number of wagers by large
speculators that the euro would rise minus bets that it
would fall - so-called net longs - was about 34,800 in the
week ended Tuesday, the highest since May 2002.

- Net-net, if we were to follow the contra-contrarians,
we'd sell euros and gold for a short-term trade, and try to
buy them back in a few weeks for a long-term investment. On
the other hand, if we were to trust in the long-term dollar
trend - down - and in the long-term gold trend - up - we'd
forget trying to trade"tick-for-tick" and buy gold on
weakness. Lastly, if we were to follow the common wisdom on
Wall Street, we'd sell gold now, buy Intel and hold on
until we reach Dow 36,000... You decide.

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

Bill Bonner, back in the French countryside...

*** Our friend Scott Burns writes that the average precious
metal fund rose 64% over the past 12 months. Over the last
3 years, precious metal funds have gone up 44% each year -
by far the most profitable sector.

Scott points out that a simple 10% position in a precious
metals fund - an insurance position - would have protected
the holder from losses in stocks and bonds over the last 3
years. Instead of suffering a 6% loss from pure stocks and
bonds over the 3 year period, an investor would have gained
4%.

*** Our little choir has only 7 members, of whom almost
half cannot sing at all. It lost another member the other
day, when Jacques walked out.

"If you're going to sing in Latin," he remarked."I'm
leaving." And he did.

French catholics are on 'high alert' against creeping
latinism. They regard it as retrograde, elitist, bourgeois
and 'exclusionary.' Of course, that's just what we like
about it. We only wish the priests would give their sermons
in Latin. We wouldn't understand a word, which would
usually be a big improvement.

*** Everybody knows it is a safer world - now that Saddam
is out of his rat hole and behind bars. And now at least
two spokes on the Axel of Evil - Afghanistan and Iraq -
have been shaved and rehabilitated. But back in the
homeland, people seem to have the jitters. In a real war,
the authorities try to calm the population, assuring people
that there is nothing to worry about. The last thing they
want are panicky crowds getting in the way. In Germany, at
the end of WWII, for example, the authorities insisted that
there was nothing to fear; even as the Russian army swarmed
across the Oder on the Eastern frontier, raping and
murdering thousands along the way.

But this 'war on terror' is different. The risk to the
average American of getting killed in a terror attack seems
vanishingly small. Still, Americans are supposed to be on
'high alert' against the threat.

*** The following appeared on a French website under the
heading 'Land of the Free.'

Coffee, Tea or Handcuffs?

An Australian journalist gets a taste of Department of
Homeland Security hospitality

by Steven Mikulan
LA Weekly

Sue Smethurst enjoys traveling. It's one of the things
about my job that I absolutely love," says the 30-year-old
Australian, who works as an associate editor for the
women's magazine New Idea. She doesn't even mind flying.
"It's one of the great pleasures of the world to be able to
turn off your cell phone and be where no one can annoy
you."

But when her Qantas flight from Melbourne, Australia,
touched down at LAX around 8 a.m. on Friday, November 14,
Smethurst found herself nightmarishly annoyed - by the
Department of Homeland Security (DHS). Smethurst was
supposed to continue to New York and on Monday interview
singer Olivia Newton-John. Smethurst had honeymooned in
Manhattan last year and was looking forward to a long, free
weekend having a good walk through Central Park, getting a
decent bowl of chicken soup and going Christmas shopping -
all those gorgeous New York things."

Better still, her six-hour layover in L.A. would allow her
to have lunch with her American literary agent."I had a
room booked at the Airport Hilton, where I was going to my
leave bags, shower and get a cup of coffee."

But first she had to clear LAX's immigration check-in,
which she reached after 20 minutes in line. An officer from
the DHS's newly minted Customs and Border Protection (CBP)
bureau studied the traveler's declaration form Smethurst
had filled out on the plane.

"Oh, you're a journalist," he noted."What are you here
for?"

"I'm interviewing Olivia Newton-John," Smethurst replied.

"That's nice," the official said, impressed."What's the
article about?"

"Breast cancer."

When Smethurst tells me this, she pauses and adds,"I
thought that last question was a little odd, but figured
everything's different now in America and it was fine."
What she didn't know was that her assignment and travel
plans, along with the chicken soup and stroll through
Central Park, had been terminated the moment she confirmed
she was a journalist.

Fourteen hours later, she was escorted by three armed
guards onto the 11 p.m. Qantas flight home.

"I want to say right off that I adore America and love
Americans," Smethurst says. Still, she remains perplexed
and emotionally bruised by what followed in Terminal Four.
The CBP agent who read Smethurst's traveler's questionnaire
took her to a secondary inspection area 30 feet away and
told her to wait, then left for half an hour. He returned
with additional uniformed staff who, professionally and
pleasantly enough, asked more questions.

What sort of stories did she write? What kind of magazine
was New Idea?

Where was it published? What was its circulation? Does it
print politically sensitive articles? When would her
interview appear? Who would be reading it?

"I laughed," Smethurst recalls, because we're a cross
between Good Housekeeping and People magazine."The most
political thing we'd likely print was Laura Bush's
horoscope."

The polite interrogation continued. Who was her father? His
occupation? Her mother's maiden name and occupation? What
were their dates of birth, where did they live?

The agents gravely nodded at Smethurst's replies and left
once more, promising to return. When they came back half an
hour later, one of the officers offered Smethurst a cup of
airport coffee.

"I thought at that stage something was quite wrong,"
Smethurst says,"so I asked the man with the coffee if
there was some problem."

"I will tell you when there's a problem," he abruptly
snapped, according to Smethurst. Then he pointed to a
nearby sign:

Your Silence Is Appreciated

At about noon, CBP informed Smethurst she would be denied
entrée into the United States: While Australian tourists
visiting the United States are visa-waived for 90 days,
working journalists need a special I-Visa, which Smethurst
had not been aware of and did not possess. She had, after
all, flown into LAX on the same passport eight times
previously without incident. Now she was being asked to
raise her right hand and swear that her answers had been
truthful, then was fingerprinted and photographed - every
time she comes to America, her swiped passport will bring
up this documentation of her rejection. As Smethurst's
inked fingers were rolled onto the government form, she
noticed its heading:

"Criminal."

Eventually she was escorted under armed guard to a pay
phone to make the call she vainly believed would clear
everything up and allow her to stay in the country. Then,
while conversations were occurring among her husband,
editor and consul officers in L.A., Smethurst's baggage was
thoroughly searched and a makeup bag temporarily
confiscated. She was then handcuffed and marched through
the airport to another terminal, where LAX's main detention
center is located.

After the phone call she pleaded for food, having now been
away from home nearly 24 hours. Smethurst offered money for
a snack to be brought to her - French fries, potato chips,
anything - but was refused.

"Would it be possible to get a cup of tea?" she asked. This
too was denied, because it could be used as a weapon -
someone, it was explained, had recently thrown hot coffee
into an agent's face. When she requested a cup of cold tea,
she was similarly refused, although no one could explain
to her how a cup of cold water could become weaponized.

Finally, around 6 p.m., a"detention meal" was pulled from
a fridge, consisting of an orange, fruit-box drink and a
roll that, Smethurst says,"I could play golf with."

For a while she sat in the main detention center, unable to
eat the food, as eight armed guards watched TV. Then one of
the staff returned with a bag of takeout and began eating a
hamburger and fries in front of her.

"At that stage," she says,"I just lost the plot completely
and threw the roll into the bin in front of me with sheer,
utter frustration."

The CBP would later call this gesture a"tantrum";
Smethurst, in turn, claims that she was thoroughly body
searched by female staff each time she was moved from one
part of LAX to another, and that she broke down in tears
several times, swearing to her captors that she was not a
criminal, had done nothing wrong and should be allowed in
the country. She also says one sympathetic staff member
told her she'd simply had bad luck in getting the agent she
did at the first customs station, since the I-Visa rule was
enforced at the discretion of agents. Smethurst could have
entered the country by simply declaring herself a tourist
on her traveler's form - a routine practice among reporters
entering the U.S.

Eventually, Smethurst's release was won by the Consul
General's Office. The consulate also gained one other
concession - the cup of tea she'd begged for. It was
prepared by a senior CBP official whom Smethurst thought
was the kindest American she'd met that day.

"It was the best cup of tea I'd ever had," she says. I
didn't waste a drop."

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

The Daily Reckoning Presents: Part I of the Daily Reckoning
Christmas Trilogy, revised and updated for 2003... God bless
us, one and all!


THE GHOST OF CHRISTMAS PAST
by Bill Bonner

Old Greenspan was not dead. Not dead as a doornail, nor
dead as a doorknocker. Not even as dead as a laptop
computer after the power goes out - not even John Maynard
Keynes is that dead.

Nothing is as dead as a computer without power. For even a
nail continues to provide good service after the spark of
life has gone out of it.

But Greenspan? The Fed chief was still alive. Not only
that, he still had the power to flood the economy with
cash... and lift stock prices. Or so everyone thought.

At least, Ebenezer still thought so. He had seen Greenspan
on television not long ago. The old Rand-worshipping
jazzman had said as much. Ebenezer could remember his exact
words:"The Committee continues to believe that an
accommodative stance of monetary policy, coupled with
robust underlying growth in productivity, is providing
important ongoing support to economic activity." It sounded
like mumbo-jumbo. But Ebenezer knew what it meant.

Of course, there were some - such as his old associate Bob
- who said that Greenspan couldn't do it... that merely
reducing interest rates wouldn't work. But what did they
know?

"Bah," said Ebenezer to himself,"humbug."

"What reason is there to worry?" he asked, to no one in
particular."If I could work my will, I would have every
idiot who goes about with 'deflation' or `recession' on his
breath forced to watch Wall Street Week and read the
editorial pages of the International Herald Tribune."

His musing to himself was interrupted by the entrance of
two gentlemen who introduced themselves quickly and
proceeded to divulge the purpose of their visit.

"We thought that, perhaps, given the spirit of the
Christmas season," said the leader of the two,"perhaps you
could spare a farthing for the poor, the destitute and the
needy."

"There are many people who need our help," added the
second,"... the poor unfortunates who invested their money
in dot-com stocks... or the big techs."

"Need our help?" questioned Ebenezer."Are there no mutual
funds?"

"Well, of course..." the first began to reply.

"And do they not accept small amounts?" demanded Ebenezer.

"Yes... but..." replied the second before being interrupted.

"And has not the bull market been a fact of life for nearly
two decades? And hasn't every dip turned into a buying
opportunity?"

"Well, yes..."

"And has it not been shouted from every newspaper
headline... every news report... every Internet chat
room... and every conversation between even the most casual
passers-by at even the most ill-informed and down-market
drinking establishment in the most remote and out-of-touch
region of the country?"

"Doesn't everyone who is capable of long division now
realize," continued Ebenezer, raising his voice,"that the
recession is over... and that nothing beats investing in
stocks over the long run?"

"Yes, we are aware..."

"Oh! Good. I was afraid that something might have
happened..."

Then, misinterpreting the ensuing silence for approval, the
second gentleman ventured,"Well, in this great time of
trial, how much would you like us to put you down for?"

"My only wish is to be left alone so that I may continue to
enjoy the fruits of the greatest episode of wealth creation
in history," replied Ebenezer."Good day, gentlemen."

And Ebenezer turned and walked away, muttering,"A poor
excuse for picking a man's pocket..."

That evening, Ebenezer slept poorly, under the fullest moon
in more than a century. He had been startled earlier.
Returning home from the office he had seen Alan Greenspan's
face in his doorknocker! An odd sensation, for Greenspan's
face was hardly one that he expected or hoped for. But
there it was... for a fleeting moment, at least.

And now, after finally achieving the sleep he longed for,
his rest was suddenly interrupted by the sound of ringing
bells.

Yes, bells. The kind of bells they fail to ring at the top
of a bull market. But why now... clanging like chains in the
middle of the night?

The door to his bedroom blew open... and the clanging sounds
seemed to mount the stairs.

"Humbug," he thought,"I won't believe it. The bears have
been hearing ringing in their ears for years. The poor
fools. 'Recession... bear markets... crashes... deflation... '
and now they're at it again... more convinced than ever.
Ha!"

His color changed though, when, without a pause, something
came on through the heavy door and passed into the room
before his eyes.

The face: it was the same face he had seen on the
doorknocker earlier in the evening. And on the television a
few weeks ago. It was the face of Alan Greenspan, the Fed
chief. His body was transparent, ghostly, but there was the
source of the clanging. For the spectral figure was wrapped
up in chains, to which were attached various metals - gold,
copper, silver... both coins and nuggets, all clattering and
banging against one another.

Ebenezer had heard it said that Greenspan lacked guts. But
there they were. In this ghostly form Ebenezer could see
all of him, inside and out. It was as strange as it was
unappealing.

"Who are you?" asked Ebenezer, his voice cold and caustic.

"Ask me who I could be," replied the phantom.

"Okay... who might you be?"

"That is a different question," said the specter,"but I
will answer it anyway. I have no time for word games. I am
the spirit of Alan Greenspan..."

"I thought so..." whispered Ebenezer.

"... and it is required of every man that he walk among
men..."

"But you are not even dead yet," protested the old man."I
would know if you were dead... I would have read about it in
the paper...

"And what are these chains you wear?"

"They are the chains you forge for yourself. But instead of
gold and silver, yours are laden with computer terminals,
stock certificates, portfolio statements, the New
Era... mortgage refinancings. You will be fettered not just
for your life, but for eternity. And they grow heavier with
each passing month. Unless, that is, you heed the ringing
of these chains..."

"I am here tonight to warn you," the ghost went on,"that
you may have a chance of escaping your fate. Rise and walk
with me."

"I am mortal..."

"Come," said the ghost, taking Ebenezer's hand.. The two of
them rose as if weightless and slipped through the mist of
time...

"Here, look..." said the apparition,"Christmas Past:
1980."

Ebenezer could see for himself.

There before him was the face of another Fed chief. It was
Paul Volcker himself. And there, what was that? A crowd of
people were burning him in effigy.

But why? Then Ebenezer began to recall what that Christmas
was really like:

Inflation, measured by the CPI, rose at 13% that year.

Volcker's job was to reduce that figure. He did so. But it
was not fun for anyone - except short-sellers.

The Dow fell 24% after Volcker held his famous Saturday
press conference and announced a change of direction.
Volcker threw out the WIN buttons and targeted reserve
requirements. Interest rates soared. Twenty-year Treasury
bonds yielded 15%. The prime rate hit 21.5% percent.
Homebuilders and farmers - and perhaps some Wall Street
brokerage houses - threatened his life.

The Dow fell to 776. Adjusted for inflation, a generation
of capital growth was wiped out.

But not everyone was hurt. Investors who bet heavily on
gold stocks, oil and collectibles did well - at least,
until Volcker's purposes began to be realized.

Ebenezer recalled the predictions of 20 years ago:

** Oil would go to $100 a barrel
** Inflation would be at least 6% - forever
** Gold would rise through the end of the century
** Bonds were"certificates of guaranteed confiscation"
** Stocks were dead (a death that was confirmed by
`Business Week' on Aug. 13, 1980 - the very bottom)
** The whole key to investing was to avoid risk

"Let us look a little further," said the ghost. And with
that, Ebenezer saw a new scene. In this one, he saw
himself. But it was not himself as he was... but as he had
been.

There was the young Ebenezer. Full of enthusiasm and
eagerness to make his fortune. He had plenty of hair, too.
And, look, you could see the muscles bulging beneath his
polyester shirt.

"These are but shadows of the things that have been," said
the Ghost.

And there he was, the young Ebenezer. Standing alone and
neglected at a Christmas party several years after Paul
Volcker had taken charge of the Fed.

He looked quite sad... but Ebenezer knew why at once.

"I won't make that mistake again," said the young investor
to himself.

"What mistake had he made?" asked the ghost of his guest.

"Why does he reproach himself? For the right thing or the
wrong one?"

Ebenezer made no reply.


Bill Bonner

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• The Daily Reckoning - The Ghost Of Christmas Past (Bill Bonner) - Firmian, 25.12.2003, 16:55