The Daily Reckoning - Do Gooders Gone Bad (Bill Bonner)

verfasst von Firmian, 19.01.2004, 18:42

-->Do Gooders Gone Bad

The Daily Reckoning

Paris, France

Friday, 16 January 2004


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

*** Recovery gaining momentum...? Maybe... Calculating the
odds...

*** Time to sell the U.S. and buy Japan?

*** Nice break in gold price... go, go, go... and we
introduce our new oracle...

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

"Fed says recovery gaining momentum," a Washington Post
headline tells us. Other headlines confirm what seems to be
a trend: jobless claims came in at their second lowest
level in 3 years, and retail sales were up again in
December.

But"don't count on it," is our reply. Which is not to say
that we know anything. We know nothing at all... which is
how we can be so sure of ourselves. We don't know if the
recovery is gaining momentum... but surely it is gaining
popularity. Everyone is betting on it as if it were a sure
thing.

What we're sure of is that nothing is what everybody
knows... and they know even less about the future than about
anything else. And we also know that a lot of people think
they do. Most are so sure they know the future that they
don't even have to think about it. Somehow they know that
things will just get better and better forever and ever.
These are the people we are counting on to put our children
through college.

You don't make money by knowing the future. You make money
by knowing where your fellow investors have erred in the
present. You can't know which horse will win the race, we
remind you, but you can make a fair guess about where the
odds are miscalculated.

Reading the headlines, it is easy to pick out the favorites
in this race. U.S. stocks are about as high as they've ever
been. Emerging market debt, we recently discovered, is also
selling at record highs. Debt itself is at epic levels, as
Michael Hodges points out on our website Bankruptcies, too.

Houses? Hard to tell... but in places such as San Diego,
where the median house is said to sell for $600,000, and
where fewer people than ever before are able to afford one,
prices must be near some epochal peak.

On the other hand, there are a few nags in the race that no
one seems to want to bet on. Gold, though in an obvious
bull market, still trades at less than one half of its
price 20 years ago. Adjusted for inflation, the metal still
sells for about the same thing it did in the Eisenhower era
- despite a furious explosion in debt, derivatives,
deficits, unbacked paper dollars, EZ credit, Rent to Own,
and all the other obnoxious proclivities of the last 50
years.

"Reagan proved deficits don't matter," says Dick Cheney.
Remarkably, sane people believe him.

And Japanese stocks? Who wants to bet on Japanese
shares... after a bear market that has lasted 14 years?

"Is it time to buy Japan?" we asked MoneyWeek editor,
Merryn Somerset Webb earlier this week.

"It may be too early," replied she,"but it is definitely
not too late."

The lumpeninvestoriat is not interested in Japan. Or in
gold. They are too cheap. Too early. Too invisible.
Instead, they have erred on the side of recklessness -
betting on U.S. stocks to go even higher than they
are... betting on debt... on the 'recovery'... on everything
that is already so fully-priced... such odds-on
favorites... that even if things work out as they expect,
they are unlikely to make a sou on it.

Take the other side of these trades, dear reader. Take the
other side.

Over to you, Addison:

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

- Quelle horreur!

- If there's one thing the French are exceptionally snobby
about... other than their wine, food, art, women, clothes,
history, culture and way of life... it's their coffee. They
commonly refer to the American version of the hot elixir as
jus de chausettes, or 'sock juice.' And when in France, the
casual tourist may have had the occasion to note, it's
oooohhhh so gauche to take your coffee to go.

- What will they say, then, after this morning brings the
first opening of a Starbucks to the rues of Paris? Quelle
horreur? Peut-être pas. There is already a knock-off chain
here called Columbus Café which has done well enough in the
past few years to open 20 storefronts in Paris. We predict
Starbucks will be huge success... and lament a little as
France takes another step down the short road to 'quick'
and 'easy.' Already, obesity rates among children are
reaching par with the rest of the Western economies.

-"Germany in recession," announced headlines all over
Europe this morning. The Esperanto Experiment's largest
economy slipped into recession last year, the first time
since 1993. GDP shrank 0.1% in 2003, after adding just 0.2%
the year before."As a result," explains the FT,"high
unemployment is likely to continue to undermine consumer
confidence and depress private consumption."

-"All of which sounds like a pretty good definition of
what should happen during a downturn to us," writes the
Daily Reckoning's London correspondent Adrian Ash."Lay off
workers, lock rampant consumerism in its cage, and allow
savings to accumulate - ready to fund the next upswing in
confidence and investment."

- On the other side of the Atlantic, the 'can do' feel-good
troupe called"Greenspan & Company" is busy trying to draft
a dissimilar script. The Fed's Beige Book came out on
Tuesday and was... well, remarkable, in the sense that given
the enormous amount of stimulus tickling the system,
there's almost no one getting excited about the economy.
Except maybe blowhards in the financial media. The Beige
Book, you'll recall, summarizes comments the Fed has
collected from businesses and"other contacts" around the
grand ol' U.S. of A. The Fed uses the Beige Book as a kind
of litmus test to see if its monetary policy carries more
weight than the hot air its governors routinely spew in
public discourse.

- This week's report measured economic activity over the
holidays. As you might expect, temp workers were hired in
response to increased consumer spending in the two weeks
after Christmas. But the overall jobs picture remains
"weak" in most areas. Wages are stagnant to falling across
the country. We ask again obnoxiously: How will consumers
continue to drive consumer spending if there is little
improvement in jobs and wages? Regular Daily Reckoning
readers will be shocked at today's surprising answer:
DEBT!!!"Americans build mountain of debt, savings rate
slides" confirms a headline in the Kansas City Star.

- The markets yesterday were about as lackluster as the
Fed's book is beige. The Dow added 15 points to close
10,553. The Nasdaq lost a wimpy 2 points and closed up shop
at 2,109. The S&P 500 gained about the same amount... which
is to say hardly at all... and ended the session in the
1,132 range.

-"A sound currency reflects solid economic fundamentals,"
Jim Rogers wrote in these pages a while back. Quiet right
too, but it's"not exactly the picture you get when you
look at the U.S. balance sheet," is it? No, it's not. And
yet, since he made his remarks, the U.S. balance has done
nothing but deteriorate. Still, Mr. Market has never been
one to worry about deeper truths - the almighty greenback
completed its fourth day of recovery on Thursday.

- The U.S. dollar pushed the euro back to $1.25... the pound
sterling"slipped" to $1.82 but is still a major rash on
the backside of those Americans who frequent the city on
the Thames. Gold got whacked for a massive $11 on the
dollar rally closing at $410.75 - a retrenchment to levels
first reached by the current bull run over a month ago.

- And here's news... the Pension Benefit Guaranty
Corporation reported that the two previous years' bear
market in stocks has left it with a hefty shortfall."When
stock prices fall," the NY Times bravely explains,
"companies may be caught without enough money on hand to
pay the pensions they owe." The PBGC then steps in and
bails the poor sots out. Doing so, lately, has been rather
costly. The corp's operating deficit of $3.6 billion in
2002 lept up nearly $8 billion to $11.2 billion in 2003.

- No doubt, some of the money goosing the system's derrière
will find its way back to the PBGC, too. Don't worry
boys... the government's here to help. After all,"when
people are hurting, government has to act." (Who was the
genius that said that, anyway?)

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

Bill Bonner, still in Paris...

*** Ah... good news! The price of gold fell $13.30
yesterday, Feb. contracts. Even the dollar is enjoying a
winning streak - up 2 days in a row!

Go... go... go... Give us another chance to get rid of dollars
at a decent price... and to buy more gold below $400 an
ounce.

*** Where have all the winos gone, dear reader? Gone to
graveyards every one. We felt the loss of our local oracle
yesterday. The little bum passed away during the summer. We
have missed seeing him sprawled on the cobblestones, liquor
bottle in his hand. And now we miss his sage counsel. Not
that he could look into the future any better than we
could. But where else can you get guru-like wisdom for less
than $2?

But around the corner, on the rue St. Martin, is a strange
resident whom neither tourists nor residents seem to
notice. Parked near the entrance to what used to be Marks
and Spencer is a large white box about the size of an
expensive refrigerator. It sits on wheels, but never seems
to move. It is home to a curious man (what other kind of
man would live in a box?) with a long white beard. We
caught sight of him yesterday and wandered over.

He sat out in the rain, in front of his box, dressed in a
very dirty pair of corduroy pants and enough sweaters to
clothe a whole city of earthquake survivors. Paris is cold
this time of year... but in his box, he has insulated
himself against the cold with a number of layers of
cardboard and enough blankets to make the place look like a
squirrel's nest. Or maybe it is his beard, which looks a
little like a squirrel's tail, that brings the animal to
mind.

Or maybe it is the fact that the man is plainly nuts.

Nevertheless, on your behalf, dear reader, we struck up a
one-sided conversation. Handing the man a copy of our book
- which just appeared in French - we began to lay out our
views on the upcoming dollar crisis... the problem of debt
and deficits now facing U.S....the incredible reckless
optimism of the American public... and a host of other
issues, hardly stopping to wait for a reply. When finally
our breath ran out... we put the question to him:

Well, what do you think?

"I think you are disturbing my peace," said our new oracle.
"And if you don't stop, I'll call a gendarme."

Of course, gurus often speak in riddles. We are still
trying to sort out his meaning. Stay tuned.

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

The Daily Reckoning PRESENTS: Floundering amid the shifting
sands of political intrigue,"good intentions" go all to
easily awry...


DO GOODERS GONE BAD
by Bill Bonner

Regular sufferers of the Daily Reckoning will recall that
we've been digging down - into this bedrock of money-
grubbing capitalism - for so long, we are developing a bad
back.

But today, to the relief of readers and ourselves... we move
on... and sink into the Sahara of contemporary
politics... where our spade sinks in more easily.

Some will say that this is the problem with politics. The
sands shift so easily and readily that you can make no
headway. As soon as you have dug yourself a nice little
position, along comes a wind change that collapses the
sides and fills it up. But that is also what makes it
entertaining - at least to onlookers with an appreciation
for the absurd or the sordid.

Some people are irritated by the grit of politics. Others
seem to take it in and, like an earnest oyster, roll it
into a gaudy pearl. Before you know it, they are so
thrilled with their little jewel, they want everyone to
wear it.

You will recall, no doubt, our brief mention of the
Cannibal of Rotenberg. The poor man thought his
anthropophagism might catch on and become the Next Big
Thing... a great pearl of a program... which would solve the
problems of overpopulation and undernourishment in a single
slice."The Third World is ripe for the eating," he pointed
out. And if his recipe for planetary improvement had not
been interrupted by the polizei, who knows what might have
happened?

But now the fellow is in the hoosegow making do with
hamburger. And so is another of the world's do-gooders gone
bad: Saddam Hussein. We don't know much about the Butcher
of Baghdad, but we imagine that his defense will be little
different from that of all ex-dictators; surely he thought
he was building a better world. Iraq is a wild and wacky
place... with different tribes and religious groups ready to
slit each others' throats. At least, that is Saddam's
story; without his firm leadership, the country would have
been a mess.

Riccardo Orizio makes a habit of interviewing dictators. He
goes after those who have retired, been deposed... or sent
to jail. His book, Talk of the Devil: Encounters with Seven
Dictators, is a like a travelogue of different highways to
Hell... each one of them paved with good intentions.

It is a shame that do-gooders don't set off some signal
before they go bad... like a fire alarm that is running out
of juice. Maybe some adjustment could be made.

But the most successful of them - such as Mussolini and
Hitler - actually gain market share as they go bad. Their
delusions are self-reinforcing, like the delusions of a
debt bubble; the higher prices go, the more people come to
believe they make sense.

We think of Il Duce. The clown thrashed around in typical
leftist claptrap, looking for a program. When he finally
got into office, he simply threw out the whole thing... and
got a new program better suited to his ambitions: Put on
silly uniforms. Strut around, telling the masses that
you're recreating the glory of ancient Rome. Spend a lot of
money.

So many people came to admire the man that he came to
admire himself... and began to believe that his program
might do as advertised. Then, he invaded Abyssinia... and
the bull market in Benito Mussolini was over.

We wonder, too, at America's latest breed of do-gooder, the
neo-conservatives. Is their stock rising... or falling?

"These Cold Warriors were mostly liberals of a special,
ideologically zealous variety," explains an article in The
American Conservative."Many of them had come for the
extreme Left. They had opposed communism because they had
universalistic objectives of their own and did not want any
competition. These proponents of a single model for all
societies were able to form an alliance with putative
conservatives, who had come to believe during the Cold War
that to be conservative was always to be hawkish and
assertive in foreign policy. Used to"standing up for
America," these nationalistic and saber-rattling
conservatives found in the cause of a better world, a new
outlet for their desire to"exercise American power."

The neo-cons preach a rousing sermon of"global democratic
revolution," to quote George W. Bush. There's nothing
conservative about revolution, but that doesn't seem to
bother anyone. The sands shift, who cares?

Of course, President Bush is probably not a neo-con
himself. But he seems ready to go along with just about
anything. According to former Treasury secretary Paul
O'Neill, the leader of the free world even had a little
trouble following the foreign policy discussions in the
White House. But he's a shrewd politician who knows a good
slogan when someone gives it to him and who saw immediately
the advantages of attacking Abyssinia or Mesopotamia. It
gave him cover to spend more than any president had ever
spent... with hardly a peep of protest. Traditional
conservatives were struck dumb by the audacity of it.

No do-gooder program we have ever heard of has been more
ambitious than the neo-con scheme. Afghanistan, Iraq... next
up are Syria, Iran and Saudi Arabia - all countries in need
of"regime change," according to the neo-cons. But the
program goes far beyond occupying a few hapless third world
countries. These fellows think they have a panacea for
everything bad; they believe they are delivering us from
Evil.

The pompous absurdity of it is hardly noticed. Reagan dared
to tag the Soviets as the"Evil Empire." A few years later,
the empire was history.

That is why it is sometimes better to lose a war than to
win one. Victory seems to bring out the worst in many
people. After the Soviet threat was removed, the neo-cons
found new a new source of evil... militant Islam.

"This poses a much more serious threat than the Soviet Red
Army," explained Thomas L. Friedman, a cheerleader for the
neo-con team,"because these human bombs attack the most
essential element of a society: trust."

Thus do they"have the potential to erode our lifestyle,"
he continues.

You and I, dear reader, might see less danger in a handful
of fanatics with plastic explosives in their pockets than
in a whole arsenal of thermo-nuclear warheads aimed at us
by a determined enemy. But we lack the vision of the neo-
con messiahs. What they see is an almost inevitable 'clash
of civilizations' between the Arab world and the Western
world.

And if one is not inevitable... it will at least be likely,
after they get finished throwing their weight around.


Bill Bonner
The Daily Reckoning

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gesamter Thread:

• The Daily Reckoning - Do Gooders Gone Bad (Bill Bonner) - Firmian, 19.01.2004, 18:42
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