The Daily Reckoning - Work and Play in Nicaragua (Bill Bonner)

verfasst von Firmian, 24.02.2004, 20:37

-->Work and Play in Nicaragua

The Daily Reckoning

Rancho Santana, Nicaragua

Friday, 20 February 2004

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

*** More and more loonies... have we not got enough already?

*** Is it like 1958? Is a lump of coal like a diamond? No
reality shows... no deficits... no Homeland Security - who'd
want to live back then?

*** National debt tops $7 trillion... spoiled rotten in
Nicaragua... and more!

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

We read in the paper that the central bank of Canada has
decided to lower interest rates on its dollar.

Some nations put images of past presidents and heroes on
their currency. Canada puts a picture of a bird, the loony.
Lowering rates, the report tells us,"will create more
loonies."

The burden of today's Daily Reckoning is that the world has
enough loonies already.

Elsewhere in the news, we discover that interest rates in
the U.S. are down to levels not seen since 1958. We vaguely
remember 1958; we recall nothing to complain about. And the
years that followed brought a boom in the '60s....with a
major rise in stock prices. By 1966, stock prices had
reached levels that many thought were loony. In fact, they
had reached a major market top... and fell for the next 16
years.

Today, interest rates may be in line with 1958... but stocks
are as expensive as they were in '66.

In almost every other respect, too, 2004 is unlike 1958.
Back in '58, Dwight Eisenhower was president. The old WWII
general warned of a"military industrial" complex and urged
restraint. Today, George W. Bush tries to explain his
whereabouts during the Vietnam War... and eagerly puts his
signature on every numbskull project that crosses his desk.
We do not have all the numbers in front of us, but we see
in yesterday's news that the U.S. national debt officially
topped $7 trillion this week... and is rising by $550
billion each year. In two years of the George Bush
administration, the national debt rose more than it had
during the first 200 years of the republic. Under Ike, the
WWII-era debts were actually being paid down.

Back in 1958, America was a not only a net exporter... but
the largest net exporter in the world. Now, it is the
largest importer.

Back in 1958, America was the world's largest creditor. Now
it is its largest debtor - with a net financial deficit of
$4 trillion dollars.

Back in 1958, the national savings rate was over 10%.
Today... it is near 1%.

Back in 1958, total debt in the U.S. was under 150% of GDP.
Today it is over 300%... a level never before seen.

Back in 1958, a gallon of gas cost... what... we don't
recall, but we remember spending 25 cents for a gallon only
a few years later. We also remember someone coming out to
pump the gas and clean the windshield while we waited.

We're not saying 1958 was better. Back then, if you wanted
to buy a house or a car, you had to save up to make a down
payment. And we had to watch Amos & Andy or The
Honeymooners on TV; we had no reality shows or celebrity
boobs at half time. And you couldn't come down here to
Nicaragua and work in an air-conditioned office as though
you had never left home.

In 1958, our family built a house. We do not recall any
hassles with zoning boards, building inspectors,
environmental panels or other busybodies. Our father
designed it and built it himself... following his inner
architect. It is still standing... as big an eyesore as
ever.

And when Eisenhower spoke, you didn't have the pleasure of
trying to figure out how the sentences fit together or what
they meant; they were pretty straightforward. And you
didn't have the thrill of trying to guess what the dollar
would be worth next year... or how America could possibly
pay its bills.

Nor did we have the benefit of at least 80% of the laws now
on the books. People were still allowed to call each other
names or make jokes without going to jail. You could still
drive around country roads and throw beer cans out the
window.

And can you imagine... when you took a trip on an airplane,
you were treated as though you were an important customer,
rather than someone bent on the destruction of the planet.
There were no x-rays... no body searches... no moronic
questions... no Homeland Security. In fact, there was no
Homeland at all... just a big, open, free, cheap, solvent,
loony and agreeable country we called America.

We miss it.

But here's more news, from a different corner of the
world...

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

Dan Denning in the land of wine and cheese...

- Let's talk bad breadth this morning, human beings. I'm
fond of watching the S&P 100 (OEX) because of its high
concentration of financial and tech stocks. Twenty-seven of
the OEX's 100 stocks are techs and financials, making up
40% of its market cap - or about $2.7 trillion.

- The OEX is overbought, according to a chart I sent
yesterday to Strategic Insider readers. The chart I refer
to is"Bullish Percentage chart." It tells you how many
stocks on the S&P 100 are in bullish point and figure
patterns. When the bullish percentage on the OEX goes over
70, stocks are overbought. When it goes below 30, the OEX
is oversold.

- Right now, the OEX is executing what I'm calling a
"walking-the-plank formation." The current bullish
percentage is over 85 - higher than at any time in the last
seven years.

- But wait, there's more. In intra-day trading, the Dow
Industrials briefly set a new 32-month high, at 10,753 (mea
culpa for misstating the Dow's all-time high the other day,
I caught the error after we went to press). According to
James Gray, editor of the UK"Options Trader" service,
despite the Dow's modest decline by the end of the day,
most of the stocks in the index are hurting more than it
appears.

- Gray says that other than JP Morgan (JPM), United
Technologies (UTX), and McDonalds (MCD), there were"twenty
seven companies whose share price actually fell harder than
the Dow from their recent price peak. In other words, 90%
of the index fell more than the Dow itself."

- Gray continues:"Confused? Don't be. The Dow is weighted
according to the market capitalization of the components,
which means that the bigger you are, the more influence you
have on the index. So Wal-Mart (WMT), the world's largest
company, carries more weight than smaller companies.

-"So all of these expert market commentators who tell you
that this is just some routine profit taking as we approach
new highs are misleading you somewhat. The average fall in
the Dow 30 components, instead of being 0.8% as reported by
the index itself, is 4.6%. Twelve component companies have
fallen by more than the average. The greatest offenders are
Intel (INTC) down 13.6%, SBC Communications (SBC) down
12.8% and General Motors (GM) down 10.7%."

- If appearance and reality are going their separate ways
on the stock market, they've parted ways in the currency
markets, too - at least for now. In fact, yesterday, the
dollar rose to a one-month high against the yen, and even
gained some respectability against the euro and the pound.

- The Japanese took center stage yesterday in the theater
of the central banking absurd. Vice Finance Minister for
International Affairs, Zembei Mizoguchi, said it"won't be
the case" that Japan will tolerate a stronger yen. This
came after news that Japan's economy grew at 7% in the
fourth quarter, the fastest rate in a decade. Aziz McMahon,
a foreign-exchange strategist in London, said that Japan's
"central bank is winning at the moment."

- At the moment, perhaps."The Bank of Japan has to be
feeling pretty cocky right now," writes Chuck Butler in the
Daily Pfennig,"[since] their latest barrage of
intervention has successfully defended their line in the
sand at 105 [yen to the dollar]." Yet what does the BoJ
really have to show for its efforts? Japanese central
bankers spent 250 trillion yen last year to keep its
currency down... but the yen has still strengthened 10% v.
the dollar. Is there another 250 trillion in the budget for
this year? I doubt it.

- Central bankers"are yesterday's heroes," writes Stephen
Roach."With their policy arsenals dangerously depleted,
they are woefully ill-equipped to cope with the ever-
daunting complexities of a post-inflation era... I fear
modern central banking is on the brink of systemic
failure."

- Take that, you Pollyanna tech bulls. And while you're at
it, short the dollar, anything sensitive to a rise in
interest rates, and semiconductors for good measure. Buy
oil, gold, and high yield. And leave the central bankers to
shame, humiliation, ignominy, and defeat.

-"My bet is that in 2005, foreign central banks will have
had their fill of countering the dollar's natural
inclination," says Northern Trust's Paul Kasriel."When
that happens, the dollar will likely go into an
uncontrolled tailspin and the Fed will have to jack up
interest rates." This suggests being long-term"short" the
bond market, although the short term is trickier.

-"It will be interesting to see how the most highly
leveraged U.S. economy in at least 55 years (as far back as
my data goes) reacts to all of this," Kasriel says.
Interesting indeed. Not well, I suspect. Especially for
homeowners.

-"In the interim," he adds,"commodity prices in dollar
terms, which already have been on a tear, will likely
continue to rise. The combination of [a] falling dollar and
global reflation is a recipe for higher commodity prices."

- Wednesday's pause became Thursday's hesitation. Today,
Friday's retreat? I don't know. And last night, I found
myself staring at the computer screen, muttering"Go you
dollar," in hopes of making my weekend revelry a little
cheaper. But I know better. The dollar's nice little run
isn't fooling anyone.

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

Bill Bonner, back in Nicaragua...

***"There probably are some bubbles in the making, but you
can't worry about those now," said Bank One chief economist
Diane Swonk."[The Fed has] a dual mandate - employment and
inflation - and they've got no inflation and not enough
employment."

The crowning illusion of our time must be the idea that you
can get what you want, rather than what you deserve. People
widely believe that if the Fed wants to create more jobs or
more inflation... it can do so. After all, it controls
interest rates and, indirectly, the economy itself.

Why then are there ever recessions... crashes... busts? Well,
sometimes the policymakers err. Yes, sometimes they do.

*** Near the entrance to our ranch... we noticed 2 new
shacks.

"What's that..." we wanted to know?

"Well, the local people are beginning to build new houses
for themselves," explained our partner Antonio."Before,
they didn't have any jobs. But now they're working at the
ranch and they're beginning to spend their money."

And so, we're creating our own little bubble here in the
wilds of Central America.

Prices are soaring up and down the coast. Naturally, when
prices go up, people jump at the chance to pay more. A year
ago, we looked out and saw a virgin beach... a beautiful
stretch of nature... just as God intended it. So attractive
was the view that we decided to build a house where we
could enjoy it every day.

Now, looking out from the half-finished house....we see
condominiums going up almost in front of us! Is this
progress... or what?

*** No one appreciates life down here more than Edward. Our
youngest son, 10, has a hard time sitting still in
school... and struggles to get through every day. But down
here, he is in his element. He gets up early, puts on his
cowboy boots and takes off. He flies down the hill on his
bicycle... goes fishing... horseback riding... swimming... It's
hell for leather all day long.

By the end of the day, he is happily exhausted. Often, even
before dinner is served, he slumps in his chair and falls
fast asleep. His father has to carry him home.

Edward has also become the pet of the maids and kitchen
staff. The local women caress him... they pinch his
cheeks... they hug him and offer him treats. And last night,
while we continued our endless - and no doubt extremely
important - meetings, we saw the girls had put on some
music in another room and were taking turns dancing... with
Edward!

The poor boy. We fear that life ever hereafter will be a
disappointment for him... never quite measuring up to those
delightful sun-filled days of being spoiled rotten in
Nicaragua.

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

The Daily Reckoning PRESENTS: In the spirit of the
delightful, sun-filled days of February in Nicaragua... even
while Europe and the U.S. shiver in winter... we leave you
with a DR Classique originally penned in February of 2000.


WORK AND PLAY IN NICARAGUA
by Bill Bonner

We sat on the terrace of Antonio's house... listening to the
waves on the beach below and eating lobster that had been
pulled out of the ocean just in front of us. Antonio's
family had owned the property and raised cattle and horses
on it. After we showed him what we were doing, he decided
to join us. He bought one of the best lots and built a
house. It has three bedrooms and a roof made of palm
leaves. The bedrooms are air-conditioned, but the main
section of the house is completely open - looking out over
a pool and the ocean behind it. The temperature is never
too cold and never too hot - with the help of the sea
breeze - so you can spend your time outside comfortably.

Antonio's mother had come over to supervise the meal. She
added a touch of femininity to the all-male group. But
after she left, the whiskey and cigars came out... and the
talk turned to the most popular subject among ambitious,
middle-aged, Type-A males - money.

Money is a curious subject. We were all there because we
had some money and wanted to make more. But what made the
place nice had nothing to do with money. The sea breeze
takes no account of your personal balance sheet when it
rushes by. The ocean was just as blue to a pauper as it was
to a George Soros or Ted Turner. The sun was just as
bright. Even penniless Nicaraguans ate the lobster they
fished out of the sea - or maybe the red snapper we had the
next day.

We wanted what the locals already had - to sit around,
enjoy the beautiful place, drink beer, talk. But we could
not afford it. Leisure time is too expensive. Their time is
cheap, because there is little market for it. Ours is so
valuable that we have little available to do what we want.

But you don't make money so you can enjoy life. You make
money so you can feel good about yourself... that is, feel
superior to other people. And that means you have to give
up many of the good things in life. You have to work,
instead of play.

But the real trick is to turn work into play... for only
when"work is play for mortal stakes is the deed ever
really done for heaven and the future's sakes."

.. to quote Robert Frost...

This project in Nicaragua has been both work and play. My
partners are already designing the homes they will build. I
have one in mind, too - but it is in a section of dramatic
cliffs... which is still unavailable for building. And we
are already making money.

When we first came to Nicaragua a couple of years ago, the
Pacific Coast was almost untouched. We thought it was
inevitable that it would soon become developed. It is too
close to the United States... and too beautiful to be
ignored. So we decided to do our own development - creating
a place we could sell and a place that we would like
ourselves. Work and play.

I mentioned a piece of property we bought in Baltimore. The
price in real terms on that property went down over the
last 100 years by at least 80%. But while property values
in Baltimore were falling, they were rising on the
California coast. In the early part of the century, the
"New York Times" carried an ad for a bungalow on the beach
in Malibu, California. It was for sale, if I recall
correctly, for $6,000. How much is it worth today? I don't
know, but I will bet that it is worth many times that
amount.

There is no reason that I can think of why the trend should
not intensify. There are more people with more time and
money on their hands. And they like living on attractive
beaches. There are few more attractive beaches than those
in Nicaragua. And, unlike the"real estate" on the World
Wide Web, the property cannot be reproduced or rendered
obsolete. What's more, the political and logistical
obstacles have now been removed.

Adam Smith refers to the computer leasing stocks which
blasted off in"The Great Garbage Market of 1968." These
companies leased computers and were thought to be on the
threshold of explosive growth. Computers at the time were
the big mainframe machines that cost millions of dollars.
It was thought that companies would not be able to buy
them. So, computer leasing seemed like a can't-lose
formula. The only question was which company would get the
"territory" first. The"first mover advantage" would be not
just great, but decisive. Earnings were supposed to double
each year for a decade.

What happened? Well, the territory disappeared. The
mainframes became much cheaper, and small, cheap computers
eventually took the market away. But even before that, the
earnings of the computer-leasing companies turned out to
have been vastly overstated. A moment of truth arrived when
investors realized that their expectations could never be
met. The stocks fell. Many of them went to zero.

The trends and fashions of real land can change direction,
too. But so far, there is no indication that people will
tire of good oceanfront property.

Our results have been very satisfying. Others have realized
that the land was underpriced. It is moving up. Almost
everyone who sees the property wants to buy. One of my
partners bought another two lots from the rest of us while
we were down there. But since he had fallen off a horse
earlier in the day and may have hit his head, I cannot take
this as a reliable indicator. Still, it is a good sign, I
think; we are becoming reluctant to part with the land.

And we are being very careful to develop in a way that will
enhance the beauty of the place, rather than destroy it.

I went walking along the beach in the morning. It is
amazing how many different shapes a short stretch of beach
can take. At one point, the waves crash against the rocks
and a spray comes shooting up through a blowhole, as if a
whale had made his way right beneath you. I came across a
couple of local men fishing.

"¡Hola!" I said, in my best imitation of a person who spoke
Spanish.

"Buenos días," they replied, clipping off the"s." They
fished for a living. But they seemed to enjoy it. Work was
play for them, too.


Your editor, at work and play,

Bill Bonner
The Daily Reckoning

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• The Daily Reckoning - Work and Play in Nicaragua (Bill Bonner) - Firmian, 24.02.2004, 20:37
  • hierzu leider keine Ãœbersetzung:-( (owT) - Firmian, 24.02.2004, 20:38