The Daily Reckoning - Rediscovering America (Bill Bonner) + etwas Indien

verfasst von Firmian, 12.07.2004, 10:08

-->Rediscovering America

The Daily Reckoning

Milford, Nova Scotia

Friday, July 09, 2004

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*** Warren Buffett...expensive date. James Boric...cheap
date...!

*** Alexis de Tocqueville...John Maynard Keynes...and more
on Nova Scotia...

*** India: government budget released today...

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Our sojourn around the wilds of Eastern Canada
continues...we turn you over to our Baltimore-based British
editor, Tom Dyson, for the news...

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Tom Dyson, from 808 St. Paul Street...

- Here's something to think about over lunch today.

- We always believed that Warren Buffett was a cheap date;
the Sage of Omaha still lives in a starter palazzo and
drives and old car. He owns no fancy shower curtains and
throws no lavish parties, despite being the second richest
man on the planet with a fortune of $43 billion.

- But we were wrong; today we read that a lunch date with
Warren Buffett costs $202,000. That's what one foolhardy
investor bid in an E-bay auction, yesterday, to raise money
for charity. $202k? For lunch? Here at the Daily Reckoning,
we never receive lunch offers that juicy, in fact...we
often find ourselves picking up the tab.

- As an alternative, readers may consider James Boric. Our
own James Boric offers all the sound investment insight
without the hefty E-bay bill. And James is in an excellent
mood this morning...not only did he just close out his
ninth consecutive winning option trade for a 22.2% gain but
India's new budget was unveiled yesterday and it was
everything James had hoped for following his trip to
Mumbai.

-"This past week, India said its GDP growth for Q1 was a
whopping 8.2% - the largest growth seen in 15 years. That's
awesome! This news should have been on the front page of
every newspaper in the world. But it wasn't. People are
still inherently scared when it comes to India. In fact,
most people refused to get excited until the country had
unveiled its FY 2005 budget - they wanted to see if the
government would encourage this amazing growth with
government spending.

-"Yesterday," Mr. Boric continues,"the new budget was
unveiled. In my opinion, and more importantly, in the
market's opinion, the growth should be sustainable. More
importantly, Prime Minister Singh is proving he can work
with his Leftist alliances." Yesterday, Bombay's stock
market, the Sensex, rallied sharply upon release of the
budget. It closed up 102 points or 2.1%. The Sensex is
still down over 15% year-to-date.

- The Indian government agreed to completely abolish long-
term capital gains tax on stocks. Power, petroleum and the
telecom industry will be specific beneficiaries as the
Indian government has agreed to hike its expenditure
budgets for all three.

- India's finance minister Palaniappan Chidambaram called
for interest rates to remain market-friendly. This should
continue to stimulate the economy and allow for India to
maintain its 7% to 8% GDP growth.

- The government is permitting greater foreign direct
investment into key industries (including telecom). New
capital will generate new buildings, new roads and new
manufacturing capital. You may recall, the two stocks James
recently recommended to his Penny Stock Fortunes readers
were both Indian telecom companies. He expects them to
benefit directly from the budget.

- Meanwhile, in the US markets...the Nasdaq shelled out
another 31 points for a loss of 1.6%, yesterday. The tech-
heavy index closed at 1,935. The Dow dropped 79 points to
10,172 and the S&P closed down 9 to 1,109.

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Back on tour, with Bill Bonner...

*** Our old friend Martin Spring:

"Monetarists argue that [Japan's anti-deflation] policies
haven't worked because they haven't been implemented
properly. The banks, for example, haven't been forced to
restructure to free themselves of their enormous burden of
bad debt, so they can start a new round of lending to
promote economic growth.

A few months ago the Wall Street Journal summarized the
problem pithily:"Since the Bank of Japan became
independent in 1998, base money has risen 94 per cent (but)
broader money just 16 per cent." No matter how or how much
money the bank"prints," most of it ends up trapped in the
banking system, the Journal said. The banks borrow money at
zero interest and reinvest much of it in government bonds
earning 2 per cent or so, financing government rather than
spurring growth in the private sector.

Japan is caught in what the famous economist James Maynard
Keynes called a"liquidity trap." Even at low or zero
interest rates, banks consider the prospective returns from
lending as not being enough to compensate for the risks
involved. (There are other problems in Japan such as the
unwillingness of borrowers to take on more debt).

Some economists argue that central banks have to take more
aggressive and unconventional measures to spur demand and
get prices rising again.

[Chris] Farrell warns:"Investors will flee any currency -
including the American dollar - if the global capital
markets decide the brand is being debauched through unsound
fiscal and monetary policies." That would force up interest
rates in the US, with knock-on effects around the world.

However, Farrell argues that the only kind of deflation we
should worry about is one serious enough to produce a
depression. And that is only likely if its severity comes
as a surprise."

Our guess: it will.

*** From our man at the Southern Terminus of the Pittsburgh
& Lake Erie Line, Byron King:

"As you ponder life in Nova Scotia by the Sea, a land that
time has passed by, I get the feeling that I ought to offer
you some more of A. de Tocqueville's food for thought.
Reviewing the following excerpts, it seems to me that he
was writing about a different land, another age. But the
lessons from the past are embedded in the contrasts with
the present. Reading the following, I have to think about
the United States of 1831? What has it become?

How did it get to be this way? Is the nation on the wrong
trajectory, plummeting into a gravity-well of national doom
and demise? If the nation is in fact on the wrong pathway
of history, then where and how did things go so wrong? Can
we find a way to change course? And if not, can I find a
way to mitigate the impact on my family, my friends and
myself?

I do not and cannot begrudge the fact that mankind has,
over time, filled up an otherwise (mostly) empty continent
with people and human activities. As Frederick Jackson
Turner said in 1892,"The frontier has ended." But my view
is that things really left the rails when the national
consensus fell for the alluring myth of the nation having
an"elastic" currency. That would be...hmmm...let's
see...December 23, 1913 perhaps?

When the currency is elastic, who is charged with
responsibility for its subsequent shape? Could it be those
same noble political forces of democracy?

So the nation democratizes its politics, and then it
democratizes its currency by expanding access to credit.
Then come the speculations with other peoples' money, and
then come the bubbles. And then come the"democratic"
imperatives of the political classes not to be running the
show when the bubbles pop, so don't let them pop.

Bill, I am sure you know where all of this is heading.

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The Daily Reckoning PRESENTS: Bill Bonner rediscovers
America. Bill follows the path of previous explorers,
beating a track into the great unknown. He
finds...mosquitoes!


REDISCOVER AMERICA
by Bill Bonner

"Everything is extraordinary in America, the social
condition of the inhabitants as well as the laws; but the
soil upon which these institutions are founded is more
extraordinary than all the rest. When the earth was given
to men by the Creator, the earth was inexhaustible; but men
were weak and ignorant, and when they had learned to take
advantage of the treasures which it contained, they already
covered its surface and were soon obliged to earn by the
sword an asylum for repose and freedom. Just then North
America was discovered, as if it had been kept in reserve
by the Deity and had just risen from beneath the waters of
the Deluge."

- Alexis de Tocqueville, Democracy in America


Yesterday, we crossed a desert section of North America.
That is, 'desert' in the old sense. We would say 'deserted'
in today's language. Explorers tromped from the north shore
of Nova Scotia, on the Bay of Fundy, to the south shore on
the Atlantic nearly 400 years ago. Today, along both
coasts, there are modest habitations. But the interior is
still kept in reserve by the Deity and mosquitoes.

We saw few cars, few houses, few people...and no signs of a
credit boom. Not once in the last 5 days have we spied a
Mercedes. Nor have we seen anything that might pass for a
mansion - not even a McMansion - built since the end of the
19th century. The few people that are here live
comfortably, if you ignore the mosquitoes, but not
extravagantly.

"Maybe it's because it's so cold and rainy." Henry wondered
why the place seemed so empty, even at the top of the
tourist season.

"When do you think it will clear up," we had asked Tilly,
the old handyman at Milford House.

"Eh...maybe August," was his reply.

Again today, it is gray, foggy, drizzly and chilly. There
is no breeze, so the surface of Milford Lake is like a
sheet of black glass.

"Don't the mosquitoes bother you," we asked Tilly.

"Eh...what mosquitoes?"

But the south shore mosquitoes were as hungry as those in
the north. They drew blood, even through sweaters. After a
few minutes of hiking, Sophia's bare legs were covered with
welts.

We had come to have a look. In a moment of enthusiasm, we
had bought property on the Atlantic. For the second
time...and for the second time, sight unseen. Now that we
were having a sight of it, we liked what we saw. Our lot
has a stunning view out to sea.

"But what would we do here," Elizabeth wondered.

We didn't have a good answer. But we knew what we would not
do. We would not go broke. Nova Scotia is not a good place
to go broke; it lacks opportunities to waste money. And
keeping up with the Joneses? Don't worry about it; most
likely, the Joneses are going backward.

"This would be a good place to live," Pater familias warmed
up."There is absolutely nothing to do. Almost no
restaurants. No theatres. No public transportation...and
nowhere to go anyway. You could live on the ocean, but you
can't even go in swimming, it's too cold.

"But you could live well..." turning to his wife..."that's
what your grandfather did, isn't it? They retired here when
he was still in his 50s...and he lived another 40 years."

"Well, he loved to hunt and fish. And he grew up here, so
he had a lot of friends. And he had a beautiful vegetable
garden that he worked in almost every day. And my
grandmother was active in the local Red Cross and the
garden club and things like that. They were very happy here
for a very long time."

"They lived well - without spending any money. It just goes
to show that money itself is not the key a good life.

"I read in the local paper yesterday that Canadians are
richer in social capital than Americans," continued the
head of the household.

"What's social capital," Henry wanted to know.

"It's things such as friends, family, churches, a support
network...I'm not sure it includes government-sponsored
health care systems and so forth. I didn't read the article
closely. It might be just an illusion...like people in the
Baltimore ghetto who used to say they had 'soul' - when
they had nothing at all."

"You mean, there really isn't any such thing as 'social
capital?'

"No, I don't mean that. Some people have friends. Some
people have strong families and strong connections that
help them along in life. I'm not denying that. It's just
that these things tend to be rather difficult to measure.
So, when the Canadians say they've got a lot of it...it
might be just wishful thinking. They might not really have
any more social capital than the average American. And the
average Canadian might prefer to have less social capital
and more capital of the private sort - that is, money."

Such was the palaver in the Bonner car as the family
returned from its visit to the South Shore...until the
conversation turned to Galileo.

"What Galileo was trying to do," Elizabeth explained,"was
to expand the use of reason in contemporary thought. He
maintained that while the Bible provided a reference for
man that helped him understand his relationship to God, man
also had been given the capacity to reason - by God - and
he was expected to use his reasoning ability to understand
the physical world around him.

"At first, the Papal authorities had no problem with it.
Galileo actually went to visit Pope Urban the something-or-
other and the Pope was impressed. The trouble had little
directly to do with Galileo, but the Catholic Church was
under a lot of stress. This was the time of the Protestant
Reformation...or right after. The Pope had lost England,
for other reasons...and most of Germany. There were all
sorts of new ideas percolating. Most of them, in far away
countries the papacy could do nothing about. But when the
Pope was accused of being soft on heresy, there was Galileo
right in front of him...where he could put his hands on him
and prove his adversaries wrong.

"Wasn't the Catholic church, at the time, a kind of social
capital," interrupted Henry."I mean, weren't they
responsible for taking care of the poor and so on?"

"Yes, I guess so...

"Galileo was writing in Italian, rather than Latin, which
irritated the Pope. Because it meant that what he was
saying was being read not just by the highly educated
few...but by a great number of people. Galileo's books were
best-sellers of his time...."

"You mean, like Dad's book," asked Henry.

"Yes...but I don't know if they had a 'business' section
back then."

"Wait," Henry wanted to keep the floor,"are you saying
that the Pope really didn't think Galileo was wrong about
the planets going around the sun?"

"Well, I don't know. It's not clear that he had any opinion
on the subject.

He just wanted to make an example of him. I don't know if
he was really that calculating about it. The whole church
felt under attack...a bit like Americans felt after the
World Trade Center was attacked. He thought he had to do
something to fight back, even though there was not much he
could do."

"Sounds as if the social capital of the Catholic Church
turned anti-social," said Henry, proud of himself.


Regards,

Bill Bonner
for The Daily Reckoning

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• The Daily Reckoning - Rediscovering America (Bill Bonner) + etwas Indien - Firmian, 12.07.2004, 10:08