The Daily Reckoning - Give Me Liberty...or Pepperoni (BB)

verfasst von Firmian, 02.08.2004, 21:28

-->Give Me Liberty...or Pepperoni

The Daily Reckoning

West River, Maryland

Friday, July 30, 2004

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*** How America betrays its children...

*** The scariest real estate bubble on earth...no fooling!

*** Stock market matadors...the Fed gets what's comin'...and
more...

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"The American people have been badly served...the vast
majority of parents and grandparents are not coldhearted
about their kids and their grandkids. They have simply been
badly misled."

So said Pete Peterson, author of"Running on Empty" to
reporter John Crudele."For example, I consider the Social
Security trust fund an oxymoron," he continued.

"It shouldn't be trusted, and it's not funded. Our own
Treasury Department reports we have $44 trillion in unfunded
liabilities in our entitlement programs.

"That's more than all the net worth in the country.

"I always thought my party was about fiscal conservatism. We
have morphed into a kind of any-tax-cut-anytime mentality.
And some big spenders have joined us in the Republican
Party.

"Now we have the worst of both worlds fiscally - the biggest
tax cuts and the big spending increases. What's ironic about
this is that the most conservative sectors of the Republican
Party agree.

"Dick Armey says we can't pin this one on the Democrats.
We're in charge of both the Houses and the White House.
Chuck Hagel, a conservative, says this [Republican] party
has lost its moorings.

"The Democrats, on the other hand, have never met an
entitlement they didn't like. Even though many of them will
privately admit that Medicare as now constituted is
unsustainable, their principal complaint about the Medicare
drug bill is that it doesn't go nearly far enough.

"The question is: What can we do about it?

"There are two approaches, one far more constructive than
the other. First, have a massive truth-telling effort, where
the American people really understand what we are inflicting
on the future and their kids. Then, bold action by a
president who is willing to show leadership."

Pete Peterson has a quality we can't help but like. He is
like a dog that licks his master's hand - even though the
jerk has just kicked him for the 200th time. Peterson is an
earnest reformer who has been yapping for many years about
the sad state of national finances. The naïve pooch still
thinks Americans will change course - if they only knew the
truth. Good luck to him.

More on the state of the union...below. First, the news from
London...

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Tom Dyson, from 5 floors beneath the Golden Balls:

-"The housing market's turned scary," said a friend last
night. The lesser-of-your-two evil Baltimore editors was
enjoying a 'bon voyage' pint by the River Thames, before he
returns to Maryland tonight. We thought our friend was
talking about the giddy levels to which houses have risen
here in the Old Country...almost doubling in value since the
stock market crash began in 2000. We were wrong.

-"Our house won't shift," she continued."We've had it on
the market for 6 months, and we've already cut the asking
price twice."

- The property in question is in Pimlico, a desirable enough
area of central London to our mind. It's a small one-bedroom
affair, but with all mod cons. She put it on the market at a
market-friendly £200,000...some $363,000...but was forced to
knock 10% from the price tag when no one showed any
interest. No one, as in zero. Now she's cut the asking price
again...down almost $60,000 in total.

- Perhaps the Bank of England's rising interest rates are
finally making a difference? Could this be Everest's summit?
Oh, don't discard those oxygen tanks just yet...

- Despite lending rates now more than double those in
Euroland...and 3.5 times higher than at the Fed...gross
mortgage lending here in Britain is still going gangbusters.
In June, lending totalled $32.4 billion - or nearly 2% of
annual GDP. Mortgaging rose 15% from May, and 16% on June
last year. After a little seasonal adjustment by the British
Bankers' Association, the rise in net lending came out at
$11.52 billion...the strongest increase it's ever witnessed.

- Beware, Mr Greenspan - this record new borrowing comes
after the Bank of England raised interest rates 4 times in 7
months...up from a 50-year low of 3.5% to 4.5% last month.
And what about this little snippet, just in? U.K. house
prices in July rose at their fastest clip in over a year.
Nationwide Building Society reports that the average sale
price was up 2.1% on last month, and over 20% higher than a
year ago.

- The average British pile now costs the equivalent of
$279,000...just under 2% more than new buyers had to fork
out in June."You can't tie this bull down," says Adrian
Ash, our UK correspondent."And God knows I've tried!"

- Speaking of market matadors, Robert Shiller knows how to
spear a raging bull. This is the man who spiked the Dotcom
Bubble in his book"Irrational Exuberance," published on
March 15, 2000. Shiller demonstrated that stocks were
ludicrously over-valued. Mere days after his book hit the
billboard, the market tanked.

- Now Shiller has spoken again. Only this time, he's
sounding the alarm on the U.S. housing market."I would say
a bubble is happening," he tells CNN Money."When it's going
to burst is the real question."

- Homeowners pay attention! Not only is Shiller a highly
respected economist - he plies his trade at Yale - but he is
a principal at the real estate firm Fiserv Case Shiller
Weiss."During a housing bubble," says Shiller,"buyers who
would otherwise consider a house too expensive go ahead and
buy anyway because they overestimate future price
appreciation and underestimate risk."

- Who cares? CFO.com reports that U.S. home sales were 17.4%
higher in June than the year-ago period. Sales in the second
quarter were up 15.3% on the same period in 2003. Moody's
analyst John Lonski reckons that June's spurt may herald the
top of the cycle.

- But that doesn't mean the market is ready to crash just
yet, says Lonski. Since the Fed realizes that home prices
are acutely sensitive to interest rates, they can't raise
rates aggressively, Lonski explains. He thinks that the Fed
would rather tolerate a somewhat higher rate of inflation
than risk a collapse in real estate.

- Overestimating gains and underestimating risk look to be
the strategy du jour for stock market investors too, right
now. Wall Street tried to gee up stock prices across the
board Thursday. But while the Nasdaq leapt 1.2%, the Dow
could only manage a 0.1% gain to 10,129. The S&P added 5
points to poke its head above 1,100.

- Let's face facts, dear reader - neither this bounce nor
this housing bubble is sustainable. The outlook for over-
geared investors everywhere...whether in stocks or
housing...is grim.

- In the U.K., the authorities are trying to gently prick a
record housing bubble; so far, they've failed. In the U.S.,
on the other hand, the authorities are still pandering to
it. Neither set of policy wonks will get what they want.
Both will get what's coming. Sell early to avoid the rush.

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Back in West River...en route to Charlottesville, VA...

*** Just received in the Baltimore office: a fax from a
realtor. It gives us the opportunity to buy 6 acres on the
Chesapeake Bay, adorned with a hideous house...for just
$3,195,000.

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The Daily Reckoning PRESENTS: Our guess for who will win the
White House in November...Whichever candidate the plebiscite
chooses, we give our congratulations to President Grief 'n'
Buffoonery...


GIVE ME LIBERTY, OR GIVE ME PEPPERONI
by Bill Bonner

Watching the Democratic National convention, we felt a
peculiar kind of"nostalgie de la boue." We longed for mud,
for dirt...for the real earth beneath our feet... something
solid upon which to stand. And something to throw.

Gone are the days of the old-fashioned political brawl…gone
is the horse-trading in smoke-filled rooms... gone is the
smoke itself…and the sudden and surprising twists of
politics that emerged from it. Gone too are the colorful
characters that used to brighten up political conventions -
the booze-soaked, sweat stained, cigar-chomping power
brokers...and the home-town favorites who were put up by the
local delegates. Gone, too is any trace of heartfelt emotion
or human intelligence.

In its place is a staged event even duller and more insipid
than regularly scheduled TV. We didn't think it was
possible. But even though the future of the world's only
super power is at stake, and by extension the future of this
entire tattered ball itself, the Democrats managed to make
the selection of their candidate as entertaining as an orgy
of dead geese. There was a gaggle of them, but not a single
one was even worth strangling.

After a few minutes, we had to check our pulse...we began to
worry that the tedious deceit of modern politics was life
threatening.

Part of the problem is the quality of the leading Democratic
candidate himself. We do not mind that he is a charlatan -
there were more imposters present last night than at a
convention of Elvis impersonators - but we do mind that the
person he pretends to be is even less appealing than the
person he really is. Again, we did not think it was
possible. Nor did we think it was possible for the Democrats
to put together a ticket less fetching than the
Republicans'. Yet, they've done it. Perhaps the only thing
more alarming than the prospect of another 4 years of Bush-
Cheney, is the prospect of Kerry-Edwards anywhere near the
White House.

Let's face it, dear reader, no matter who wins in November,
we are losers all of us, in for another quadrienne of grief
and buffoonery.

One of the wonders of modern politics is this frequently
posed question: how is it possible that in a nation of
293,845,317 people, the best we can do for an election is a
contest between George W. Bush and John Kerry? Among the
multitudes of able-bodied, native-born citizens there must
be many thousands of reasonable intelligence and standard
morals. Some must even be above average in both qualities.
And a few are surely exceptional. Even if you exclude the
lawyers and career politicians as unfit on moral grounds you
still have millions to choose from.

Yet, Americans have chosen as their champions two of the
least attractive homo sapiens since Tyson faced McNeeley. It
is as if a man had his choice of the finest houses of
Hollywood or the Hamptons...yet decided to move into a dank
cave and sleep on a bed of tick-infested wet straw.

Last night, at dinner, we sat next to a retired colonel, a
West Pointer who spent his career in the Air Force and
served in Vietnam. We were curious what the professionals
made of Mr. Kerry's military leadership. We got an earful:

"I follow the chatter about Kerry," began the response.
"There are a couple of websites. Lots of guys who spent time
in Vietnam - on the same kind of boat as Kerry, including
many of his own shipmates - are posting things. They all say
pretty much the same thing, that the guy went to Vietnam
with Kennedy's PT 109 in mind. Even then, he was aiming for
the White House. He wanted to get his purple heart and get
out of there. He apparently put in for a purple heart every
time he scratched his arm.

"But what is setting off a lot of military guys is the way
he took home movies of himself. You know, those films that
they showed at the convention. Patton staged his landings of
Sicily...making himself look good. MacArthur did the same
thing in the Philippines. But these were real soldiers who
also did the hard work of winning real battles. Kerry was
just preparing a campaign film - apparently.

"And what kind of guy makes home movies of himself when he's
supposed to be in danger...in a war zone...and supposed to
be looking out for his men and his mission...?"

The race in November has turned out to be a classic contest
between a fool and a knave; we're not quite sure which is
which. On the one hand, George W. Bush - scion of a rich,
New England family, with the most powerful connections in
the nation, a Yale graduate, Skull & Bones member and
Harvard MBA - pretends to be a dumb cowboy who just follows
his instincts. On the other, John Kerry - also from Yale,
also a Skull & Bones member, with a billionaire wife,
fabulous homes all over the place, and a 'go along' attitude
to practically every piece of pork-barrel legislation ever
served up in Washington - pretends to be a 'man of the
people' determined to restore justice to the tax system.

Both the men, and the process that put them where they are,
are frauds. But Americans love fraud and self-delusion. They
take up one flim-flam after another as if they were free
drinks. They keep at it until their legs buckle.

The American, wrote Daniel Boorstin in"The Image" (1962),
"lives in a world where fantasy is more real than reality,
where the image has more dignity than its original. We
hardly dare face our bewilderment, because our ambiguous
experience is so pleasantly iridescent, the solace of belief
in the contrived reality is so thoroughly real."

In the investment markets, a man gets what he deserves. But
in politics, he gets what his idiot neighbor deserves. And
one thing you can count on is that the guy next door will
vote for a man who at least appears to be as dull and stupid
as he is. The reason for that is very simple. The mediocre,
lumpenvoter believes his opinions are better than those of
anyone else. He looks for his own stupid face reflected in
the views of his political leaders. Someone who has actually
thought deeply about issues is not only alien to him, but
offensive. The complexities and ironies of the situation
bewilder and annoy him. So, he turns for comfort and
assurance to the simple-minded candidate with the simple-
minded opinions.

George W. Bush is president for an obvious and dreary
reason: he doesn't seem to think enough to worry people. In
the early years of the 21st century, anno domini, America
seems especially bent towards self-deception. The last thing
we want is a leader who will jeopardize it.

What the two candidates have in common is that neither
threatens America's happy delusions. One pretends he is not
smart enough to see them; the other is plainly not dumb
enough to disturb them.

Another thing that makes the Democratic convention a bore is
the quality of the conventioneers. We saw the dim faces on
TV and wondered: was it something in the water? Was it the
effect of too many years of daytime television or government
employment? Whatever it was, it seemed to have bleached out
all the color...all the cleverness...the spark of
intelligence that separates man from dumb beasts.

Among the thousands of journalists covering the convention
in Boston was one from a radio station, WBAL in Baltimore.
The enterprising man decided to test participants to see
what they knew about America's democratic traditions. He put
well-known phrases to them, relating to the foundation of
the republic, to see if they could fill in the blanks...

"One if by land, two if by ____."

"The Boston ____ Party."

"Give me liberty, or give me ____."

Often as not, delegates to the Democratic National
Convention had no idea what he was talking about.

"Give me liberty, or give me...I don't know - pepperoni...?"
one replied.

Finally, democracy itself is based on false pretenses.
People think that by voting, they can get something more
than they can get by honest toil and agreeable exchange.

Americans - especially those in the Northern states - cling
to the fantasy of their democracy as an extension of the New
England town-meeting. They imagine a group of hicks sitting
around a pot-belly stove, as though in a painting by Norman
Rockwell, voting on where to put the new dump. Everyone
present knows what a dump is...and everyone is familiar with
where it will be put. When they vote, they get what they've
got coming.

But when Americans go to the polls in November, they will go
like hamsters into an oriental massage parlor. They have no
idea who the people are, what they are doing, nor what any
of it means. Their candidates are imposters. Their platforms
are elaborate lies. And their actual programs are both
incomprehensible and unforeseeable to the poor schmucks who
enter the polling booths.

We have no interest in politics here at the Daily Reckoning,
except insofar as it helps us understand markets. Both are
expressions of mob psychology, as near as we can tell. A man
on his own, driving down the road, will usually make the
right decisions and more often than not end up where he
intends to go. But put him in the great mass of voters or
investors, and all his good sense seems to disappear out the
window like a cigarette butt. All of a sudden he presses
down the accelerator and heads for the nearest brick wall.

A man on his own knows he cannot get rich by spending his
money, but put him in the middle of a hot real estate market
and he loses his mind. He will buy the biggest, gaudiest,
most expensive house he can swing - confident that he will
get wealthy as the thing appreciates.

If he is buying a company on his own, he will study it
carefully and make sure it is worth the money. But turn him
into a stockmarket"investor" and he will pay absurd prices
for companies he has never seen...run by people he doesn't
know...with balance sheets he cannot read or understand.

Likewise, a man on his owns knows that he is best advised to
leave his dumbbell neighbors alone. But let him join a
political party, and he fantasizes that he has the right and
the power to tell everyone on the block what to do.

The depressing spectacle in Boston shouldn't surprise
anyone. The whole nation is enjoying a make-believe world.
No one wants to break the spell.


Your correspondent,

Bill Bonner
The Daily Reckoning

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gesamter Thread:

• The Daily Reckoning - Give Me Liberty...or Pepperoni (BB) - Firmian, 02.08.2004, 21:28
  • The Daily Reckoning -"Die Krankheit des Papiergelds" - Sorrento, 02.08.2004, 22:43