EVERYBODY MAKES MISTAKES

verfasst von BossCube, 08.03.2001, 20:40

EVERYBODY MAKES MISTAKES

THE DAILY RECKONING

LONDON, ENGLAND

THURSDAY, 8 MARCH 2001


*** “US economy is close to a standstill, says the Fed” proclaims today’s
Financial Times headline. The nation’s federal reserve banks reported “sluggish”
or “mixed” results in the Jan-Feb period.

*** But “Wall Street sees a turn in the market” says another headline.
Yesterday, Abby Joseph Cohen raised the stock allocation in her model portfolio
from 65 to 70 percent and slashed her recommended cash holdings to zero. This
follows similar strategic advice from Morgan Stanley Dean Witter and Merrill
Lynch earlier in the week.

*** Abbey went a little further. “The imbalances...have been resolved,” said
she, adding that the Dow could hit 13,000 by the end of the year. Mr. Bear must
be smirking.

*** The Fed is doing its part with rate cuts and easy credit. “I’m going to
worry about avoiding the recession,” said Dallas Fed governor McTeer, “and we
can get back to inflation later.”

*** Consumer credit expanded $16 billion in January, far in excess of the $6.5
billion estimate. December’s numbers were revised upwards too - to a $7.1
billion increase, rather than just $3 billion.

*** Consumers seem to be rising to the bait. “Chain Store Sales Show Consumers
Spending,” says a headline I read a minute ago, but whose source I have already
forgotten. According to the Redbook Average, sales grew 2.1% in Feb.

*** All this spending “suggests that people are pretty confident about their
income prospects, [and] about their employment prospects,” said another Fed
governor, William Poole of the St. Louis branch.

*** Both investors and consumers think they’ve seen the big bottom. The Dow rose
138 points yesterday. The Nasdaq managed only a 19-point increase.

*** Big Bottom or no Big Bottom...the future doesn’t look so good for stock
buyers, says Richard Russell. Historically, when the average P/E of the S&P 500
hits 22, Russell reminds us, investors can expect a return of only 5% per year
for the next 10 years. And about a third of the average return on stocks over
the last 73 years has been from dividends. Currently, the P/E of the S&P 500 is
24...with a dividend yield of only 1.2%.

*** There were 1924 stocks advancing. 1163 declined.

*** The dollar moved little. Gold is reported as either having risen $1.50
yesterday - or fallen $1.20 - depending on your source of information.

*** More people have lost more money in Cisco than in any other stock in
history. The market value of the stock has declined from $590 billion to just
$200 billion.

*** “You can’t leave the building” said a voice from reception. Lord Rees-Mogg
and I were meeting at his office on Bloomsbury Square. We have heard the sirens
wailing - but this is nothing unusual. But when the meeting was over we found
that a bomb threat had caused police to seal off the street in front of the
building. The English have been living with bombs and bomb threats for such a
long time...they actually seem to enjoy them, much like children enjoy a
blizzard. “I wouldn’t stand in front of the window,” advised Lord Rees-Mogg as I
stare out. A few minutes later, traffic was once again moving, or rather, not
moving very much, as usual and I was able to get on with my day.

*** The London press was a big disappointment today. No naughty vicars. No
maudlin tales of dying children. No missing limbs. Instead of tragedy or comedy
- the media decided to devote itself to farce: Gordon Brown’s budget, which
seemed to offer something for almost everyone. Even alcoholics got a break, as
the Brown budget freezes duties on booze.

EVERYBODY MAKES MISTAKES

Nothing much happens in Bremo Bluff, Virginia. I used to drive through the town
on my way down to even more remote areas of the state. It is little more than a
bend in the road; the little town offers little in the way of diversion, which
leaves a man plenty of time to think.

Thus, with time on his hands, Bremo Bluff resident and military historian Bevin
Alexander has wondered about WWII and how it might have turned out much
differently.

What a different world it was 60 years ago.

In February of 1941, Germany had already invaded France. Erich von Manstein had
seen and understood the weakness of the French defensive strategy. He figured
out how to outflank the French and cut off virtually the entire French and
British force encamped near the Belgian border.

The French had, on paper, the strongest army in Europe at the time. But their
tactics were 20 years out of date. It was a new era in warfare and only a
handful of military men - mostly in the Wehrmacht, realized it.

Had the French not been such blockheads, one could argue, the 2nd World War
would never have developed as it did. The Germans would have attacked. They
would have met effective resistance and the balance of power in Europe would
have been maintained.

But errors, dear reader, are inevitable. It was no more possible for the
combatants of WWII to avoid making mistakes than it was for investors in the
Great Bubble of 1995-2000.

Yesterday, Henry Blodget explained why his top recommendations were down an
average of 79%: “The market went from saying ‘we like companies that are growing
quickly but are losing a lot of money’ to saying ‘We want to see earnings.’ It’s
very hard to predict a 180-degree turn like that.”

Some things are predictable. Who could not see that investors would sooner or
later want the companies they owned to make money? It is also 100% predictable
that people will be blockheads.

As events happened, two generations ago, the Germans attacked where they were
not expected...and in a manner the French had never seen. Tank commanders such
as Heinz Guderian and Erich Rommel cut through the French line and then kept
going...moving so fast and showing up in places so far from where they were
thought to be that Rommel’s group became known as the “ghost division.” Not only
were the French and British forces unable to respond effectively - they had no
idea of how to respond. They did not know where the enemy was, what he was
doing, nor even why he was doing it.

In a few weeks, the French army collapsed. Soldiers threw down their weapons and
fled. The French government, in a panic, saw the situation as hopeless and
surrendered. The British, along with a few remnants of the French forces, were
driven into the sea at Dunkirk.

By February of the following year, the Battle of Britain had already been
waged...with an inconclusive result. Churchill had rallied his nation - at the
last moment - and, barely, fended off the German assault.

Rommel was in North Africa preparing his Deutsche Afrika Corps and a series of
breathtaking victories.

The German Army was preparing an invasion of Yugoslavia and Greece.

Hitler was furious with General Franco in Spain, calling him a “Jesuit swine,”
after the latter resisted Hitler’s requests to allow German armies to cross
Spain in order to attack the British fortress at Gibraltar, which guarded the
Atlantic entrance to the Mediterranean. He was also furious at various other
people for various other reasons.

In 1941, the entire world map might have been regarded as a game board - with
national forces aligned, arrayed, in motion or hors de combat such as the
shifting fortunes of the players decreed.

Life is competitive. People compete alone and in groups - in sports, politics,
fashion, sex, business and economics. In the 1940s, nation state competition had
reached a frenzy - an episodic peak. Germany did this. Russia did that. Greece
did such and such. Britain did something else. For a few years, almost everyone
and everything in Europe was brought into the game. A person could be
conscripted into a labor battalion, sent to the front lines in combat, or herded
into a cattle car and shipped to an extermination camp. Politics is a game of
force...played for mortal stakes.

Today, you’d have to read the business pages or the editorial page to find a
similar contests. Microsoft vs. Oracle...Yahoo! vs. AOL...GM vs. Toyota. Nobody
really cares what Greece does. The game has moved from politics to the market,
played out no longer with political power and lethal results...but with economic
power and an outcome that is measured in dollars and sense. The competition is
no longer a worldwide trajedy...but a comedy on a global scale.

Bevins sees the world through the eyes of a military historian. From his roost
in Bremo Bluff, Virginia, he thinks he espies critical mistakes that change the
course of history. In this case, the mistakes were those of Adolf Hitler.

You will recall that Francis Fukayama lays the miserable history of the 20th
century on the shoulders of another German speaker - General von Kluck. Von
Kluck’s error in 1914 - failing to stick to the Shleiffen’s plan of attack -
cost the Germans a quick and critical victory.

Bevins maintains that Hitler’s first mistake was failing to crush the British at
Dunkirk, when he had the chance. The second, and more important error, was
attacking Russia in a way that made no sense tactically or strategically.

“The attack against the Soviet Union on June 22, 1941,” Bevins writes, “is the
most powerful example in the 20th century of how a leader and a nation - in this
case Adolf Hitler and Germany - can ignore clear, eternal rules of successful
warfare, and pursue a course that leads straight to destruction.”

In just a few months, Hitler had put together an empire that dominated Europe.
The Germans occupied half of France. The line of occupation in the west ran only
a few miles from my house in Poitou. From this point in central France, Germans
controlled all the territory of Europe to the center of Poland in the east, and
from Norway in the north down to the tip of Greece and the island of Crete in
the Mediterranean (and large sections of Africa too).

But empires that rise up quickly, like bull markets, tend to collapse quickly
too. The Third Reich was destroyed within just 4 years after Hitler attacked the
Soviet Union.

Fierce and farcical competition in politics continued for another 45 years,
until the collapse of communism in Russia.

Now it is a new world again - an era of fierce economic competition...with
plenty of mistakes, opportunities, and comic results.

Bill Bonner


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• EVERYBODY MAKES MISTAKES - BossCube, 08.03.2001, 20:40