-->Victory In Europe Day
The Daily Reckoning
Paris, France
Thursday, 8 May 2003
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*** Nothing new...stocks up, stocks down...but what's this -
the dollar didn't go down yesterday! What gives?
*** Coke fizzes...foreign buying fizzles...
*** Insiders sell! Naked women in Paris...and more!
Reading the headlines - nothing much seems to have happened
yesterday.
Stocks went down a little, after they had gone up a little
the day before and down a little the day before that.
Pundits, economists and analysts guessed some more about the
effect of SARS on the world economy...the coming
recovery...the situation in Iraq...and the future of the
entire world. But not a single comment seemed worth
recalling, which made it not so much a remarkable news day -
but at least a pleasant one.
On the other hand, the dollar did something unusual - it
didn't fall.
Homeland-bound Americans may not notice, but those of us who
live abroad suffer every drop in the dollar like gangrene
creeping up our leg. Here in the old countries, everything we
buy today costs 25% more than it did a year ago. Our expenses
are rising so rapidly, something will have to be cut...it is
just a matter of time.
What this means to you, dear reader, is not at all certain.
Import prices must rise as the dollar falls - which means
that U.S. consumers will have to do some cutting too. Which
runs a little contrary to the spendthrift spirit the Fed is
trying to encourage. Just two days ago, the Fed warned that
it was not inflation it worried about, but the lack of it.
Of course, Fed governors Bernanke, Broadus and McTeer have
assured the nation that they can create as much inflation as
they want. The financial press has taken them at their word.
But here at the Daily Reckoning headquarters in Paris, we're
not so sure. When it was supposed to be fighting inflation,
the Fed went over to the enemy. Now that it is supposed to be
fighting deflation, what can we expect? Victory? Betrayal? Or
simple incompetence?
There have been very few attacks by deflation against modern
economies. Only two. In both events, the central bank fired
away with lower rates and easier money. The central
government joined the fight too, with huge spending programs.
But in neither case was deflation whipped.
But we see a puzzled look on your face, dear reader. How can
the dollar be falling...while deflation increases its value?
We have no short answer for you this morning; we'll try to
think of something good by tomorrow.
Meanwhile...here's Eric...
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Eric Fry on the meanest street in New York...
- Effervescent Coca-Cola buoyed the Dow Jones Industrial
Average yesterday morning. But the blue chips lost their fizz
by the closing bell, falling 28 points to 8,561, while the
Nasdaq Composite dipped 17 points to 1,507. Coke shares
surged more than 5% thanks to an upgrade from Morgan Stanley.
The brokerage firm adjusted its rating on the soda vendor's
stock to"overweight" - a term with which many of Coke's
customers are, no doubt, familiar.
- The dollar, meanwhile, seems a bit overweight as well. It
is"trading heavy" against nearly every currency on the
planet. Yesterday, however, the dollar enjoyed a temporary
respite from its travails by surviving an entire New York
trading session without losing any of its value. The dollar
gained about half a percent against the euro to $1.136.
- Certainly, the dollar is due for a bounce, but the
beleaguered buck doesn't have much going for it these days.
America's most successful export is finding fewer and fewer
eager importers. Foreigners - some of them, at least - are
lightening up on their U.S. dollar holdings.
-"Foreign interest in U.S. securities appears to be
buckling," notes Morgan Stanley's Rebecca McCaughrin."Net
foreign purchases of U.S. securities plunged to $21.8 billion
in February, roughly half the level in January and the lowest
level seen since the emergence of a string of corporate
accounting scandals early last year...The risk that
foreigners are souring on U.S. assets is becoming a more
acute concern. While we do not believe that February will set
the pace for the remainder of the year, we are dubious that
foreigners will step up their investment to the $50 billion
per month needed to finance this year's yawning deficit."
- The Prudent Bear Fund's Marshall Auerback agrees."Recently
released figures from the U.S. Treasury...demonstrate an
increasing propensity by private investors abroad to sell
dollar assets including U.S. equities," says Auerback."The
U.S. Treasury...indicates that there was net selling of
$4.74bn of Treasuries by the foreign sector [in February],
the first net selling since April 2002. More revealing was
the actual composition of the flows: Large net Treasury
buying from Japan ($5.58bn) and China ($1.80bn)...has been
[offset by] selling from the Euro area (-$3.4bn), the U.K. (-
$2.9bn) and Canada (-$1.9bn)..."
- Even more troubling, says Auerback, is the fact that Arab
nations have become large net sellers of U.S. assets. Is it
payback time? Are Arab countries, principally Saudi Arabia,
exacting a sort of monetary revenge against the United States
for meddling in their backyard? It's possible, says Auerback,
and it could be very bad news for the dollar...To diversify
even a small proportion of this money out of dollars is quite
relevant in the context of threats to the external value of
the currency.
- If stocks are such a great buy right now, why are so many
insiders selling? Last week, according to SEC filings, only
two corporate insiders purchased more than $1 million worth
of their own companies' shares. By contrast, 65 insiders SOLD
more than $1 million worth of their stock...Hmmm, seems a bit
lopsided. Microsoft founder Bill Gates, who topped the list
of selling insiders, added a few feathers to his nest by
cashing in $410 million worth of Microsoft stock. Such sales
are somewhat routine for the mega-billionaire.
- Somewhat less routine, however, were the insider sales at
International Gaming Technology (IGT). Insiders at the
nation's top manufacturer of slot machines conducted their
largest group sale in more than a year, according to Thomson
Financial. Six IGT executives, including Chief Operating
Officer Thomas Matthews, decided to cash in some of their
chips by unloading about $13 million worth of stock. Who can
blame them? IGT shares are currently trading at an all-time
high near $88.00, up more than 80% since last July.
- Similarly, six insiders at eBay sold a combined total of
$17.8 million worth of stock, while five insiders at Amgen
sold a combined total of $17.9 million worth of stock. Yahoo,
Oracle, Veritas Software and Sun Microsystems also featured a
hefty insider sale or two. Interesting, isn't it? So many of
the stocks that the lumpeninvestoriat loves to buy are the
identical issues that insiders love to sell?
- We don't blame the insiders for setting aside a little cash
for rainy day - and don't you know, it rains a lot in
Redmond, Washington? - but what should we Average Joes deduce
from the dearth of insider buying? Thomson Financial reports
that insider buying in April fell to the lowest level in
eight years. Most Wall Street strategists heralded April's
stock market weakness as a"buying opportunity." It turns out
that it was also a"selling opportunity"...for insiders. At
least the lumps now know who was selling the stocks that they
were buying.
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Bill Bonner, back in Paris...
*** It is VE day; a public holiday in France. Today, the
French remember the Liberation of Paris. The old-timers, at
least, are grateful to American soldiers.
"You've got to come to our VE day celebration," said Mr.
Minig, a French WWII veteran, inviting your editor to a local
event."We haven't forgotten, you know. We still stand with
you, too. Not necessarily the government, of course. And not
the young people. And not the socialists...or the
communists...or...well, there are still a few of us who
remember."
*** Finally, after what seemed like months of dry, sunny
weather, it rained in Paris. The warm rain stirred dull roots
all over the city. Or maybe it was the new advertisements.
All of a sudden, Paris is alive...green...budding and
blooming everywhere. Every sidewalk café seems to have a
beautiful woman sipping a cafe. And nearly every billboard
and empty surface seems to have the picture of a naked woman.
On the subway, huge, well-shaped breasts greet the commuter
in the morning and send him home at night. Though we've
studied the ad carefully, we've never actually noticed what
it was selling. Whatever it is, we're sure it's a hit.
Meanwhile, Aubade, the underwear company, has launched a new
campaign, with the kind of photos you'd have to pay good
money for back in the states.
"These women can't be real," said a friend.
He was referring to the voluptuous contours of the Aubade
models, who look like they were designed by an adolescent
with higher expectations than God himself. We don't know if
they are real or not, but they should be.
The whole city seems to have been taken over by pulchritude.
A new issue of ELLE magazine is advertised everywhere...
featuring the actress Emmanuelle Béart on the cover. Ms.
Béart is, of course...for this is France...stark naked. And
she looks as though she may have been the original model for
Aubade.
It is all almost too much for a middle-aged Episcopalian from
the Tobacco Belt. Every spring, your editor struggles to keep
his head...with about as much success as a central bank
fighting deflation.
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The Daily Reckoning PRESENTS: A DR Classique, originally
aired on VE day, May 8, 2001.
VICTORY IN EUROPE DAY
By Bill Bonner
"War is hell."
William T. Sherman,
before burning Atlanta,
September, 1864
Our attitudes toward war are a puzzle of contradictions.
People are often happy when a war begins...but usually
happier when it ends. We hate war, but we revere war
heroes and war leaders. Of course, the difference between
a war hero and a war criminal is determined less by the
actual events, than by the outcome.
Senator Kerry, for example, still enjoys the sympathy, if
not the admiration, of much of the American public and
media. Kerry is lucky to have been fighting for the
Pentagon and not the Wehrmacht. Otherwise, he would almost
certainly have been tried for murder, and hung.
I have written in the past about war heroes - men who have
done their duty and deserve our respect. Today, I
celebrate those who had sense enough not to follow orders.
We know that wars are destructive and wasteful, but splash
the right jingoes on newspaper headlines, and people take
it up as eagerly as a 3-year-old picks up a loaded pistol.
On this day, 56 [58, today] years ago, Paris celebrated
the end of the most costly, brutal, maniacal episode of
warfare in history - WWII.
People danced in the streets...bands played...the bells of
St. Merry's, next to my office, and those of every church
in Paris, rang for hours. From balconies, banners and
kiosks the news was shouted out: LA GUERRE EST FINI!
People cried, too. Some cried with particular cause:
perhaps they grieved for one of the men who were shot by
the Nazis, the men who are remembered by the many plaques
about town."Ici est tombé..." they say,"Mort pour La
France." [Here is where so and so fell...dead for France.]
Or maybe they were thinking of one of the many victims of
reprisals...or those murdered by the resistance, the
fascists, or by one of the criminal gangs that flourished
during the chaos. No plaques remember these people - they
are forgotten.
But most Parisians who wept on that day did so out of joy
- joy that the war was finally over.
Compared to cities in Normandy, Germany, or Russia - or
even London - Paris suffered little during the war. France
had the biggest army in Europe before the war, but her
troops were largely cut off and annihilated in the opening
days of the war. French military leaders had failed to
understand how the tank - supported by airpower - had
changed the way wars could be conducted.
In shock and disbelief, the French had no plan and no
provisions with which to keep fighting. Instead, they gave
up the fight and made peace with the Germans. The English
charged France with failing to do her duty...by giving up
the fight too soon. But what was the point?
Parisians lived under German rule for 4 years. But the
Germans never terrorized or destroyed the country as they
had in Poland and Russia. Most German troops must have
considered themselves fortunate beyond words to be able to
enjoy the cafes and brothels of Paris, rather than to be
fighting for their lives on the Eastern Front.
After the Allies successfully landed in Normandy, and
broke beyond the hedgerows to the open roads, Hitler
determined to reduce Paris to rubble before they got
there. To that end, he summoned Major General Dietrich von
Choltitz to his headquarters and put him in charge of the
city's garrison.
Why Choltitz? Because he had already ordered the bombing
of Rotterdam and directed the siege of Sebastopol in the
Crimea. In this latter battle, only 347 of his 4,800 men
were fit for duty by the end. Still, he managed to capture
the city and destroy it.
Choltitz had a reputation for being able to follow through
on unpleasant orders. He covered the German retreat out of
Russia, for example, leaving little standing. His
reputation for destruction grew so great that he was
blamed for having reduced Warsaw to ruins. But he was not
even in Poland at the time.
It is easy to dismiss Hitler as a madman and his Nazi
followers as unthinking zealots and opportunists. But it
is hard to understand the German Army's aristocratic
officers, of whom von Choltitz was one. They generally
despised Hitler, as he did them. They surely saw too that
the little corporal had put Germany on course to a
military disaster...and that he was not only mad, but
incompetent.
But people will allow themselves to get swept up into
almost any insanity if it is popular enough. Hitler was an
elected head-of-state. He was the commander-in-chief of
the armed forces. They must have wanted to believe that he
was not the crackpot he appeared to be. Thus, while the
Wehrmacht killed thousands of soldiers in dozens of
countries all over Europe, its generals could not bring
themselves to kill one single man in Rastenburg: the
Führer.
As the two-front war continued, it became more and more
obvious that Hitler was not the leader Germany needed.
Choltitz, receiving his assignment from Hitler directly,
had hoped to find that the Führer had matters in hand.
Instead, what he found was what he described as one of the
most bizarre and unsettling experiences of his life.
"Since the 20th of July," Hitler began his tirade,"dozens
of generals - yes, dozens - have bounced at the end of a
rope because they wanted to prevent me, Adolf Hitler, from
continuing my work."
"He was in a state of feverish excitement," said Choltitz,
remembering the encounter."Saliva was literally running
from his mouth. He was trembling all over and the desk on
which he was learning shook with him. He was bathed in
perspiration and became more agitated."
"Now," said the Führer,"you're going to Paris." The city,
he told general Choltitz,"must be utterly destroyed. On
the departure of the Wehrmacht, nothing must be left
standing, no church, no artistic monument." Even the water
was to be cut off so that"the ruined city may be a prey
to epidemics."
"I was convinced there and then," said Choltitz,"that the
man opposite me was mad!"
Would Choltitz carry out an order given to him by a
lunatic? Another old soldier of the Prussian aristocratic
school, Field Marshal von Kluge, said to him:"I'm afraid,
my dear Choltitz, Paris may become a rather disagreeable
assignment for you. It has the air of a burial place about
it."
"At least it will be a first-class burial," replied
Choltitz. Von Kluge committed suicide 6 days later.
A few weeks later, Choltitz was in Paris...and American
and French troops were at the gates of the city. Choltitz
had let a sarcastic sense of humor creep into his
conversation. He reported back to the German high command
that he was going to blow up the Cathedral of Notre
Dame...Invalides...the Palais Bourbon. He was going to
level the Arc de Triomphe and destroy the Opera to clear a
field of fire (as if there was any intention or point to
fighting!) To his staff one evening he remarked,"Ever
since our enemies have refused to listen to and obey our
Führer, the whole war has gone badly."
Choltitz then let it be known that he could not surrender
to the Resistance (of whom there were about 20,000 already
in the city...already skirmishing with German troops). He
would only surrender to proper officers. Hearing this, the
French troops under Leclerc rushed into the city. Going
right to the Hotel Meurice on the rue de Rivoli, a young
French officer burst into Choltitz's room."Do you speak
French," asked the Frenchman excitedly.
"Probably better than you do," was Choltitz's reply.
Your editor, enjoying VE Day.
Bill Bonner
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