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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

PARIS, FRANCE 
FRIDAY, 26 OCTOBER 2001 

 

Today:  Tides of Fortune

*** Today, in America...

*** Has Mr. Market contracted an Anthrax-induced 
delirium? A heaping helping of economic woe...

*** Maria goes to Lisbon...and, of course, more...

"On the one hand you say this recession is more 
like the Great Depression than the little cyclical 
recessions we've had in the postwar years," writes a 
Daily Reckoning reader. "But you also say that war won't 
pull us out of it. How can you be so sure? Didn't war 
pull us out of the '30s depression?"

Ah...but that was different, replies your editor. 
In 1939, the U.S. economy was at an epic low. Then, the 
war did "get it moving" again. The entire nation was 
mobilized; suddenly, factories had orders for war 
supplies. And suddenly, people found jobs and money 
circulated. 

Statistically, it looked like a boom - and it was, 
in a sense. But instead of turning out plowshares and 
refrigerators, the nation's factories were building 
tanks, guns and bombs. Living standards actually fell - 
as consumer products were rationed, or disappeared 
altogether, to make way for the war effort. 

Compared to WWII, the present war adds little to 
U.S. economic activity. Few new uniforms, new rations, 
or new jeeps are needed. Instead, it's a new kind of war 
- one that will have few positive effects on the 
economy.

Today, the Fed tries to encourage consumers with 
low interest rates...but during WWII consumers were 
discouraged with ratio coupons.

Today, stocks are worth 150% of GDP...but at the 
beginning of WWII they were valued at only 20%. 

Today, America's confidence in the future is at an 
epic high. A Reuters poll released yesterday showed Wall 
Street economists almost unanimously expecting an 
economic recovery early next year. Back then, people had 
just lived through a decade of recession, depression and 
the worst bear market in memory. They were not at all 
sure how the war would turn out...and wouldn't have bet 
a dime on an economic recovery.

Who knows what this "War on Terrorism" will 
produce? But wars seldom make things better.

Eric...what's the news?

*****

Eric Fry in New York...

- Is Mr. Market delirious - or does he know something we 
don't? The economy is crumbling faster than the Taliban 
frontline at Bagram, but the old man seems resolutely 
unperturbed.

- Did he simply ignore yesterday's barrage of feeble 
economic reports? The Dow erased an early morning 
triple-digit loss to surge ahead 1.3% or 117 points. The 
Nasdaq rallied 2.5% to 1,775.

- Meantime, durable-goods orders plunged 8.5% in 
September, existing home sales collapsed 11.7%, and 
weekly unemployment claims soared to 504,000. The four-
week average of jobless claims now stands at a 10-year 
high.

- Greg Weldon, editor of Weldon's Money Monitor, took a 
peek inside these numbers and didn't like what he found. 
Weldon thinks today's data confirms what the weak 
commodity markets have been "saying" for months - that 
our economy is being swept along in what Weldon calls a 
"deflationary tsunami."

- Certainly, armchair economists who are anticipating 
global deflation could have found much to like about 
yesterday's economic reports. (Enjoy it while you can; 
inflation will crop up soon enough).

- "Non-defense capital goods orders collapsed an 
enormous 11.4% in September," Weldon points out, adding 
that in a mere five months this category has plummeted a 
"rapidly deflationary 49%." Yikes.

- As for the dismal existing home sales report, Weldon 
found that all four geographical regions posted a 
monthly decline exceeding 9% and that the supply of 
homes on the market has risen by a whopping 17% since 
September of last year.

- "The housing bubble has burst," he proclaims. "The 
last bastion of the U.S. wealth accumulation is set to 
deflate. The median price of an existing U.S. home fell 
sharply from $153,700 in August to $148,100 in 
September."

- Adding it all up, Weldon comes to the following 
bearish conclusion: "New lows in the industrial economy, 
which is already in the grip of a deepening recession; 
new lows in the labor market; new lows in capital 
spending; new lows in U.S. housing prices, with a 
pending breakdown in sales...all despite new lows in 
U.S. bond yields. The new lows in the U.S. equity 
market, therefore should come as no surprise." 
Persuasive analysis, Greg - except that Mr. Market 
doesn't buy it.

- "Bull market Pollyannas haven't fully digested the 
effect on the oil and the stock markets if the 
Afghanistan campaign drags on," suggests John Myers in a 
moment of unfettered passion. "Few are wondering what 
will happen to the dollar if ground operations heat up 
prior to the onset of winter and body bags start coming 
home. The concurrent drop in the gold price, therefore, 
represents a great buying opportunity." (see: Is It All 
Over For The Midas Metal?)

- The post-September 11 exodus from the Wall Street area 
continues unabated, and I learned that in the most 
reliable place: my barber's. Until Sept. 11th, my 
barbershop, Paul Allen's, was located two blocks from 
the World Trade Center. Because the building that housed 
their operation sustained serious damage, they relocated 
to Midtown - along, it seems, with everyone else from 
downtown.

- Yesterday, I took the subway up to the new location in 
Midtown for a haircut. During my 30 minutes in the 
barber's chair, I overheard comments about moving to 
anywhere but lower Manhattan. It seemed like every 
single person in the place said something like, "Yeah, 
I've been temporarily relocated to Jersey City, but I'll 
be moving to new offices in Midtown next year."

- As USA Today reported, "Ever since the Erie Canal 
opened in the early 1800s, Wall Street has been the 
money capital of America. The financial district has 
survived the Civil War, a street bombing in 1920, a 
great Depression, the 1987 stock market crash, the 1993 
truck bombing. But on Sept. 11th, the future of Wall 
Street was obscured by an acrid cloud of ash and 
smoke...the financial district has lost about 45% of its 
best office space. Thousands of brokers and traders who 
fled the towers aren't coming back."

- One by one, the erstwhile icons of the new economy 
trudge toward oblivion. Yesterday the Street.com 
announced another of its long, unbroken string of 
quarterly losses - the latest being $5.3 million, or 21 
cents a share.

- Perhaps more disturbing than the large loss itself was 
the fact that revenues collapsed to $3.5 million from 
$5.3 million a year before. Not to worry though, the 
Street.com still has $40 million in the bank which 
means, at its current rate of losses, founder/columnist 
Jim Cramer's cacophonous market chatter will remain in 
the public domain for a couple more years. 

- Swell. Sounds like you better load up on all that 
great advice from Cramer while you can.

*****

Back in Paris...

Maria, 15, left for Lisbon today...her first semi-
professional gig as a runway model at a fashion show. 
She is growing up. Sniff sniff...sob, sob.

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TIDES OF FORTUNE
by Bill Bonner

Our legions are brim-full, our cause is ripe:
The enemy increaseth every day;
We, at the height, are ready to decline.
There is a tide in the affairs of men,
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat;
And we must take the current when it serves,
Or lose our ventures.

Brutus
Julius Caesar
Act 4, Scene 3


Samuel P. Huntington has an answer.

All of Christendom sits on the edge of its 
chair...waiting, wondering, eager for some 
explanation...How come they hate us so?

How could smart, well-educated young men live among us 
for years, enjoying our entertainments, our hospitality 
and our standard of living and still hate us so much 
they would die? 

And what is this strange new world we have entered? 
Enemies strike but refuse to identify themselves...or to 
take credit for one of the most successful surprise 
attacks in all of history. Someone sends deadly disease 
through the U.S. mail...but, for what reason? 

For decades, America's best and brightest have found 
employment in universities, think tanks and government 
and devoted themselves to figuring out how U.S. power - 
from the world's only undisputed, gold belt superpower - 
could make the world a better place. MacNamara, Rusk, 
Bundy, Kissinger, Brzezinski...Rice - our nation turns 
its weary eyes to you, once again, as foreign policy 
once again dominates the headlines, and our thoughts. 
Tell us what is going on and what to do about it.

MacNamara and his crowd, you will recall, got 58,000 
Americans killed in Vietnam with their "domino" theory 
of world politics. Fortunately, MacNamara lived long 
enough to express his regrets. 

Brzezinski worked a reverse magic in Afghanistan, for 
which he has no regrets. Gary North revealed an 
interview with Brzezinski that appeared in the Nouvel 
Observateur in 1998. The former national security 
advisor told how the Carter administration aided anti-
Soviet fighters in Afghanistan and thereby lured the 
Soviet army into its own Vietnam. "Regret what?" said 
Brzezinski, "That secret operation was an excellent 
idea. It had the effect of drawing the Russians into the 
Afghan trap..."

The Soviets stormed into the Afghan trap like the 
Americans into Vietnam. In 10 years of fighting, they 
lost 15,000 men...and demoralized their army. 

Osama bin Laden, with American support, learned his 
trade fighting the Russians. He saw how the Russians had 
been trapped...and how the war created so much misery 
and destruction that even his moronic notion of 
government was welcomed with relief...as long as it 
promised stability.

And now it is Osama who has set the trap...and the 
Americans who have flown into it.

But today's letter is not about bin Laden...nor about 
Brzezinski. It is about one of Brzezinski's assistant 
wunderkind in the Carter Administration: Samuel P. 
Huntington. No good explanation for what is going on in 
the world has come forward. So we bring you a bad one.

"The Western world," writes Huntington, "having reached 
maturity, no longer has the economic dynamism or the 
demographic dynamism to be able to impose its will on 
other societies." 

Why does the West want to "impose its will" on other 
societies? According to Huntington, it's because it 
believes its culture is "universal." This notion of 
universality, he says, "has three defects: it is false, 
it is immoral, and it is dangerous." It leads as 
naturally and necessarily to imperialism as a barroom 
insult leads to a brawl.

It is a ridiculous idea, but typical of the thinking 
done by foreign policy wonks. Their ideas become so big, 
so abstract, so remote from anything anyone has ever 
seen, felt or actually experienced that they are pure 
nonsense. Menacing nonsense.

Huntington launched his reputation with an article 
published in Foreign Affairs magazine in 1993, entitled 
"The Clash of Civilizations." The title reveals the 
idea: vulgarized as "us against them." And the outcome 
is not at all certain.

"Westerners think that their civilization has attained a 
position in the world of unprecedented dominance," 
writes Huntington, "while at the same time, Asian and 
Islamic and other societies gain strength." As Brutus 
said of the Phillipian force against him, "Our legions 
are brim-full, our cause is ripe...[while] the enemy 
increaseth every day."

"All civilizations go through the same stages," explains 
Huntington, in a self-evident insight worthy of the 
Daily Reckoning, "emergence, development and decline. 
Western civilization differs from other civilizations 
not by the manner of its development but by the special 
character of its values and institutions: Christianism, 
pluralism, and individualism." 

But rather than let the great forces of nature have 
their sway, Huntington suggests that the U.S. take 
action to protect these qualities through a variety of 
preposterous initiatives:

-Integrate the U.S. more closely with other Western 
states to form a more solid bloc

-Bring marginal or border states - such as Slovenia and 
Croatia - into NATO

-Encourage the "westernization" of Latin America and 
"maintain the technological and military superiority of 
the Occident compared to other civilizations."

Right. Let's put those on our "to do" list for today.

An idea may be absurd, but that does not make it 
unpopular. Even Daily Reckoning readers see a "clash of 
civilizations" in our present circumstances.

"Islamic culture...and Islam itself...," writes a Daily 
Reckoning reader, "is naturally antagonistic to us. It 
is always trying to expand at out expense."

But while Germany crossed the Rhine to invade France 
three times in the space of 70 years, (the source of the 
French saying, "give a German a gun and he heads for 
France"), the last incursion by Islamic forces into 
Europe was in the 8th century...when they were beaten 
back by Charles Martel at the battle of Tours. Not 
exactly the kind of thing you can set your watch by.

The world of Islam, like Christendom, is full of mixed 
aspirations, doubtful piety, and confused thinkers. 
Somewhere in Cairo or maybe Jakarta, there is a 
theoretician of the Muslim persuasion - every bit as 
well educated, as highly respected, and as ridiculous.

Bill Bonner

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About The Daily Reckoning:

Daily Reckoning author Bill Bonner

Bill Bonner is, in spite of himself, a natural born contrarian. Early each morning, Bill writes The Daily Reckoning—his take on the financial markets and what’s going on in the world—and sends it off by e-mail before most Americans’ alarm clocks have buzzed. Many readers say it's the first thing they want to read when they get up—not only because it's informative and thought provoking, but also it's inspiring, in its own quirky and provocative way.

Of course, there's much more to Bill than his daily market commentary. He's also the founder and president of Agora Publishing, one of the world's most successful consumer newsletter publishing companies. Bill's passion for international travel and big ideas are reflected in the company he's successfully built. In 1979, he began publishing International Living and Hulbert's Financial Digest . Since then, the company has grown to include dozens of newsletters focusing on health, travel, and finance. Bill has vigorously expanded from Agora's home base in Baltimore, Maryland since the early ’90s—opening offices in Florida, London, Paris, Ireland, and Germany.

Agora's publication subsidiaries include Pickering & Chatto, a prestigious academic press in London and Les Belles Lettres in Paris, best known as a publisher of classical literature in bilingual editions.

 

 
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Last modified: December 02, 2001

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