Contributed by Bill
Publisher of: The
Fleet Street Letter
FRIDAY, 27 APRIL 2001
Stole The American Dream?
*** Dow up; Nasdaq down...but gold looks promising...
*** Fed cuts rate and gold stocks go up...a
*** Destroying the 'Cult of the Fed'...gold stock
suggestions...why businesses move to China...and
|*** The Dow managed to rise 67 points yesterday. The|
Nasdaq fell 24.
*** But the interesting story may be developing in
the gold market. The HUI (a measure of the companies
that only mine gold) rose 7%. The XAU - a broader
index - rose a similar amount...up 3.11 points to
*** Homestake was up 34 cents yesterday - to $6.42,
almost twice its price 6 months ago.
*** Gold itself rose $1.90.
*** No, gold is not in a runaway bull market. But
the bear has mauled gold for so many years, he might
have finally lost interest. The stock market offers
so many, much plumper, targets. Maybe gold will be
able to crawl away, quietly, while no one is
*** Is it just a coincidence that gold has been
rallying ever since the Fed cut rates? Other curious
straws are in the wind: Comex gold supplies dropped
for the second straight day, as reported by Weldon's
Metal Monitor. Further, Mr. Weldon notes that the
cost of borrowing physical gold for one month jumped
from 2.75 percent to 3.5 percent in just one day.
Somebody's buying this stuff.
*** Says veteran gold stockbroker, Michael Martin of
R. F. Lafferty, "It wouldn't surprise me to see gold
jump out of here, up $15 to $20 in a single day."
Maybe GATA's on to something after all. The Business
Wire reported "The Gold Antitrust Action Committee
(GATA) will reveal proof of the suppression of the
gold price by the U.S. and German governments and
bullion banks at the GATA African gold summit on May
10 2001, in Durban, South Africa." If GATA turned
out to be correct, the conspiring governments may
find themselves in Durban Deep doo-doo.
*** Successful international investor and former
Barron's roundtable member, George Noble, offered
several astute observations in a recent issue of
Welling@Weeden. Says George, "This is a different
sort of downturn than we've had in 50 years, one
that is destined to destroy the cult of the Fed. The
whole new economy is getting a giant margin
call...Cutting interest rates and hoping that is
going to stimulate PC demand or cellular handset
demand or demand for routers or whatever, is like
sitting in Japan in 1992 and hoping that if we cut
interest rates we can get the price of a Japanese
golf club membership back to $1 million. I mean,
you're trying to re-create the bubble."
*** Noble offers a prediction: "It's very hard to
make money as an investor here...but you want to
avoid the new economy like the plague. Usually when
you get bubbles bursting, not only do they go back
to their lift-off point and to fair value, but you
get the excess wiped out and then some. And we
aren't even close."
*** A chart in Investors Business Daily shows MZM
(money of zero maturity...or 'cash') rising at a 28%
annual, compound rate. Newsletter writer Adrian Van
Eck calculates that Greenspan has added $3.25
trillion to the nation's money supply since he's
been the Fed chief. "Never in the history of America
has so much money been created so fast," writes Van
Eck (via Richard Russell), "The result was
predictable: A new boom with inflation!"
*** Investors' Business Daily: "The Fed is pumping
more money into the economy than it did during the
1998 Asian meltdown. And why not? Alan Greenspan has
to protect his glowing reputation as the best damn
Fed chief ever (just ask Bob Woodward). The threat
of a Fed-induced recession and the worst bear market
in a generation just might take the sheen off. All
that money has to go somewhere. In the past, a good
chunk went straight into the stock market.
"The upshot is this. Since January 3, the Fed has
been cutting interest rates furiously in an effort
to get the economy going. These rate cuts are now
showing up as an exploding money supply. In the
past, a surge in money has meant a lot more economic
activity - and sometimes more inflation. Buckle up
for the ride."
*** "Fortunately," writes James Grant in Forbes, "a
risk-averse investor is in the enviable position of
not having to guess how fast [the dollar will lose
value]...A handful of dividend-paying gold stocks
also offers protection against the risk that Alan
Greenspan does, in fact, put on his trousers one leg
at a time...You might consider, for example,
Anglogold common (with an indicated yield of 5.4%)
or the original Freeport McMoran gold-denominated
preferred (indicated yield, 12.4%). Cheap
*** "Four months and 200 federal funds basis points
later, signs of the second-half recovery are few and
far between," adds Thomas Lepri of TheStreet.com.
"But the Nasdaq's sharp pickup of recent weeks
suggests that investors continue to buy the rebound
thesis. That rosy view could set tech stocks up for
another sharp fall as evidence continues to mount to
*** The techs are not acting as if they expected a
quick recovery. Lucent is laying off 16,000 workers.
Motorola 22,000, Nortel 20,000, Ericsson 15,000,
Verizon 10,000, Cisco 8,000 and JDS Uniphase another
*** JDS Uniphase added ominously that "it planned to
increase automation, particularly at facilities in
China." (How long will it be before the Far East
dominates the Info Tech industry?)
*** Old economy companies are also sending employees
home. Daimler Chrysler is getting rid of 26,000
workers. Proctor & Gamble is laying off 9,000.
Whirlpool 6,000. And J.C. Penny - 5,000.
*** All these layoffs are showing up in the
unemployment numbers. Jobless claims for last week
totaled 408,000 - well above expectations and the
highest level since '92.
*** But "U.S. Home Sales Surge Despite Slowing
Economy," reports the NY Times. And cars continue to
sell reasonably well too...with 17.1 million units
moved off the lots in the first quarter. Opines the
Dismal Scientist: given the level of layoffs and
rising long-term rates, "the current pace is
*** John Myers..."in the 1930s, when the economy
was mired in the Depression - interest rates were
barely above zero. Borrowers refused to sign up new
credit. Only after World War II and the passing of
the Lend-Lease Act did the economy pick up and kick
off an era of newfound confidence among borrowers.
"What the economy requires is not just that interest
rates be lowered - but that confidence be raised.
And that means a continued recovery in stock prices
and fewer job layoffs." Neither look likely any time
*** My apologies to John, I mentioned his website
the day before yesterday and provided you with an
incorrect link. Try this one:
*** The apartment building on rue Davioud was a
little calmer last night. Sophia was in good spirits
- and Maria's tryout for the Chanel ad seemed to
have gone well. So Elizabeth and I slipped out and
had a little romantic dinner at the Trocadero.
I explained my new philosophy of Essentialism to
her...and how it focuses on the problems and
opportunities you might actually be able to do
something about - that is, those closest to home.
"But how do you know what is essential?" she asked.
"Ah...there's the rub..."
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WHO STOLE THE AMERICAN DREAM?
The nice thing about abstractions, I explained to
Elizabeth last night, is that they are elastic. You
can stretch them in any direction to hide almost any
Big, abstract ideas provide leverage for the worst
crimes of all - allowing deceit, murder, theft, and
pomposity on a monumental scale. The common thief
steals a little or a lot...but then he goes on his
way. If only he had a Big Idea behind him - he could
steal from you everyday...and feel morally superior
to you all the while.
What brings this to mind is a book on taxes, "The
Great American Tax Dodge," by Donald L. Barlett and
James B. Steele.
I first picked up the book at the Dulles Airport
bookshop. Imagine my surprise when I found my own
name, right there on page 76, described as a "tall,
lanky Marylander" with a "flair for bombast."
I am further described in the book as "'the brains
behind' the Oxford Club, living in a 19-bedroom
chateau three hours south of Paris."
On all points, the description is false, misleading
or irrelevant...I've never met the authors in my
life. How they know I am 'tall and lanky,' I haven't
a clue. But I am hardly the brains behind the Oxford
Club. I have very little contact with it. And where
did all those bedrooms come from? The authors are
off by 50%. And it is not really 'south of Paris'
any more than, say, New York or Istanbul are 'south
of Paris.' It is at a lower latitude - but to the
west of the city.
"Who are these clowns," I wondered to myself.
The book jacket tells me: "In 'The Great American
Tax Dodge,' a book that should infuriate and
galvanize citizens everywhere, the best-selling
authors of 'America: What Went Wrong?' expose the
millions of Americans who are dodging their income
taxes at every honest taxpayer's expense. With the
clarity, insight and readability that earned them
two Pulitzer Prizes, Donald Bartlett and James
Steele explain how Americans are cheating like never
before and why most are getting away with it."
The authors' beef is not really with me. Instead of
taking advantage of possible "tax dodges" I file and
pay taxes in both the U.S. and France (one of the
highest tax countries in the world). I'll bet I pay
more in taxes...and at a higher rate...than they do.
Yes, I could probably find ways to cut my tax
burden...but money is not everything. I want to live
in France and am willing to pay a price to do so.
But that doesn't mean I don't notice that I'm being
ripped off by two governments on two different
continents. I pay a lot of money in taxes, and as
far as I can see, I get nothing for it. I don't take
advantage of every tax dodge I meet...but, like
beautiful women, I've never met one that I didn't
want to. Nor have I ever heard of a tax cheat I
didn't secretly regard as a minor hero.
What bothers Bartlett and Steele is that the Oxford
Club tells members how to reduce their taxes. Only a
fool would pay more in taxes than he is legally
obliged to. (Most Italians and Frenchmen would say
that only a fool would pay as much as the law
requires.) But - in Bartlett and Steele's addled
book - anyone who tries to protect himself from the
taxmen is "a tax cheat."
Bartlett and Steele's position is so imbecilic I
decided to get a copy of their earlier book,
"America: Who Stole the Dream?" to see if a grander
look at their oeuvre would help make sense of it.
What I found was more of the same. The earlier book
is a "sweeping indictment of the people who run the
federal government," they tell us. What's the
charge? A familiar one: the rich get rich while the
poor get (relatively) poorer. There are also the
corollary bugaboos - jobs are moving to lower-cost
countries, women don't earn as much as men, and
lobbyists influence federal policies.
Did these guys ever have a single thought that
wasn't completely conventional? Did they ever look
at the taxes they personally pay and ask where the
money went? And if they wanted to give away a third
of their incomes to worthwhile causes - did it ever
occur to them that they could decide for themselves
whom to corrupt with the loot? Instead, their
cliches are worn so smooth you could use them as
That is probably the secret of winning Pulitzers -
make sure you appeal to the leprous, group-think
prejudices of the awards committee...and avoid any
real thinking at all costs.
Everybody knows that most government spending is
wasted. The War on Poverty...the War on Drugs...the
War on this and that - every engagement seems to end
in a rout, a stalemate, or a negotiated settlement.
"The last successful government program," said New
York mayoral candidate, Jimmy Breslin, "was WWII."
I'm not even sure about that one.
But Bartlett and Steele don't worry about what
actually happens to the stolen money. Like great con
men and hack politicians, they cloak their envy and
larceny in the accommodating tissue of a Big Idea.
In the acknowledgements, Bartlett and Steele thank
"all public-spirited individuals who believe, as we
do, that in a democracy all citizens should be
treated the same." Fairness is the real issue, they
One example offered in "Who Stole the Dream?" is
that of poor Darlene Speer. She was earning $9 an
hour in the sewing department of Harwood Industries
of Marion, VA. But the company decided to relocate
to Honduras where they could find someone willing to
do the work for 48 cents a hour.
We are, of course, meant to feel sorry for Ms.
Speer. Her bosses earned a lot and she earned a
little. An open and shut case of unfairness, right?
But what about the poor woman in Honduras? Fairness,
unlike illegal drugs, seems to stop at the Rio
The author's second book is concerned that all
people don't pay their fair share of taxes.
But nowhere do they even mention the fundamental
unfairness of the progressive tax system: people do
not pay the same amounts. Not only do rich people
pay more in taxes - they pay tax at higher rates.
One man pays $1,000. Another pays $1,000,000.
"Upper-income Americans are exploited like 19th
century slaves," writes Paul Craig Roberts. "The
uncapped Medicare tax places the top federal income
tax rate at 41.5 percent. Adding in Social Security,
excise, state income and sales taxes, and property
taxes produces a tax burden in excess of 50
"The combined tax rate exceeds the burden borne by a
medieval serf," he continues, "the United States has
become a tyranny, and it has happened on our watch."
But that is the nice thing about the banner of Big
Ideas - you can stretch the fabric as much as you
need to. Fairness can mean anything you want it to
So, who stole the American dream?
Your over-taxed, over-worked and over here
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The Daily Reckoning:|
author Bill Bonner
Bill Bonner is,
in spite of himself, a natural born contrarian. Early each morning, Bill
writes The Daily
Reckoninghis take on the financial markets and whats going
on in the worldand 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 upnot 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 90sopening offices in Florida, London, Paris, Ireland, and
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.