Contributed by Bill
Publisher of: The
Fleet Street Letter
MONDAY, 21 MAY 2001
A Great and
*** Gold stirs - gold stocks up 10%...the best performers
since the Fed dropped rates...
*** How the bond vigilantes can choke off consumer
*** Santa Fe...and more...
|*** Forget tech stocks. The hottest action these days is in |
the gold market. Gold spiked $13.80 per ounce last Friday -
or about 5 percent. This surprisingly strong advance was
the long-slumbering precious metal's biggest gain in 15
*** Gold mining shares, likewise, posted very strong gains
on the day - with the HUI (an index of pure gold miners) up
10%. On two of the three day's following Greenspan's latest
rate cut, gold stocks have been the best performers. What
is that telling us?
*** We're `great and sublime fools' to use Mark Twain's
words... We have an opinion, but we're not fool enough to
think we know what Mr. Market is planning. The money supply
is soaring...consumer prices are rising...and the Fed is
cutting rates. Could these conditions be good for gold?
*** "No mater how you slice it or dice it, inflation is on
the ascent," says Northern Trust economist, Paul Kasriel.
*** But despite the prevailing inflationary breeze, there
are noticeable gusts of deflation from time to time.
Weldon's Money Monitor detected "deflationary
undercurrents" in Wednesday's CPI report. In particular,
"the simple 3-month DEFLATION in computers is 9.7%." Dell,
admitted that sales and profits were hurting... the stock
price fell 4% on Friday.
*** Otherwise, not much activity on Wall Street on Friday.
The Dow surged just before the close to finish up 53
points. The Nasdaq advanced 5 points. For the week, the Dow
climbed 4.4%, the Nasdaq rose 4.3% and the S&P 500 added
*** "The still prevailing optimism about the U.S. economy
rests on three assumptions," writes Dr. Kurt Richebacher:
"first, that the downturn is being driven by the technology
industry...; second, that consumer spending, accounting for
75% of GDP growth, will prove resilient and thus prevent
recession; and third, that prompt and aggressive monetary
easy by the Fed cannot fail to work its magic on the
markets and the economy." (See: When Was The Blunder Made?)
*** We've seen what has happened in the technology sector.
The promises of the Information Age - that new tech is
immune to the business cycle, that it is smart enough to
avoid excess inventories through real-time monitoring, that
it boosts productivity faster than the Fed can debase the
currency - have all proved hollow. But can the Fed still
work its magic...and keep consumers spending?
*** Consumers are still buying imported goods. March's
trade deficit rose to $31.2 billion. "Consumption and
housing expenditures have held up reasonably well," said
the Federal Reserve upon lowering rates Tuesday, " though
activity in these areas has flattened recently."
*** The strong housing and refinance market has been the
economy's lone pocket of significant strength. If it fades,
no other consumer spending sector appears to be standing at
the ready to pick up the slack. Cutting short rates 5 times
in 5 months seems to have stirred up the gold bugs and bond
vigilantes. While Greenspan knocks down short term lending
rates, both gold and long term interest rates are rising
*** Rising long rates is bad news for the housing/mortgage
industry. Building permits, a gauge of builders' plans for
upcoming months, dropped 2.5% in April, after falling 2.2%
in March. The rate on a 30-year mortgage has climbed to
7.14% after bottoming at 6.89% a few weeks ago.
*** Bloomberg writes, "From Greenwich, Connecticut, to
Jackson, Wyoming, [real estate] brokers said that both
prices and transactions are on the decline. The number of
U.S. homes selling for $1 million or more fell 29% in the
first quarter from the fourth quarter of 2000, according to
DataQuick Information Systems, a housing research firm."
*** Doug Noland, a DR Blue Team associate, suggests that
rising long-term rates will actually choke off consumer
spending. As a "for instance," Noland observes, "the April
data from the Mortgage Bankers Association shows, that the
average fixed mortgage was for $156,600, while the averaged
adjustable-rate mortgage was more than double the amount at
$323,500." Higher long-term interest rates will increase
these homeowners' monthly payments - leaving less money for
spending on other things.
*** Santa Fe is a unique place. The city fathers passed an
ordinance requiring all homes to look as though they were
made of adobe. So, the whole city is brown. If you don't
like the color of mud, you won't like Santa Fe.
*** My purpose in visiting Santa Fe was not to grow a pony
tail or take up yoga. Instead, I was attending my son's
graduation from St. John's college. More below...
*** I can recommend two restaurants for you: The Compound
and Ristra's. Both are good. Up-market Santa Fe restaurants
seem to be competing with each other to see which one can
come up with the most absurd combinations and most obscure
ingredients. Sometimes the experiments work; sometimes they
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POMP AND CIRCUMSTANCE
I could not resist, dear reader.
"How does it feel," I asked, "to be partisans of such a
thoroughly discredited idea?"
I might have gone further. I might have pointed out that
the Nazis disappeared within hours after the Third Reich
collapsed. Even before Hitler's body was cold, almost no
one would admit to ever having had the slightest sympathy
for National Socialism. How was it that Communists still
showed themselves in polite company?
The question has been hotly debated in Paris intellectual
circles. A book recently appeared in which the author
described how communists have tried to re-invent
themselves. So I was curious.
If you are searching today's letter for an insight into the
world of investments, I am afraid you will be disappointed.
Instead, I give you this gratuitous memoir of my son's
Standing before me at the cocktail reception were two
communists - parents of one of Will's classmates. They
earned their livings as labor lawyers in Milwaukee. In
cocktail conversation, I discovered that they were, or had
been, Marxists. "Subversives," was how they described
They were an attractive couple. Lively, witty, charming.
And they had just come back from a trip to the Holy Land of
Collectivism - Cuba.
"I'd say," the woman explained, "that what we believe in is
`sharing.' Cuba is a very sharing place."
So you see, dear reader, there is hope for humankind after
all. The heirs of Lenin, Stalin and Pol Pot have become
sharing and caring people. If only they had learned that
`sharing' at the point of a gun is not sharing - but
St. John's is an unusual college. It has only one
curriculum - the Great Books Program. Students read the
classics - beginning with the ancient Greeks and working
their way forward in history. Even the study of mathematics
and science is undertaken in the same way. They read
Euclid...Newton...Einstein...learning the great ideas
rather than their application.
The commencement itself took place the next day. Each
student's name was listed, along with the title of his
senior essay, which give you a sense of the place. Kathryn
Loyce Andrews wrote about "Self-Consciousness and Spirit."
Matthew Burritt described "The Eye and the Imagination:
Johann Wolfgang von Goethe's Artistic Approach to
What's this? Amid the comments on Wittgenstein and
Dostoevsky is this rather anti-intellectual title, "How to
be a Real Man," by William Wesley Bonner. No further
I took my place in the audience, along with hundreds of
other parents and relatives. Cameras flashed as the
graduates made their way to their seats. Mothers beamed
with pride. Fathers sighed with relief...it costs $25,000
per year to send a child to the college.
But what caught my eye on the speakers stand was the sight
of a familiar black face. Yes, it was Cornel West, who
would give the commencement address. West is a professor of
Afro-American Studies, at Harvard. But the effect of
affirmative action makes you suspicious of the black
bourgeoisie's credentials. I wondered about Mr. West.
Stepping up to the podium, the professor got off to a
rousing start - like a preacher with a microphone in his
hand. Within 2 minutes he had quoted T.S. Eliot, W.B.
Yeats, Malcolm X, and Nietzsche.
And he, too, seems to be a believer in sharing: "Don't ever
forget...don't ever lose your passion," said he to the
class of 2001, "for helping to make sure that all people
get to share in those great traditions of Athens and
At the end of the short speech, the audience rose to its
feet in enthusiastic approval. But, as usual, your reporter
takes a contrary view.
West's speech was full of emotional appeal. But it made no
sense. It was nothing more than a string of delightful
quotations, but with no direction or apparent point. "The
unexamined life is not worth living," said West, quoting
Malcolm X who was in turn putting his own twist on
Socrates, "but the examined life is painful."
"Traditions cannot be inherited," said West, quoting T.S.
Eliot, "they must be earned by hard labor and sacrifice."
After the event, I walked over to the student bookstore and
bought a copy of West's book, "Race Matters." Surely, the
man could not write a whole book without saying something
interesting, I thought. And the jacket promises that
"West's thinking consistently challenges the conventional
Alas, the book does no such thing. It is nothing but
conventional wisdom. So, I will save you another $12, dear
West's complaint is revealed in his foreword. Taxis in New
York won't pick him up. I will take his word for this, but
not his explanation. He maintains that the cab drivers are
racists - reflecting the imbedded racism in American
society. Perhaps so, but many cab drivers in New York are
black themselves. It is more likely that the cab drivers
look for the passengers who will give them the biggest tips
with the least hassle.
Coming back to Baltimore I got into a cab with a black
driver. He turned out to be a recent immigrant from the
Sudan, a man with very black skin, but with a thin face and
long narrow nose. He told me he attends community college
during the day and drives a cab at night. When he has
established himself, he said, he will bring his family
"How do you like driving a cab," I asked.
"Well, it's okay. But I only work from the airport. I don't
like to pick people up in town. It's too dangerous."
The obvious solution to Mr. West's problem is for blacks to
give bigger tips and stop trying to share taxi drivers'
money. But you don't get to be professors of Afro-American
Studies at Harvard with that kind of thinking. Instead,
West maintains that there is something wrong with the white
soul. "The unique combination of American terrorism," he
writes, "bears witness to the distinctive American assault
on black humanity...the fundamental litmus test for
American democracy...remains: how broad and intense are the
arbitrary powers used and deployed against black people."
Mr. West offers no evidence for this...nor any logic that
makes any sense. But he offers a solution: share out the
whites' money - by force. Rob honest citizens as if they
were taxi drivers...and redistribute the loot.
The white soul is surely corrupt...but there is no reason
to think it is more so than the black one. West has made a
good living for himself with this kind of claptrap. And he
has white audiences all over the country applauding him.
Your correspondent, caring and sharing...
P.S. My son is not sure what he will do after graduation. I
wondered what the Marxists' son would do. "He has decided
to follow the way of the samurai," said his mother. "What's
that?" I asked. "I have no idea," came the reply.
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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.