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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

MONDAY, 21 MAY 2001 


Today:  A Great and Sublime Fool

*** 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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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 
Scientific Inquiry." 

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 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... 

Bill Bonner 

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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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: May 21, 2001

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