*** Blah, blah, blah....another blah day. The Dow rose less
than 3 points. The Nasdaq fell 93.
*** The price of gold rose a little as the dollar fell a
bit against the euro.
*** Who can get excited about this kind of action?
Wait...here's something interesting. The International
Herald Tribune headline: US Reports A Surprising 5.3% Gain
in Productivity... What makes it especially surprising is
that it suggests that productivity is growing faster than
GDP. Hmmm.... if output per unit of labor is going up
faster than total output, this means that the labor figure
must be falling. People must be working less. Do you
believe that?
*** "What do the numbers show?" I once asked our accountant
when we were considering selling a business to another
publisher. "Whatever you want them to show," he replied,
explaining how the complexities of the profit and loss
statement could be stretched in a dozen different ways
without violation of the accounting profession's elastic
code of ethics.
*** Likewise, the inflation, productivity, and GDP numbers
have come to resemble a bricklayer's tee shirt - so
stretched is it from the original garment. Once you allow
the idea that output can be determined by what the number
stretchers think something should be worth - such as
additional units of computer power - rather than what
people are actually willing to pay for it... the whole
thing is hopeless. Output is imaginary. And productivity -
the amount of output per unit of labor - is an illusion
too.
*** Meanwhile, back in the Old World, they measure the
economy in the old way. "Hedonic" metrics are used only in
the U.S. (Though they are sure to catch on elsewhere -
accounting fads that obscure the truth are always welcome.)
Even with honest measures, Germany is doing pretty well.
Unemployment is falling - to its lowest levels in 5 years.
Chancellor Shroeder has pushed through a Reaganesque tax
cut. And economic activity is reaching such a pace that the
central bankers are threatening an increase in interest
rates.
*** And in France, things are booming too. President Chirac
has said he would like to follow the German's tax-cut lead.
And what Ed Yardeni calls a "stealth New Economy" is
producing a "quiet revolution" in the way the country does
business. Industrial production is up 4.6%. And the streets
are mobbed, even in August, as tourists from all over the
globe come to France to spend their money.
*** But pity the poor Japanese. "Clueless in Tokyo," is how
Yardeni puts it. "Rather than jumping aboard the New
Economy bullet train," says the economist best known as the
popularizer of Y2K, "they've chosen a discredited Keynesian
policy mix of profligate fiscal spending with zero interest
rates."
*** What's wrong with the Japanese anyway? How is it that
they are completely cut off from the benefits of the New
Era? Doesn't information technology work on the island?
Have they no computers? All the things that Greenspan
applauds - innovation, technology, productivity - are they
unknown west of the Aleutians?
*** The clueless Japanese save. Americans spend. The U.S.
boom owes nothing to the New Era, and everything to the
willingness of U.S. consumers to draw down their savings.
"Coming from a high of 8.7% of disposable income in 1991,
the personal savings rate hit a historical low of 0.6% in
the first quarter of 2000," writes Dr. Kurt Richebacher in
his latest letter. "Could this be the way nations prosper?"
(Please see: What Makes a Nation Wealthy?
http://www.dailyreckoning.com/body_headline.cfm?id=337)
*** Perhaps not. But is certainly the way they light a fire
under the economy and the stock market. The billions of
dollars worth of foregone savings are taken up as
additional consumer spending and investing. Business
revenues increase. Stocks go up. It has nothing to do with
innovation, technology or productivity. Of course, the fire
goes out quickly if and when people decide that a dollar to
two stashed away might not be a bad thing. That moment may
have occurred in the 2nd quarter when, for the first time
in many years, savings rates began to rise.
*** Cisco fell more than $4 yesterday. Investors must have
come to their senses. It may be a good company. But it's
not a $68 stock.
*** More bad news from the retail sector. Walmart is close
to $50 a share. Gap fell almost 15% after a poor earnings
announcement.
*** For the third time in a row, all three contestants in
the latest WSJ stock-picking contest lost money. The latest
results: the pros lost 6.6% of their money over the last 6
months. Journal readers lost 17.3%. And the dart throwers
lost 40.2%. It is hard to make money in this market.
*** Sept. crude oil is at $31.34. And AMZN is still
fighting to stay above $30.
*** I came back to Ouzilly on the train last night. All the
family is now here - all six children... including Sophia,
who spent much of the summer in Rye, NY. There's also
Will's girlfriend, Suzannah. Plus, we have Elizabeth's
brother and his family visiting, with their three little
children. What a tribe!
*** We installed a local network on our computers in the
Paris office. But when I got back to Ouzilly, I discovered
that somehow my normal compuserve system didn't work. I
can't connect. I am cut off.
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"We all know deep down inside this it is reciprocity that
keeps society going."
Ken Binmore
Is it love or money that makes the world go around?
Maybe it is both.
In almost all primate species the males hunt. The females
gather. Men in primitive tribes gain status by hunting big
game. The more successful they are, the more affairs they
have. Some monkeys are more direct, males returning from
the hunt trade meat for sex.
But along the Rue St. Denis, they take cash.
I decided to walk home from work on Wednesday night. We are
in a new office in a new part of town. The walk would be an
exploration.
The streets are just as packed this time of year as they
are in the winter months - but the people are different.
Tourists replace locals. And there is less dog poop on the
streets. The disgusting little dogs have gone off to the
country with their masters.
My route home took me across the Rue St. Denis, where
economy-class tourists jostled lowlife locals on the
crowded streets. This is not a high rent area. The whores
look as though their peak earning years are behind them.
One, a woman with legs as straight and skinny as tomato
stakes and a body like a sack of potatoes, made a beckoning
motion to me as I passed. Ah...the division of labor, I
thought. Something for everyone.
"Eeuuwww," I heard behind me. A pair of Japanese women were
practicing the tight French vowel, "u". But the sound they
were making sounded like it came from a duck blind on the
lower Chesapeake. It was nice to know that some people have
a worse accent than I do.
I continued down the rue St. Jacques. Ahead of me were 3
young men - unmistakeably American. "It was like
awesome..." said one, beginning a line of conversation that
would go nowhere..."all the like masterpieces...like
altogether....I was like..." They had the baggiest shorts I
have ever seen, with pockets so big you could take a nap in
one of them. And the young men walked in such a loose
manner I thought their arms would fly off.
As you go west along the Rue St. Jaques, you are going up
market. The women get prettier. The crowds thin out. There
are storefronts of Christian Lacroix, Yves St. Laurent, and
other fashion moguls. As the rents increase, the displays
in store windows thin out. Volume must decline - replaced
by thicker margins.
I have been trying to connect the dots - between
instinctive behavior, the division of labor, productivity
and the price of gold. As the division of labor expands
people become more dependent, and more willing to trust,
others. They develop an expanding faith in an expanding
system... such that they no longer feel the need to protect
themselves with their own stocks of grain, or their own
stock of money.
Recalling Adam Smith's dictum that the division of labor
would increase with better communications and a bigger
market, I wondered how the Internet boosts productivity,
expands the marketplace and reduces the need for gold as
money.
"Are you kidding," said Addison, "the Internet isn't
increasing productivity at all. Do you realize how much
time it takes to read the Daily Reckoning every day? And
there are thousands of readers. We sent the latest one to
27,845 people. You are personally," Addison pointed his
finger at me, "responsible for a big drain on output."
I was thinking about that, crossing a square near the
Louvre, when all of a sudden... a man on roller skates
smashed into me, practically knocking me to the ground. He
apologized and set off on his way before I could get his
license number... But I was ready to forgive anyway; it was
an accident. Generous Tit for Tat is the best philosophy.
All along the way, life went on. Buyers met sellers. Lovers
walked in each other arms. On the rue de la Colisee, about
8 men stood in various spots - each talking on his cell
phone. I wondered if they were talking to each other.
Finally, I stopped for dinner at the Cafe de La Trocadero.
Behind me, a woman of about 80, who looked as though she
had been very beautiful as recently as a quarter century
ago, sat at a table with a younger woman. The older woman
was dressed in what looked like a gypsy skirt - a light,
multi-colored fabric coming down to the ankles... and a
conservative blue sweater. I didn't get a good look at the
younger woman.
But I heard her speak: "So please go on...." she said,
"tell me what happened when you went off with your
philosophers." There was something about the way she spoke
the word, "philosophers" that made me wonder what meaning
to give it. Was she mocking the idea? Were they a rock and
roll band with that name?
"Oh," replied the older woman, "it was wonderful. We had
all gone to Corsica. I was deeply in love with Jacques, as
I explained to you. I was in love with them all, actually.
But there was something special about Jacques. The sun
shone so bright every day... I got quite a tan. And we went
to a bar every night and stayed almost until dawn.
Laughing. Singing."
"But you know," she confided, "you can't do that forever.
After a while, something went wrong. Maybe we had had
enough. Paul seemed to get very jealous. He stopped
painting. And we were out of money. But those were the
happiest days of my life. I knew they couldn't last. And
maybe that was why I loved them so."
Your humble reporter...listening...watching. Taking it all
in. Trying to make sense of it.
Bill Bonner
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