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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  The Long Dark Night of the Twentieth Century

In Today's Daily Reckoning:
*** Confidence and self-esteem at record levels...
*** Have bonds topped out?
*** Dollar index at new high. Am I wrong about the euro? 
Wrong about the dollar? Wrong about the future? Or just 
plain wrong?

*** Consumer confidence fell slightly in August...but it 
is still near record levels.

*** A measure of the public's optimism may be found in 
savings rates - which hit a new record low in July of 
0.2%. Contrary to the signals I reported a few weeks ago, 
the average American is not saving. He is spending - and 
taking advantage of Internet search engines that offer to 
find him even more money to spend, by mortgaging his 
home. (see: Pride, The Bubble and National Self-Interest

*** Yet another sign of confidence - the cost of put 
options has fallen still further, to the point where they 
are practically free. Put options pay off when stocks 
fall. They are insurance against a bear market. But who 
needs insurance? Things just get better, right? See 

*** So far this millennium, bonds have been the smart 
place to be. They're safe...they've risen about 10%...and 
they pay interest. But bonds get killed when consumer 
price inflation rises. Could that be happening now?

*** Bonds fell yesterday...the 30-year T bond lost $3.75 
on each $1,000 of face value. The yield rose to 5.75%. It 
is surely too early to call a top in the bond market. But 
it's got to happen some day.

*** JP Morgan's Commodity Index hit a new high of 550 
yesterday. It was only 420 as recently as April. Shipping 
futures rose sharply. "Virtually every commodity 
inflation index has soared in August," writes Bill King 
in today's commentary. Could consumer price inflation be 
far behind?

*** One commodity that bucked the trend is lumber. Lumber 
was down big yesterday, though housing sales rose 14.7% 
in July. In fact, "home sales [are] rising to [the] 
highest level in 7 years" reported Reuters. Maybe they 
don't use lumber in houses anymore. Maybe they build them 
with silicon chips and recycled laptop computers.

*** The Dow fell 37 points. The Nasdaq rose 11. It was 
another slow day in August.

*** Leading the Nasdaq were, again, the Big Techs - 
companies such as Oracle and Cisco that have harnessed 
the economies of scale of the Information Age.

*** There were 1325 issues advancing on the NYSE 
yesterday; 1470 declined. 81 stocks registered new highs. 
41 hit new lows.

*** Ahem...the euro is either near or at a new record low 
against the dollar. The dollar index has hit a new high. 
And the euro at 89.2 cents. I got mixed reports this 
morning...but if it has sunk to a new low, I will be 
forced to revise (or deny) my view. 

*** I thought the beginning of this trend was in place 
when the dollar topped out on May 17th. Since then, we've 
been enjoying a 'summer of love' - with the momentum of 
an 18-year bull market carrying us forward and the warm 
sun of July and August to boost confidence. But now, the 
sun is sinking a little lower in the skies of North 
America. The dollar should be beginning its decline too. 

*** The dollar will eventually crack against the 
euro...and the whole thing will fall apart - the Big 
Techs, bonds, stocks generally, the dollar itself, and 
the U.S. economy. Savings rates will rise, imports will 
collapse, gold will go up and Americans' self-esteem will 
fall. Maybe not yet, dear reader. But maybe soon.

*** "American companies operating outside the United States 
are the world's largest exporters," writes Lynn Carpenter 
of the Fleet Street Letter, "[They're] bigger than Japan. 
Bigger than Germany. Yet the Fed pretends these giants 
don't exist. Just as it pretends our cost of living has 
nothing to do with eating, staying warm or driving a car." 
(see: It All Makes Sense in Bora Bora

**** And speaking of the New Economy yesterday, Dan Ferris: 
"It isn't virtual at all. It's made of metal and wire and it 
burns gargantuan amounts of fossil fuels, just like the Old 
Economy, the horse and buggy economy." Ferris reports coal 
demand could surpass our current billion-ton burn rate by as 
much as 200 million tons. But coal is only one way to play 
the demand for electricity generated by computer users and 
the like... (see: The Joke's on the New Economy 

*** The ice is melting at the North Pole. Is it too early 
to buy beachfront property in Nebraska? Writing in the 
Wall Street Journal, Dr. Fred Singer, a veteran of two 
Arctic expeditions with the U.S. Navy: According to 
satellite photos, the polar ice cap is shrinking, but 
that is because the world is "recovering from a previous 
cold period that climate experts refer to as the Little 
Ice Age. As a result of these changes, which have nothing 
to do with human influences, it is warmer now than it was 
100 years ago."

*** I talked with Elizabeth yesterday. The boys made it 
through their first day back at school. Edward was 
relieved that his teacher seemed nice. French teachers, 
by the way, are not the least bit concerned about a 
child's self-esteem. They are not allowed to hit 
students, but they have a rich and vivid vocabulary for 
telling them what they think of them - rather like a 
plumber's remarks to the pipe upon which he has just 
skinned his knuckles.

*** Robert Heinlein on the division of labor and 

"A human being should be able to change a diaper, plan an 
invasion, butcher a hog, conn a ship, design a building, 
write a sonnet, balance accounts, build a wall, set a 
bone, comfort the dying, take orders, give orders, 
cooperate, act alone, solve equations, analyze a new 
problem, pitch manure, program a computer, cook a tasty 
meal, fight efficiently, die gallantly. Specialization is 
for insects."

*** Today marks the anniversary of the bombardment of 
Paris in WWI. A few years later, American troops arrived 
in France. "Lafayette, we are here," declared Pershing - 
before wasting the lives of thousands of American 
soldiers. Lafayette had more sense. More below.

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It has been a long time since Americans were so 
optimistic, so full of confidence... so sure of 
themselves and the future that lies ahead of them.

Progress! We anticipate steady, accumulating improvements 
in the quality of our our net worth...even in 
our life expectancies. 

The division of labor and knowledge makes us less self-
reliant. We don't know how the bread is made....or by 
whom...or even where. The cereal I just ate for breakfast 
must have ingredients from dozens of different countries. 
I could not reproduce them - I couldn't even identify 

Not only have we lost control of the things that are 
essential to our quality of life... we don't understand 
the money that buys them. It too has become more 
abstract. Most of the money we spend is no longer even in 
paper form - it is now only data...whose integrity we 
have no way of monitoring or controlling.

Yet, confidence in this abstract money is at a record 
high - as judged by yesterday's dollar index. Confidence 
in the custodian of the currency, Alan Greenspan, must be 
at an episodic high too - never before have Americans or 
the citizens of any civilized nation had such faith in a 

The list of things in which confidence runs high could 
stretch on for several pages - the Internet, technology, 
the Big Tech stocks, brokerage houses, the economy, 
employment, creditors, promises of a balanced budget, and 
so on. About the only thing that really seems to worry 
Americans is the increase in temperatures at the poles - 
a concern so remote and extravagant that it must reflect 
an almost complete absence of anything real to worry 

The last time confidence ran so high was probably at the 
beginning of the 20th century. Then, as now, the nation 
was enjoying a burst of technological innovation that 
promised a whole new quality of life. Electrification, 
trains, automobiles, telephones, appliances - it must 
have seemed as if nothing would ever stop the march of 
progress. Surveys of public attitudes at the turn of the 
century revealed an almost unbounded faith in the future. 
Respondents universally expected vast increases in 
material well-being. But not only that, they also looked 
for lower crime rates, higher levels of education, 
courtesy and manners, and a diminishing burden of 

But progress does not come in digitally-perfect units. It 
does not build steadily, like a pile of beer cans at a 
summer picnic. Instead, progress happens in fits and 
starts - by trial and error, accidents, and disasters. 
For every step forward, there are several to one side or 
the other, many dead ends... and some long, dark nights 
when things actually get worse, not better.

"In life," said the philosopher Kierkegaard, to repeat 
the quote I gave you a couple of days ago, "only sudden 
decisions, leaps, or jerks can lead to progress. 
Something decisive occurs always only by a jerk, by a 
sudden turn which neither can be predicted from its 
antecedents nor is determined by them."

A jerk happened in the late spring of 1914. The Archduke 
Ferdinand was assassinated. Did anyone really care? What 
did it matter to France, Britain, Russia...let alone to 
America? But by this time in August, war had already 
begun...and the German army had already advanced so 
deeply into France that it could bombard Paris. The 
French government fled to Bordeaux. Hundreds of thousands 
of people left the city. 

I told the story of this part of the war in an earlier 
letter. But the point I want to make today is not about 
the progress of the war, but the meaning of it.

At the beginning of the war, the people of this area of 
France - a rural area far from Paris - were asked what 
they thought of it. "Stupefaction" was the reply. They 
didn't know what it was about. Nor did they particularly 

But wars and credit bubbles have a way of generating 
their own momentum. France was allied with Russia. And 
Russia was allied with Serbia, like two hapless prisoners 
handcuffed together. Once the war was set in motion - 
citizens rallied around the flag. Many people thought the 
whole thing was crazy...but defection from the majority, 
in time of war, is a cause of shame, if not treason.

Directed at the mothers, sweethearts and wives of the 
soon-to-be dead men, a British recruiting poster asked 
"When the war is over and someone asks your husband or 
your son what he did in the Great War, is he to hang his 
head because you did not let him go?" Another asked 
mothers directly, "Is your best boy wearing khaki? If 
your young man neglects his duty to King and Country, the 
time may come when he will neglect you."

Peer pressure also drove men into uniform. Believe it or 
not, one of the earliest of the "'Pals' Battalions," 
which were organized by groups of friends, was made up of 
London stockbrokers. 

Crowds gathered. The excitement was infectious. Everyone 
wanted to get in on the action - as they now want to buy 
Big Tech stocks. A young man recalled arriving in London 
on August 3, 1914 - "the city was in a state of hysteria. 
A vast procession jammed the road from side to side, 
everyone waving flags and singing patriotic songs. We 
were swept along...bitten by the same mood of hysteria."

And, of course, the press saw an opportunity to sell 
newspapers. Jean Cocteau bought a copy of Le Figaro 
(which is the paper I read today) in Paris shortly after 
the war. He discovered that he had been overcharged - and 
the paper was two years old! But when he complained, the 
vendor replied, "But, cher monsieur, that is precisely 
why it is more expensive - there is still a war in it!"

Reports of German atrocities in Belgium were magnified 
beyond recognition. Not only did this sell papers - with 
lurid descriptions of how the Huns raped and murdered 
their way through Louvain (which was not untrue...but 
greatly exaggerated) - it also hardened attitudes in 
Britain and France towards the war, and helped tilt 
America towards the Allied cause.

Governments tried to suppress news and opinion that was 
considered contrary to the war effort - but in Britain 
and France, the press was left relatively free. By 
contrast, in America, freedom of the press was sharply 
curtailed. The Sedition Act of 1918 made even criticizing 
the war in a lodging house illegal. And the director of a 
patriotic film - "The Spirit of '76" - was sentenced to 
15 years in jail because it was 'anti-British."

Defection was not permitted. Not in the tabloids. Not in 
the theatres and lodging houses. And certainly not on the 

Once an objective was set - no matter how unimportant or 
strategically blockheaded - soldiers hammered away. The 
Germans decided to attack the French fortress at Verdun. 
The resulting campaigns cost them 337,000 casualties - 
for no apparent reason. German casualties were so high 
that a young man reaching age 18 in 1915 had only a 50/50 
chance of surviving the war. (The most notable result of 
the Verdun campaign was that it made the defending French 
General, Philippe Petain, known throughout France - so he 
could play a decisive role in the next Franco-German war 
2 decades later.)

Britain's General Haig decided that it was a war of 
"attrition" - so he directed the Somme campaign...gaining 
a few yards here and a cost of hundreds of 
thousands of lives on both sides. The French mutinied. 

But the British, French and Germans gradually learned 
better tactics. Enter the Americans, whose commander, 
Pershing, ignored his Old World colleagues and promptly 
launched frontal assaults on well-defended German 
positions. American troops suffered disproportionate 
casualties and were so ineptly led that a British 
military historian concluded that "the most important 
service of the AEF (American Expeditionary Force) was 
simply to appear in France." The Germans were discouraged 
by the apparently inexhaustible manpower and supplies of 
the Allies.

But what was the point of it all? Niall Ferguson examines 
the war in detail in his book, The Pity of War. He asks a 
series of questions, including: Why did Britain (let 
alone America) intervene? Why did not the war end more 
quickly? Why did men keep fighting...and why did they 
stop? Who won the peace?

Even now, we do not have good answers to these questions. 
We don't really understand why the war began. It was just 
one of those 'jerks' of history. But if it had been 
avoided - or even if the British, and then Americans, had 
stayed out of it...the history of the 20th century might 
have been very different.

Russia may have come to terms with Germany much earlier - 
and thus almost certainly avoided the Bolshevik 
revolution which caused so much misery to so many people 
for the next 7 decades.

Germany and France probably could have fought it out - 
and come to some peace on their they had in 
1871. This would avoided the Versailles Peace 
agreement...the reparations...the great inflation in 
Germany...the rise of Adolph Hitler...and probably WWII 
(which was merely a continuation of the first World War).

As things turned out, WWI marked the end of the evolving 
culture of the 19th century. 

"When the German Foreign Secretary Jagow received the 
news of the English declaration of war on August 4," 
records Mr. Ferguson, "one witness recalled, 'his 
features expression of anguish.' The previous 
evening, [his British counterpart, Sir Edward] Grey had 
famously likened the war to 'the lamps going out all over 
Europe' and telling a friend: 'We shall not see them lit 
again in our lifetime.'"

Grey was right. For the next 70 years, Western 
civilization would go sideways, and backwards - taking 
one misstep and then another. The great confidence - in 
the institutions and progress of bourgeois European 
civilization - was shattered. It never recovered. Only 
now, at the dawn of a new millennium is the debris being 
swept away - all the humbug of socialism, nazism, 
communism...the Stalinist architecture...the empty and 
appalling "modern" buildings...and the accumulated scum 
of big government. Maybe, after the rubbish is hauled 
away...we can begin building again, on the exposed 
foundations of real civilization.

Confidence - like credit - comes and goes.

Your ever-optimistic reporter,

Bill Bonner
About The Daily Reckoning:
The Daily Reckoning... "more sense in one e-mail than a month of CNBC."  That's what readers are saying about The Daily Reckoning.

Bill Bonner, recognized internationally as a brilliant writer, entrepreneur
and publisher of The Fleet Street Letter, offers you his daily market
commentary absolutely FREE. For the first time, outsiders are getting a peek into his powerful and profitable investment insights. Bill's practical contrarian advice empowers even average investors to protect their hard-earned wealth and achieve amazing gains.

Bonner writes his email letter from Paris, France, each morning --
describing the wacky, wonderful world of investment, politics and everything remotely related. Irreverent. Sharp. Honest. Thoroughly, unabashedly contrarian. It's also among the fastest growing e-letter on the Internet.  It's a brand new service... but it has a distinguished history..

For nearly 62 year, The Fleet Street Letter, the oldest investment
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invaluable economic and political foresights to savvy investors. Current readers regularly enjoy impressive investment gains even as the market falters. Here's more from his online readers...

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Last modified: April 01, 2001

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