Contributed by Bill
Publisher of: The
Fleet Street Letter
FRIDAY, 26 OCTOBER 2001
Tides of Fortune
*** Today, in America...
*** Has Mr. Market contracted an Anthrax-induced
delirium? A heaping helping of economic woe...
*** Maria goes to Lisbon...and, of course, more...
|"On the one hand you say this recession is more |
like the Great Depression than the little cyclical
recessions we've had in the postwar years," writes a
Daily Reckoning reader. "But you also say that war won't
pull us out of it. How can you be so sure? Didn't war
pull us out of the '30s depression?"
Ah...but that was different, replies your editor.
In 1939, the U.S. economy was at an epic low. Then, the
war did "get it moving" again. The entire nation was
mobilized; suddenly, factories had orders for war
supplies. And suddenly, people found jobs and money
Statistically, it looked like a boom - and it was,
in a sense. But instead of turning out plowshares and
refrigerators, the nation's factories were building
tanks, guns and bombs. Living standards actually fell -
as consumer products were rationed, or disappeared
altogether, to make way for the war effort.
Compared to WWII, the present war adds little to
U.S. economic activity. Few new uniforms, new rations,
or new jeeps are needed. Instead, it's a new kind of war
- one that will have few positive effects on the
Today, the Fed tries to encourage consumers with
low interest rates...but during WWII consumers were
discouraged with ratio coupons.
Today, stocks are worth 150% of GDP...but at the
beginning of WWII they were valued at only 20%.
Today, America's confidence in the future is at an
epic high. A Reuters poll released yesterday showed Wall
Street economists almost unanimously expecting an
economic recovery early next year. Back then, people had
just lived through a decade of recession, depression and
the worst bear market in memory. They were not at all
sure how the war would turn out...and wouldn't have bet
a dime on an economic recovery.
Who knows what this "War on Terrorism" will
produce? But wars seldom make things better.
Eric...what's the news?
Eric Fry in New York...
- Is Mr. Market delirious - or does he know something we
don't? The economy is crumbling faster than the Taliban
frontline at Bagram, but the old man seems resolutely
- Did he simply ignore yesterday's barrage of feeble
economic reports? The Dow erased an early morning
triple-digit loss to surge ahead 1.3% or 117 points. The
Nasdaq rallied 2.5% to 1,775.
- Meantime, durable-goods orders plunged 8.5% in
September, existing home sales collapsed 11.7%, and
weekly unemployment claims soared to 504,000. The four-
week average of jobless claims now stands at a 10-year
- Greg Weldon, editor of Weldon's Money Monitor, took a
peek inside these numbers and didn't like what he found.
Weldon thinks today's data confirms what the weak
commodity markets have been "saying" for months - that
our economy is being swept along in what Weldon calls a
- Certainly, armchair economists who are anticipating
global deflation could have found much to like about
yesterday's economic reports. (Enjoy it while you can;
inflation will crop up soon enough).
- "Non-defense capital goods orders collapsed an
enormous 11.4% in September," Weldon points out, adding
that in a mere five months this category has plummeted a
"rapidly deflationary 49%." Yikes.
- As for the dismal existing home sales report, Weldon
found that all four geographical regions posted a
monthly decline exceeding 9% and that the supply of
homes on the market has risen by a whopping 17% since
September of last year.
- "The housing bubble has burst," he proclaims. "The
last bastion of the U.S. wealth accumulation is set to
deflate. The median price of an existing U.S. home fell
sharply from $153,700 in August to $148,100 in
- Adding it all up, Weldon comes to the following
bearish conclusion: "New lows in the industrial economy,
which is already in the grip of a deepening recession;
new lows in the labor market; new lows in capital
spending; new lows in U.S. housing prices, with a
pending breakdown in sales...all despite new lows in
U.S. bond yields. The new lows in the U.S. equity
market, therefore should come as no surprise."
Persuasive analysis, Greg - except that Mr. Market
doesn't buy it.
- "Bull market Pollyannas haven't fully digested the
effect on the oil and the stock markets if the
Afghanistan campaign drags on," suggests John Myers in a
moment of unfettered passion. "Few are wondering what
will happen to the dollar if ground operations heat up
prior to the onset of winter and body bags start coming
home. The concurrent drop in the gold price, therefore,
represents a great buying opportunity." (see: Is It All
Over For The Midas Metal?)
- The post-September 11 exodus from the Wall Street area
continues unabated, and I learned that in the most
reliable place: my barber's. Until Sept. 11th, my
barbershop, Paul Allen's, was located two blocks from
the World Trade Center. Because the building that housed
their operation sustained serious damage, they relocated
to Midtown - along, it seems, with everyone else from
- Yesterday, I took the subway up to the new location in
Midtown for a haircut. During my 30 minutes in the
barber's chair, I overheard comments about moving to
anywhere but lower Manhattan. It seemed like every
single person in the place said something like, "Yeah,
I've been temporarily relocated to Jersey City, but I'll
be moving to new offices in Midtown next year."
- As USA Today reported, "Ever since the Erie Canal
opened in the early 1800s, Wall Street has been the
money capital of America. The financial district has
survived the Civil War, a street bombing in 1920, a
great Depression, the 1987 stock market crash, the 1993
truck bombing. But on Sept. 11th, the future of Wall
Street was obscured by an acrid cloud of ash and
smoke...the financial district has lost about 45% of its
best office space. Thousands of brokers and traders who
fled the towers aren't coming back."
- One by one, the erstwhile icons of the new economy
trudge toward oblivion. Yesterday the Street.com
announced another of its long, unbroken string of
quarterly losses - the latest being $5.3 million, or 21
cents a share.
- Perhaps more disturbing than the large loss itself was
the fact that revenues collapsed to $3.5 million from
$5.3 million a year before. Not to worry though, the
Street.com still has $40 million in the bank which
means, at its current rate of losses, founder/columnist
Jim Cramer's cacophonous market chatter will remain in
the public domain for a couple more years.
- Swell. Sounds like you better load up on all that
great advice from Cramer while you can.
Back in Paris...
Maria, 15, left for Lisbon today...her first semi-
professional gig as a runway model at a fashion show.
She is growing up. Sniff sniff...sob, sob.
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TIDES OF FORTUNE
by Bill Bonner
Our legions are brim-full, our cause is ripe:
The enemy increaseth every day;
We, at the height, are ready to decline.
There is a tide in the affairs of men,
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat;
And we must take the current when it serves,
Or lose our ventures.
Act 4, Scene 3
Samuel P. Huntington has an answer.
All of Christendom sits on the edge of its
chair...waiting, wondering, eager for some
explanation...How come they hate us so?
How could smart, well-educated young men live among us
for years, enjoying our entertainments, our hospitality
and our standard of living and still hate us so much
they would die?
And what is this strange new world we have entered?
Enemies strike but refuse to identify themselves...or to
take credit for one of the most successful surprise
attacks in all of history. Someone sends deadly disease
through the U.S. mail...but, for what reason?
For decades, America's best and brightest have found
employment in universities, think tanks and government
and devoted themselves to figuring out how U.S. power -
from the world's only undisputed, gold belt superpower -
could make the world a better place. MacNamara, Rusk,
Bundy, Kissinger, Brzezinski...Rice - our nation turns
its weary eyes to you, once again, as foreign policy
once again dominates the headlines, and our thoughts.
Tell us what is going on and what to do about it.
MacNamara and his crowd, you will recall, got 58,000
Americans killed in Vietnam with their "domino" theory
of world politics. Fortunately, MacNamara lived long
enough to express his regrets.
Brzezinski worked a reverse magic in Afghanistan, for
which he has no regrets. Gary North revealed an
interview with Brzezinski that appeared in the Nouvel
Observateur in 1998. The former national security
advisor told how the Carter administration aided anti-
Soviet fighters in Afghanistan and thereby lured the
Soviet army into its own Vietnam. "Regret what?" said
Brzezinski, "That secret operation was an excellent
idea. It had the effect of drawing the Russians into the
The Soviets stormed into the Afghan trap like the
Americans into Vietnam. In 10 years of fighting, they
lost 15,000 men...and demoralized their army.
Osama bin Laden, with American support, learned his
trade fighting the Russians. He saw how the Russians had
been trapped...and how the war created so much misery
and destruction that even his moronic notion of
government was welcomed with relief...as long as it
And now it is Osama who has set the trap...and the
Americans who have flown into it.
But today's letter is not about bin Laden...nor about
Brzezinski. It is about one of Brzezinski's assistant
wunderkind in the Carter Administration: Samuel P.
Huntington. No good explanation for what is going on in
the world has come forward. So we bring you a bad one.
"The Western world," writes Huntington, "having reached
maturity, no longer has the economic dynamism or the
demographic dynamism to be able to impose its will on
Why does the West want to "impose its will" on other
societies? According to Huntington, it's because it
believes its culture is "universal." This notion of
universality, he says, "has three defects: it is false,
it is immoral, and it is dangerous." It leads as
naturally and necessarily to imperialism as a barroom
insult leads to a brawl.
It is a ridiculous idea, but typical of the thinking
done by foreign policy wonks. Their ideas become so big,
so abstract, so remote from anything anyone has ever
seen, felt or actually experienced that they are pure
nonsense. Menacing nonsense.
Huntington launched his reputation with an article
published in Foreign Affairs magazine in 1993, entitled
"The Clash of Civilizations." The title reveals the
idea: vulgarized as "us against them." And the outcome
is not at all certain.
"Westerners think that their civilization has attained a
position in the world of unprecedented dominance,"
writes Huntington, "while at the same time, Asian and
Islamic and other societies gain strength." As Brutus
said of the Phillipian force against him, "Our legions
are brim-full, our cause is ripe...[while] the enemy
increaseth every day."
"All civilizations go through the same stages," explains
Huntington, in a self-evident insight worthy of the
Daily Reckoning, "emergence, development and decline.
Western civilization differs from other civilizations
not by the manner of its development but by the special
character of its values and institutions: Christianism,
pluralism, and individualism."
But rather than let the great forces of nature have
their sway, Huntington suggests that the U.S. take
action to protect these qualities through a variety of
-Integrate the U.S. more closely with other Western
states to form a more solid bloc
-Bring marginal or border states - such as Slovenia and
Croatia - into NATO
-Encourage the "westernization" of Latin America and
"maintain the technological and military superiority of
the Occident compared to other civilizations."
Right. Let's put those on our "to do" list for today.
An idea may be absurd, but that does not make it
unpopular. Even Daily Reckoning readers see a "clash of
civilizations" in our present circumstances.
"Islamic culture...and Islam itself...," writes a Daily
Reckoning reader, "is naturally antagonistic to us. It
is always trying to expand at out expense."
But while Germany crossed the Rhine to invade France
three times in the space of 70 years, (the source of the
French saying, "give a German a gun and he heads for
France"), the last incursion by Islamic forces into
Europe was in the 8th century...when they were beaten
back by Charles Martel at the battle of Tours. Not
exactly the kind of thing you can set your watch by.
The world of Islam, like Christendom, is full of mixed
aspirations, doubtful piety, and confused thinkers.
Somewhere in Cairo or maybe Jakarta, there is a
theoretician of the Muslim persuasion - every bit as
well educated, as highly respected, and as ridiculous.
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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.