Facing Extinction

In this DR Classique that originally ran on August 18, 2000 Bill examines ‘Digital Man,’ a mutant who has spawned from the Information Age, fully equipped to provide you with obscure song lyrics, train schedules and the secret to VCR programming…

"It’s the end of the world as we know it, and I feel fine…"

My dreams were troubled last night. I was pursued by a Terminator-like creature, with the body of Arnold Schwarzenegger and the head of Al Gore.

Surely our days are numbered. We are losing our niche. Digital Man is faster, stronger…and smarter. And now, with the Internet at his side, he gets smarter everyday…the little Os and 1s of the digital information stream are pumped into his arteries as though he were wired to a Cray mainframe.

Can anything stop him? A mutant form – he is better adapted to the Information Age than we are. While information floods my e-mailbox…swamps my desk…and nearly extinguishes the pathetic little flicker of cerebral impulses that we analog folks call ‘thinking,’ – Mr. Digital Man seems to lap it up.

The chemical makeup of tootsie rolls, the train schedule for the Paris to Bordeaux line, the actual lyrics of the 1966 hit song, "Louie, Louie" – he’s got it all. Computing power doubles every 18 months, says Moore’s Law, and Digital Man thrives on it.

Homo Digitalis: Digital Man Is Superior

Mr. Digital Man is clearly superior. He can connect to the Internet from anywhere…and knows how to program his VCR so that he can watch his favorite programs – perhaps reruns of Star Trek and the Jetsons – whenever he wants. He can even hack into the White House computer system and get all the latest porno films without paying for them.

What’s more, he never makes the mistake of getting out of the tech stocks. He knows that the ‘New Economy’ has made the business cycle, the credit cycle, and maybe even the wash and spin cycles obsolete. Unlike we Analog humans, Homo Digitalis, never panics…never backs away…and never sells and never gets his clothes dirty. So, he is able to enjoy stock prices that go up and up, with only the occasional setback caused by jittery analogs, forever.

But it was good while it lasted. I refer to our time in the sun, our run on the planet Earth. It’s not every day that a new race of man comes along. In fact, the last time this happened was about 100,000 years ago. And the new race back then was us. We were not necessarily any smarter than the poor Neanderthals…but we must have had some edge, maybe the ability to speak. Whatever it was, it gave us a decisive advantage. Language made it possible for us to share information with one another – thus enabling us to collaborate at a higher level. While the Neanderthals were locked within their range of grunts and groans – rather like the programming on television on an average evening – Homo Sapiens were able to organize cooperative hunting parties…and pass along valuable information about where to find honey and how to fish.

Within a few thousand years, the Neanderthals were history. (Except that a few scientists now believe that the Neanderthals interbred with Homo Sapiens to create the species we all know and love so well.)

And now our time has come. Now a new race can communicate better than we can. Using optic fiber, wireless technology and Moore’s law…Homo Digitalis has the high ground.

But do you think Neanderthals knew when there time was up? Did they sit around the fire, like a group of the hacks on Sunday morning talk shows, trying to figure out what went wrong…and why they were headed to extinction?

I don’t know. But speaking for the race of Analog Humans I think a little soul-searching wouldn’t hurt. In this, if nothing else, at least we have a small advantage over our Digital competitors…we have souls.

Homo Digitalis: How Could We Have Avoided This?

So what could we have done differently? How could we have avoided the fate of Neanderthals…Homo Robustus…the first hominids…and Ross Perot?

The problem was, looking at the situation philosophically, that we were the products of millions of years of evolutionary development. From the tree-monkeys, to the big apes…to the Australopithecus…and all the homos that preceded us – homo erectus, homo habilus, homo neanderthalis and all the cousins and distant relations – I’m talking about the entire animal line, actually, going back to point where the first bits of bacteria got together and decided to collaborate – well…through this whole time we’ve been, how shall I put it, well – moody.

Change is a feature of the world we live in, and like a reflection, indeed a part, of that world – we products of nature are changeable too. One day we are feeling expansive, happy, optimistic and carefree. The next, we are kvetching, rioting, and selling our stocks.

Yardeni is right – "fluctuations are wired into our brains and collective behavior." It is feast or famine…boom or bust…buy or sell…sin or virtue…Saturday night or Sunday morning.

Give us a good investment opportunity – like the Nasdaq in the early 90s…and we’ll buy it until it is a bad one. Give us a bad opportunity…like the Nifty Fifty in the early 70s… and we’ll sell it until it is a good one. Always over-reacting, never satisfied, that’s us.

Just look at what happened to Southern California. It was a paradise 100 years ago. Even 50 years ago, it was a veritable Eden compared to today. But we can’t leave a good thing alone. The place now is so crowded that you can barely burn trash in your backyard without someone complaining and almost every meteorite that falls kills at least one vegetarian.

We probably could have learned to use the Internet, but our instinct to over-do it, whatever ‘it’ is, has been our fatal flaw. Like an unopened bottle of Jim Beam in front of a dipsomaniac – it has been our undoing. And now it has caught up with us.

Perhaps that is the big promise of the biotech sector. A little adjustment of our DNA and, presto, we could all be Digital Humans. We could all talk like Al Gore, invest like Henry Blodget and dress like Larry Ellison. We could be Digital men…the new men of tomorrow.

Instead, we are done for. Has-beens. Relics. Soon, we will be locked in glass cabinets in some dusty museum funded by a bequest from Larry Ellison or some other Digital type with a sense of humor. The cabinet will bear an inscription:

Homo Analogiens, believed to have appeared 100,000 B.C. Last survivor died bankrupt: 2032.

Surely this will be worth a cover of TIME magazine…and maybe a farewell party with a chorus of Auld Lang Syne.

Speaking for the whole race of Homo Analogiens, I just want to say – goodbye. I have no regrets. It was good while it lasted. We did the best we could. Que sera sera.

Analog, and loving it,

Bill Bonner
The Daily Reckoning

August 19, 2005 — Ouzilly, France

Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of The Wall Street Journal best seller Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley & Sons).

With nothing particularly urgent to talk about, we continue our leisurely perambulation through important things. At least, they are important in the sense that they affect millions of people.

At issue is America’s future. But since we cannot know what will happen, all we can do is spin theories and take our guesses. It is amusing. It is entertaining. But it is not serious.

The theory we have been teasing out is that politics and markets follow similar cyclical patterns – boom, bust, bubble and bamboozle. A handful of companies usually take a dominant position in the market; sometimes a single one does. So do a few countries dominate world politics – we call them "empires." The difference between a regular nation and an empire is profound. A regular nation – such as Belgium or Bulgaria – tends its own affairs. An empire looks outward, taking on its shoulders the fate of the much of the world. An empire is like a bull market. It grows, it develops…often it passes into a bubble phase, when people come to believe the most absurd things.

We don’t know what stage the American empire has reached…but we look around and see so many degenerate and absurd things, we guess: we must be nearer the end than the beginning.

How will it end? What will happen next? We don’t know, but we note that people do not give up their self-serving conceits and illusions readily. They hold onto them as long as possible. "America still has the greatest, most dynamic economy on earth," they tell themselves, even as the nation loses money (its income is less than its expenses) at the rate of 6 cents on the dollar. This kind of madness is hard not to like; it is like an aging woman who thinks she becomes more fetching with each passing year. The gap between perception and reality grows wider every day, until finally, the mirror cracks.

What will shatter America’s confidence is probably a combination of financial crises. The dollar is vulnerable. So are Treasury bonds. So are stocks and house prices. Which one will crack the mirror is anyone’s guess. Our guess is that house prices will stop rising, causing a cutback in consumer spending. This will send the U.S. economy into recession…probably a long, soft slump that will take down house prices and the stock market, but leave the dollar and bonds with little damage.

Long suffering readers will find this forecast familiar. It is the same one we made five years ago. We thought then that the tech bubble would blow up, resulting in a long, soft slow slump, a la Japan. Whether we were wrong, or just early, only tomorrow’s newspapers will tell. Instead of a real slump, the United States has had a nine-month phony recession (in which consumer debt actually expanded) and a phony boom since (in which consumer debt actually expanded). These two phony acts, we believe, set the stage for a real one – a not-so-soft, maybe not-so-slow, slump.

If we were sure of this forecast we would buy bonds. Since we are unsure, we buy gold. In the coming real slump, assets of all sorts are likely to be marked down – especially those with a debtor on the other side of the transaction. Gold is what people will buy when the start to wonder about the empire…and its money. We guess that they will begin to wonder more and more…

More news, from our team at The Rude Awakening…


Eric Fry, reporting from Manhattan:

"The bull market in breast augmentation shows no sign of exhaustion. But the bull market in upscale lodging looks ready to drop a cup size or two."


Bill Bonner, with various thoughts…

*** We are always interested in learning how our colleagues came about working here at Agora…very rarely is it because someone saw a classified ad – people usually kind of fall into working here due to some sort of interesting chain of events. We think one of the best stories we’ve heard comes from Whiskey and Gunpowder’s Greg Grillot…

"Before I moved up to Baltimore, I obsessively trained in jiu-jitsu, a Japanese martial art that Brazilians later perfected.

"My most heated rival on the wrestling mats was a guy who outweighed me by at least 50 pounds. Incredibly strong, he would negate my only two weapons – speed and agility – by plunging his knee right between two of my floating ribs with full weight, pushing the wind right out of me…and then, before the gasp redounded off the walls, he’d spin around to a better position only choke me out or rip my foot off. For every one time I submitted him, he submitted me 50 times. Oh yes – did I mention he is at least 55 years old?

"Interestingly, this same man is my personal business mentor. He yanked me out of a life of pure academia and plunged me into this writing/publishing gig."

*** "I read in the Figaro that the American economy has become completely dependent on China," said a friend at a dinner party last night. "But I guess the Chinese have no choice. They need Americans to continue buying their products."

We are alarmed. Even chemists and shoe clerks have taken up macroeconomics. Everyone thinks he understands how the world economy works.

"Well, it is a little like that," we began to explain. "The Chinese do sell to the United States and they do lend money back to the U.S. But there’s no law that says this has to continue.

"Imagine a shopkeeper whose biggest customer was having a hard time paying his bills. He extends credit…hoping the man will get his finances in order. But the more credit he gives him, the worse the man’s finances are. It would be very nice if that could work out. But it rarely does. Instead, it eventually blows up. The customer has to stop buying and the shopkeeper has to stop lending. There’s going to be hell to pay, in other words."

"What should an investor do to protect himself," our friend asked.

"Buy gold."

"Gold? What a strange idea. I haven’t heard anyone mention gold in many years. It seems so out-of-date. I didn’t think anyone bought gold anymore."

"That’s why you should buy it