Give Me Liberty, Or Give Me Pepperoni

Our guess for who will win the White House in November…Whichever candidate the plebiscite chooses, we give our congratulations to President Grief ‘n’ Buffoonery…

Watching the Democratic National convention, we felt a peculiar kind of "nostalgie de la boue." We longed for mud, for dirt…for the real earth beneath our feet… something solid upon which to stand. And something to throw.

Gone are the days of the old-fashioned political brawl…gone is the horse-trading in smoke-filled rooms… gone is the smoke itself…and the sudden and surprising twists of politics that emerged from it. Gone too are the colorful characters that used to brighten up political conventions – the booze-soaked, sweat stained, cigar-chomping power brokers…and the home-town favorites who were put up by the local delegates. Gone, too is any trace of heartfelt emotion or human intelligence.

In its place is a staged event even duller and more insipid than regularly scheduled TV. We didn’t think it was possible. But even though the future of the world’s only super power is at stake, and by extension the future of this entire tattered ball itself, the Democrats managed to make the selection of their candidate as entertaining as an orgy of dead geese. There was a gaggle of them, but not a single one was even worth strangling.

2004 Democractic Convention: Tedious Deceit

After a few minutes, we had to check our pulse…we began to worry that the tedious deceit of modern politics was life threatening.

Part of the problem is the quality of the leading Democratic candidate himself. We do not mind that he is a charlatan – there were more imposters present last night than at a convention of Elvis impersonators – but we do mind that the person he pretends to be is even less appealing than the person he really is. Again, we did not think it was possible. Nor did we think it was possible for the Democrats to put together a ticket less fetching than the Republicans’. Yet, they’ve done it. Perhaps the only thing more alarming than the prospect of another 4 years of Bush-Cheney, is the prospect of Kerry-Edwards anywhere near the White House.

Let’s face it, dear reader, no matter who wins in November, we are losers all of us, in for another quadrienne of grief and buffoonery.

One of the wonders of modern politics is this frequently posed question: how is it possible that in a nation of 293,845,317 people, the best we can do for an election is a contest between George W. Bush and John Kerry? Among the multitudes of able-bodied, native-born citizens there must be many thousands of reasonable intelligence and standard morals. Some must even be above average in both qualities. And a few are surely exceptional. Even if you exclude the lawyers and career politicians as unfit on moral grounds you still have millions to choose from.

Yet, Americans have chosen as their champions two of the least attractive homo sapiens since Tyson faced McNeeley. It is as if a man had his choice of the finest houses of Hollywood or the Hamptons…yet decided to move into a dank cave and sleep on a bed of tick-infested wet straw.

Last night, at dinner, we sat next to a retired colonel, a West Pointer who spent his career in the Air Force and served in Vietnam. We were curious what the professionals made of Mr. Kerry’s military leadership. We got an earful:

2004 Democratic Convention: Home Movies

"I follow the chatter about Kerry," began the response. "There are a couple of websites. Lots of guys who spent time in Vietnam – on the same kind of boat as Kerry, including many of his own shipmates – are posting things. They all say pretty much the same thing, that the guy went to Vietnam with Kennedy’s PT 109 in mind. Even then, he was aiming for the White House. He wanted to get his purple heart and get out of there. He apparently put in for a purple heart every time he scratched his arm.

"But what is setting off a lot of military guys is the way he took home movies of himself. You know, those films that they showed at the convention. Patton staged his landings of Sicily…making himself look good. MacArthur did the same thing in the Philippines. But these were real soldiers who also did the hard work of winning real battles. Kerry was just preparing a campaign film – apparently.

"And what kind of guy makes home movies of himself when he’s supposed to be in danger…in a war zone…and supposed to be looking out for his men and his mission…?"

The race in November has turned out to be a classic contest between a fool and a knave; we’re not quite sure which is which. On the one hand, George W. Bush – scion of a rich, New England family, with the most powerful connections in the nation, a Yale graduate, Skull & Bones member and Harvard MBA – pretends to be a dumb cowboy who just follows his instincts. On the other, John Kerry – also from Yale, also a Skull & Bones member, with a billionaire wife, fabulous homes all over the place, and a ‘go along’ attitude to practically every piece of pork-barrel legislation ever served up in Washington – pretends to be a ‘man of the people’ determined to restore justice to the tax system.

Both the men, and the process that put them where they are, are frauds. But Americans love fraud and self-delusion. They take up one flim-flam after another as if they were free drinks. They keep at it until their legs buckle.

The American, wrote Daniel Boorstin in "The Image" (1962), "lives in a world where fantasy is more real than reality, where the image has more dignity than its original. We hardly dare face our bewilderment, because our ambiguous experience is so pleasantly iridescent, the solace of belief in the contrived reality is so thoroughly real."

2004 Democratic Convention: Offensive Thinking

In the investment markets, a man gets what he deserves. But in politics, he gets what his idiot neighbor deserves. And one thing you can count on is that the guy next door will vote for a man who at least appears to be as dull and stupid as he is. The reason for that is very simple. The mediocre, lumpenvoter believes his opinions are better than those of anyone else. He looks for his own stupid face reflected in the views of his political leaders. Someone who has actually thought deeply about issues is not only alien to him, but offensive. The complexities and ironies of the situation bewilder and annoy him. So, he turns for comfort and assurance to the simple-minded candidate with the simple-minded opinions.

George W. Bush is president for an obvious and dreary reason: he doesn’t seem to think enough to worry people. In the early years of the 21st century, anno domini, America seems especially bent towards self-deception. The last thing we want is a leader who will jeopardize it.

What the two candidates have in common is that neither threatens America’s happy delusions. One pretends he is not smart enough to see them; the other is plainly not dumb enough to disturb them.

Another thing that makes the Democratic convention a bore is the quality of the conventioneers. We saw the dim faces on TV and wondered: was it something in the water? Was it the effect of too many years of daytime television or government employment? Whatever it was, it seemed to have bleached out all the color…all the cleverness…the spark of intelligence that separates man from dumb beasts.

Among the thousands of journalists covering the convention in Boston was one from a radio station, WBAL in Baltimore. The enterprising man decided to test participants to see what they knew about America’s democratic traditions. He put well-known phrases to them, relating to the foundation of the republic, to see if they could fill in the blanks…

2004 democratic Convention: Pepperoni

"One if by land, two if by ____."

"The Boston ____ Party."

"Give me liberty, or give me ____."

Often as not, delegates to the Democratic National Convention had no idea what he was talking about.

"Give me liberty, or give me…I don’t know -pepperoni…?" one replied.

Finally, democracy itself is based on false pretenses. People think that by voting, they can get something more than they can get by honest toil and agreeable exchange.

Americans – especially those in the Northern states – cling to the fantasy of their democracy as an extension of the New England town-meeting. They imagine a group of hicks sitting around a pot-belly stove, as though in a painting by Norman Rockwell, voting on where to put the new dump. Everyone present knows what a dump is…and everyone is familiar with where it will be put. When they vote, they get what they’ve got coming.

But when Americans go to the polls in November, they will go like hamsters into an oriental massage parlor. They have no idea who the people are, what they are doing, nor what any of it means. Their candidates are imposters. Their platforms are elaborate lies. And their actual programs are both incomprehensible and unforeseeable to the poor schmucks who enter the polling booths.

We have no interest in politics here at the Daily Reckoning, except insofar as it helps us understand markets. Both are expressions of mob psychology, as near as we can tell. A man on his own, driving down the road, will usually make the right decisions and more often than not end up where he intends to go. But put him in the great mass of voters or investors, and all his good sense seems to disappear out the window like a cigarette butt. All of a sudden he presses down the accelerator and heads for the nearest brick wall.

A man on his own knows he cannot get rich by spending his money, but put him in the middle of a hot real estate market and he loses his mind. He will buy the biggest, gaudiest, most expensive house he can swing – confident that he will get wealthy as the thing appreciates.

If he is buying a company on his own, he will study it carefully and make sure it is worth the money. But turn him into a stockmarket "investor" and he will pay absurd prices for companies he has never seen…run by people he doesn’t know…with balance sheets he cannot read or understand.

Likewise, a man on his owns knows that he is best advised to leave his dumbbell neighbors alone. But let him join a political party, and he fantasizes that he has the right and the power to tell everyone on the block what to do.

The depressing spectacle in Boston shouldn’t surprise anyone. The whole nation is enjoying a make-believe world. No one wants to break the spell.

Your correspondent,

Bill Bonner
The Daily Reckoning
July 30, 2004

"The American people have been badly served…the vast majority of parents and grandparents are not coldhearted about their kids and their grandkids. They have simply been badly misled."

So said Pete Peterson, author of "Running on Empty" to reporter John Crudele. "For example, I consider the Social Security trust fund an oxymoron," he continued.

"It shouldn’t be trusted, and it’s not funded. Our own Treasury Department reports we have $44 trillion in unfunded liabilities in our entitlement programs.

"That’s more than all the net worth in the country.

"I always thought my party was about fiscal conservatism. We have morphed into a kind of any-tax-cut-anytime mentality. And some big spenders have joined us in the Republican Party.

"Now we have the worst of both worlds fiscally – the biggest tax cuts and the big spending increases. What’s ironic about this is that the most conservative sectors of the Republican Party agree.

"Dick Armey says we can’t pin this one on the Democrats. We’re in charge of both the Houses and the White House. Chuck Hagel, a conservative, says this [Republican] party has lost its moorings.

"The Democrats, on the other hand, have never met an entitlement they didn’t like. Even though many of them will privately admit that Medicare as now constituted is unsustainable, their principal complaint about the Medicare drug bill is that it doesn’t go nearly far enough.

"The question is: What can we do about it?

"There are two approaches, one far more constructive than the other. First, have a massive truth-telling effort, where the American people really understand what we are inflicting on the future and their kids. Then, bold action by a president who is willing to show leadership."

Pete Peterson has a quality we can’t help but like. He is like a dog that licks his master’s hand – even though the jerk has just kicked him for the 200th time. Peterson is an earnest reformer who has been yapping for many years about the sad state of national finances. The naïve pooch still thinks Americans will change course – if they only knew the truth. Good luck to him.

More on the state of the union…below. First, the news from London…


Tom Dyson, from 5 floors beneath the Golden Balls:

– "The housing market’s turned scary," said a friend last night. The lesser-of-your-two evil Baltimore editors was enjoying a ‘bon voyage’ pint by the River Thames, before he returns to Maryland tonight. We thought our friend was talking about the giddy levels to which houses have risen here in the Old Country…almost doubling in value since the stock market crash began in 2000. We were wrong.

– "Our house won’t shift," she continued. "We’ve had it on the market for 6 months, and we’ve already cut the asking price twice."

– The property in question is in Pimlico, a desirable enough area of central London to our mind. It’s a small one-bedroom affair, but with all mod cons. She put it on the market at a market-friendly £200,000…some $363,000…but was forced to knock 10% from the price tag when no one showed any interest. No one, as in zero. Now she’s cut the asking price again…down almost $60,000 in total.

– Perhaps the Bank of England’s rising interest rates are finally making a difference? Could this be Everest’s summit? Oh, don’t discard those oxygen tanks just yet…

– Despite lending rates now more than double those in Euroland…and 3.5 times higher than at the Fed…gross mortgage lending here in Britain is still going gangbusters. In June, lending totalled $32.4 billion – or nearly 2% of annual GDP. Mortgaging rose 15% from May, and 16% on June last year. After a little seasonal adjustment by the British Bankers’ Association, the rise in net lending came out at $11.52 billion…the strongest increase it’s ever witnessed.

– Beware, Mr Greenspan – this record new borrowing comes after the Bank of England raised interest rates 4 times in 7 months…up from a 50-year low of 3.5% to 4.5% last month. And what about this little snippet, just in? U.K. house prices in July rose at their fastest clip in over a year. Nationwide Building Society reports that the average sale price was up 2.1% on last month, and over 20% higher than a year ago.

– The average British pile now costs the equivalent of $279,000…just under 2% more than new buyers had to fork out in June. "You can’t tie this bull down," says Adrian Ash, our UK correspondent. "And God knows I’ve tried!"

– Speaking of market matadors, Robert Shiller knows how to spear a raging bull. This is the man who spiked the Dotcom Bubble in his book "Irrational Exuberance," published on March 15, 2000. Shiller demonstrated that stocks were ludicrously over-valued. Mere days after his book hit the billboard, the market tanked.

– Now Shiller has spoken again. Only this time, he’s sounding the alarm on the U.S. housing market. "I would say a bubble is happening," he tells CNN Money. "When it’s going to burst is the real question."

– Homeowners pay attention! Not only is Shiller a highly respected economist – he plies his trade at Yale – but he is a principal at the real estate firm Fiserv Case Shiller Weiss. "During a housing bubble," says Shiller, "buyers who would otherwise consider a house too expensive go ahead and buy anyway because they overestimate future price appreciation and underestimate risk."

– Who cares? reports that U.S. home sales were 17.4% higher in June than the year-ago period. Sales in the second quarter were up 15.3% on the same period in 2003. Moody’s analyst John Lonski reckons that June’s spurt may herald the top of the cycle.

– But that doesn’t mean the market is ready to crash just yet, says Lonski. Since the Fed realizes that home prices are acutely sensitive to interest rates, they can’t raise rates aggressively, Lonski explains. He thinks that the Fed would rather tolerate a somewhat higher rate of inflation than risk a collapse in real estate.

– Overestimating gains and underestimating risk look to be the strategy du jour for stock market investors too, right now. Wall Street tried to gee up stock prices across the board Thursday. But while the Nasdaq leapt 1.2%, the Dow could only manage a 0.1% gain to 10,129. The S&P added 5 points to poke its head above 1,100.

– Let’s face facts, dear reader – neither this bounce nor this housing bubble is sustainable. The outlook for over- geared investors everywhere…whether in stocks or housing…is grim.

– In the U.K., the authorities are trying to gently prick a record housing bubble; so far, they’ve failed. In the U.S., on the other hand, the authorities are still pandering to it. Neither set of policy wonks will get what they want. Both will get what’s coming. Sell early to avoid the rush.