Spontaneous Order

Here, at The DR HQ in Baltimore, we are often asked: "So, what exactly do you guys do again?" Admittedly, sometimes we wonder the same…but Bill Bonner did a brilliant job of enlightening his employees at this year’s holiday meeting.

We don’t know yet whether the real estate bubble is really over or not. That it will be over sooner or later is certain. How and when this end will come remain mysteries.

In Britain and Australia, real estate bubbles seem to be losing air. Thus far, neither economy is falling apart. And yet, in those places, as in the United States, rising property prices bent judgments and twisted financial decisions far beyond the housing market itself. People bought things they wouldn’t have otherwise bought. The spent money they wouldn’t have otherwise spent. They borrowed money they couldn’t have otherwise gotten their hands on.

When a real bubble deflates…it is always accompanied by regrets. People have debts they wish they hadn’t…and expenses they’d like to get rid of. After this property bubble bursts, for example, the people who install granite countertops will have less business….less income…and less money to spend. They may wish they hadn’t bought a condo…for will be harder to keep up with the maintenance, taxes and condo fees…and harder to find someone to flip it over to.

We noted yesterday that the New World, we seem to be edging toward is not necessarily a bad one. Many companies will flourish. Many people will get richer. And with lower labor rates, the rich may be able to live even better than they do now. Wealth may become de-nationalized…as production already has been. No matter where people live…they should be able to get ahead, if they’re smart, fast and lucky. But what may be good for a few will almost certainly be bad for many…and many are likely to try to do something about it.

Getting from an old economy to a new one inevitably involves losses…disruption…and sometimes revolution. America’s leveraged realtors…indebted countertop installers…and mortgaged householders are bound to suffer when the bubble pops. But the suffering may not end quickly. The working stiffs can no longer form a union and hold their industries hostage…they will have to take what they can get from the global labor market. In short, they will have to compete with billions of foreigners directly. They will be on a par with working stiffs in Nicaraguans and Malaysians.

When they finally figure out what is happening, America’s lower and middle classes may not take the news well. They will feel they have been betrayed…they will think they have been brought low. There is nothing wrong with the average Mexican or the average Hindu or the average Argentine; still the average American will feel his amour propre has been damaged. He has become accustomed to feeling superior to his fellows. It will come as a shock to him to realize that he is no better off than they. He will take the fall of the dollar personally. He will feel something should have been done to protect the empire…and to protect his job…and protect his house from going down in price. Will he not put on an angry face and turn to his government? Smite these rich people. Smite these foreigners. Smite someone!

More news from our team at The Rude Awakening…


Eric Fry, reporting from Manhattan:

"To judge from outward appearances, the American economy still boasts an enviable physique. But perhaps this economic supermodel is somewhat more feeble than appearances would suggest."


Bill Bonner, with more thoughts from the coast…

*** We are grateful to our dear readers for the kind words and condolences that have been pouring in regarding our good friend and Agora family member, Thom Hickling. Thank you for keeping Thom and his family in your thoughts in this busy time of year.

*** We are getting to know our children.

That is what vacations are for. When we are in London or Paris, everyone is too busy to talk. The boys rush off to school. When they come home, they have hours of homework. Even on Saturdays and Sundays, the homework continues. Of course, they have their social lives…and their entertainments. They are naturally loath to surrender a minute of either to spend talking with Mom or Dad.

Here, it is different. We have long breakfasts, lunches and dinners together. In the morning, we go to the beach. Again, in the evening, we go to the beach. And in the heat of mid-day…we read…we write…or we talk.

Not all the talk is pleasant. Some of it is uncomfortable. Sometimes the discussions are discouraging…sometimes exasperating…sometimes frustrating. But it is these difficult discussions that are most important. It is there that we learn something we need to know…that we have an opportunity.

Literature of the 19th century was full of careful studies of family life. Mothers sought good unions for the sons and daughters…and were careful about who was seeing whom…and about table manners…and what the servants thought. Good marriages…bad marriages…social status…family fortunes…family businesses – the happy, healthy prosperous family was an ideal. But in the 20th century, literature turned on the family like an ungrateful son. Suddenly, all the plays and novels were full of bad families. Between 1880 and 1930 all the fathers became alcoholics, womanizers, and abusers. The wives sought liberation. They wanted careers of their own…or drugs. And the children all became sensitive poets with souls bruised and battered by family life. There is hardly a single family in serious literature after 1920 that didn’t have a horrible secret to hide. And almost none whose members were not better off on their own. In the 20th century, it was every man for himself – free to go his own way, make his own fortune…and make a mess of his own life in his own way.

Here on this family vacation…we flip back the calendar more than a century and wonder again about how a family should work. Should we try to bring the boys into the business? Or let them figure out for themselves what they should do? Sophia is getting ready to leave college; how much help should we give her after her schooling is finished? Should we try to get her into a good situation where she will meet a man we think suitable for a husband…or should we wish her well and let her go make it on her own? And what about Maria? She already knows what she wants to do…but should we help her decide where…and how? How long should we support her until her career ‘takes off?’

"We grew up with this ‘anything goes’ attitude," Elizabeth explained. "And it works fine for some people. But it was a disaster for many people. Most people can benefit from careful guidance. Because without it, they make mistakes that can’t be repaired…mistakes they have to live with all their lives. If you read Trollope, or Thackeray or Tolstoy or Henry James you see that people used to spend a lot more time trying to help their children avoid mistakes…trying to shape their lives…and trying to understand what kind of lives they might lead and how to get them onto the proper path.

"I’m not saying that we should tell our children what to do. Often, we don’t know what they should do. But we should spend as much time with them as possible discussing what they could do…and how they could do it. When I look back at all the stupid things we did…it is amazing our family has turned out as well as it did. We should try to do all we can, without doing so much that they feel stifled or smothered."


This morning, we stand on our porch and look out at the sea.

Another year has washed up…beaten out by the rhythm of the waves…and scourged by the salty water.

What became of it?

Every year we stand before our employees in Baltimore and report on the year that has passed. It is a custom that dates back to the time of Pericles…and finds expression in American national life in the president’s State of the Union address.

You, dear reader, have no particular reason to care about the business behind the Daily Reckoning. But we will tell you anyway. The following essay is adapted from our speech to employees before the annual Christmas party:

The Daily Reckoning is published by Agora, Inc, of which your editor is founder and chairman. The business was begun in the late ’70s…and has survived and grown through no particular fault or virtue of its leader. The Daily Reckoning currently has about half a million dear readers…about the same as last year and the year before. But Agora has added employees – to a total of nearly 500 worldwide.

Agora is a publishing company. It began publishing financial newsletters – it’s first launch was the Hulbert Financial Digest. (Mark Hulbert is still in business, but no longer associated with Agora.) Its second product was another newsletter, also still in business, called International Living. By fits and starts since then, the business has grown, and now has dozens of products – including books, newsletters, e-letters, courses, magazines and special research reports – and offices in several foreign countries, including a new office just opened this year in Australia. Continuing our global expansion, we hope to open an office in India in 2006, where we will outsource some editorial and Information Technology functions.

Sales are up 15% over last year, giving us an average growth rate of 28.5% over the last 5 years. Profit margins this past year remained the same as the year before – higher than expected and probably higher than we deserve. If Agora were a publicly traded stock it would probably be a ‘buy’ for most analysts. But the company is not available to the public…and the owners have been around long enough not to let this year’s success go to their heads. The publishing business is traditionally a tough business. People don’t wake up in the morning and say, "Honey, we’re out of newsletters." No one goes to bed at night wishing he had one of our research reports by his bedside. Instead, every day is a new day. And every day we need to come up with ideas and information that people want to buy. And every year is a struggle to make sure we take in more in revenue than we spend. For there is no giant corporation backing us. No bank stands ready to make up the difference by printing up extra currency. We sell no bonds or stocks to the public. And year in and year out…the IRS demands a major piece of our success…while accepting no part of our failures.

Publish Extraordinary Ideas: What Makes Us Different

What is it that makes our business different from other publishing businesses? We operate in a very special niche. Unlike newspapers and TV and most magazines…we do not offer entertainment (though we try to make what we offer entertaining). Nor do we offer ‘what everyone knows’ or what everyone wants to hear. Instead, our products are private and personal. They are directed towards individuals, not the public as a mass. We tell people how to make their lives better – with new and better health ideas…or new and better investment ideas. In International Living, we give people ideas about where and how they can live better – in Nicaragua or Panama, for example. In our financial publications, we try to come up with better investments than people are likely to get from their brokers or the mainstream media. And in our health publications we offer new treatments…along with ideas about health that are often not yet in the popular press. You will recall, for example, that we published Dr. Bob Atkins for many years. At the time, he was considered a pariah in the mainstream health press. He told people to stop eating so much starch and sugar…when the health establishment was telling people just the opposite, that they should eat less fat and less meat! Poor Dr. Atkins didn’t live to see it, but eventually the mainstream opinion shifted in his direction. Even the NY TIMES eventually acknowledged that he should be seen as a prophet, rather than a crackpot.

Agora has been a pioneer in another way, too. Your editor was never a good manager. Employees would ask for instructions; he was unable to give them. He merely told them to go away and figure it out for themselves. Thus did the management structure evolve into a very loose system, which has been described by economists as a "spontaneous order" and described as various business consultants as a "mess." People coming into the business are often shocked by the apparent lack of systematic controls. Some are amused; others are appalled. But, at least so far, it seems to work. And lately a professor from George Mason University came to study the organization. He told us that what we were doing was not so odd after all; it was ‘market based management," he said. We were delighted to hear that the chaos was a legitimate way to run a business and not merely a consequence of our own incompetence.

Publish Extraordinary Ideas: An Apparent Contradiction

Readers often wonder how we can publish so many things that often seem so contradictory. One of our researchers says to buy IBM, for example. Another says to sell it. We publish both opinions.

"What do you really believe?" readers sometime wonder. The answer to this apparent contradiction is simple: we don’t know which opinion is correct. We are a publishing business; not a seller of IBM stock. We look for people with ideas…with wit, charm, and style…and with something to say. We publish them, just as, say, Random House, publishes authors. We don’t know which will turn out to be the genius and which the fool. All we can ask is that the ideas, opinions and information be honest, interesting, novel and potentially useful to our readers.

We like to think that we publish extraordinary ideas…and better ideas than the rest of the world. While we are modest enough (and experienced enough) to know that this is not always the case…it is always our goal.

People are also sometimes curious as to why we spend so much time in Europe, when our business is still mostly in America. We have been in Europe for more than 10 years. We began globalizing our business when we bought an English publisher similar to Agora. Since then, we have expanded – with hit or miss success – into several other foreign countries. We are still committed to international expansion, though we have learned that it is harder to do that you think. The world is a big, interesting and remarkable place. We still enjoy exploring it. We still enjoy trying to make it work for us. Despite many setbacks, we’re not ready to give up.

But when we come back to our headquarters and see so many old friends…and so many new ones…we are humbled by the whole thing. Who would have thought that the fledgling enterprise begun by poets and dreamers in a ramshackle office in a bad neighborhood of Baltimore would have survived at all – let alone evolve into a real business with subsidiaries in London, Paris, Ireland, South Africa, Spain and Australia? We can’t take credit for it. We could not even manage the two employees we started with. No, it was you who built the business…you, the friends and strangers who came along just when we need you…and our dear readers all over the world who continue to support it.

We thank you all. And wish you well for the New Year.

Bill Bonner
The Daily Reckoning

Decemeber 30, 2005 — Rancho San Jose de los Perros, Nicaragua

P.S. Just a quick reminder…don’t forget to check out our exclusive Agora Financial Reserve. With the Reserve, you are privy to all of our trading services, advisories and special reports – for life!

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).