An ode to a great philosopher…and the art of silence.

"Tell them that for me this life was marvelous."

– Ludwig Wittgenstein,
on his deathbed

We have no television; we get our entertainment from the printed word. This week brought a cascade of them.

On Monday, we discovered it was the anniversary of the birthday of Ludwig Wittgenstein. By week’s end…we had come to the end, the anniversary of his death.

We once read a little philosophy, but could make no headway with Wittgenstein. We found, however, at least one sentence that made sense to us. We will get to that…

Wittgenstein was born in Austria and went to school with Adolf Hitler in Linz. Both had a lot of silly ideas in their lives, but at least Wittgenstein’s weren’t lethal. Bertrand Russell brought him to Cambridge, where he was to teach philosophy for many years. But even Russell later said that he often had no idea what Wittgenstein was talking about.

According to one biographer, Wittgenstein, whose family was of Jewish origin, though he was himself catholic, was the inspiration for Hitler’s anti-semitism.

Ludwig Wittgenstein: A Life full of Luck — Good and Bad

The same biographer – not one to back away from sensationalism – claims that Wittgenstein was recruited by the KGB to spy for the Soviet Union. In the interest of full and complete disclosure…and to show what a small place the world is…Wittgenstein was one of a group of Cambridge homosexuals who may have worked for the KGB; another, Kim Philby, when he wasn’t engaged in acts of perversion or treason, also wrote for our publication in London, the Fleet Street Letter.

Talk about luck! Few people have had so much luck in their lives as Wittgenstein – both good and bad. On the good side, the man was born rich…and became richer. When his father died, Wittgenstein, still a young man, was one of the richest men in Europe.

He was also smart. In 1922 he published his one and only book – Tractatus logico-philosophicus – which was hailed immediately as one of the great works of philosophy of all time.

But life has a way of compensating for good fortune. In 1902, his brother Hans committed suicide. In 1904, his brother Rudolph committed suicide. During WWI, his brother Kurt committed suicide.

What was it with these Wittgenstein boys?

We don’t know, but it must have made Ludwig wonder. Something seemed to be eating at him.

After WWI, he did something extraordinary – he gave away all his money. Thereafter, he worked as a gardener, teacher, architect, engineer and spent long periods of time alone – either in a cabin in Norway or in Ireland. Told he had cancer in 1949, he refused all treatment and died on the 29th of April 1951.

Beyond the obituaries, the week’s newspapers were packed with fulminating drivel. As soon as you turned the page, you were in it up to your elbows.

Ludwig Wittgenstein: The "Seedbed for Terrorism"

In the Times of London, for example, Gary Duncan thought he had discovered the ‘seedbed for terrorism.’ It was poverty, he said, apparently unaware the world’s most wanted terrorist – Osama bin Laden – took root in one of the world’s richest families. Like Wittgenstein, bin Laden has elected to use his wealth for purposes other than his own ease and pleasure. While Wittgenstein lived in simple barracks on remote shores, Osama is said to be living in a cave. According to reports, he only seeks to make the world a better place – in the worst way possible.

But people cling to abstract nonsense, no matter how much it is contradicted by common sense and common decency.

"Cash is what counts," says Duncan. But how does it count? Duncan has no clue. Wittgenstein, one of the world’s richest and smartest men, seems to have come to the conclusion that cash didn’t count at all. He could have had a lot; instead, he chose to have none at all.

But Duncan believes what ails poor countries is that they lack ready purchasing power. He calls upon the rich countries to divert a significant portion of their wealth to the cause of making poor countries less poor.

We would be happy to put a few dollars in the collection plate if we really thought it would help. But the evidence of the last half a century is that it doesn’t. The countries that get the most aid are almost invariably those whose leaders have the largest Swiss bank accounts…and whose citizens almost invariably starve to death right in front of foreign bankers when they come to collect their loans.

Life, alas, is not a simpleminded as the people who write newspaper editorials.

Ludwig Wittgenstein: Friedman’s Oeuvre Condensed into One Sentence

For further proof, we turn to the old reliable International Herald Tribune, which continues to carry editorials by Thomas Friedman despite massive evidence that the man is practically non compos mentis.

Friedman’s whole oeuvre, we have come to realize, can be condensed into a single compound sentence: ‘I know what is best for everyone; and I don’t mind telling you what to do about it.’

This time, Friedman goes beyond politics, beyond foreign policy, beyond war and beyond commerce to tell us which technology will prove most cost-effective over the decades ahead:

"Right now," writes the all-knowing one, "we should have a Manhattan Project to develop a hydrogen-based energy economy – it’s within reach and would serve our economy, our environment and our foreign policy by diminishing our dependence on foreign oil."

But here we answer not with our own guess about what fuel should fuel America’s economy in the future – we have no opinion on the subject – but with a loosely quoted aphorism from a dead philosopher:

"When you don’t know what you’re taking about, shut up."

This is Wittgenstein’s aphorism 7. It was his way of recognizing the limitations of effective knowledge. There are many things you simply cannot speak of intelligently; so you are better off keeping quiet.

Of course, if people paid attention to this, the editorial pages would be empty.


Bill Bonner
April 30, 2004

Yesterday, we had to stop and admire the wonderfulness of it all.

Consumer confidence is rising; but isn’t it already at hallucination levels? The housing market is said to be ‘heating up’; but isn’t it already past the combustion point?

And rising real estate prices are broadly thought – even by the Fed chairman himself – to be creating wealth that householders can spend.

Today, we are still ogling the marvel of these things. Investors Intelligence tells us that investment advisors are about as bullish as they’ve ever been…with twice as many expecting higher stock prices as expect lower ones.

Stocks sold off yesterday; it was announced that the economy rose 4.1% – but less than expected.

And USA Today reports that the 30-year mortgage rate has risen above 6%.

This last item reminds us to take a second look at real estate. On both sides of the Atlantic, residential housing has become a minor obsession. Buyers and sellers flimflam themselves and each other – all convinced they are getting rich; because prices are rising!

But if rising house prices alone could make people better off, why doesn’t some enterprising politician seize the opportunity? Richard Nixon showed the way. He decided what a mother should pay for milk and what GM should pay for steel. Why not simply double house prices? Henceforth, every price will be multiplied by 2. Even today’s presidential contenders could do the math.

On the surface, the idea is absurd. But when you dig into it, you find that it is absurd all the way down.

Imagine a simpler nation with just two families and two houses. The working members of the families make shoes and sell them to another nation.

If each house were worth $50,000, each homeowner might be able to able to borrow, say, $40,000 against his house, from a friendly banker in a foreign country. Taking out the equity, they might use the money to buy things from abroad or take a trip around the world.

But, of course, each has to pay interest on the money…and at the end of the day…both have $40,000 less equity in their houses.

But imagine that the houses rise in price to $250,000. Now, each homeowner has a borrowing potential of, say, $200,000. If they borrow the money, the two would owe a total of $400,000…rather than $100,000. And they would still have to pay it back. One way or another, the nation’s net wealth would have been reduced by $400,000 (assuming they squandered the money).

But, no, you say. They now have much more valuable houses. They have merely taken out the ‘excess’ equity…leaving them with the same $50,000 equity each had before. If they sold the houses, they would come out even.

Aha, dear reader. We were ready for you. Alas, no.

Who could they sell to, but to each other? Imagine they do so. They give each other $250,000. They pay off the $200,000 mortgages. Each has $50,000 left…not including the $250,000 it cost them to buy a new house! The end result that each is out-of-pocket exactly the amount he borrowed and spent. What a surprise; things work out just the way you’d expect!

At least, you and I would expect it. The Fed chairman, more knave than fool, pretends not to notice.

Over to Addison for more news:


Addison Wiggin reporting from ‘Mobtown’…

"Fed May Have Acted On False Alarm" reads a headline in this morning’s Wall Street Journal. Forgive us if we don’t feign shock and dismay.

According a report released by the Atlanta Fed, the ninnies who set the over night rate at which banks can borrow money from the Federal Reserve misread the impact of their interest rate policies on rents and used car prices. When they began slashing rates en route to historic lows, every body and their brother went out and bought a house, driving demand for rentals and apartments down. Likewise, low rates drove automakers to begin lending money at 0%…just to remain competitive. The used car market fell apart.

But here’s the beauteous part: Greenspan and his merry pranksters then interpreted the decline in rents and used-car prices…as further evidence of "declining rates of inflation." They dropped rates further to head off the dreaded ‘d’ word. D-d-d-deflation…

"Incroyable!" our French colleagues would surely say. A self-reinforcing economic disaster…we’re so glad we have a front row seat for this freak show. Could there be a better time to be keeping an eye on the financial markets?

Yesterday morning, your editor was lounging outside Donna’s café on the prestigious Mount Vernon square in Baltimore, (notice the glowing terms we now speak of ‘charm city’ now that we’re spending more time here). We were chatting about distressed emerging market debt with a new friend Mr. Peter Bennett – fund manager, corporate advisor, and diversified investor. Among other profitable adventures, Mr. Bennett has been on the ground and managing money in markets all over the world – Croatia, Cyprus, India – for the better part of the last 15 years. He was in town attending a reunion of his alma mater, Johns Hopkins.

If there is one man who can sort the emerging market wheat from the emerging market chaff, it’s this gentleman. He knows of what he speaks. Yesterday, he made an unsolicited remark we would suggest is worth paying attention t "If I were to hold the U.S. to the same standards I would for an emerging market," said Peter, "I’d take my money off the table. I’ve seen debt build up like this before. It doesn’t always blow up. But the risk is just too great."

The stock market is raising an eyebrow or two of its own. The Nasdaq took a beating for the second day in a row – it fell 31 points, to close at 1,959, another 1.5% lighter. The Dow tacked on another 70-point loss to the 135 points it lost on Wednesday, finishing the day at 10,272. The S&P made similar downward progress dropping 0.76% or 8 points to 1,114.

Still, the quants in Washington continue to tabulate financial transactions and pretend that it’s real economic activity. Figures out yesterday from the Bureau of economic analysis show GDP grew at a 4.2% annual rate. "The figure was somewhat lower than the 5 percent many analysts had predicted," Martin Wolk at MSNBC opined, "largely because inflation, at 2.5 percent, was higher than expected. GDP growth is adjusted for inflation, so higher inflation generally means slower real growth." A separate report shows that benefit costs surged 2.4% last quarter, the fastest rate since 1982.

"Ever since the creation of money, there have been numerous attempts to cheat it – coin clipping, devaluation, confiscation of gold, etc. These are the recurring patterns of theft that wind through financial history," pens Chris Mayer in his excellent new newsletter Capital & Crisis. "Could it be that we are misreading the tea leaves? Is the risk of inflation and a further dollar decline so slight that locking up your money for ten years at 4.4% is a good idea?" We doubt it.

The bond market also doubts it, too…yields rose to a new 8 month high yesterday, before receding late in the day. The 10-year Treasury finished the day at 4.54%, just shy of 4.67%, which marks the bear market low for bonds, set on August 14 2003. We last saw yields above 4.67% in July 2002. Should bonds continue to fall, pushing yields to multi-year highs, the lumps may take notice.

The rise in yields is ominous…for stock market investors, for bond investors, but above all, for homeowners. 72 million people have $2.5 trillion at stake. House prices have shot up an average of $50,000 per house. There is big money at this table.

"Money has never been so cheap and so easy to obtain," the Economist pointed out last week. "The average of short-term interest rates in America, Japan and Europe is at its lowest in recorded history-much to the delight of households and firms which have borrowed with wild abandon." Our own Dan Denning agrees: "The housing market windfall has been nothing but spectacular," he writes. "Fuelled by the enormous debt-engine known as GSEs housing prices have jumped 51% since 1995. That’s a rate of 32 points above the inflation rate."

What does it all mean? We still think Jim Rogers hit it in the head in the foreword to our book: "Artificially low interest rates and rapid credit creation policies set by Alan Greenspan and the Federal Reserve," wrote the adventure capitalist, "caused the bubble in US stocks in the late 90s…now, policies being pursued at the Fed are making the bubble worse. They are changing it from a stock market bubble to a consumption and housing bubble. And when those bubbles burst, it’s going to be a lot worse…because there are so many more people involved in consumption and housing."


Bill Bonner, back in Paris…

*** Gold rose $1.20 yesterday…to $387.

*** "Economy grows, but pay stalls," reports the Kansas City Star. Economists search for an explanation. A growing economy should increase labor rates…but even at more than 4% annualized growth, this economy seems unable to increase them.

What’s wrong? Productivity…globalization…technology – each economist has his theory.

We have our guess. The economy is not really growing; it is merely ruining itself at a faster rate. Growing economies need real investment and real demand and real production in order to be able to pay higher wages. Phony demand – stirred up by the Fed’s artificially low lending rates, delivered via the housing market – creates phony growth. People spend more…but they don’t make more.

*** Though workers are not making more, the cost of employing them is going up. Bloomberg tells us that the cost of keeping a worker on the job rose 1.1% in the last quarter.

"Biggest jump in benefits since 1982," says the headline.

*** While costs rise…America’s quality edge declines. According to the Houston Chronicle, Korea is now making better cars than Europe or America.

*** This week, in 1889, just 6 days after the birth of Adolf Hitler, one of the world’s great philosophers was born – Ludwig Wittgenstein.