God On Their Side

Now we got weapons

Of the chemical dust

If fire them we’re forced to

Then fire them we must

One push of the button

And a shot the world wide

And you never ask questions

When God’s on your side.

In a many dark hour

I’ve been think’ about this

That Jesus Christ

Was betrayed by a kiss

But I can’t think for you

You’ll have to decide

Whether Judas Iscariot

Had God on his side.

Bob Dylan

“Today’s lesson reminds us that God cannot be counted on to take sides in our wars,” said the old priest at St. Marcel’s on Sunday.

I would like to quote the lesson for you. But at the critical moment, I was distracted. One of the altar boys, was holding his candle so near to the priest’s head, I was afraid he was going to set his hair on fire.

The boy, his mind wandering dangerously, was my own son, Henry…and whatever amusement I might have gotten out of seeing Pere Marchand with his head aflame like a herald of Pentacost was sure to be outweighed by embarrassment.

And so, I cannot quote Jesus’ words. Only the quaking words of Pere Marchand, from the sermon that followed: “God cannot be brought into every conflict in our lives. You cannot expect him to get you an A on your test,” he said, turning towards Henry, ” if you haven’t done your homework. Yes, God is always present. But he will not bail us out of every problem we get ourselves into. Sometimes we have to learn our lessons, the old- fashioned way…the hard way.”

Daily Reckoning readers may wonder what this has to do with their money. I have no ready answer. But war is what we’ve got. And most people are fairly sure that we go to war with God on our side in battle and the ghost of John Maynard Keynes in the Treasury Department. On both counts, economic and military, they expect to come out with easy victories. As usual, we are not so sure.

Even Vietnam-era draft dodgers say they are ready to report for duty against the Taliban. “I was against the Vietnam war,” said one, choosing his wars as if they were breakfast pastries, “but I’d sign up for this fight in a jiffy.”

The peaceniks were almost all silenced by the blasts of September 11. And even the Christians are calling for blood. “There is a time for everything and a season for every activity under heaven,” the Traditional Values Coalition reminds us in an email. “There is, says Solomon, ‘…a time to kill and a time to heal.’ For America, it is a time to kill.” Gone are the days of ‘love thy neighbor,’ and ‘turn the other cheek.’ The Christian values being unearthed in 21st century America are so traditional they must even predate Christ himself!

A nice thing about the present war is that the killing is done from a safe distance. In Vietnam, the U.S. put half a million soldiers on the ground. Fifty-eight thousand of them ended up under the ground, casualties of a war that looked good on the White Papers of the Rand corporation, but proved a military disaster.

But at least the Vietnam War was good for the economy… or so it appeared until the inflationary bills came due. Most people expect the war against terrorism will similarly encourage Americans to spend money they don’t have.

“I don’t think this deflationary psychology will last – for the simple reason that there is no way the United States and its allies can get out of the current mess without spending a lot of money,” writes David Ignatius in the International Herald Tribune. Ignatius believes he has found the “silver lining” in the cloud that struck the U.S. on September 11th.

“In the long run…” he writes, “a safer world will cost money: for sensors that can detect the presence of anthrax and other poisons; for medicines that can inoculate people against these diseases; for surveillance gear that can detect terrorist networks and help foil their plans. And yes, for nation building in countries such as Afghanistan…. The only good deed by Osama bin Laden could be that he may unwittingly have set in motion the forces that will end the Great Slump of 2001.”

People seem to need killing from time to time. Who are we to argue with it? Have at it. But don’t expect it to make people richer. Increasing costs does not make people more prosperous. It makes them poorer. God may shine his light on the War on Terrorism, or he may not. But he’s unlikely to make people rich…simply because they go to war.

“I am old enough to remember May of 1940,” Pere Marchand continued, his eyes lighting up at the thought. “I remember that we prayed for a miracle, after the German troops were already almost in Paris. And many people expected God to save us. Because the Nazis were surely cursed by God….we, their enemies, must be blessed. And we had been attacked without provocation. [The old priest forgot that France declared war on Germany.] “We would have done better to get new generals….heh, heh… oui…”

Your correspondent,

Bill Bonner
October 22, 2001

P.S. “It’s ridiculous,” said my daughter, Maria. “I mean why would anyone want to kill someone else just because they are a different religion?”

The mysteries of this world are as unfathomable to a 15- year-old as they are to her father. Religion is as good a reason as any for mass murder. But it fell out of fashion, in Europe, after the 18th century. America led the way – declaring in its constitution that a person could adhere to any fool religious doctrine he wanted, without risking persecution or death. Thereafter, new reasons needed to be found for killing people.

The American Association of Individual Investors reports that bullishness has risen to 61% among its members… while only 21% are bearish. That leaves only 18% with sense enough to know they have no clue.

Despite war, pestilence, disease and death… Americans remain positive on the future. So sure are they that they have nothing to fear but fear itself, they continue to take the “equity” out of their homes and spend it.

The most recent figures show that 75% of mortgage applications are for refinancing, not new homes. A third of the cash is thus received is used for home improvements. Almost another third is used to pay down other debt.

“But just think of the whole idea,” writes Dr. Kurt Richebacher, “Prosperity and economic growth through extracting home equity”(!) It is absurd, of course. But the nation’s central banker seems not to notice. “In the presence of increased capital gains, unrealized but still perceived as permanent,” said Alan Greenspan, approvingly, “debt capacity and levels are likely to rise.”

But let’s turn to Eric’s report from Wall Street, before we get ourselves worked up about Mr. Greenspan:

*****

Eric Fry in New York:

– Neither collapsing corporate earnings nor increasing numbers of terrorist incidents seem to trouble Mr. Market too much these days. A barrage of bad news last week barely put a dent in his recent sparkling performance.

– The Dow gained 41 points Friday, while the Nasdaq added more than 1%, advancing to 1,671. But, as Mr. Wiggin informed us Saturday, “the Dow had closed 140 points lower – down 1.5% for the week. The S&P and Nasdaq also lost ground, down nearly 2% apiece.” Not too bad considering…

– Does Mr. Market know something we don’t? Or is he just whooping it up – like a teenager on a joyride – until the fun comes to an end. Greenspan may not be able to jump-start an economy, but from time to time he can still “rev” up the stock market by boosting the money supply.

– “Over the past four weeks liquidity has increased a stunning $188.7 billion,” reports the ISI Group. “It may not be a coincidence that over the same four weeks the S&P 500 index is up 10.6%.”

– Part two of the Greenspan stock market recovery operation involves chasing savers out of CDs and into stocks. He has slashed short-term rates so low that savers earn very little interest.

– “With money market funds currently yielding less than 1.4%, investors may increasingly find an incentive to seek greater returns,” says ISI. “Recent reports from Fidelity and Vanguard suggest that mutual fund investors are starting to shift money away from money market funds and into equities. And Vanguard, for example, claims that about $2 billion in the money has gone into stock funds so far in October, more than off setting and $1.3 billion redemptions that left Vanguard stock portfolios in September…”

– But even as the stock market bounces, the economy keeps rolling downhill.

– The Philadelphia Fed manufacturing index collapsed 23 points in October – taking it to the lowest level in the 33 year history of the index.

– Industrial production in the U.S. has now dropped for twelve consecutive months – the longest strain of month- month declines since 1944-45.

– Capacity utilization is now truly in a free-fall, plummeting a huge 0.9 percentage points in September, to its lowest level since 1983.

– The insured unemployment rate rose to 2.8% during the week ended October 6, up from 1.7% a year ago. This is the highest since October 21, 1993.

– “Initial jobless claims rose 6,000 for the week ended October 13,” observes Paul L. Kasriel, Director of Economic Research for Northern Trust, “taking the 4-week moving average to 491, 250 – the highest since April 6, 1991.” ISI estimates, “Weekly data for the insured unemployment rate suggests the overall unemployment rate is already up to 6.5%.”

– All of which adds up to some tough times in the U.S. economy and therefore, some tough times for the banks and finance companies that are extending credit to heavily indebted American consumers. Particularly vulnerable are the companies who specialize in lending to the so-called sub-prime group.

– The incubation period on sub-prime lending may be somewhat longer than for cutaneous anthrax, but it is just as certain to produce an “infection.” In a booming economy, even most sub-prime borrowers manage to pay interest on their debts. But once the economy turns for the worse, it’s all “sub” and no “prime.”

– Providian Financial, a credit-card issuer that lent freely to high-risk borrowers during the boom years is finding that in a recession these same borrowers don’t pay their credit card bills as regularly as they once did. In fact, many don’t pay their bills at all. As a result, Providian’s latest quarterly profit fell 71% compared to last year.

– Providian shares tumbled 59% on Friday to $5.15. The stock traded above $55 as recently as last July.

– We Americans are in debt to our eyeballs, plain and simple and yet, Greenspan hopes to get our economy back on track by enticing us to borrow even more.

– Let’s see… does that really work? Or, as the Prudent Bear’s Doug Noland put it on Friday: “With such dysfunctional monetary processes, why, tell me, should we not expect the outcome to be anything but a financial and economic debacle?”

*****

Back in Paris…

*** People think war is good for an economy…and they’ve got figures to prove it. But everything gets so mixed up…that’s why you have to return to the essentials:

*** Remember to say please and thank you. Don’t talk about money …or track mud on the carpet. Buy low, sell high. Warren Buffett offered similar advice to the students at Harvard Business School last week. Look for companies that everyone else is avoiding, said the Sage of the Plains. Why? Because they’re cheap.

*** Someday, almost all stocks traded on the NYSE will be cheap. But that will be when people no longer expect earnings to be higher next year…and when they no longer expect a V-shaped recovery…and no longer ask themselves when stocks will return to their old highs.

*** Strange things are happening everywhere. The town of Waterford, Ireland, apparently had its first ever bomb scare – at the very hotel where I was staying. And a man described as a “crazed Nigerian muslim” drove his car into a crowd of Christians on a Dublin street. More on the war between muslims and Christians…below.

*** Airport security has tightened up. Airport security agents stopped me just as I was boarding a plane for the return from Ireland to Paris.

“You can’t take this on board,” said the vigilant young man, holding up a disposable razor and looking at me with an air of triumph. Thus, did the Ryanair flight make it safely to Paris. No one aboard was nicked.