Where to From Here?

A joke for you, Fellow Reckoner. This one comes in the form of a headline we saw this morning in Canada’s The Globe and Mail newspaper:

“Fix The Mess, Banks Tell Congress.”

Get it? Like all good humor, the punch line here lies in the unexpected ending, the dangling modifier. It catches you off guard. “Fix The Mess” might not have been so funny if it were a request from a customer to, say, a plumber, or an electrician or even a doctor. But this request, made (as we learned in the article) by the mightiest bankers in the land, was directed to Congress…Congress!…the very cause of the mess, in other words. You don’t ask a hurricane to put your flattened town back together, or a drunk to mind the bar. Why ask Congress to do anything at all?

The debt ceiling debate – which prompted the banks’ comically misguided request to Congress – is certainly drawing a lot of attention in the States. Markets were down for a fifth straight day yesterday. They’re down again this morning, too…off one hundred points last we checked. The reason? Well, we have no idea. But The Wall Street Journal thinks it knows.

“US Stocks Drop As Growth, Debt Worries Predominate; DJIA Falls 102” reads the headline.

Apparently, folks worry about what will happen if their politicos don’t “act,” if they don’t clean up the mess they themselves caused. Some individuals have taken to the streets, protesting down in Washington DC, in the belly of the beast. In another article, for example, we saw a picture of a man – a Tea Party activist, the captions tells us – who was on the march around Capitol Hill. Why? His sign reads, admirably enough:

“We Are Watching Your Every Move. Cut Spending! Cap. Balance.”

For some reason, the word “balance” was underlined…as were “are,” “every,” “move” and “cut.” This man had a piece of cardboard and a stick…and he wasn’t afraid to use either of them. Clearly, he was out to make a point. But to whom? And does all this debt ceiling stuff even matter anyway? Rick Rule put it thus in an excellent presentation here at the conference earlier in the week:

“The debt ceiling will be reached…when the US can’t sell its paper.”

Rick’s point – a key one, we believe – is simply that all this talk amongst the various policy wonks is more or less meaningless. It’s a sideshow. A circus. Ultimately, the market will decide the threshold of investor patience. Move the ceiling, don’t move the ceiling. It probably doesn’t matter much either way. What does matter is the kindness of strangers…and the expiration date on that kindness.

In a way, this whole debt ceiling topic feeds into a theme we’ve been discussing all week, the theme of this year’s conference – Fight or Flight: Your Capital at Risk. The impulse to stand and fight or to hightail it outta there is as old as nature itself. Our response is probably programmed into our DNA, hardwired. Do you take your cardboard and sticks to Washington, underline a bunch of words and implore the zebras in Congress to change their stripes? Or do you take your hard-earned capital elsewhere, looking for opportunities in places where it will be better treated?

The question is an important one, and one that is becoming more so by the day. We’ve heard a lot of speakers this week, each of them advocating one strategy or the other. Some, like Addison and the entrepreneurial individuals of Odyssey Marine, take their fight to the man. These are brave individuals, standing up for what’s theirs.

In his opening remarks, Addison drew attention to a key difference between the American and French revolutions to make this point. The French, observed Addison, wanted the king’s head so they could replace it with another one…another head of state…another political arrangement. The Americans, having largely existed beyond the control of the crown, sprawled, as they were, out across the continuously expanding western frontier, revolted for different reasons. They didn’t want a new ruler. They wanted to be their own rulers. Self determination, in other words. They fought because they wanted to preserve what was theirs. They had been “flighters”…until they got to California and ran out of places to go. Then they turned and stood their ground. Those who wish to “take back what’s theirs” usually advocate the stand and fight strategy.

Others, Doug Casey and Doug Clayton among them, prefer to hunt for opportunities abroad. In a way, they are like today’s frontiersmen, always and forever searching for new and untapped opportunities in far off lands. We mentioned Mr. Clayton, managing partner at Leopard Capital, earlier in the week. His “sunrise” economies include the names of places most men – and their money – fear to tread: Bangladesh, Haiti, Ethiopia and Cambodia. But Doug knows his stuff…and, like all true pioneers, he’d probably prefer to explore foreign riches without the inconvenience of having to share the spoils with the rest of the investing herd. They can buy them from him later…for a price.

Mr. Casey, the original “International Man,” goes a step further. During the Whiskey Bar Debate, fellow panelist, Gary Gibson, asked Doug what the ideal number of countries in the world would be. (Mr. Gibson knew full well Doug’s answer, we suspect.) Mr. Casey didn’t hesitate: “6.5 billion,” he said.

Doug’s point, and the point made by others advocating the “flight” strategy, is that borders are, in many ways, irrelevant. They are figments of The State’s imagination, made real only by our compliance with and subservience to them. What’s really important is freedom from borders, both when it comes to thinking about investing and, for all intents and purposes, living your life as a free individual. The State – be it France or America or any other geographical area over which the few live at the expense of the many – is a menace to liberty. It should be treated as such.

The fighters and the flighters both make excellent points. Your editor wouldn’t want to be on the opposing side of a debate with either of them. But we suspect that there may be something else going on here, something deeper. As mentioned above, the impulse to fight or flee is as old as nature itself. As such, our tendencies are probably genetically interwoven, hardwired. That’s not to say we can’t change them, of course, only that it may be harder to do so than we might think. Besides, destiny likely has its own ideas, as the future will reveal to us in it’s own sweet time. More on this in future reckonings…

Regards,

Joel Bowman
for The Daily Reckoning

The Daily Reckoning