Thanksgiving

The little-known history of the most American holiday…this essay was originally published on Thanksgiving Day, 1999.

I turned to my trusty assistant…Beirne White…this morning.

"Beirne," I said gravely, "tell me about Thanksgiving in Mississippi."

Beirne proceeded to tell me about a Mississippi bluesman named "Son" House, who lived to be 102 by doing what bluesmen tended to do…chasing bad luck, bad liquor and bad women.

"What has that to do with Thanksgiving?"

"Nothing," he replied…whereupon he drew on the resources generously provided by Britannica.com, formerly of Chicago, lately of cyber space, to get me the research I requested.

Beirne hails from Mississippi. And while Mississippians will sit down with the rest of the nation…and tuck into their turkeys with equal relish…perhaps only substituting Bourbon Pecan pie for the sweet potato or pumpkin pie enjoyed in Maryland…it was not always so.

Somewhere deep in the most primitive part of his medulla oblongata, the part of the brain where race memories are stored, Beirne resists Thanksgiving. It is, after all, a Yankee holiday.

Thanksgiving in France: Commemorating the Northern Victory

In the middle of the war between the states, both sides would proclaim days of "thanksgiving," following the progress of the war as we now follow the progress of the stock market. After each of the first and second battles of Bull Run – which sent the Yankees fleeing back to Washington – the Confederates proclaimed days of thanksgiving. But it was Lincoln’s day that stuck. Declared after the battle of Gettysburg – the last great Napoleonic charge of military history – Thanksgiving was set for the third Thursday in the month of November, commemorating the Northern victory.

Beirne doesn’t say so…but this fact must stick in his craw.

It doesn’t help that the original celebration took place in Massachussetts. And that it was hosted by a dour bunch of Puritans, who probably wouldn’t have been able to enjoy a good dinner if their lives depended on it. But they certainly had a lot to be thankful for. As the Wall Street Journal reminds us annually, they nearly exterminated themselves in typical Yankee fashion – by wanting to boss each other around.

They had arrived in Massachusetts by accident and bad seamanship, intending to settle in the more hospitable climate of Virginia, which had been colonized more than 10 years before. Once in Massachussetts they proceeded to set up a such a miserable community that surely most of them, had they lived, would have longed to return to England. The Soviets could have learned from their example and spared themselves 70 years of misery. Only after the "witch burners and infant damners" abandoned their communal form of organization, and allowed people to work for themselves, did the colony have a prayer of survival.

But victors write the history books. And now this precarious celebration by a feeble group of religious zealots has turned into the most American holiday.

After Appomattox, the South was helpless. Its natural leaders, the plantation aristocrats, were either dead, bankrupted and/or discredited. Many of them went to Northern cities, like New York or Baltimore, where, Mencken tells us, they "arrived with no baggage save good manners and empty bellies." They enriched the North. But back home, they were sorely missed. "First the carpetbaggers," says Mencken, "ravaged the land…and then it fell into the hands of the native white trash…" Scars of war can take a long time to heal. But 130 years later, the South is the most economically and culturally robust part of the nation.

Thanksgiving in France: A Unified, National Myth

Thanksgiving was declared a national holiday in 1931. Through the Depression, and then WWII, Thanksgiving grew in importance. In a country where roots meant almost nothing, where people were ready to pick up and move at the drop of a hat, where there were huge differences in what people thought and how they lived, Thanksgiving served to provide a unified, national myth…most popularly expressed in Norman Rockwell’s Thanksgiving cover for the Saturday Evening Post.

Roots mean more in Mississippi than they do in California. "No man is himself," said Faulkner, Mississippi’s most celebrated alcoholic, "he is the sum of his past." Unlike so many other American writers of the 20th century, Faulkner stayed home. The forward to the "encyclopedia of southern culture" has a passage from Faulkner, saying: "Tell about the South. What’s it like there. What do they do there. Why do they live there. Why do they live at all."

Even in Faulkner’s Mississippi…Thanksgiving is now part of everyone. Where Beirne goes…it goes, too. And so, all over the world, Americans, gathering in small groups, like pilgrims on distant shores, celebrate the holiday (if not on the actual day…perhaps the weekend following…as we will do.) This can require a little ingenuity. Americans in France have to search for the ingredients. Pumpkins are hard to pronounce – citrouilles – and hard to find. Cranberry sauce is unknown.

Art Buchwald has translated the Thanksgiving story for the French, deftly turning Captain Miles Standish into Le Capitaine Kilometre Deboutish. But no one has refashioned American Thanksgiving recipes for the metric measuring cups here in France. My wife, Elizabeth, descendant of the Puritan fathers…former resident of New York…a Yankee – in other words – will do her best.

And we will be thankful.

Bill Bonner

November 27, 2003

Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of the NY Times and international best-seller: "Financial Reckoning Day: Surviving The Soft Depression of The 21st Century" (John Wiley & Sons).

What can go wrong? What can go right?

Successful investing, it has been said, means balancing risk against reward.

Today, most investors load up the reward end of the scale with the hope of rising asset prices forever…and see no risk to put on the other side. By contrast, here at the Daily Reckoning, we have no trouble finding heavy risks…and big rewards too, but only by selling what the lumps are buying.

For the benefit of new readers and those that weren’t paying attention a year ago, ‘lumps’ is an affectionate diminutive for ‘lumpeninvestoriat’ – our psuedo-intellectual way of describing the great seething mass of ‘investors’ who have no business in the stock market, bond market, currency markets…and, in fact, shouldn’t even be allowed into Wal-Mart without a financial advisor.

Buffett, Grantham, Soros, Rogers, Templeton – all the people who seem to know what they are doing have warned the lumps to watch out. But, bless their hearts, they pay no attention.

The headlines continue to provide good news. Durable orders are up 3.3%. New unemployment claims are near a 3-year low. The economy is said to be expanding at its fastest pace in 20 years.

Business in the Midwest is hot. Housing in California is hot – the LA paper reports a new record in sales of $1 million – plus houses.

The lumps may not realize it, but they pay a terrible price for those headlines. The federal deficit is swelling towards $1 trillion. Consumers, too, are so confident that they see no need to restrain themselves. In India, we recently discovered, consumer debt is ballooning…but is still less than 10% of income. In America, the equivalent figure is over 100% – and rising quickly. Overall, American debt is already 3 times the size of the U.S. economy…and growing 6 to 8 times faster.

Not for nothing has debt often been compared to liquor. The first drink, especially on an empty stomach, produces a pleasant sensation. But the alcohol loses its punch with each dose. Finally, it has no visible effect at all.

The risk is that we are getting pretty far along in the credit cycle…and that, like pouring shots of whiskey down the throat of a drunken man, new debt will produce little beneficial effect. We might also wonder where the extra juice will come from. Another tax cut? Another round of rate cuts? More spending on the War Against Terror?

Still, the lumps seem to see no danger – neither to the dollar, nor to bonds, nor to stocks, nor to real estate prices, nor to their personal balance sheet. (Judging by the overwhelming amount of reader mail we’ve been receiving – they’re quite confident their eyesight checks out okay!)

Incredibly, the biggest lumps seem to be foreign central bankers, particularly those in Asia. As Eric points out below, it is only thanks to them that Americans continue to spend so much. Without their buying of U.S. Treasury bonds, the federal deficit couldn’t have been financed…interest rates wouldn’t be so low…houses wouldn’t be refinanced…and the consumer buying binge wouldn’t be happening…and the assets they now value dearly – houses, U.S. Treasuries, stocks – wouldn’t be worth nearly as much as they are now. But that is the sublime nature of lumps; they are unable to see the risk they pose to themselves.

Bankers, generally, seem to come into this world with ‘chump’ or ‘mooch’ or ‘lump’ tattooed on their derrières. They seem destined to buy things they shouldn’t, at prices that are too high, at the worst possible time. The Bank of England, for example, sold its gold at almost the very bottom of the market – and announced the sale in advance to give prices a chance to adjust, downward, to the news! Bankers seem to have a special knack for getting in on something just before it blows up. (Lisa Hess, writing in Forbes, explains why lumpy Asian bankers are buying Treasuries at just the wrong time…more below)…

Meanwhile, the smart money is getting out of town at the fastest pace we’ve ever seen. Colleague Dan Ferris sends details:

"On page C3 of Monday’s Wall Street Journal, it says that, in the month of October, insiders sold $59 dollars worth of stock for every $1 they bought. Generally, the article says, a level of $20 or more is bearish. And it’s been over $20 for six straight months."

But God bless the lumps. They’re allowing the insiders to get out of stocks at 30 times earnings. They are the turkeys of the investment world…but what would Thanksgiving be without them?

And now, over to Eric Fry, with more news.

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Eric Fry, writing from New York City…

– America’s stock market investors might want to replace their traditional turkey dinners this Thanksgiving with something more appropriate…like filet mignon with white truffles. This year’s booming stock market rally warrants a Thanksgiving meal grander than mere turkey. On the other hand, the buoyant stock market and resurgent economy are sure to make this year’s roast turkeys and mashed potatoes taste like filet mignon with white truffles. 8.2% GDP growth can transform even the driest bites of overcooked foul into delectable morsels of haute cuisine….And the giblets can seem like foie gras when the Nasdaq sits on 45% year-to-date gains.

– Yesterday, the Nasdaq tacked onto its winnings by gaining 10 points to 1,953, while the Dow added 16 points to 9,780. But the gold market hosted the day’s most dramatic trading action. The February gold contract soared as high as $402 an ounce, before retreating to $398.00 at the end of the trading session – a hefty gain of $5.60 on the day.

– Government bonds and the dollar both fell. The 10-year Treasury note slipped half a point, pushing its yield to 4.25% from 4.19% Tuesday. The dollar dropped nearly 1% to $1.189 per euro.

– Evidence of economic recovery seems to issue continuously from the bureaus of officialdom. The Commerce Department said demand for U.S.-made durable goods in October rose at the fastest rate in more than a year, while the Labor Department said the weekly number of new claims for unemployment insurance fell to 351,000, the lowest number since early 2001.

– We Americans can be thankful, therefore, that Alan Greenspan and the other wise men at the Federal Reserve managed to produce an economic recovery from the ashes of recession…And we should also extend a heartfelt thanks to our dear friends, Fannie and Freddie. Thanks to Fannie Mae’s and Freddie Mac’s unrestrained appetitive for funding mortgages, we Americans can crack open our nest eggs whenever we want and consume the contents immediately. Without the help of Fannie or Freddie, we would not be able to pull the equity out of our houses and spend the proceeds on new cars, dream vacations and self-help books.

– Of course, life in the 50 states is not all fun and games and Britney-Madonna kisses…Toasting our good fortune with a bottle of fine French champagne will cost about 20% more than it did last year. That’s because the dollar is tumbling.

– As a result, the rising stock market that we are all so thrilled about is delivering much less wealth than advertised. It’s true that the S&P500 has rallied about 15% since last Thanksgiving, but it’s also true that the dollar has tumbled about 20% against the euro over the same time frame. Net-net, the dollar’s losses have more than erased the S&P’s gain since this time last year…We have more dollars in our pockets, but the dollars don’t buy as much as they used to.

– The tumbling greenback has boosted the cost of all our favorite imports, while simultaneously reducing the purchasing power of the savings we work so hard to accumulate…But things could be worse.

– We should be thankful that the dollar’s value has not fallen even more than it has, says Paul Kasriel, Director of Economic Research at Northern Trust, and we should direct our thanks toward the eastern sky.

– "You recall the story of how Native Americans who lived near the Plymouth colony came to be invited to the first Thanksgiving feast, don’t you?" Kasriel asks. "The Pilgrims were paying the Native Americans a debt of gratitude for helping them survive their first year in the New Land. In other words, the Pilgrims got by with a lot of help from their new-found friends.

"Similarly, this Thanksgiving, we are getting by with a lot of help from our new-found friends – not Native Americans, but native Chinese and native Japanese…If it were not for the fact that foreign central banks have become the buyers of last resort for dollar-denominated assets, the greenback would have fallen even more in value versus other currencies than it has, U.S. prices for goods and services would be higher than they are, and U.S. long-term interest rates would be higher than they are…

– "So, just as the original Plymouth Pilgrims gave their thanks to their ‘foreign’ friends, the Native Americans, for their help in producing a bountiful first harvest, we should give thanks to our foreign friends, central banks, for financing at very favorable terms the importation of a bountiful foreign-produced ‘harvest.’"

– Amen to that!

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Bill Bonner, back in Paris…

*** While the rest of the financial media is enjoying its holiday, we are at work as usual, here at the Daily Reckoning headquarters in Paris…

*** Here, Lisa Hess, writing in Forbes, explains why it is the wrong time to buy treasuries. In brief, Asian central bankers are fools, buying investments from knaves.

"One huge reason is government economic stimulation, a calculated political strategy by the Bush Administration that will breed long-term problems. The current White House, one of the greatest political marketing machines of all time, is always ‘on message’ and always united in its overarching objective: getting reelected next fall. And sure enough, the three engines of economic stimulus are today all clearly ‘on message.’

"Fiscal, monetary and foreign exchange policies are now fired up to energize the economy, create jobs or, at the very least, generate enough inflation so there’s the illusion of prosperity by next November. I’m not here to debate George W. Bush’s reelection. My point is simply that after November 2004 bondholders are on their own.

"Fiscal policy is about as stimulative as the electorate can stand it to be. Staring at what Wall Street estimates to be a $500 billion to $600 billion deficit for next year, depending upon how the war in Iraq is accounted for, you can be pretty sure that some of that spending will find its way into better job creation. Tax cuts are helping, too – both the lower rates and the child care credit. The result is continued robust consumer spending.

"Monetary policy has also done wonders in stimulating the consumer by providing cheap capital for everything from homes to boats. Vehemently focused on preventing deflation, the Federal Reserve, Bush’s silent partner, is making the classic central banking mistake of fighting the last war. In this case, the last war took place in the 1930s…

"Then there’s the weak dollar, which has helped support U.S. exports at the expense of making imports here more expensive, a recipe for inflation. Good news for Boeing (for a while, anyway), bad news for Wal-Mart shoppers. So this all amounts to a tax cut for U.S. manufacturers, although certainly the reverse for consumers. It gets worse. Foreign investors, upon whom the U.S. depends to paper over its trade deficit, may well decide in coming months to shun low-paying Treasury bonds, driving down their prices…

"The steepness of the yield curve is enticing speculators and leveraged investors to borrow short and lend long, comforted by the knowledge that the Fed is holding down short rates. Banks are taking in deposits and buying mortgage-backed securities. Investors do the same thing when they buy bonds on margin.

"Bad moves. You don’t want to own bonds at a time when the government deliberately debases its currency and fosters inflation."

*** "Be right, sit tight," says our old friend Bob Bishop. Gold has risen 50% since its bottom in 2001. Many gold stocks have doubled. Don’t be surprised by a correction in the gold market. In fact, we would be delighted; we would buy more at lower prices. But don’t try to time the market, says Bishop. Just get in position. This is going to be a long bull market. You just want to get in and stay in for the long haul.

**** On paper at least, Americans are about even, we figure. Stocks and houses are up this year. But as Eric points out, the dollar is down. Since January of ’02 the dollar has lost 25% of its value against the euro. It hurts here in Paris…but most Americans have barely noticed. Yet, in terms of what they can buy on the global market, their spending power is down.

They also continued to borrow themselves into a hole. The value of all assets in America is probably around $50 trillion, according to Warren Buffett. So, a half-trillion dollar trade deficit is equivalent to "losing" 1% of the nation’s wealth to foreigners.

*** Trouble is, there is paper wealth and there is real wealth. A house that has gone up in price is really no more valuable than it was at a lower price. It gives the owner the same ‘return’…in terms of living space. But a rising price encourages him to believe he can ‘take out’ a little of the equity and enjoy it. What he is really doing is giving up a piece of his home – leaving him actually poorer than he was before.