Stalin Is Dead

My daughter came home from school yesterday indignant. Her teacher had criticized the Lone Star State for executing Odell Barnes, a thorough man, who had been convicted of raping, beating, stabbing and shooting a 42-year-old woman.

Jack Lang, France’s head of the National Assembly’s Foreign Affairs Committee, had turned it into a cause celebre in France. He had visited Mr. Barnes and said he was “revolted…over this barbaric act.” He was referring to Mr. Barnes’ execution by lethal injection, not the manner in which he killed his neighbor.

Maria’s teacher agreed with Mr. Lang. “Everyone knew le pauvre monsieur Barnes was innocent,” she told the class of 14-year-olds. What’s more, “all the courts in Texas are racist.”

Maria, streetwise and hardened from her days in the Baltimore Public School system, but brimming over with youthful optimism, replied, “I’d like to see them execute more criminals!”

France, it might be remembered, is a country run by communists, former communists, Trotskyites, socialists, and closet Stalinists. I exaggerate. But less than Maria’s teacher.

Yesterday was a day remembered in France by a large number of intellectuals…though not one American in 100,000 will recall the important event that happened on March 2 almost a half a century ago.

Stalin died. Stalin’s henchman and partner in the largest crime in history, Lavrenti Beria, had performed perhaps the only decent and humane act of his entire career: he told doctors not to try to save Stalin.

Then he waited three days before announcing Stalin’s death. He must have wanted to be sure that his satanic majesty — the most brutal dictator of all time — would not arise from the dead.

It was also a March day — in 1923 — that Lenin had his third stroke — his brain overworked by plotting the destruction of millions of his countrymen – after which, Stalin rose to power.

We know a lot more about Lenin and Stalin now than we did a few years ago. Many new documents have come to light — following the collapse of the Soviet Union. I have been reading a collection of historical essays called “The Big Black Book of Communism.” And I have been trying to understand the parallels between aberrations in markets — and other kinds of manias. All are examples of “political” or “mob” thinking — when people surrender their individual judgment and dignity for the benefit of joining the crowd. Gustave le Bon documented this in his classic book, “The Crowd.” Many manias and periods of mass hysteria are chronicled in another classic, “Extraordinary Popular Delusions and the Madness of Crowds,” by Charles MacKay.

Politics and investment manias are alike in that people believe they can get something for nothing. Both require a suspension of the ordinary rules, insights and civil wisdom that govern behavior in more normal times. In this sense, Warren Buffett’s investment approach can be seen as an application of many generations worth of investment wisdom. But in the manic market conditions of today, those rules do not work. In that sense, it is a new world — if a temporary one.

In Russia prior to the 1917 Bolshevik coup d’etat, people went about their business more or less as they had for centuries. The countryside was backward — but productive. And the cities were booming. Russian industrial development was proceeding so quickly that forecasters wondered whether Russia or America would be the leader.

But all of a sudden, a mania swept over the country. The lure of a New Era was irresistible. Communism promised the equivalent of 20% Nasdaq gains every year forever. All people had to do was to get with the program…and forget the silly “bourgeois sentiments” that guided wealth creation in the old days.

Of course, communism could not deliver on the promise — no more than the Nasdaq can. The “Big Black Book” is mostly a record of what happened after the “moment of truth” — the point at which people realized that their expectations could not be met — arrived.

Communist management of the factories did not produce higher rates of productivity. Nor did it improve the lot of working people. In fact, it made their lives much more miserable — and very quickly.

Industrial production declined by 90% after the first couple of years. Workers idled about — they had neither the tools nor the raw materials to produce anything. Nor did they have enough food to eat. At mining camps, the miners did not have enough work boots. One shift would give up its boots to the next. It was hard work. The authorities realized that it was impossible for starving men to do such work…so they increased the rations for the miners and reduced the rations for other groups. “Intellectuals” and other disfavored sectors were reduced to starvation.

Worker disaffection grew. The “worker paradise” was a hellhole. Riots, uprisings and civil war were breaking out everywhere. But the communists were so ruthless, time and again they simply murdered any opposition. On Feb. 28, 1921 all anarchists, Mensheviks and socialist revolutionaries were rounded up. “If they as much as peek out again,” ordered Lenin, “they must all be shot without pity.”

By this time, the Bolsheviks had been killing all opponents that got in their way for several years. They were getting quite good at it. Still, people unaccustomed to a mania of this sort were surprised. Here is a letter from a regional official:

“As for the events of March, it is impossible to get any clear idea of who was shot or why…orgies and drunkenness are daily occurrences. Almost all the personnel of the Cheka [the secret police] are heavy cocaine users. They say that this helps them deal with the sight of so much blood on a daily basis. Drunk with blood and violence, the Cheka is doing its duty…”

But as Richard Cohen writes in his editorial in the “International Herald Tribune” today, “To rely on people to be always responsible is nothing less than irresponsibility itself. In fact, it’s just plain nutty.” His piece is entitled “Get Rid of Americans’ Handguns.”

This is a sentiment that would have appealed to Lenin. He had been fighting for several years to disarm the peasants who still resisted collectivization. There were thousands of armed men hiding in the forests. They were mostly deserters from the army. And they had made common cause with the peasants to resist the Bolsheviks.

Lenin had a way of disarming them. He sent troops. They rounded up the women and children from the local villages and sent word to men hiding in the forest: come out, lay down your guns, or we’ll shoot your families. Typically, the Bolsheviks shot a few of the villagers and the men came out. Then they shot them, burned the villages to the ground and deported the survivors to labor camps.

The peasants were often fighting for survival. Because part of Lenin’s grand loony plan involved confiscating food directly from farmers in order to feed the cities. But in Tambov province, for example, the requisitions were so extreme that peasants were left with only one- tenth the food they would need to survive the winter.

They had no choice but to fight. But they were no match for the semi-organized butchers of the Bolsheviks. The “responsible” authorities in Russia at the time waged war against their own people — and won it.

Both Lenin and Stalin died of natural causes, as far as we know. But the world would have been a better place if, early in their lives, they had gotten a dose of whatever Mr. Odell Barnes got yesterday. Instead, the aberration that was the Soviet Union lasted 70 years.

Your correspondent,

Bill Bonner

Paris, France March 3, 2000

*** I am hesitant to even report yesterday’s market action. Nothing much happened.

*** The Dow continued to rally…a bit. It was up 26 points.

*** But most stocks fell…a bit. The Advance/Decline ratio turned negative again. It’s been mostly negative for nearly two years. Yet it manages a piddling rally once in a while. But it was back to old habits yesterday as 1,275 stocks advanced, against 1,669 which declined. Also, there were 105 new highs and 171 new lows.

*** And the Nasdaq fell, too…a bit. The index was down 29 points. Internets were weak. Amazon fell $3.

*** Gold continues to disappoint gold bugs. Someone, I think it was Doug Casey, described himself as a “gold bug, but not necessarily a gold bull.” You can have faith in gold, say, as opposed to paper currency, without believing it is always in a bull trend. Mr. Market suffers fools, but he doesn’t oblige them. Gold fell $3.60.

*** Gold — the world’s ultimate money — seems to move inversely to its main competition, the dollar — perhaps the world’s penultimate money. Lately, the dollar has been strong against the euro. The European Central Bank met yesterday and decided to do nothing. Gold, meanwhile, lost $3.60.

*** What’s bugging gold? The world economy is supposed to be booming. This is supposed to be pushing up demand for oil, labor, commodities — even DRAM. Economists expect price inflation at such times, which should mean a rising gold price.

*** But gold is singing another tune. A rather mournful tune. Why?

*** Well, perhaps because the major source of inflation is not economic growth, but financial growth. In real terms, the prices of oil, labor, commodities and most everything else are the same or lower today than they were 20 years ago. But the prices of financial assets — especially Nasdaq stocks — are much, much higher. The Nasdaq, you may recall, priced in terms of gold, has risen some 90-fold since the 1970s.

*** The only way to stop inflation now is to bring the Nasdaq to heel. When, how and why that will happen, of course, has been the major preoccupation of these letters for the last six months.

*** Alan Greenspan has addressed this problem in his Senate testimony. Or at least he has spoken all around it. He must recognize that niggling little interest rate increases probably won’t have an effect. Interest rates are the price the market pays for capital. But they are practically giving money away in the stock markets. Never has it been so easy to raise money for capital ventures — especially if they are in the tech and Net sectors.

*** The cost of capital will only increase when investors get scared. And that will happen only after a severe drop in the Nasdaq. Greenspan could bring it about — but it would require him to do something the market did not already expect. It would be risky. Greenspan does not seem to be a risk taker.

*** The cheap cost of capital was illustrated yesterday by the IPO for PalmPilot. It originally filed to come out in the teens — a price, presumably, which the people closest to the project thought appropriate. But it opened at $160 and closed at $95.

*** Are there any infotech companies selling at reasonable prices? “Personal Finance” thinks so. MCI, for example, is growing at 15% per year. But its Internet business is growing at 50% per year. Still, you can buy the stock for about 15 times 2001 earnings. “PF” thinks the price will go to the mid-80s. Arrow Electronics, another stock mentioned, sells electronic components to the infotech world. It is selling for just 10 times year 2000 earnings.

*** The average Internet stock is worth…approximately nothing, in my opinion. That is what you get when you multiply the expected earnings by the likelihood of ever getting them and discount them for the time you’ll have to wait before they arrive. So my pulse quickens when I hear about an Internet play that you can buy at a reasonable price — for nothing, that is. Such was the deal presented by James Grant (http://www.grantspub.com). Carolina Power and Light, it turns out, sells for just 11.3 times earnings and yields a cushy 6.55%. This is the kind of stock that wouldn’t upset your stomach nor trouble your sleep in a bear market. Yet,the company also owns a subsidiary, Interpath, which is “a regional network-based application service provider,” into which it has dumped $150 million. If the subsidiary were valued at the fashionable 35X multiple for such businesses, it would be worth $3.7 billion — or about 75% of the entire market cap of CPL. At current prices, the Internet component of CPL is approximately free.

*** Celebrities who huckster Internet products are demanding a piece of the action, says “Forbes.” William Shatner’s stake in Priceline.com is said to be worth $10 million. Mike Piazza, Mets catcher, and Anna Kournikova, tennis pro, have also gotten stock options in return for product endorsements.

*** Gratuitous opinion of the day: I am still amused and appalled by the Anglican clergyman who said he was being “stalked” by women parishioners, which made his job “excruciating[ly]” painful. “Delightfully painful,” a cynic might imagine. The poor sod…stapled to a cross of longing, heaving, demanding female passion.

*** A hallmark of all major religions is setting aside one’s own problems in order to attend to others. What about the poor women who needed his pathetic attention? What kind of spineless shepherd wallows in such malignant self-absorption and cringes before the demands of his flock? No wonder the Church of England is in decline.

*** And here’s something interesting from Jack Wheeler, illustrating the gap between politics and common, civil decency:

“Maureen Dowd’s column of Feb. 20 [in the “New York Times”]… recounts a `partially blind biology student’ in Florence, SC, telling George W. Bush that `she couldn’t afford a $400 device that would let her use a microscope.’ Sneering that Bush’s `solution was to ask if anyone in the audience would pay for it,’ she makes a smart-aleck put-down that is her trademark: `Noblesse oblige is not exactly a detailed health care program.’ Earth to Spaceship Maureen: This woman didn’t need a `detailed health care program’ from Washington; she needed 400 bucks. Bush solved her actual real individual problem right on the spot. An audience member volunteered the money.”

Ms. Dowd would rather steal the money from him than take it as a gift.