Accidental Immigrants

How Bill Bonner came to take up residence in France…par hasard. This DR Classique was originally broadcast on 19 March 2001.

The winds of March that made my heart a dancer A telephone that rings but who’s to answer? Oh how the ghost of you clings These foolish things, remind me of you

– (I can’t remember the title, or the author of this song…but it was sung by Frank Sinatra)

The winds of March blew up on Saturday. It is a period marked by ‘les giboulées’ – where the weather changes from one moment to the next, like Maria’s moods. Teenage girls are reliable, like stock markets – you can count on them to be adorable one moment and insufferable the next.

Mr. Deshais was moody, too.

"Farming is finished in France," he said, exaggerating for emphasis. The chart of beef prices resembles the Nasdaq. The wholesale price of beef in France has dropped from 1.6 euros per kilogram a year ago to less than 1.2 euros in January.

Now, with a single recorded case of hoof and mouth disease in France, exports of meat products from the European Union have collapsed. The U.S. banned European meat last week. More countries have followed suit since then.

But later in the day, our gardener was beaming again. It is springtime, after all. I fixed the cold frames – replacing the glass in the lids – for him. He was happily planting lettuce and contemplating the collapse of western civilization when I left him.

I should stop here and warn you, dear reader, today’s letter has little helpful financial advice or insight. I didn’t think about financial matters over the weekend. So I have nothing to say on the subject. Having nothing to write about…I will write about nothing.

"The weather was just like this," Elizabeth reminded me, "when we first got here. We just drove up, in rented car…and thought we would move right in, as though we were staying at a Holiday Inn."

"We were so naive," she went on, describing our arrival at the Château d’Ouzilly, "we had no idea of what we were getting into."

"The weather was beautiful when we arrived. The sun was shining. The sky was blue. The grass was green. The birds were singing and the jonquils and Japanese redbud were already in bloom…it was gorgeous. And then, of course, the weather changed. Then we discovered that the furnace did not work. Of course, neither did the plumbing."

My wife might have continued: there was no heat, no useable kitchen stove, no bathroom that you wouldn’t be embarrassed to have a heart attack in, the fireplaces smoked so badly that you had a choice: you could have warmth…or you could breathe, but not both. And the roof leaked so badly in the first rainstorm, we thought it might have blown off in the night.

"The roof is okay," the previous owner had told us. This was the same person who told us that the furnace "worked fine." It was not so much that he was lying as that his frame of reference was different from ours. The furnace did work fine, as long as you didn’t mind living in a house with no detectable warmth. That sentiment might carry over to the bathrooms too – they were fine, unless you wanted real plumbing. And the roof was perfectly adequate, unless you wanted one that didn’t leak.

That is, of course, what makes living in France – or anywhere overseas, I suppose – so interesting. Things look familiar. But they are never quite what you think. Even the words often mislead you – French has many words that look for all the world like those of English, yet with very different meanings.

For example, "Are there are lot of ‘préservatifs’ in the food in France?" asked our new intern, Vanessa. The word sounds like something you might find in food. But what it means is ‘condoms.’

What triggered these remembrances of things past was the sight of the moving van at our front door. We were not moving out. Instead, we had rented a van to move some things from the country to our new apartment in Paris. This apartment is much larger than the last one – so it needs more ‘things’ to fill it up.

Not only do things have to be designed, built and sold – they also have to be moved around from time to time. In our case, they had to be carried from various rooms of the château, loaded into the van, driven the 350 kilometers to Paris and then carried up 6 long flights of stairs to our apartment. The elevator is so tiny that most of the furniture could not be shoehorned in. It had to be schlepped up the stairs, in the old fashioned way, just as it would have been 100, 200, or even 500 years ago.

Was there no help that could be had from the "Information Economy?" I sought in vain for an IT solution – for some way that the ‘information’ that is supposed to transform our lives could make this task easier.

The only improvement information technology offered was in the Avis rental office in Poitiers.

"Where would you like to return the van?" asked the clerk.

I gave her our address in Paris, which was followed by a few clicks and clacks on her computer terminal. Thus, we agreed upon an Avis office not too far away – at the Ecole Militaire – and were on our way.

And so, amid the ‘giboulées,’ the van was loaded with rugs, tables, lamps, chairs and other ‘things.’ And taking a couple of the children with me in the cab – Sophia, because she’s the oldest and strongest and could help me unload…and Edward, because he’s the youngest and wanted to ride in the ‘big truck’ – I set off for Paris.

It is a long, slow drive from Poitou to Paris at 110 kmh. Edward fell asleep within minutes. Sophia plugged in her earphones and opened her schoolbooks. I was left alone.

So, my thoughts drifted to experiences of the last 6 years – since we moved to France…and how, little by little, without ever really thinking about it, we became something we never intended. You’ve heard of the accidental tourist. Somehow, we became accidental immigrants.

But that is how things actually happen in life, dear reader. Things happen that we intend to happen…and try to make happen…and other things just happen.

"When you set something in motion," Elizabeth warned me, "you never know exactly where it is going to end up."

Big, stone houses in France are relatively cheap. We had planned to use our French house as a summer residence – a place we could turn into a seminar center and visit with the family in the summer.

But we never imagined the amount of time, money, energy and emotional commitment that was required. Once the investment was made, we didn’t want to leave. While my back was turned, Elizabeth put down roots. I don’t dare try to pull them out.

Ignorance is a fact of life – in France as in America. You never know exactly what people mean. Nor can you know where things will end up once they are set in motion – even in the Information Age.

Your very ignorant correspondent,

Bill Bonner

September 18, 2003 — London, England

P.S. Once we got back to Paris, Sophia and I unloaded the van. Edward helped too, by holding doors open. And we found that we could fill the elevator with small items and still have room for Edward, who would then push the proper buttons to set the elevator in motion, while Sophia and I climbed the stairs with chairs or tables in our hands.

This morning, I took the van back to the nearest Avis office, as organized by the Avis computer.

"Uh oh," said the clerk, "they must have made a mistake in Poitiers. We don’t take trucks back at this office. You have to go to the Bois de Boulogne."

Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of "Financial Reckoning Day: Surviving The Soft Depression of The 21st Century" (John Wiley & Sons) due out…tomorrow!

Trivial and monumental.

Such were the subjects we discussed when we met two of our Old Boy friends in London last night.

We caught up with Lord Rees-Mogg, former editor of the Times of London and now a contributing editor to the Daily Reckoning, at the Garrick Club.

"Unsustainable," was his conclusion. Speaking of the twin deficits – the U.S. current account and federal, each about $500 billion – his lordship had this to say:

"They just can’t continue running deficits of that magnitude. The whole thing has to blow up someday. We don’t know exactly how or exactly when. But we do know how to protect ourselves – with gold."

The U.S. government and its number-one ally, Britain, are fighting a war against terrorism that could add a trillion dollars to the national debt. Most economists and nearly everyone in a position to know better considers it money well spent. Because the Bush administration is also fighting a major war against deflation.

Reuters reports that "Underlying U.S. Inflation Slows to a 37-year Low." Core consumer prices rose only 0.1% in August. The "data suggested," says the Reuters piece, "the economy is not yet safe for the dangers of deflation."

Deflation…with its accompanying joblessness, bear markets and recession…would unseat the Bush team. Naturally, the Bush boys are doing all they can to prevent it – even if it means loading future generations with debt they can never hope to pay off.

"We hope they lose," was our reply to the war against deflation. Sooner or later, deflation is going to have its way. Better sooner than later, for every year that goes by adds another 5% of GDP to the nation’s debt burden. The longer it goes on, the worse the eventual debt correction will be.

In a recent interview, Paul Krugman described how a blow-up might develop:

"So what happens is a plunge in the dollar when [foreigners] decide to stop buying and start cashing in, and a spike in U.S. interest rates. But you might also get in a situation where the interest rates the government has to pay to roll over its debt become so high that you get an accelerating problem, which is what happened in Argentina. What happened was that suddenly no one would buy Argentine debt unless they paid a twenty-something percent interest rate…and everybody says, but if they have to roll over their debt at a twenty percent interest rate, there’s no way they can pay that back. So the whole thing grinds to a halt and the cash flow just dries up….

"Yeah, just take the numbers as they now look, and that’s where it heads….So you say, but this can’t happen, this is America, and I guess my answer is, is it? Is this the same country that we had in 1970? I think we have a much more polarized political system, a much more polarized social climate. We certainly aren’t the country of Franklin Roosevelt, and we’re probably not the country of Richard Nixon either, so I think we have to take seriously the possibility that things won’t work out this time."

Later, we left the Garrick Club and walked down the street to Rules restaurant, where we dined with Alexander Chancellor, former editor of The Spectactor and, for a time, editor of the Talk of the Town section of the New Yorker. Your editor had a Stilton and watercress soup, followed by a roast rack of highland beef, lavaged down with a few bottles of Pommard. What will he not do on your behalf, dear reader?

"Buglers," was Alexander’s concern.


"Yes, there are not enough of them. Did you know that WWII veterans are entering their peak dying years? More than 600,000 of them are expected to shuffle off this mortal coil next year alone. Not to mention casualties from Iraq. And they’re all entitled to a bugler when they get buried. But there are only 400-odd buglers.

"Well, I was deeply concerned about this, but it turns out that the yanks have invented an electronic bugle. It looks like a real bugle, but you put in a diskette or something and push a button.

"People who’ve heard it say the sound is so pure and so sweet it brings tears to their eyes."

"Is there nothing left that isn’t artificial," wondered his lordship.

Meanwhile, we turn to Eric Fry for the latest news:


Eric Fry in New York City…

– Yesterday, New Yorkers basked in the warmth of a glorious late-summer day, while a slight chill settled over the stock market. The Dow slipped 22 points to 9,546, while the Nasdaq fell 4 points to 1,883.

– Your New York editor soaked up some of the late-season sun by strolling a few blocks to "City Bakery" for his morning croissant and espresso. (That’s right, the New York editor of the Daily Reckoning often enjoys a French-style breakfast…without the Gitanes. To even things out, some of the ex-pats in the Paris office wake up each morning to a bowl of Cheerios or cornflakes. Rumor has it that Dan Denning combines the tw Cheerios and Gitanes.)

– While en route to his croissant, your editor observed many of his fellow New Yorkers strolling down the sidewalk alongside exotic canines or behind designer baby strollers, and many of these folks were chatting excitedly about the hurricane that is bearing down on the East coast.

– On such a gorgeous day, it seemed a bit surreal to hear so much chatter about an imminent hurricane. But we at the Daily Reckoning are accustomed to such curious juxtapositions. Indeed, they attract us like Iowa cornfields attract UFO-seekers. The stock market has been rallying briskly for months. The Nasdaq Composite basks in a flawless summer day – sunny and warm with a slight breeze. And yet, we fully expect an imminent gale-force selloff. The storm clouds are gathering…

– For starters, the nimbus clouds of overvaluation are billowing ominously overhead. The S&P 500 is selling for more than 25 times estimated earnings for 2003. Once upon a time, stocks markets would crash whenever they reached such rarified heights. But in the modern age, investors recognize 25 times earnings as a bargain…and Wall Street’s finest minds agree.

– Adding fury to the nimbus clouds of overvaluation are the swirling winds of joblessness. Statistically speaking, the economy is showing a few signs of revival. But employment growth is failing to revive (and even the NYSE chairman, Dick Grasso, will be heading down to the unemployment office soon. Mr. Grasso resigned his post yesterday, under a firestorm of disgusted criticism about his $140 million compensation package. It’s true that Mr. Grasso is only one more addition to the growing ranks of unemployed, but he made as much money as hundreds of workers. By one calculation, five average American workers, toiling for 1,000 years each at the average American wage, would still not earn as much money as Grasso’s package generously provided).

– But Dick Grasso is simply one of America’s unemployed unfortunates. Hundreds of thousands of others are filing claims for unemploymewnt insurance each week. "Lots of other data in the U.S. are improving," observes Donald Straszheim of Straszheim Global Advisors, "but not the all- important jobs data. Why all-important? Because for most of us, if we have a job, we are OK. If we don’t have a job, we’re not OK…The U.S. cannot have a solid, sustained economic recovery with continuing job losses.

– "30 months have passed since the pre-recession payroll peak in February 2001," Straszheim notes. "Total jobs are down 2.1%, by far the worst post-recession performance in postwar period."

– The dismal employment trend seems to be supporting Treasury prices. Unlike their stock-buying counterparts who breathlessly await an economic recovery, bond investors wring their hands over the nation’s sluggish employment trend and see an economic glass that is half-empty…and so yields continue to fall. The 10-year Treasury note rallied again yesterday, pushing its yield down to 4.18%. That’s a big improvement from the 4.55% level that prevailed a couple weeks ago.

– Meanwhile, the U.S. dollar tumbled 1% against the euro yesterday to reach $1.128. Is the dollar’s renewed selloff a taste of things to come?…More tomorrow!


Bill Bonner, back in London:

*** Speaking of Lords…on page 12 of the Times, the pathetic story of the House of Lords is described.

"The hereditary peerages are dead and gone," said Lord Strathclyde. "We have all acknowledged that."

In the late ’90s, the House of Lords began a reform program designed to exterminate itself. Lords, everyone admitted, were "an affront to democracy."

We cannot speak for democracy. But she might be just as affronted by the spectacle of modern elections as by the peculiarities of the peerages. Would she really sooner have a representative chosen by the fraud of the election process than by the luck of blood? Those slimy creatures who crawl out of the gene pool and run for public office are what make government such a sordid métier. They can’t bear having their ranks thinned and backs stiffened by hereditary peers with no campaign debts to pay, no promises to forget and no strings attached. The lords stand for no elections; they raise no campaign funds. As a result, they are free to speak their minds and vote any fool way they want. Quirky, often half-mad, and generally decent, the lords are more representative of the average Englishman than the on-the-make hacks who end up in public office. We will miss them.

*** Here, a Daily Reckoning reader corrects our Chinese…

"First, you should know that I enjoy your daily letter more than anything else I read financial. It helps that I agree with your fundamental outlook, but you guys are wonderfully contrarian, brave and usually correct.

"Second, a Chinese friend from Beijing just emailed me with a comment on your letter from the 16th. He said:

"The author learned a wrong Chinese word. The correct version should be: Pao Mo – the bubble in the air or on water surface which will break easily. Shui Pao – well, refers to the bubble that grows on human body, which is actually a kind of skin disease.

"It is nothing strange that companies related to McDonald’s have higher P/E ratio. Just take a look at how many people eating there everyday – esp. children and young students!

"Perhaps you meant skin disease?"

*** Another reader writes: "Back in the early 1990’s, Paul O’Neill left his job in the Bush I Administration and came to Pittsburgh to run the Aluminum Company of America, ALCOA Corp. One of his first acts was to approve price increases of aluminum strip coils, this in the face of a depressed world market due to massive dumping of ex-USSR aluminum stockpiles.

"Everybody thought that the new ALCOA Chairman was, not to put too fine a point on it, crazy. A business writer asked him, ‘Do you really think you can make those price increases stick?’ Paul O’Neill replied, ‘Have you ever tried to put beer into an aluminum ingot?’ Somebody’s instincts were right, because the price increases stuck. Strip coils were the ‘sweet’ spot in the market, and ALCOA made money.

"The world wonders how America will pay its bills. Bill, you wonder every day in your Daily Reckoning. Me, I wonder every day in my own daily reckonings. The world wants to know. The Chinese and Japanese buy U.S. bonds so that the U.S. can continue to purchase Chinese and Japanese goods and keep their factories humming. There is a precarious balance of national financial accounts, as capital flows and each side bets that the other will not flinch. But tomorrow’s newspapers tell a tale of financial disaster if the U.S. keeps to its present monetary course. And now Paul O’Neill, the aluminum-ingot man, thinks there are hundreds of billions (with a "B") of dollars of identifiable savings in the U.S. health care system. Hmmm…

"The U.S. spends more on health care than any other nation in the world. More in absolute numbers. More per capita. More in every category and by any measurement. More gauze- wraps, pills, botox-injections, colonoscopies, physical therapy and stomach reductions than any other nation in the history of mankind. (Well, the ancient Egyptians are said to have performed many similar medical procedures on people, but only after they were dead.) So the U.S. ought to be the healthiest nation ever, yes, what with all that medical care? Or maybe the U.S. is the sickest nation ever, what with all that medical care? Or maybe the U.S. is the most wasteful nation ever, what with all that medical care?

"I mean, when you have it to waste because the Dollar is the world’s reserve currency, you just print the currency and you waste it, right? If you really had to earn it, would you spend so much of it in one place? Is it possible that when the financial hurricane hits, maybe the U.S. will buckle down and fix its problems? Perhaps there is nothing like going broke to scare some sense into a person, if not a nation. Is Paul O’Neill starting to write the headlines for the newspapers that will be published the day after tomorrow? The world wonders…"

*** By the way, dear reader, the New Orleans Investment Conference draws near. Our favorite analysts, contributors, friends and colleagues will soon be meeting to discuss what an investor is to make of today’s economy…in New Orleans over All Hallow’s Eve, no less.

Quite a few of you have signed up to come and cheer us on, along with Mr. Fry and Mr. Wiggin…and of course, keynote speaker Bill O’Reilly, Jim Rodgers, and Richard Russell, to name a few. There are still a few spaces available, if you would like to join us…but we cannot say how long they will remain open…

The Daily Reckoning