All Quiet On The Western Front

Note: I wrote this letter a year ago, but like it so much I am sending it to you again with edits to reflect current events. – Bill


“Like a wet, furry ball they plucked me up…” Rupert Brooke

In August 1914, millions of young men began putting on uniforms. These wet, furry balls were plucked from towns all over Europe…put on trains and sent towards the fighting. Back home, mothers, fathers and bar owners unrolled maps so they could follow the progress of the men and boys they loved…and trace, with their fingers, the glory and gravity of war.

I found one of those maps…with the front lines indicated – as they were in 1916. It was rolled up in the attic of our house in France, along with farm ledgers from the war years. All had been put in wooden boxes, placed in the attic and never looked at again.

The 20th century that began with such earnest optimism was only 14 years old when the Archduke Ferdinand’s driver took a wrong turn in Sarajevo. The world didn’t really care about Ferdinand in 1914, just as few people really cared much about the American election in 2000, but events have a way of going off in unexpected directions. Within months, Europe was at war.

Then, German general von Kluck took a wrong turn too – and instead of a quick, decisive campaign – like a stock market panic – it became a war unlike any other the world had seen. The world had entered a New Era.

People were already very familiar with the promise of the machine age. They had seen it coming, developing, building for a long time. They had even changed the language they used to reflect this new understanding of how things worked. In his book, “Devil Take the Hindmost,” Edward Chancellor recalls how the railway investment mania had caused people to talk about “getting up steam” or “heading down the track” or “being on the right track” or “getting rolling.” All of these new metaphors would have been mysteriously nonsensical prior to the Industrial Age. The new technology had changed the way people thought…and the way they spoke.

World War I showed the world that the new paradigm had a deadly power beyond what anyone expected.

At the outbreak of the war, German forces followed von Schlieffen’s plan. They wheeled from the north and drove the French army before them. Soon the French were retreating down the Marne Valley near Paris. And it looked as though the Germans would soon be victorious.

General von Kluck believed the French were broken. But there was an odd detail; there were relatively few prisoners. An army that is breaking up usually throws off lots of prisoners. Ignoring the evidence, and von Schlieffen’s strategic plan, von Kluck decided to follow the French army, retreating adjacent to Paris, in the hopes of destroying it completely.

As it turned out, the French army had not been beaten. It was retreating in good order. And when the old French general, Galieni, saw von Kluck’s error – a 30-mile gap had opened in the German line only a few miles from Paris – he uttered the famous remark, “Gentlemen, they offer us their flank.”

Galieni attacked, using Paris taxi cabs to ferry soldiers to the front. The Germans were caught by surprise and beaten back. Trenches were dug, and war became a new era nightmare of machine guns, mustard gas, barbed wire and artillery – for which, the military leaders on both sides were completely unprepared.

For more than 2,000 years, European armies attacked each other with massed units on horse or on foot. In the U.S. War Between the States – notably at Gettysburg – it had become apparent that such tactics were a ticket to the grave for the attacker. But WWI generals did not seem to notice. They sent millions of wet furry balls of flesh against the steel of machine guns and artillery. And the furry balls fell to earth.

Every day, “The (London) Times” printed a list of casualties. When the generals in London issued their orders for an advance…the list grew. During the battle of the Somme, this list got longer and longer. Soon there were pages and pages of names.

By the time the United States entered the war, the poet Rupert Brooke was already dead, and the life expectancy for a soldier on the front lines was just 21 days. A German male born in 1896 had only a 50/50 chance of surviving until 1921.

In towns and villages all over Europe – the tide of young men to the front lines soon turned into an ebb tide of letters….telegrams…and very bad news coming back home. The church bells rang. The black cloth came out. And, gradually, one by one, the maps were rolled up. The fingers that had once eagerly traced the battle lines carried the maps up to attics and clutched nervously at crosses and cigarettes. There was no glory left…just tears.

In our small town, south of the Loire Valley, hardly a family was spared. The names on the monument in the center of town…to “Nos Heros…Mort Pour La France” record almost every family name we know – Bremeau, Brule, Lardeau, Moreau, Morliere, Demazeau, Thollet…the list goes on and on. There was a bull market in death that did not end until November 11, 1918…at 11 a.m.

For years after…at 11 a.m., even in America, people stood silently…recalling the terrible toll of four years of war. Now it is almost forgotten.

We have a new paradigm now. It, too, is full of promise. It has already changed the language we use…and is changing, like the railroads, the world we live in. We think differently, too…using the metaphor of free-wheeling, fast-moving, networked technology to understand how the world works.

We are fascinated and encouraged by the new technology…as our grandparents were once impressed by electricity and the internal combustion engine. We believe the new era will help us create vast new wealth…and a quality of life never before possible.

And yet, we are still wet, furry balls, too. I will observe a moment of silence at 11 a.m.

Bill Bonner

Paris, France

P.S. The effects of WWI lasted a long, long time. In the 1980s, my father got a small inheritance from his Uncle Albert. “Uncle Albert?” I remember my father saying. “Who’s Uncle Albert?” The man in question was indeed an uncle…but he had been forgotten for many years. A soldier in WWI, Albert had suffered a brain injury from an exploding bomb…and never recovered. He spent his entire adult life in a military hospital.

What happened to Uncle Albert also happened to much of the rest of the world. WWI was fought so badly and ended so badly that people began to despise the culture and politics that they believed had caused it.

“How could 1,000 years of culture have produced this?” asks the lead character in Erich Maria Remarque’s ‘All Quiet on the Western Front,’ speaking for an entire generation.

Bourgeois culture became the enemy. In art, people won fame and fortune with grotesque, lurid, and farcical painting styles. In architecture, Corbusier led architects towards new designs – completely lacking in any bourgeois charm or adornment. The Germans felt betrayed – and rallied around an Austrian housepainter named Adolf Hitler, with his own vision of anti-bourgeois politics. And in Russia, the Bolsheviks staged a coup d’etat that seemed to offer the whole world an alternative. Like Uncle Albert, these brain damaged, pathetic curiosities survived into the 1980s.

*** If it’s not one of the E’s, it’s another. You’ll recall that after the Summer of Love – when just about everything seemed perfect – along came the Four E’s.

*** First it was Energy prices that disturbed investors. Then, Earnings – company after company announced disappointing numbers and blamed weakness in the Euro. Then the good people at the Bureau of Labor Statistics said the Economy’s growth rate had declined… And now this, big ‘E’ number 5 – the Election.

*** Two of the E’s bothered investors on Friday. Dell’s announcement that it would grow at only 20% per year caused investors to think about their tech holdings. Are they really super-stocks? What kind of super-stock grows at only 20% per year? That’s not much better than a ‘normal’ growth rate. And if that’s the case, maybe these companies should sell for prices that are closer to ‘normal’ too.

*** Dell fell, along with most of the techs and nets. Cisco lost more than $3. Amazon lost a bit more than $1, closing barely above $30.

*** Anyway, once the neurons, dendrites and cranial glop (to use the scientific term) got warmed up, investors still had to face the presidential Election. Who would have thought that a presidential election would have caused so much trouble. The election was supposed to produce a rally. October was supposed to give the market a bottom. But that’s the way things work in an Autumn of Anxiety – nothing works out quite as it’s s’posed to.

*** Reuter’s tells us that there is a light at the end of the tunnel – “Stocks to Rally if Election Turmoil Ends.” But the post-election rally that will have to wait until there is a ‘post.’ And as the weekend news made tragically clear, not every light in a tunnel is at its end.

*** The Dow fell more than 2% on Friday, down 227. The Nasdaq dropped more than 5%, 171 points. This gave the Nasdaq a loss of 12.2% for the week. The Dow lost 2% for the week.

*** There were 887 stocks making progress on Friday; 1925 declined. 51 hit new highs; 71 registered new lows.

*** At 3029 – the Nasdaq begins what could be another very troubled week. More Earnings reports are expected this week…and the Election news, too, could be disturbing.

*** “So where do we go from here?” asks Brian Durrant in the London edition of the Fleet Street Letter. Either the “Nasdaq is undergoing a healthy correction… and will recover as it did towards the end of last year.” Or…”this is only the beginning of the meltdown in tech stocks.”

*** At bear market bottoms, stock prices tend to go down to the point where the dividend yield is more than 5%. Today, the Dow yields less than 2%. Look for stock prices to eventually fall 60% before the final bottom is reached. ‘Dow 4000’ – if anyone is looking for a catchy title for a new book.

*** “The financial arrangements in many technology and telecom firms,” concludes Durrant, “are worryingly reminiscent of the Japanese practices of zaitech, which served to flatter the profits of ordinary industrial companies at the peak of the Japanese stock market boom of the late 1980s. We all know what happened next…”

*** What happened next was that Tokyo stocks hit a high of nearly 40,000 in January, 1990, and then fell 70%. Ten years later, the Nikkei is still trading below 15,000. ‘Buy the dips?’ … ‘Hold for the long-term?’ … Either of these bull market tactics would have been disastrous.

*** Tokyo and Hong Kong markets each lost more than 3% this morning. In Taipei, the loss was nearly 5%.

*** And yet, almost $700 million of new money went into equity funds last week – even as stocks declined sharply. Investors may be losing faith in technology, but they still believe in stocks.

*** Thus has the perfectly bullish situation of a year ago become perfectly bearish now. Mr. Bear can take down stock after stock, sector after sector – without causing panic. Plump, fresh new investors still arrive on Wall Street, like trainloads of new recruits at the trenches in WWI, ready to take the places of those who have been killed – or driven insane.

*** “Election squabble could hit dollar,” another Reuters headline tells me. Foreigners finance 4.4% of America’s GDP each year – divided, roughly into thirds, between stocks, corporate bonds, and other debt instruments. The biggest single component last year was the $152 billion that came in from sales of U.S. publicly-traded businesses to European companies. The U.S. had the miracle economy – and everybody seemed to want a part of it.

*** Even on Friday, the dollar managed to rise against the euro…though the euro is still holding well above its all- time low.

*** And Energy, too, is still raising some eyebrows as the autumn days begin to darken early, and the nights get colder. “Are we still facing a heating oil crunch?” asks Ray Devoe. “The 800,000 barrels a day promised by OPEC started flowing October 1st, and should be arriving right about now. Thus, ‘if it can be refined’ it will show up as heating oil in late November, early December. That’s the crux of the problem, but we also have to contend with the “wild cards”: 1) winter weather, 2) Saddam Hussein and 3) Hugo Chavez. In a crisis, panic follows immediately – reason comes later.”

*** But the U.S. economy no longer appears so miraculous. For one thing, foreigners have caught on to hocus pocus of hedonics. And they can see the American economy slowing down in any case. Plus, the U.S. political system – once the envy of the world – has recently been a cause for ridicule. Every taxi driver and bar tender outside of the 50 states seems to get a chuckle out of asking Americans who their president-elect is.

*** Americans take elections too seriously. They lack the cynicism and sophistication of, say, Italians. When an Italian presidential candidate was asked what would be the first thing he would do if he won the election he responded: “Demand a recount.” American candidates do it the other way around.

*** A huge flag was hung from the Arc de Triomphe on Friday, in preparation for Armistice Day on Saturday. Every small town has its own monument to those who died in WWI and WWII – sometimes with more names chiseled in the granite pillar than there are inhabitants of the town. More below.

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