American History X

“Remember, there are only two important rules in Christianity. Love God…and Love thy Neighbor. Sometimes it seems hard to love your neighbor. It is hard to follow God’s rules.”

– Pere Marchand,

From Sunday’s service

Indonesia is like an ad for Benetton. There are 10,000 islands… 1,000 different languages and dialects… many different races, colors and religions.

If one wanted to celebrate diversity, Indonesia would be a good place hang the streamers and throw the confetti. But instead of appreciating their neighbors, the Dayaks decapitate them.

Thus, even in the 3rd millennium after the birth of Christ…there are still savages upon whom the veneer of civilization has never been applied. These noble savages are still as rough-hewn as fence posts.

Why do people do evil things?

“What stays the same in the financial markets,” I quote myself from Friday’s letter, “is the cycles of greed and fear, boom and bust, expansion and contraction…love and hate…which accompany all human activity.”

Sometimes, in markets as in the rest of human life, things get out of hand. Principles – such as the Golden Rule…or, dare I say, the gold standard – are ignored. Instead, people rely on “group feel” to guide them.

We are supposed to love our neighbors – but who could love the Dayaks? (Perhaps there is some other benighted tribe on Borneo who still love them despite their murderous faults. They invite them for dinner…and have them, with vegetables.)

I began to write about this yesterday – after having seen the film, American History X, on Saturday night. But the subject is so touchy – it needs to be approached as if it were a live hand grenade or a rich, nearly-dead aunt. Watch out…it is easy to make a mistake.

The subject of the film was racism. Hate. Murder. Familiar themes of American history.

To the question, “why do people do evil things?” it might be answered, “because there is nothing to stop them.”

To which, it might be rejoined: “Why doesn’t the government stop them, isn’t that what it is supposed to do?”

Unfortunately, in the century just passed, government was the main perpetrator of evil. In fact, when it comes to the prize for killing people, the illiterate savages of Borneo are not even in the running. Instead, the literate savages of Europe and Asia are way ahead. It was they who built the concentration camps…and the gulag…and who masterminded the purges, the famines, the leaps forward and the de- urbanization campaigns.

But if government cannot be counted upon to prevent evil, what can? Alas, there are still questions for which the Age of Information has no ready answers.

When slaves were first imported to America, they were regarded as indentured servants. For a while at least, Christian principles stood in the way of race slavery. Once a slave became a Christian, he could no longer be held in bondage. Many blacks in the 17th century gained their freedom in this way – and some went on to become landowners and slaveholders themselves. In fact, it was one of these black slaveholders who challenged the law in the Virginia Commonwealth that required christianized slaves – and their children – to be released. He won. The principles had been pushed aside. Virginia fell into the abyss…

Later, in Pennsylvania, even the Quakers began owning slaves. This appalled the Quaker leadership, however, who pointed out that you could not hold people in perpetual servitude and still do unto them as you would have them do unto you. Slavery was abolished in Pennsylvania partly on this matter of principle…and partly because Pennsylvania and all Northern states generally are less well suited to the type of farming – such as growing tobacco and cotton – where slave labor is most useful. Maryland Quakers, for example, found slave labor so useful for their tobacco plantations that they decided to become Episcopalians. Then, as now, Episcopalianism was ready to adapt itself to the convenience of the time.

American History X was a minor success in America and a bigger one in France. In Europe, it broke a kind of taboo, explained my friend Michel, because it allowed someone to argue the neo-nazi cause…and showed the kind of images that nurture racist feelings: such as a scene where a gang of black kids beats up a white boy in a school bathroom.

“The ending was ambiguous,” Michel continued. A person who didn’t like blacks might have come out of the theatre liking them even less than when he went in. Of course, he’d probably not care for the neo-nazis either, and certainly wouldn’t want to shower with them.

Your reporter…back on his beat tomorrow…

Bill Bonner

P.S. An eccentric acquaintance of mine, Kurt, claimed to have once been a member of the American Nazi Party back in the 1960s.

“I thought it was a drinking group,” he said. “I went to a couple of meetings. They seemed like a decent bunch of guys. Seemed to have their heads screwed on right.”

“One night, though,” he said, “they decided to test me. I guess that’s what they were doing. They asked me if I would kill a communist. I said ‘sure.’ Hell, I wasn’t doing anything else that evening.” (I never knew if Kurt was just making this up.)

“But about that time I began to get suspicious. I was afraid they were setting me up. Maybe they were with the FBI or something. You just can’t be sure, you know. I’ve got nothing against shooting communists, but something didn’t smell right about it. So, I left those boys.”

Kurt had the same fears and concerns as the hero of American History X. He didn’t like living around people with dark skin. So he moved from California to Arkansas where, as he put it, “I’m protected by 300 miles of armed hillbillies.”

*** “Rate cut…rate cut…rate cut…” Investors chanted as they bought aggressively yesterday, driving the Dow up 200 points.

*** Advancing shares beat out declining ones by a more than 2 to 1 margin.

*** The Nasdaq rose too – up 47 points.

*** Former Fed governor Wayne Angell appeared late in the day with a guess that there was an 80% chance of another surprise rate cut from the Fed.

*** GE gained 4%. MSFT shot up 6%. Cisco and Intel went the other direction.

*** The rate cut rumor helped observers make sense of what was happening on Wall Street…but it was not necessarily the cause.

*** “Markets are living things,” says Richard Russell on occasion, “they have to breathe in and out.” Russell adds that anytime the breadth in the Dow or S&P goes down in 12 or more of 15 sessions, it is time for rally.

*** “The market isn’t likely to keep going straight down,” adds John Crudele in the NY POST. “Markets never do.”

*** The St. Louis Fed reports that Greenspan & Co. are doing their bit to make sure it doesn’t go straight down. They are inflating the currency. MZM (money of zero maturity, or what economists call ‘cash’) has been growing since Dec. 11th at a 21.3% annualized rate. Over the last 6 months, the growth of cash has been running at about 4 times the growth of the economy itself.

*** Where is the cash going? Well, as much as $140 billion net went into mutual funds in January. Even so, stocks refused to rise.

*** How can you have huge inflows of cash into a market without prices going up, asks Crudele. Someone else must be selling. Crudele guesses that large investors are selling their stocks to the mutual funds, which are owned by small investors. “The smart money wants no part of this market,” he concludes.

*** “Students Swept up in Stock Market Mania” reports a SF Chronicle headline, illustrating Crudele’s point. “Everyone just sees the money like floating around and wants to get a piece of the pie,” says one metaphor-mixing member of the class of 2002.

*** Gretchen Morgenson reports that a Watson Wyatt study of the use of stock options found that companies making heavy use of options were likely to perform less well than those who made less use of options. Options “motivated executives to pursue riskier business strategies, like adding debt and making high-priced stock buybacks,” writes Morgenson in the NY Times. Among the tech stocks in the study, an average of 23% of the shares outstanding had been used in stock option grants.

*** The big winners yesterday were, would you believe it, the gold miners – which rose about 8%. The price of gold itself rose $4.70 on April contracts, to $266.50. People are beginning to make money in Newmont, Homestake and a few other companies.

*** “The gold mining stocks should rally sharply before the equity markets bottom,” says Kevin Klombies. A chartist, Klombies notes: “Franco Nevada broke up through the top of the trading ‘flag’ on Friday to $18, another serious resistance point… with a successful break at this level, the stock should go to $25.”

*** Dan Ferris reports that lease rates for gold have jumped from 0.7% to more than 2.4%. “The market is full of rumors,” he says. Are some major players in the gold market ‘overhedged’ and calling in their gold loans? More on gold, the dollar, racism …and life in the 3rd millennium… below.

*** A reader, who works for Mitsubishi, comments on his bosses and why they’ve been unable to get out of their funk: “Typically they (the Japanese) are unimaginative, paranoid, and inflexible. Once they have a plan, the plan is more important than the results until the results hit them like a Tsunami. The bad economy in their country serves to make them even more paranoid. As such, it could be an interesting analysis to see what will happen to Japan and the resulting global economy if they are unable to shift gears. It certainly does look ugly.”

*** I also got an interesting note from Rick Ackerman explaining how America’s trade deficit contributes to the illusion of a healthy economy: “The importer enjoys a greater gross margin on the imported product than the exporter may realize in export. Thus the $2 comb set leaving the Chinese factory is a $3 part of a shipment arriving at San Diego. By the time your daughter buys it for $10, your economy registers in GDP, +$10 in final sales, -$3 in imports for a +$7 in GDP. The GDP improvement to import ratio is greater than two, in this case 2.3. The numbers for other products vary greatly, but the pattern is similar. The $1.2-1.3 trillion of imports this year are probably directly responsible for some $2 to 2.5 trillion of GDP. Perhaps more.” The more we buy…the richer we get.

*** “You won’t believe you can get property this nice… this cheap… so close to the US,” says Jennifer Stevens, who recently spent some time searching for real estate bargains in the Bahamas. “…talcum-powder-fine and deserted, the beaches on Long, Cat, and San Salvador are some of the most spectacular in the islands – and still affordable. You can own a quarter acre of beachfront for less than US$46,000 or a hillside lot with an ocean view for as little as US$15,000. And until June 2002, special building incentives allow you to import all your construction goods duty-free – which can save you 35% on building costs.”

*** By the way, The Sovereign Society’s 16th Annual Premier Offshore Advantage Seminar, will be held May 16-20, 2001 at the Sheraton Grand Resort, Paradise Island, Bahamas. I’m told the conference will feature international bankers, attorneys and tax experts who can provide you with personal consultation if you’re interested in banking offshore.

*** And if you’re interested in the property in the Bahamas, Kathie Peddicord, editor of International Living, will be speaking at the Sovereign Society seminar, then leading an expedition afterwards to Long, Cat, and San Salvador Islands.

The Daily Reckoning