Armistice Day

The Daily Reckoning Presents: A DR Classique –

The following letter was written two years ago. I made a
few changes to bring it up to date – 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 as they were in 1916 still indicated…rolled up in the attic of our house in France. I looked at it and wondered what people must have thought…and how horrified they must have been at what happened.

It was a war unlike any other the world had seen. Aging generals…looked to the lessons of the American war between the states…or the Franco-Prussian war of 1870…for clues as to how the war might proceed. But there were no precedents for what was to happen. It was a new era in warfare.

People were already 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”. 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.

The German generals believed the French were broken. Encouraged, General von Kluck departed from the plain; instead of taking Paris, he decided to chase the French army, retreating adjacent to the city, in hopes of destroying it completely.

But there was something odd…there were relatively few prisoners. An army that is breaking up usually throws off lots of prisoners.

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 what was happening…the German troops moving down the Marne only a few miles from Paris…he uttered the famous remark, “Gentlemen, they offer us their flank.”

Galieni attacked. The Germans were beaten back and the war became a trench-war nightmare of machine guns, mustard gas, barbed wire and artillery. Every day, “The Times” (of London) 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, for example, 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.

One by one, the people back at home got the news…the telegrams…the letters. The church bells rang. The black cloth came out. And, one by one, the maps were rolled up. Fingers forgot the maps and clutched nervously at crosses and cigarettes. There was no glory left…just tears.

In the small villages of France 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, Moliere, 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., the bells tolled, and 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. And a new war. The new technology has already changed the language we use… and is changing, like the railroads, the world we live in. We think differently…using the metaphor of free- wheeling, fast-moving, networked technology to understand how the world works.

We are fascinated by the new technology…We believe it will help us win wars with few casualties, as well as 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
November 12, 2001

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.

Deflation. Deflation. Deflation.

“Firms Finding Credit is Tight,” says the L.A. Times. Even after 10 rate cuts, the amount of business borrowing is still going down.

“Jobless rate reaches 7-year High,” the San Jose paper tells us, adding that the number of people receiving jobless benefits is at an 18-year high. “Dismal October Sales,” notes a Minnesota paper. “Wholesale Prices Plunge,” says an Associated Press story.

“The United States should now be preparing for one of the deepest and most intractable recessions of the post-World War II period,” concludes the Levy Institute. “The grounds for reaching this somber conclusion are that very large structural imbalances, with unique characteristics, have been allowed to develop. These imbalances were always bound to unravel at some stage; it now looks as the unraveling is well under way.”

Still, Joe Granville says we’re in a new bull market. But this is the same Joe Granville who said we were in a bear market throughout most of the ’80s and ’90s.

Wall Street strategists think we’re always in a bull market. But they’ve never been more sure of it – recommending that investors keep 71% of their assets in stocks. Of course, you’d have to be mad to pay any attention to it, except as a contrary indicator.

Merrill Lynch’s Richard Bernstein calls the consensus allocation view a “sell side indicator.” When the strategists recommend less than 50% exposure to equities, he observes, the following 12 months have never been bad for stocks. But when they recommend more than a 61% allocation to stocks, the next 12 months have never been good. A 71% equity allocation, Bernstein guesses, should mean a drop of 25% in stocks’ value in the next 12 months.

But the drop hasn’t begun yet, has it Eric?


Eric Fry from New York…

Question: “How do you get a dot-commer off your porch?” Answer: “Pay him for the pizza.”

– Once the universal object of envy, the dot-com crowd has become the universal brunt of jokes. For our part, we have nothing but empathy for the legions of entrepreneurs who tried to make the world a better place – and make a few million dollars for themselves in the process – by concocting e-solutions, e-platforms and myriad other e-doodads.

– Not only have their dreams turned to dust, so have their income streams. The bombed-out share prices of most publicly traded dot-com ventures testify to a colossal boom gone bust.

– Refugees of the Internet economy now number among the growing legions of unemployed. The glamorous life of tech-buzzwords-by-day and sushi-by-night has become the unglamorous (albeit honorable) chore of making ends meet.

– The economy seems to be noticing the ill effects of rising unemployment, even if Mr. Market is choosing to ignore them for now.

– “The Christmas shopping season started hopefully enough on Halloween when no one tried to blow up a deserted mall. But it’s been all downhill since,” writes’s Igor Greenwald. “[But] Consumer confidence is shot, credit cards maxed out, nest eggs cracked. Another blizzard of pink slips seems inevitable right after the holidays. The Street’s best guess is that this Christmas won’t be any leaner than those in past recessions, which is like saying this kick in the groin won’t hurt worse than the others…

– Mr. Downey, the unemployed former editor of T3 Magazine, tells the New York Times, “We’ve become part of the recession. Now we’re just normal people out of work.” Mr. Downey speaks the self-evident truth. And yet, the still-employed and overpaid Wall Street analysts predict an imminent recovery. How will that happen, exactly? Just by lowering one little interest rate?

– From all outward appearances, the times are still getting tougher, not easier.

– Moody’s John Lonski reports that the delinquency rate on credit card loans has increased for nine straight months. Anybody care to bet against 10 in a row?

– The formerly free-spending leaders of the Internet revolution are now leading our nation’s frugality revolution. And many of them are leading an exodus from the Golden State to seek employment elsewhere.

– “Truck-rental companies are being inundated with requests for one-way trucks out of San Francisco,” the New York Times reports. “The Valencia Street U-Haul, one of the company’s main branches in the city, is getting requests for 15 one-way trucks a day, up from around six before Sept. 11th.

– “On Craig’s List, a Bay Area Internet site especially popular with the dot-com crowd, listings for available apartments have risen 5,500 from 3,500 in the eight weeks since the attacks.”

– Is this what a recovery looks like? The Internet boom is a distant memory to be sure. But the bust is very much with us.

– “My, how our heroes have changed,” Christopher Byron reminisces. “Remember back in the old days – which is to say, more or less 18 months ago – when the whole of Wall Street was on fire, and the guys we all celebrated were those courageous young twenty-something kids who kept running into the flames and running back out with armloads of Other People’s Money?”

– “And let’s not forget those who served with student deferments on the home front, like young Master Henry Blodget of Merrill Lynch & Company. And what about Ms. Mary (‘Rosie the Riveter’) Meeker of Morgan Stanley, who bolted together the bazookas our boys carried into battle: so what if the weapons backfired and shot rocket grenades into their own troops? Surely Mr. Blodget and Ms. Meeker deserve a ribbon or two for their efforts.”

– “For five years in America, it was all dot-com, all the time. And now it’s all gone. No more post-adolescent overnight millionaires in there Ferrari Testarossas and Porsche 996 Carreras. No more cabdrivers making $50,000 per week trading stocks on their laptops at every red light…It’s all so sad.”

– “The real secret of the late, great bull market…” says The Fleet Street Letter’s Lynn Carpenter, is that “most investors would have done better collecting dividends.” Now with the economy in recession, they’re even more powerful.

– The blue-haired paper millionaires are gone alright, and so are their jobs. The economy has noticed the loss. Who knows, maybe Mr. Market will notice as well.


Back in Paris…

*** In the front row of the pews stood four men – gray and stout – holding flags. Behind them, about 25 men…all of them veterans, either of WWII or the Algerian War…stood behind them.

*** Medals were abolished during the French revolution. But Napoleon had the sense to reinstate them. Here, in the little church at Lathus, France, the group of “anciens combatants” wore them proudly. Mr. Mining, who served with the Free French in North Africa in WWII, stooped over as he walked, as if weighed down by all the bronze and gilded medallions upon his chest.

*** Most of the old soldiers felt ill at ease in church. They were not sure when to rise and when to sit…they had forgotten the creed and the prayers. Like most Frenchmen they had been to church when they were born and when they were married and expected only to show up for services one final time – when they were dead. Yesterday’s visit was something special…a mass celebrating France’s veterans.

*** “We are all called upon to do our duty every day,” said the old priest. “Today, we honor those who risked their lives in time of war…for their country. And every day, we honor those who give their lives in God’s service.” More below…

*** Henry got a treat after the service. He was allowed to set the bell timer.

*** “I didn’t know how long to set it,” said the altar boy as we headed home, “so I set it for 30 minutes.” The poor people of Lathus…their ears are probably still ringing.

The Daily Reckoning