A DR Classique, written four years ago today, in honor of the departed.
“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.
Armistice Day: Power Beyond Expectations
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.
Armistice Day: 21 Days
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.
November 11, 2003 — 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.
Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of the Wall Street Journal best-seller: “Financial Reckoning Day: Surviving The Soft Depression of The 21st Century” (John Wiley & Sons).
Oh, dear reader…it’s not easy.
The press…the headlines…your neighbors…economists… brokers…analysts…maybe even your spouse – almost everyone in the entire financial system tells you not to worry. There it is on the front page of USA Today: “New data point to growth for jobs…Fed chief, public spot reasons for optimism…”
There has been a “sea change,” they say. Now, everyone thinks that clear skies and favorable winds will take them where they want to go – to effortless prosperity, gain with no pain, a free lunch and dinner every day of the year. Debt? Don’t worry about it, they say. This economy is so dynamic, so prosperous, so innovative – we’ll work our way out of debt, no sweat.
How could it be, dear reader? We reported yesterday that debt was increasing 6 times faster than income. In the month of September, consumer debt increased by $15.1 billion – bringing the total to $1.97 billion. How do you work your way out of debt while adding $6 of new debt for every new dollar of income? The nation already owes nearly $3 trillion more to foreigners than foreigners owe to it. And that amount grows by half a trillion each year, thanks to a trade gap that is 10 times as large this year as it was 10 years ago. As a percentage of GDP, American debt levels already beat anything the world has ever seen – and get larger every day. For nearly 100 years, the ratio of debt to GDP was between 120% and 160%. Only in the 1929 bubble did it ever become really grotesque…peaking out at 260%. Guess what it is today? Over 300% and growing.
Yes, GDP growth was recently clocked at more than 7% per year. Yes, productivity numbers came in at more than 8%. And yes, the latest numbers appear to show employment increasing.
But these bits of information are nothing more than random noise…or worse, intentionally misleading drivel. Employment numbers may be up – but compared to every past recovery, they are pathetic. And next month might show unemployment falling again. A close inspection would show that the productivity numbers are as phony and meaningless as an election campaign. And the GDP? A humbug…a charlatan…a flim-flam…a false shuffle. “You give me a trillion dollars and I’ll show you a good time too,” said Buffett of the current boom. Pump enough new credit and federal spending into the system, in other words…and something is bound to happen.
What has happened is that the flood of new money and Lazy- Boy credit enabled Americans to make even bigger fools of themselves – borrowing and spending money when they desperately need to save it.
Buffett, writing in Fortune magazine, describes the buildup in debt as though it were equivalent to selling the nation’s assets to foreigners. “My reason for finally putting my money where my mouth is [by buying foreign currencies] is that our trade deficit has greatly worsened, to the point that our country’s ‘net worth,’ so to speak, is now being transferred abroad at an alarming rate.”
According to the Sage of the Plains, we live in “Squanderville”…where we’ve been wasting our national wealth year after year. Buffett estimates that the total wealth of the nation is about $50 trillion. But year after year, we spend more than we make and mortgage a little more of our capital stock to foreigners. Already, 5% has moved into foreign hands…
“More important,” he writes, “is that foreign ownership of our assets will grow at about $500 billion per year at the present trade-deficit level, which means that the deficit will be adding about one percentage point annually to foreigners’ net ownership of our national wealth.”
For the moment, the Feds seem to have succeeded. They have lured the citizens of Squanderville deeper into debt, encouraging them to spend more money they don’t have on things they don’t need.
But long can this go on? Doesn’t each dollar of new credit (debt) make the situation worse…adding to the bills that someday, somehow – either by creditor or debtor – must be paid?
What kind of ‘recovery’ is it when you are merely squandering your wealth at a faster rate?
We are killjoys and spoilsports for even asking the question.
Here’s Eric with more news….
– A terrorist bombing in Saudi Arabia over the weekend killed 17 people in Riyadh, while blasting a hole through investor complacency on Wall Street. The Dow Jones Industrial Average fell about 55 points yesterday to 9,755, while the Nasdaq Composite dropped 1.5% to 1,942.
– For months, investors have been wallowing in the warm fuzzies of a recovering economy, while ignoring the cold realities of escalating violence in the Middle East. A steady stream of bullish economic headlines here at home has made it much easier to ignore the steady stream of bearish headlines from ‘over there.’
– But the bad-news headlines are becoming much more difficult to ignore. Certainly, one or two random sniper attacks in Iraq or Saudi Arabia won’t reduce the S&P 500’s earnings. On the other hand, escalating terrorist activity is hardly bullish…except for commodities.
– Yesterday, crude oil rose to a fresh three-week high of $30.88 a barrel, while gold jumped $3.30 to $386.70 an ounce. “The commodity bull market is just getting started, especially for oil,” says John Myers, editor of Outstanding Investments. “Saudi Arabia is in big, big trouble. Within the country’s own borders, undeniable tensions are rising. Not only do they threaten the future of the Royal House of Saud, Saudi Arabia’s ruling family…but they also jeopardize the future of every nation that depends on Saudi oil. Especially, of course, America.
– “Our future and the Saudis’ is so intertwined, we will HAVE to get involved. But in the midst of the crisis, there’s also opportunity. If I’m right, petroleum prices will once again lock into a steep rising trend. Only this time, it will be permanent…”
– We suspect that the stock market’s “disillusionment phase” is about to begin. The problems in the Middle East are probably worse than they appear, while the strength of the U.S. economy is probably less than it appears.
– Here in the States, the economy is registering some impressive growth. “[But] the obvious and important tactical question is whether this newfound vigor is sustainable,” says the ever-bearish Stephen Roach. “The latest U.S. employment numbers are hardly in keeping with the vigorous hiring-led upturns of the past. In the recoveries of the mid-1970s and early 1980s, for example, the great American job machine was generating new employment of around 300,000 per month within six months after cyclical upturns commenced…In this broader context, job gains of 125,000 over the past two months remain woefully deficient. Normally, at this stage of a cyclical upturn – fully 23 months after the trough of a recession – private-sector hiring is up about 5.5% (based on the average of the six preceding business cycles). As of October 2003, the private job count was still down nearly 1% from the level prevailing at the official cyclical turning point in November 2001…
– “The detail behind the hiring improvement of the past three months bears special attention,” Roach continues. “Fully 78% of the employment growth over the past three months has been concentrated in three of the most sheltered segments of the workforce – education and health services, temporary staffing, and government. That hardly qualifies as a full-fledged upturn in business hiring that lays the groundwork for a classic cyclical revival…For a saving- short, overly-indebted, post-bubble US economy, I continue to think it’s entirely premature to issue the all-clear sign, there’s a limit to the potential vigor of a U.S.- centric global growth dynamic.”…or at least, there ought to be.
– Again, most investors don’t seem to care. Job growth may be anemic, but speculation is all the rage. The volatile Nasdaq Composite has soared more than 75% during the past year, while numerous penny stocks have become dollar stocks.
– For more than a year, reckless speculation has excelled over plain-vanilla forms of speculation…This too shall change. During the disillusionment phase of stock market cycles, caution excels over reckless speculation.
– “While past performance suggests that the current bull market, which celebrated its first anniversary Oct. 10, is still young, it also alerts investors to the sobering fact that a market peak may be looming,” USA Today reports. “If this bull market turns out to be a short-term rise in a longer-term bear market – often called a “cyclical” bull market – history says time might be running out on the current uptrend. Ned Davis, found that the 17 cyclical bull markets since 1900 have lasted 371 days. The current bull market is already 394 days old.” Let’s keep the hearse nearby.
Bill Bonner, back in Paris…
*** For some reason, many of the fastest-growing, fastest talking communications tech companies in the nation have installed themselves in the techland paradise between Washington DC and Dulles Airport. Making our way to the airport last night, we passed Computer Associates, Oracle, Nextel, Juniper and dozens of others – many of the companies that blew up so spectacularly in 2000-2001…and now have ballooned again.
We don’t know one from another…and have done no research…but our guess is that you could sell short any company between Dulles and the Beltway…except for maybe the Days Inn…and turn a nice profit.
*** Today is Remembrance Day in Canada…Veteran’s Day in the U.S…and Armistice Day in France. At the 11th hour of the 11th day of the 11th month the bells will toll throughout France – remembering the end of the nation’s most costly war, which ended on this day in 1918.
It was on this day, too, that Wilfred Owen’s mother received a telegram informing her that her son had been killed. Coming as it did on the day the war ended, the news must have brought more than just grief. “What was the point?” she may have wondered.
Wilfred Owen had wondered, too. His poetry mocked the glory of war. He described soldiers who had been gassed as ‘gargling’ their way to death from “froth-corrupted lungs.”
“You would not tell with such high zest To children ardent for some desperate glory The old lie: Dulce et Decorum est Pro patria mori.”
Owen saw many men die; it was neither sweet nor glorious, he observed, but ghastly.
Still, men seem to want to kill one another from time to time. In the Great War, millions died. You can ask people today why they died, and no one can give you a good reason. No nation had anything to gain…and none gained a thing. But the dead men were no less dead for want of a good reason.
“Don’t forget to spend a moment on Remembrance Day,” the Canadian Broadcasting Company reminded us on Sunday, “to recall those many Canadians who died protecting our liberty and our country.”
Here at the Daily reckoning, we believe in honoring the dead, too. But not with humbug. Canada had even less stake in the war than the major combatants. No matter which way the war went, it would have made little difference in the far north. But we appreciate bravery for its own sake – even if it is in an absurd cause.
One of the last Canadian WWI veterans died last week at 106 years old. There are only 10 left. (In France, there were 36 still with a pulse as of last week.) But the old soldiers are dying fast. Soon there will none left.
Canadian soldiers were among the best colonial troops…and the most likely to be killed. If dying in war is sweet, the Newfoundlanders were particularly blessed. One out of 4 of the 6,000 men of the Newfoundland Regiment never returned home. But “nothing matched the toll of the massacre at Beaumont-Hamel on the western front on July 1, 1916,” reports the Toronto Globe and Mail. “About 800 Newfoundlanders charged out of their trenches into the teeth of German machine-gunfire. They had been told that the Germans would be weakened by intense bombardment, that the lethal strings of thick barbed wire strewn across no man’s land would be gone and that another regiment would join them. None of it was true. The next morning, only 68 members of the regiment answered the roll call.
“One eyewitness said the Newfoundlanders advanced into the hail of bullets with their chins tucked into their necks, as they might weather an ocean storm.”
Then, the old lie swallowed them up, like a tempest. More below…
*** Maria is a hit in Germany. Two months in a row, she has appeared as the cover girl of a German magazine called Madame. But she is giving up her modeling career to become an actress. Yesterday, she went for an important audition – to determine whether she will be admitted to London’s Royal Academy of Dramatic Arts. We’ll find out later today how it went…
*** Her father, it seems, is also turning into somewhat of an international hit. We have just received an offer from a German publisher to translate our book, Financial Reckoning Day, into German…we are ‘tracking’ on the bestseller list at the National Post in Canada…and we’re told by our publishers in New York that their offices in Australia and Singapore are out of stock.
We’ve been obliged to postpone the initial launch of the book in the UK and across English-speaking Europe because pre-orders have depleted stock in London. Still, it appears some copies have been smuggled in by gnomes…a reader from Scotland writes:
“A large box of Kruger rands are on their way to me as I write. I have read Messrs Bonner and Wiggin’s new book…[‘Financial Reckoning Day’] I am still dazed from the experience. The only rational thought I have managed to produce in recent days is to sell my share portfolio and clear my debts.
“I strongly recommend that a copy of the book should be sent to Mr. Alan Greenspan, Gordon Brown et al – preferably wrapped in used bills. I suggest that the cover be changed to that of a pretty girl in a state of undress so as to at least get them to open the cover and peruse the contents. A complementary container of Valium should accompany the book so as to provide a means to moderate the shock once the realization of the legacy they will be leaving the world has sunk in. If Daily Reckoning can’t afford it, I would be happy to forward one of my Krugers when it arrives. Keep it up.”