Aspen

We were wrong about Aspen, and not for the first time. Visiting the small resort town six years ago we noticed a small, quaint Victorian house of no particular size or charm selling for $895,000. Friends were buying property in the area. We considered buying too — for the summer weather in Aspen is much nicer than the sweat-stained weeks of the typical July and August in Baltimore.

We imagined ourselves happily traipsing over hill and dale by day — enjoying the bright sun and clear air…and then, by evening, coming into town for a civilized dinner. There were concerts…and even street musicians, who livened up the cool night air with Bach and Brahms. One could walk home at night and look up at the stars…without worrying about getting stuck up by addicts or gunned down by dealers. Aspen’s lawyers, CEOs and psychiatrists who made enough money from big crimes; they don’t need to engage in petty ones.

"The intellectual elites keep telling us that cultural diversity is such a great thing," said Jared Taylor, the first speaker on yesterday’s conference program (or words to that effect…your editor was speaker #2 and busy preparing his own remarks)… "but where do these people go…where do they live…where do they send their children to school? Just look at Aspen. Do you see much cultural diversity in the streets of Aspen?"

Mr. Taylor had a point. In fact, all of his points were good; it was his conclusions that were absurd. "If cultural diversity were really such a great thing, you’d think they would want to enjoy it more…spend the summer in a mixed neighborhood of Los Angeles…(or maybe a bad neighborhood of Baltimore). Instead, they come to Aspen, which is nearly all-white."

"You may find my remarks shocking," he had warned us. But there was nothing shocking about them, except that someone was saying in public what everyone knows in private. Most people do not want a multi-cultural experience anymore than they want to eat the brains of live monkeys or the eyeballs of goats. They feel comfortable around people like themselves — people with the same ideas, same style, same sense of what is right and wrong.

Here in Aspen, the rich, the famous, and the beautiful find each other.

There are few really fat people — Aspenites are much too fashionable for obesity. There are almost no blacks and few Mexicans who aren’t washing dishes.

"People come to places like Aspen to escape from these invading minorities," Taylor warned. "In America today, the benefit of a college education is that it brainwashes students to have the right attitude towards minorities… and gives them the means to live as far away from them as possible."

"But the minorities keep coming," he continued. "Because they know that we’ve created a superior society. But as more and more of them come, they change our society… crime rates go up, there are more people on welfare, there is more conflict. It is happening throughout Western Europe and America… white societies are being destroyed by immigration from non-white areas."

This was the sort of opinion that you are not likely to find on the NY TIMES editorial page. But people at the 20-annual Eris Society conference sat still for it with neither shock nor outrage. They are accustomed to unpopular… often ridiculous… opinions.

"I thought it was more of a drinking club," a member of the American party explained a few years ago. The man stood before us and spoke with a deep Southern drawl and flat delivery that made him sound like a, er, with a mental defect. "They asked me to kill a communist just to prove I was loyal. I wasn’t doing anything else that night and wouldn’t mind a communist. But that’s the sort of thing that can get you into trouble with the law, so I quit."

Then, there was the man who claimed he never ate. He called himself a "breatharian" and seemed as earnest as a Labrador retriever. But late at night, someone thought they spotted him coming out of the Jack-in-the-Box with his tail wagging.

Other speakers included the mayor of Big Ditch, Utah, who showed up with two of his 26 wives. And there was the man who showed attendees how to make home-made bombs out of fertilizer… and legendary speculator Victor Niederhoffer, who explained how to predict market movements from the patterns in music…and Sonny Barger of the Hell’s Angels. Your editor was in good company.

Eris was the greek goddess of discord. Excluded from a party, she tossed a golden apple amongst the revelers, inscribed "to the fairest." Nothing is more provocative, in a group of goddesses, than deciding which is the prettiest. One thing led to another and before long, Helen had been hijacked, the face had launched a thousand ships and the Trojan War was underway.

"Groups of people just seem to go mad from time to time," your editor explained. "They believe things that aren’t necessarily illogical – just absurd – and do things that they later regret." He was trying to describe why people buy stocks in dot.coms with no businesses… and why security guards at airports strip-search grandmothers as if they posed a threat to the republic.

…and why groups of people seem to go crazy and look for ways to destroy themselves.

Why did the Germans attack Russia in WWII; it was perhaps the only thing that could have ruined them…?

And why did the Japanese do the one thing — and maybe the only thing — that could bring them down, picking a fight with the U.S. in 1942…?

And how did the Russians and Chinese believe such incredible for such a long period of time? It is a wonder they survived at all…

"This is bad news for the positivists, the rationalists, the objectivists and all those who believe in the power of logic and the perfectability of man," I told the group. "For the world’s looniest episodes occured during the lifetimes of many of the people in this room."

And still the apples come… and the beautiful Helens still lure ships to destruction…

Your editor, enjoying Aspen

Bill Bonner
August 9, 2002

P.S. The house in Aspen that I judged too expensive at $895,000 in the mid-’90s is available again, for over $2 million.

Stocks are up three days in a row. The dollar is up too. And bonds are down. Is the bottom in?

Have we seen the big, final capitulation that we’ve all been waiting for? Or is this just another bear trap rally…helping to keep the patsies in the market long after they should have left?

We don’t know, of course. Anything can happen, we remind ourselves and you, dear reader.

Just yesterday, we learned that Alan Greenspan is to be knighted. Greenspan is nearly the last of the heroes of the New Era revolution who remains at liberty with his reputation intact. Our judgement, apparently not shared by the Queen’s honors council, is that Greenspan has been right only twice in the last 7 years. On the first occasion, the Fed chief noticed that the stock market investors had become irrationally exuberant. Then, he noticed that a little irrational exuberance might be good for his career…and happily contributed to it.

Seven years later, he remarked on the infectious quality of greed at the top of the very bubble market he had helped create. Right again.

Now we wait to see what the developing bear market on Wall Street and business slump on Main Street does to the chairman’s popularity.

"The case against Alan Greenspan," says a current MONEY magazine article, beginning the work of deconstructing his reputation, is that the Fed chief allowed the biggest bubble in history to puff up right in front of him. He should have at least raised margin requirements and been more honest with the public about what a central bank can do; for despite what investors came to believe, it offers no guarantees against falling stock prices.

"Maestro or Mess," the article asks…and then asks readers for their opinions. "He’s okay, but it’s time to replace him at the Fed," is the middle choice.

Whether the Dow will fall to 1,500 or only to 7,000, we don’t know. But we’d be surprised if the downturn didn’t continue at least long enough to destroy Alan Greenspan’s reputation. That seems like the least it could do.

Eric, what’s the latest?

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Eric Fry in New York…

– The stock market pulled off a "hat trick" yesterday – three straight winning sessions. This modest achievement may not seem like much, but long-suffering investors are grateful for every uptick that comes their way.

– The Dow jumped 255 points yesterday to 8,712 – bringing its three-day gain to an impressive 8.3%. The Nasdaq surged 35 points to 1,316, for an even more impressive three-day gain of 9%.

– News of a beefy new IMF loan – a.k.a. bailout — for Brazil helped to kick off Thursday’s rally, as the shares of the big money-center banks jumped on the announcement. J.P. Morgan, in particular, relished the news by leading the Dow with a 10% gain. Morgan, along with all the other big New York banks, has extended sizeable loans throughout Latin America. The creeping financial panic in the region caused many investors to conclude that these pinstriped lenders might not recoup each and every dollar that they had lent.

– But then, in steps the IMF, the biggest and "stupidest" lender of all with a $30 billion package for Brazil. The IMF bailout doesn’t guarantee that Citicorp and JP Morgan will get their money back. But it does improve the odds.

– While bank stocks were busy whooping it up, the electronic-retailing sector was short-circuiting. Shares of Best Buy plummeted 37% after the electronics chain warned that the recent drop in consumer confidence is taking a big bite out of sales and earnings. The stock’s spectacular 64% collapse since late March closely tracks the American consumer’s waning appetite for the sorts of non-essential items that Best Buy sells. Apparently, some folks are scraping by without a fifth TV set or new DVD player.

– As we noted yesterday, the lengthy bear market on Wall Street is sapping the desire of America’s consumers to continue buying things they don’t need with money they don’t have from places they couldn’t find on a map. Instead, they’re trying something new: saving…and Best Buy isn’t happy about it.

– Meanwhile, most of the nation’s largest savers — college endowments, state pension funds and corporate pension funds — aren’t faring that well these days. That’s because they cheated a little by trying to "save" money in assets like S&P Index funds and shares of Worldcom.

– As a result of their irresponsibly large allocations to the stock market, many endowments and pensions are "sucking wind."

– According to John Griswold, senior vice president at the Commonfund Institute, which manages $30 billion for 1,600 nonprofits from its base in Wilton, Conn, many college endowments have suffered large double-digit losses. "This will be painful," he tells the Christian Science Monitor. "There will be serious cuts in…operating expenses in the coming year. Some will need Draconian plans."

– What!…No more basket-weaving classes?

– Most state and corporate pension plans are no better off than the college endowments. The "reliable" stock market gains are gone, and they’re being replaced by losses. Even so, many corporations stubbornly maintain unrealistically high investment performance expectations for their pension plans. The reason why is no mystery. From the point of view of GAAP net income, the actual investment performance isn’t what counts. Rather, it’s the pension plan’s ASSUMED rate of return that runs through the income statement.

– Amazing, isn’t it? Therefore, companies are loathe to lower their performance assumptions because doing so would also lower their reported earnings.

– "Corporate America, though it has supposedly sworn off make-believe, continues to imagine that it is better at investing than, say, Warren Buffett," writes Jim Grant. "Twenty-five of the 30 companies in the Dow Jones Industrial Average sponsor defined benefit pension plans, and the 25 therefore disclose their assumed long-term rates of return on invested pension assets. What they expected for 2001 was an average return of 9.4%. What they achieved was an average of minus 7%."

– Obviously, they’re losing money again in 2002. Eventually, however, a poorly performing pension fund will force a company lower its return assumptions (which lowers earnings) AND kick in more cash to the plan.

– "General Motors provides a sobering case study in the deterioration of corporate actuarial positions," Grant continues. "On the company’s July 18 conference call, CFO John Devine disclosed that GM’s pension fund had recorded a minus 3% return through midyear. Bullishly assuming a flat return for the full year and a 10% annual return from 2003 through 2007 (from his lips, etc.), Devine said that GM would, nonetheless, need to inject $6 billion into the fund over the five years. Assuming an 8% annual return from 2003 through 2007, the company would have to add $9 billion.

– Therefore, unless the stock market bounces back dramatically, pension plans will start weighing on corporate earnings and cash flow.

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Back in Aspen…

*** Your editor is traveling with his son, 14-year-old Jules. It is a bonding experience. They are in America’s most chi-chi ski resort…out of season…for one of America’s most unusual conferences. More below…

*** The spirit of innovation is alive and well in Aspen restaurants, we noticed last night. Not a single item on the menu was familiar to us. The meat was all specially treated, we were told, to avoid unnecessary suffering. Each piece of lettuce was picked with affection bordering on idolatry. Designer vegetables were mixed together with deeply-spiritual condiments that came all the way from the backwoods of Asia, prepared according to recipes that came to the chef in a moments of meditation as deep as gold mines. And even the plates revealed the cutting-edge chicness of Aspen’s overpriced mangers. Gone were the simple circle-shape of America’s lumpenburger eaters. Here, we had plates that defied the logic of regular geometry; they were free-spirits of irregular form and dimension, carefully coddled for us by loving potters who used to be fund managers.

But by 3:30 AM the unnecessary suffering began anyway. Thanks to indigestion and the Internet…we reckon again today…more below…