Backwards Walking

“…despite all that’s wrong with the world, things are getting better all the time. Somehow, over time, the opportunities overwhelm the difficulties.”

Porter Stansberry

With this phrase, in this space, Porter Stansberry took issue with the Daily Reckoning. Thus did Porter place himself among a large group of millennial optimists, technophiles, and free-market True Believers…including George Gilder, Paul O’Neill, James Glassman, Laurence Kudlow, Michael Murphy, and just about every other right-thinking Republican and Democrat in the Western World. All of them are sure that the forward march of Progress is inevitable and irreversible.

Today, I return to Porter’s comments if only to scoff at them.

But first, I reminisce about my vacation in Nicaragua. Why not? I am back in my Paris office, surrounded by the noises of the city and young men and women diligently going about their business at desks next to mine. What harm is there in letting my mind wander back to those empty beaches and sunsets worthy of Frederic Church?

Our habit was to ride horses in the later afternoon, after the sun had lost its noon-time heat. One of our favorite rides took us up into the hills, far beyond the reach of electric poles and running water.

After about 20 minutes, we often found a group of children – some mounted on a pathetic little scrub horse and some walking along behind.


“Buena…” a little girl replied softly.

The boys wore dirty shorts and nothing else. The girls wore dresses – ripped and badly used. They had reddish brown skin, the color of adobe mud, with large hooked noses, like Mayan statues. No trace of Spanish blood was evident.

A few minutes further along, we came to a farmstead, a rough country ramshackle of boards and tins, open to the air with a dirt floor and a mud oven from which smoke seeped out as though from a burning house. The ground around the cabin was beaten earth, worn and rutted by heavy rain and decades of bare feet. Chickens ran loose. The skin of an armadillo was draped over a fencepost to which a pig was tied by a piece of string.

These people had neither electricity, telephone, nor running water. How much better were their lives than those of their ancestors 1,000 years ago? In an emergency, modernish health care was available an hour or so away. Otherwise, nothing much had changed. Probably the biggest lifestyle and technological improvement of the last millennium was the introduction of the horse by the Spaniards in the 16th century.

Most people are richer today than they were 100 years ago, says Porter. And they live longer. This seems to prove Porter’s case. Surely people will be even richer and longer-lived in the future, won’t they ?

Maybe yes, maybe no. God may share His plans with Porter… but he has not yet drawn me into His inner circle. I do not know what will happen in the very long run. Nor do I know what will happen next week, nor next year, nor 10 years from now.

At the end of the last century, it seemed, as it does now, that progress was inevitable. People expected progress in every aspect of life. The world’s economies were booming. The industrial revolution was in full flower and spreading its beneficent aroma throughout the world. A person could already hop on a train in Paris and ride in luxury all the way to Moscow. A man in London could order his spiced tea from the Orient and his carpets from Istanbul. Was there any reason to believe that this bounty – products of new technology, free markets, and enlightened political stewardship – would not continue?

Europe had enjoyed nearly a century without a major war. It was widely believed that war was a thing of the past, not of the future. It also seemed – at the height of the Belle Epoch – that manners, art, and personal security were improving, along with material and healthcare enhancements.

Yet, only a few years later, the entire world began the most costly and barbarous wars in history. With hardly a pause for breath, from 1914 to 1945, people shot, tortured, murdered, blew up, poisoned and starved each other on a scale the world had never seen.

Torture had been officially banned as early as 1780 and had been gradually disappearing from use in the Western world since then. Slavery had completely disappeared from civilized countries by the end of the 19th century.

Yet, in 1914, the world began walking backwards. By 1919, France had already lost 20% of her young men of military age…and the wars had scarcely begun!

It turned out to be a century of what Brzezinski called “megadeath,” with an estimated 187 million victims.

By 1945, all of the world’s major economies – save one, the U.S. – were in ruins. Japan, the Soviet Union, and Germany were little more than heaps of ash and twisted metal.

France and Britain were mostly intact, but geared up for war, not for peacetime production. Worse, both were in the hands of socialists and syndicalists…which so inhibited their recovery that they were soon overtaken by their former enemies – Germany and Japan.

Progress is never guaranteed. And, could it be, like so many other things in life, that it is least likely at the very moment it seems most promising? Just look back at the last two years. At the end of 1999, it seemed a cinch that investors would be richer today than they were then.

Instead, investors began walking backward in early 2000. The Federal Reserve calculates that the total value of Americans’ stocks has declined from $12.5 trillion at the end of ’99 to only about $8.7 trillion today.

Will the next 10 years bring peace and prosperity? Will people actually be richer 10 years from now…or poorer? Investors in U.S. stocks in 1939 were poorer than they were in 1929. Investors in Japanese stocks were poorer in 2001 than they were in 1991. The people of Nicaragua were poorer in 1990 than they were in 1980.

Who knows. But it hardly matters anyway. What do you care how long the average person lives? What really matters is how long you live. The same can be said of wealth. It, too, is both relative and personal. What counts is how much wealth you have, not the aggregate figures…

Even if progress were a feature of the grand scheme of things, what really matters is how the little scheme of things affects you. In any period of time, some people gain and some people lose. Nature gives something and takes something back. Some people make progress and some people go backwards.

Over the last two years, for example, people who sold made financial progress. Those who believed that AMZN would always go up “over the long run,” on the other hand, have fallen back.

More on backwards walking…on Thursday.

Bill Bonner
August 21, 2001

*** A WSJ headline: “A Year Into Slowdown, Economy’s Last Pillars Show Signs of Stress. Car Sales and Construction Have Begun to Pull Back: Office Vacancies Pile Up.”

“The Wilting Consumer,” an article at, tells us that consumer spending – already growing at the slowest pace in 5 years – is heading lower. And the IMF warned over the weekend that the dollar will fall further.

*** The next couple of months will tell the tale. Consumers should be running out of refinancing cash. Spending should go down. Stocks should follow. The GDP growth figure for the 3rd quarter should go negative. And the dollar should drop.

*** “A feeling of cold fear creeping up the back of my neck…” That’s how James K. Glassman describes the onset of what could turn out to be a very serious bear market.

But Glassman is quick to dismiss his instincts in favor of his prejudices. Drops in stock prices are nothing to worry about, he says, because “short-term movements of stock prices are utterly unknown and unknowable.”

Nevertheless, Glassman seems pretty sure he knows what is going on: stocks are going to take off. “Recognize,” he urges readers, “that the jet fuel for higher stock prices accumulates in times like these; all that is needed is something to touch it off.”

Advice to Glassman: trust your instincts.

Let’s see what Eric reports…


Eric Fry writing this morning from Wall Street:

– Stocks rallied a bit Monday, which is something of a rarity lately. So maybe we should glorify the advance with a special name. How about, the “pre-FOMC” rally? Or maybe, the “Post-Friday-Shellacking” rally? Or how about, the “Finally-one-day-without-a-tech-stock- earnings-disaster” rally?

– Whatever we call the happy event, stocks did not fall Monday. In what now passes for a rally on Wall Street, the Dow advanced a modest 79 points to 10,320 and the NASDAQ climbed 14 points to 1,881.

– The dollar, also an habitual loser of late, managed to regain a little lost ground yesterday against both the euro and the yen. The greenback fared even better against gold, as the yellow metal fell $3.40 to close at $278.60 an ounce on the December contract.

– But outside the stock exchange it is becoming bad business as usual in the Big Apple.

– “Sharp drops in occupancy this summer are forcing the city’s top echelon of luxury hotels to take an ax to prices,” Crain’s reports. “[T]he elite players in the city’s $5.5 billion hotel business have lowered rates significantly for the first time since the dark days of the Gulf War in the early 1990s.”

– “I’m not going to airbrush it. Business is tough,” Christopher Knable, general manager of the Regent Wall Street, tells Crain’s. I do not doubt Mr. Knable. The hotel is only a block away from my office and the place looks about as active as an Iraqi Immigration and Naturalization office.

– Crain’s continues: “Tongues are wagging about cuts at the city’s most expensive hotel, the St. Regis at Fifth Avenue and West 55th Street. Rooms there are being touted for a mere $390 per night, almost half the hotel’s record-setting average of $714 last year… The venerable Plaza, meanwhile, recently sent out e-mails offering rooms for $175, the Fifth Avenue hotel’s lowest price in years.

– “This discounting comes as the entire New York hotel industry is taking a bath from the economic downturn and stunning cuts in corporate travel.

– “Occupancy plummeted to 57.4% for top-priced hotels last month, down 19.4% from the previous July, according to preliminary results from PKF Consulting.”

– Also on the downswing: insider buying. Reuters reports that “Buying of shares by company executives in their own companies has dropped to the lowest level in almost eight years, according to Lancer Analytics. Insider buying, measured by the dollar value of shares bought, declined to $77.9 million in July, or 50 percent, from $154.7 million in June.

– “For the first half of the year, monthly volume of insider purchasing has ranged from $150 million to $180 million, consistently well below its five-year monthly average of $322.1 million.”

– But Lancer Analytics also notes heavy insider buying in selected oil and gas stocks like Rowan Cos. Inc., Baker Hughes Inc., Chiles Offshore Inc., Apache Corp., and Burlington Resources Inc.

– Insiders aren’t the only ones buying oil and gas stocks these days. As Outstanding Investments editor John Myers points out, mergers and acquisitions activity in the oil patch so far this year is three times greater than last year and a staggering 10 times greater than in 1999.

– It sure seems like the folks closest to the action see something they like. Maybe we ought to pay attention. Meanwhile, as the stock market slides from bad to worse, so do employment trends on Wall Street. “J.P. Morgan Chase & Co. now expects to cut its total work force by up to 8%,” says Dow Jones News, “or about 8,000 jobs, up from a previous forecast of 5,000, people within the company estimated Monday.”

– In previous issues of the Daily Reckoning, I’ve mentioned a friend of mine who builds $2 million to $5 million homes just outside of Manhattan. By his own account, his clients are “almost entirely from Wall Street.” Last weekend, he offered up the latest anecdote of his clientele’s changing fortunes.

– “Eric, something happened this week that’s never happened to me before,” he said. “One of my clients just called me up out of the blue and said that he could not afford to continue the renovation we had already started. I had just knocked down the old house a couple of days earlier!”

– “The guy’s walking away from his $30,000 deposit because he can’t afford to complete the project,” my friend said. “Apparently, a couple of IPOs he had expected to go through were cancelled.”

– Obviously, lower interest rates alone will never get our economy back on track. We’ll need more IPOs.


Back to Bill in Paris….

*** What else?

*** Well, if Rothschild was right, that the secret to making money is to invest “where blood is running in the streets,” investors should be looking at Zimbabwe. A series of e-mails reached me last week from white farmers describing how they were beaten and driven from their land by gangs of thugs. In one letter, a man described his torture at the hands of Mugabe’s goons. Today’s International Herald Tribune tells about a black farmer – a member of the opposition party – who was also evicted. The Mugabe government claims to be redistributing the land to the poor, but the IHT reports that the black farmer’s land was given to a banker and several policemen, cronies of the ruling party.

*** Nature rarely takes something away without giving something in return. Zimbabwe used to be the “breadbasket of Africa,” but it has been going backwards since Robert Mugabe took over in the ’70s. Now it is a basket case. Could this be a good time to invest in Zimbabwe?

The Daily Reckoning