Dead Animals

“Could you give me a hand?” Pierre asked me on Saturday.

I was in digging out the floor of my little gate house with a pick and shovel. It was hard work, so I was happy to be interrupted.

Pierre doesn’t like to ask for help. And he didn’t look good. His face was covered with red splotches. He looked like a man who had too much to drink – or not enough.

I warn you, dear reader, that today’s letter has nothing to do with investing or money. I will merely tell you what happened over the weekend and let you take from it whatever you can.

Saturday was a beautiful day in the Poitou region of France. It has been an unusually cold spring – the subject of just about every casual conversation.

“Is it ever going to warm up?” Mr. Deshais had asked, rubbing his hands together early in the morning. People in this area would be grateful for a little global warming. It would take the chill off things in late spring and early autumn and save thousands of pointless conversations.

There was a light frost on the grass Saturday morning. But by the afternoon, the sun was shining as clear and blue as I have ever seen it. Plus, the tulips, the blue bells, red buds, and fruit trees were in full bloom. Pierre planted several of his fields in rapeseed this year – which are such a bright yellow you almost need a pair of welder’s goggles to look at them.

Saturday evening, the two little boys – Henry and Edward – and I got on our bikes to take a ride. Birds sang, water flowed, the first bugs of spring got in my mouth. Later in the year, the fields will turn brown, but they are bright green now – or bright yellow. We passed a herd of cattle. Each cow had a calf – each one already tagged with a bright red card stapled to its ear. It was a perfect spring day and we were happy to be out and about. But after a mile or so, we were so cold we had to turn around.

It was still morning, though, when Pierre asked me to lend a hand. We collected a couple of sticks and walked down the road to one of the barns where Pierre keeps his young bulls. It takes at least two men to move a bull – one to get in front and the other behind. The trick though, is to bring a cow along at the same time. The cows are more docile…and bulls tend to mind their manners when there’s a lady around.

Last week, one of the bulls had strangled itself between the feeding bars. We saw him as we drove by on our way to church last Sunday.

“Eeeeiiiou!” Maria had said, as she spotted the animal on the ground, his legs sticking straight out as though he were a huge stuffed animal. Maria does not like dead animals, unless they are properly cooked.

Pierre opened the weathered oak door. Directly in front of the door was another of the 3 bulls that had shared the pen. His head was propped up between the bars and his body was on the ground, like a Roman emperor eating dinner.

Pierre has been carefully breeding cattle for a quarter of a century. He has some of the largest Limousine bulls in the region, I have been told. They are huge, beautiful animals. This bull in front of us was no exception. His muscles bulged as though he had been working out. You could see clearly the rump, the brisket, the chuck roasts, and the round steaks. Pumped up, he looked as though he was ready for a “pose down” with another beefy champion…or a rendezvous with an abattoir.

But it was too late. He was already dead.

His head was cocked at an angle, with bubbles of white foam coming from his mouth. He looked so healthy otherwise, I had to touch him to find out for sure. The body was cold.

Even when you know what you’re doing, dear reader, sometimes things go wrong.

One of our turkeys died on Saturday too. But at least we knew what happened: a fox got it.

“Foxes usually only hunt at night,” Francois explained. “But in the springtime, they have their young to feed. They will take anything they can get, anytime they can get it. You better walk around the woods and see if you can find the nest. Kill the baby foxes. Otherwise, you’ll never be able to get your chickens.”

“Eeeeiiou!” said Maria again. The idea of killing small, furry mammals did not agree with her. But Francois is not sentimental about animals. Few farmers are.

I found what was left of the turkey in the grass beyond the fowl yard. It had been almost entirely eaten. There must have been more than one fox. The turkey was a big bird.

But no one knew exactly how the bull had died. The question occupied Pierre, his helper, Patrice, and Mr. Deshais for the rest of the weekend. Suspicions centered on the feeding installation, a new contraption, put up just a few months ago, with spring-controlled vertical bars to hold the animals’ heads in place and prevent them from stealing each other’s food.

“That is standard equipment,” Pierre said. “It has been used for decades by millions of animals. It is not possible that there is something wrong with it.”

Still, somehow, two of the three bulls in the pen have died in the last two weeks – each of them strangled between the bars. And the loss was not trivial. “They were good breeding bulls,” said Pierre, “easily worth 10,000 francs each.”

“It looks like they slipped on the floor, panicked, and suffocated,” Pierre continued.

“But why couldn’t they get up?” I asked.

“I don’t know,” he replied.

“I don’t know either,” said Mr. Deshais, hearing about the incident later in the day. “But I bet it wouldn’t have happened if Francois were still here.”

Francois had been born on the farm and – except for 2 years spent in North Africa during the Algerian War – spent his entire life working here, until his retirement last year. He knew how to take care of the cattle better than anyone. His replacement, Patrice, is fairly new to the trade.

I saw Francois on Sunday and told him what had happened.

“Yes, from time to time you lose an animal. But I can tell you what went wrong with the bulls. The feeding apparatus works fine with normal cattle. But Pierre’s bulls are too big.”

Your reporter, on the scene,

Bill Bonner
Paris, France
April 23, 2001

*** What a funny old world. Back in early January, scarcely had we digested our Christmas goose when Alan Greenspan decided to do something about the developing slump in the U.S. economy. His first surprise rate cut of 50 bps came when the Nasdaq was at 2,291.

*** Soon, stocks were rocketing upwards, with the Nasdaq briefly rising above 2,600. Investors were elated and spoke of a “concrete floor” beneath the Nasdaq. But the tech stocks were soon falling again. They smashed into the cement and kept going until the index hit some substratum layer at 1,638.

*** So last Wednesday, Alan Greenspan got out the mixer and once again tried to shore up stock prices with a little-fed funds ready-mix.

*** Here is how the Toronto Globe & Mail describes it: “Alan Greenspan to Investors: Party On, Dudes!”

*** Investors limbered up quickly and began to rock and roll. Though things quieted down on Friday, with the Dow off 113 points and the Nasdaq down 19, it was still a fun week for investors.

*** The Dow ended the week up 4.47% – at 10,579… recovering about half its losses since registering a high of 11,722 on January 14, 2000.

*** The Nasdaq closed at 2,163 – still below its starting point for the year, but a gain of 10% for the week. Internet index rose 11% last week.

*** Where to from here? Good question. The put/call ratio fell to .44 last week – its lowest level for the year. Traders are confident prices are going higher – so they’re buying calls, and see no need to protect themselves with puts.

*** Nor did they seem discouraged by Friday’s pullback. “It’s just a little give-back after a great rally,” remarked one trader. “We’ve established a higher base,” said another.

*** Investors could continue to rock and roll on the new concrete floor prepared by the masons at the Federal Reserve. They might even manage to dance the Dow up to a new high. Stranger things have happened. The Dow hit a high of 995 in 1966, fell and then came back. Two years later it was at 985. But by December of ’74 prices had fallen to 577.

*** The Dow may go back to its highs – or beyond – but it is at 22 times earnings and 6.4 times book value already. The S&P is at 24 times earnings. Whatever may happen – this is no bottom.

*** Sun Microsystems reported earnings of 8 cents a share, 43% lower than the same period last year. The stock fell, but it is still priced at 37 times earnings. For a company with falling earnings? Go figure.

*** “Telecommunications companies convinced themselves that insatiable appetites for phone and Internet services would produce limitless equipment orders,” reports a Bloomberg article. “Now, the sky is falling. So who’ll be left holding the bag for the industry’s over-optimism? Who usually suffers from taking on too much exposure when times are good and then suffers the consequences when the waste matter hits the extractor device? Who else but those paragons of prudence, the banks!”

*** Merrill Lynch estimates that the telecom industry is only using about 2.5% of its capacity. The logic of the Fed’s lower interest rates is that they encourage borrowing and more capital spending. But even at a rate of zero, what sense would it make to add more phone connections?

*** “On the evidence of the late boom,” writes Jim Grant in the NY Times, “the Fed for many years set the rate too low. Thus, a comprehensive measure of investment – including residential construction – has been soaring. Last year, it amounted to more than 18 percent of gross domestic product, the highest percentage since the late 1970s.”

*** “Does the Fed Know Something We Don’t?” asks the Financial Times. While the Fed tries to push down short-term rates, long-term rates are going up. The FT thinks the bond market is telling us that a recovery is coming soon. Maybe. But rising long term rates might also be warning us that the dollar is going down. A small detail, but maybe an important one: the price of gold rose last week too, up $4.50.

*** “The downfall of the dollar has been predicted many times in the past few years,” notes the Financial Times, “and it has not happened yet. When it falls it will both reinforce the slowdown in Europe and Asia and add to the inflationary pressures in the US – possibly restricting the Fed’s ability to cut rates further. If that happens it will no longer be enough for the rest of the world to look to Alan Greenspan to bail them out.”

*** “Argentina plans to peg its peso to both the euro and the U.S. dollar,” writes Uncle Harry Schultz. “This event is great PR for the euro, and may be a watershed action, opening the door to others who peg…Hong Kong, for example.” Harry is forecasting euro parity with the dollar… despite European tendencies to politicize.

*** “Everyone in Silicon Valley wants to be a billionaire by age 25,” San Francisco SEC chief Helane Morrison told the International Herald Tribune. Her office is investigating a record number of securities fraud cases, including one against two accountants at Cisco who are accused of moving over 97,000 CSCO shares – perceived to be worth $6.2 million – into their personal trading accounts. Another case involves a couple of ambitious CEOs of another firm who are accused of “figuring out how many more sales were necessary to meet the company’s quarterly projections, then simply making them up.”

*** Japan’s Democratic Party says the nation’s banks have five times as much bad debt as has previously been admitted – $1.2 trillion worth, an amount equal to a quarter of the GDP.

*** The front page of the International Herald Tribune brings more news of collateral damage from the War on Drugs. A young mother and her child were shot and killed by Peruvian fighter jet whose pilot mistakenly thought they were involved in the drug trade.

*** A friend sends this note: “I managed to catch the Frontline documentary…Really, the futility of the whole effort [the war on drugs] is jaw-dropping once you see the result. On Frontline, even some of the judges and DEA agents were speaking out against it. Over 70% of the people in jail today for non-violent crimes are offenders in drug possession or trafficking related crimes. Truly incredible even when you just consider the cost of prison space, daily meals, guards, medical care, etc.

“Drug criminals get standard-minimum federal sentences. Rapists, murderers, and muggers get more subjective, state-determined sentences. That means that a guy who was dumb enough to grow a few hundred pot plants in his basement might get 20 years in prison. If he’s married and his wife doesn’t testify against him, she’ll get 12 years or so for ‘conspiracy’ (the only hearsay testimony allowed in court). If they have kids, the kids get split up and sent to different foster homes.

“Meanwhile, the guy who sticks a knife into someone’s gut for $15 of beer money can be in and out in 5 years.”

The Daily Reckoning