Epizootic

We’ve been suffering through one of Mr. Deshais’s periodic bouts of sobriety.

Unfortunately, these episodes seem to be occurring more frequently and lasting longer.

“Mr. Bonner,” he said to me on Saturday, as Benoit and I were working on the stone wall. “We have to do something right away. Haven’t you heard about it? The entire food chain is in danger. They’re closing the markets.”

The gardener was referring to the outbreak of an epizootic that has panicked farmers throughout Britain… and now the continent. In Britain, entire herds of sheep and other cloven-footed animals are being slaughtered – their bodies doused with gasoline and set on fire.

Borders have been sealed to prevent the virus from infecting herds here in France…still, three cases suspected to be hoof and mouth disease have been reported in Europe – one in Denmark, one in Belgium and one here in France.

At the end of last week, French officials banned all live animal markets – such as the one at Les Herolles, nearby, where we were going to buy our pigs. We will have to find our animals elsewhere.

There is something comforting about being surrounded by live, edible animals. They represent a form of savings. Unlike dollars or euros, they are a store of value that can be – barring some unforeseen calamity – consumed as needed.

As society advances, fewer and fewer people have savings in this form – or any other. Collectively, we rely on the market system to produce the items we need, from inventory, just in time. And we count on the value of our money to make the purchase.

Usually, things work as we expect. But not always. Human history – at least the entertaining part – is a record of things not quite working as expected…wars, natural disasters, plagues, revolutions, depressions, panics, mass slaughter.

It is widely believed, dear reader, that we have reached an Age of Perfection, where these things no longer happen. And yet….

“We seem to have our collective foot slammed on the world’s accelerator pedal,” writes Mr. Thomas Homer-Dixon in the Financial Times (reprised by Marc Faber in his Gloom, Boom and Doom Report).

“It is time to think creatively about how we can slow things down, how we can ease up a bit on that accelerator pedal,” he continues. “Some skeptics may respond that people have always perceived they live on the cusp of chaos but in the end have usually managed well by marshalling their ingenuity and courage.

“But today’s world is fundamentally different from that of the past. The complexity and speed of our social and technological systems are unlike anything we have seen before and these factors are now pushing against the upper limit of the human brain’s abilities…[and] have surged ahead of our capacity to manage them.

“If we allow the complexity and speed of the system we have created to go on increasingly unchecked and if we continue to perturb the deepest dynamics of our planet’s ecosystems, the systems will sometime fail. In other words, non- linearities will simplify and slow things down for us, whether we like it or not.”

Modern economies seem to make it unnecessary and inefficient to have turkeys and geese wandering around the yard – as we do. But it settles my nerves, knowing that – if ever my worst fears are justified, and the whole world economy goes to hell in a handcart – at least I will eat well.

“Fortunately, we have plenty to eat here,” Mr. Deshais explained. And it is true. For lunch, my mother prepared a puree of pumpkin, leeks, stewed tomatoes and fried potatoes which we ate with sausage, salad and a goose pate. The only part of the meal that was not a product of our garden and henhouse was the sausage.

But that is an omission we intend to correct.

“We’ve got to get the pigs right away, so we’ll be protected,” he continued.

When he is in his cups, Mr. Deshais is a mess. But he is relaxed and friendly, and still manages to keep the garden in impeccable order.

A little more than a year ago, however, he was out drinking with a friend…who had a bad auto accident driving himself home. (Our gardener had his own driver’s license taken away by the gendarmes well before this incident.) The friend died, for which Mr. Deshais holds himself partially to blame.

(The friend, by the way, left a widow with an immense chateau…to which I will return in future letters.)

About that same time…Mr. Deshais’s family had had enough of him and threw him out. At least for a while, he was reduced to sleeping in a tiny travel trailer parked in the middle of a field.

Under the combined pressure of guilt and inconvenience, our gardener decided to give temperance a try.

But he is a different man when he is sober. He is nervous, and worries about a breakdown in the division of labor.

“Worries” is not exactly the right word…for Mr. Deshais would greet an economic disaster in the same spirit a duck welcomes a rainstorm, or a fire-and-brimstone preacher might welcome an earthquake. “See, I told you so…” I can almost hear him say.

Some people look upon innovators as though they were the salvation of the world, and think that every new thing is progress. To these people, each passing year brings the world closer to perfection

But there are other people who would like nothing better than see innovators fall flat on their faces and consider new things to be the Devil’s Own Work.

Mr. Deshais drifts to this latter side of the spectrum like a compass needle to the magnetic north.

“We have no idea what is in the food you buy at the store,” he explains. “With this genetic modification…and all the chemicals they use….no, no, no…I won’t eat that stuff. You have to produce it yourself – locally, the way they always did, so you know it is good.”

Just reporting….

Bill Bonner Paris, France March 5, 2001

*** Good grief! It’s already March 5th…the Ides of March will be upon us soon. And then, spring. Yet another season…with warm rain stirring dull roots…

*** There’s never enough time. “It’s a cosmic problem,” Doug Casey advised me recently. “We have less and less of it every day.” Yes, every day we become older than we’d like to be…but not as old as we hope to get.

*** Time seems to be running out for the Great Bull Market and Credit Bubble of the Late 20th Century. Larry Ellison admitted that earnings at Oracle were likely to decline 20% in the 3rd quarter. Investors knocked the stock down 21% at the end of last week. Rival MSFT was discounted 5%.

*** Ellison must have seen bad news coming. He sold $1 billion of his own stock back in January.

*** GE fell 3% on Friday.

*** The Dow ended Friday up 16 points. The Nasdaq ended down 65 points, bringing the market to a 58% loss from its high of last year. Internets – as measured by TheStreet.com – fell 8% last week. Telecoms listed on Nasdaq fell 6%.

*** Even after getting more than cut in half, MSFT’s price still equals more than 30 times last year’s earnings. The Dow has an average P/E over 20.

*** Guess how much money has been lost in stocks since last year at this time? Alan Abelson, in Barron’s, puts the figure at $4.1 trillion, or about 40% of the entire GDP. Hmmm…that’s about $40,000 per family. Can Americans afford to lose that much? I guess so…it was only paper wealth anyway.

*** The average tech fund is down 56%.

*** Now that the bear market has moved into the ‘acceptance’ stage, people are beginning to scout around and consider the alternatives. “US stock funds see record outflow,” says a headline on CBS Market Watch. $13 billion left equity funds last month.

*** On the other hand, Mr. Bear can be counted upon to provide hopeful investors with reasons to think the worst is over. Many people will be tempted to buy stocks like MSFT and Intel at today’s ‘bargain’ prices…expecting a new bull market to erase the losses of the last 12 months.

*** But “no bull market ever started with the Dow selling at 21 times earnings,” writes Dow Theorist Richard Russell.

*** “The expectation of compounding earnings growth has run smack into the realities of the business cycle,” says Kevin Klombies of Intermarket Relationships. “Excessive valuation levels [in techs] are not some evil plot designed by the rich to fleece the poor, but rather a signal that the markets have discovered an opportunity for growth and are willing to provide capital for free. The problem was… and is… that so much capital was funneled into this sector that the inevitable overbuilding was… inevitable. The sky high prices afforded to tech and telecom shares through the past number of years could never – and will never – be justified.”

*** After a fool and his money are parted, can a knave get it back for him? The Wall Street Journal reports that lawyers have filed suit against Merrill Lynch on behalf of a doctor who held onto his tech shares based on Henry Blodgett’s “buy” recommendation. The case will go to arbitration.

*** “Americans are living in a financial fantasy,” said a spokesman for Northwestern Mutual, which sponsored a study of retirement financing. Those surveyed planned to retire at 61, the study found, but few had figured out how they were going to pay for it.

*** You may remember, Japan lowered its interest rates to 0.25% last week. Did it set off a new bull market? Nope. Stocks fell to a near 16-year low. “Investors dismiss Japanese rate cut and dump techs,” says an International Herald Tribune headline.

*** The Japanese slump – which began 11 years ago – has resisted all cures…both fiscal and monetary. And now…”what if the near-universal faith in the power of the central bank [in the U.S.] to stimulate demand proves misplaced?” asks the Financial Times. “What if there is something different about this turn-of-the-century economic cycle that may limit the ability of monetary policy to produce the desired response?”

*** The FT goes on to point out (as Dr. Richebacher has already) that not all downturns are alike. Typically, the post-war pattern has been for “overheating” to produce higher inflation rates, which the central bank then stifles with higher interest rates, which produce the downturn. But this time, there was little inflation. Why? Because it is a “supply side” recession…more like the recession in Japan of the last 11 years…or the one that followed the ’29 crash in America. It is marked by too much capacity, which helps keep prices down.

*** For the first time in more than 50 years,” says the FT, “the U.S. is experiencing a downturn against a background of suppressed inflation. And just as the Fed’s role in producing this period of weakness was relatively limited… so it may also be not much more than a bit player in determining how quickly it ends.”

*** All the discussion, debate and whining about whether the Fed is going to raise or lower interest rates – upon which the entire nation turns its attention as if it were the Second Coming…and Alan Greenspan the Messiah – is probably nothing more than a sideshow. Higher rates didn’t cause the collapse of the Nasdaq. Lower rates won’t bring it back.

*** Mr. Deshais needed a drink on Saturday. “They’re closing the markets…We have to go out right away and buy our pigs…or we won’t be able to.” Three cases of possible hoof and mouth disease have been discovered in Europe. The farmers are in a panic. More below…