Family Business

The Daily Reckoning PRESENTS: We are often asked: “But what does Agora DO exactly?” We explain, but usually not well, judging by the blank stares that follow. So, instead we offer Bill Bonner’s – who is much more adept with words – explanation…


We were the poorest white people in town.

There were poorer black people, but back then, blacks didn’t count when you were figuring where you stood in the local pecking order. Jeffrey, who lived across the street, was black and incidentally, also our cousin. Jeffrey’s Aunt Mary Ida was a fixture at local parties for her country-cured ham and Maryland beaten biscuits. As a boy, we liked to ask what the biscuits did wrong, but the joke usually went unappreciated or was taken for impertinence.

Cousin Charlotte would say of Mary Ida, “Well, she’s just like family.” In fact, Mary Ida was more like family than Charlotte, who had only married into it. But there were things you didn’t mention, and that Mary Ida was actually kin…that was one of them.

Like us, Jeffrey lived in a house that had been bypassed by modern technology, which is to say it had neither central heat nor real plumbing. But his family was way ahead of ours. Our family admired and envied Jeffrey’s at every level. We children envied Jeffrey because he always got the latest toys. His father was divorced from his mother and spoiled him; he even had a go-kart at the age of 12. We couldn’t imagine such luxury. Our father admired his father too, because the latter had a liquor store. Our father had his aspirations and his ambitions; he desired a liquor store of his own…not so much for reasons of profit as for reasons of convenience.

But we are wandering too far back too soon. We fast forward to the future.

The time…this afternoon. The place…our own library, which serves as an office while we are on vacation here at Ouzilly. The subject…money.

We have decided to tell the children about money.

Not money in the abstract as we talk about it here in The Daily Reckoning, but in the concrete. Our money. Personal money. Direct, immediate, tangible money. It’s time we explained to the children what we have, what they can expect, and what is expected of them. They are growing up now and beginning careers, families, projects of their own, and it’s time for them to learn.

The thought came to us during a session with Jules, who volunteered that he saw no reason to work in the summer. His rich friends weren’t required to; there was no reason he should either.

“Look, you’re just making me work to satisfy some urge of your own. We don’t need to build a gypsy wagon…or put up that stonewall. You can afford to get people to do these things. Someone comes in to clean the house, after all. You only want me to do things for your own reasons…to have power over me. And, because you think somehow it’s virtuous to work. Well, I’ve got news for you. It isn’t. People only work because they need to support themselves. I don’t, because I’m still in school, and you support me. And why should I?”

At 18, Jules seems to have learned a lot in one year at college…and in the many years before that in Paris. He is a smart kid and he asks good questions.

So, we figured we needed to come up with good answers. We decided to explain to him what we have done and why we have done it. We want him to know what we are doing now. We want him to know where the money comes from (and here, we tip our hat in passing to you, dear reader, with warm appreciation), where it goes, and what he might expect from it in the future.

“When families get some money,” an estate-planning lawyer in London told us, “things go all right until the guy who made the money dies. Usually, that’s when the problems begin, because the next generation doesn’t know how to preserve it, and they usually don’t even know where it came from. So, they argue over who gets what and why. Finally, it is the lawyers who end up with most of it.

“When families have assets in common, what you need,” he continued, “is a family constitution, which is merely a written agreement signed by every member of the family that tells them how things work. They agree to abide by the rules – money-wise – and they know what the rules are. They will know who gets what. Who gets to use the vacation house. Who pays the property taxes. Who can expect to be supported and under what conditions.

“Suppose one child manages the family business, for instance, and another becomes an artist. I think that is not too far from what is likely to happen in your family. Well, can the artist expect any support from the family? Or is he on his own? That is the sort of thing you should bring out in the open and all agree on, or I guarantee you, there will be problems. Of course, in my métier, we welcome those sorts of problems. But we don’t mind getting paid for helping to avoid them, too.”

We are not prepared for a constitutional convention as yet, but we plan to bring up to our family delegates this afternoon many of the topics our lawyer raised. And we have decided to describe to the family what business it is that we are in. And since you, dear, dear reader, may want to know more about the business of which The Daily Reckoning is part – and the business over which your editor presides – we include you in this presentation…just like family.

We return again to the past.

Our mother’s side of the family was different. On her side, we were descended from one of William the Conqueror’s knights, a favorite aunt would tell us, describing a cousin’s illustrious estate in England – complete with grand ballrooms, gilded carriages and a garden designed by Isaac Newton.

Later in life, we found that this was true, but at the age of eight, sweating through the summers of the 1950s in a house without running water, surrounded by the rude tobacco fields of southern Maryland, it was hard to imagine.

But we had no trouble imagining that wealth and status were better than topping out tobacco plants at six in the morning and then hanging them in the barn at ten at night. Our aunt, who spoke of such things often, managed to instill in us a singular objective: to rebuild the family fortune. This work we undertook on leaving college, with no particular idea of how to do it. But we understood instinctively that it was not something we could do by getting ourselves into a conventional career. Doctors, for instance, earned good money we had heard, but we suspected that they did not earn enough to afford gilded carriages and castles in Europe.

Nor did we think we could rise through the ranks of the typical organization and make it to the top. The competition was too intense. Too many people sought those positions. And those who did had often gone to better universities than we had. They spoke better…knew more…and were far more out-going. No, some instinct told us from the start that we were outsiders, contrarians, misfits. If we were going to rebuild the family fortune, we would have to do it in a way that was a bit unconventional…original…or even daring.

So, instead we decided to go into business for ourselves. But what business? We drifted naturally toward the written word…and toward the hammered nail. We had always liked building things…and writing.

First, we tried building. We will spare you the details, and only say that we soon found that we preferred to keep it a hobby. The houses we wanted to build were not the houses that anyone wanted to buy. And when we found a pleasing tract of land, we were loathe to deface it by putting up the kind of houses that people did want to buy. So, we dropped out of building professionally, but kept with it as a life-long hobby.

In the world of publishing, on the hand, we found a way forward. In the 1970s, the newsletter industry was young and open to innovation. We got into it in an awkward, clumsy way. But fortunately, it was a forgiving business back then. You could make a lot of mistakes and still stay in it.

What we discovered was that it was a business where mistakes paid off. Since we were capable of a great many mistakes, we found it a warm and receptive environment for our talents, a bit like the Florida Everglades to a swamp rat. The secret was to make the mistakes fast and cheap. Since you never knew a priori what customers might want, you experimented to find out. This method cost time and money, but you just had to keep at it – hoping you stumbled on something readers wanted to pay for before you ran out of credit with the local printers (the post office never extended credit).

Experimenting, learning, training, finding good partners and building expertise took years. We were well over the age of 40, before we had any money at all. That was the first time in our lives when we lived in a house with air-conditioning. But by then, the wind had shifted and was at our backs. By the time we hit 50, the business was booming and we entered an entirely new stage in our lives. We moved to Paris and the children went to private school. We bought a summerhouse. Things started looking peachy.

We recognize our new lifestyle for what it is, of course: merely a different way of living, not necessarily better or worse than others. In the nearly six decades of our life, after all, we have spent only one this way and we can’t say we were any happier now in the fat sixth than in any of the lean five.

We are not truly rich, but we have certainly come to afford a rich lifestyle. Is it a happy one? Yes, but not especially. For as our friend Felix Dennis tells us in his new book, “the rich are not happy. I have yet to meet a single really rich happy man or woman – and I have met many rich people. Am I happy? No. Or, at least, only occasionally…”

Only if you have money can you really appreciate the fun you had being poor. And only if you’ve been dirt poor can you really savor propping your dirty feet on a Louis XVI chair.

But the last decade is the only one the children can really recall. Before that, they were too young. Jules was in public school, for example, when he was a very young boy. But his high school years were spent in either private French schools or the American School of Paris, home to rich students from all over the world. His friends are not the Toms, Dicks, and Harrys of middle America…not the hicks and yahoos we grew up with. No, they are the sons and daughters of the European elite, often with vacation houses in foreign countries. Some of these friends have nearly unlimited allowances. It’s all pretty plummy for these young dandies. Which gives them a limited view of the real world.

“You know Brynley,” Elizabeth began the other day. “His son, who is 26, wanted him to pay for his cell phone bill. Brynley refused. The boy told him, “Look, Dad, you’ve got to get back in the real world.” Brynley and I had to laugh. These kids are so privileged, they have no idea what the real world is.”

Your editor has the benefit of 40 years of poverty. His children do not. But their world is real, too – at least to them. They have to live in it. And to help them do it, we will tell them how our business was developed and how it functions. It’s a bit like a venture-capital fund, specializing in a narrow field of publishing. It’s also a bit like a college fraternity. We will explain.

We have more than a dozen operating units spread out in seven different countries, each one a separate business, some with an entire country to themselves. Others compete directly with each other in a given market. Anyone can begin a new operating unit and once begun, it can go its own way.

The mother company – still located in Baltimore, Maryland, but working a lot out of its London headquarters – provides the core services: legal, accounting, and information technology. But what really counts: the ideas, opinions, and recommendations. For you see, though The Daily Reckoning is free, it is not cheap. Readers invest a considerable amount of time and attention just to get through it and we still have to make it worth their while.

What ideas, opinions and recommendations are worth reading? Well, those that are likely to prove right…those that are not readily available elsewhere…those that are carefully thought out and deeply felt, we explained.

People pay us to think, research and write, not because they can’t think, research and write themselves, but because they prefer to use their time in other ways. They might very well like to explore the effects of Chinese economic growth or the theory of “Peak Oil” on their own, but they don’t have the time. So, in effect, they hire us to do it.

And remember, this is information you generally can’t get from the mainstream media, which, naturally enough, caters to mainstream thinkers. That is to say, people who rarely think at all, or whose idea of thinking is reading a couple pages in the Wall Street Journal now and then.

But our readers soon learn that most opportunities and dangers aren’t found in the mainstream press, because if a company shows up in the Wall Street Journal, too many people must already know about it. And good investments are the things people don’t really know about, which is why the small, private-niche media is so valuable.

We were urging people to buy gold long years before the lumpen press even mentioned gold. Our writers have been tooting the horn for commodities – silver, soft commodities, China, India and energy – years ahead of the hoopla today. We warned people about the bubble in tech stocks years before the bubble popped, just as lately we’ve warned about the property bubble. When the press gets to it, on the other hand, it is usually too late to do much good.

And to do this, we only have words. Words that express ideas, thoughts, recommendations, conjecture,, opinion, information and even hallucinations. We’re in the business of selling words, not like the financial industry, which is in the business of selling stocks. And has conflicts of interest. In the late ’90s, gurus like Abby Joseph Cohen were touting stocks “for the long run,” because that’s what they were paid to say.

But we only sell words. We don’t really care if stocks go up or not…or if people buy them.

But it’s hard to sell words, when words are so readily available for free on the Internet, which is why ours have to always be worth the money. And truthful. Which is why we have many different analysts with so many different points of view. We don’t pretend to know who will be proved correct and who will look like an idiot. All we know is the words need to be thoughtful, smart, frank, and copius.

We think they are; they tumble out of us…hundreds of them…millions of them…nouns, adjectives, adverbs, prepositions. All rolling out of our laptops as naked as porn stars. They are full-frontal words. Nothing hidden behind. And nothing in front. What you see is what you get…’

“Oh Dad,” Jules is certain to interrupt. “What are you trying to tell us?”

“We are just describing the family business,” we will explain.

“Maybe you should come to the point,” he will suggest.

“But this is the point,’ we will reply. “This is the family business. We are telling you about it, because that is how we are able to live the way we do and send you off to Boston to go to college next year. And you need to know how it works, because you might want to be involved in it yourself someday. Or at least, you might want to be sure it’s run properly, because it might help support you and the rest of the family.”

“But Dad, I’m not interested in the family business,” replied Jules.

“Well,” we said, “that’s why we’re talking. Because you should be…”

Bill Bonner
The Daily Reckoning
August 25, 2006

Editor’s Note: 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).

In Bonner and Wiggin’s follow-up book, Empire of Debt: The Rise of an Epic Financial Crisis, they wield their sardonic brand of humor to expose the nation for what it really is – an empire built on delusions. Daily Reckoning readers can buy their copy of Empire of Debt at a discount – just click on the link below:

The Most Feared Book in Washington!

“Oversupply tests foundations of U.S. housing market,” begins an article in the Financial Times.

The foundations of the U.S. housing market hardly need to be tested. We know what they are built upon: credit. But credit is not granite. Instead, it is soft. And when it gives way, down comes the housing market with it.

“New Signs of Cooling in Housing,” announces the New York Times. The signs it sees are the same we are all seeing. “Housing trouble in Idaho,” says one headline. And from another in South Florida: “11,000 condo units unoccupied.”

We began this week with professors telling people what jackasses they were for not investing in an optimal way. They make “mistakes,” complained the experts. They sell stocks too soon, or hold onto to them too long. They buy the wrong stock, for the wrong reason, without a clue about the business model. And then, they stampede with the herd and lose their money.

The professorial finger-wag is beside the point. Investors may err, but they err with a good reason: they are only human.

Besides, there are times when choosing one stock over another is as moot as picking the color scheme of an Atlanta house, the day before Sherman burns the place down.

Which is why we find the whole Behavioral Finance School rather shabby.

The poor consuming-investing-house-holding lump takes the blame for being an idiot. But did he invent the credit bubble? Was keeping the money supply under control ever his responsibility? Of course not. It was always well beyond his pay-grade. And why should he have to study macroeconomics to take out a mortgage? How was he supposed to know that free trade would mean lower real wages? How was he to know that rising real estate prices meant something more than just free money for everyone?

As the free money dwindles, real estate sinks. And as real estate sinks, the marginal buyer sinks with it (see below). His house is too big for his wallet now; he has to throw it back. If he doesn’t cut bait, the fish will drag him down.

And the same dimwit pundits and economists who hailed the financial industry as irrepressibly innovative, now call the poor lump an idiot for taking out one of its most irrepressibly innovative products: an adjustable rate mortgage. He should have known better, they cackle knowingly.

But how could he know? A society hangs together by having a few sure things even idiots can count on. The value of its money, for instance. But, with house prices doubling every five to 10 years, what were people to think? As far as the housing it would buy, the dollar was disappearing rapidly. If you didn’t get on board right away, young couples told each other, the housing train would leave without you. Soon, you wouldn’t be able to afford to buy any house at all.

We have a friend to whom that has happened. Ten years ago, he got married and considered buying a house, but prices seemed too high. So, he rented. Now, he has four children…and they live in a trailer; everything has doubled or tripled over the last decade. He can afford to buy a house even less today.

Houses just haven’t stayed still. But if a man can’t trust the floor beneath his feet to stay put, what can he count on? What stars are still fixed in the heavens?

The Fed-induced property bubble turned the whole nation into a Vegas casino. That same bubble turned the lump into a rube fresh from the cornfields, wide-eyed and deep drinking, but with only a shallow grasp of the game he had stumbled into. And before he knew what was happening, the farm boy had gambled away the farm.

Here in the land of the free, he will be a slave for life…with a mortgage that will see payments rise and a house that will see value falls.

He will be a slave with bills that are mounting and paychecks that are dwindling.

He will be a slave with a share of the national debt that can never, ever be wiped out.

The new poster child for the Squanderville: a slave to government debt, shackled to a hollowed out house, hobbled by a hollowed out labor market, trapped in sprawling suburbs built for cheap oil…in an era when oil prices are exploding.

Surely the day will come when the slaves too explode…

More news:


Chuck Butler, reporting from the EverBank world currency trading desk…

“New home sales fell 4.3% to a seasonally adjusted annual rate of 1.072 million units. This reading comes below market expectations of a 1.100 million unit sales. And, they fell 21.6% on a year-over-year basis.”

For the rest of this story, and for more insights into the currency markets, see today’s issue of The Daily Pfennig


And more views:

*** How’s our Trade of the Decade doing? “Sell stocks, buy gold,” we said at the debut of the 21st century. Then, the Dow was worth more than 40 times an ounce of gold. Since then, the Dow has barely fallen, but gold has risen, so that you can buy the entire Dow with 17 ounces of gold.

So far, so good. But the decade has another four years. We still think the two measures – the Dow and gold – will come together. One to one is what we expect. At 11,000 or at 5,000, we don’t know. But we stick with our Trade of the Decade…and wait to see what happens.

*** This has no basis in experience or even theory, but we think it is interesting. And we notice that whenever we begin to think something new, we soon notice that a lot of other people are thinking about it, too.

Take property, for instance.

Recently, we got the tax bill for two lots we bought in Canada, in Nova Scotia…rather raw…in a part of the world not yet discovered by the smart set, and probably never to be. When we bought them, we thought our daughters might want to build summerhouses there sometime – near one another. Or, that they might make good investments. So, we gave them to the girls, but kept paying the taxes ourselves.

Well, the bill last week was $835 for one, $1,240 for the other. And all of a sudden, we saw what a fool we were. If the girls ever used the places, it would only be after at least another 10 years. By then, we calculated, we would have paid $20,000 in property taxes. And these are just empty lots – no maintenance, no heat or utilities, no condo fees, no mortgage payments. Only property taxes.

Will they go up in price? We have no way of knowing. But now we realize that what we have bought is an option – for the girls to use the property at some future time – that will cost us a lot of money, and probably expire worthless.

“Sell the damned places,” we telling ourselves…though they are peanuts compared to the white elephant we have in Normandy that makes us too queasy to even think about.

And then we think about all the other millions of people who are feeling queasy, too. Maybe they bought an extra lot, a house bigger than they needed, or a vacation house that they never quite find time to vacation in.

“Sell the damned things,” they are beginning to say.

Over to Addison in Cannes…

*** Putting it as bluntly and briefly as possible: The key problem of a slowing “bubble economy” is not a slowing money supply, as the monetarists assert. That’s a minor symptom. Ultimately, such an economy invariably ends with a clash between three cataclysmic legacies from the bubble: Excessive debts, excessive asset valuations, and prior excessive spending.

How can this happen again in America? It requires a whole generation of irresponsible bankers… morally, intellectually and fiscally irresponsible.

Dr. Richebächer describes it as “Ponzi Finance.” It has required American economists to coin a whole new concept in economics: “The asset-driven economy.” New borrowing leads to speculation in and consequently irrationally high asset prices, which, supported by easy money policies, leads to even more borrowing. All of which bodes badly for the near future.

The only “profits” being produced by American corporations today is through mergers and acquisitions, cost cutting, dividend programs and stock buy-back schemes. The only chance the U.S. bubble economy has to survive is through an aggressive campaign of capital investment. Such a program is the only route to healthy long-term economic growth. But with the bubble economy has come a huge change in corporate governance. Quite simply, there are easier ways for corporate executives and shareholders to extract profits from the financial system than from long-term investment.

It will only cease to expand when the banks creating new credit start to experience losses on their own balance sheets.

The Daily Reckoning