Fools Aplenty

"All that is needed for the triumph of evil is for good men to get together and do something really butt- headed."

Bill Bonner

"Get involved…" say the existentialists. "The world may be mad, but you still have to make choices…so do something!"

"If you’re not part of the solution," said Stokely Carmichael, "you’re part of the problem."

"They’ve done nothing," complain the French about their politicians, explaining why Jean-Marie Le Pen has suddenly become so popular.

Doing nothing in politics is universally reviled. A politician would sooner admit that he sleeps with under- aged animals than that he has done nothing. Editorialists rant and rave against doing nothing every day. Bush needs to do this in Israel…Muslims need to do that…The Supreme Court must to that…There is almost no end to the things that people think should be done by others to others…and with other people’s money. The worst thing one can do, it is commonly believed, is nothing.

Today’s message: As usual, we take a contrary view. There are some things in life, dear reader, such as politics and body tattoos, where the less you do the better. Investing may be one of those things.

After WWII, the existentialists of the Sartre stripe engaged themselves in politics in a big way. They took up arms and ballot boxes against the rich…against capitalism…and against colonialism. In the name of liberation, they began telling people what they could do and what they couldn’t…and encouraged the enslavement of hundreds of millions of people – in China, Southeast Asia and Africa. Even in the Western countries, the burden of the state rose to the point where a man in England, for example, had to give more than 100% of his marginal earnings to the government.

In 1968, Sartre and de Beauvoir walked the streets of Paris like rock stars and the engaged existentialists pried up the paving stones and built barricades in the streets. They were "doing something" to make a better world. And after they had done something, France was a different place, but not a better one.

"It was at the end of the ’60s that things really started going downhill in France," says an old friend, who has lived in Paris since 1951. "First, they paved the streets with asphalt so students couldn’t use the paving stones to throw at the police. Then, prices started going up. It got so bad that working class families could no longer afford to live in the heart of the city. They had to move to the suburbs. And then, the immigrants from North Africa changed the suburbs. There are some areas where you’re afraid to go."

"But worst of all," he continued, a look of sad resignation on his face, as he moved to important matters – if his dog had just been run over by a beer truck, "the good restaurants began to go out of business. Many of them were taken over by chains. And people no longer have time for a good meal. So the restaurants use frozen food. It’s not like the old days – in fact, many of the restaurants are almost as bad as the U.S."

When people worry about the "big issues", most of what they worry about tends to take care of itself. Who today furrows his brow with concern that Manhattan will be buried in horse manure? But at the end of the Buggy Era, it was so logical, so inevitable, and so menacing that a proto-Ralph Nader could have taken it up as a cause celebre. More recently, near the beginning of the Nader Era, an activist might have lost sleep over the energy shortage. Everyone knew the world was running out of oil. The existential response would have been to get involved – to do something about it!

The same impulse to do something has driven men to madness many times in the last century. What was WWI but an episode of extreme collective madness? Was the food in Paris restaurants better after the war – even though the French won? Were the women prettier or the wine cheaper? And what was the Vietnam War but a mad attempt to do something about the spread of communism in Southeast Asia – based on nothing more substantial than an image of falling dominoes?

Here at the Daily Reckoning, your editor has learned his lesson. He was born with humble prospects…and his prospects grow more modest with each passing year. He has been moved to do something from time to time – in his youth, of course, such as his tiny assistance to Jimmy Carter’s presidential campaign in 1976. But not once did any of these efforts produce any noticeable improvement in his life or anyone else’s.

Nor, to his knowledge, has a single one of the thousands and thousands of laws enacted by his representatives… nor has a single sentence among the millions of rules, regulations, and pettifogging restrictions issued by bureaucrats, statist busybodies and public meddlers ever produced one bit of extra happiness, net, for anyone…unless it was to abolish some prior moronic impediment.

If any reader knows of an exception – please let us know.

"You can make a difference," said Cornel West to the graduating class at St. John’s college last year, urging them to "get involved" and "do something" for humanity. Yes, you can make a difference; you can make things worse.

The way to make things better is to do nothing…in politics, tattooing, and – often – investing. If you had merely bought gold at the beginning of the ’70s and done nothing for the next 10 years, you would have done better than 99 out of 100 investors. If you had merely bought Japanese stocks at the beginning of the ’80s and done nothing for the next 10 years…again, you would have done better than 99 out of 100 investors. And if you’d simply bought U.S. stocks at the beginning of the ’90s, and then never turned on CNN, never read the financial press, and never even wasted a single thought on investing for the entire decade, you would have seen your money increase about 1100%.

What should you be doing now? We will not leave you in suspense. The answer is "nothing." Details next time.

Enjoy your weekend…

Bill Bonner,
A man who does nothing whenever the situation seems to call for it…
April 26, 2002 — Paris, France

P.S. Longtime Daily Reckoning sufferers will recall that our philosophy is the opposite of existentialism. Instead of facing up to the existential meaningless of things and making choices based on our guesses and wishful thinking, we believe in trying to discover the meaning in things already and then applying the essential rules. You find these rules in the old sayings and adages: "Buy low, sell high" rarely fails an investor. "Love thy neighbor" is hard to beat. "There’s a fool born every minute," on the other hand, is probably a low estimate.

"Currencies all over the world, from the Czech Koruna to the Australian dollar are beginning to make new highs against the dollar," writes John Mauldin.

But the currency that is likely to do best against the dollar is the one to which no government attaches its name and no central bank defends – gold. The money that no one spends rose $3.80 yesterday.

What’s up? Maybe foreigners are finally wearying of supporting the U.S. consumer economy and turning against the dollar.

"In the past, a huge portion of our trade deficit was covered by foreign companies, mainly European, buying American assets and companies," John explains. "A second large portion was foreign buying of our bonds and stocks. These two sources, especially mergers and acquisition, are slowing up."

Meanwhile, "Asians are tiring of making the world cushy for Joe Six-pack and are determined to live a little themselves…" says John Thornhill to Grant’s.

People in the Asia-Pacific region spent $4.8 trillion on personal consumption last year, according to Grant’s. Americans spent $6.9 trillion. A small shift of spending – from West to East – would make a big difference.

Eric, what’s happening on Wall Street?


Eric Fry, reporting from New York City:

– "Blue chips battle back," CBSMarketWatch triumphantly declares. And it is true; the Dow Jones Industrial Average recovered from a triple digit decline early in the day to finish the session in the plus column – up four whole points to 10,035. Likewise, the Nasdaq eked out a microscopic gain – advancing less than one point to 1,714.

– But the unremarkable net change posted by the major stock indices offers little hint of the ongoing carnage in the brokerage stock sector. The shares of Merrill Lynch, Morgan Stanley and others are suffering mightily at the hands of disillusioned (or just plain fed-up) investors. The XBD Index of brokerage stocks fell again yesterday, bringing its losses over the last week to nearly 10%.

– Why all the selling? Because a regulatory feeding frenzy has commenced. Suddenly, any government agency that can think up a plausible basis for investigating the brokerage industry is doing so. Happily for all the would-be investigators, plausible bases for investigating the brokerage industry are not in short supply.

– Like most frenzies, this one began very quietly several months ago, when New York Attorney General Eliot Spitzer decided to investigate the open secret that Wall Street analysts hype stocks in order to win investment- banking business. Ultimately, Spitzer’s probe unearthed a mother lode of incriminating emails from Merrill analyst Henry Blodget in which he had privately scorned many of the companies that he was publicly praising.

– What a great story! The little-known bureaucrat takes on the celebrity-analyst and lands a wicked body blow. Who says bureaucrats aren’t cool? Overnight, Spitzer has become a folk hero. "Wall Street Has an Unlikely New Cop: Spitzer," blared a front-page headline in yesterday’s Wall Street Journal.

– Spitzer could probably sell movie rights to "his story" for $2 million or $3 million. (I see Bruce Willis in the lead role, with Julia Roberts as his love interest).

– All the attention accorded Spitzer is simply too much for the other bureaucrats to bear. All the folks from the SEC, NASD and Justice Department want a piece of the action and are jumping into the fray. They are all clamoring to launch a high-profile investigation of their own…ASAP.

– In no particular order: State securities regulators are forming a multi-state task force to review Wall Street’s research practices; the NASD is investigating certain brokerage firms that it suspects of soliciting fat commission kick-backs in exchange for doling out hot IPOs (remember those?); SEC Chairman Harvey Pitt announced yesterday that his agency will begin a formal investigation into conflicts of interest among Wall Street research analysts…You get the idea.

– Even Eliot Spitzer, the guy who got the ball rolling, is expanding his investigation by targeting Salomon Smith Barney.

– Meanwhile, the front page of yesterday’s new "Personal Journal" section offered some handy advice for investors: "Here’s one recommendation for investors burned by stock market losses: Litigate." The story notes that shareholder class-action lawsuits are on the rise.

– "If this trend continues," jokes attorney Alan Cleveland to the Times, "there’s going to be more money coming out of securities class-action lawsuits than from dividends."

– It is probably not a bullish augury when investors line up to sue their brokers and when the New York Attorney General’s office, the SEC, the NASD and the Justice Department all set up camp inside America’s largest brokerage firms.

– Meanwhile, the economy continues to muddle along…at best. Existing home sales tumbled 8.3% last month. Nothing to worry about, say the analysts. "It’s just a correction from the strength we had earlier," said one analyst. Come to think of it, wasn’t the Great Depression "just a correction from the strength we had earlier?"

– The U.S. job market is also busy "correcting" these days. Initial jobless claims, which had been moderating earlier this year, are suddenly spiking higher. "Jobless claims have risen 58,000 since February 16, after declining 140,000 during the September-February period," remarks Paul Kasriel, the insightful economist from Northern Trust. "Initial jobless claims stood at 445,000 during the week ended April 13, compared with a low of 387,000 in February period."

– Continuing claims are soaring as well, and now stand at their highest level since February 1983.

– Good news on the jobs front is tough to find. This week alone, the floundering telecom companies, Lucent and Ericsson, announced that they would eliminate 26,000 more jobs from their global workforces. Several thousand of those job losses will occur right here in the US of A.

– An employment relapse of this magnitude is very unusual during a recovery, says Moody’s John Lonski. "During the past two recoveries, [in 1982 and 1990] jobless claims data posted declines consistent with a revival of economic activity." But not this time. Oh well, it’s probably just a correction.


Back in France…

*** "Would you believe it," said Elizabeth this morning. "There were demonstrations even in our little town of Dorat – against Le Pen, of course." The madness continues.

*** According to an email I received (was it a joke?), Canada’s equivalent of the U.S. Surgeon General has announced a "War Against Fat." He’s proposed a program of subsidies and penalties to encourage people to lose weight. And why not? Everyone knows that excess blubber costs more lives – and money – than terrorists’ bombs. So why not declare war on the real killers?

*** Watch out, Philadelphia (the fattest city in America). If the WAF (war against fat) forces cross the 49th parallel, they’re likely to launch attacks against the Kabul of tubbiness. It is logical, of course…but mad. People can decide perfectly well for themselves whether they want to be plump or svelte – but man seems unable to resist the urge to "do something" to make the world a better place. More below…

*** What is going on in the Far North, anyway? Funny things. Grant’s reports that Canadian Boy Scouts will soon be able to earn a "badge in investing." The badge will bear the inscription "I invest" in both English and French. And why not? In today’s world, investing is at least as important as making a campfire. A suggestion: in order to round out their investing knowledge and prepare themselves for the real world, we recommend scouts master the skills of "Loan Work-out"…and "Filling for Chapter 11."

The Daily Reckoning