Fruits Of The Earth


“I believe that there are not two separate worlds, the spiritual and the material…and that it is useless to set them apart.”

Andre Gide

“I love this time of year,” said my daughter, Maria. “But, Dad, why are we doing this? We could just buy wine…and it would probably be better.”

We were working on opposite sides of a row of grape vines in Mr. Deshais’ vineyard. The gardener had invited us, like Tom Sawyer, to help with the grape harvest – the vendange. We had never picked grapes. And the day was so pretty that any excuse to be outside seemed like a good one. So Maria, Henry, and I joined him, picking off the bunches of dark purple grapes, laying them in plastic buckets.

Grape harvesting is easier than getting in tobacco. There is little heavy lifting. And the weather is not hot…on Saturday, it was almost perfect.

The sky was bright blue for a few minutes…and then the sun was blocked by fast-moving clouds. A cool wind blew across the vineyard. So we wore sweaters and jackets, taking them off as we warmed ourselves up from the work.

“Isn’t it amazing,” Maria was eating grapes and looked like a cover girl on a health magazine, “Isn’t it amazing how this stuff just comes out of the ground. I mean, how nature puts these things together…and makes such nice things…”

“Yes…but you have to work with the earth,” our gardener corrected her. “You have to learn how to coax the good things out.”

“As ye sow, so shall ye reap,” I added, having nothing original to say.

“But it’s not even that easy,” Mr. Deshais replied, from experience. “Look at this plant.” He pointed to a vine in the next row with curled leaves and brown, dried up little grapes. “It has some disease. You never know, some years you get a good harvest; some years you don’t.”

“And this year’s harvest is not very good…I didn’t work on it as I should. You know, my life was a little messed up last year…”

Readers waiting for an insight – from either Mr. Deshais or your correspondent – will be disappointed. We have none to offer, other than the observation that you already know so well:

Investors, generally, get what they deserve…but not necessarily what they expect. As they plant, so do they reap. Matter and spirit cannot be completely separated.

For the last 10 years investors planted little – savings rates actually fell below zero. Rather than tilling the soil, they consumed harvests of previous years and depended upon the kindness of strangers to fill in the gaps.

Though they labored little in the vineyard, investors nevertheless expected bumper crops – polls showed investors anticipated 18% annual capital growth…forever.

Instead, harvests – as measured by business profits – collapsed. Since ’98, as Dr. Richebacher reminds us, America’s leading sector – technology – has produced zero profits.

Take away profits, said Keynes, “and the whole process stops.”

The whole process was in the process of stopping when terrorists attacked on Tuesday. Now, there is wild talk about a “patriot rally” and a new boom. Commentators compare the terrorists’ attack to the Japanese attack of 1941.

“Men, like dogs, are only too easily conditioned and always expect that, when the bell rings, they will have the same experience as last time.”

If only the dogs who attacked the WTC had read more U.S. economic history. Surely, they had no desire to nudge American capitalism to even greater glory. Yet that is what the pundits say is coming.

“The Dow fell 2.9% on the first trading day following the Japanese attack on Pearl Harbor,” writes James K. Glassman in the International Herald Tribune today. But, then, he points out, “as it became clear that the U.S. economy…would boom and the war would be won, the market began to climb powerfully.”

Pearl Harbor gave the U.S. market a shove. Trading at about 20% of GDP, U.S. stocks were about as cheap as they had ever been. But not as cheap as they were about to become. Six months later, stocks hit an all-time low of 16% of U.S. GDP…before beginning a long, slow bull market that didn’t end until 1972, with stocks reaching 78.1% of GDP.

For reference, readers might want to know that stocks today are about 135% of GDP…nearly twice as high as ever previously recorded. (The previous record was hit in August 1929). Patriotic readers might wish to see the market rise today. Perhaps it will. But we doubt that a terrorist attack makes the fundamental picture so much brighter that it will turn nature on its head. Even – or perhaps especially – in times of war, investors are not likely to reap a harvest they never sowed.

When we had picked the two rows of grapes, we dumped the grapes into big plastic trash barrels in the back of a truck and headed back to the house. The grapes were dumped into tubs and Henry, 11, and Edward, 7, took off their shoes and socks, put on shorts and got ready for action.

I made sure they washed their feet…and put them in the tubs, where they began mashing the grapes. The boys giggled and tromped about, turning the grapes into liquid without the benefit of technological advances of either the Information Age nor even the Industrial Age. They worked as boys have for thousands of years. After a while, they grew tired. Mashing grapes was no longer fun for them. Their legs were red and their feet were cold…

“Can we stop now?” asked Edward.

“Just a little more…” came the reply.

Finally, Mr. Deshais drew off the juice. We tasted it and were not disappointed. Then, it was mixed with “eau de vie” alcohol…

“Homemade,” said Mr. Deshais, “this is the real stuff, made the traditional way. This is the way you make pineau in the old fashioned way…the good pineau, not like the stuff you buy in the supermarket.”

“I thought it was illegal to make eau de vie,” I replied.


Bill Bonner, not keeping quiet.
September 17, 2001

“After Brash Decade,” says a headline in today’s International Herald Tribune, “A New Mood in N.Y.” Eric Fry, our Wall Street correspondent, describes it:

“Suddenly, religious faith and patriotism are in vogue. Chanel purses and Hummers are not,” begins Eric’s report for today. “Overt self-indulgence is ‘out’. Faith is ‘in’.

“I have never seen my church more crowded than it was yesterday. Flag-waving has made a stunning comeback as well. The stars and stripes are everywhere. It looks like most Americans used a chunk of their tax rebates to buy flags. After a lengthy search, my wife bought a large 5′ by 10′ flag that now hangs from the front of our house.”

Eric’s report continues:


Eric Fry in New York:

– “We are going to pursue a new kind of business model going forward,” promised a teary-eyed Howard W. Lutnick, CEO of Cantor Fitzgerald. “We will have a much different business model…[sobs]…we have a new class of partners here – the families [of the firm’s victims]. I have to take care of these families.”

– This is but one face of the new America. It would be easy to be cynical and assume that Mr. Lutnick’s altruism will not last more than a month or two. Greed is simply too powerful a temptation. But I believe Howard Lutnick, and I believe that America has changed…for the better.

– “Adversity can have many positive effects. Enduring national character is shaped by shared trauma,” observes Francis Fukuyama in a recent Financial Times story. “Peace and prosperity, by contrast, encourage preoccupation with one’s own petty affairs and allow people to forget that they are parts of larger communities. The long economic boom of the Clinton years and America’s easy dominance of world politics has allowed Americans to wallow in such self-indulgent behavior…This was nowhere more true than in the world of high-tech and finance…”

– Fukuyama continues: “Tuesday’s attacks on Wall Street were in this respect a salutary lesson. The weightlessness of the new economy will not protect you from falling concrete; your only hope in this kind of crisis is the heroism of firefighters and policemen (several hundred of whom were killed during the attack). Microsoft or Goldman Sachs will not send aircraft carriers and F-16s to the Gulf to track down Osama bin Laden; only the military will…the United States is likely to emerge from the attacks a different country, more unified, less self-absorbed…And it may also become a more ordinary country in the sense of having concrete interests and real vulnerabilities…”

– Even assuming that our nation becomes less frivolous and that it rediscovers faith and patriotism, what will become of our economy and stock market? For months, the Daily Reckoning has predicted that sliding corporate profits and an over-leveraged consumer would weigh on the stock market. Profits are still sliding and the consumer is still burdened with debt. Last Tuesday’s attack certainly will not improve either condition.

– A consumer spending slowdown seems all but certain. Even though many restaurants in and around Manhattan continue to do a brisk business, big-ticket purchases have ground to a halt.

– Given this situation, it is easy to remain bearish – too easy. The U.S. stock market may well be a tough place to make a dollar over the next several months, if not the next several years. But over the next few weeks, we’ll see what’s been termed a “Patriotism Rally”.

– Consider the following factors – two of them fact, two of them rumor – that may contribute:

* Fact No. 1 – The SEC has lifted restrictions that prevent companies and company insiders from buying unlimited quantities of their own stock.

* Fact No. 2 – Cash has been piling up in money market accounts for several weeks as the stock market has been selling off. This cash could easily re-enter the stock market over the next several days.

* Rumor No. 1 – Many people I know are saying that they will be buying stock on Monday as an act of patriotism. As crazy as this might sound, one of my friends told me, “E-mails are flying back and forth across the country in which people are telling each other that they will be buying stock on Monday. It’s a national grassroots campaign.”

* Rumor No. 2 – I have heard from a couple professional fund managers of a “gentleman’s agreement” to neither sell stocks nor sell stocks short on Monday.

– Purists will scoff at the notion of “patriotic investing.” But who knows, it just might happen and it just might stabilize the markets and restore confidence for a while. Longer-term, of course, things like earnings will matter more to the stock market than patriotism. Stocks pledge allegiance to nothing but their underlying values.


Back to Bill in Paris…

*** “Hope of a ‘Patriot Rally'” excites investors, says the IHT. “Doing my part…I’m buying stocks on the open,” CNBC quotes a flag-waver.

*** Meanwhile, a chain e-mail message flies through the net, encouraging Americans to buy $200 to $1000 worth of stock when the market opens today as an expression of solidarity and patriotism.

*** We do not scoff at the idea of “patriotic investing.” We welcome it with the kind of mischievous curiosity we feel when a rich widow is introduced to a gigolo. Something unpleasant is bound to happen, but it gives us something to talk about.

*** We’ve been waiting on two things: a day of panic selling…and a strong rally. Both should occur before this 2nd stage of the bear market runs its course and either could begin today.

*** Wall Street was closed most of last week. But the Europeans were open for business. And stock prices fell in near-panic selling…before bouncing back. France’s CAC 40 index ended the week down 11%, the German DAX ended down 12%.

*** In Japan, investors used the occasion of a closed- down Wall Street to steal a march on the Americans. The Nikkei Dow, racing the U.S. Dow for the bottom, gained and surpassed the U.S. index…closing at 9520 this morning, a level it has not seen Ronald Reagan’s first term.

*** Industrial production fell for the 11th month in a row. Continental’s chairman, Gordon Bethune, tells us that the airlines are all going bankrupt. And consumer confidence – already down to its lowest level since November 1993, before last week’s attacks – seems sure to fall further.

The Daily Reckoning