God, Man, And French Chefs

The Daily Reckoning Presents: A DR Classique, first
aired December 12, 2000, as Bill ran to catch another
plane to the states…


By Bill Bonner


The conversation in the rather up-market “Les Bouchons
de Francois Clerc” came to an immediate halt. Everyone
had heard the booming voice in the kitchen. Someone was
“losing it”…

I will do my best to translate, without offending your
refined sensibilities, dear reader:

“C’est une catastrophe! This place is a bordello filled
with the excrement of fat porcine animals of low
intelligence who prostitute themselves.”

It was a remarkable stream of cussing which went on for
several minutes. I had heard nothing like it, even when
Pierre skinned his knuckles while trying to fix the

Maria laughed. Other diners looked at each other
awkwardly…or down at their food nervously. Had the man
lost his mind? What had he done to the food? We could
imagine tomorrow’s headline in the leftist newspaper,

“Diners Poisoned as Chef Goes Mad!”

I could even imagine the article’s slant: sympathy for
the poor chef who had probably been asked to work more
than his usual 35 hours and was justifiably indignant
over the working conditions, or perhaps over the
condition of the carrots he was given to work
with…along with a certain unstated contempt for the
dead bourgeois customers – who had driven the poor man

This was my first experience with a chef gone berserk.
But they must go crazy all the time. French diners are
very demanding. And very critical. They take food

At least a couple DR readers have wondered why I make my
home in France. To some, living in France in the time of
Chirac has no more appeal than serious dental work in
the time of Colbert. But in reply to the question, I
respond that life, like theatre, is lived as either
tragedy or comedy. An American in France sees the comedy
in things. We are like Chevy Chase in his movie,
“European Vacation,” too ignorant to worry about what
the chef puts in the soup…and too romantic to care.

And there is another reason – which helps explain, or
perhaps illustrate, many of the ideas you find in the
Daily Reckoning…which I will explain.

The French take many things seriously. Maria and Sophia
recounted their experiences at school, Maria doing
wickedly accurate impersonations of some of the
characters at the Institute de la Tour…and Sophia
reporting, in depth, on the strange goings-on at the
Ecole Actif Bilingue.

Poor Diane! Maria reported that her friend broke down in
tears as her teacher evaluated her work in front of the
entire class. Apparently, each of the students is asked
to stand as the teacher tells her how she is doing. The
pressure is intense. Teachers in France do not worry
about a child’s self-esteem. Students are criticized
sharply, almost mercilessly. It is hard to feel
sympathetic towards a 14-year-old boy. But Maria’s
account of how teachers picked on the only two boys in
her class brought me close.

I have also heard parents criticize their children in a
manner that would seem harsh in America. But parents are
expected to spend a lot of time pushing their children
to do well in school. So much depends on getting good
grades in France…the whole country seems to be run by
people who did well in secondary school, took
competitive exams and got into the elite “grand ecoles”
such as E.N.A., the school of administration that
prepares most of France’s high-ranking business and
political leaders.

“The enarques [as graduates from E.N.A. are called] are
untouchable,” says a friend of mine, asking not to be
quoted. “There are always scandals in France – and
people going to jail. But the enarques never go to jail.
Because the judges are enarques too.”

[I am secretly hoping that maybe Henry will make it into
E.N.A…and will make me untouchable too.]

Sophia’s school is completely different from Maria’s. It
is a school for foreigners, and perhaps redundantly, for
misfits. Sophia is there because her French is not good
enough for the regular schools. Unlike the younger
children, she has had to learn French the hard way – by
studying it.

There are four major groups in Sophia’s school. There
are the French – who are usually hard cases – the
“Arabs,” the “Koreans,” and the Anglo-Saxons. Thus do
school children divide the races of mankind.

“Instruction is supposed to be in English,” Sophia told
us. “But nobody speaks English except us, the Anglo-
Saxons. The rest speak various things that sound a
little like they might be English…but I usually can’t
understand a word.”


“But the Koreans,” as Sophia’s schoolmates refer to all
the East Asians in their school, “who barely speak
English, seem to be the only ones who get good grades.”

This little insight by Sophia triggered a recollection
in her sister:

“Dad,” she asked, “How come you and Mom argue about such
silly things? I mean, I heard Martine’s parents arguing
about money…or maybe it was over what kind of car they
were going to buy.”

“But you and mom,” she continued, “last weekend…I mean
who ever heard of parents arguing over…who was

Ah yes, Darwin. Well, that.

“Maria, we weren’t arguing,” I protested, trying to
close ranks with Elizabeth, “we were just discussing

And Koreans?

Yes – we had mentioned Koreans, too. I had actually.
East Asians seem to work harder; and intelligence tests
suggest that they are smarter than Anglo-Saxons. Or the
French. In Darwinian terms, they seem to have a
competitive advantage. How come the whole world is not
full of Koreans? Because, I had pointed out to
Elizabeth, Darwin’s theory is flawed. It was a silly
point…but a silly argument needs silly points.

Who could take an argument over Darwinism seriously?
Even worse, who could take Darwinism seriously? Still,
it is fun to argue about it…

Uh oh…I’m going to miss my plane if I don’t leave now.

Your correspondent,

Bill Bonner
December 10, 2001

Return of the Bubble?

Some people worry about it. Others are counting on

Here at the Daily Reckoning, we worry that a re-
inflated bubble will cost a lot of investors a lot of
money…when it eventually implodes. But we look forward
to the spectacle of it and hope it will be at least as
amusing as the first one. Gilder, Blodget, Meeker,
Bezos, Saylor, Grubman…we miss them all, and need a
good chuckle.

The Dow ended last week up 2.01% – trading at 28
times earnings. The Nasdaq jumped 4.7%. S&P stocks,
meanwhile, trade hands at 31 times earnings.

The Fed is doing all it can to help. The economy
may be shrinking, but the money supply increases at
double-digit rates. And rumor has it that the Fed will
cut rates again tomorrow. “Most analysts are expecting a
quarter point” cut, says the Financial Times. It’s
already a “Done Deal,” says a Reuters piece.

Amazingly, all these rate cuts and extra cash seem
to have done little to improve the profit situation or
head off unemployment…and may now be backfiring. All
they accomplished was to make it easier for consumers to
refinance their homes and buy autos at zero-percent
financing. And both of these trends seem to be coming to
an end.

Because, rightly or wrongly, the bond vigilantes
put on their spurs a few weeks ago.

Stocks fell and bonds rose from January through
September – as investors expected lower interest rates
and lower stock prices in a recessionary economy. Then,
bond investors and stock investors were at odds for a
couple weeks. Stock buyers became bullish after Sept.
21, while bond investors remained bearish. The bond
market still anticipated higher bond prices in a worse
economy, while stock buyers were sure they’d already
been through the worst. Both could not be right. But
now, bond investors seem to have come around to the
stock buyers’ way of seeing things. The vigilantes are
worried that rates will be higher, not lower, next year.

Bond prices have fallen sharply – pushing up long
term yields. The yield on the 30-year treasury bond, for
example, rose to 5.60% last week. Higher long-term
yields mean higher mortgage rates…which means an end
to the refinancing boom…which means, in the absence of
more jobs, less money in consumers’ hands. Well, I guess
we don’t have to tell you what that means. Even the most
patriotic consumer can’t spend money he doesn’t have.
Already, “Retail sales at 10-year low…”, says the
Houston Chronicle.

But bond buyers and stock buyers could both be
wrong. If the economy were getting ready for a growth
stage – along with higher stock prices and an up-tick in
inflation – how come the gold price is down to $273?

We don’t know the answer, of course. But we’re
sticking with our Weaker Economy-Falling Stock Prices-
Lower Interest Rate outlook until we are definitely
proved wrong.

Or right.



Eric Fry in New York…

– The only thing rising faster than the stock market
these days is the unemployment rate. A novice investor
might wonder how stocks and joblessness could soar
together, arm-in-arm. In fact, a professional investor
might wonder the same thing.

– The answer, of course, is that Greenspan has got
things under control. Sure, the jobless numbers are
rising for now. But just you wait, the Chairman is gonna
turn this ol’ economy around lickety-split. So you
better buy stocks now…while you can still get ’em for
less than 50 times earnings!

– The unemployment rate rose to a six-year high of 5.7%
in November from 5.4% in October and a whopping 331,000
non-farm jobs were lost. “The total number of job losses
in the past two months – almost 800,000 – was the
highest in more than 20 years,” Reuters reports.

– The stock market acknowledged the bad news Friday with
a token decline. The Dow fell about 50 points to 10,049
and the NASDAQ dropped 1.6% to 2021. Nonetheless, stocks
put in a spiffy performance for the week, with the
NASDAQ advancing 4.7%. The tech-heavy, but profit-light,
index has now soared more than 42% since touching a
three-year low on September 21st.

– “Leading models signal that inflation, for all
practical purposes, is dead,” InvesTech declares. Well,
I’m glad that’s all settled!

– It’s true that inflation is subdued for the moment,
but prices of some things are re-inflating already…
like the price of a Cisco share, for example.

– “Despite the company’s lackluster growth prospects,
CSCO shares still sport a towering valuation,”
Grantsinvestor.com remarked last week. “Cisco currently
trades at about eight times trailing sales and at about
100 times 2002 earnings estimates…”

– Elsewhere on the inflation front, the price of a
professional baseball team shows no sign of dropping,
despite the fact that these 25-man squads of prima
donnas almost never generate any profits for the team’s
owner. Be that as it may, the NY Times has decided it
would like to own a piece of the Boston Red Sox.

– “Industry observers say the sale price could be
between $350 million and $400 million,” Crain’s reports,
“which would be the highest price ever paid for a
baseball team.”

– The last time a New Yorker went shopping for baseball
assets in Boston, he picked up a guy named George Herman
Ruth. But this deal looks much less attractive.

– The Red Sox lost $13.6 million this year, according to
Crain’s. But surely the New York Times knows what it’s
doing. It’s steady, conservative, shrewd…Uh-oh…wait
a minute. Come to think of it, the Boston Red Sox’
financial performance looks eerily similar to one of the
New York Times past investments – a disaster known as
theStreet.com. The Times lost about $12 million directly
on that star-crossed adventure, and millions more

– TheStreet.com shares went public in May of 1999 and
tripled on the first day of trading from $19 to $60. At
the company’s peak valuation of $1.6 billion, investors
valued the company at $32,000 for each of its 50,000
subscribers who pay $99 per year. TSCM now sells for
about $1 a share.

– Speaking of disasters, Christopher Byron, the acerbic
New York financial columnist, wonders whether there
might be any more Enrons lurking in the stock market.

– “The landscape of American business is overrun with
companies that, in one way or another, have gorged
themselves on Enron-type financial engineering
gimmicks,” Byron writes. “It seems almost inevitable
that they will sooner or later face the moment of
truth.” Among the list of leveraged companies that Byron
considers likely to face a “moment of truth” is Sara Lee

– “Not so fast,” says Lynn Carpenter, editor of both the
Fleet Street Letter and the Contrarian Speculator. Lynn
holds the unique distinction of having profited both
from Enron’s demise and from Sara Lee’s strong

– On two separate occasions last summer Lynn urged her
Contrarian Speculator subscribers to buy puts on Enron,
betting that the stock would soon decline. It did. On
both of those occasions Lynn’s happy subscribers bagged
very large gains in a very short period of time – “70.9%
in just four days on the Enron July 45 puts,” Lynn

– Concerning Sara Lee, Lynn thinks Byron is way off
base. The stock is a member of the Fleet Street Letter’s
“10-for-10 Portfolio,” and has gained more than 19%
since Lynn recommended it.

– “I’m still comfortable with Sara Lee,” says Lynn. She
explains that Sara Lee took on more than $1 billion in
debt recently to buy Earth Grains. “But Sara Lee has
done this several times in the past and quickly paid
down the debt level from its healthy cash flow…
Meanwhile, the profit margin has jumped from 7% in 2000
to 12% this year.”


Back in Paris…

*** Kathie Peddicord, publisher of International Living,
sends word from Ireland this morning: “Farmer’s Day was
bolstered this year by the Mattress Money Effect. In the
final countdown to the euro, the Irish who’ve been
keeping money under their mattresses (and thereby out of
the hands of the tax collector) are keen to spend it
rather than attempt to explain it. Shopkeepers are
reporting record sales figures. The parish priest at the
little church we attend in Portlaw acknowledged the
phenomenon at mass yesterday. The collection baskets, he
reports, have been especially heavy on recent Sundays.”

*** I’m not going to write an essay today. I’ve got to
catch a plane to Washington this morning. Besides, I
have nothing to say…so we give you something from the
DR “Classique” library, from last year at this time.

The Daily Reckoning