Good Guys vs. Bad Guys

The real meaning of conservatism…the crusaders as seen from an Arabic point of view…and who is the popular press calling a bad guy…

It is a shame about conservatism.

Yes, the old stick-in-the-muds were an impediment to progress. Yes, the old mossbacks were dull and predictable. Yes, their old knees jerked whenever they thought someone might be having fun. We despised them all.

Still, we miss the old fuddy-duddies. You could count on them. When something new presented itself, they wouldn’t like it. They would resist it, not from any intellectual point of view, but just resist it the way a man resists a new pair of shoes or a dog resists a new collar. The new ones might be more fashionable, but that was reason enough to avoid them. Conservatives had outmoded ideas, but that was their charm. Many actually believed that Britney Spears was not as important to Western history as Eleanor of Aquitaine!

But as a creed, conservatism has lost all its adherents, in America at least. As a philosophy, it has practically disappeared. As a political movement, it has dropped dead.Everyone likes new things now.

The essential quality of conservatism is not a specific agenda. Neither to lower taxes or raise the flag, for example. It was merely a way of looking at things – suspiciously; and it is a way of reacting to new proposals – dragging one’s feet. Conservatives fight against new doctrines like they fight against sushi…not only is it appalling, it looks as though it might be dangerous, too.

Conservatism: The Bad Guys

But now the old geezers are gone. The codgers and grumps are voting for liberals this year, we are told. And what choice do they have?

At least the big spender, Bush, is serious about defending the nation from the "bad guys." Big spender Kerry, as far as they can tell, might be a bad guy himself.

More and more, we see columnists, pundits, military strategists, politicians and even friends of ours refer to America’s purported enemies as "the bad guys." No one knows who the bad guys actually are or why they are so bad, but we all know the difference between a "bad guy" and a "good" one. We are at war with the "bad guys." Ergo, flattering to deceive ourselves, we must be the "good guys."

According to the popular press, the bad guys may not be just a few malcontents and nut balls, but the entire Islamic population of the globe! The Muslim mind, say the neocons, is locked in the past…it mistreats women…it is anti-democratic…anti-progress…nihilist…and profoundly, irretrievably stuck in a death struggle with the good guys in the enlightened, free, open minded, fun-loving, capitalist West. It is a "clash of civilizations," as Samuel Huntington put it.

The old-time conservatives would be a little suspicious.

Conservatism: The Crusades from the Arab POV

When a man flatters you, it is almost certain that he means to take your business, pick your pocket or sleep with your wife. When a man flatters himself, on the other hand, he might just as well put a revolver in his mouth and pull the trigger; for he has already lost all touch with reality.

A delightful little book has fallen into our hands. Amin Maalouf is the author. He gives us The Crusades From the Arab Point of View.

The caliph Omar Ibn al-Khattab took Jerusalem from the Eastern Empire in February of 638, Maalouf tells us.

"That day, Omar made his entry into the city on his famous white camel while the Greek patriarch of the holy city came out to meet him. The caliph began by assuring him that the lives of the citizens and their property would be respected. He then asked to visit the city’s sacred Christian sites. While they were in the church of Qyama, the Saint Sepulchre, the Moslem hour of prayer came around. Omar asked his host where he could spread his prayer rug and prostate himself. The patriarch invited him to do so right where he was, but the caliph replied: ‘If I do it, the Muslims will proclaim the place sacred, saying, ‘Omar prayed here.” Taking his rug, he went outside to pray."

Jersalem was taken, again, in July 1099. This time, the Christians were the victors, and the handover much less gracious.

"The population of the holy city was cut down," reported the Arab chronicler of the time, Ibn al-Athir. "The Franks (what the Arabs called the crusaders) massacred Muslims for a week. In the mosque al-Aqsa, they killed more than 70,000 people. The Jews were packed into their synagogue and the Franks burned them alive. They also destroyed holy monuments and the tomb of Abraham – peace be with him!"

"Christians were not spared either," adds Maalouf. "One of the first measures taken by the Franks was to expel from the Saint Sepulchre the Eastern priests – the Greeks, Georgians, Copts, Armenians, Syrians – who officiated over the old traditions and whom all previous conquerors had respected. But the dignitaries of the Christian community resisted. They refused to reveal where they had hidden the true cross upon which Christ died.

"For these men, religious devotion to the relics was doubled by a fierce patriotism. Were they not, in effect, the fellow citizens of Jesus himself? But the invaders were not impressed. Arresting the priests who guarded the cross, and putting them to torture in order to get their secrets, the crusaders managed to take from the Christians of the city their most precious relics."

Who were the good guys back then?

Men are neither "good" nor "bad," the old conservatives would say…but subject to influence.


Bill Bonner
The Daily Reckoning
October 1, 2004

Ooh la la, dear reader…here’s the answer:

Get rid of dollars and buy real assets…things of real value…things you can put to work…things you can build with…

But what is the question?

Ah…that…well…the question is: How are the Chinese going to get rid of all those dollars they end up with by selling gizmos and gadgets people don’t really need and can’t really afford to pay for?

We’ve asked the question many times. China and Japan now own $2.2 trillion worth of U.S. dollar-denominated Treasurys. What can they do with them? And what can they do with all the money they bring in every day – the trade surpluses that match our trade deficits?

Of course, people who take the view that nothing is a problem until it’s a problem have no problem with the current arrangement. What else are they going to do with the money, except recycle it back into U.S. assets, they say…if they bother to think about it at all. They are like a man who, having jumped off the top of the skyscraper, floats past the 14th floor saying, "Well, I’m all right so far."

But China’s intentions came into better focus recently when the state-owned Minmetals Corp. announced a takeover of Noranda, Canada’s largest miner of industrial metals. Meanwhile, Sinopec, also owned by the government, said it intended to "acquire a large lease of oil-bearing land" in Canada.

The Chinese are taking U.S. dollars and using them to buy the resources they need to continue growing. They are doing the very thing we’ve urged you to do. Dear reader, get rid of the paper and buy something of real value: a real business, real property, commodities and gold.

Yesterday, gold stunned investors by rising a full $5.70 – valuing it just under $420, higher than it’s been since April. Oil is nearly $50 a barrel. Commodities are moving up as well.

The Chinese "are a patient, industrious and intelligent
people," writes Gary Tanashian, on Richard Russell’s Web site. "Those descriptors used to apply to the United States, but with outsourced industries, limited attention spans and plenty of credit (debt), the United States has lost its edge. If you take a deep breath, do the math and really look at this honestly, you will see the United States, proud former industrial power, is poised to take a big hit when the time is right, when China decides it has offloaded enough paper for the resources it needs. We will have nothing to fall back on but all those dollars sloshing around the global system, and all the debt that every dollar denominates.

"It would be wise for individuals to think about making like the Chinese and converting some of those dollars into hard assets, including the ancient currency, gold.

"In my opinion, only the timing of the dollar’s ultimate demise is in question. Of course, the unimaginable might happen, and we might start taking the bitter medicine immediately upon the election or re-election of the next U.S. president, show good faith deficit reduction initiatives in cutting wildcat money creation and spending, collectively wake up to new (or old) ideals and values and go about fixing our country.

"What ails us is a simply massive credit and debt binge, and the sloth that such easy access to anything we
desired has wrought. If we were to somehow break this cycle, the global economic powers that be might even cut us a break as we pick ourselves up by the bootstraps, as America has always done before.

"But how can this happen, when 90% of Americans would probably say, ‘What are you talking about you economic girlie man? We got it good!’"

"We think, they sweat," wrote our friend Steve Sjuggerud the other day. But thinking is harder than sweating…and much less common. Besides, the Chinese can think, too.

Imagine a man who has developed a taste for high living. He can’t quite afford it, but he owns some valuable timberland that has been in the family for years that he can borrow against. So, he sells a poem from time to time and tinkers with a software program that allows him to record reality shows on his mobile phone and watch them while he’s calling his stockbroker…flattering himself that he "thinks" while the rest of the poor schmucks on the planet sweat. And then, running out of money, he borrows from the schmucks. "What else are they going to do with it?" he asks himself. He knows he’s their best customer.

The schmucks put up with it and don’t say a word. They just keep shipping geegaws…on credit. And then, finally, they come forward – all his IOUs in hand – and take the man’s house.

Splat…the man hits the pavement.

And now, the news from Tom:


Tom Dyson, from The Daily Reckoning HQ in Baltimore…

– "The more I look at it," said Dan Denning to our London colleagues this morning, "the more I’m convinced a big move in the dollar is due. Soon. Fast. Ugly."

– Dan didn’t know it, but his words were soon hurtling down the wires towards Baltimore…

– He was studying a chart of the dollar index. It’s been clinging on for dear life to a level around 88 since late March. Not only does 88 fall right on the uptrend that started when the euro and sterling slipped off their perch in mid-February…but it now matches three crucial moving averages – 20-, 50- and 200-day.

– Yesterday, the dollar was weak. The dollar index declined 0.72 to settle at 87.38 by the day’s close. Against the euro, the buck carved a new 10-week low, at $1.2435.

– "Eighty-eight is a fulcrum for all the momentum in the dollar right now," said Dan, before startling everyone within earshot by asking aloud, "Can anyone here think of a single reason the U.S. dollar would go higher from here?"

– Only an embarrassed silence could reply. Dan was surrounded by mostly British colleagues, after all. And the facts speak for themselves…

– Cumulative U.S. federal debt is now $7.3 trillion. America imports $50 billion more each month in goods and services than it sell abroad. U.S. consumer credit now totals $2 trillion – greater than the annual GDP of Britain, the world’s fourth-largest economy.

– Quite when or how America’s spending spree will end, we have no idea. It’s sure to involve a sharp drop in the purchasing power of U.S. dollars. Yet no one seems to expect it anymore. The GUDD old days – gold up, dollar down – are gone. Oil is the hot story today. Who cares that the yellow metal has slipped beneath $400 per ounce just four times in the last six weeks? Who’s spotted gold making new five-month highs? Who’s ready for U.S. bonds – still rising, and still supporting the global carry trade – to get hammered?

– "There are a bunch of factors combined that lead me to believe there is more underlying inflationary pressure than the [bond] market seems to believe at the moment," says Scott Mather, managing director for Europe at the world’s biggest bond fund manager, PIMCO. Like we said earlier, this week, he thinks it odd that bond investors have pushed yields lower – not higher – since the Fed started raising short-term rates.

– "At some point investors will question what they are doing in continuing to price bonds richer and richer," says Mather. He reckons the bull market in bonds will end very soon – and 10-year Treasury yields will rise towards 5% from their present 4.05%.

– And Mather may be right, at least on the evidence of the last three days. Bonds have tanked. The 30-year Treasury dipped to 4.77% on Monday. Yesterday, it closed at 4.89%. This morning, Friday, bonds are still selling off; 30-year yields are up another 5 basis points to 4.93%.

– Over on Wall Street, the Dow slumped 56 points to 10,080 as Dow component Merck crashed. The pill pusher announced the global withdrawal of VIOXX after tests showed the risk of heart attacks and strokes doubled by taking the drug. The stock plunged almost 27%. The Nasdaq gained 3 points to 1,897.

– But there’s one other crucial factor at play in the dollar’s impending crash – one missed by Wall Street and the City, too busy gawping at the price of oil. All those speculative trillions now flooding the market in crude oil futures, dear reader – they will have to go somewhere next time oil’s inexorable rise takes a breather. Trading volumes in 2004 to date say they’ll head straight back from whence they came – the forex market.

– In its latest quarterly review, the Bank of International Settlement gives a chart showing open positions in crude oil futures since the start of 2002. Compared against a chart of the dollar’s mixed fortunes over the same period – down, up, sideways – it’s hard not to conclude that the hot money which drove the greenback to all-time lows against the euro in February switched straight into oil when the forex play peaked out. A switch back to selling the dollar looks certain.

– Yesterday, gold hit a new six-month high, gaining nearly $6 to $418.40.

– "When will the hedge funds notice how weak the dollar is right now?" asks Dan. We don’t know, of course. But we reckon GUDD days lie ahead…


Bill Bonner, back in Paris…

*** Why is money important?

A friend sent yet another psychological study implying that people only want money for one reason: status. And they only want status, at least speaking in evolutionary terms, because it improves their chances of successfully passing along their genes.

Why do men care about money? Because it attracts women. Why do women care about men with money? Because it signals that he is a winner, which is to say, he has good genes.

*** The evolutionary explanation for why we put so much effort into getting and spending hardly seems adequate. We thought about that as we took a cab from the Gare du Nord. It is autumn in Paris. The trees are turning yellow and brown, giving the place a sweet, lugubrious tint.

Your editor is spending his money building gardens out at his country house – an amazingly expensive proposition, not to mention the hard work involved. Yet he could just as well take a stroll in any one of Paris’ many public gardens – which are vastly superior to any that he might create.

Will having his own garden make him more attractive to women? Not likely. Will they bring him a mate and heirs? He already has a mate and doesn’t know what he’d do with another one. He has plenty of children, too; if he had any more college expenses to reckon with, he wouldn’t be able to afford a rake, let alone a garden.

Even more puzzling is the realization that the garden he is building is one that will probably not be fully developed until after he is dead. He won’t ever enjoy it at its maturity. It takes many years for trees to grow. Your editor, though as prone as anyone to self-delusion, still does not expect to live forever.

Why does he not merely take a walk, today and every day, through the spectacular Jardin de Luxembourg? It would cost him nothing…and put no calluses on his hands.

*** A reader comment:

"I’ve been following the stir that some of your comments have created. It brought to mind a comment I once heard from a WWII bomber pilot. I had him asked how they located exactly where their targets were prior to the advent of modern technology (like GPS)."

"He replied, ‘Son, you know you’re over the right target when you start catching flak.’"

Sounds like you’re right on target.

*** Another reader, making a very interesting point: Business investment, encouraged by artificially low rates, is not a plus for an economy.

"John Mauldin is a smart man, of course, but he continues to overlook the crux of the matter when commenting on the Fed’s behavior.

"John says, ‘If rates (and especially home borrowing rates) were to rise significantly in a fragile recovery that is largely stimulus driven, the recovery could be aborted before it has time to develop a firm foundation in business spending.’

"This comment is correct, as far as it goes, but Mr. Mauldin ignores a crucial point. When business executives begin to spend in this environment, they will be responding to product demand that is distorted by artificially low rates and easy money. The price system will be leading them astray because of the central bankers’ market interventions.

"Whenever the Fed’s ultra easy credit environment does come to an end, therefore, much of the recent business spending will be revealed as erroneous, or as ‘malinvestments,’ to use a key Austrian School of Economics term. A recovery based on a loose monetary policy will abort whenever the stimulus is removed. There is no reason to believe the Fed can be successful in creating a ‘firm foundation’ that will support further growth."

The Daily Reckoning