“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”
“The struggle against terrorism,” said French Prime Minister Lionel Jospin last week, “is not just the business of judges, the police and the secret service. There is also a response that heads of business, investors, and consumers can give!”
I took the liberty of adding an exclamation point. Such a statement needed a little flourish at the end, I thought…as when a man claims to have invented a perpetual motion machine or been visited by space men in his backyard. The preposterous needs emphasis.
“Lionel Jospin invited the French to show their ‘economic patriotism’ by continuing to consume in order to avoid a recession,” says the Associated Press report. “The head of government invited business leaders and consumers to ‘resist intimidation’ and to ‘support economic activity’.”
“Let’s show, all together, our economic patriotism,” Jospin urged.
I am not making this up. It would be impossible. I couldn’t imagine that anyone outside of an asylum could say something so absurd. But there it is.
The French prime minister also gave assurances that economic fundamentals “remain favorable” and that “Neither the U.S. nor Europe is in recession; there is no collapse of production.”
Jospin did not cite his sources. All available evidence suggests that the U.S. economy is presently shrinking, i.e. in recession. And factory production has been going down for the last 11 months – one of the greatest collapses in history. But ignorance has never been a barrier to public office.
Despite the fact that no economic difficulty exists, according to Jospin, the government is nevertheless taking measures to deal with it. On one side of the Atlantic as on the other, politicians have the same idea – to find ways to keep the consumer spending.
It may come as a relief to many Daily Reckoning readers, but Americans are not the only ones made mad by the terrorists attack. A kind of Esperanto madness – a common language of absurdities – seems to be spreading across borders and seeping into casual conversations between grown-ups. Everywhere, patriotism, nationalism, jingoism, militarism, religion, culture, and finance seem to have gotten jumbled up.
But I do not write to criticize. The day is long past when I attempt to tell the world how it should conduct itself. Instead, I write to honor those caught up in the madness.
Daily Reckoning readers may recall those dark and shameful events of the 1960’s…when soldiers were sent off to Vietnam to risk their lives in a war they couldn’t win…and then spat upon and reviled when they returned home. The prospects for today’s economic patriots seem no better: for they are surely on a fool’s errand. But, even so, they deserve recognition.
All over the world consumers and investors are being mobilized to fight the campaign against terrorism. They take up their credit cards and portfolios and aim at an enemy they can neither see nor understand.
It’s madness, of course. Economies are not really helped by investors who make bad investments, nor by consumers who buy things they can’t afford.
But madness needs to run its course.
So, there ought to be some form of recognition for the casualties. Soldiers – even those sent off on the most preposterous campaigns…such as the French attacks in the opening days of WWI, or the British “Charge of the Light Brigade” in the Crimea…were still able to come home (if they survived) and live in dignity. On appropriate occasions, they got to wear their campaign medals, to the delight and pride of all around them.
Surely, some medals should be prepared for people who blow themselves up in the name of “economic patriotism” too. Let me make a few suggestions:
For a man who distinguishes himself by running up huge credit card debt, for example, I suggest awarding a small pin, made of plastic…depicting a Visa card surrounded by a cluster of dollar signs.
And what of a man who loses his house in a bankruptcy proceeding? Maybe a pin shaped like a house would be appropriate. It should be made of an inferior grade of plywood – with the number “11” on it… or “7” for those who choose the liquidation route.
Shopping recklessly ought to be worth some kind of medal…something like a Distinguished Consumer Award. Anyone who increases his personal consumption through a recession should get at least a ribbon…maybe in dollar-bill green with red ink slashes.
And an investor who remains steadfastly bullish in a bear market also deserves recognition for his self- sacrifice. A small pin – of base metal – would be enough.
But a real hero, an investor who mortgages his house, his business, and his wife’s engagement ring, in order to continue going long in the face of huge reversals, collapsing prices, and spreading panic – that person deserves something special. For he may lose everything for the Homeland, as it is now called – his house, his business, his money, and, most likely, his wife.
I suggest an Order of Economic Merit award – a medallion depicting a man in a barrel might be appropriate, with a flag in one hand and a credit card in the other. The medallion should be suspended from a red, white, and blue ribbon and worn around the neck on all state occasions…Armistice Day, VE Day, Veterans Day and so forth. It should also be required at weddings and serve a cautionary emblem for those just starting out in life.
What’s more, this top honor should be bestowed, personally, by the Secretary of the Treasury, Paul O’Neill, with, perhaps, a kiss on each cheek…to give it the right preposterous flourish.
Your correspondent in Paris,
October 1, 2001
More than 2 out of 3 Americans say they are depressed, reports a NY Times article. In the aftermath of the terrorist attacks, one out of every two people has had trouble focusing on his job…one out of three has had his sleep disturbed.
Americans were so busy with high-minded frets, they might not have had a chance to notice the low- minded ones. The S&P 500, alone, took a trillion dollars from the asset side of their personal ledgers in the last quarter. The Nasdaq sank 31%. Investors Business Daily’s index of leading mutual funds is down more than 33% so far this year.
And, as Eric reports below, the average stock fund
lost 20% in the latest quarter. Here’s the rest of Eric’s report…
Eric Fry in New York:
– While the stock market turned in a very respectable showing last week…the Dow and the S&P 500 each gained more than 7%, and the NASDAQ tacked on about 5%…the third quarter of 2001 was a disaster for most investors. The Dow and S&P 500 fell about 15% each, and the beleaguered NASDAQ tumbled more than 30%.
– The Stock-Market-for-the-Next-Hundred-Years trades like it won’t be around for the next hundred days. Last week, Nasdaq announced that it would suspend rules barring stocks under one dollar from remaining listed on the exchange. About 15% of the 669 stocks listed now qualify for the exemption…how far the mighty have fallen!
– Whatever else might be going on in this vast economy, massive stock market losses can’t be helpful. While John Q. Public finds himself with mounting debts and diminishing job security, his investment portfolio is taking it on the chin. Fund data firm Lipper reports that the average diversified U.S. stock fund lost nearly 20% during the third quarter – the worst quarterly performance since the October 1987 crash.
– With numbers like that, it will surprise almost no one to learn that loan delinquencies are on the rise. “The numbers are not alarming at the present time,” assures Northern Trust economist Asha Bangalore. “However, layoffs and a sluggish economy can add an additional burden to an already indebted economy.”
– Mr. Bangalore notes that credit card delinquencies jumped 11% from June 2000 to June 2001. Even more worrisome, the loan delinquency rate of commercial and industrial loans soared 36% over the same time frame. And remember, these numbers run only through last June. We can only imagine what the September data will show.
– Even though the stock market ended last week on a strong note, it will face a daunting task trying to build on those gains. “The hand-wringing starts Monday with a cascade of scary auto sales numbers,” writes Smartmoney.com’s Igor Greenwald. “[It] gathers speed Tuesday after another likely rate cut by the weary Fed and culminates Friday with the monthly tally of the jobs destroyed.”
– Still, some rays of hope pierce through the economic cloud cover. Options trader Steve Sarnoff, anticipating today’s auto industry figures by about 6 weeks, just logged 1,202% on GM “puts” for readers of his advisory service Options Hotline. In a volatile and increasingly uncertain environment, Steve’s managed a whopping 12- for-12 record over the summer months…and an average gain of 240%.
– With every day that goes by, life starts to feel a little more normal in and around New York City. In fact, to judge from the packed restaurants around here, business is more “normal” than ever. A friend of mine whose father owns a restaurant just outside New York City says that his father’s restaurant is as busy as ever.
– The commercial real estate sector is another industry that seems to be thriving in the post-attack economy. The instant loss of 15 to 20 million square feet in lower Manhattan has put a premium on the space available elsewhere in the city and also in New Jersey.
– Not surprisingly, the stock of Mack-Cali Realty Corp., a REIT focused on New Jersey office properties is among the very few stocks to have gained ground since September 11th, 2001.
Back to Paris:
*** John Myers pointed out last week that during the Yom Kippur War in 1972, oil surged from $3 to $12 a barrel, a 4-fold increase; during the Iranian Revolution (1978), oil doubled from $12 to $24; and in both the Iran/Iraq War (1980) and the Iraqi invasion of Kuwait (1990), the price of oil rose from around $20 to $35.
*** “In each of these cases,” says John, “investors that caught the move early…did very well for themselves.”
*** But that doesn’t mean you have to invest in companies in the region. In fact, as an alternative Mr. Myers is recommending companies working the vast Athabasca Oil Sand region in Canada – a total area covering more than 26,000 square miles (roughly twice the size of Virginia). “Within this unconventional oil deposit rests more than 300 billion barrels of oil…” says Myers. “And the best part? It’s 7,000 miles fromthe Mideast.”
*** Hunters were out in force at Ouzilly this weekend. I watched as a group of them parked behind our farmhouse and then dispersed, following a pack of yelping dogs.
*** About a quarter of an hour later, a small deer – a chevreuil – bounded out of the woods at almost the exact spot the hunters had collected, and set off in the direction the hunters had gone.
*** He outsmarted them, I thought. Circling around, he had managed to get behind them. Now, he could follow safely, at a discreet distance.
*** But he was not smart enough. Twenty minutes passed and we heard gun shots. Moments later the hounds changed their tune – howling, baying, yelping in a furious crescendo. And then, the horn sounded and in a few minutes, all was quiet.
*** “The poor chevreuil,” reported Mr. Deshais, who had been working in the woods near where the animal was shot. “The dogs got to him before the huntsman. Finally, a hunter came up, chased off the dogs and cut his throat.”