Liberty in Las Vegas
We were having dinner at Postrio’s. Nature placed us at 36 degrees, 5 minutes north latitude, 115 degrees 10 minutes west longitude – in the middle of a North American desert. There were only 30 residents at that location in 1902 – every one of them probably wishing he was somewhere else. But that was before the mafia, gambling and air conditioning, and the Colorado River transformed Las Vegas into the "Entertainment Capital of the World."
Now, in the very same spot you can enjoy cuisine moderne, sitting "outside" in a replica of St. Mark’s Square, Venice. Not only that, you can arrive by gondola!
"This place is better than the real thing," said a friend. "No pigeons, the water in the canal is clean, it’s air-conditioned, it never rains, and there are no pesky foreigners."
It never rains in St. Marks Square in the Venetian. The sky is always perfect – with wispy clouds punctuating a clear blue ciel.
At a nearby table, a 50-something man entertained three young women. The women looked like they might have been Italian prostitutes or models for a Latin American motorcycle magazine.
"Isn’t it nice," said someone at our table, "he brought his daughters to Las Vegas…"
Anything goes in Las Vegas. No hallucination is too bizarre. No perversion too revolting. No idea too absurd. My friend could not have picked a better place for the first annual convention of the Foundation for Economic Education.
"I love this place," said Harry Browne, twice Libertarian Party candidate for president. "People are so relaxed. And so friendly. It also illustrates what the free market…and man’s imagination…can accomplish."
Your editor was not sure. He was either impressed. Or appalled.
But he was not there to pass judgment. He was there to give a speech…and found himself with hecklers even before he opened his mouth.
"Look, if you’re going to say something anti-American," said a man as the audience collected, "we don’t want to hear it."
But Mark had asked me to speak. The other speakers – one after another – celebrated the virtues of liberty and the remarkable country it had produced. How could I resist?
"I stand before you a heretic," I told the audience. "I have nothing against liberty…or against America itself. But, both are like Las Vegas hookers – overbought…and under-appreciated. Their virtues have been corrupted for the sake of convenience." Excerpts from my speech, reconstructed from memory and improved, follow:
"Liberty is certainly a worthy ideal. Like honesty and integrity, it is something we should strive for. But it is not everything. It doesn’t explain why people do what they do. Nor is it even what people really want.
"Freedom needs to be nourished from time to time with the blood of patriots, they say. But perhaps some other body fluids might help from time to time – gall, bile, sweat and tears. And whatever goo greases the synapses of the brain.
"The point I am reaching for is that ‘liberty’ can be a slippery concept. It can have a very simple meaning and simple application…or it can get stretched into a grotesque shape and used to justify things that make people less free. It is typical of bull market tops that people do not think critically. They accept whatever they are told…whatever they want to hear…whatever makes them believe that the good times will continue for ever.
"There has been a bull market in American power and wealth for the last 226 years…with a major rally since the end of the Carter Administration. People seem to have lost the capacity of skeptical reflection. They will get it back, I predict, but not before a lot of body fluids have been expended. Because a kind of madness often takes over when you come near a major top. It has to run its course…it has to exhaust itself… destroy itself…before it finally comes to an end.
"When the twin towers of the World Trade Center went down, the flags went up all across the land. ‘Proud to be an American’ banners unfurled everywhere. But what were Americans so proud of? Is what we see better? Is what we eat better? Are we better people?"
"Well, we’re the richest people on Earth," my heckler had said to me as if that settled the matter… Of course, it all depends on how you measure it, I told him. But even if it were true, what does it prove? Is wealth all that matters?
"H.L. Mencken summed up the simple spirit of liberty in America when he translated the Declaration of Independence into the unadorned American language. I will read a passage for you:
‘First, you and me is as good as anybody else, and maybe a damn sight better; second, nobody ain’t got no right to take away none of our rights; third, every man has got a right to live, to come and go as he pleases, and to have a good time however he likes, so long as he don’t interfere with nobody else. That any government that don’t give a man these rights ain’t worth a damn; also, people ought to choose the kind of government they want themselves, and nobody else ought to have no say in the matter…
…when things get so bad that a man ain’t hardly got no rights at all no more, you might almost call him a slave, then everybody ought to get together and throw the grafters out, and put in new ones who won’t carry on so high and steal so much, and then watch them…’
"Certainly, liberty may have been the idea foremost in the minds of the patriots who set up the republic. America never was a nation – for we are a diverse people, with different customs, languages, religion, history. Genetically, individual Americans are closer to their European, Asian or African relatives than they are to other Americans. The only thing that unified the country was the idea of liberty – that anyone could come and make a new start, so long as he was willing to work.
"But while the simple liberty may have been the idea behind the country…it was not necessarily the idea in front of it. A lot can happen in 226 years. And a lot has. Flying from Baltimore yesterday, I stood in line for an hour…and then was ordered to partially undress. I was checked out so thoroughly I thought I should cancel my annual medical examination. My shoes were removed and run through a special shoe scanner! (Of course, I can’t tell you how many people have wanted to hijack a commercial airliner with a pair of loafers. I know I have.) But all this was done in the name of protecting our liberty.
"Adolf Hitler probably reached a episodical bull market top of his power when he invaded Russia on June 22nd, 1941. He didn’t say he was trying to enslave the Russians and kill the Jews. Instead, he said he was promoting the cause of liberty! Stalin fought back with the same rhetoric – claiming that he was fighting to protect the liberty of Mother Russia. It was hard to tell which was the bigger lie. In neither country were citizens free to do what they wanted. In Russia, particularly, they were almost completely enslaved already.
"But the habit of using ‘liberty’ to describe acts of terror, barbarism and war was already well established in the world. At Gettysburg, Abraham Lincoln described his war against the southern states as a war to ensure that a "nation conceived in liberty…shall not perish." Nobody laughed. Americans had already lost their sense of humor…and their liberty.
"Recently, I read in the International Herald Tribune that geopolitical thinkers are becoming comfortable with describing America as an ’empire.’ America is more powerful compared to the rest of the world than even ancient Rome was. We have bases all over the world and routinely meddle in almost everyone’s business. Why not just own up to the fact that we’ve become an empire?
"But with agents all over the planet, supposedly looking out for ‘America’s interests,’ there’s bound to be trouble. And little by little, the freedom of individual Americans gives way to the security needs of the empire. And so we all stand in line, like sheep, getting our penny-loafers examined…and not saying a word in protest. ‘Inappropriate comments are illegal’ says a sign in the airport. But, in the name of liberty, what isn’t?"
To be continued…
May 07, 2002 — Paris, France
P.S. Tocqueville thought American liberty improved the morals of its people. A Frenchman, he was surprised – and perhaps disappointed – to find American women reluctant to cheat on their husbands. He ascribed the virtue to exhaustion. Americans worked so hard they had no energy left for fooling around, he thought. But times change…
Leaving the Venetian, I ran a gauntlet of leafleteers. Taking the handouts just to be sociable, your editor discovered they were pornographic. He examined them carefully – with an eye to plumbing the depths of depravity in Las Vegas. A pair of twins promised to "Double Your Fun" by visiting your hotel room – "within 20 minutes." A pregnant "bored housewife" pledged to shed whatever rag of decency she had left – again, in the privacy of your hotel room. And, for those who weren’t quite sure what they wanted, a "trans-gender" person claimed to be "fully equipped" to satisfy whatever disgustingly perverse ambition you may closet.
Stocks got hammered yesterday in the final hour of trading. (Eric has more details…below). But gold stocks rose, even as the price of gold itself fell a buck. The Gold Bug index rose 2%.
Almost everything else went down.
IBM fell 7% to $76. Microsoft dropped below its September low to $30.97. GE came close to its Sept. low at $30.37.
But, hey, even those prices could turn out to be generous.
The Nasdaq has lost 70% of its value from its all-time high. Overall, stocks have gone nowhere for 3 years. And so far, it looks like this could be the third losing year in a row – something that hasn’t happened since before WWII.
Our guess: stocks are going down…and have a lot farther to go. Bullish sentiment – a legacy of the great bull market of ’82-2000 – and easy money from the Fed have kept the market from fully correcting. But the longer this bullishness persists…the more money investors will lose.
Eric…what do you think?
Eric Fry, the Daily Reckoning’s man on Wall Street:
– Lacking a good excuse to buy overpriced stocks yesterday, investors decided not to buy them – at least not as eagerly as they sold them. Unfortunately, good excuses to SELL stocks are not in short supply. A few that come to mind immediately are: falling corporate profits, rising unemployment, a falling dollar, and rising evidence of Wall Street corruption.
– So the sellers held sway yesterday as the Dow cascaded nearly 200 points to 9,808. The Nasdaq fared even worse – as usual – by tumbling more than 2% to 1,578. The Nasdaq, which touched a new 7-month low yesterday, is rapidly approaching its post-9/11 nadir of 1,387.
– Abby Joseph Cohen assures us that stocks are heading higher, not lower. But the market couldn’t care less. It listens to Ms. Cohen like a teenager listens to parents.
– Maybe the market is, instead, listening to Warren Buffett – the legendary investment-expert-turned- national-security-advisor – and is frightened by what it hears. At the Berkshire Hathaway annual meeting last weekend, Mr. Buffett unnerved investors a bit with a prediction that the United States would be "nuked"…sometime.
– "Amid the reunions and the investment chatter marking Berkshire Hathaway shareholders’ annual pilgrimage to the nation’s heartland," writes Igor Greenwald of Smartmoney.com, "Berkshire Chairman Warren Buffett delivered an apocalyptic warning about a nuclear or biological terrorist attack on U.S. soil, with New York and Washington the likeliest targets."
– "It will happen," Buffett said. "Whether it will happen in 10 years or 10 minutes, or 50 years…it’s virtually a certainty." Thank you, Warren, for these very interesting and thought-provoking remarks. Would anyone else like to venture an entirely unknowable and outlandish guess about the future?
– The Oracle of Omaha’s "incendiary" remarks caused no visible harm to the stock market. But stocks are suffering plenty of harm from the corrosive effects of "de-mythologization."…Huh?
– De-mythologizing is simply the process of eliminating myths. And in the case of the richly priced US stock market, "myth-removal" is not a bullish process. The downbeat economic news that has been crossing the wires lately is chipping away at the economic myths that support the stock market’s towering valuations.
– Without myths like: "Greenspan is in control" or "stocks gain about 20% per year" or "the dollar is strong" or "the tech sector is recovering" or "dividends don’t matter" or "Wall Street research is basically honest," there is very little left to support the market’s colossal valuations.
– Intel CEO Craig Barrett knocked a couple of chinks out of the "recovering tech sector myth" on Monday when he told reporters in Taiwan, "I know we’ve seen relatively strong announcements of GDP growth in the United States, but as far as I can tell, that hasn’t translated into corporate profitability or corporate IT investment growth…I don’t think you’re going to see any substantial uptick in the industry until corporate profits increase," Barrett said. "I wish I had something better to tell you."
– Meanwhile, the "honest Wall Street research" myth is under assault – deservedly – on several fronts. "Wall Street’s Masters of the Universe have slithered to the status of miscreants," says Crain’s. "[And] furious investors are lining up for revenge – and cash."
– Baseball may have been a perfectly adequate national pastime up to this point. But it’s not nearly as thrilling as the new national pastime: "Sue your broker." This new game is catching on very quickly. "I’m hearing from people all over the country who want to file arbitrations," says Jacob Zamansky, a Manhattan- based lawyer who won a $400,000 settlement for a client who claimed to have been misled by Merrill Lynch analyst Henry Blodget.
– According to the NASD, the number of arbitration cases filed so far in 2002 has increased 17% over last year. Even more troubling for Wall Street, investors have won 60% of all arbitrations brought against brokerage firms this year, compared to only 53% in 2001.
– "It is getting easier to win suits against Wall Street because the perception of Wall Street is changing," says Mr. Zamansky. "The perception used to be of trust and integrity, and that has been eroded…"
– Distrust is the new perception…and that’s reason enough for most folks to lighten up on stocks.
Back in Paris…
*** Compensation in the tech industry is down for the first time in 5 years. The average information industry manager earned $89,000 last year, down from $97,000 the year before. Workers did even worse, with incomes down to $63,000 from $71,000 in the previous year.
*** And along comes N.Y. University economist, Edward Wolf, with even more discouraging news. Retirement wealth for people between 47 and 64 years old shrank 11% between ’83 and ’98. The biggest boom in history shrank the average net worth of near-retirees from $133,700 in ’83 down to $110,400 in ’98.
*** Almost 20% of 47-plus year-olds anticipating retirement will have incomes below the poverty line, says Wolf. Currently, only 10% of retirees are poor. What went wrong? People didn’t save. Traditional pensions gave way to 401-k plans, which allowed people to cut back on their retirement contributions. And the bull market on Wall Street encouraged them to think that they didn’t need to make economies.
*** Wolf’s study ended with ’98. Surely, the numbers are much worse today. Eighty percent of baby boomers say they intend to keep working past retirement age, because they need the money.
*** "There is no question that the dollar will remain strong in spite of the huge trade deficit," says my old friend, John Dessauer. "If all we have been through – from a tech bubble to terrorist attacks and Enron – has not brought the dollar down, then the dollar will remain strong." Well, it will remain strong…until it turns weak. Here at the Daily Reckoning, we think America… and its dollar…are overbought. More below.
*** John Mauldin suggests a corollary to our definition of momentum investing. "A trend-following system," he says, is "a successful system that has not yet blown up."