Making A Difference

“These students have a big advantage,” began the worst commencement address I have ever heard. “They are graduating from a school in which multi-culturalism was not just an ideal, but a fact of life.”

The speaker was the dean of a Paris-based business school – a woman of middle-age, average looks, normal height and sub-par wit. She proceeded to tell Sophia and her classmates that they needed to go on to the next stage of their educations…by moving on to college or perhaps taking a year off to “help install a water pump in the Amazon or work for an activist organization that is protecting the environment…”

“You will want to continue your education. Because you need to know how the world works.”

There is a place for simplemindedness, dear reader. A general does not want his soldiers contemplating the futility of existence when they are supposed to be launching a mad cavalry charge. Nor does a brokerage house want the young men and women manning the telephones to begin asking themselves too many serious questions.

And people who want to buy Microsoft at 40 times earnings or the Nasdaq at a 150 P/E multiple don’t want to think too seriously about either the theory nor experience of stock market investing. It would only make them worry.

But school seems like the sort of place one might want to examine platitudes, rather than toss them around like spare change.

Among the many unproven assumptions of the modern era is the notion that formal education pays off. Poor people are always said to need “better education.” And few people are curmudgeonly enough to admit that they think schooling is a waste of time.

Education is widely thought to be the key that unlocks a better world. It “awakens the natural curiosity of the young – and makes them eager to learn,” people say.

And yet, here before us, delivering the commencement address was a woman whose natural curiosity seemed to have gone to sleep years ago. Was it a casualty of a life spent in school?

I watched the graduates’ eyes. Could any of them change a tire, let alone install a water pump? What did they think of spending another 4 years in some pedagogical gulag?

One young man stared at the ceiling. He was a big hulk of a boy with the face of a Russian playwright and the body of a nightclub bouncer.

“A strong back is a terrible thing to waste,” I thought to myself as I saw him in his cap and gown.

I looked up and discovered what he was gazing at. In keeping with the chinoiserie motif of the woodwork, there were remarkable scenes of idealized Chinese life painted on the ceiling, such as you might find in a mid-priced eatery in Chinatown. One, the one that seemed to get the young man’s attention, showed a beautiful woman, naked, sitting on a man’s lap.

A few eyes rolled. Most were blank – as if they paid no attention. And a few shined with the earnest sincerity of dim poets and complete idiots.

Sophia’s school – the Ecole Actif Bilingue on Avenue Victor Hugo – must be one of the world’s most unusual high schools. It is a small place with a collection of students that looked like a version of the United Nations without expense accounts. The commencement ceremony included speeches in English, and others in French. When some of the students spoke, I couldn’t tell which language they were speaking.

The biggest single contingent of the student body was a group of Asians. One by one they were called up – a fair number of them receiving their degrees, “with honors”.

There were a few Americans, several misfit French children, some of them with discipline problems who had been kicked out of the French system, and a collection of people whose provenance was unclear and perhaps, unknown.

The business school speaker had a point. Sophia had an advantage. She and her classmates had an opportunity to figure out the entire world’s peoples even before leaving high school.

“The Asians work very hard,” one of Sophia’s classmates explained. “They’re the only ones to get good grades. But they stick to themselves. Some of the Arabs are nice…but you can’t trust them. And nobody knows what’s going on with the Africans.”

“What about the Americans,” I asked.

“They’re mostly goof-offs…” came the answer.

I don’t know who I pity more. The students or the teachers. Both labor in the dungeons of the academic world – torturing each other while pretending to do something not merely useful, but indispensable.

But an even greater pretense comes at the end – when the students leave school and pretend to know something. What most students actually know – beyond the basics of reading, writing, and elementary math – is a great lot of nonsense, ideas and information that is unnecessary, irrelevant, wrong, or simply preposterous drivel. But this nonsense gets piled up around them, so high and so thick, that it fills their view of things.

Looking to the left they find claptrap about government, Rousseau’s noble savage cavorting in their mind’s eye with pilgrims of Plymouth Rock and the Democratic Platform of the Roosevelt Administration in 1948. To the right, lies the Labor Theory of Value, which – no one bothered to point out – is complete rubbish. But there it is, next to Keynesianism, monetarism and Greenspanism. Behind them, a stack of art appreciation classes is heaped up like an oeuvre at the Tate. It is labeled, ‘real art,’ not be confused with anything worth looking at.

No matter what direction they look they see only the detritus of a dozen years of expensive instruction.

And, in front of them all, ricked up so high it is impossible for any of them to see over it, lies a great pile of good intentions…a moral high ground, built atop the garbage of modern activism.

“With your international backgrounds,” continued the commencement’s main act, “you have all learned to be more tolerant of each other’s culture… And now, you have an opportunity to change the world. Each of you can make a difference.”

Why these kids, with their souped-up tolerance, would want to change the world is never questioned. But then, neither is anything else.

Each will, of course, make a difference. And each will change the world. But not necessarily in the way our speaker imagined.

But first, they have to climb out from under the piles of debris from their years in school and open their eyes. Then, they might actually see how the world works…or at least come to their own conclusions about it. And maybe they’ll decide to accept it as it is.

Your correspondent,

Bill Bonner
Paris, France
June 29, 2001

Henry Blodget is still being quoted by the financial media as if he knew what he was talking about. Blodget was quoted yesterday on the subject of an appeals court ruling in the Microsoft case. “It is an unexpected positive,” said the analyst, for whom almost all of life’s events must be unexpected. What a delightful life the former tout must have – in which every sunrise comes as a surprise and every sunset as a complete shock.

I say ‘former tout’ for good reason. Blodget is, of course, still extant. So are a few of the stocks he once loved so dearly. But as our intrepid eyes and ears on Wall Street, Eric Fry, reports: the two aren’t seeing much of each other any more.

“Now that the Internet bubble has imploded and millions of investors have lost billions of dollars,” Eric writes, “Wall Street’s brokerage firms have decided that enough is enough. Analysts like Merrill Lynch’s Henry Blodget will no longer issue ‘buy’ recommendations on Internet stocks like CMGI Inc, iVillage or E*Trade. In fact, Blodget will issue no recommendation of any kind on these three stocks because he has ‘discontinued coverage’ – broker-speak for ‘leaving the scene of the crime.'”

An appeals court ruled in favor of Microsoft yesterday – sending stocks racing upwards. By the close of business the Dow was up 131 points, the Nasdaq up 51. As I explained yesterday, res nolunt diu male administrari. (Things refuse to be mismanaged long.) Bill Gates is perfectly capable of mismanaging his own affairs – he doesn’t need the government’s help.

I’m going to let Eric do most of the writing this morning. I was up late last night – at Sophia’s high school graduation. More about that, below…


Eric Fry on Wall Street:

– The lead headline on Thursday’s’s “Money” page was, “Stocks Rally on Optimism.” The headlines immediately below read: “FedEx Bruised by Slowdown,” “Nokia Scales Back Workforce,” “Deere to Trim Staff,” “Wall Street Under the Knife” and “Firestone to Close Illinois Plant.” Hope, indeed, does spring eternal.

– Rate cuts won’t cure what ails this economy, Morgan Stanley strategist, Byron Wien tells USAToday. The biggest drag on the economy, Wien says, is the huge inventory pileup that is strangling profit growth at technology companies. “Just because you can borrow money cheaply, doesn’t mean you are going to buy more equipment if you’ve got a lot of idle capacity.”

– Besides, before borrowing more money, many companies and consumers will have to deal somehow with the money they’ve already borrowed. According to a Federal Deposit Insurance Corp report this week, the percentage of commercial loans falling more than 90 days past due rose to 1.8% – a seven- year high.

– Over the past year, total revolving consumer credit rose more than $75 billion, to $697 billion. The Federal Reserve reports that, at the end of April, Americans were $1.584 trillion in debt, a figure that excludes home mortgages.

– The number of New York City homeowners defaulting on Federal Housing Administration-backed home mortgages has surged nearly 30% in the past year. Between March 2000 and March 2001, the city’s 90-day default rate on mortgages guaranteed by the FHA rose to 10.08%, the highest in the country.

– Unlike the one investors experienced, last year was not so bad for the sellers of Internet stocks. According to Dealogic CommScan Inc, securities firms raked in more than $2 billion in underwriting fees in 1999 from selling Internet stocks, more than $1 billion last year and only $14 million this year.

– Investors fearful of being taken in by the next big bubble on Wall Street should note that the former Internet- stock analyst at Thomas Weisel Partners – a fellow named Tim Fogarty who, like Blodget, urged clients to buy stocks like and – has moved on to a different beat. “Last week,” Bloomberg News reports, “Fogerty began covering fuel-cell stocks, including FuelCell Energy Inc and Ballard Power Systems.” It’s probably just a coincidence. But investors prone to finding bubbles might want to steer clear of this group just the same.

– Would somebody please tell the people running the world’s largest computer manufacturers that the Fed Chairman is cutting interest rates? These people are apparently unaware that Mr. Greenspan’s interest rate cuts are resuscitating the economy. Just look at the price of the beleaguered computer chips known as DRAMs, which continues its relentless slide into a cyber-abyss. These chips, which in January cost a little more than $6.00 each, now sell for $2.00 apiece. Apparently, the buyers of DRAMs – computer makers – haven’t been told things are getting better.

– Assessing Greenspan’s rate-cutting extravaganza, The Blue Team’s Michael Belkin states matter-of-factly, “Experience has taught that the authorities will usually do whatever it takes to paper over the damage caused by the bursting of a speculative bubble – if for no other reason than to preserve their own legitimacy. While such intervention may ultimately fail, in the meantime it can make things uncomfortable for overly bearish financial journalists, portfolio managers and stock analysts.”

– There’s a little-understood and even less-appreciated issue lurking behind Nortel’s recent $19.2 billion quarterly loss, Business Week reports. “The biggest chunk of Nortel’s loss was a $12.3 billion write-down for acquisitions that are now nearly worthless. Many other companies are in the same boat, having made acquisitions over the past couple of years that have declined in value along with the stock market.”

– Is bad news from the telecom sector really “news?” Let’s just say that more “reports of dire predicament” issued from the telecom sector yesterday. Both Lucent and JDS Uniphase announced additional job cuts. So fatigued are the shareholders of these two erstwhile tech darlings that the shares barely budged on the “news.”

– The richly valued shares of 3M and Alcoa illustrate that unbridled optimism is alive and well outside of the tech- stock arena. “These cyclical stocks may be getting ahead of themselves, given the risks roiling around in Chairman Greenspan’s not-so-marvelous economy,” grants investor observes. “Even an already dubious V-shaped recovery may not be enough to fulfill heady expectations. And if any other letter of the alphabet shows up, these stocks could be in for a beating.”

Eric Fry

The Daily Reckoning