Ordinary Men

"What’s difficult is not to think (rationally), but to see, to hear, and to feel."
Albert Durer

"Crucify him! Crucify him!"

"The mob in front of Pontius Pilate wanted blood," explained the visiting priest at St. Marcel, "Not just any blood. It wanted the blood of Jesus of Nazareth… the ‘king of the Jews.’"

"What crime has he committed," Pilate asked. But the crowd cared little for legal procedure. "Let the deed be on our heads…" they said, giving Pilate a way out.

Any one of the group might have killed Jesus himself. The man walked among them, unarmed. But a man’s sense of fair play and common decency usually prevent him from making a real beast or fool of himself. For that, he needs a crowd.

Christopher Browning’s book, "Ordinary Men," tells the story of the 101st Reserve Police Battalion from Hamburg. The men were not especially cruel or stupid before WWII… nor after it. But when they were sent to help the Nazis exterminate European Jews in 1942, with few exceptions, they did things that no ordinary man would do – unless he had a reason.

We return to Browning’s book, one final time today.

Questioned after the war, the men of the 101st Police Battalion gave various explanations. They were just following orders was a favorite. They had been told that the Jews threatened their security… that Jews supported terrorists… that Jews were Bolsheviks.

Did the men of the police battalion hate the Jews they killed? Not especially. Why should they? They had never met them. Some had worked with Jews and respected them. One said he disapproved of the Nazi’s anti-Semitism. Why? It was bad for his business. He was a garden designer, he explained, and "because of the anti-Jewish measures at Hamburg, I had lost most of my clients."

A few of the soldiers must have realized that the extermination of the Jews actually hurt Germany’s war effort. Jews ran shops, businesses, machinery… without them, much of the local Polish economy collapsed – making it harder for Germany to sustain its war in the East against the Russians. What’s more, hundreds of trains, thousands of soldiers, and countless other resources – all of which were desperately needed on the Eastern Front – were diverted from the war effort to the effort to exterminate the Jews.

On his own, a man makes mistakes and suffers the consequences. If he makes a good investment, he gets his reward; a bad one punishes him. Even a small mistake at the wrong time, such as when he is driving down the highway or getting married, can be lethal… or worse. So, he goes about his business – rarely straying too far from what he can see and touch and understand – and he takes what the world gives him without much complaint.

You could tell him that his car would sprout wings and fly at the speed of sound, but he would take you for a lunatic. Or, you could tell him that his wife looks like Carmen Diaz – but he would know you were a liar. He’s too close to the subject matter. (Just last night his sleep was disturbed by a bad dream… in which he was sharing a bed with a rhinoceros in a negligee!)

Even in close quarters, of course, people fall into error; a small town might welcome the arrival of a new retiree from Wall Street. Believing him a very rich fellow, the town’s bars might put his drinks on a tab… the banker might give him an extravagant loan. Even the green grocer might deliver his tomatoes and cucumbers on credit. Thus, might the entire little burg experience a sort of boom – with all its merchants selling their most valuable inventory at the most aggressive prices.

But before long someone’s sister would send an email from New York, informing the rubes that the man they had taken for such a lion of the New Economy was actually a shark of the Old School. Soon, they’d discover that they’d been stiffed and the town’s boomlet would end in tears and recriminations..

But the wonders of modern macro-economics – and the mysteries of modern central banking – seem to change everything. U.S. consumers are believed to be so rich that the world is willing to extend them an infinite amount of credit. For years, they’ve bought far more than they needed with money they didn’t have. The current account deficit – a measure of how much more America buys from overseas than it sells – reaches up towards 6% of GDP. Now, say the papers, the economy of the entire world depends on U.S. consumers. Foreign industries can’t afford to stop selling to Americans; therefore, foreigners can’t afford to stop giving Americans credit! The U.S. economy, we are told, is too big to fail.

That is the great charm of big, abstract ideas, dear reader. They allow us to indulge any emotion we feel – greed, fear, envy, cruelty… you name it – and think it reasonable.

Give a man a big idea – a New Era, a Master Race, a Domino Theory – then put a throng of morons at his back, and he’ll do almost anything. You can dress him up in a business suit or a military uniform. You can put bullets, ballots, or a day-trading terminal in his hands; there is practically no way to anticipate the mischief he’ll get up to.

Only a few people seem able to resist. Many German soldiers, told to shoot women and children, were reluctant to do so. A very few refused to take part. Others were so sickened by the experience that they couldn’t continue. One reported that he wandered into the woods, threw up and sat down and cried. Others said they pretended to shoot – but intentionally missed their targets. Most did their duty. They reported that they would have been considered derelict or cowardly, had they not taken part. They would have ‘lost face’ or been thought ‘weaklings,’ they said.

Others invented peculiar logic to justify their abominations. One shot small children because "they wouldn’t be able to survive without their mothers." Good thinking.

Until tomorrow,

Bill Bonner
March 26, 2002 — Madrid, Spain

I’m in Madrid – and a little out of touch – so we go directly to Eric’s report from Wall Street…

Eric Fry in New York…

– Does Mr. Market read the Daily Reckoning? He acts like he might. Yesterday we noted (not for the first time) that stocks are richly priced. Mr. Market responded almost immediately by trimming down his corpulent valuation by about 1 and a half percent. The Dow shed 146 points to 10,281, while the Nasdaq tumbled 38 points to 1,812.

– Any honest discussion about richly valued stocks cannot ignore the richly valued gold stocks. These things have been on a tear lately. Year-to-date, the XAU Index of gold and silver stocks has jumped more than 30%.

– Yesterday, several gold stocks performed particularly well. Anglogold, recommended last summer by Dan Denning’s Strategic Investments, bounced almost 6%. ASA, another of Dan’s recommendations, soared almost 8%.

– Dan’s colleague, John Myers is also enjoying the recent gold action, thanks to the numerous gold stocks he has recommended in Oustanding Investments and to the gold call option he recently recommended to the subscribers of his Resource Trader Alert.

– Naturally, both Dan and John are happy to take whatever Mr. Market throws their way. But what should we investors make of the breathtaking performance of gold stocks? Are the gold shares – like Lassie – trying to tell us something? Is Timmy trapped in the mine, or is the dollar about to implode? Or, are the gold shares becoming a bubble-within-a-bubble?

– It’s hard to say exactly what’s going on here. But it is certainly intriguing that the very same stocks that have been struggling to get out of bed every morning for the last 20 years are now full of vim and vigor.

– Even though gold has tacked on less than 10% over the last few months, numerous gold shares have rallied 80% to 100%.

– The universe of gold stocks is notoriously petite. Their total combined market cap is probably no more than $35 billion – or about 1/10 the size of GE. So a little buying goes a long way toward boosting prices. On the flipside, a little selling could produce an equally exaggerated effect on the downside.

– Over in the housing market, a little less buying took place in February than in January… seasonally adjusted, as always. Existing home sales fell 2.8% last month. Although the number was "better than forecast," it nevertheless trailed behind January’s "blistering" pace. Ironically, without the benefit of seasonal adjustments, January’s existing home sales weren’t so hot. If you take away those handy adjustments, January’s 16.2% gain becomes a 16.8% DECLINE.

– But since that troubling fact does not support the robust-recovery theory, it has received scant attention. The truth will out, however. It is much easier to hide an elephant than to conceal the signs of a tapped-out American consumer.

– Yesterday, for example, the shares of sub-prime credit card lender, Metris Corp. collapsed 23%, when word got out that a growing number of its customers are failing to pay their credit card bills on time, if at all.

– The company’s annual report for 2001, known as the 10-K, detailed rising delinquency rates among its customers. Card balances also rose, suggesting that Metris’ struggling customers might be sinking even deeper into a debt trap.

– Isn’t it interesting that in this new era of honest and transparent corporate reporting, Metris did not disclose the adverse credit trends among its customers until absolutely forced to do so? By SEC edict, the company must divulge such information every year in its 10-K before March 31st. Surely Metris management knew by the end of last year that it’s delinquency rates were rising. Even so, it said nothing.

– Metris’ credit woes are hardly unique, however.

– "Trends in consumer loan performance continued to deteriorate in the December 2001 [quarter]," writes Moody’s Investor Service. "Both the late payment rate (the delinquency rate) and bad loan write-off rate (the charge-off rate) rose from year-earlier levels. The delinquency rate rose to its highest level since February 1998… This increase marks the 13th consecutive month that the delinquency rate rose over year-earlier rates."

– Americans may have mastered the art of spending money they don’t actually have, but that doesn’t mean that they can do it forever.

– Stephen S. Roach, the Morgan Stanley economist who doesn’t think like other economists, observes, "Never before have consumers spent with such abandon during a recession… Moreover, fully 86% of last quarter’s consumption burst is traceable to a 39% annualized spike in the durable-goods category – mainly big-ticket items such as motor vehicles, furniture and appliances that are purchased infrequently. To the extent that such spending was compressed into the final period of last year by some extraordinary post-Sept. 11 price incentives, there is good reason to believe that the sales were borrowed from gains that would have otherwise occurred in 2002."

– Would it be so surprising if consumers have run out of gas for the time being?

– However reasonable such a thought might be, if consumers don’t spend, companies won’t earn. And if companies don’t earn, stocks are quite pricey indeed.

Back in Madrid…

*** Here’s a little item from the International Herald Tribune. Lloyd’s List, a stodgy British publications that serves the shipping industry, has decided to launch a new era of its own. The English language – and the custom of thousands of years – was not good enough for the Lloyds folks. They decided to cease referring to ships as "she." Henceforth, they’ll be "it."

*** International Living has named Panama the world’s #1 retirement haven. It’s also an offshore money haven – with a huge trust company and private banking sector. I mention this because my friends over at The Sovereign Society have organized a conference in Panama City for this May.

*** Edward recited his poem on Friday evening to a crowd of parents. He made no mistakes but spoke so quickly I couldn’t understand what he was saying.

On Sunday, it was Henry’s turn to take center stage, in the ancient stone church of Lathus. "Even if you make a mistake," his older sister had coached him, "don’t stop… just keep going." Henry is usually unflappable in public, but once the seed was planted in the 11-year- old’s mind, it seemed to take route. Henry began his Palm Sunday solo… then stumbled on the words. Rather than continue, he stopped and started over. When he recovered, though, his voice was strong, clear and – remarkably – on-key.

*** Today is Elizabeth’s birthday.

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