Over the Top

The holiday season is a perfect time to see American over-consumption in all it’s glory…and as Bill Bonner points out in this DR Classique that was first published on Christmas Eve of 2004, American culture is all about exaggeration…

"You Americans tend to go overboard at Christmas…" -Anonymous

Each year, just before Christmas bonuses are handed out, we draw together our employees in Baltimore for a company meeting. Your editor gives a little speech, trying to sound much more like Fezziwig than Scrooge. Here, we share extracts of it with you, dear reader:

The purpose of this little address is merely to remind ourselves what business we are in and to take a moment to appreciate all those people who have worked hard over the last 12 months not to blow it up. We are not a publicly traded company, so we cannot rely on the naïveté of stock buyers…nor the connivance of Wall Street for our daily bread. Instead, every slice must come from customers. It is them we thank for every slice of whole wheat or rye…every bit of fruitcake we eat during this Christmas season…and every glass of punch we drink at tonight’s Christmas party.

Thanks to our customers [that’s you, dear reader] we are able to buy Ravens’ tickets…make our mortgage payments…and send our children to school with shoes on their feet, probably in that order. And because customers have been so ready to open their purses, we’re able to rock and roll tonight down at the Belvedere Hotel tonight…rather than at, say, St. Alphonso’s church hall.

The Unthinking: Happy Holidays

So let us first take a moment to think of the people who pay our salaries and bar tabs…let us wish them all a happy holiday along with all the joys this wonderful old world offers.

And now, we turn back to us …to our company…and what we have wrought.

First, we must clear up a misunderstanding. We heard a rumor the other day that our company had made an extraordinary amount of money this year. Fifty million dollars was the number we heard. It recalls the story of the Texas oilman who made $1 million from a single well outside of Dallas. The man in question heard the story and turned to his friend:

"Well," he said, "it wasn’t really an oil well…it was natural gas. And it wasn’t really outside of Dallas; it was outside of Houston. And it wasn’t really a million dollars; it was two million. And it wasn’t really me; it was my brother. And he didn’t really make it; he lost it."

When we heard how much money we were alleged to have made, we were shocked. ‘I hope my wife doesn’t find out about this,’ I said to someone in the accounting department. ‘Don’t worry,’ he said, ‘she already thinks you make more than that.’

Stories tend to get a little exaggerated and twisted in the retelling.

But we have had a very good year. We made money; probably more than we deserved. But there is a time and a season for everything. For many, many years we made less than we thought we deserved. Everything tends to balance out in the long run.

Our publishing business is very healthy financially. We began business 26 years ago. And we never borrowed a dime from anyone. This was not because we were especially smart or especially prudent; it was just because there was never a lender around who was dumb enough to lend us money. Nor did we ever really take much profit out of the business. Again, this is not so much a mark of virtue as of incompetence; for many, many years we never made any profit. So, not taking it out was fairly easy…and became a habit. Even now, when we are profitable…we distribute very little money to shareholders. Instead, it is reinvested in the business.

So, today, we find ourselves debt free…well…almost.

You see, we’re in the publishing business. And there’s a peculiar feature of the tax code that allows publishers to push forward their tax liability – as long as they’re expanding. This made it possible for us to operate for nearly a quarter of a century without paying tax on profits. But eventually it catches up with you. We knew it would. So we’ve been putting aside some money each year. And thanks to this year’s profitability, we’ve finally been able to put away enough money so that we can settle up with the IRS. So despite what you hear about us making record amounts of money – which is true – if we were to close our doors tomorrow, we would still barely have enough money to pay off the government. So you see, dear reader, making money is not nearly as easy as people think.

The Unthinking: Hyperbole Made Easy

But people love to exaggerate. And no one loves hyperbole more than we do…here at The Daily Reckoning. In fact, people often criticize us for saying things that are `over the top.’ Kiplinger magazine, for example, accuses us of overdoing it in the current issue. ‘Hyperbole made easy,’ is the title. Above the title is the date: January 2005.

We don’t know, but the last time we looked, it was still December of 2004. Kiplinger didn’t seem to notice that it, too, stretches the boring truth – clear into the next calendar year! Nothing wrong with that, as far as we’re concerned. Hyperbole is what distinguishes America from other countries; it is what makes us what we are. Everything about the place is oversized. The cars, the houses, the people…and the country itself. Practically every movie, every shopping mall, every great American novel, every popular song…even the wide open spaces are a form or hyperbole. Look at what drives down the streets. Is not the Hummer a superb example of exaggeration? Look at Pamela Anderson!

Americans love hyperbole. British humor may be based on understatement. But American humor is based on over-statement…exaggeration…hyperbole. ‘My wife was so fat she got stuck in the Holland Tunnel’…or…’He was so short he had to stand on tippy-toes to kiss a duck’s derriere.’

But Americans, of course, are no greater fools than anyone else. They like hyperbole because it provides insights that would be lost the dull details of daily life. Amid the constant background noise of TV news and cocktail chatter, the boom of hyperbole wakes us up…and brings to life the nuances…the curiosities…and the absurdities of the world we live in.

"Words must be a little wild," said the great economist John Maynard Keynes, "for they are the assault of thoughts on the unthinking."

The Unthinking: Taking Aim at the Unthinking

At The Daily Reckoning we take aim at the unthinking every day. We can’t help but notice that much of what passes for conventional, reasonable and moderate – the kind of things you would find in a Kiplinger headline, for example – is really even more absurd than the `over the top’ palaver of its critics. What’s more, the hyperboles do not get you into trouble, it’s the exaggerations and absurdities that you don’t even notice.

The man on the street – the prototypical Kiplinger reader – believes he can make money by just buying stocks `for the long haul.’ He thinks his house will make him rich. That he can `get something for nothing’ is not merely an idea – but the basis of his retirement program! A falling dollar? Don’t worry about it! Record deficits? They’ll work themselves out somehow.

Yet, none of these preposterous ideas is thought to be `over the top.’

The expression `over the top’ was used in WWI. Then, it was considered perfectly reasonable – indeed, it was the conventional wisdom – that a man would leave his trench, going `over the top’, and walk across open ground while other men tried to kill him, usually successfully. No one knew exactly what the point of it was…but at the time, almost everyone agreed; it was the thing to do. Kiplinger might have put it on a cover: `Get Your Butt Shot to Hell in No Man’s Land’… and considered it very reasonable, moderate and responsible journalism.

The trouble is, you cannot always tell what’s `over the top’ and what’s not – until you’re lying dead.

Years ago, we took up the issue in London. We went to visit the financial regulators in that city – England’s equivalent of our SEC. They had a rule against used hyperbole or fear in financial advertising. We wanted to find out what they meant by it.

So we posed the question:

"What if we wrote a prediction: The world will soon enter its worst war ever. Twenty million people will die. Almost all the major governments of Europe will fall. Our country will be bankrupted. Our currency will be ruined…

"What if we wrote that in 1913?" we continued.

The regulator squirmed in his chair. He did not know what to say. He was a smart man. He knew that it would have been almost impossible to exaggerate the horror of what was to come in 1914. No `fear’ tapped out on a mangy journalist’s typewriter could come close to the real fear that was soon to be felt by the millions of young British men who would have to go `over the top’ into the maul of modern war. And no sorrow conjured up by a gifted imagination could match the real grief of millions of keening widows and orphans. Hyperbole and fear are not fixed stars upon which a man can steer…but inconstant moons that wax and wan according to the circumstances.

That is the trouble with hyperbole, dear reader, it is never reaches the scale of real life. And that is the trouble with real life, it refuses to confine itself to our hyperboles.

But it is Christmas. It is time to go overboard again. And enjoy it.


Bill Bonner
The Daily Reckoning

December 23, 2005 — Rancho San Jose de los Perros, Nicaragua

Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of The Wall Street Journal best seller Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley & Sons).

Why are some people rich and others poor?

Ask us something harder. People get rich by working hard and saving their money!

Yesterday, we watched a group of Nicaraguans dig a trench…and then another group plant trees. They labored in the hot sun. We didn’t see them stop for lunch. No ‘chuck wagon’ came to slake their thirst. No smoke breaks were noticed. They stopped from time to time, waiting for instruction. Otherwise, they kept at it until the job was finished. The tree planters didn’t finish until well after nightfall. They had to pull up their trucks and turn on the headlights in order to see what they were doing.

If people got rich by working hard, these people ought to be filthy rich. Instead, the crew we watched labored all day for $5 each. Likewise, if saving money alone were the key to wealth, you’d think the Chinese – who put away more than 25% of everything they earn – would be the world’s richest people. Instead, they are among the world’s poorest.

There must be more to it.

There was a time when Americans and Englishmen worked for $5 a day…and when they probably saved 25% of what they earned. (Americans saved nearly 10% as recently as 20 years ago.)

Then, cheap energy and cheap machines took over the hard work…and allowed a simple factory worker to produce 10 times as much as he had before. He could now earn $50 a day and afford a new automobile and a house with air conditioning.

But then, the world that had turned so favorably in his direction turned again. Globalization meant that his employer could go to someone in Nicaragua or China and get an employee in 2005 at 1905 prices! Factories and cheap machines worked just as well on the banks of the Wazu as they did on the banks of the Hudson. And now the poor American drudge has to struggle to make any headway; his real hourly wages haven’t gone up much for 30 years. That doesn’t mean he’s worse off. He benefits from the lower prices globalization brings. And he goes further into debt to be able to buy even more.

Meanwhile, his old employer is doing fine. The company saves on labor costs. It may even be one of these ‘platform’ companies – outsourcing its factory work and labor costs overseas. Typically, a company has to pay its employees…and gets the money back when the workers buy things. But now the workers buy things with cash the employers never paid out. Instead, workers buy with credit…and the employer’s profit goes up (because he has no offsetting labor cost).

It is almost too wonderful… The employee gets a better standard of living without actually earning more money…and the employer gets higher profits without having to make anything.

Have Americans discovered some new way to wealth? Without hard work…or hard money…or hard savings? Or are they just enjoying an illusion of late empire…before the cheap energy runs out…and the barbarians break down the gates?

We will see…

Meanwhile, here’s the news, from our team at The Rude Awakening…


Eric Fry, reporting from Wall Street:

"…short-selling is guerilla warfare. And if you understand how to fight a short-seller’s war, you will become very well-equipped to win at the relatively peaceful activity of long-side investing."


Bill Bonner, with more views…

*** As we move into the holiday weekend, you might want to keep in mind that there’s only one week left in the final membership drive for the Agora Financial Reserve. If you like our financial research and recommendations, the Reserve is a great way to save a lot of money and ensure that you don’t miss a beat. But this drive is only open until the beginning of ’06.

*** The price of gold shot back up over $500 yesterday…oh, what to do…what to do? We believe it will go above $1,000…probably above $2,000 before this bull market is over. But will it dip down to hit our $475 buying target first? Maybe.

*** "Gold is starting to attract a lot of interesting fans," Addison writes. "When we started The Daily Reckoning, gold was trading at $253 – near its 20-year lows. Nobody wanted to talk about it except for a few masochists who’d been holding the barbarous relic in their portfolios since the early 80s. But this week we were getting questions from all kinds of unlikely characters…

"Last night, I did an interview with Business Connection on Maryland Public Television. (It was cool. The show inherited the set from Louis Ruykeyser’s Wall Street Week) Apart from the ballooning federal debt, the host’s primary interest was in gold and what the surge above $500 signified for the economy.

"The lefty magazine Mother Jones also requested an interview. Although the woman asking questions got confused when I tried to explain that there’s a difference between the trade deficit and the budget deficit and that federal debt did not go away in the Clinton years, she too was all fired up about the rising price of gold.

"And a web radio show called Open Grove was asking questions, too. Open Grove was founded by a psychotherapist who has recently taken a sabbatical in order to pursue ‘life coaching’. She was mostly interested in the psychological effects of being burdened with personal debt, but asked a lot of questions about gold and the gold standard. I don’t know if they’ll make it into the broadcast, but she seemed to know her stuff when it came to gold’s role in enforcing fiscal responsibility on governments.

"In all, I’m not sure what all this interest signifies, but it sure makes the contrarian in me nervous."

*** "Follow the money," writes an analyst with Brown Advisors. The money in retail tracked the baby boomers, he said. But now there’s a new group retailers are eyeing: Hispanics. There are 41 million of them in the United States – one in seven people. One in ten households speak Spanish at home. And this group is young and growing at four times the rate of the rest of the population.

*** We have gathered the family together here in Nicaragua for our Christmas vacation. We have come because we believe in living dangerously. No, there is nothing dangerous about being in Nicaragua…it is as safe as any place. What is dangerous is being with the whole family.

A man with a large family cannot be a Democrat. Or a world-improver. He has seen too many things go wrong…he had heard too many different opinions…too many complaints. He has seen emotions flare up too often for too many reasons that he cannot possibly fathom. He knows that half of what is said or thought is not what was meant…or has a meaning too obscure to see clearly…or one buried so deep he will never get to the bottom of it. He has seen optimism and pessimism…bright euphoria and the darkest gloom…rise like swamp gas… from the very same set of facts…and flourish in the very same heart, mind and soul…of the very same person on the very same day! He has spent too many hours explaining why 2 plus 2 equals 4…only to have it thrown back in his face as 5…and then proven right!

He has tried to patch up too many broken hearts and broken heads…pretending that he is a doctor or a psychologist or an engineer or a levelheaded human being… while knowing full well that he is an imposter. In short, he has to pretend to be what he is not – a tower of strength and knowledge. And finally…he actually has to come to think he knows something (for how else could he find the strength to keep going…or find a direction to keep going to?)…and that is where he completely takes leave of his senses. For he comes to think he knows what he is doing at the very moment when he is most out his depths. Like a non-swimmer who wanders too far into the ocean and suddenly realizes he cannot touch bottom…he panics. But what good does it do? There is no lifeguard on duty in family matters. It is sink or swim all the time and he knows it.

Poor pater familias…he must be a cynic and a believer at the same time. He must be a liar and a fool…pretending he knows everything while knowing that he knows nothing. He must comfort, console, lead, direct, prod, and bully…while remembering that he had no idea what he is doing or why. In short, he must be mad.

The Daily Reckoning