Over the Top

The Daily Reckoning PRESENTS: 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…read on…


“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.

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.

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.”

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 15, 2006

Editor’s Note: 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).

In Bonner and Wiggin’s follow-up book, Empire of Debt: The Rise of an Epic Financial Crisis, they wield their sardonic brand of humor to expose the nation for what it really is – an empire built on delusions. Daily Reckoning readers can buy their copy of Empire of Debt at a discount – just click on the link below:

Empire of Debt

Oh good…everything in the United States is still just as we remembered it.

Of course, we aren’t really staying in Los Angeles. We’re just passing through on our way to South America. Dropping into the Quantas lounge, we find newspapers and CNBC that bring us up to date.

“I don’t see why anyone would worry,” said the host. “People were worrying about the slow-down in the housing sector. But now we find the employment numbers are surprisingly strong. And, as we heard from Alan Greenspan recently, if the housing slump hasn’t hurt us yet, it’s probably not going to hurt us at all. It looks like clear sailing, doesn’t it?”

Her guest was a fellow named Becker. We missed his first name. Not Boris. Not Gary. Some other Becker.

He responded cautiously:

“Well, so far it does look as though housing is coming down in a soft landing, but we’ll have to wait and see what 2007 brings.”

If only we knew now! But we don’t. We’ll just have to wait and see, just as Mr. Becker says.

The trouble with waiting and seeing is that you can’t only wait and see. You also have to do something. You can’t stop breathing. You can’t stop eating. And you can’t stop investing. There is no such thing as suspended animation when it comes to your money; no such place as nowhere in the financial world. Every minute of every day…for every asset class…you are either long or you are short. Either you own it, or you don’t own it. Of course, you can be leveraged or unleveraged too…but that is merely a measure of how bad the damage will be if you are wrong. If you don’t own Google, for example, you will lose potential earnings if it goes up. And if it goes down, relative to the rest of the world – which includes Google holders – you will be ahead of the game.

You may say to yourself, ‘Oh…I’m staying out…I’m in cash.’ But that is merely an alternative investment position. When you are in cash, you are short stocks…and long the dollar (generally). If stocks go down…your cash goes up, relative to the stocks. If stocks go up…your cash – measured in stocks – becomes less valuable.

And what about the dollar itself? For most Americans, being ‘in cash’ means being in the cash printed up by the Bureau of Printing and Engraving and watched over by the central bank of Ben Bernanke. This year alone, that cash has gone down 10% against the cash of the European Central Bank. Against the ‘cash’ that comes out of the ground – gold – it has lost 20%. And in terms of consumer prices, cash is down too – about 3%, depending on whose estimate you believe.

No, Dear Reader, there’s no way to stay out of it. There’s no refuge. There’s no place where history stands still and prices stop moving. No matter where you are, you’re in it whether you like it or not.

An American homeowner, for example, is long U.S. residential housing. He may want to be long for reasons that have nothing to do with finances; he may simply like his house and have no intention of giving it up. He may have no mortgage on it…and no intention to sell. If it goes down, what does he care?

But a lot of people are long residential real estate, highly leveraged, and getting desperate. Many are making bets they can’t afford to lose. Imagine the poor lump who bought a house last year – with no money down and a backwards-walking mortgage. He couldn’t quite afford the regular mortgage payments, so he took the ‘pay option’ plan. The difference between what he ought to pay and what he does pay is added to the principal. Well, at the end of 12 months, he has a bigger mortgage than he started with. And if his house went down in price, his mortgage may also be considerably more than the house is worth.

This poor fellow has no business speculating on housing prices. He may never have intended to do so. He may have wanted nothing more than a decent roof over his head. But now his financial future hangs on what happens next year in the housing market. He has to ‘wait and see,’ too. But he must be sitting on the edge of his chair. He’s long housing in a big way – he’s staked an amount greater than his entire net worth on it.

“Foreclosures up as borrowers fall behind,” says a headline in USA Today. Almost one in 20 mortgages are in arrears, says the paper, led by Mississippi, Louisiana…and Michigan.

And from California comes news that “Regional home prices grow at a sluggish pace…The median was up 1.7% last month from a year earlier, the smallest gain in nearly a decade.”

Meanwhile, more and more people seem to be long stocks. The Dow hit a new record high yesterday. Dow 36,000? Sure…why not?! But the Dow has done nothing compared to foreign markets. We were just in Bombay, where local stocks have gained an incredible 40% this year. North of the Himalayas, in Shanghai, stocks are up an unbelievable 95%.

Commodities are up too. The metals are soaring – gold, copper, aluminum – they have all gone up sharply this year

In fact, looking around the world, we find people almost everywhere long almost everything. Property prices are sky high in most parts of the world. Only Asuncion, Paraguay, seems to be bucking the general trend. What’s wrong with Asuncion? We don’t know…but we aim to find out.

That’s why we have issued a ‘Crash Alert.’ All over the planet, people are thinking the same thing – buy now, because assets only go up in price. But when everyone is thinking the same thing, no one is thinking at all. So, we think we will play it safe. We’ll take the other side of the trade. Not because we know anything, but simply because the odds now must favor the maverick, contrarian speculator who bets against further asset appreciation.

We just have to figure out what the other side of the trade is…

Stay tuned.

More news:


Chuck Butler, reporting from the world currency trading desk in St. Louis…

“Lots O’Data today. Basically, CPI is the wild card. It’s a worthless piece of data in my opinion, but the markets believe that the Fed watches this like a hawk. So… The dollar’s direction to end the week will be determined by CPI.”

For the rest of this story, see today’s issue of The Daily Pfennig


And more views:

*** In yesterday’s edition, an article from David Galland of Casey Research “The Most Important Number in the World” contained a typo, stating that the dollar had lost 95% of its value since the U.S. abandoned the gold standard in 1971. The 95% number is how much the currency has lost since the inception of the Fed in 1913 – so much for protecting the currency. From 1971, the loss in purchasing power has been “only” 70%. To read the entire eye-opening article, click here.

*** The farther you get from things you know…the more unknowns you discover. And the more you operate in a world of uncertainty, the more you need to follow rules and principles.

An investor may have a general rule – ‘I only buy stocks with P/E ratios under 10,” for example.

He may, however, find a company…study it carefully…and come to the conclusion that it is well worth a P/E of 11. His study has reduced the unknowns…so he doesn’t have to rely on his rules.

Likewise, a small family-owned company might have a rule – ‘we never borrow to expand.’ But after long study of its aging facilities…market realities…its accounts…its products and so on…it may decide to over-ride its rule.

In both cases, the decision may be a good one. But as an investor or a businessman gets farther away from the things he really knows, the more likely it becomes that departing from his rules will lead to disaster.

“Let’s set up a plant in China,” says an ambitious CEO. “I’ve heard it’s a great place to manufacture.”

“I’m going to buy Google. I know, it’s trading at an incredible P/E. But it’s a new era…gotta get with it before it’s too late.”

In neither case does it sound to us as though the speaker is making a wise decision.

Many people we know can drive a car without having accidents…or control their family finances without major mishap. They are smart people who get along in life perfectly well. But ask them about the national economy…the war in Iraq…global warming…prayers in the schools…the war on drugs…or any other issue of public interest and you will find all manner of absurd opinions. How was it possible, we often wondered, for such sensible people to have such senseless ideas?

The answer comes to us from science…or at least scientific speculation. The human brain evolved over millions of years in circumstances very different from those today. People lived and worked in small groups, probably no larger than a few dozen…maybe 50…maybe 150. They learned to communicate and to cooperate…in order to survive. Those who failed to master the techniques died out…eliminating the defective, uncooperative genes of the species from gene pool.

In times of famine, for example, a group would be much more likely to survive if it followed certain rules for the preservation of food. A certain amount of group planning and group thinking was necessary, too, to organize group movements and projects, conservation of resources, rituals, taboos and so forth. In short, there were times and conditions when it probably helped for them all to come to believe the same thing at the same time. And these beliefs…were probably not only useful, but well founded in direct experience.

This is, of course, just guesswork…but we’ve heard worse. Groups of people needed to be able to co-operate in order to hunt effectively. Primitive hunters had no telescopic sights on their rifles. They had no rifles. They had to work together, often in relays, to run down, approach, surround and bring down large beasts. And when they were attacked – either by animals, other humans, or perhaps even other near-human species – they had to work together to defend themselves. We can imagine that the threats were many and the comforts were few. We can also imagine where our high regard for military valor came from. A tribe whose men-folk did not rush to its defense – even at the price of their lives – was probably soon exterminated. It made sense, too – from an evolutionary biology point of view – for a man to fight to the death to defend his own tribe. The group was related by blood. Its children carried his genes.

But the attitudes and genetic conditioning that made him ready and able to work with a small group on a local scale turned him into a dunce when the numbers grew larger and the distances increased. Today, he can still use tools…drive a car…organize a family vacation…do a decent job. He can still cooperate with others at work. And he is still a member of many smallish collective undertakings – his work team, his church, his clubs, his family.

But put a newspaper in his hands and he goes a little soft in the head. The skills that worked in a small group are worthless in a large one. He is too far from the facts to form a decent judgment. Nor can he really tell if his leaders know what they are talking about; he’s never been in the same room with them. He is ready to cooperate…even ready to sacrifice himself for the good of the group…but all his instincts and good intentions only mislead him and turn him into a chump.

He can spot a good business when he is in the middle of one himself…but put him in front of hundreds of them…with only the financial news to go by… and he will buy a stock about which he knows nothing. If it were a private business, he wouldn’t want anything to do with it. He is still reminded, walking down a dark alley at night, that there are times he has to fight to protect his family. But put him in front of the TV and he is rooting for war with people he’s never met, in places he’s never been to, for reasons about which he has no clue. He goes along. He is willing and able to think what everyone else thinks. But in the middle of a nation the size of the United States…what everyone else thinks is likely to be the lowest common denominator among 300 million people.

In other words, it is likely to be idiotic, puerile and lame.

The Daily Reckoning