Pray for Dawn

“We pray for those who cannot leave on vacation because of their work…”

an actual prayer
from last Sunday’s service at St. Marcial in Lathus

(No, we are not making this up…)

Amid the prayers for relief from life’s many sufferings and hardships…for the dead and dying…and for those left behind…came this curious supplication for those who travail under such a heavy burden that they are unable to take the usual 4-week summer holiday. Hardly a Sunday passes without a reminder of those unfortunates who cannot find work in high-unemployment France; this was the first time we were asked to feel the pain of those who had too much of it.

But how deliciously this tattered old ball turns! No sooner have we become accustomed to the dark night of some evil than the first rays of dawn begin to shine upon it…and we see it as a virtue. What could be worse than not being able to take a month off in the summer, we ask ourselves at midnight? At noon comes the answer: a life of full-time leisure.

Who deserves our prayers, we asked ourselves: the man who, in the dead of night, is as outraged at having no vacation…or the one who is desperate for work in the morning?

Neo-Conservatives: Seeing Only Gray

Or, and here we stopped dead in our tracks when we thought of it, is it the modern realist, who sees neither the black of night nor the brightness of day, but only the gray of not caring one way or the other?

A sane man knows the earth turns. He knows that in almost all things – stock markets, politics, nature – there is an observable tendency to revert to the mean. This causes him to temper his enthusiasms. Stocks at 200 times earnings may be attractive in the festive candlelight of evening; he reckons that they may be less fetching in the bright sun of the following day.

If he is an optimist, he welcomes the opportunity to enjoy the night, knowing that he will enjoy the day too, if he leaves before breakfast. If he is a real pessimist, on the other hand, he regards the whole affair as a waste of time…turns gray and blows his brains out.

Both French and Americans believe themselves exceptional. That they are different, we do not deny. Au contraire, we enjoy the differences daily. But that they are also very much the same is also true; neither can make the world stand still.

“The role of the state,” said Jean-Luc Lagardère, before he died recently, “has been fundamental since the 17th century [in France], something I greatly admire.”

“When we organized our state,” adds Charles Pasqua, a former Gaullist minister, “we were bold enough to imagine that it was a model not only for France, but for the whole world.”

Neo-Conservatives: “Mission Civilisatrice”

The French were so proud of their ‘civilization,’ they offered it to the rest of the world. Unbelievably, taking the ‘mission civilisatrice’ to its African colonies, the children of dark tribes learned about “our ancestors, the Gauls.”

The centralized welfare state took a big leap forward in France in the 1930s under Léon Blum…and in America under Franklin Roosevelt in the same period.

And now, a kind of heady, vainglorious, feeblemindedness has taken hold in Washington. Led by the neo-cons, Americans see themselves as gods…as masters of the universe who intend to remake the world in their own image.

“Western Europe is literally a dying continent, demographically and spiritually,” says Father Richard Neuhaus, a catholic theologian with friends in the White House, “whereas in America, people are energetic, vibrant, filled with technical expertise, whistles and bells.”

Washington has become, like Paris and Rome before it, the place where all roads lead. The city “is full of foreign lobbies wanting something from America,” explained former National Security Agency director Lt. Gen. William Odom. “Why would you want to lobby Chirac – to change the kind of cheese or something?”

Neo-Conservatives: Dreaming of Conquest

While the French worry about cheese and vacations, Americans dream of world conquest.

The neo-cons want to make America into not just a Great Power, but a “spectacular state.” And who stops to count the cost, when such greatness is at hand? Netting expected receipts against anticipated expenses, researchers found a hole of $44 trillion – or nearly half a million dollars for every family in the nation. But so what, it is only money! And money is meant to serve the spectacular state…as are its citizen/soldiers. Heck, in such a country, even God is a servant of the state. Elite neo-cons do not pray to God (except to offer an example to the lumpenvoters); they command Him. Such a country is no longer a nation under God, explains neo-con intellectual Michael Ledeen, but over Him:

“Dying for one’s country doesn’t come naturally,” says he, perhaps cribbing from Osama bin Laden. “Modern armies, raised from the populace, must be inspired, motivated, indoctrinated. Religion is central to the military enterprise, for men are more likely to risk their lives is they believe they will be rewarded forever after for serving their country.”

Communism collapsed in Russia. But it was hardly a victory for American liberty. No social welfare programs were canceled in the U.S. or Western Europe. Instead, they expanded…and now the nation rushes towards its own rendezvous with the Spectacular Socialist State…following in the footsteps of the French! “The so-called conservative revolution of the past two decades,” writes our favorite member of Congress, Ron Paul of Texas, “has given us massive growth in government size, spending and regulation. Deficits are exploding and the national debt is now rising at greater than half-trillion dollars per year. Taxes do not go down – even if we vote to lower them. They can’t, as long as spending is increased, since all spending must be paid for one way or another…believers in limited government are now shunned or laughed at…Government is bigger than ever, and future commitments are overwhelming…The country is broke, but no one in Washington seems to notice or care.” Oooh…how the world turns. When the sane man looks ahead, his face turns gray as he sees the spectacular state making a super spectacle of itself.

Neo-Conservatives: More American in Paris

Already, an American feels freer, which is to say more American, in Paris, France than in Paris, Texas. He can smoke where he wants to. He can drive faster. He can wear a green sarong and bathroom slippers down main street without anyone hassling him (though perhaps he can do that in Paris, Texas, too – we don’t know anyone who has tried!)

“And guess what,” said our sarong-modeling analyst, Dan Denning, “when you add in state, local, and federal taxes…there is really not much difference between overall tax rates in Europe than in America. In fact, depending on your circumstances, you can pay less in taxes in Europe.”

Not only that, but getting into tax trouble is less threatening. Most tax cases are handled as civil matters. It is very rare for a person to go to jail for tax fraud. In general, only one Frenchman goes to jail for every 10 Americans.

And last week, our calculator revealed another wart on the derrière of America’s spectacular state – one the size of Rhode Island. Dividing per-capita GDP by the number of hours worked per person, we discovered that the average American’s hourly productivity is lower than that of his French counterpart!

Oh, what shame…what humiliation…what embarrassment.

Will we ever be able to hold our heads up again? For now we discover that the American super-duper consumer economy fails the critical materialist test – the same one that proved fatal to the Soviets: it just doesn’t deliver the goods. Americans work night and day – 400 hours more per year than the average Frenchman – to try to keep up, but they do not grow rich. Instead, they go into debt. So far, the dollar standard system casts such an eclipse-like shadow over all the earth they hardly notice. They spend and think themselves wealthy. But the world turns. And day by day, that rosy-fingered dawn creeps towards them…

A man might be pessimistic about all this. Or he might not. Harder times are coming. But better ones too.

Bill Bonner
July 18, 2003

P.S. “The modern-day, limited-government movement has been co-opted,” says Ron Paul. “The conservatives have failed in their effort to shrink the size of government. There has not been, nor will there soon be, a conservative revolution in Washington. Political party control of the federal government has changed, but the inexorable growth in the size and scope of government has continued unabated. The liberal arguments for limited government in personal affairs and foreign military adventurism were never seriously considered as part of this revolution.

“Since the change of the political party in charge has not made a difference, who’s really in charge?

“If the particular party in power makes little difference, whose policy is it that permits expanded government programs, increased spending, huge deficits, nation building and the pervasive invasion of our privacy, with fewer Fourth Amendment protections than ever before?”


We have a hunch, dear reader.

It is just a hunch, though. Perhaps not as worthless as a CIA briefing, but still, we give fair warning: we don’t get tomorrow’s paper any sooner than Alan Greenspan.

Yesterday, the National Bureau of Economic Research said the recession that began in March of 2001 ended in November of the same year. But it was unlike any recession the world has ever seen. Like a hanging, there was the rope of negative GDP growth…and the gallows of falling employment…and the fresh-dug grave of excessive debt. But when it was over, there was no dead man to put in it.

Instead, consumers had just kept digging deeper holes for themselves. Debt rose – when everybody knows debt is supposed to go down in recession. They bought more SUVs and houses and boatloads of shiny new stuff from China. And by the end of the recession, they had more things than they had ever had before, and owed more money to more people than ever before, too.

This is not the way it is supposed to work, dear reader. Any recession worthy of the name is supposed to reduce consumer spending and debt. And it’s supposed to leave the consumer with ‘pent-up demand’ for the things he didn’t buy while he was cutting back. It was this pent-up buying pressure that was supposed to lead the nation out of recession to ‘recovery.’

“No decent recession, no decent recovery,” we recall guessing two years ago. Since, we have seen a recovery as bizarre as the recession. No plume of smoke belches from the nation’s factories. No overtime pay increases the purchasing power of its employees. Nor does any pent-up desire increase their ardor.

Jobless claims are still over 400,000 per week. Corporate profits are still weak. Yesterday, for example, GM announced a 30% decline in profits in the 2nd quarter. Consumers still dig deeper and deeper graves for themselves, while buying and selling houses to each other.

And yet, few people bother to ask what is going wrong. Most accept the fact that the recovery is underway…and thanks to the easy money policies of the Fed, all will soon be well. Almost no one believes that there is a serious problem with the Dollar Standard system.

But here is our hunch: the recession may be over, but it is not finished. The current rally is drawing to an end. The Nasdaq lost 3% yesterday, with Nokia down 20%.

Meanwhile, the dollar’s rise seems to have stalled at $1.11 to the euro…and the price of gold seems to have bottomed out at $343.

Our advice (no better than our hunch, we remind you): use this opportunity to unload dollar-based assets. Buy gold and the euro.

Here’s Eric with more news:


Eric Fry in New York…

– A tech wreck on Wall Street yesterday caused serious injury to the major stock averages. Stocks fell for a third straight day, as IBM, Nokia and a bevy of other technology companies reported disappointing earnings. The tech-heavy Nasdaq dropped nearly 3% to 1,698 and the Dow dipped 44 points to 9,051.

– Meanwhile, the bond market resumed its skid after a one- day reprieve. A batch of mildly favorable economic reports, while failing to inspire the stock buyers, seemed to inspire the bond sellers. The 10-year Treasury note slipped 10/32, as its yield inched up towards the 4% level at 3.96%. Gold for August delivery climbed by $1.10 to close at $344.30 an ounce.

– The Philly Fed business activity index climbed to 8.3 in July from 4.0 in June – the index’s best showing since January. Maybe business activity is picking up in Philadelphia, but it is still pretty sluggish up in Armonk, New York, the home of IBM headquarters. Big Blue’s chief financial officer, John Joyce, cautioned investors that business is “good, but not robust,” and that many of its customers are delaying major technology purchases. Outside the tech sector, General Motors reported a bittersweet quarter. The sweet part was that the company handily beat the consensus earnings estimate. Unfortunately, however, General Motors can’t seem to make a buck selling cars anymore.

– The automaker posted a second-quarter profit that topped expectations, but only because its booming finance unit produced a record result. For the quarter, GM reported overall earnings of $901 million, as the profits from its worldwide automotive operations collapsed by nearly $1 billion to a mere $140 million. By contrast, profit from the finance division almost doubled to $834 million. Astonishingly, therefore, GM’s finance arm generated nearly all of the company’s entire net profit for the quarter. “How much money did GM’s mortgage operations kick down to the bottom line?” your New York editor asked Apogee Research’s Robert Tracy.

– “You’re not gonna believe it,” Tracy replied. “GM’s mortgage operations produced a breathtaking $415 million in net profits, or about three times more than the profit from the company’s vast, worldwide auto operations. Another way of looking at it,” Tracy explained, “is that mortgage financing produced nearly half of GM’s entire net profit.”

– “So what happens to this so-called car company,” your New York editor inquired, “when interest rates rise and the mortgage refinance market dries up?”

– “The so-called car company makes a lot less money,” Tracy replied, “unless it can start making money selling cars again.”

– So if the New Economy companies are seeing little sign of economic growth and the old economy companies are changing themselves into banks-in-disguise in order to make a dollar, what hope is there for a stock market that is selling for more than 30 times earnings? What new financial phenomenon will emerge to carry share prices to the next new plateau of ever-more-ridiculous valuations?

– Or, to phrase the question differently, what financial phenomenon could prevent the stock market from succumbing to the forces of economic gravity? Surely the bulls could provide a hopeful answer. We cannot.

– Based on its dividend yield, the stock market is at least two times overvalued. Currently, stocks yield about 1.6%. By contrast, at the market top in 1966, the dividend yield averaged 3.39%. And stocks were about two and a half times higher than the last bear market bottom in 1974, when it averaged about 4.5%.

– The Dow Jones Industrial Average must decline below 3,000 to get its dividend yield back to the levels of 1974 and 1982. But that could never happen…right?


Bill Bonner, back in Paris…

*** The bond market may or may not have peaked. Helmo Preuss, from South Africa, offers this guess:

“The long-term picture is clear… The only question is when – not if – the bond market vigilantes lead the way in demanding that Treasuries be priced based both on their longer-term inflation and other risks. Can the point we’re at be compared to January, 1999, when a Nasdaq that already was priced to absurdity became even much more so, albeit temporarily? Is the bond market more like January, 2000, when the momentum was still fairly in tact but when the fundamentals were more clearly beginning to change? Is this March, 2000, when wild swings up and down marked the final peak for tech stocks, followed by a new bear market? I say it’s February.”

*** Little by little, the family reassembles. Henry returns from Brittany this afternoon. Jules came back from the U.S. after spending some time working in the headquarters in Baltimore. He reported on the state of the information economy:

“I worked a little with the IT [information technology] crew…

“Dad, I don’t know if you know this, but those guys run the whole business.”

“Uh oh…”

“They control everything. You write the Daily Reckoning, but it doesn’t go anywhere unless they send it out. And they’re processing millions of messages every day. And they can get into anyone’s computer…I mean anybody who works there…and watch what they’re doing…”

“Uh oh…”

“And people are always trying to hack into the system… thousands of times…”

“Why would anyone want to hack into our computers?”

“They try to use our system to send out their spam mail… that’s all I could make out…”

“Uh oh…”

*** Another reader writes to complain about our gloomy outlook:

“Bill, The history of life on Earth has been one dreadful experience after another. Men have been killing each other since the beginning. One crisis after another has been met, played-out and, somehow, America has evolved into a remarkable place! Is there no hope for us? The Soviet Union and the Cold War ended without a shot being fired. The European Recovery Program after WWII was a watershed in world history and has resulted in peace between Germany and France for the first time in history!

The European Union has become an economic power and there is peace between antagonists there. More Americans are living better than in any time in our history. Is there nothing that will cheer you! If we only look for perfection, we are destined to always be frustrated. Have a great day!!!”

*** We have a great day, every day here at the Daily Reckoning headquarters. We enjoy fretting; it is true. But we have a profound faith that things will work out, not necessarily the way people hope they will, but as they should.

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