Rage Against The Machine

“I think I will strangle myself.”

Thus did Henry, 10, begin his letter.

One of 6 children, Henry realizes that a little dramatic flourish will get the reader’s attention.

It turned out that he was not really upset…but merely frustrated. He has been staying at an abbey deep in the French countryside with his school class. He mentioned something about a fire – but, like the key clue in a mystery novel, gave no further details. His only complaint, with himself, was that he kept losing pens and pencils – and perhaps underwear.

Henry seems to have a flair for writing. In an earlier stage of his academic career, parents were called in to the school to encourage the children to write. Each parent worked with two or three students. But Henry was so prolific, he needed one long-suffering parent all to himself.

And maybe I have already told you this, but I will do so again – the story of how Henry, at the age of 6, came to be considered a genius by his teachers.

You may be wondering, as you often must, what this has to do with investing. Well, I don’t know either. But since the Daily Reckoning is free, I feel entitled to some gratuitous bragging about my children from time to time. And perhaps, you’ll find something in this story or what follows that may be useful to you.

When kids begin school they are given a simple test to make sure they are ready. The children at 5 or 6 cannot yet read, so pictures of various things are held up…as the kids are asked to identify them.

Well, the background to the story is that we were living on our farm in Maryland, and Henry would help milk the cows and goats from time to time. Being an inquisitive chatterbox, he kept the dairyman busy by asking questions, inducing a flow of information about the dairy trade.

So, when the teacher held up the cards, Henry correctly identified the cat as a cat, and the dog as a dog…but when he got to the cow Henry chirped, “Oh…that’s an American short-horned milking breed.”

Part of the program out at the abbey was an introduction to computers and the Internet. Every child in the civilized world is now supposed to learn how to use the Internet before he learns how to conjugate verbs or find the median line of a triangle.

What’s more, teachers now expect their students – at least here in Paris – to have access to the Internet at home. Homework assignments often involve Internet research.

So important is Internet access thought to be that editorialists worry about the ‘Internet gap’ between rich countries and poor ones, and between black and white population groups in the US.

At this point, dear reader, you may be expecting a curmudgeonly – almost sourpuss – comment from your editor. I won’t disappoint you:

Now that the Internet is considered an indispensable learning tool, I can’t help but wonder how the poor unfortunates in pre-Internet, pre-Bandwidth plenty era ever got along. Aristotle, Archimedes, Plato, Plutarch, Gallileo, Michaelangelo, Erasmus, Pascal, Newton, Jimmy Rogers, Jefferson…why do I even bother to list the names? Rockefeller, Carnegie, Morgan…in any era, in any pursuit…throughout all of mankind’s history – people have done remarkable things without ever getting an email message or typing out www.

Dylan Thomas, who was born on this day in 1914, wrote in ink on – would you believe it – paper:

“In my craft or sullen art

Exercised in the still night

When only the moon rages

And the lovers lie abed

With all their griefs in their arms,

I labour by singing light

Not for ambition or bread

Or the strut and trade of charms

On the ivory stages

But for the common wages

Of their most secret heart”

“What we call progress,” said Havelock Ellis, “is the exchange of one nuisance for another nuisance.”

The Internet is certainly a handy communications tool… like the telephone or the television. But it doesn’t improve the quality of a writer’s poetry…and could even reduce the wage rate ‘of their most secret heart.’ Like TV and the telephone, the Internet is a great tool for people who want to waste their time or the time of others.

Hardly a day goes by that doesn’t demand hours of time spent handling various Internet-related chores. My e-mail in-box has hundreds of messages in it at any given moment. Which ones are important? Which ones are insipid? Which ones will interrupt my thought process or maybe even my sleep? I just don’t know. But I know it will take me a long time to find out. As I have pointed out many times, the world has not too little information, but too much – most of it useless rubbish.

No respectable desk from Helsinki to Singapore is without its computer screen. Take it off, and the desk is like a 4-star general without his clothes on…a figure of ridicule and contempt. And yet, how many hours of each working day are wasted, sorting through the useless information delivered in bulk via Internet?

Sophia, doing a research project for school, spent hours on the Internet trying to find out about some event in history. In less than a minute, better information was available from a discarded set of encyclopedias, now gathering dust on the shelves, like the forgotten horse collars in the barn.

You may want to disregard this letter as the ruminations of a romantic fuddy-duddy, but not every technological development is beneficial. Television, which lights up the houses of even the poorest families in America, is probably a net loss to everyone. Hours and hours are wasted in silent viewing – which could have been used to produce things…or at least to get in a good argument with your spouse. Who has not lost a good drink…or a good meal…or maybe even moment of honest reflection to the constant bawling of the electronic media?

Are people richer since the advent of the Information Revolution? Not really. Real incomes peaked in the 70s. People work more hours now, and more family members work per household, but real disposable income per hour worked is actually down. And most recently, as noted above, real incomes are actually rising at only half the rate of the GDP.

What’s more, the Internet is expensive – eating into net family income like a starving Ethiopian into a banana tart.

“Twenty years ago,” observes Marc Faber, “[a family] spent its income on housing, clothing, food appliances, cars a radio and a TV. Today, it will spend additional money on a DVD player, computers, fax machines, printers, several cellular phones and a whole host of other new electronic gadgets…modern society requires people to continuously enlarge the ‘basket of goods’ that are considered necessary to lead a ‘good life.’

My question is simply this: is all this communications gear really improving the quality of life? Or is it impoverishing us…drowning us in trivial pursuits and time wasters as television did?

If the Internet does not make us richer…perhaps it makes us happier. The most popular websites, I am told, are those that offer pictures of people without any clothes on…doing things that are usually done in private. Surely, this amusement must lift the spirits of the general population. After all, Bush’s comment that a NY TIMES reporter resembled a ‘major league’ fundamental aperture lifted his poll standings.

But the only surveys I have seen on this subject suggest just the opposite. People report that they are less happy today than they were before Al Gore invented the Internet.

The only figure I have readily in hand is this (from the Internet, of course):

*** A shrinking share of Americans is happily married. The percentage that said their marriages were “very happy” fell from 60% in the mid-1970s to 53% by the late 1990s.

What to make of this? What to make of the Internet…and all the other communications paraphernalia…?

It is not necessarily bad…but like every technological ‘improvement’ – it comes at great cost.

Your upbeat…plugged in…e-savvy correspondent…

Bill Bonner Paris, France October 27, 2000

P.S. Soon after Henry was declared a ‘genius,’ I decided to conduct my own test:

“Henry,” I asked, “if you were in the bathtub with the water running…and the water was getting up to the rim…and you couldn’t turn the water off…what would you do?”

“Uh,” said the genius pre-schooler, who didn’t think of pulling the plug, “go get you, Dad.”

P.P.S. A better-known poem from Dylan Thomas:

“Do not go gentle into that good night,

Old age should burn and rave at close of day;

Rage, rage against the dying of the light.

Though wise men at their end know dark is right,

Because their words had forked no lightning they

Do not go gentle into that good night.

Good men, the last wave by, crying how bright

Their frail deeds might have danced in a green bay,

Rage, rage against the dying of the light.

Wild men who caught and sang the sun in flight,

And learn, too late, they grieved it on its way,

Do not go gentle into that good night.

Grave men, near death, who see with blinding sight

Blind eyes could blaze like meteors and be gay,

Rage, rage against the dying of the light.

And you, my father, there on the sad height,

Curse, bless, me now with your fierce tears, I pray.

Do not go gentle into that good night.

Rage, rage against the dying of the light.”

*** “Uh, oh…oh la, la”…Rafael and Isabelle, the financial analysts who share the office with Addison and me here in Paris, were watching the Nasdaq. Yesterday morning, it looked like the Big Techs were going to have another very bad day.

*** But along came JDS Uniphase with 2 cents more of earnings last quarter than expected…and bingo! The markets turned around and ended the day in positive territory. Why would a couple pennies of earnings by a single overpriced company make any real difference to investors?

*** A back of the envelope calculation suggests that JDS Uniphase is selling for more than 100 times earnings… after losing $1 billion on about $800 million in revenue. If the company continues to grow by 100% per year for about 4 years, today’s stock price will be justified. Will it? I don’t know, but I’m perfectly happy to let someone else find out.

*** The Dow was up 53 points by the close of business. The Nasdaq rose 42 points.

*** 1455 stocks advanced; 1394 declined. 42 hit new highs; 108 hit new lows.

*** Each time the Nasdaq seems to be heading towards 3000, it bounces back. So there was more salacious talk of ‘bottoms’ – with most investors convinced that a Big Bottom has been reached.

*** Amazon.com rose another $5 yesterday…pulling itself out of the mud. This is good news. Michel reported to me yesterday that Amazon had ordered another 60,000 francs worth of books from us – including many obscure titles that seemed impossible to sell.

*** But someone in the Amazon organization seems to have gotten wind of the Daily Reckoning’s coverage of the Amazon story. Evidently, the folks floating down the big ‘river of no returns’ don’t appreciate my views. They think I don’t like the company.

Not true. I love Amazon. Amazon – great company. Great business model. Just keep ordering those books.

*** And keep selling the euro. My rent fell again yesterday as the euro hit yet another record low. It’s about 30% down from where it began.

*** Kevin Klombies, who predicted the ECB intervention under $.85 a few weeks back, says $.82 is a support level for the euro… he’s a buyer at $.80. Rick Ackerman expects the Esperanto Currency to drop to the mid-70s.

*** Everybody had an opinion: “Business at the speed of molasses has driven capital out of euros by the billions,” says the Oxford Club’s Steve Sjuggerud. “It has been estimated that net outflow from Europe to the U.S. this year alone will reach $300 billion. Intervention by central banks in the currency markets will be helpless to stem the tide. In fact, a crashing euro may just be the kick in the pants these bureaucracies need.”

**** Half the stocks on the Nasdaq have lost half their value – a total loss of about $2 trillion. That money didn’t go back to its rightful owners – it disappeared. It went to money heaven, where it will no longer be troubled by tort lawyers, newspaper columnists, rap singers, presidential campaigns, Lee Greenwood, Barbara Streisand, MTV or andouillette sausages. The presence of any of these things would make the promise of heaven the greatest fraud the human race has ever endured.

*** And half the households in America own stock. Hmmm…let’s see, that’s a loss of about $40,000 per household! Yet, according to a University of Michigan study the average net worth of American households is just over $30,000. Hmmn…

*** And the losses have barely begun. The Nasdaq still trades at about 120 times earnings. It will probably fall in half, at least, before the Really Big Bottom is reached. Like all big bottoms, this one will be the result far too much consumption and far too little Calvinist discipline.

*** “The American consumer is rapidly running out of new buying power,” writes Dr. Kurt Richebacher in his October newsletter. Dr. Richebacher notes that consumer spending is going down. Why? “If you think it’s due to credit restraint, you are grossly mistaken,” he continues, “This restraint is coming from a highly surprising and, above all, ominous source: sharply lagging growth of personal real disposable income.” In all of 1999 and the first half of 2000 real disposable incomes have been growing at less than half the rate of the GDP. And GDP grew at about half the rate of debt. And with the wealth effect in reverse and picking up speed, Americans have little money to spend.

*** Oil rose 75 cents. Gold fell $1.30.

*** There are rumors that a big bank in Argentina is close to going broke. Argentine Brady Bonds fell to yield more than 9% above U.S. government bonds. Now, there is a rumor of a U.S-led bailout. Take your pick – Argentine bonds or Amazon bonds. Both bring you more than twice the yield of U.S. bonds. But which is most likely to pay off?

*** “The Mexican government has a history of developing little bits of its coast,” writes Kathy Peddicord from Mexico. “Now it has set its sights on the Costa Maya. Traveling in this region in early August I saw diggers at work cutting new roads and crews at work stringing electrical cables. The infrastructure is on its way. Soon these long stretches of white sand won’t be so difficult to get to. And when access is easier…prices will rise.”

“This is a moment of opportunity for the investor,” she adds. “This land will be worth more in a few years than it is today. Maybe a lot more.”

*** An actual telephone call at the office yesterday:

“Hello…” Rafael answered the phone.

“Oh…you’re not Amelie. I was calling my cousin Amelie…”

“I’m sorry, Madame, but there seems to be a problem with the phones lines…we often get wrong numbers…”

“Did I dial the wrong number…?”

“No…it’s probably the right number … the lines must be crossed…”

“Well, could you give her a message…?

“But, Madame, she is not here…this is a publishing business…you have the wrong number…

“But you said it was the right number…Then let me speak to Georges…”

“You don’t seem to understand, the phone lines are crossed…you dialed the right number…but you reached me…not your cousin…”

“What are you doing in her apartment…?”

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