St. Emilion

“I’m going to stand up for America,” said the woman’s voice at breakfast. “And besides, this seems ridiculous. Why would President Bush want to poison U.S. citizens?”

Unaware that there were other English speakers in the room, the people at the next table were having a heated discussion. The young, blonde American woman was arguing with her husband – a Frenchman with frizzy gray hair.

“Not just anyone has access to anthrax,” he explained in a thick accent. “It has to be someone who is connectedto a government that has the stuff. And if Bin Laden or Hussein were doing it, why would they do it on such asmall scale? And why would they warn everyone that it is coming…by sending just a few letters? They’d do amassive, spectacular effort…like their attack on the WTC.“Bush wanted to send the anthrax around just to continue the atmosphere of panic and hysteria so that Americans would support his war on the Islamic world.”

“Now I know you’re crazy,” said the woman.

“I’m not saying that it was Bush himself,” he went on, “it could have been one of the right wing groups that support him…”

All over the world, people are talking about things they know nothing about – even in a tiny bed and breakfast in St. Emilion. Politics and politicians are back in the news, since the September 11 attacks.

“War is the health of the state,” as Otto von Bismarck put it. Thanks to the terrorists’ attacks, the state is in fine fiddle. People want to know what the state is doing…and argue among themselves about what the state should be doing.

What a pity.

Always a contrarian, your editor decided to ignore the war, depression, and direct mailed pestilence and tend to his own health. Not that there is anything wrong with it, but even the best physical condition could be improved, he reasoned, by self-indulgence and an absence of politics.

While the rest of the world worries about the “clash of civilizations” and the biggest, most abstract and remote ideas in half a century, he decided to turn his attentions to things he could see, smell and slosh around in his mouth and stomach. And so with the sunniest, warmest weather for this late in the season in memory, he set off for France’s best wine country – the area just east of Bordeaux – and a mini-vacation of intensive drinking and driving.

But even here, dear reader, in St. Emilion, the very heart of the wine country, he was unable to escape the blather of politics.

The town is located only a short drive from Bordeaux. It sits atop a limestone plateau, built of the same limestone that the recluse Emilion dug out of his cave 1300 years ago. Emilion had come to the region to worship God. He was followed, over the many years, by thousands of other monks, priests, nuns, sisters of mercy and brothers of sometimes dubious piety.

But long before St. Emilion was born, the grape vines had already been planted in the thin, rocky soil. Before the French were French, the wine of the Bordeaux region was famous. The Romans planted the first vines in the area. The soil was so poor they had to dig ditches in the limestone and fill them with dirt to get something into which they could plant their vines. The vines lacked nutrients – for the soil was bad – and water too, because it would not hold much moisture. And there was nowhere the roots could turn – because a huge plate of limestone lay just beneath the surface.

“But that is the amazing thing about vines,” said our guide, “the more they suffer, the better the wine.”

Wouldn’t that just be like Mother Nature, dear reader? She gives nothing away. The fat, well-watered grapes – like businesses that have been given too much capital – prove worthless. It is the tough ones – those that have had to scrape by on almost nothing – that produce the richest wine. How likely is it that this same Mother Nature would give investors an 18% gain while the economy grows only 2%?

Our guide was a short young woman provided by the tourist office. (If you call ahead and make

arrangements, you can get a private tour.)“Every ten years, they classify the vineyards,” she explained. Only two have made the very top listing – Premier Grand Cru Classe A: Ausone and Cheval Blanc. But all the top vineyards are located on top of the limestone plateau. Because that is where the soil is poorest.”

She proved her point by taking us to a vineyard not far from town. We went down into the cave – a massive underground chamber carved in the limestone during the 14th century. At one point, an opening had been carved to let in the light. There we could see, the rock went almost to the surface with only a thin rag of stony earth between it and the blue sky.

“Down on the lower land by the river,” she elaborated, “the soil is better, but the wines are not as good.”

Torturing the vines seems to bring out the best in them. Like an investor in a bear market, the vines turn their attention to quality. Fewer grapes are produced – especially among the older, wiser vines – but they are superior ones.

Later in the “Ecole du Vin” we had a chance to test the fruits of all this labor.

“You can look at a good wine and tell how old it is…” the oenologist explained. “And you can tell what the weather was like that year. You can also tell the type of grape used.

“Winemaking has been standardized…at least in some ways,” he went on. “Partly because of the influence of your fellow American, Charles Parker. He has become so influential that local winemakers often try to make the kind of wine they know he will like…then they get a good rating from him and the wine sells well.”

After the class, we were asked to taste a few of the wines to see if we could pick out the various qualities we had discussed. Elizabeth squirmed in her seat and rushed to give the right answers. Even in a taste test she feels she has to win.

Drinking and driving is illegal in the U.S. But here in the Bordeaux wine area, the tourist office will arrange it for you. We drove over to Pomerol and down to St. Christophe, stopping to drink wine along the way. Then, we returned to St. Emilion for dinner.

The restaurant at the top of the hill across from the tourist office overlooks the town. There were only a few diners. St. Emilion, like the rest of the tourist industry, has suffered collateral damage from politics. Fewer Americans visit since the Sept. 11 attacks.

One man wearing an ascot ate alone. Between courses, he read a book.

“These terrorists really disturbed the entire world,” Elizabeth said, taking up a popular subject. “I had planned to go back to the U.S. to go through our things before we put them in storage. Now I don’t want to go…”

“I hope this bombing campaign works,” she added.

Your editor, back on the job…

Bill Bonner
November 1, 2001

Stop the clocks. Mark your calendars. Make a note in your diaries.

The longest economic expansion in U.S. history is over. It began in 1990 and ran for 10 and a half years…two years longer than the next longest one in the 1960s.

GDP grew at an average of 3.1% per year throughout the expansion – considerably less than the 4.4% annual growth rate of the ’60s period. Also, if you take into account population growth, adjusting the GDP figure per person, you find the growth rate was only about 2%.

But it’s all over now. GDP fell 0.4% in the 3rd quarter for the first time in more than a decade. The boom is now, officially, over.

Two percent growth is nothing to get excited about. But in the late ’90s, stock buyers got very excited about something. As you will recall, stocks more than doubled in value from ’95 to 2000.

How could 2% economic growth turn into 18% annual compounded growth in the stock market? Good question. It is becoming more and more obvious that the stock market made a mistake…which it is in the process of correcting.

In fact, yesterday, Mr. Market backtracked a little more from those hallucinatory levels of early 2000. Right, Eric?


Eric Fry from Las Vegas…

– Yesterday, the buy-the-dip crowd loaded up on stocks from the opening bell, whisking the Dow aloft nearly 100 points…but Halloween on Wall Street this year would be all trick and no treat.

– Most stocks reversed course and finished near their lows for the day. The Dow closed down 47 points. The Nasdaq closed well off its highs for the day, but managed a modest 22-point advance.

– Remember folks, buying stocks is optional. Just because Wall Street is open for business five days a week doesn’t mean we have to shop there. There are other games – and other towns. Consider, for example, Indian stocks…

– While American investors fall all over themselves to pay 41 times earnings for U.S. stocks, Indian shares go begging for about 12 times earnings. It looks like investors might owe them an apology. There’s a lot to like about India – and I’m not just talking about mouth- watering poori bread:

– The Indian economy might “only” grow 5-6% next year “in view of global uncertainties,” the Reserve Bank of India predicts. Every national economy should suffer such paltry growth. Our GDP is falling…down .4% in the 3rd quarter.

– What’s more, the Indian Central bank is busy priming the economic pump by cutting interest rates to a 28-year low. Time to swap a little AOL for Indian phone company VSNL…maybe.

– You think the Taliban forces near Mazar-e-Sharif have got it bad? Check this out: Starwood Hotels & Resorts, the operator of hotel brands like the St. Regis, Sheraton and Westin, announced that its third-quarter profit plunged 71%. Crain’s reports, “In an effort to recover from the damage to its bottom line caused by the September 11th attacks, the company announced plans late last month to cut its North American workforce by 23%.”

– And that’s the big story: job cuts, job cuts, job cuts.

– The U.S. Bureau of Labor Statistics issued a chilling report that in the month of September, 1,316 companies had announced layoffs of 50 or more employees. “I don’t see any reason, given the current scenario, why we would expect the last three months (of the year) to show an improvement,” BLS Chief Economist, Lewis Siegal told Reuters. “It is probably going to be a record-breaking year.”

– Certainly, New York City won’t be leading any employment rebound. The National Association of Purchasing Management says that New York City’s business climate entered a deep chill in October. The NAPM-New York index of current business conditions fell nearly 50% between September and October.

– What ever happened to that new economy, anyway? According to the Financial Times, the answer’s simple: it’s gone to “an anonymous industrial park east of London.” Recycling companies take computer equipment once worth millions and break it down for scrap, like so many rusting 1979 Chevy Chevettes. The equipment “yields a smattering of precious metals and other scrap, some toxic components and a lot of plastic,” the FT reports.

– Here at The Daily Reckoning we have always suspected that the New Era was a fiction. Still, it’s sad and somewhat painful to watch a former legend fall on hard times. Like Elvis in ’73. Or, for that matter, Greenspan in ’01.

– The brisk trade in recycled computer equipment is but one more sign of a colossal boom gone bust. “The stock market value of all telecom operators and manufacturers has fallen by about $3.8 trillion from their peak,” the FT reports. “To put this into context, the combined loss in value on all of Asia’s stock exchanges during the Asian financial crisis of the late 1990s was only $813 billion.”

– The FT asks two questions about “this debacle.” Weprovide two answers.

First: “How could so many clever people have got it so sensationally wrong?” They weren’t very clever.

Second: “How has the global financial system been able – – so far at least – to absorb the loss of $3.8 trillion in stock market wealth?” “So far” ain’t forever.


Back in Ouzilly…

*** The St. Louis Fed reports that MZM – cash – is soaring at a hyperinflationary 28.2% annual rate. But guess what? Prices are falling, not rising. Commodities sink almost daily. Gold goes down. Even oil, on the eve of what could turn out to be a wider mideast war, has fallen below OPEC’s target, at $21.04 per barrel.

*** If there is inflation coming, bond investors don’t see it. Long bonds rose again yesterday…with the yield down to 4.87% on the 30-year bond. The Treasury Department announced that things were going so well it wouldn’t be needing to sell any more 30 bonds, which further boosted the long end of the bond market.

*** 10 year T-notes now yield only 4.41%, while investors get only 3.03% from the inflation-adjusted bonds. The difference is only 1.38% – meaning that bond buyers believe inflation is a dead issue for the next 10 years! Will they be right?

*** Whew! All of a sudden, Maria’s career as a model seems to be taking off. No sooner had she returned from doing a fashion show in Lisbon than she was whisked away to Berlin for a photo shoot for Prada, a company that makes handbags. She’s only 15, so we sent a friend of the family with her as a chaperon. (I would have gone myself…but I’m on my way to Las Vegas…)

*** I hope this success doesn’t go to her head. She’s already difficult enough…though always adorable.

*** Meanwhile, I was headed in a different direction… with another adorable member of the family. On Tuesday, Elizabeth and I raced down the road to St. Emilion, in the Bordeaux wine country. We had an appointment at the tourist office at 11 AM.

*** “Let’s stop and have some breakfast,” Elizabeth suggested, as we approached Angouleme.

“We don’t have time to stop,” I replied, “we’re on vacation!”

The Daily Reckoning