Thanksgiving

When people think of Thanksgiving, they think of Pilgrims and Indians, sitting down at the same table to give thanks…but in this DR Classique, first run on Thanksgiving Day, 1999, Bill Bonner gives us a lesson in the real history behind the holiday…

I turned to my trusty assistant…Beirne White…this morning.

"Beirne," I said gravely, "tell me about Thanksgiving in Mississippi."

Beirne proceeded to tell me about a Mississippi bluesman named "Son" House, who lived to be 102 by doing what bluesmen tended to do…chasing bad luck, bad liquor and bad women.

"What has that to do with Thanksgiving?"

"Nothing," he replied…whereupon he drew on the resources generously provided by Britannica.com, formerly of Chicago, lately of cyber space, to get me the research I requested.

Beirne hails from Mississippi. And while Mississippians will sit down with the rest of the nation…and tuck into their turkeys with equal relish…perhaps only substituting Bourbon Pecan pie for the sweet potato or pumpkin pie enjoyed in Maryland…it was not always so. Somewhere deep in the most primitive part of his medulla oblongata, the part of the brain where race memories are stored, Beirne resists Thanksgiving. It is, after all, a Yankee holiday.

In the middle of the War Between the States, both sides would proclaim days of "thanksgiving," following the progress of the war as we now follow the progress of the stock market. After each of the first and second battles of Bull Run – which sent the Yankees fleeing back to Washington – the Confederates proclaimed days of thanksgiving. But it was Lincoln’s day that stuck. Declared after the battle of Gettysburg – the last great Napoleonic charge of military history – Thanksgiving was set for the third Thursday in the month of November, commemorating the Northern victory.

Beirne doesn’t say so…but this fact must stick in his craw. It doesn’t help that the original celebration took place in Massachusetts. And that it was hosted by a dour bunch of Puritans, who probably wouldn’t have been able to enjoy a good dinner if their lives depended on it. But they certainly had a lot to be thankful for.

As the Wall Street Journal reminds us annually, they nearly exterminated themselves in typical Yankee fashion – by wanting to boss each other around. They had arrived in Massachusetts by accident and bad seamanship, intending to settle in the more hospitable climate of Virginia, which had been colonized more than 10 years before. Once in Massachusetts, they proceeded to set up such a miserable community that surely most of them, had they lived, would have longed to return to England. The Soviets could have learned from their example and spared themselves 70 years of misery. Only after the "witch-burners and infant-damners" abandoned their communal form of organization, and allowed people to work for themselves, did the colony have a prayer of survival.

But victors write the history books. And now this precarious celebration by a feeble group of religious zealots has turned into the most American holiday. After Appomattox, the South was helpless. Its natural leaders, the plantation aristocrats, were either dead, bankrupted and/or discredited.

Many of them went to Northern cities, like New York or Baltimore, where, Mencken tells us, they "arrived with no baggage, save good manners and empty bellies." They enriched the North. But back home, they were sorely missed. "First the carpetbaggers," says Mencken, "ravaged the land…and then it fell into the hands of the native white trash…" Scars of war can take a long time to heal. But 130 years later, the South is the most economically and culturally robust part of the nation.

Thanksgiving was declared a national holiday in 1931. Through the Depression, and then WWII, Thanksgiving grew in importance. In a country where roots meant almost nothing, where people were ready to pick up and move at the drop of a hat, where there were huge differences in what people thought and how they lived, Thanksgiving served to provide a unified, national myth… most popularly expressed in Norman Rockwell’s Thanksgiving cover for the Saturday Evening Post. Roots mean more in Mississippi than they do in California.

"No man is himself," said Oxford, Mississippi’s most celebrated alcoholic, "he is the sum of his past." Unlike so many other American writers of the 20th century, Faulkner stayed home. The forward to the Encyclopedia of Southern Culture has a passage from Faulkner, saying: "Tell about the South. What’s it like there. What do they do there? Why do they live there? Why do they live at all?"

Even in Faulkner’s Mississippi…Thanksgiving is now part of everyone. Where Beirne goes…it goes too. And so, all over the world, Americans, gathering in small groups, like pilgrims on distant shores, celebrate the holiday (if not on the actual day…perhaps the weekend following…as we will do.) This can require a little ingenuity. Americans in France have to search for the ingredients. Pumpkins are hard to pronounce-citrouilles-and hard to find. Cranberry sauce is unknown.

But my mother discovered a store in Paris specializing in American groceries, named "the Real McCoy." She hastened thither yesterday, and brought back canned pumpkin, cranberry sauce and peanut butter. Thanks to this outpost of American culinary supplies, we will be able to have a very typical Thanksgiving dinner went we slide our chairs up to the table on Sunday. Art Buchwald has translated the Thanksgiving story for the French, deftly turning Captain Miles Standish into Le Capitaine Kilometre Deboutish. But no one has refashioned American Thanksgiving recipes for the metric measuring cups here in France. My wife, Elizabeth, descendant of the Puritan fathers…former resident of New York…a Yankee, in other words…and my mother – issuing from Southern Maryland tobacco farmers and the French bourgeoisie – will do their best.

And we will be thankful.

Regards,

Bill Bonner
The Daily Reckoning
November 22, 2007

We’re watching the news carefully.  Why?  Because we think something is going to happen.

The markets are in an uncomfortable – and potentially explosive – position.  On the one side, the unstoppable force of inflation seems ready to collide into the immoveable object of falling asset prices.

What will happen when they meet?

We don’t know, but we want to be in the front row when it does.

Yesterday, the price of oil rose to $99.  That’s inflation, dear reader.  The price of oil affects almost everything in the economy – everything that uses power…and everything that moves.  Meanwhile, the US dollar continues to slide.  That too, is inflationary.  Because as the dollar goes down, prices of things that dollars buy go up.  Lower dollar = higher consumer prices, especially for imports, which are a huge part of the U.S. retail market.

What else is inflationary?  Well, the price of gold rose over $800 in the aftermarket yesterday.  Gold is real money.  When the price of gold goes up, the value of the stuff that buys it – paper – goes down.  People are buying gold because they fear inflation is going to get worse.  Typically, gold holds its value in an inflationary trend.  Then, it rises in real terms…as more and more people turn to it in order to protect themselves.  Finally, gold skyrockets as speculators try to get rich on it.  So far, we’ve only seen the beginning of this trend.  If we’re right, there’s a lot more inflation where that $800 gold came from.

Inflation looks unstoppable.  But it is heading for something that looks like it won’t budge – deflation.  Housing is falling in price, not rising.  And a small percentage decline in housing takes a big chunk of "wealth" out of family budgets.

While the price of gold and oil were going up, the price of bonds was too.  The yield on the 10-year note fell below 4%.  That is deflationary action…reminiscent of the way bond yields fell in Japan as the country sank into recession, depression and deflation.  And get this, while stocks generally held up yesterday, Fannie fell again.  So did Countrywide.  And the 2-year interest rate swap spread reached a 19-year high.  This too is telling us that lenders are running scared…as they tend to do when credit shrinks and prices fall.

And what’s this? October retail sales were weaker than expected.  Corporate profits seem to be falling.  (Both of these things we regard as inevitable.)  And word on the street, via Bloomberg, is that this "holiday season may be the grimmest retail season in 5 years."

Everyday brings new estimates of the losses from the credit crunch.  Yesterday was no exception, with a report from the OECD putting mortgage-related losses at $300 billion.  The Financial Times adds that 1 in 10 hedge funds may go broke.  (Only one in 10?  We bet far more will go bust…)

All of these things are warning us that rising rates of inflation may not be a done deal, after all.

*** "How could the credit-rating agencies be so wrong consistently?" asked New York Congresswoman Carolyn Maloney.  "[They were] wrong on Mexico, wrong on Asia, wrong on Enron, wrong on subprime."

The next thing you know, she’ll propose a law – requiring the credit agencies to do a better job.  She might as well pass a law against sin.

Here is a comment from Charlie Gasparino, at TraderDaily.com:

"The bond raters make money through one of the most flawed and conflicted business models in corporate America. The bond raters are supposed to be working for investors (hence the name Moody’s Investors Service, for example) by assigning letter grades to a bond’s ability to make principal and interest payments. The reality is much different. In rating-world lexicon, AAA means that barring nuclear war, the bonds are good. D means they’re either nearing or in default.

"This conflict has posed huge problems. Municipalities have canceled contracts with rating agencies that took a negative view, and hired those who were easier graders. All that saber-rattling had an impact. I can remember how former New Jersey Governor Christine Todd Whitman attacked a particularly tough rater at Standard & Poor’s, who subsequently withdrew from the team that gave the green light to some suspect financing by the state.

"Such conflicts were at the heart of the rating agencies that missed Enron and a passel of other financial catastrophes. Kenneth Lay, after all, was a valuable client."

Herewith another thought about why the credit agencies make such colossal mistakes.

Credit rating agencies are really no different from house appraisers.  They are called in when an independent judgment is needed.  How much is that house really worth, the lenders want to know?  How good are those bonds, the buyers ask?  The question is essentially the same.  It is the answer that varies – depending on which way the wind is blowing.

When the housing market was flying, appraisers learned that if they went along with high appraisals their phones never stopped ringing.  If they refused to grease the deal through, on the other hand, spiders could build their webs over the appraisers’ doors and never be disturbed.  Likewise, the rating agencies are under similar pressure.  And being human, the people who operate them yield to it whenever they can get away with it.

In the great credit boom of 2001-2007, the risk of a friendly rating seemed practically non-existent.  Asset prices – notably houses – were rising so fast, if the appraisal was high, they’d soon catch up!  And in the corporate debt and derivative market, who could lose money when the price of money was going down?  There were plenty of bad deals financed during that period, but they couldn’t go broke – lenders wouldn’t let them.  Instead, they dealmakers were offered fresh financing on even better terms.

What this accomplished, of course, was merely to put off the day of reckoning.  And make it worse.  Instead of settling up on all those bad corporate loans, bad private equity deals, and subprime mortgages right away…billions, maybe trillions, more were added.  And now that the bills are coming due, people aren’t very happy about it.  Sanctimonious members of Congress are ranting and raving at the credit-rating agencies…as if they were supposed to single-handedly dump the punch out of the bowl and turn out the lights.

No, dear reader, it doesn’t work that way.  When the party’s rolling, everyone wants to join in.  Rating agencies.  Appraisers.  Wall Street.  Washington.  Investors.  Speculators.  Fannie, Freddie and the whole host of clowns and con-men that make up our delightfully entertaining financial markets.

*** Our old friend, Ron Paul, candidate for the Republican Party nomination for President, makes the news from time to time.  He’s proving that you can use the Internet to rally followers…to inform people…and to raise money.  Bravo…and smooth sailing!

"We’re going to send Ron some money," we announced to daughter Sophia last night.

"Why would you want to do that, Dad?  You’re just wasting your money.  Ron Paul is fine.  I like him.  Or, at least most of what I’ve heard about him.  But he can’t win. What’s the point?"

"Winning is over-rated," we replied.  "You know what Gen. Washington said during the Revolution.  ‘We can’t guarantee victory, but we can deserve it.’  Well, you can never guarantee anything.  As it says in the Bible, ‘the race goeth not always to the swift, nor the battle to the strong.’   I guess people meant by that that there is a fair amount of luck involved in everything.  But there’s something else.  If you can’t know how things will turn out, what can you do?  All you can do is to do the right thing.  And I’ll give you another saying, since I’m getting warmed up: ‘Fiat justicia pereat mundus.’   I don’t know if the Latin is correct.  But the sentiment certainly is: you follow the law even if the world should perish.  I think the idea is the same for all of these things.  All you can do in any situation is the right thing…not necessarily the smart thing.  You can’t know what the smart thing is, because you can’t know what tomorrow will bring.  But you can pretty much figure out the right thing.   So, you do the right thing.  You don’t necessarily get what you want.  Things don’t necessarily go your way.  But at least you will deserve success.  And deserving success is more important than actually getting it.  Doing the right thing is more important than doing the thing that turns out to be ‘smart,’ in other words.

"Well, what does this have to do with Ron Paul?"

"He’s the only candidate to come along – practically in my entire lifetime – who is worth voting for.  He doesn’t believe in robbing people with taxes so some people can pursue their own crackpot world improvement project.  And he doesn’t believe in going to war unless the country is attacked…and there is a declaration of war by Congress…which is what the constitution requires.

"All I’m saying is that you can vote for Ron Paul…and send him money…with a clear conscience.  You haven’t been able to do that for a long time.  Better take advantage of it."

Happy Thanksgiving,

Bill Bonner
The Daily Reckoning