Thatched Roofs

I will arise and go now,

And go to Innisfree,

And a small cabin build there,

Of clay and wattles made;

Nine bean-rows will I have there,

A hive for the honey-bee,

And live alone in the bee-loud glade.”The Lake Isle of Innisfree

W.B. Yeats

I saw no house in the Innisfree area built of wattles and clay. People do not build of clay and wattles anymore. Nor even of stone. They build with cement blocks. These are stuccoed in various ways – often so as to leave an exposed surface of pebbles. Sometimes the stuccoed surface is white. Often – especially on the older houses – it is the color of gray cement.

There are many houses under construction in Ireland. A typical house is a rectangle of cement blocks with a slate roof. The more up-market houses include dormer windows, skylights, and sun-rooms. They are solidly- built, comfortable and unattractive.

Man doesn’t need much to live. A few bits of food and shelter are all it takes to sustain life. Beyond that, the only things that really matter are work, love, and beauty. With the advent of the Internet, knowledge workers can ply their trade almost anywhere. So, they will go – ceteris paribus – where love or beauty take them.

Some will choose to relocate from the suburbs of London or Newark to the rolling hills and small towns of Donegal, Ireland’s northernmost and most beautiful county.

But all Ireland is a beautiful place. The fields and pastures are separated with stone walls. There are green forests, glens, cool rivers, shining loughs and lakes – the whole place sparkles.

You don’t think of Ireland as a beach destination – but the beaches of Donegal are extraordinary. I told you about one of the beaches we visited. We had to hike for half an hour through sheep pastures to get to it…but once there, we had it all to ourselves. The boys ran along the beach as though in a painting by Winslow Homer. But instead of breeches and straw hats, our boys were naked. Their bathing suits were still wet from a swim in the hotel pool. They played among the rocks and splashed in the Atlantic waves while Elizabeth and I hiked up to the top of the adjacent hill – from which we could see for many miles out into the ocean…or back over Ireland. Wherever we looked, the view was stunning.

From our perch, we could see four or five farmhouses. They were simple rectangles, stuccoed in cement with slate roofs. One was painted a light green. The others were white. Also visible were the remains of another cottage – with stone walls still standing, but little else to show for the labors of generations.

Occasionally, you will see the traditional two-room Irish cottage – with whitewashed stone and thatched roof. Or, here and there, you will spot a Georgian house with an elegant portico or an ivy-covered front. Take a long look – because most of the domestic architecture of Ireland is ugly.

You may wonder what qualifies me to criticize architectural design. My answer is that I know at least as little about it as I know about investing. And in a curious way – the two intersect.

Everything happens at the margin. Including beauty. In France, it is rare to see a really ugly house. In Ireland, it is rare to see a really pretty one. And yet, they are constructed in roughly the same way, at the same cost per square foot, and following the same basic pattern. But for his money, the Frenchman gets a beautiful house – the Irishman gets one that is only passable.

For the same investment, a Frenchman gets a better return on his money. And, as a consequence, a Frenchman is richer – whether he owns a house or not. Driving along on the road from Niort to Limoges – you are repeatedly delighted by the houses you pass along the way. Even run- down farmhouses have a certain style and charm. I almost run off the road at every turn – so intently do I study the houses I pass.

I am speaking of the domestic, vernacular architecture – not tract housing or commercial buildings, which are abominable almost everywhere. Most regions of the world evolve their own distinctive housing styles – which are suited to the climate and flattering to the surrounding countryside. The Swiss chalet, the white towns of the Spanish mediterranean, the Pueblo style of the American southwest – each style provides a distinctive architectural dressing that is not only functional, but decorative.

In Ireland, the house that evolved over the centuries – the thatched cottage – was a pretty building. The white- washed stones had pleasing shapes and textures…and the thatched roof softened the chilly, white surface of the stones. The overall effect was harmonious and inviting. But when the thatch was replaced with slate or tile, the house looked small, boring and harsh.

Owners have tried to overcome these problems in a number of ways. Some have put up decorative stone here and there – including some phony stone, like the form stone you still find on Baltimore row houses. Others tried bright colors – either on the trim…or on the house itself. Still others added doodads and geegaws – vestibules, columns, picture windows…whatever they could think of to tart up the front of the house.

None of these solutions work. Instead, they make the houses look like freaks – like so many of the houses in North America – with strange and unnatural collections of shapes and colors.

The French, meanwhile, took the same basic structure but instead of the gray-cement stucco, they use an earth- colored material called “chaud.” Or, they leave the stone exposed. In either case, windows and doors are framed with stone or stucco – to set them off from the surrounding walls. Also, they add shutters. Houses in Ireland do not have shutters. The cement walls are blank and cold. These marginal differences make a big difference in the way the houses look.

The solution for Irish domestic architecture is simple: put back the thatch…or expose the stone. Or cover the whole thing in ivy.

Your correspondent back in France, where every house is above average.

Bill Bonner

Ouzilly, France August 4, 2000

*** The excitement yesterday was in the Big Techs – especially Cisco. CSCO was $81 in March – but fell as low as 58 « in early trading. The whole Nasdaq was down 137 points.

*** But both CSCO and the Nasdaq bounced. CSCO ended the day at 64 3/8 and the Nasdaq ended up 101 point.

*** “There are a whole lot of people out there who want to use this sell-off as an opportunity to pick up these high-flyers on the cheap,” said Charles Payne, head analyst at Wall Street Strategies. On the cheap? Cheap, of course, is relative. Cisco is cheap at $58 compared to what it was in March. Amazon is very cheap at $40 compared to what it was in December. But by more fundamental measures – say, price compared to earnings, sales, or book value – both companies are very expensive. Cheap lies ahead.

*** The Dow rose 19 points. This brings the Dow to a loss of about 7% for the year. The Nasdaq’s loss is 7.6%.

*** But the big news – which no one seemed to notice – was that the dollar also rose. You can buy a euro for just a little more than 90 cents. And if the dollar keeps going up – it will soon break its record high against the euro and call into question my whole outlook.

*** Every major index has topped out. The dollar is not only the most recent but also the most important. A high dollar is what supports the whole bubble. Imagine the US economy as a stock. It loses money every day – about a billion dollars of net current account losses. But foreign investors keep buying its stocks and bonds. So, the money is still coming in. A rising dollar means that more money is coming in than is needed to cover the losses.

*** But someday soon – as I have been saying for long enough to prove that my timing is bad – investors will tire buying U.S. paper…the dollar will fall…and the bubble will be over. It looked as though the end had come on May 17 – when the dollar hit a peak against the euro and began to slide. Now, the dollar is either in a bear market rally…or in a new bull market move. We shall see.

*** Bank Credit Analyst reports that money supply growth is slowing. MZM, M2 and M3 – for those who like such things – are all in declining growth patterns. New home sales were also in a decline in June.

*** And Japan’s Nikkei Dow swooned again. It fell 2 1/2 percent last night.

*** Another minor point I have made is that capitalism, as we have known it, is doomed. It is drifting down a river of no returns. Stock options are supposed to be a way of rewarding key employees for superior performance. When the employees’ efforts increase profits and build shareholder value, the owners share a little of the upside with them. But Amazon’s employees have not made a penny in profit. And thanks to their exertions, shareholders have watched their stocks fall 72% since the beginning of the year.

*** Since the stock price had fallen so much, the options held by Amazon’s employees were worthless – as they should have been. So Jeff Bezos simply issued a new batch of options to senior employees – priced at $30. Amazon, lest you had any doubt, is not run for the benefit of capitalists – but for the benefit of customers [Bezos calls it a ‘customer-centered’ company] and, more importantly, employees. The workers are exploiting the capitalists.

*** Gold fell yesterday – it is back to $279/oz. And platinum melted down – losing $40.70. Is it true that gold is merely a relic of the past? Is it no longer needed as a store of value? Maybe – more about this next week.

*** The wind was strong across the British Isles last night. Minutes after the Normandy left Rosslare, Ireland, she began to pitch and moan. Jules turned a little green at dinner and suddenly started to throw up. I rushed him back to the cabin and then felt a little queasy myself. Soon, the whole family was racked out – except for the two youngest, Henry and Edward, who enjoyed a Pokemon movie before retiring for the night.

*** Overnight, the seas calmed a bit. Still, we were all happy to back on dry land. We drove off the ferry at Rosscoff, Britany – and headed south. I have come to appreciate the sturdy diesel engine in our Renault van. But after a while, I noticed it was losing power. Then, I saw what appeared to be diesel fuel on the rear window. Closer inspection revealed that the whole undercarriage was soaked in fuel. Hmmm… A Frenchman, smoking a cigarette, came over to offer advice. Maybe that is not such a good idea, I explained.

*** But we were able to limp to a garage and get the broken fuel line fixed for about $20. Finally, we arrived back in Ouzilly about 8 PM, wondering why we ever left.

*** Back to work – I notice that the papers are full of commentary on the Republican Convention, the upcoming election, and the two major candidates. I pity the poor writers, who have nothing to say…and the readers, who have nothing better to do. Maureen Dowd worries that George W. is an elitist. The NY Times quibbles with the Republican commitment to “inclusion.” The Washington Post frets that Bush and Cheney are oil men. I feel I need to read this stuff to keep up with what people are thinking. Then I realize – they are not thinking at all.

The Daily Reckoning