The Battle Of Britain

In May 1940, Winston Churchill was already 65 years old. A lifetime of bad habits was evident. Portly, old- fashioned…with a gold watch chain draped across his stomach…and a jowly face, Churchill looked an unlikely candidate for a national champion in time of war. He was also an emotional man, easily moved to tears.

A couple of years earlier, Churchill had plenty of cause for tears. He had been an outcast — even from his own party. What’s more, he was practically bankrupt and nearly forced to sell his country house, Chartwell — until a friend paid off his debts.

But now, 60 years ago this month, his hour seemed to come round. On the tenth of May, he was named prime minister.

This month marks the 60th anniversary of Hitler’s war against France, Belgium and England. On the very day that Churchill became prime minister, Hitler announced, “Gentlemen, the offensive against the Western Powers has begun.”

The gentlemen to whom he spoke were Hitler’s staff, assembled near the frontier with Belgium, where they could hear the distant thud of artillery.

This was not, of course, the beginning of hostilities in Europe. Hitler had been shoving and punching his way around central Europe for several years. But this marked a new phase…a crucial phase.

What did it matter if the Sudetenland was governed by Germany or some other country? What difference did it make which flag flew over the buildings of Warsaw…or whose troops filled the bars of Oslo?

It didn’t seem to matter much. But in May 1940, the attack against France and England put the whole of Western political culture, and perhaps Western Civilization itself, in danger.

The war that began in May 1940 was a new and different war. It was not merely a war between armies — as had been so many earlier European wars. Nor was it even a war between nations. There were many German sympathizers among the English. And among the Germans were many who would prefer an English victory.

Nor was it the battle between political ideologies that it has been made out to be. Certainly, it was no contest between totalitarianism and democracy (or at least, it was not merely that). Hitler had been elected. And he had the support of a greater percent of Germans than typically elect an American president. Nor was it simply a fight between Nazism and the Western Democracy…because Hitler’s most lethal adversary turned out to be the Soviet Union, which was every bit as much of a totalitarian, anti-Western state as Nazi Germany.

The struggle was much deeper than that. It was a fight to determine the character of Western Civilization — and, more particularly, the role of the state. In the minds of Hitler, Mussolini and Stalin, the state was supreme and complete. Nothing, to paraphrase Mussolini, worth existing exists outside of the state.

The nemesis of this statist view is the one spawned in ancient Greece, nurtured in the Roman Republic and developed by the Anglo-Saxon tribes on the coast of what is today Germany…and then taken with them to England.

It was this gradualist, consensual, cooperative approach, and the respect for rules of behavior that have never even been written down or codified, that was at stake in the spring of 1940.

Hitler’s plan was simple and effective. His `sichelschnitt’ — or sickle-cut — would slice westward across northern France. He would trap the British and French armies in Belgium.

The plan went extremely well. Within a few weeks, France collapsed. De Gaulle vowed to fight on. But there was not much left to fight with. Belgium was soon out. All that remained to resist the Wehrmacht was the English. And Churchill.

For the next 80 days, England was alone against Germany. The United States and USSR were not yet engaged. After August 1940, Roosevelt came to Britain’s aid, with what historian John Lukas calls “un-neutral acts.” And Hitler turned his attention away from Britain and towards the Ostfront — Stalin.

But for that period, May to August 1940, only Churchill stood in Hitler’s way. And Churchill, and perhaps only Churchill, understood how little resistance Britain could muster.

Arriving at Buckingham Palace on May 10th to officially take the reigns of English parliamentary government, Churchill’s only bodyguard, inspector W.H. Thompson, congratulated him: “I only wish the position had come your way in better times, for you have an enormous task.”

Tears came to Churchill’s eyes. “God alone knows how great it is. I hope that it is not too late. I am very much afraid it is. We can only do our best.”

More tomorrow…

Bill Bonner

in Britain London, England May 18, 2000

*** “Boo!” That’s the news that greets U.K. investors this morning., described as an online sports retailer, became the first major Internet casualty in Europe. The company was worth more than $400 million last year at this time. But that was before it spent the $135 million it had raised.

*** “We have not had control of costs,” explained the CEO, with perhaps a bit of English understatement. The dot-com was spending money at the rate of $1 million per day. London’s major stock index, the FTSE, fell 122 points.

*** Meanwhile, “Alan Greenspan is locked-in to a course of action,” explained “Strategic Investment’s” Lord Rees- Mogg to me yesterday. “He has to continue increasing rates until he breaks the bull market psychology. Until he does so, consumers will keep spending too much, and investors will seize upon every piece of news — good or bad — to take stock prices up to ridiculous levels.”

*** The fever has to be broken. Otherwise, inflationary pressures keep building. The economy “overheats” — increasing spending and the demand for labor. And/or the stock market continues to create new “wealth.” The supply of money increases, in other words, or the demand for it. Either way, it’s inflationary…

*** Investors must have awoken yesterday morning and realized that continued rate increases would not be good for stock values. Duh…

*** The Dow sold off by 164 points. The Nasdaq — which many people believe is immune to interest rates — fell 72 points.

*** The dollar was up against the euro. Euros are now below 90 cents each.

*** Is a bear market anything to worry about? So what if stock prices go down for a while? Richard Russellprovides an insight: “Prof. Robert Shiller’s new book, `Irrational Exuberance’… shows four extremes in price/earnings ratios going back over history. The first occurred in 1901 when P/E ratios rose to approximately 25. The second was 1929 when P/E ratios rose to about 33. The third was 1966 when P/E ratios rose to about 24. And the most recent was this year when P/E ratios rose to roughly 44.

“The aftermath of the first three instances, 1901, 1929 and 1966, was that the total real (inflation-adjusted) returns AFTER HOLDING FOR 20 YEARS for investors in stocks was -.02 for those who held stocks after 1901. It was 0.4% for those who held their stocks after 1929. And it was 1.9% for those who held their stocks following 1966.

“The implication is that for those today who are holding and will continue to hold their stocks for the next 20 years, there will be little or no real return. The reason: you are holding stocks today that are ridiculously overpriced based on all historical experience. It will take the next 20 years for earnings to catch up to today’s prices.”

*** “Since mid-April, oil and other commodities have surged,” notes Bill King. “A new round of inflation will appear as gasoline, oil, food and industrial commodity prices are much higher. Unless they tank in the next two weeks, May PPI & CPI will be substantially higher…”

(To subscribe to Bill King’s daily e-letter, call 1-800- 433-1528 and ask for code 3457.)

*** But April’s CPI, which came out a couple days ago, showed low inflation. “How did BLS get a benign April CPI?” asks King. “They got energy -1.9% with heating oil -4.8%, gasoline -4.1%, apparel -0.5% and transportation – 0.7%, the biggest decline in three years. They limited electricity to +0.2% and housing to +0.1%. Heating oil was 64 cents in the beginning of April. It fell to 60 cents on 4/11, then rose to 66 cents. Gasoline started April at 78 cents, fell to 72 cents, then surged to 80 cents. Electricity was similar to heating oil except is rallied even more sharply due to the unseasonably warm weather in the East. BLS apparently sampled prices on the low day of the month…Housing costs are totally bogus.”

*** One Internet columnist in California has begun what he calls “The Most Outrageous Housing Deal contest” in which he invites readers to send in examples that illustrate the mania in the S.F. Bay area. As imagined, “the hills are alive with deals that have rocked people back on their heels.” For example: “There’s…a four- bedroom house in Presidio Heights that was listed for $2.4 million. It sold for $5 million.”

*** Then there’s: “A prominent local businessman, known for his generous philanthropy, was at his Atherton home one recent Friday when the doorbell rang. A real estate agent was on the porch and said he had a client sitting in the car at the curb. The client wanted to pay $25 million for the businessman’s home. But the businessman said he wasn’t interested in selling, hadn’t even thought about selling. `Take the weekend to think it over,’ said the agent. When the agent returned on Monday, the offer was $45 million.”

*** The front page of “The Times” says that Bill Clinton is considering returning to Oxford — his old alma mater — to teach.

*** And Cherie Blair, the wife of the prime minister, was rushed to the hospital yesterday. She is expecting a child any day…the first prime minister’s wife to have a baby in 150 years.

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