The Ghost Of Christmas Present

The Daily Reckoning Presents: A DR Classique, first run December 24, 2000…

“Fezziwig, not Scrooge.”

This was my mother’s advice when I began my business career.

Hard to imagine, but that was already more than two decades ago. We celebrated our 22nd annual Christmas party on Friday evening.

It seemed as though everyone had the same idea for Friday night.

On Mt. Vernon Square, people dressed in gowns and tuxedos, suits and jeans, often carrying shiny, wrapped presents under their arms, made their way to parties. The Engineer’s Club was lit up with holiday lights…so was the women’s club next door. We outdid them – we had so many Christmas lights strung up that the whole city of Baltimore seemed to go dim when we turned on the switch. And whatever power we didn’t consume in light was promptly converted to decibels – Thom’s blues band entertained us with holiday favorites like “Dead Blind Man’s Christmas Blues” and “Mean Mrs. Santa’s Got Her Clause All Over Me.”

It was not the kind of Christmas music I recalled from my childhood. But we have among our employees Muslims, Hindus, Jews, Kwanzaans, nail biters, skinheads, and vegetarians.

The nice thing about Thom’s band is that it was equally offensive to everyone, which seemed to be in keeping with the spirit of Christmas. The music was so loud that we couldn’t hear ourselves talk, which was okay, inasmuch as we had nothing to say anyway. So we shouted out our holiday greetings and lip-read best wishes for the new year, neighbors a block away called the police to complain – and the party was a big success.

When I began my business the bubble du jour was in the gold market, where the price of the yellow metal had just hit its zenith – reaching above $850 an ounce. Just as, today, we recall Lenin’s prediction of using gold for the floors of public lavatories, back then we spoke of using stock certificates to paper the walls of our storage closets. Stocks were beneath contempt.

People were less interested in getting rich than they were in avoiding poverty. They did not dream of becoming millionaires so much as they had nightmares about dying paupers.

In the 2nd year of Jimmy Carter’s presidency, America’s perch on top of the world seemed much more precarious than it does today. It was not at all obvious that the greatest bull market of all time was about to begin.

At that time, stocks yielded as much as bonds yield today – more than 6%. But investors wanted neither stocks nor bonds. They wanted hard assets and natural resources. Oil seemed like the investment of the future. Buying Exxon seemed like the “sure thing.” Buying gold seemed like an even greater “sure thing”, for even if the economy collapsed, as was widely predicted, the price of gold would rise as the dollar became worthless.

Stocks generally, were viewed as a dying asset class in 1980…one that was given last rites by the classic Business Week cover of a couple years later…the very bottom of the market…”The Death of Equities.”

It was hard not to recall these things as I saw many of my old friends at the party, many of whom you may know, if not in person, by reputation.

Jim Davidson was there. So was Lynn Carpenter. I have known both of them from childhood. We all failed to grow up together. Jim has grown a little more distinguished looking, and a lot richer. But otherwise, I wondered how much had really changed.

Jim and I got together with Mark Hulbert to launch the Hulbert Financial Digest, back in 1978. That was the beginning of our publishing business. We were curious about what kind of investment advice really paid off. We thought investors would be too. Mark Hulbert, a student of philosophy whom Jim had met at Oxford, took up the project with enthusiasm and continues to do it even now.

In 1980, our contrarian instincts told us that gold and natural resources were probably overbought. Doug Casey predicted a bull market in stocks in the early 80s. Gary North even recommended buying Microsoft in 1986 – an investment that turned out to be the call of the decade.

Still, we were all “gold bugs” – more or less. We were convinced that inflation would destroy the dollar, bonds and the stock market – it was just a matter of time! And maybe it still is. But in the 20 years since, gold did not rise. Not $100. Not $10. Not $1. Not even a penny. Instead, it fell – in real terms – by about 80%. The dollar did not move into Weimar-style hyperinflation. Inflation declined. The federal budget deficit did not fly out of control. It almost turned into a surplus. Stocks did not die. They enjoyed the greatest growth cycle ever…

And here we are – Christmas, Anno Dominus, 2000. Richer? Maybe. Wiser? We can hope. Older? Definitely.

“Mishter Bonner,” said one young woman, in a red velvet dress, late in the evening, slurring her syllables a bit, “I’ve wanted to say this to you for a long time. I love this company. I mean it’s great.”

She was standing near the fireplace in the front room, with the Christmas lights adding a glow to her cheeks. I had just finished my annual ritualized humiliation. Thom had invited me to join the band. I sang the lead to that Christmas morning classic, “You Can’t Always Get What You Want.” I couldn’t quite remember the words…or the music. But other than that I’m sure my performance was smashing.

Holding a drink in her hand, the young woman looked like someone I had seen in a liquor ad. Who was she? I didn’t know. Someone’s wife? Someone’s girlfriend? An employee in the accounting department?

“But y’know something…there’s just one problem…”she went on.

“Oh?” I replied, Fezziwigishly.

“C’mon…” she continued, “I mean, no offense, but this business sucks. Newsletters are gonna be out of business soon. Everybody’s giving away information on the Internet. Like, you can get, I mean, like all you want.”

“Oh no,” I reminded her, “you can’t always get what you want. And you definitely can’t get all you want of it.”

Then, worried that I had placed an obstacle in her path…a puddle of repartee she couldn’t cross gracefully…I laid down my cape:

“Tell me more…” I said, honestly. I wanted her to go on talking. She was talking nonsense, but a man never tires of nonsense from a beautiful woman.


While this was happening, Ebenezer was being set upon too. But his was no earthly beauty. No beauty at all, in fact.

“Come with me,” said the spirit. “I am the ghost of Christmas Present. Look upon me. Touch my garment.”

Ebenezer did so and instantly found himself flying through the streets of Baltimore. Even from what seemed like hundreds of feet up in the air, he could hear the music blaring on Mt. Vernon Square. “What a strange time for a rock concert,” he muttered to himself.

Christmas lights were run up the tower of the monument to George Washington and caused the whole square to glisten festively.

But the ghost did not pause. He continued his flight across Charles Street and over to East Baltimore. Finally, he stopped in front of a modest row house.

“What is this?” asked Ebenezer of his guide.

“This is a house.”

“Yes, I can see that,” Ebenezer pursued the issue, “but why are we here?”

“That is for you to answer,” replied the phantom.

Ebenezer looked in the window. It was a very modest house, of the sort you could have bought with a few shares of Cisco a year ago. Now it would take twice as many shares.

And there was a family…and yes…he recognized now where they were. This was the house of his old trading partner, Bob. He had not seen Bob in 15 years – not since the two of them split up after their hedge fund went bust.

Poor Bob, he had given up investing altogether and gotten a job at a mining company. Silly bugger, thought Ebenezer, he saved his few pennies and bought gold coins. He probably has hundreds of them buried in the yard. Not worth the trouble of digging them up.

And he could have bought growth stocks…!

Bob’s wife and three daughters were talking in the front room. How pretty the girls were. And so full of life.

“Martha,” said Bob’s wife, “Dad will be so glad to see you. We have so much to do to get ready for Christmas. But sit down in front of the fire. It will be so nice… now that you’re here.”

“Oh…there’s Dad’s car,” said another of the girls, with red, curly hair like that of a doll, “Hide, Martha! Let’s surprise him.”

So Martha hid herself, and in came Bob. And there upon his shoulder was Tiny Tim. Alas, he bore a little crutch, and had limbs supported by an iron frame.

“Now, where’s our Martha?,” asked Bob, looking round.

“Not coming,” said his wife.

“Not coming,” said Bob, with a sudden deflation of his high spirits, “not coming for Christmas?”

Martha didn’t like to see him disappointed, even if only in jest; so she came out from behind the closet door and ran into his open arms.

“Oh there you are! I knew you wouldn’t disappoint us. It wouldn’t be Christmas without you and all the children.”

“And how did little Tim behave in church?,” asked Bob’s wife.

“As good as gold,” said Bob, “and better. Somehow he gets thoughtful, sitting by himself so much, and thinks the strangest things you ever heard. He told me, coming home, that he hoped the people saw him in the church, because he was ‘disadvantaged’ and it might be pleasant to them to remember upon Christmas Day, who make lame beggars walk, and blind men see.”

Ebenezer could barely suppress a “humbug.” For he knew there were advances coming in the biotech and microtechnical sectors that would cure cripples and blind people. He had seen the IPOs go up by 10 times. It was just a matter of time until all of life’s inconveniences were done away with. And anyone who cared to could be rich too – they just had to stop being so stupid and stubborn, like Bob. Get with the program, for Pete’s sake.

The evening dinner progressed, with Ebenezer and the ghost watching. The table was set, the whole family seemed in motion. Everybody had something to do… and something to say, well, about everything!

And such merriment!

“A wonderful dinner,” said Bob to his wife. “And the pudding was sensational.”

His wife confessed that she had doubts about the pudding. Even in a low-inflation world, Christmas puddings can be expensive. And, in truth, it was a rather humble pudding, Ebenezer thought, for such a large family. He had seen that much left on the used plates at the Deutsche Bank/Alex Brown party the day before.

But no one said a word to suggest that it was a small pudding. Any member of the family would have blushed to hint at such a thing.

And when it was over, the cider was brought out and passed around. Bob proposed a toast: “A merry Christmas to us all, my dears. God bless us.”

Close by his side sat his son, Tim. Bob held the withered hand in his, as if he feared the boy might be taken from him.

“Spirit,” said Ebenezer, with an interest he had never before felt, “tell me if the boy will live.” Even with all the advances of medical science, Ebenezer somehow sensed the answer was by no means certain.

“I see a vacant seat,” replied the Ghost, “in the poor chimney-corner, and a crutch without an owner. If these shadows remain unaltered by the Future, the child will die.”


By the time the ghost of Christmas Present left Ebenezer our own Christmas party was coming to a close. The guests were leaving, one by one, and in small groups. Arm in arm, many of them made their way up to the top floor of the nearby Belvedere Hotel where they continued to enjoy a night of good cheer – until the good cheer was gone and the night itself was used up.

But I was worn out and retired to my small apartment around midnight. In less than 10 minutes, I was asleep in my bed, with visions, perhaps not of sugar plums but maybe of some kind of plums, dancing in my head.

Around about 4 AM – I looked at the clock – my sleep was disturbed. There was a tremendous racket on the steps. What ghosts were these I wondered?

Bill Bonner December 22, 2001

P.S. I will conclude this story on Tuesday – Christmas Day.

The last holiday weekend before Christmas was a disappointment, according to early reports. “Holiday shopping weekend wilts,” says an MSNBC article. Even with “rampant discounts,” shoppers were “frugal.”

People are beginning to notice that prices are falling…so they wait for a better deal. Or, they decide they don’t really need what they were going to buy anyway…they’d rather have the cash than the thing.

Long bond yields fell to 5.45% last week – the bond vigilantes seem to have lost the trail of inflation and given up the pursuit. Both personal income and personal spending fell in November.

China’s economy is growing at 7% this year – by undercutting everybody else’s prices. Japan is desperately trying to drive down the yen just to stay competitive.

Stocks were up last week…in the traditional Santa Claus rally. Investors expected a “stimulus package” from Congress. But the pols left town without additional larceny. No stimulus package was passed, because it was not thought necessary. Everyone seemed sure that a recovery was coming anyway. Besides, the federal government is facing the sharpest drop in tax revenue in a decade.

Incomes falling…prices falling…tax revenues falling…price competition rising worldwide…consumers reluctant to spend. The deflationary trend seems to be gathering momentum.

But let’s go to Eric’s report:


Eric Fry in New York City…

– The stock market flew through a fair amount of turbulence last week. But by Friday, investors had landed safely at their destination. The Dow and the S&P 500 ended the week up 2.2% and 2%, respectively. The Nasdaq ended the five-day span about where it started.

– The Nasdaq has certainly earned a rest – having soared almost 40% from its September 21st low. The Dow and S&P have gained about half as much. Not a bad year…for only three months.

– Notwithstanding this rally’s impressive gains, more than a few fundamentally oriented investors are scratching their heads. They wonder, “How can a market so richly valued and with such dubious earnings growth prospects rally so brilliantly?”

– Waren Buffett provides an answer. Here’s a short preview: the stock market does not always reflect underlying economic trends.

– In a recent Fortune magazine story, the Oracle of Omaha demonstrates that the market tracks fundamental trends over the long-term; but over the short-term, anything goes. He breaks down the 20th century into six distinct time-frames – three bull markets covering about 44 years and three “periods of stagnation, covering some 56 years.”

– “Between 1919 and 1920, the country was chugging ahead, explosively expanding its use of electricity, autos, and the telephone,” Buffett says. “Yet the market barely moved, recording a 0.4% annual increase…In the next period, we had the market boom of the ’20s, when the Dow jumped 430% to 381 in September 1929. Then we go 19 years – NINETEEN YEARS – and there is the Dow at 177, half the level where it began. That’s true even though the 1940s displayed by far the largest gain in per capita GDP (50%) of any 20th century decade. Following that came a 17-year period when stocks finally took off – making a great five-to-one gain.”

– Then over the 17 years beginning in 1964, Buffet notes that the Dow gained exactly one-tenth of one percent – from 874.12 at year-end 1964 to 875.00 at year-end 1981.

– Following that, between 1981 and 1998 the Dow’s value increased more than tenfold. Buffett continues: “You couldn’t explain this remarkable divergence in markets by, say, differences in the growth of gross national product [remember, that’s what we used to call GDP].”

– In fact, during the dismal stock market years between 1964 and 1981 GDP grew 373% – or more than twice as fast as it did between 1981 and 1998, the period when the market exploded to the upside.

– So what’s the point of this financial history lesson? Largely, that for long periods of time EXPECTATIONS can influence markets far more than the underlying economic trends themselves. Usually, these expectations are based upon recent experience.

– “People are habitually guided by the rearview mirror,” says Buffet, “and, for the most part, by the vistas immediately behind them.”

– So let’s flash-forward to the present. What vistas do investors now behold in their rearview mirrors? Perhaps they see the beautiful, gently rolling hills of “Buy- and-Hold,” or the majestic peaks of “20% Annualized Returns” or the serene meadows of “Stocks for the Long Term.”

– There is almost nothing about this soothing rearview panorama that warns of the trouble that might lie ahead. Around the next turn we might stumble upon a forbidding landscape – one dotted by landmarks like Lake Capital Loss, “Sell-to-Whom?” Gulley and “Buy High-Sell Low” Ravine.

– But for now, Wall Street’s rear-gazing strategists predict good times for the stock market.

– The Oracle of Goldman, for example, the eternally bullish Abby Joseph Cohen is – surprise! – bullish about stocks in 2002. Last year, she reigned in her optimism a bit by predicting that the S&P 500 would rally only 25% in 2001. So far, she’s off by only about 30%, but who’s keeping score?

– Did Cohen’s wildly errant prediction cause her to rethink her outlook or to temper her bullishness in any way? Banish the thought. She’s back at it again this year, predicting large gains for the market. Maybe 2002 will be a better year to be eternally bullish.

– But Cohen has plenty of company. “Strategists at every major securities firm, who on average predicted the S&P would rise 21% [in 2001], missed the second straight annual drop in the stock market,” Bloomberg News reports. “Their failure underscored criticism by investors, regulators and lawmakers that analysts are reluctant to cost their firms business by recommending against stocks.”

– All but one analyst is predicting gains for the stock market again this year. The dissenting voice is Douglas Cliggott of J.P. Morgan Chase.

– “Almost nobody saw the recession coming,” writes James Grant, “but multitudes believe they see it going.” (


Back at Ouzilly for the Holidays…

*** “The Enron collapse,” says the Prudent Bear’s Doug Noland, “is an unfolding story of extraordinary intrigue and complexity, with significant ramifications for the perception of soundness for ‘sophisticated’ Wall Street ‘structured finance’ and, as such, the stability of the U.S. financial system.”

*** Europe is cold. We drove down from Paris on Saturday morning – along with what seemed like half the city’s population. The autoroutes were clogged with traffic heading out to the country for the holidays. Our van was so packed with luggage and Christmas packages that people in passing cars pointed and laughed at us. Elizabeth had bought a richly-decorated Christmas tree – about 3 feet tall – and decided to carry it down to the country. There was no place for it, except on her lap.

*** Our progress was not helped by the weather. The snow was pretty, but somehow ice must have worked its way up into the brakes. Coming around the corner in a small town, I pushed on the brake pedal and got no reaction. The pedal wouldn’t even go down.

*** We were so tightly packed we had no need for airbags. I downshifted to slow the car (manual transmissions have their advantages) and almost miraculously managed to slide the car into a breach in the stone wall next to the road. Then, after a moment or two of silence, I was able to extricate the car from the snowy bank…free the brakes by pumping them…and continue on the way.

The Daily Reckoning