Tides Of Fortune

Our legions are brim-full, our cause is ripe:

The enemy increaseth every day;

We, at the height, are ready to decline.

There is a tide in the affairs of men,

Which, taken at the flood, leads on to fortune;

Omitted, all the voyage of their life

Is bound in shallows and in miseries.

On such a full sea are we now afloat;

And we must take the current when it serves,

Or lose our ventures.


Julius Caesar

Act 4, Scene 3

Samuel P. Huntington has an answer.

All of Christendom sits on the edge of its chair…waiting, wondering, eager for some explanation…How come they hate us so?

How could smart, well-educated young men live among us for years, enjoying our entertainments, our hospitality and our standard of living and still hate us so much they would die?

And what is this strange new world we have entered? Enemies strike but refuse to identify themselves…or to take credit for one of the most successful surprise attacks in all of history. Someone sends deadly disease through the U.S. mail…but, for what reason?

For decades, America’s best and brightest have found employment in universities, think tanks and government and devoted themselves to figuring out how U.S. power – from the world’s only undisputed, gold belt superpower – could make the world a better place. MacNamara, Rusk, Bundy, Kissinger, Brzezinski…Rice – our nation turns its weary eyes to you, once again, as foreign policy once again dominates the headlines, and our thoughts. Tell us what is going on and what to do about it.

MacNamara and his crowd, you will recall, got 58,000 Americans killed in Vietnam with their “domino” theory of world politics. Fortunately, MacNamara lived long enough to express his regrets.

Brzezinski worked a reverse magic in Afghanistan, for which he has no regrets. Gary North revealed an interview with Brzezinski that appeared in the Nouvel Observateur in 1998. The former national security advisor told how the Carter administration aided anti- Soviet fighters in Afghanistan and thereby lured the Soviet army into its own Vietnam. “Regret what?” said Brzezinski, “That secret operation was an excellent idea. It had the effect of drawing the Russians into the Afghan trap…”

The Soviets stormed into the Afghan trap like the Americans into Vietnam. In 10 years of fighting, they lost 15,000 men…and demoralized their army.

Osama bin Laden, with American support, learned his trade fighting the Russians. He saw how the Russians hadbeen trapped…and how the war created so much misery and destruction that even his moronic notion of government was welcomed with relief…as long as it promised stability.

And now it is Osama who has set the trap…and the Americans who have flown into it.

But today’s letter is not about bin Laden…nor about Brzezinski. It is about one of Brzezinski’s assistant wunderkind in the Carter Administration: Samuel P. Huntington. No good explanation for what is going on in the world has come forward. So we bring you a bad one.

“The Western world,” writes Huntington, “having reached maturity, no longer has the economic dynamism or the demographic dynamism to be able to impose its will on other societies.”

Why does the West want to “impose its will” on other societies? According to Huntington, it’s because it believes its culture is “universal.” This notion of universality, he says, “has three defects: it is false, it is immoral, and it is dangerous.” It leads as naturally and necessarily to imperialism as a barroom insult leads to a brawl.

It is a ridiculous idea, but typical of the thinking done by foreign policy wonks. Their ideas become so big, so abstract, so remote from anything anyone has ever seen, felt or actually experienced that they are pure nonsense. Menacing nonsense.

Huntington launched his reputation with an article published in Foreign Affairs magazine in 1993, entitled “The Clash of Civilizations.” The title reveals the idea: vulgarized as “us against them.” And the outcome is not at all certain.

“Westerners think that their civilization has attained a position in the world of unprecedented dominance,” writes Huntington, “while at the same time, Asian and Islamic and other societies gain strength.” As Brutus said of the Phillipian force against him, “Our legions are brim-full, our cause is ripe…[while] the enemy increaseth every day.”

“All civilizations go through the same stages,” explains Huntington, in a self-evident insight worthy of the Daily Reckoning, “emergence, development and decline. Western civilization differs from other civilizations not by the manner of its development but by the special character of its values and institutions: Christianism, pluralism, and individualism.”

But rather than let the great forces of nature have their sway, Huntington suggests that the U.S. take action to protect these qualities through a variety of preposterous initiatives:

-Integrate the U.S. more closely with other Western states to form a more solid bloc

-Bring marginal or border states – such as Slovenia and Croatia – into NATO

-Encourage the “westernization” of Latin America and “maintain the technological and military superiority of the Occident compared to other civilizations.”

Right. Let’s put those on our “to do” list for today.

An idea may be absurd, but that does not make it unpopular. Even Daily Reckoning readers see a “clash of civilizations” in our present circumstances.

“Islamic culture…and Islam itself…,” writes a Daily Reckoning reader, “is naturally antagonistic to us. It is always trying to expand at our expense.”

But while Germany crossed the Rhine to invade France three times in the space of 70 years, (the source of the French saying, “give a German a gun and he heads for France”), the last incursion by Islamic forces into Europe was in the 8th century…when they were beaten back by Charles Martel at the battle of Tours. Not exactly the kind of thing you can set your watch by.

The world of Islam, like Christendom, is full of mixed aspirations, doubtful piety, and confused thinkers. Somewhere in Cairo or maybe Jakarta, there is a theoretician of the Muslim persuasion – every bit as well educated, as highly respected, and as ridiculous.

Bill Bonner
October 26, 2001

“On the one hand you say this recession is more like the Great Depression than the little cyclical recessions we’ve had in the postwar years,” writes a Daily Reckoning reader. “But you also say that war won’t pull us out of it. How can you be so sure? Didn’t war pull us out of the ’30s depression?”

Ah…but that was different, replies your editor. In 1939, the U.S. economy was at an epic low. Then, the war did “get it moving” again. The entire nation was mobilized; suddenly, factories had orders for war supplies. And suddenly, people found jobs and money circulated.

Statistically, it looked like a boom – and it was, in a sense. But instead of turning out plowshares and refrigerators, the nation’s factories were building tanks, guns and bombs. Living standards actually fell – as consumer products were rationed, or disappeared altogether, to make way for the war effort.

Compared to WWII, the present war adds little to U.S. economic activity. Few new uniforms, new rations, or new jeeps are needed. Instead, it’s a new kind of war – one that will have few positive effects on the economy.

Today, the Fed tries to encourage consumers with low interest rates…but during WWII consumers were discouraged with ratio coupons.

Today, stocks are worth 150% of GDP…but at the beginning of WWII they were valued at only 20%.

Today, America’s confidence in the future is at an epic high. A Reuters poll released yesterday showed Wall Street economists almost unanimously expecting an economic recovery early next year. Back then, people had just lived through a decade of recession, depression and the worst bear market in memory. They were not at all sure how the war would turn out…and wouldn’t have bet a dime on an economic recovery.

Who knows what this “War on Terrorism” will produce? But wars seldom make things better.

Eric…what’s the news?


Eric Fry in New York…

– Is Mr. Market delirious – or does he know something we don’t? The economy is crumbling faster than the Taliban frontline at Bagram, but the old man seems resolutely unperturbed.

– Did he simply ignore yesterday’s barrage of feeble economic reports? The Dow erased an early morning triple-digit loss to surge ahead 1.3% or 117 points. The Nasdaq rallied 2.5% to 1,775.

– Meantime, durable-goods orders plunged 8.5% in September, existing home sales collapsed 11.7%, and weekly unemployment claims soared to 504,000. The four- week average of jobless claims now stands at a 10-year high.

– Greg Weldon, editor of Weldon’s Money Monitor, took a peek inside these numbers and didn’t like what he found. Weldon thinks today’s data confirms what the weak commodity markets have been “saying” for months – that our economy is being swept along in what Weldon calls a “deflationary tsunami.”

– Certainly, armchair economists who are anticipating global deflation could have found much to like about yesterday’s economic reports. (Enjoy it while you can; inflation will crop up soon enough).

– “Non-defense capital goods orders collapsed an enormous 11.4% in September,” Weldon points out, adding that in a mere five months this category has plummeted a “rapidly deflationary 49%.” Yikes.

– As for the dismal existing home sales report, Weldon found that all four geographical regions posted a monthly decline exceeding 9% and that the supply of homes on the market has risen by a whopping 17% since September of last year.

– “The housing bubble has burst,” he proclaims. “The last bastion of the U.S. wealth accumulation is set to deflate. The median price of an existing U.S. home fell sharply from $153,700 in August to $148,100 in September.”

– Adding it all up, Weldon comes to the following bearish conclusion: “New lows in the industrial economy, which is already in the grip of a deepening recession; new lows in the labor market; new lows in capital spending; new lows in U.S. housing prices, with a pending breakdown in sales…all despite new lows in U.S. bond yields. The new lows in the U.S. equity market, therefore should come as no surprise.” Persuasive analysis, Greg – except that Mr. Market doesn’t buy it.

– “Bull market Pollyannas haven’t fully digested the effect on the oil and the stock markets if the Afghanistan campaign drags on,” suggests John Myers in a moment of unfettered passion. “Few are wondering what will happen to the dollar if ground operations heat up prior to the onset of winter and body bags start coming home. The concurrent drop in the gold price, therefore, represents a great buying opportunity.”

– The post-September 11 exodus from the Wall Street area continues unabated, and I learned that in the most reliable place: my barber’s. Until Sept. 11th, my barbershop, Paul Allen’s, was located two blocks from the World Trade Center. Because the building that housed their operation sustained serious damage, they relocated to Midtown – along, it seems, with everyone else from downtown.

– Yesterday, I took the subway up to the new location in Midtown for a haircut. During my 30 minutes in the barber’s chair, I overheard comments about moving to anywhere but lower Manhattan. It seemed like every single person in the place said something like, “Yeah, I’ve been temporarily relocated to Jersey City, but I’ll be moving to new offices in Midtown next year.”

– As USA Today reported, “Ever since the Erie Canal opened in the early 1800s, Wall Street has been the money capital of America. The financial district has survived the Civil War, a street bombing in 1920, a great Depression, the 1987 stock market crash, the 1993 truck bombing. But on Sept. 11th, the future of Wall Street was obscured by an acrid cloud of ash and smoke…the financial district has lost about 45% of its best office space. Thousands of brokers and traders who fled the towers aren’t coming back.”

– One by one, the erstwhile icons of the new economy trudge toward oblivion. Yesterday the Street.com announced another of its long, unbroken string of quarterly losses – the latest being $5.3 million, or 21 cents a share.

– Perhaps more disturbing than the large loss itself was the fact that revenues collapsed to $3.5 million from $5.3 million a year before. Not to worry though, the Street.com still has $40 million in the bank which means, at its current rate of losses, founder/columnist Jim Cramer’s cacophonous market chatter will remain in the public domain for a couple more years.

– Swell. Sounds like you better load up on all that great advice from Cramer while you can.


Back in Paris…

Maria, 15, left for Lisbon today…her first semi-professional gig as a runway model at a fashion show. She is growing up. Sniff sniff…sob, sob.

The Daily Reckoning