Valentine's Day: Born Toulouse

The bridge known as the Pont Neuf was reflected so

perfectly in the Garonne River that you could have stood on your head to look at it and noticed no difference. The brick arches, joined to their reflections on the still water, formed perfect circles. Perception and reality were indistinguishable — or nearly so. And yet you could walk over one bridge. On the other, you might drown.

Toulouse is a brick city. The stone is said to be hard to work with. So, masons used brick. There are brick buildings dating back 1,000 years and more. You can also see the post and beam construction technique of the Middle Ages, called “colombage” in French, where stout perpendicular beams are cross-braced and filled with bricks. Almost everywhere you look — whether in Toulouse itself or in the surrounding towns — there are ancient wonders of architecture to be seen.

We had come to the Toulouse region as tourists — with five children in tow. The waitress at the little tea room at the top of Cordes was so curious she had to ask, “Are all these children yours?”

“Yes,” replied Elizabeth, with no hint of shame — “and there’s one more at school.”

“Wow…” replied the waitress, unsure of whether to give voice to admiration or pity.

We were unsure much of the time, too. When we happened upon a group of teenagers, Sophia, 17, was so embarrassed to be traveling in the company of her parents that she took off on her own. It was a small town. We figured we’d run into her again before we were ready to leave.

Edward, 6, darted in front of a car…and barely escaped contributing to the city’s death statistics. Edward has also picked up an inexplicable passion for Chinese. I don’t know where it comes from. But he says words that he claims are Chinese words. And he says that he was born in China. I was present at his birth and can attest to the fact that it was definitely not in China.

Henry, 9, nearly got sick in the car…and was so fascinated by the Pokemon show on TV we had a hard time getting him down to breakfast in the morning.

Jules, 12, meanwhile, wanted to cut short each day’s sightseeing — so we could get back to Stoupignan, where we were staying, so he could watch television. (This is what happens when you don’t have a TV at home.)

But why am I telling you this? I guess the only point is that I am reporting to you through human eyes…which can never be entirely separated from the head in which they are set. Is it a bridge — or just its reflection?

The Garonne and Tarn, like the other major rivers of Europe, are credited, by Jared Diamond in his book, “Guns, Germs and Steel,” with giving European civilization a decisive advantage. They provided easy passageways for the movement of people, goods and ideas. In Toulouse the Romans established a major town. It was here that they tied Saint Sernin to a wild bull and dragged him to his death.

The rivers were later used by the Normans — Vikings who raided deep into France on their waterborne vessels.

It was on these rivers, too…not far from Toulouse… that the first capitalist businesses — commercial water mills — were established in the 13th century. As Jim Davidson (http://www.strategicinvestment.com) has pointed out, the prospects for growth in such a slow- moving society were non-existent. So P/E ratios were high. Investors could not expect to earn any more in the future than they earned in the present.

And there was always the risk that something would go wrong. Indeed, many things did go wrong. At about the same time that the mills were built, a political power struggle in the region developed. Pope Urban II had preached the first crusade against the infidels in the Holy Land, in Toulouse, in the 11th century. Two centuries later another crusade was mounted — this time the victims were the people in the Toulouse area, who were accused of heresy.

There is a temptation in our modern time to understand things in the only terms we understand them — economic terms. The secular authorities did not like the growing independence and wealth of the Tarn and Garonne valleys. And though Saint Paul had cautioned church officials — it was a rare Pope who totally diverted his eyes from temporal affairs. As it was for Desmond Tutu, Martin Luther King Jr., and many others — the appeal of politics to the men of the cloth of the 13th century was irresistible. Why try to persuade people that the Roman Catholic faith was the only “correct” one — when you could force them to recognize it?

Thus, for secular reasons and religious ones, a crusade was launched against the Cathars. The most disreputable elements of society were enticed to join the crusade; they were offered indulgences — and the lure of Cathar land. They could commit murder, in other words, and be rewarded for it.

The results were predictably shocking. As many as 15,000 people were put to the sword in one town. Men, women and children were killed. Many were tortured and used for target practice. Women who failed to yield to the lust of the crusaders were accused of being Cathar heretics – – with gruesome consequences.

This was the not the church at work directly, but the dogs of war loosed by the church.

And what proto-capitalist — looking at the mill through the eyes of a 13th century investor — could have imagined the risk he undertook? Society had been almost unchanged for hundreds of years. The Norsemen had gone back to Scandinavia and Normandy. He probably only really concerned himself with the risk of floods — which might damage a water mill but not entirely destroy it.

And yet the Albigensian Crusade, and the later wars against the Protestants, would rip apart the whole region for centuries.

More to come…

Regards,

Bill Bonner

Ouzilly, France February 14, 2000

*** Several DR readers have written to complain about “Barron’s” Stopped Clock Award for Maintaining Gloomy Outlook. The writers point out that Dr. Kurt Richebacher and I should have at least gotten an honorable mention.

*** But I’m not really gloomy at all. I’m feeling very positive about the prospects of recession, for example. And Internet short positions. And the fact that the Internet will fizzle out as a global obsession. And maybe Barbra Streisand has made enough in IPOs that she will give up performing.

*** Friday’s market action brought the Dow down 218 points. The Dow is indeed converging with the broad market — as I predicted at the beginning of the year. The big companies that make up the backbone of the American economy are hitting new lows — including Archer Daniels, Briggs & Stratton, Caterpillar, ConAgra, Ford and Tyson Foods.

*** Did I say American economy? I bought a lawn mower in France this past summer. It was built by Husqvarna — which, I think, is a Norwegian company. But the motor was built by Briggs & Stratton.

*** Some of these Old Economy companies are getting down to attractive price levels. But I suspect there will be some hard times between now and when the next major bull market begins.

*** Recession? That is what gold, oil and interest rates may be telling us. Greenspan raised rates, we are told, and that’s why the Dow is sinking. But the rates that people actually pay for borrowed money are going down, not up. Bonds are rising.

*** This is all the more puzzling when you look at the money supply figures. Japan’s monetary based exploded by 18% in January. The U.S. base rose by 14%.

*** Morgan Stanley’s cyclical index is down 22% since last May. Its consumer index is down 11% since April. And the auto stocks, all over the world, are down.

*** Taken together, these things suggest to me that the economy is preparing for a slowdown. And maybe it will be a Japan-style slowdown — one that is not easily reversed by making more money available.

*** I know, the headlines are unanimously telling us what a great economy we have. But headlines always look backwards; the markets look forward.

*** There were 233 new highs on the NYSE last week. And there were 457 new lows. The Dow fell 4.9%. But the Nasdaq rose 3.5%.

*** The strength of the Nasdaq still disguises the fact that most companies and most industries are not doing terrifically well. Of the 30 Dow stocks, 28 were down for the week.

*** Warren Buffett’s Berkshire Hathaway is now down 46% below its high. If this keeps up, the Sage of Omaha will have to go on food stamps. MSFT is below $100.

*** The Advance/Decline ratio hit a new low on Friday, too.

*** Stock buybacks do not often really increase efficiency…nor do they lead to increased shareholder value. “Barron’s” reports that 33 of the 50 biggest S&P buyback programs produced a negative return for investors.

*** Did the Reagan administration engineer the collapse of oil and other commodity prices? Bill King reports an intriguing idea: that Reagan officials made a deal with the Saudis and Japanese — to flood the world with oil. The Russian economy is and was heavily dependent on the sale of natural resources. Unable to add value in their clumsy, antique industries, the Soviets relied upon the sale of oil and other raw materials. Reagan saw an opportunity to destroy the Evil Empire — by bankrupting its economy.

*** But now what? The Saudis and Iraqis are announcing oil cutbacks. Palladium and platinum — which come mostly from Russia — are soaring.

*** I got a message from some European libertarians confirming what I already suspected. Joerg Haider has gotten a bum rap. Haider is being ostracized by his fellow European politicians who say it is because he has neo-Nazi inclinations.

*** I found it strange that not a single quote or fact had surfaced in the press that confirmed Haider’s neo- Nazi tendencies. It is always reported, for example, that Haider “once praised Hitler’s employment policies.” First it should be said, that random chance alone would suggest there must be many of Hitler’s policies that might be considered praiseworthy. Certainly I have never heard the slightest complaint — except from the usual libertarian quarters — about Hitler’s anti-smoking campaign. And his gun control efforts have been taken up enthusiastically all over the Western world. So it is at least imaginable that Hitler’s employment policies would be acceptable to the modern political world — if not praiseworthy.

*** The incident wherein Haider “praised” Hitler’s policies came in a debate over Austria’s welfare program. Haider put forth the reasonable view that able- bodied people who were offered employment ought to be required to accept it or give up the dole. But the establishment replied that this would be a “Third Reich policy.” In the heat of the exchange, Haider retorted that at least the Third Reich boosted employment — something Austria’s governing parties had been unable to do for many years.

*** Hacker attacks on leading websites caused a near panic in some circles. Dan Denning has found a small company in the business of protecting e-commerce from digital assault. If he’s right — the stock could be, well, a gold mine. See the ad below…

*** We’re back in Ouzilly after a short holiday near Toulouse. The area was the center of the Cathar heresy…and the focus of the Albigensian crusade. It is a fascinating place to visit. I recommend the town of Cordes — perched on a hilltop about 45 minutes from Toulouse. It is a steep climb up to the town…which is surrounded by several stone and brick walls. I wondered how an attacking army could have ever managed to overcome its defenders. In fact, the town was never taken.

*** We stayed at a little guesthouse, called Stoupignan, built in the 17th century. There were only five guestrooms — and it is out of season — so we took up the whole place. It made a good base from which to explore the surrounding area.

Claudette Fieux, who runs the house, would welcome American visitors. She says they are less trouble than the French. Her son, by the way, lives in Manhattan, and she speaks some English. Tel. or fax: 33 61 84 22 02.