Victory in Europe Day

“War is hell.” William T. Sherman, before burning Atlanta, September, 1864

Our attitudes toward war are a puzzle of contradictions. People are often happy when a war begins…but usually happier when it ends. We hate war, but we revere war heroes and war leaders. Of course, the difference between a war hero and a war criminal is determined less by the actual events, than by the outcome.

Senator Kerry, for example, still enjoys the sympathy, if not the admiration, of much of the American public and media. Kerry is lucky to have been fighting for the Pentagon and not the Wehrmacht. Otherwise, he would almost certainly have been tried for murder, and hung.

I have written in the past about war heroes – men who have done their duty and deserve our respect. Today, I celebrate those who had sense enough not to follow orders. We know that wars are destructive and wasteful, but splash the right jingoes on newspaper headlines, and people take it up as eagerly as a 3-year-old picks up a loaded pistol.

VE-Day: La Guerre Est Fin

On this day, 56 [58, today] years ago, Paris celebrated the end of the most costly, brutal, maniacal episode of warfare in history – WWII.

People danced in the streets…bands played…the bells of St. Merry’s, next to my office, and those of every church in Paris, rang for hours. From balconies, banners and kiosks the news was shouted out: LA GUERRE EST FINI!

People cried, too. Some cried with particular cause: perhaps they grieved for one of the men who were shot by the Nazis, the men who are remembered by the many plaques about town. “Ici est tombé…” they say, “Mort pour La France.” [Here is where so and so fell…dead for France.]

Or maybe they were thinking of one of the many victims of reprisals…or those murdered by the resistance, the fascists, or by one of the criminal gangs that flourished during the chaos. No plaques remember these people – they are forgotten.

But most Parisians who wept on that day did so out of joy – joy that the war was finally over.

Compared to cities in Normandy, Germany, or Russia – or even London – Paris suffered little during the war. France had the biggest army in Europe before the war, but her troops were largely cut off and annihilated in the opening days of the war. French military leaders had failed to understand how the tank – supported by airpower – had changed the way wars could be conducted.

In shock and disbelief, the French had no plan and no provisions with which to keep fighting. Instead, they gave up the fight and made peace with the Germans. The English charged France with failing to do her duty…by giving up the fight too soon. But what was the point?

Parisians lived under German rule for 4 years. But the Germans never terrorized or destroyed the country as they had in Poland and Russia. Most German troops must have considered themselves fortunate beyond words to be able to enjoy the cafes and brothels of Paris, rather than to be fighting for their lives on the Eastern Front.

VE-Day: General Dietrich von Choltitz

After the Allies successfully landed in Normandy, and broke beyond the hedgerows to the open roads, Hitler determined to reduce Paris to rubble before they got there. To that end, he summoned Major General Dietrich von Choltitz to his headquarters and put him in charge of the city’s garrison.

Why Choltitz? Because he had already ordered the bombing of Rotterdam and directed the siege of Sebastopol in the Crimea. In this latter battle, only 347 of his 4,800 men were fit for duty by the end. Still, he managed to capture the city and destroy it.

Choltitz had a reputation for being able to follow through on unpleasant orders. He covered the German retreat out of Russia, for example, leaving little standing. His reputation for destruction grew so great that he was blamed for having reduced Warsaw to ruins. But he was not even in Poland at the time.

It is easy to dismiss Hitler as a madman and his Nazi followers as unthinking zealots and opportunists. But it is hard to understand the German Army’s aristocratic officers, of whom von Choltitz was one. They generally despised Hitler, as he did them. They surely saw too that the little corporal had put Germany on course to a military disaster…and that he was not only mad, but incompetent.

But people will allow themselves to get swept up into almost any insanity if it is popular enough. Hitler was an elected head-of-state. He was the commander-in-chief of the armed forces. They must have wanted to believe that he was not the crackpot he appeared to be. Thus, while the Wehrmacht killed thousands of soldiers in dozens of countries all over Europe, its generals could not bring themselves to kill one single man in Rastenburg: the Führer.

VE-Day: Destroy Paris

As the two-front war continued, it became more and more obvious that Hitler was not the leader Germany needed.Choltitz, receiving his assignment from Hitler directly, had hoped to find that the Führer had matters in hand. Instead, what he found was what he described as one of the most bizarre and unsettling experiences of his life.

“Since the 20th of July,” Hitler began his tirade, “dozens of generals – yes, dozens – have bounced at the end of a rope because they wanted to prevent me, Adolf Hitler, from continuing my work.”

“He was in a state of feverish excitement,” said Choltitz, remembering the encounter. “Saliva was literally running from his mouth. He was trembling all over and the desk on which he was learning shook with him. He was bathed in perspiration and became more agitated.”

“Now,” said the Führer, “you’re going to Paris.” The city, he told general Choltitz, “must be utterly destroyed. On the departure of the Wehrmacht, nothing must be left standing, no church, no artistic monument.” Even the water was to be cut off so that “the ruined city may be a prey to epidemics.”

“I was convinced there and then,” said Choltitz, “that the man opposite me was mad!”

Would Choltitz carry out an order given to him by a lunatic? Another old soldier of the Prussian aristocratic school, Field Marshal von Kluge, said to him: “I’m afraid, my dear Choltitz, Paris may become a rather disagreeable assignment for you. It has the air of a burial place about it.”

“At least it will be a first-class burial,” replied Choltitz. Von Kluge committed suicide 6 days later.

A few weeks later, Choltitz was in Paris…and American and French troops were at the gates of the city. Choltitz had let a sarcastic sense of humor creep into his conversation. He reported back to the German high command that he was going to blow up the Cathedral of Notre Dame…Invalides…the Palais Bourbon. He was going to level the Arc de Triomphe and destroy the Opera to clear a field of fire (as if there was any intention or point to fighting!) To his staff one evening he remarked, “Ever since our enemies have refused to listen to and obey our Führer, the whole war has gone badly.”

Choltitz then let it be known that he could not surrender to the Resistance (of whom there were about 20,000 already in the city…already skirmishing with German troops). He would only surrender to proper officers. Hearing this, the French troops under Leclerc rushed into the city. Going right to the Hotel Meurice on the rue de Rivoli, a young French officer burst into Choltitz’s room. “Do you speak French,” asked the Frenchman excitedly.

“Probably better than you do,” was Choltitz’s reply.

Your editor, enjoying VE Day.

Bill Bonner
May 8, 2003


Reading the headlines – nothing much seems to have happened yesterday.

Stocks went down a little, after they had gone up a little the day before and down a little the day before that. Pundits, economists and analysts guessed some more about the effect of SARS on the world economy…the coming recovery…the situation in Iraq…and the future of the entire world. But not a single comment seemed worth recalling, which made it not so much a remarkable news day – but at least a pleasant one.

On the other hand, the dollar did something unusual – it didn’t fall.

Homeland-bound Americans may not notice, but those of us who live abroad suffer every drop in the dollar like gangrene creeping up our leg. Here in the old countries, everything we buy today costs 25% more than it did a year ago. Our expenses are rising so rapidly, something will have to be cut…it is just a matter of time.

What this means to you, dear reader, is not at all certain. Import prices must rise as the dollar falls – which means that U.S. consumers will have to do some cutting too. Which runs a little contrary to the spendthrift spirit the Fed is trying to encourage. Just two days ago, the Fed warned that it was not inflation it worried about, but the lack of it.

Of course, Fed governors Bernanke, Broadus and McTeer have assured the nation that they can create as much inflation as they want. The financial press has taken them at their word. But here at the Daily Reckoning headquarters in Paris, we’re not so sure. When it was supposed to be fighting inflation, the Fed went over to the enemy. Now that it is supposed to be fighting deflation, what can we expect? Victory? Betrayal? Or simple incompetence?

There have been very few attacks by deflation against modern economies. Only two. In both events, the central bank fired away with lower rates and easier money. The central government joined the fight too, with huge spending programs. But in neither case was deflation whipped.

But we see a puzzled look on your face, dear reader. How can the dollar be falling…while deflation increases its value? We have no short answer for you this morning; we’ll try to think of something good by tomorrow.

Meanwhile…here’s Eric…


Eric Fry on the meanest street in New York…

– Effervescent Coca-Cola buoyed the Dow Jones Industrial Average yesterday morning. But the blue chips lost their fizz by the closing bell, falling 28 points to 8,561, while the Nasdaq Composite dipped 17 points to 1,507. Coke shares surged more than 5% thanks to an upgrade from Morgan Stanley. The brokerage firm adjusted its rating on the soda vendor’s stock to “overweight” – a term with which many of Coke’s customers are, no doubt, familiar.

– The dollar, meanwhile, seems a bit overweight as well. It is “trading heavy” against nearly every currency on the planet. Yesterday, however, the dollar enjoyed a temporary respite from its travails by surviving an entire New York trading session without losing any of its value. The dollar gained about half a percent against the euro to $1.136.

– Certainly, the dollar is due for a bounce, but the beleaguered buck doesn’t have much going for it these days. America’s most successful export is finding fewer and fewer eager importers. Foreigners – some of them, at least – are lightening up on their U.S. dollar holdings.

– “Foreign interest in U.S. securities appears to be buckling,” notes Morgan Stanley’s Rebecca McCaughrin. “Net foreign purchases of U.S. securities plunged to $21.8 billion in February, roughly half the level in January and the lowest level seen since the emergence of a string of corporate accounting scandals early last year…The risk that foreigners are souring on U.S. assets is becoming a more acute concern. While we do not believe that February will set the pace for the remainder of the year, we are dubious that foreigners will step up their investment to the $50 billion per month needed to finance this year’s yawning deficit.”

– The Prudent Bear Fund’s Marshall Auerback agrees. “Recently released figures from the U.S. Treasury…demonstrate an increasing propensity by private investors abroad to sell dollar assets including U.S. equities,” says Auerback. “The U.S. Treasury…indicates that there was net selling of $4.74bn of Treasuries by the foreign sector [in February], the first net selling since April 2002. More revealing was the actual composition of the flows: Large net Treasury buying from Japan ($5.58bn) and China ($1.80bn)…has been [offset by] selling from the Euro area (-$3.4bn), the U.K. (- $2.9bn) and Canada (-$1.9bn)…”

– Even more troubling, says Auerback, is the fact that Arab nations have become large net sellers of U.S. assets. Is it payback time? Are Arab countries, principally Saudi Arabia, exacting a sort of monetary revenge against the United States for meddling in their backyard? It’s possible, says Auerback, and it could be very bad news for the dollar…To diversify even a small proportion of this money out of dollars is quite relevant in the context of threats to the external value of the currency.

– If stocks are such a great buy right now, why are so many insiders selling? Last week, according to SEC filings, only two corporate insiders purchased more than $1 million worth of their own companies’ shares. By contrast, 65 insiders SOLD more than $1 million worth of their stock…Hmmm, seems a bit lopsided. Microsoft founder Bill Gates, who topped the list of selling insiders, added a few feathers to his nest by cashing in $410 million worth of Microsoft stock. Such sales are somewhat routine for the mega-billionaire.

– Somewhat less routine, however, were the insider sales at International Gaming Technology (IGT). Insiders at the nation’s top manufacturer of slot machines conducted their largest group sale in more than a year, according to Thomson Financial. Six IGT executives, including Chief Operating Officer Thomas Matthews, decided to cash in some of their chips by unloading about $13 million worth of stock. Who can blame them? IGT shares are currently trading at an all-time high near $88.00, up more than 80% since last July.

– Similarly, six insiders at eBay sold a combined total of $17.8 million worth of stock, while five insiders at Amgen sold a combined total of $17.9 million worth of stock. Yahoo, Oracle, Veritas Software and Sun Microsystems also featured a hefty insider sale or two. Interesting, isn’t it? So many of the stocks that the lumpeninvestoriat loves to buy are the identical issues that insiders love to sell?

– We don’t blame the insiders for setting aside a little cash for rainy day – and don’t you know, it rains a lot in Redmond, Washington? – but what should we Average Joes deduce from the dearth of insider buying? Thomson Financial reports that insider buying in April fell to the lowest level in eight years. Most Wall Street strategists heralded April’s stock market weakness as a “buying opportunity.” It turns out that it was also a “selling opportunity”…for insiders. At least the lumps now know who was selling the stocks that they were buying.

– [Editor’s note: If you’d like to learn more about following insider trading patterns – for a potentially substantial payoff – see:The Insider Alert]


Bill Bonner, back in Paris…

*** It is VE day; a public holiday in France. Today, the French remember the Liberation of Paris. The old-timers, at least, are grateful to American soldiers.

“You’ve got to come to our VE day celebration,” said Mr. Minig, a French WWII veteran, inviting your editor to a local event. “We haven’t forgotten, you know. We still stand with you, too. Not necessarily the government, of course. And not the young people. And not the socialists…or the communists…or…well, there are still a few of us who remember.”

*** Finally, after what seemed like months of dry, sunny weather, it rained in Paris. The warm rain stirred dull roots all over the city. Or maybe it was the new advertisements. All of a sudden, Paris is alive…green…budding and blooming everywhere. Every sidewalk café seems to have a beautiful woman sipping a cafe. And nearly every billboard and empty surface seems to have the picture of a naked woman. On the subway, huge, well-shaped breasts greet the commuter in the morning and send him home at night. Though we’ve studied the ad carefully, we’ve never actually noticed what it was selling. Whatever it is, we’re sure it’s a hit.

Meanwhile, Aubade, the underwear company, has launched a new campaign, with the kind of photos you’d have to pay good money for back in the states.

“These women can’t be real,” said a friend.

He was referring to the voluptuous contours of the Aubade models, who look like they were designed by an adolescent with higher expectations than God himself. We don’t know if they are real or not, but they should be.

The whole city seems to have been taken over by pulchritude. A new issue of ELLE magazine is advertised everywhere… featuring the actress Emmanuelle Béart on the cover. Ms. Béart is, of course…for this is France…stark naked. And she looks as though she may have been the original model for Aubade.

It is all almost too much for a middle-aged Episcopalian from the Tobacco Belt. Every spring, your editor struggles to keep his head…with about as much success as a central bank fighting deflation.

The Daily Reckoning