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.

On this day, 56 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 tombe…” 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.

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 Fuhrer.

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 Fuhrer 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 Fuhrer, “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 Fuhrer, 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
Paris, France
May 8, 2001

*** It was a snoozer today on Wall Street – apparently, not enough fresh bad news to celebrate.

*** The Dow Jones Industrial Average fell 16 points and the NASDAQ eased almost 18 points. Even bulls need to rest now and then. But make no mistake, dear reader, caution once again has fallen out of fashion on Wall Street – at least temporarily.

*** As Morgan Stanley Dean Witter Chief Economist, Stephen S. Roach writes, “It’s getting lonely again on the recession watch. The US economy rose instead of fell in the first quarter of 2001. And the bold and aggressive actions of the Federal Reserve have gone a long way in convincing the financial markets that any landing will be soft, rather than hard…I remain convinced that the case for US recession is as compelling as any that I have seen in 20 years.”

*** The American Association of Individual Investors reports that bullishness has risen; 64% of its members expect higher stock prices in the near-term…only 23% are bearish. Richard Bernstein of Merrill Lynch says that Wall Street strategists are recommending their clients have 69.5% of their assets in stocks – a new record.

*** And my old friend, Mark Hulbert, reports that investment newsletter writers have turned bullish too. At the beginning of April, he says, their exposure to the Nasdaq was minus 85% (it was negative because they had so many short positions). Now it is positive 21%. On average, the newsletter advisors are 51% in equities, after being “incredibly quick as a group to return to the bullish camp.”

*** This is not what they do at major bottoms, Hulbert points out. “Instead of quickly becoming bullish [at the low point of Dec. ’74], “they reacted with disbelief… the typical newsletter editor believed the rally to be a bear- market trap. As a result, these editors therefore helped form the wall of worry that was the foundation for an incredible bull market.”

*** “The editors’ recent actions,” he continues, “are more reminiscent of what they did, on average, after bear-market rallies throughout 1973 and 1974. In the wake of each such rally, many editors were quick to declare that the bear market was over. They were seduced into increasing their equity exposure just in time for the bear market to resume. After successive losses, these editors finally threw in the towel, declaring in effect that a rally would never again sway them into believing that a bull market had begun. That turned out to be the final low.”

*** If April marked the bottom, it will be the first time a bottom has ever been immediately recognized by the investment newsletter crowd. “Do you want to make that bet?” asks Hulbert.

*** Another friend who doesn’t like the odds is Fleet Street contributor, John Mauldin: “I just don’t like the risk to reward ratio. Ask yourself the following question. Which will affect your lifestyle more: not gaining 10% in your portfolio or losing 30%?”

*** The S&P is selling at 26 times earnings, 6 times book value, with a 1.25% dividend yield. It could fall in half and still not be cheap. There is a lot of downside – and not much upside.

*** “It’s been a marvelous party. The gay laughter. The joy of being wealthy. The balmy breezes wafting the sound of tinkling crystal, toasting the arrival of all the material things one could want,” muses Doug Casey. “Everyone – well, a few people, anyway – knew the party would end, and that the Black Horsemen would ride in and totally destroy the place. Since it’s such a huge party – by far the biggest in history – encompassing fully half the inhabitants of the US, it’s going to take a while for the crowd to panic. Most people think that the rent-a-cops, Alan Greenspan and Baby Bush will shoo the Horseman away; I think not. The March decline was just a probe; the second and third waves are yet to arrive. Drop your champagne glass, and run.”

*** Ready to get back into tech? Witt SoundView chief investment strategist, Arnold Berman writes, “After a long spell in which technology fundamentals were downright horrible, they now have become merely miserable. The news is no longer all bad, just mostly bad.”

*** This helps explain why there has been soft landing for Cisco. While not yet “pulling a Mir,” Cisco is nothing like the gleaming, hi-tech wealth capsule that soared into the heavens one year ago. Similarly, the chip stocks have been conspicuously close to the ground of late. Despite the NASDAQ’s rally, Micron Technology languishes in the low 40s – a few points below where it finished the month of January.

*** The beleaguered Japanese yen is bouncing off of its recent lows along with the Nikkei, or perhaps, because of the Nikkei. As investors chase the Japanese stock market rally, they must buy yen in the process, thereby boosting its value against the dollar.

*** All eyes, including those of the financial markets, will be on Japan’s new Prime Minister, Junichiro Koizumi. The Nikkei Weekly stresses that time is of the essence: “He must demonstrate tangible progress on his reform pledges in less than three months, before his party is tested in the upper house election in July.”

*** No small task. An editorial in the Nikkei Weekly observes, “Koizumi comes to power at a decisive moment for the nation’s economy, long plagued by ills that have defied all conventional cures. The economy is under strong deflationary pressures stemming from weak demand, falling asset prices and massive debts. A slowdown in the U.S economy is only magnifying those woes. Koizumi…is charged with the historic mission of developing and implementing a viable long-term strategy for creating a new economy. What is more, he must do so without triggering a new wave of financial crises.”

*** Why doesn’t Japan simply “crank up the printing presses?” One of the great questions of economics, even in this Information Age, remains unanswered. Almost every sentient being in America is confident that Greenspan can get the economy moving – simply by reducing rates and increasing the money supply. Under real pressure, they believe, he would simply “print more money” to get things moving. But there were printing presses in the 1930s too. With a quarter of the workforce unemployed, surely if ever there was a time to “crank up the presses” that was it. And why doesn’t Japan turn on its new high-speed presses? More on this subject tomorrow….dear reader…or the next day.

*** Lynn Carpenter calls it the “Revenge of the Nerd Stocks.” Her Fleet Street holding, H&R Block, is up 55% since she recommended it. It was a “sleeper” she says. Sweet dreams.

*** Nothing sleepy about the oil patch though. Today’s mergers and acquisition headlines featured a couple new deals between oil companies. The blockbuster was Valero’s $4 billion bid for Ultramar. The merged companies will become the second-largest oil refiner in the US, second only to Exxon/Mobil.

*** The Blue Team’s Dan Denning offers “evidence of slowing U.S. consumption and imports… with total exports [from select Asian countries] down a worrisome 11.7%, significantly worse than the 6.8% rate posted in January.”

*** “What’s this telling us?” Denning asks, “U.S. imports are going down. So far, foreigners have been willing to subsidize U.S. over-consumption by holding on to US dollars. If they decide to stop – which these trade debt numbers seem to indicate – it could be the event that triggers the decline of the dollar and delivers an unexpected shock to the stock market.”

*** “No, you may not wear a see-through blouse,” I laid down the law. Maria, 15, has gotten her first gig as a mannequin. This Thursday night, she begins her career is show biz as a runway model for a Paris fashion house.

*** Paris is as quiet and lonely today as a tort lawyer’s funeral. The streets are empty… I could get a seat on the metro with no problem. It wasn’t this way on VE Day 56 years ago. More below…

The Daily Reckoning