* * * * * * * * * * * * REMINDER * * * * * * * * * * * * *
On the days that I don't publish, like today, you will
receive Bill Bonner's DAILY RECKONING. This will help you
to keep pace with the changes in the markets. Bonner and
I agree on most things in the field of economics, so the
two letters will reinforce each other.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
If We Play Our Cards Right...
The Daily Reckoning
London, England
Thursday, November 11, 2004
Armistice Day
---------------------
*** We remember the Great War - but are we the only ones?
*** More wishful thinking from the master of wit and
wisdom...
*** The bell tolls... Bermuda may hold the key to many
secrets... making the world safe for democracy... and
more!
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It is the day the Great War ended. At 11 am on this, the
11th day of the 11th month, all of Europe is supposed to
stop in its tracks - and then the bells toll. They toll for
as many as 20 million people who died in the War... and
millions more who were wounded or mutilated.
But those who lived through the World War I, and those who
fought in it, are almost all dead. In their graves, with
them lie the memories of Europe's most costly war. And
looking through today's press, it seems that only we, here
at the Daily Reckoning, remember it at all. There is
nothing in the Times of London. And nothing in the
International Herald Tribune.
Why, we wonder?
More below...
In today's financial news, we note that the Fed did as
expected - raising the key rate by a quarter of a point.
Now at 2%, it is almost exactly equal to the CPI inflation
rate. So, it still costs nothing to borrow from the Fed.
But Alan Greenspan is still a master of wit and wisdom. The
key man, at the nation's key bank, told members of Congress
that they were making a mistake by not cutting back federal
borrowing. This is the same Alan Greenspan who has made
borrowing a national pastime, by offering credit at
extremely attractive rates. It is as if a sub-prime
mortgage lender gave away an SUV with every mobile home,
and then warned the borrowers that they were imprudent to
take it!
"If you get into that sort of debt maelstrom, it's a very
different issue to get out of it," said the world's
best-known civil servant.
We can only guess the Mr. Greenspan is thinking of his
reputation or maybe his eulogy.
"It's all wishful thinking... " said our friend Arild Eide
at a financial roundtable meeting last week, "that you can
actually get out of this without pain. You can't."
The U.S. fiscal deficit is hit a new record this year -
$413 billion. Federal spending is rising at twice the rate
of the GDP and three times the rate of inflation. In
September, the trade deficit fell from the previous month,
but still came in at its 3rd highest level ever - $51.3
billion.
And for every quarter the U.S. consumer earns, he spends 26
cents.
There will be no painless way out. Those who spend too much
one day, must spend too little the next. Spending too much
is, of course, pleasant. Spending not enough is painful.
But at least Mr. Greenspan has warned us.
More news, from our team at The Rude Awakening:
--------------
Eric Fry, reporting from Manhattan...
"Resource stock investors are the true romantics of the
investment world... They understand that the same 'true
love' who does the financial equivalent of a pole-dance one
moment, might be hurling verbal abuse and wine-glasses -
financially speaking - the next moment... "
Find out what else Mr. Fry has to say in today's issue of
The Rude Awakening
http://www.dailyreckoning.com/body_headline.cfm?id=4256
--------------
Bill Bonner, back in London:
***More notes from Bermuda...
Bermuda has a long history of being a place for hiding
things. During the American Revolution, it was a convenient
repository for British gunpowder.
With George Washington's forces in need, Bermudans, under
the cover of darkness, made off with 100 barrels of British
gunpowder from Fort William and sent it to America (not for
free, I might add).
Turnabout is fair play, however. During the War of 1812,
Bermuda harbored the ships filled with British troops that
would eventually find their way to Washington, DC, and burn
the White House to the ground.
Today, Bermuda may hold other secrets - of the financial
kind, we hope. I am in Bermuda with colleague Dan Ferris of
Extreme Value, looking for hidden values in one of the
world's great financial centers - home to billions of
dollars of capital nestled in the balance sheets of
insurers, banks and others.
In the entire world, you may never find a larger pot of
money in so small a space as Bermuda (barely 22 square
miles). By year-end 2003, Bermuda's insurance industry had
$164 billion in assets, capital of more than $60 billion
and collected $48 billion in gross insurance premiums.
Yet, for all that, Bermudan money seems to like lying low.
Maybe this comes from knowing that their prosperous
situation is unpopular with certain people in certain
places. Because of that, perhaps, they guard their
reputations closely and view prying outsiders with some
skepticism. Nonetheless, we have managed to make some
inroads and we have learned a lot; more to come in our
respective letters.
My publishers may flinch at my expense report. I have
enjoyed Bermuda's pubs and bars. The great New Yorker
writer A. J. Liebling once wrote that bars are the "habitat
of wisdom and inspiration." I'll try that line, if need be.
[Ed. Note: Chris Mayer has a superb eye for value, and
consequently only makes recommendations that have a large
margin of safety and a superb chance of winning. His latest
recommendation, for example, is a company that owns vast
tracts of the most ideally positioned real estate in
America, valued on the books for peanuts. Here's the
background:
Absurd Value
http://www.agora-inc.com/reports/FST/catB03
*** We wait for the tolling of the bells. Here, it is
Remembrance Day. We had to check our calendar to be sure,
for there is no mention in the press. We wonder whether the
bell ringers will remember.
The Great War began as a gigantic farce and ended as a
monumental tragedy. No one could quite figure out what it
was all about. But politicians on all sides soon had
everyone's blood up. Victors write the history books. In
the West, we are used to hearing that somehow Germany was
at fault. But both France and Russia declared war on
Germany before the Huns had done a thing. The Germans saw
themselves faced with war on two-fronts. Their only hope,
they thought, was to knock France out of the war quickly.
They might have done this, except for the decision by
General von Kluck who decided to chase French troops down
the Marne instead of attacking Paris directly. He thought
the French were beaten. He was just going to deliver the
coup de grace. But when an army is beaten, it typically
breaks up. Attackers usually find themselves with thousands
of demoralized prisoners. General von Kluck's subordinates
wondered: Where were the prisoners? There were but few
prisoners, because the French weren't really beaten at all;
they were merely retreating in good order.
It as at this point, the entire history of the 20th century
took a terrible turn. The old French general, Gallieni,
called back from retirement to defend Paris, noticed the
Germans advancing, not on the city, but adjacent to it,
along the Marne. He turned to his staff and remarked:
"Gentlemen, they offer us their flank."
The Battle of the Marne drove the Germans back. From that
point forward, the war was a long pointless slaughter.
By 1916, the European powers were exhausted and disgusted.
But then, along came Woodrow Wilson with an idea. He
believed he could give the war meaning, by turning it into
a struggle "to make the world safe for democracy." All he
had to do, he thought, was to prevent an early settlement
of the war... giving him time to help the French and
English win a total victory rather than a negotiated peace.
Then, he believed, he would be the true victor. He could
come to Europe like an archangel at a Catholic-school
picnic. He would then impose his "14 Points" on the world
as if they were written on clay tablets and had been handed
to him by God himself.
Wilson's meddling was disastrous from practically every
point of view. The war continued for another 2 years.
Millions more died. Not a single major government in Europe
survived. And in the wreckage of European civilization a
hardy new menaces emerged - first in Russia, then in Italy
and Germany.
After the fighting was over, the French and English laughed
at Wilson and ignored the 14 points whenever they
conflicted with their own interests. The American president
was so appalled and humiliated; he suffered a stroke and
never recovered.
Instead of making the world safe for bourgeois democracy,
Wilson had made it more dangerous than ever.
*** A last minute note:
11AM came. Over the intercom came an announcement precisely
on the hour: "We remind you to observe Remembrance Day with
two-minutes of silence."
The phones stopped ringing. People stopped talking. Even
the patter of keyboards ceased. In the distance, we heard
bells tolling.
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---------------------
The Daily Reckoning PRESENTS: It's two weeks after the
election, and the madness is finally starting to die down.
Nonetheless, the question still remains: What is going to
happen to the United States in the next four years?
Although he doesn't have all the answers, Doug Casey tries
to soothe our frazzled nerves...
IF WE PLAY OUR CARDS RIGHT...
by Doug Casey
I must admit that, on election night, I was hoping one of
two things would happen: Either no one would turn out to
vote, thereby de-legitimizing our rulers in D.C., or, more
realistically, that one party would dominate the Congress,
while the other took the Presidency. The latter would,
ideally, have resulted in gridlock for the next four years,
thereby limiting the damage the government could do to the
country. At least a Democratic sweep would have put an end
to the reign of the neocons. And since most votes for Kerry
were really just votes against Bush, it wouldn't have given
the socialist from Massachusetts much of a mandate. But the
Republicans won the Presidency, and increased their
majorities in both houses of Congress.
Unless you attribute the Republican victory to a vote fraud
of unprecedented magnitude, the reality is that Americans
thoroughly endorsed what Baby Bush stands for. So let's
play the cards the way they've been dealt. And, perpetual
optimist that I am, I think the next four years stand to be
among the most profitable of a lifetime for a minority of
properly positioned investors and speculators.
I'm not talking about the average American. Having sown the
wind, Boobus americanus is going to reap the whirlwind. As
Patriot 2 becomes law, what little is left of civil
liberties and the Bill of Rights is going to disappear. The
gigantic deficits the government will run to fund both the
war and domestic programs (don't forget that Bush is the
only president since the 1820's who never vetoed a bill),
will take interest rates to levels we haven't seen for a
generation. That will crush the current mania in real
estate, and likely cause the stock market collapse, that
began in 2000, to resume. Unemployment will rise. The
dollar will accelerate its collapse, as foreigners, from
Central Banks, to the man on the street; unload their
dollars, causing the price of imports to skyrocket. The
American standard of living will nosedive. I expect we're
looking at what will amount to a much more severe version
of what happened to Americans in the 70's. And that's only
if the current adventure in Iraq doesn't mutate into World
War III.
But, as I said earlier, I prefer to look at the bright
side. Higher levels of inflation won't only drive capital
from the dollar and conventional investments; it will drive
capital into gold. It bears repeating that gold is the only
financial asset that's not simultaneously someone else's
liability. And that's why, as fear and uncertainties
increasingly stalk the world, the world will increasingly
turn to gold. Bush believes that it doesn't matter what
foreigners think about the United States. But, he'll find
that once countries start holding their reserves in euros
and gold, the dollar will become a hot potato. It's a minor
straw in the wind, but Cuba is unloading its dollars, in
preference for the euro, simply because most of its
tourists - the mainstay of what passes for an economy on
the island - come from euro bloc countries. Could that have
been a catalyst for Bush remarking that a regime change is
in store for Cuba over the next four years? And why was
Iraq pricing oil in euros before the invasion?
The way I see it, the dollar is on the way to reaching its
intrinsic value. This is a catastrophe for the average
American, but boon for those who follow the trend. I fully
expect to see gold trading well over $1000 before Bush's
term is over.
But the really big gains will be in mining exploration
stocks. The American public is still stock-crazy, not
having figured out that the unprecedented 20-year bull
market is over. They're still looking for the next sector
to get into. When the gold stocks start to move, people
will try to get in - but it will be like trying to drain
the contents of Hoover Dam through a garden hose, because
the market is too small to absorb any serious buying. The
gold stocks will go into a bull run wilder than anything we
saw with the Internet issues.
There will be an immense transfer of wealth in the years to
come from those who don't own gold, to those who do. A lot
of that is almost guaranteed by Bush's profligate foreign
and domestic policies. Best of all, the gains in store for
us will be subject to the low capital gains taxes Bush is
promising - one part of his policies I agree with.
What's to be done about the problems in the United States?
Don't look to Bush for a solution. But you should be able
to insulate yourself from most of them with the money you
make in the incipient gold and commodities bull market. Use
part of your gains to buy a nice condo in Singapore or
Sydney, so you can watch the chaos on your wide screen TV,
instead of out your front window here in the United
States.
Regards,
Doug Casey
for The Daily Reckoning
Editor's Note: Doug Casey, Chairman of Casey Research, LLC
is one of the world's most respected authorities on
investing in natural resource stocks and editor of the
Casey Investment Alert and the International Speculator,
now in its 26th year.
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