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* * * * * * * * * * * * REMINDER * * * * * * * * * * * * *
On the days that I don't publish, like today, you 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
reinforce each other.
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Dead Presidents...Part Two
THE DAILY RECKONING
MANAGUA, NICARAGUA
TUESDAY, 19 FEBRUARY 2002
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*** Dow and Nasdaq down...er, closed...for the
"holiday"...
*** Phantom job growth and Abby Jo...
*** "Capacity Utilization" and "Capital Spending" - your
two most favorite economic stats - continuing their
slide...vacancy rates in Manhattan skyrocketing...and
more post-bubble adjustments to come...
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The U.S. financial markets took the day off for Dead
President's Day. But most global markets were open for
business.
So, Eric, for the faithful, what happened around the
world yesterday?
******
Eric Fry from New York...
- The Nikkei continued its losing ways, falling 33
points to 10,048. In Europe, the French CAC 40 and
London's FTSE 100 both slipped more than half a percent.
But, all was not gloom and doom...there were a few
winners on the world stage. The Thai and Indonesian
stock markets both gained more than 2%.
- Back here in the States, 2% gains have become quite a
rarity. And now that the Nasdaq has tumbled about 12%
from its January 4th peak, the bulls are starting to
perspire a bit. Gone is the bravado borne of the
Nasdaq's robust 40%-plus rally off the late September
lows. Anxiety is understandable.
- Maybe September 21st was not THE bottom, but merely a
short-term trading low. Maybe reported earnings aren't
all they are cracked up to be. And just maybe, despite
assurances to the contrary from numerous Wall Street
pundits, the stock market CAN fall three years in a row
for the first time since the 1930s.
- And what about the so-called economic recovery? Is it
fact or fiction? Do the hopeful economic statistics we
keep reading about testify to an economy on the mend, or
- like so many defective pregnancy tests - are they
merely throwing off a bunch of false positives?
- Maybe there's no bouncing baby recovery gestating in
the belly of our economy after all.
- Consider this disconcerting little factoid: "Phantom
job growth showed up in the national jobs data for
January," according to the New York Times. "For example,
retailing jobs dropped by almost one million, but after
seasonal adjustment, they rose by 62,000. And the
finance and real estate sector showed a 32,000 job loss,
which was seasonally adjusted up to a 9,000 job gain."
- Phantom job growth might be enough to cause Abby Cohen
to raise her earnings estimates on the S&P 500, but
phantom workers don't shop much. What's more, phantom
workers hardly ever show up for work, which explains why
many office buildings are looking rather ghostly.
(Remember Houston's "see-through" buildings in the mid-
1980s?)
- "U.S. office buildings last year experienced the
sharpest jump in vacancies ever recorded," the Wall
Street Journal reports. "Office-building vacancies
jumped to 13.5% in the fourth quarter in the nation's 72
largest markets from 8.3% a year ago, according to a new
survey by Torto Wheaton Research."
- Not surprisingly, businesses that require neither
additional workers nor office space tend to borrow very
little money.
- "Compared to last year, business loans are down by
around 7.7%, the steepest year-to-year decline by
business bank loans in the last 30 years," Moody's
reports. "Over the past 12 months, the size of business
bank loans outstanding has almost continually
contracted, posting a month-to-month loss for all but
one of the past 11 months."
- Why should businesses borrow money to invest in new
capacity when they have too much of it already? Both
capacity utilization and industrial production continue
to sink.
- "What is wrong with January 2002's 74.2% rate of
industrial capacity utilization isn't so much that it is
the lowest rate since April 1983," says Moody's John
Lonski, "but rather that it is the failure of capacity
utilization to bottom."
- Capacity utilization's slide is hardly a mystery. The
downwardly sloping industrial production trend provides
little incentive to add new capacity.
- "Industrial production's protracted slide completed
its 19th month in January 2002," Moody's reports. "After
peaking in June 2000, industrial production has since
declined by a cumulative 7.3%."
- Consequently, capital spending collapsed 11.9% in
2001. Is a classic vicious cycle underway?
- "The operative view in financial markets is that this
is just another cycle," Stephen Roach observed recently.
"The risk is, it's not." (Thanks to Joshua, the ever-
provocative and insightful contributor to the Daily
Reckoning discussion board for bringing Roach's comments
to my attention).
- Roach continues: "I remain convinced that the U.S.
economy is only in the early stages of what could turn
out to be a protracted post-asset-bubble shakeout...It
then follows that a U.S.-dependent global economy will
have to face the repercussions of America's post-bubble
adjustments for years to come."
- Tech stocks, anyone?
******
Back at the DR HQ...
*** Perhaps showing their own bit of Schadenfreude, the
Mercury News - considered "the newspaper of Silicon
Valley" - reports "commercial rents for prime office
space (in New York City) have plummeted - by as much as
50 percent in some high-profile buildings. Newspaper ads
are going unanswered, landlords are offering more
incentives and tenants are getting calls from brokers
encouraging them to look for better deals elsewhere."
"You can't just dwell on the negative," the SMN quotes a
14th-floor office worker. Still, colleagues on higher
floors in the Empire State Building - now Manhattan's
tallest skyscraper - are getting out fast. The
building's vacancy rate has tripled to 15 percent since
the Sept. 11 attacks.
*** Bill's off the grid in Nicaragua...but do you
suppose he'd let a little detail like that get in his
way?
Naaahh...
More Daily Reckoning below.
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DEAD PRESIDENTS...PART TWO
By Bill Bonner
"By the summer of '29, every American firmly believed
that he was going to get rich."
The American Clock
by Arthur Miller
"They took all the guns out of the house."
"Who did?"
"The family...you remember his brother," continued my
cousin...catching me up on the local news. "He shot
himself about 15 years ago. They're afraid Bobbie Ray
will do the same thing. I wouldn't put it past him. If
he figures it's time...he's got the stomach for it."
Bobbie Ray, 63 years old, has lost everything. The bank
came and repossessed his bulldozers, backhoes, trucks,
bobcats - all his earth-moving equipment. He's out of
business.
"I guess it's hard to make a business like that pay," I
said.
"Especially when your work crew is drunk half the time,"
replied my cousin, who knows Bobbie better than I do.
"I don't know...the crew was always half drunk...maybe
they did their best work when they were drunk. When they
were sober, they were awful..." I recalled.
Bobbie Ray had been on intimate terms with alcohol
himself. For much of his life, he would work all day -
"from before sun-up until I fall out at night," he used
to say, in his old Southern tidewater accent - and drink
a case of National Bohemian, a local brand, everyday
too. The drinking didn't seem to matter. Bobbie worked
so hard, he sweated it out.
That's what America is all about, says a character in
Arthur Miller's "American Clock." People work hard in
order to get rich. That's all there is to it.
Bobbie worked hard. But he didn't get rich. He seemed to
do it just to do it, like the field of tobacco he kept
planting long after other farmers had given it up as
unprofitable.
"Just a bad habit," he said.
The dead presidents didn't seem to interest him enough
to take his business seriously. He hired drifters and
ne'er do wells. He dried them out when they needed it,
and occasionally bailed them out of jail.
Slavery went out of fashion in the tidewater area more
than a century and a half ago - but Bobbie still treated
his workers a little like slaves. He provided houses and
tried to work them night and day. But the workers -
white and black - acted like slaves too...they dodged
the boss, skulked around, and wasted the equipment.
Bobbie probably rarely got a full day's work out of any
of them.
Once, I remember, Buddy - a skinny man with a full,
white beard - did not come out of his house for a week.
Finally, Bobbie broke down the door and dragged him out.
Buddy was a mess...and occasionally needed straightening
out.
But now it is Bobbie who is a mess. He has not come out
of his house for the last 5 days.
"I called Alice [his wife], and asked if I could stop in
and see him...I thought I might cheer him up," my cousin
reported. "But Alice said he didn't want to see
anybody...
"Too bad about Bobbie," he went on..."but it's just not
the same world down here..."
I drove down to Southern Maryland from Baltimore on
Saturday morning. I don't get back there very often.
Maybe I shouldn't get back there at all.
Everything has changed.
People in the tidewater regions of the Chesapeake
resisted change the way the Romans resisted the
barbarians. For centuries they held them at bay...and
then, suddenly, gave way.
There was something almost un-American about the area.
America is a place where people re-invent themselves.
Arriving from the Old Country, immigrants learned a new
language, changed their names, and often began a new
profession. No matter what station in life they may have
occupied in Europe, here in America they could be
whatever they wanted to be. Within a few years, there
was hardly a trace of the old country left.
But the tidewater area had been forgotten by time...and
place. Overlooked by the new democracy and the throbbing
cities of new immigrants, life went on as it always had.
It was as if a piece of England had drifted across the
Atlantic and attached itself to the North American
continent. Linguists say the local accent is derived
from a 17th century dialect of England's southeast coast.
And many of the family names can be traced to the same
region.
Here, the weather is more extreme than in England. Hot
and muggy in the summer, cold and wet in winter -
whether you are out on the water or out in a field, you
sweat or shiver according to the season. For 300 years
nothing much changed at all. The two mainstays of the
local economy - oysters and tobacco - were handled in
much the same way in 1960 as they were in 1660. Whether
you go out on the bay and dredge up oysters...or out in
the field and cut tobacco, it is hard work that has
changed little over the years.
People did not seem to invent themselves on the banks of
the Chesapeake. Instead, they were shaped by the place
and the culture they found there, developing their own
instincts in harmony with the land, the bay and the
seasons. Their work was like bees' work - not something
they did for money, because there wasn't much money in
it. It was not even something they chose to do...just
something people did.
The local people were suspicious of change. Maryland's
tidewater regions sided with the British in the
Revolutionary War...and then with the South in Lincoln's
war. My people seem to have a knack for losing causes...
In the 1960s, though, the sweating stopped. In came a
new breed of resident to the Tidewater area. This was
the American Babbit - a man whose station in life was
fixed neither by the tides, the seasons, religion or his
land holdings. He might have moved from Chicago or New
York...or up from Atlanta, following a job. He built a
different kind of house - one with air-conditioning. He
worked neither the land nor the water...often as not, he
held a job in Washington, D.C. and commuted there every
day.
And when he went to church, he chose the church like he
chose his day-care center - for convenience. A few years
ago, such a thing would have been unthinkable; you
didn't choose a church back then; it chose you. If you
were born into an Episcopalian family, you went to the
local Episcopalian church. That was all there was to it.
But the new immigrants brought new ideas. And strangely,
for a race of people who had all re-invented
themselves...all the ideas were the same. You can be
whatever you want in America. But the newcomers seemed
to have invented themselves in exactly the same way...
They dressed in the same casual clothes. They built the
same houses. They drove the same SUVs to the same jobs
in the same suburbs.
The drab sameness of the new arrivals must have
depressed Bobbie Ray. It was the baroque quirkiness of
the old families and old customs that gave the area
life. Cap'n Earl, for example, had been kicked out of
his house by his family and took to living in a shack at
the end of a pier in the West River. There he
sat...drinking beer and tossing the empties right into
the water. But when the sailboats came and the marinas
took over...Cap'n Earl had to go. His shack had no
plumbing, no zoning approval, no permits, no waivers, no
nothing. And, chucking a beer can in the bay is now a
federal crime.
The immigrants had two other things that the local
people rarely had - money and time. Instead of
slaughtering hogs or painting oyster boats or stripping
tobacco, they had the time to wash their cars in the
driveway. What else could they do?
Oh yes, they had time to make the area better.
This is what finally got to Bobbie Ray. Much of his land
was declared "wetlands" and his farm - where he kept his
piles of rusting equipment - was thought to be an
eyesore. And oh, uh...though he'd been there for as long
as anyone could remember, Bobbie never got around to
getting a permit for his "non-conforming use" of the
property. Bobbie would happily sweat all day...but
standing in line at the air-conditioned zoning office
was more than he could bear.
The new economy of the tidewater area demands a new kind
of work. Now you can make money, but neither by tilling
the soil nor trolling the bay. Now you make money by
subdividing tobacco land, selling easements to the land
preservationists and planting houses in every gully.
And, oh yes, you have to promise the state that you'll
never again put a tobacco plant in the ground. The state
will pay you for it. No kidding...
Bobbie never had the stomach for that kind of work.
Bill Bonner
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