Forgetting the Dead

Forgetting the Dead: The Tyranny of the Living
by Bill Bonner
The Daily Reckoning
London, England
Wednesday, November 16, 2005

Bill Bonner resigns himself to the fact that the living will pretty much always Forget the wisdom of The Dead.

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If we had tried to plan it any better - we would have failed.

Yesterday, the day that we rushed 537 copies of our book to Washington, USAToday ran a cover story quoting David Walker, the nation's top auditor:

"The United States can be likened to Rome before the fall of the empire," says McPaper. "Its financial condition is 'worse than advertised, …It has as 'broken business model'. It faces deficits in its budgets, its balance of payments, its savings - and its leadership."

Welcome to the empire of debt, folks. We sent a copy of the book to each Senator and Representative along with the following:

Open Letter To Senators and Congressmen

Addison also sent a copy of the book to Alan Greenspan and George Dubya Bush. Each had a hand scribbled post-it note beseeching the beleaguered public servants to - if nothing else - read the introduction.

Mr. Greenspan's note also suggested he leave the copy behind for Ben "Printing Press" Bernanke when he vacates his office. Fat chance of even getting on their desks, eh?

In other news…

"Housing market cooling," says an article on CNN.

We are watching the health of the U.S. housing market carefully. We take its temperature regularly. When the reading goes down the jig is up.

The Wall Street Journal reports on a survey of top brokerage firms. It found that declines in sales are widespread, said to be the result of higher mortgage rates and higher energy costs. Also, there is an increasing edginess among people holding much-appreciated property. They've heard the word "bubble" more than once. Many are eager to get out before it pops.

There are more houses for sale now than there were last year, and the typical one takes longer to change hands, according to the industry experts.

"There's a newfound sense of urgency among sellers to get out while the getting is good," said David D'Ausilio, operating partner of Keller Williams CT Realty in Monroe, Connecticut. He noted that the supply of homes there is up 14 percent from a year ago and thinks prices will fall five to 10 percent in his area during the next 12 months.

Greg Rand, another property professional consulted by the WSJ, said he was looking for a decline of about three percent in the White Plains, New York, area next year. Another expert in San Diego, a managing partner of Prudential Rand Realty in White Plains, told the paper he also expects prices there to fall about three percent next year. And Robert Griswold, owner of Griswold Real Estate Management in San Diego, said sellers were resorting to bribery similar to those in the auto industry. At a recent Rolling Stones concert, fliers were handed out offering a free car with every condo purchase.

"The market has definitely turned," he said. "When you see that kind of advertising and promotion, they are clearly getting desperate."

"The air is coming out of the balloons," David Lereah, chief economist at the National Association of Realtors, told the paper.

But there is still air going in the balloons, too. In the third quarter of this year, real estate prices posted another record gain - up nearly 15%. The typical house in America can now be had for $215,900. This does not seem like much money to us here in London, where that amount of money would barely buy a parking place. But the typical American house is a dumpy plywood box in the middle of nowhere probably not worth $100,000 let alone $215,900.

Location, location, location. The typical house in Danville, Illinois, sells for only $72,800. In San Francisco, the price is 10 times higher. In these pages, we have wondered how we could take advantage of the property bubble without actually dying. As long as we live, we noted, we need a place to live in. But we don't have to live in a house we own, nor in a house in the same area, nor in a house at all!

In a stock market bubble, the way to profit is simple. You sell shares. If you have no shares to sell, you either borrow them, or better yet, create a company whose shares you could lay off onto investors. A bubble is a time when people want to be separated from their money; you will be doing them a service.

In a property bubble, the formula is a little different. If you are a builder or a developer, of course, you sell, and pre-sell all you can. Get while the getting's good. But if you are an ordinary homeowner, your choices are more limited. If you live in Danville, our suggestion is to stay put. You can check the walls for signs of bulge yourself, but from our vantage point, we see no signs of bubble pressure in the greater Danville metropolitan area. If you live in San Francisco, Miami, Washington, DC, or San Diego, on the other hand, a simple way to bank some profits is merely to sell your house and rent an equivalent space. Do the math carefully and you will most likely come out ahead of the game.

Better yet, move to Danville. The typical homeowner in San Francisco, assuming he has no mortgage, could walk into Danville's biggest bank with a deposit of more than half a million dollars (We don't know what people do for work or entertainment in Danville, but we assume it is a fair and agreeable place).

Another opportunity - more likely to be taken in desperation than in profit - came to us from the Arizona Republic newspaper. The paper reports that people from northern states are still coming down to the desert to spend the winter in R.V. parks. An R.V. may only get six miles per gallon, but driving it down from Chicago is still cheaper than heating a house in the Windy City all winter. It only costs $500 a month to stay in an R.V. park. Basic trailers cost as little as $4,000, the paper reports, though you can spend $1 million or more on a fancy motor home.

What people like most about the R.V. parks is the lifestyle, say campers. There are gyms, softball leagues, bridge clubs, libraries, and pools - everything you could ask for from a resort community.

Yesterday, we recalled the end of the big boom in farmland prices in the 1880s. Homesteaders loaded their family possessions onto covered wagons and left the prairie. Now we see how this bubble may end too - with hundreds of thousands of R.V.s parked in the desert sun. The smart owners will have sold their houses and got out when the getting was still good. The unlucky ones will have waited too long; they'll live in their 21st-century covered wagons not because they want to, but because they have to.

More news from the pundits at The Daily Reckoning…

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Justice Litle, reporting from Nevada:

"The big oilmen recently gave testimony in Washington. Their multibillion-dollar profits have ruffled feathers, and the dubious notion of a "windfall profits tax" has risen on a current of hot air to top the agenda."

For the rest of this story, and for more market insights, see today's issue of

The Rude Awakening

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Bill Bonner, back in London with more views…

*** Several months ago, we mocked a fellow scribbler for buying Google. The stock had already risen from $80 to $200. Our target saw the stock rise, and rise, and rise and couldn't resist. She bought near $200.

"What kind of investment strategy is that?" we wanted to know. The idea is to buy low and sell high. Buying high won't work, we said. Of course, in our normal endearingly modest way, we added that we didn't know. One of us was clearly an idiot, we allowed, only time would tell which of us it was.

Well, now time has told her tale. She wasn't coy about it, nor ambivalent. No, dear reader, she said it clearly: we are the idiot.

The trouble was that we didn't know what high was. Since then, Google has climbed to nearly $400. Which gives us another opportunity to make fools of ourselves. The trouble with new technology, we point out, is that there is always newer technology. Google may be a great company. But it is not worth $400. Sell.

*** The feds announced this week that they would no longer report M3, the money supply figure. M3 has been rising recently at a 10% rate - three times as fast as the economy it is supposed to serve. This is what is known as "inflation" of the money supply. But there is so much conflicting and corrupt data; it is almost impossible to know what is really going on.

The government reports a "core" rate of inflation that has no real-world significance - it excludes the costs of transportation, housing and food!

And almost all the figures - including inflation - are distorted by the practice of adjusting prices for "quality enhancements." As computers become more powerful, their price per unit of computing power goes down - even though people may spend more money on them.

So, the feds record a lower price, while the actual price paid has gone up. The more of these kinds of figures people have, the less they know.

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The Daily Reckoning PRESENTS: 'History repeats itself.' 'Learn from the mistakes of those who came before you.' Despite these warnings from those who have passed, each new generation wants to be able to say, "Been there, done that." Bill Bonner explores…

THE TYRANNY OF THE LIVING
by Bill Bonner

Each generation needs to learn the mistakes of their forefathers for themselves. Though happy to turn on an electric light invented by a dead man, the living - in love, war, and finance - believe nothing they haven't seen with their own eyes, except when they want to.

"Avoid foreign entanglements," cautioned the father of the country.

But corpses have no voice and no vote, neither in markets nor in politics. George W. Bush is undoubtedly better informed than George Washington. He may not have the wisdom of a Washington nor the brain, but at least he has a pulse.

Few people complain about this tyranny of the living. Most accept it as a fact of life. They would not want people to be excluded from the pleasures of life because of an accident of birth. But they are perfectly happy to have the oldest and wisest of our citizens systematically barred from the polling stations and the trading floors by the accident of death. The departed shut up forever, leaving behind them their car keys, their stocks, and their voter registrations - that is all there is to it. Goodbye and good riddance. It is as if they had learned nothing useful, noticed nothing, and had no ideas that might be worth preserving; as if each generation were smarter than the one that preceded it and every son's thoughts improved on those of his father.

Oh, progress! Thou art forever making things better, aren't thou? Throw out the sacred books - what are they, but the thoughts of dead imbeciles? Forget the old rules, old wives' tales, old traditions and habits of old generations, old-timers' superstitions, the old fuddy-duddies' doubts! We are the cleverest humans who have ever lived, right?

Forgetting the Dead: What Would the Corpses Tell Us?

Maybe. But if we could convene a council from the spirit world and invite the dead to have their say, what would the corpses tell us? Veni et vidi. Gaze on the dead, and learn their secrets. No one seems to care about dead people. No stockbrokers ask for their business. No politicians pander for their votes. No one cares what they think or what they may have learned before they shucked their mortal shell.

They get no respect, just a quick send-off, and then they are on their own. What did the old-timers know of war? Of politics? Of love? Of money? If only we could ask!

Years ago, investors wanted more from a stock than just the hope that someone might come along who was willing to pay more for it. They wanted a stock that paid a dividend out of earnings. When heard about a stock, they asked: "How much does it pay?" That was what investing was all about.

But by the 1990s, the old-timers on Wall Street had almost all died off. Stock buyers no longer cared how much the company earned or how large a dividend it paid. All they cared about was that some greater fool would come along and take the stock off their hands at a higher price. And the fools rushed in. And now the market is full of greater and greater fools who think the stock market is there to make them rich. What would the old-timers think of them?

And what would our dead ancestors think of our mortgages? Most of them had small mortgages, if any at all, on their homes. And if they had them, they couldn't wait to get rid of them. (Even our own parents held little parties to celebrate f inally paying off the mortgage on the family home.) What would our forebears think if they were to learn that the richest generation in American history has mortgaged a greater share of its homes than any in history? What would they think of no-money-down mortgages, minimum payment plans, and negative amortization schedules?

And what would the old-timers think of our government debt? The unpaid liabilities and obligations, expressed as though they had to be paid today, come to about $44 trillion, depending on the source you choose to believe.

And what do the generations of Republicans, now in their graves, who believed so strongly in balanced budgets for so many years, think of the republicano in the White House, who has proposed the most unbalanced budgets in history?

And what about the millions of dead Americans who immigrated to the United States to find freedom; what do they think of the country now? They came believing that if they minded their own business, they would be left alone to do what they wanted. But now, every pettifogging Pecksniff with a government service (GS) rating is on their grandchildren's case.

And what about those millions of dead people who scrimped and saved - who got by on almost nothing - so their children and grandchildren might live free, prosperous, and independent lives? What would they think of their descendants, so deep in debt and so dependent on Asian lenders that they can barely pass a Chinese restaurant without bending over and kissing the pavement?

Forgetting the Dead: Every Generation

Each generation seems to think they are the first to stand upright, that their mothers and fathers walked on four legs and howled at the moon! Even when the living feign admiration for same fallen forebear, it is usually without paying of the least attention to what the poor schmuck actually said or knew. The dead leave us their memoirs, their gospels, their histories, and their constitutions - for what is a constitution but a pact with the dead? - and we ignore them. We seem to believe that all that they suffered, all they went through, all the mistakes they made, hold no more interest for us than a comment by a sunstruck contestant in a TV survival show: "This is . . . like . . . weird . . ."

A dead man, Edmund Randolph of Virginia, attended the Constitutional Convention in Philadelphia in 1789. He explained why America needed a constitution: "The general object was to produce a cure for the evils under which the United States labored; that in tracing these evils to their origins, every man had found it in the turbulence and follies of democracy."

Another dead man, James Madison, made it even clearer: "Democracies," he wrote, "have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their death."

So, we leave you "a Republic, if you can keep it," added Ben Franklin.

Well, we couldn't keep it. Now, we have a curious empire, with a constitution as flexible as its money. Everybody gets a vote in this new democratic Valhalla. Every halfwit's ballot is worth as much as George W. Bush's. Every fool and miscreant gets to have an opinion. Only the dead, are left out. Excluded. Ignored. Forgotten.

It is as if only the living had opinions worth hearing, as if only the here and now counted for anything; as if the small, arrogant oligarchy of those who happen to be walking around had all the answers; as if the present generation had found the ultimate truth and reached the end of history.

Your authors have never killed anyone, but we read the obituaries with approval and interest. We look for the distilled wisdom of saint and sinner alike. (The editorial pages, by contrast, we read only for etertainment.)

The trouble with the news is that it is impossible to know what is important when you must rely solely on the judgment of people who happen to be breathing. The living can imagine no problems more urgent than the ones they confront right now, and no opportunities greater than the ones right in front of them. We prefer the obituaries.

Bill Bonner
The Daily Reckoning

Editor's Note: Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of The Wall Street Journal best seller Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley & Sons).

In Bonner and Wiggin's follow-up book, Empire of Debt: The Rise of an Epic Financial Crisis, they wield their sardonic brand of humor to expose the nation for what it really is - an empire built on delusions. Daily Reckoning readers can buy their copy of Empire of Debt at a discount - just click on the link below:

Now Perhaps Someone Will Listen!

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