Recently by Bill Bonner: In Defense of the Empire
Im glad to be the last speaker. Nobody can come after me and tell you why Im wrong about everything. Instead, I get to tell you why the other speakers were numbskulls. Besides, we all have a tendency to be most influenced by the last person we talk to. Or at least I do.
Wherever we go we tend to pick up the accents and attitudes of the people who are around us. We all know, because were all good contrarians, and this is something we can all agree on, that whenever everybody thinks the same thing, nobody is thinking. But thats just what happens. We all come to share the ideas of the people around us even without realizing it.
Right now, a 10-year US note yielding less than 3% is an illustration of this phenomenon. That gives that note a current yield that is actually in real terms negative. Consumer prices, as measured by the feds themselves are going up at about a 5% rate, giving that Treasury note a current yield of MINUS 2% before taxes. After taxes, its nearly MINUS 4%. What kind of group-think causes that?
Of course, I dont know if bonds will go up or down. I just know that when we see so many people are doing such an amazingly bizarre thing, its worth looking at it more closely.
My wife and I were driving up to New York from Washington a few months ago. Thats when I realized how easily we are influenced by whomever were listening to at the time. My wife is always trying to improve the family. So, she got a tape recording of Virgils Aenead for us to listen to on the drive. Its the story of the founding of Rome by refugees from Troy, read by a BBC actor in a grave and booming voice.
By the time we got to the end of the New Jersey Turnpike we had been listening to the story for a couple hours. I was thinking in Virgilian terms. So, when Elizabeth suggested that I ask the tollbooth operator for directions, I just blurted out.
We have long travailed over hardened black earth
And now we seek the northern tribes those of the reddened sox
Who with the gods help crossed oer storm-tossed seas to build great cities on the desolate coast among the savage Yankees.
Without a pause the woman at the toll booth fired back:
Yeah well youre goin to Brooklyn.
Ah destiny has brought us hither!
Yeah and if you dont get movin Im gonna call the cops.
Thank you oh sweet maiden, daughter of Venus and Minerva.
The story of Rome is a great story. And Virgils account of its founding is very different from, say, press reports on the debt-ceiling hike or the coming of QE3.
The big difference is that Virgil thinks things happen for different reasons. There is more at work than just choices made by mortal man. Sometimes the humans in his story makes good choices. Sometimes they make bad choices. But that is not all there is to the story. There are the gods too who are either jealous and treacherous, or generous and helpful. And there is something else destiny itself. Fate. Or as the old Anglo-Saxons used to call it the Weird. Your weird is set, they would say meaning youre your goose is cooked and there is nothing you can do about it.
I only introduce this idea as a thought provocation. Not even a hypothesis. Just an analogy. What if the US were well like Rome?
No one knows what will happen. It is not given to man to know his own fate, as the saying goes. But it could be that there is more going on here than just a bunch of people trying to make the best decisions in a bad situation. Maybe destiny is involved too and maybe that is why people all come to think the same thing at the same time.
If everyone thinks the US T-note is such a safe item that theyre willing to take a negative yield just to hold it maybe its not safe at all.
And if destiny or some huge historical force is involved maybe the fight is hopeless. So why bother? Why get all bloody and dirty?
I know you all have to make investment decisions. So, I will try to bring this down to the practically level. The only place where Im directly involved in giving investment advice or in taking it is in the Bonner Family Office. In a nutshell, Im trying to figure out how to leave money to the next generation in a way that helps them rather than destroys them. Ive invited a few other families to help pay for it. Were not taking any new members right now but Will will be happy to tell you more about what we do later on.
The trouble with fighting is that you dont notice a lot of things. You have to keep your head down. You have to stay focused on the fight at hand. And you have to believe in it even when the facts dont necessarily support you. Thats why zealots and believers are generally poor investors. They want to be proven right. They want their side to win and theyre willing to back it with their money. They put their money where their mouths are, in other words. Sometimes both get whacked.
Its all right to be a fighter when its only your own money at stake. You can do with it as you please. But if you are custodian for future generations, its probably better to lift your head and look around. You want to put your money on the fighter who is most likely to win not the one youd like to win.
In our family office, we are neither fighters nor flee-ers. We try to be careful observers. Wed rather get a good seat ringside, where we can see where the blows are landing but not too far from the exit. Right now, we hold a lot of our wealth in cash. Not that we are tempted by a lot of the investment advice Ive heard hear this week. But cash is like a seat by the exits. You dont want to sit there all the time. Too drafty. But it comes in handy if theres ever a fire at least we wont get trampled trying to get out.
Most of the speakers youve heard from at this conference are fighters. They think they can either turn the country around like Addison or that the US will turn itself around, like John Mauldin or that new technology will make us all rich and help us to live as long as Methusela, so we wont care.
But suppose the US really is like Rome? These guys can fight all they want. The Empire has its own destination in mind. And it will get there in its own sweet time.
More to come next week.
Reprinted with permission from the Daily Reckoning.
Bill Bonner is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and The New Empire of Debt: The Rise Of An Epic Financial Crisis and the co-author with Lila Rajiva of Mobs, Messiahs and Markets (Wiley, 2007). His latest book is Dice Have No Memory. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning.