The Right Stuff

This week, 40 years ago, England and France were both on the edge of panic. Actually, in Paris, government officials had already crossed the frontier from anxiety to panic. They were burning documents in the ministry on the Quai d’Orsay.

The German army was rolling back the French and the English faster than anyone imagined possible. It was a new era in military history — and only Hitler seemed to know it.

The War Cabinet in London discussed the possibility of negotiations with Hitler. Why not? After sweeping the French from the field, he would turn his full attentions towards Britain. The War Cabinet itself doubted that it could resist Hitler’s war machine. The sensible thing to do was to talk to Hitler and try to work something out.

But Churchill flat-out refused to negotiate.

“I can’t work with Winston any longer,” said Lord Halifax. Then, in his diary: “Winston talked the most frightful rot…I despair when [Churchill] works himself up to a passion of emotion when he ought to make his brain think and reason.”

But there is a time to think and reason…and a time not to.

Four years and a few months later, our hero, Col. Flamm Dee Harper, who had crash-landed in France, had an important decision to make. The S.A.S. commando leader put it to him straight:

“You can hide in a barn until the Allies liberate this part of France.” (This was after the D-Day landings.)

“You can stay with us as a guest.”

“Or, you can join us. You realize, of course, that Hitler has offered a reward of a million francs for any one of us who is captured or killed. And we’re to be considered as partisans, not soldiers. So the Geneva Convention won’t help us. If you’re caught, you’ll be shot.”

This was not merely an idle threat. Only a few weeks earlier, a group of S.A.S. commandos and French Resistance fighters were surrounded in a wooded area. Among them was an American pilot, Lt. Lincoln Bundy. All of them were killed.

The French civilian population had suffered, too. As German troops hurried to meet the invasion in Normandy, they stopped in a town called Oradour sur Glane, about 45 minutes away, herded the entire population into a large barn and killed them all.

Harper is a hero in France because he chose the third alternative. Along with John Fielding and others, they mounted machine guns on the front of U.S. Army jeeps — and blew up train lines in the area.

My beat is investment. But what makes the investment world so fascinating is that it reflects the workings of the human heart. Neither markets nor hearts give up their secrets easily. You have to coax them out…and think so hard, as Heisenberg said, that it hurts.

Col. Harper came to a point in his speech where he was thinking hard. He needed to explain himself. There was a gap. A hole in the fabric of events and logic that needed to be filled. Why had he done what he did?

Harper tried to fill the hole by saying that he and the others on the hillside had “fought for freedom.” But the words stood out like a political campaign poster nailed to an oak tree or a plastic flower in an ancient pot — cheap and false.

Harper was not a man moved by ideology. He would have happily spent the war working in an ammunitions plant in Utah, earning $7.50 per hour — which was very big money in those days. Besides, logically, making bombs is just as important as dropping them. It was the lure of flying the airplanes that brought him into the war.

At 15 years old, Jacqueline Thomas probably had little interest in politics…or military affairs. She did not go to Harper’s aid in the name of freedom. She went in the name of something much harder to put your finger on. Even the adults, Monsieur Dumas and Madame LaBrousse and the resistance fighters, probably had little concern for “freedom.” After all, the French Resistance — especially in that area — was dominated by communist party members.

And what did these people really have to gain? The Allies had already landed in Normandy. Either they would win the war or they wouldn’t. Indeed, the tide seemed to have turned against the Nazis, who were being ground down mercilessly on the Eastern Front. So, why get involved here in France? The sensible course of action for all of them — Harper, Thomas, Dumas, LaBrousse — would have been to lay low until it was over.

“It was easier for the Americans,” said a man at the luncheon, sitting across from me and trying to explain the confusion that existed in France during the war years. “At least you knew who the enemy was.”

After the war, the German officer in charge of the operation against the S.A.S. in the area was brought to trial. He explained how difficult it was for him too. He was, apparently, a decent fellow. He explained that he did not want to kill the S.A.S. troops or the American pilot. He had agonized over it. But he had been ordered to do it by the Fuhrer. If he refused, it would be he who was shot.

Under other circumstances, this German officer — who was no Nazi — might have been a hero, too. Instead, he went to jail.

But here they were — these septuagenarians and octogenarians — with tears in their eyes. They were people who knew they were caught up in a great adventure…a grand enterprise…which determined the character of Western society. They could not hope to control events. They did not even understand what was going on. No one did, in fact. Even with the benefit of 50 years of hindsight, we still struggle to make sense of it.

“Stupid” is how Col. Harper described the war. But his interpreter, the young lieutenant from the American Embassy, left the word out in his translation.

Maybe the war was stupid. Certainly a lot of stupid things were done. Harper would never have set foot in Montmorillon had he not stupidly flown his plane into an explosion. And Hitler probably wouldn’t have been driven out of France if he hadn’t attacked the Soviet Union…or ordered his army to stop short of annihilating the British at Dunkirk.

The closer you look — whether at the market or at human life generally — the more complicated it is.

Maybe Churchill was right. Maybe information and logic are undependable. There is time to be sensible and a time to do what you think is right — even if it isn’t very sensible. Harper and the rest did what Churchill did — they did not take the “sensible” course. Instead, they did what they thought was right. They did their best. What more can you ask of a person?

Regards,

Bill Bonner

Baltimore, MD May 23, 2000

*** This market is taking an awfully long time to come to the point. But why shouldn’t it take its time? It’s the biggest, most expensive market in history. And it is dominated by new investors who think a mutual fund account is the same as a savings account — only better.

Even the people who are supposed to be pros know neither the history nor the logic of the market. There are two ways of understanding things — from experience or by theory. They don’t have the benefit of either one.

*** Richard Russell takes readers back to basics in yesterday’s message. According to Russell, the bear market began on May 12, 1999. That was when the Dow Industrials and Transports “recorded their last joint highs.” The P/E on that date was 26.8, he says, the highest ever.And the yield was 1.33% — the lowest ever recorded. According to Russell’s Dow Theory, the first phase of the bear market won’t end until the Dow closes below 9,796.

*** Yesterday the Dow edged in that direction. It closed down 84 points. The Nasdaq closed down 26. During the day, however, the Nasdaq was down as much as 200 points, coming back in the last hour of trading.

*** There were 1,161 stocks advancing and 1,771 declining. And 119 stocks hit new lows while only 30 hit new highs.

*** The Fed is, of course, fighting inflation — or at least the threat of inflation. According to the newscasters, it is the fear of further tightening that is spooking the market.

*** But the market is sending signals of its own. Gold refuses to move. Lumber is down. GM too a big hit yesterday, and the automakers, generally, look weak.

*** And the euro, which looks more and more like it has found its bottom, is holding above 90 cents.

*** Could these things be hinting that inflation is not right around the corner? Capital asset values have skyrocketed — both stocks and Manhattan apartments. But they can come down even faster. Wealth can disappear overnight — and shrink the money supply so quickly that deflation, not inflation, becomes the enemy of economic progress — as it has been in Japan for the last 10 years.

*** We are all humans, after all…and the same animal spirits that lead people to believe that they can get something for nothing sometimes leads them to believe that something IS nothing.

*** “Platinum demand went from nothing to half a million ounces in China last year,” says Dan Ferris of Real Asset Investor. Jewelry and technology are driving the market. Another 200,000 to 300,000 ounces will come from computer hard drives over the next couple of years.

*** “Maybe I don’t understand the market,” said George Soros after losing a few billion dollars. Soros, one of the most sophisticated investors in the business, made big bets in the high tech area — fully aware that the values were “insane.” His analysts were the best in the business. They had access to the best information. They did not rely merely on the Internet buzz and CNBC babble — they met with the people running the companies they bought. And even this did not produce winning numbers. How can ordinary investors expect to come out ahead? Are they smarter? Better informed? Or just luckier?

*** “I checked with my trusty ex-plumber…” wrote Barton Biggs, global strategist for Morgan Stanley Dean Witter, explaining how he understood what ordinary investors were thinking. Only Barton didn’t check with the ex-plumber. A couple of days ago he admitted that the plumber was a “literary device.” He made up the conversations.

*** But just to put your mind at ease — I don’t make things up in the “Daily Reckoning.” I’m not that clever. (Except my “Christmas Carol” — which was obviously fiction.) What I sometimes do, however, is change or omit the names of the people I’m describing — to avoid embarrassing them.

*** “Time to buy the undervalued and oversold euro,” says the latest trading advisory from Sentmontier Strategy. The Sentmontier team think the euro has been driven down about as far as it will go. It has lost 24% of its value since it was introduced. And while it has been a disaster for investors, it has actually done the job it was supposed to do — and more. It has provided an alternative to the dollar…and boosted European exports. Buy the euro; sell the dollar.

*** I apologize to all those readers who have written me in the last couple of weeks. I have not been able to keep up with my personal correspondence.