 Old Stones and Gold Coins
Bill Bonner
The
Daily Reckoning
Jul 26, 2004
"Put a pretty girl in
front of a stone château, with a glass of Armagnac in one
hand and a Krugerrand in the other, and I practically fall apart."
Stones and coins!? We confess.
Eric has just described a conversation he had with us just a
couple of days ago. And yes, ancient stones and modern gold coins
do figure prominently in our investment portfolio - they are
practically all of it.
We've reflected on the apparent
nuttiness of this and assured ourselves that it is less nutty
than it seems.
"Why would we buy stocks," we asked ourselves.
"In order to buy the things
we want," came the answer.
"What things do we want,"
we continued the questioning.
"Old stones and gold coins!"
Some people have a weakness
for old, stone houses. Others cannot resist a pretty face. Still
others are prey to good liqueur or bad whiskey.
But put a pretty girl in front
of a stone château, with a glass of Armagnac in one hand
and a Krugerrand in the other, and we practically fall apart.
We drop down to our knees in delicious agony and reach for our
wallet.
We offer neither excuses nor
apologies for this behavior. Nor do we recommend it to others.
Still, it has its advantages.
"I don't believe in stocks,"
said a friend at lunch yesterday. "I mean, I own stocks.
But not many. And I think the average guy really is better off
in real estate."
"Yes, I know there's a
real estate bubble in many areas," he went on. "But
when a guy buys a stock - unless he's Warren Buffett, he has
no way of knowing what the business really is, or whether it
makes sense or not. That's why you get these huge swings in the
stock market. One year a stock may trade for $50... the next,
it goes for $100. And it's the same stock, of the same company,
doing the same business it was the year before. But the average
stock buyer doesn't do any analysis... he just buys stocks he
hears about or reads about.
"Real estate is different.
He can see it. And he can do the math. If he buys an apartment
building, for example, he knows it will cost him so much to operate...
and he knows how much rent he'll get. In other words, he really
does understand the underlying business... just like Warren Buffett
understands the businesses he gets into. That doesn't mean he
won't make a mistake, but it means he's much less likely to make
a spectacularly stupid mistake like buying one of those tech
stocks that had no earnings."
Real estate investors may be
doing the math, but the math itself may be misleading. If your
property is rising between 10% and 40% per year, it makes sense
to borrow at 6% to buy it. But that doesn't mean that interest
rates will stay at 6%, or that property will continue to rise.
Even at 6% there are costs to holding real estate. Upkeep, taxes,
insurance. Many real estate investors seem to be losing money
every month - while betting that their property will go up in
price.
So far, they've been right.
On both coasts, property prices are soaring. Even here in Baltimore,
where real estate, in real terms, sank for most of the last 75
years, there is a boom underway.
"Hallelujah... "
"You mean, because prices
are finally rising in Baltimore... ?" we asked another friend
while walking down Charles Street.
"No, 'hallelujah' because
they finally cleared the riff-raff out of the old Stafford Hotel.
It was Section 8 housing... you know, designed for poor people.
But it ended up being a place where all kinds of drug dealers
and riff-raff hung out. I talked to a policeman who works around
here... he said that 80% of the crime in the area came from that
single building...
"But now the Peabody Conservatory
- the music school - bought it. They're going to put their students
in it. And you know, they're all Korean or something."
"What did they do with
the people who lived there?"
"I don't know, but they
should have taken them out and shot them."
What's going on in Iraq? Hardly
anyone mentions it.
"I read your commentary,"
began a conversation with a Dear Reader the other day. "And
it is kind of funny. I mean, this is a war that is costing, what
$100 billion... and nearly 1,000 American lives. But people don't
really talk about it. They don't really know anything about it,
and don't know what to say.
"The war was probably
pretty stupid from the very beginning. But most people trust
their leaders... and they don't know anything about al Qaeda
or Iraq. When 9/11 came, they just wanted the government to do
something. So, the government did something. Everybody was more
or less in favor of it. Even Hillary [Clinton] and Kerry voted
for it.
"It kinda makes sense
that most people... the people you refer to as the lumpen...
would want to go and kick somebody's butt. America's supposed
to be the biggest military power on earth. It just didn't make
sense that we couldn't even protect ourselves from a group of
guys with box-cutters.
"Of course, that's the
thing about a Republic. You're supposed to elect people that
are smart, sober and calm. And these guys are supposed to sit
around in solemn debate at times like this. They're supposed
to carefully weigh the merits of various arguments and decide
what is best for the country. They're not supposed to be swept
along by mob sentiment. They might do something dumb.
"But now you've got CNN
and the Internet... and everybody gets whipped up at the same
time... and the politicians just go along with whatever is getting
high numbers in the polls. That's not the way it is supposed
to work, but that's what happens... and it's just what - who
do you keep referring to - de Toqueville... warned about. Or
maybe it was George Washington. I think you had the quote in
the Daily Reckoning... 'I leave you a Republic... if you can
keep it.'
"Well, it turns out that
we couldn't keep a Republic any better than Rome could. Now,
we have a circus in Washington and a clown in the White House.
And I agree with you... Kerry wouldn't be any better. In fact,
he might be worse.
"You had a good line in
the Daily Reckoning the other day... what was it... oh... that
America will be great as long as she is good. I think that was
from de Tocqueville too. But like ancient Rome, it looks to me
that we stopped being 'good' a long time ago. Good people don't
go bombing other people just because they think they may be up
to something. And they don't let other people pay their bills
for them either - but that's another issue.
"But getting back to my
point... I think most people still think that the war against
Iraq was a pretty good thing. It got Saddam out of there. And
we didn't know what threat he posed... but at least we found
out... and now he poses no threat at all.
"The scary thing is that
almost no one was against the war for the right reason... and
that's still true today. People argued that it wouldn't work.
But almost no one said it was wrong to go kill people. If the
war had gone well - almost everyone would be happy with it. That's
what I mean about America not being good. Everyone wants it to
be great... and no one seems to care if it's good or not. Maybe
it was always that way... I don't know. You reach a certain size
and a certain power... and maybe you can't help but throw your
weight around. I think you've been saying something like that
in the Daily Reckoning. Anyway... it's only because it didn't
go well that people are now against it.
Heck, I guess it's better that
it didn't go well. If it had gone well, we'd be in Damascus by
now."
 Jul 20, 2004
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 NY Times,
Wall Street Journal and international bestseller: "Financial
Reckoning Day:
Surviving The Soft Depression of The 21st Century" (John
Wiley & Sons).
321gold
Inc Miami USA
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