The Essentialist Glossary ...continued
Cisc Sidekick of Pancho. Creative Destruction: The economist Schumpeter came up with this expression. It describes the natural process of open markets—where new companies destroy old companies and old technologies. Dirigisme tries to block the forces of creative destruction. By contrast, laissezfaire, another French term, lets the chips fall where they may. Bill Gates, America’s Last Great Capitalist, built his company on the dirigiste model. Linux is an example of the laissez-faire approach. Gates created vast wealth. Linux, or the process of Creative Destruction, will destroy it. Day Trader: Someone who is disloyal from nine to five. Dirigisme: This is also a French term. It is the modern French version of Plato’s ideal form of government—where you get smart people together and they tell everyone else what to do. Dollar: More valuable than gold, the dollar has nevertheless been going down in value since the Federal Reserve system was set up more than eight decades ago to protect it. Erfahrung: Things you know from personal experience. For example, if you slam your f ingers in the door of a Deux Cheveaux (the French answer to the Volkswagen, without the power or the comfort), the next time you close the door, you move your hand out of the way. Why? “Erfahrung.” Esperanto Money: This is the term we apply to the euro. Esperanto was a made-up language designed to make it easier for people to communicate. It f lopped. The euro will flop, too. Financial Planner: A guy who actually remembers his wallet when he runs to the 7-Eleven for toilet paper and cigarettes. Fin de Bubble: The spirit of our age. We live in a world that is waiting for something to happen. In the meantime, people are all very optimistic about the future—especially the financial future. Like people during the fin de siecle period of the Gay Nineties and pre-World War I, they are impressed by technological progress and see few clouds on the horizon. World War I ended the fin de siecle sentiment. What Archduke waits to be assassinated so our fin de Bubble can be entered in the history books? Gambling: What you do with your excess money when you are too lazy to invest the way Buffett does. Gold: A heavy, yellow metal, rarely seen or spoken of. It is a barbaric relic that went down in dollar terms for the past 20 years of the 20th century. It is about the only thing you can leave on the seat of your car in Baltimore without worrying about the windows being smashed. Graham and Dodd: These are the guys who wrote the book on investing; Warren Buffett—their most brilliant student. Head and Shoulders Pattern: Not to be confused with the dandruff shampoo, a head and shoulders pattern on a chart vaguely resembles the head and shoulders of a very strangely shaped man. It is thought to be a precursor of a decline. But if the market doesn’t go down, the technicians take another look and tell you that it didn’t look like a head and shoulders after all. It was really a horse’s rear end. Heart of Darkness: Where Internet investors go—the horrors. Homo Analogiens: People who have trouble setting their alarm clocks and believe the new economy is mosty hype. Homo Digitaliens: Ed Yardeni, Al Gore, Bill Gates, Jeff Bezos, and a few others. They walk among us. The Information Age: The handle given to today’s postindustrial, postmodern economy. The successor to the Age of Ignorance, the Age of Information is characterized by such an abundance of useless facts and senseless data that, now, everyone knows everything, and almost no one knows anything. Institutional Investor: Investor who is now locked up in a nuthouse. Investing: This is the activity that many people say they do but few understand. It involves studying the likely stream of income from an investment, anticipating its growth or decline, and adjusting for risk. Most of today’s investors wouldn’t know a balance sheet if it bit them on the derriere—which, we predict, it will. Leicht Denken: Schwer uberlegen’s distant cousin. The kind of superf icial reasoning a person does when he only has gross generalities or someone else’s money to work with. The source of much misguided action in government, politics, finance, and romance. (See also Schwer Uberlegen.) Market Correction: The day after you buy stocks. Metcalfe’s Law: Metcalfe noticed that a system like the Internet becomes more valuable the more people use it. For example, the first telephone was virtually useless by itself. The millionth, by contrast, is exceptionally useful. Thus, the value of the system itself increases exponentially as its use becomes more widespread. Metcalfe’s Law helps explain why the dollar has been such a hit all over the world. Investment Biker, Jim Rogers, driving around the world with his then-girlfriend, Paige Parker, reported that he could use dollars almost everywhere—and in many places where even the government won’t accept its own currency. Dollars have become a worldwide medium of exchange—made more valuable simply because they are so ubiquitous. Momentum Investing: Find a trend and stick with it until you go broke. Moore’s Law: A key to understanding tech investing. Moore said that computer power would double every 18 months. Interestingly, statisticians use this device to ramp up the gross domestic product (GDP) figures arguing that a computer purchase today is worth more than the actual dollars exchanged. They never applied this logic to autos or any other sector, but some $300 billion of these fictitious “chained dollars” have been added to the nation’s GDP. P/E Rati The percentage of investors wetting their pants as the market keeps crashing. Sand, Small Towns, and Old Towns: Where people go to have their mid-life crises. Schwer Uberlegen: Either the kind of reasoning one does based on firsthand experience or the winner of the Gold Medal in the luge in Nagano ‘98. We don’t speak German, so we’re not sure. Sensation Mongers: People think the news media just reports the facts. Yet, a zillion things happen every day, and the news media doesn’t mention any of them. Instead, the media confines itself to amplifying the madness of crowds and reporting all the news that of its groupthink agenda. Significant Base Formation: This is what you get when you sit around and eat too many donuts while reading the financial news. Speculating: This is what you call gambling when your wife asks what you doing. Stock Analyst: Idiot who just downgraded your stock. Stock Split: When your ex-wife and her lawyer split all your assets equally between them. Triff in Paradox: The trouble with making a currency the world’s leading brand is that to do so, you have to print a lot of them and export them vigorously. Each dollar is an IOU from the government. The more dollars outstanding, the weaker the issuer’s balance sheet, and the less each one is worth. Eventually, Triffin and Metcalfe will have to come to terms. Unified Theory of Greed (UTG): The insight that we are all greedy SOBs, but the real SOB is the guy whose greed—whether for power, money, or love—is not held in check by his wife, the market, or the law. Value Investing: The art of buying low and selling lower. Wissen: Things you think you know—but usually have no direct experience of and couldn’t pick out of a police lineup if your life depended on it. Most “isms” fall into this category—capitalism, communism, antidisestablishmentarianism—the kind of thing that is reported in the paper and discussed with pompous gravity on the editorial pages. Yahoo!: What you yell after selling your tech stocks to some poor sucker for more than you paid for them.
The Essentialist Glossary is a work in progress, formerly the Contrarian Glossary, which began in The Daily Reckoning on August 26th, 1999. The Essentialist Glossary is brought to you by the New Times York Times bestseller Empire of Debt: “I read in the Figaro that the American economy has become completely dependent on China,” said a friend at a dinner party recently. “But I guess the Chinese have no choice. They need Americans to continue buying their products.” We are alarmed. Even chemists and shoe clerks have taken up macroeconomics. Everyone thinks he understands how the world economy works. “Well, it is a little like that,” we began to explain. “The Chinese do sell to the U.S. and they do lend money back to the U.S. But there’s no law that says this has to continue. “Imagine a shopkeeper whose biggest customer was having a hard time paying his bills. He extends credit . . . hoping the man will get his finances in order. But the more credit he gives him, the worse the man’s finances are. It would be very nice if that could work out. But it rarely does. Instead, it eventually blows up. The customer has to stop buying and the shopkeeper has to stop lending. There’s going to be hell to pay, in other words.” “What should an investor do to protect himself,” our friend asked. “Buy gold.” “Gold? What a strange idea. I haven’t heard anyone mention gold in many years. It seems so out-of-date. I didn’t think anyone bought gold anymore.” “That’s why you should buy it.” Title: Empire of Debt: The Rise Of An Epic Financial Crisis
Authors: Bill Bonner, Addison Wiggin
Hardcover: 320 pages
Publication Date: November 2005
ISBN: 0-471-73902-2
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