Welcome to The Daily Reckoning- Sign up FREE today! It had all seemed so logical, obvious, and agreeable back in the last five years of the 20th century. Stocks went up year after year. The Cold War had been won. There was a new 'Information Age' making everything and everybody so much smarter--and richer, too. The world was a happy place, and Americans were its happiest people. American consumer capitalism was the envy of all mankind. The United States guaranteed the peace and freedom of the entire species, if not with goodness, intelligence, and foresight--at least with its military arsenal, which could blow any adversary to kingdom come. People believed that Francis Fukuyama's 'The End of History' had indeed arrived, for it scarcely seemed possible that there could be any major improvement. But, "It's a funny old world," as Maggie Thatcher once remarked. She might have meant funny in the sense that it is amusing; more likely, she meant that it is peculiar. In both senses, she was right. What makes the world funny is that it refuses to cooperate; it seldom does what people want or expect it to do. In fact, it often does the exact opposite. People do not always act as they should. Other people seem irrational to us - especially those with whom we disagree. Nor do we always follow a logical and reasonable course of action. Instead, we are all swayed by tides of emotion...and occasionally swamped by them.  | Sign up for The Daily Reckoning...
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The Daily Reckoning is written to underline the point that the world is funnier than you think. And the more you think about it, the funnier it gets. Close inspection reveals the ironies, contradictions, and confusions that make life interesting, but also frustrating. A rational person could do rational things all day long, but then...how boring life would be. Fortunately, real people are only rational about things that do not matter. People of action despise thinking of any sort, and rightly so, because the more they think, the more their actions are beset by doubts and arrière-pensées. The more man thinks, the slower he moves. Thought uncovers the limitations of his plans. Exploring the possibilities, he sees yet more potential outcomes, a greater number of problems, and he increasingly recognizes how little he actually knows. If he keeps thinking long and hard enough, he is practically paralyzed...a person of action no more. Will the stock market rise? "I don't know," replies the thinking fund manager. Can we win the war? 'It depends on what you mean by 'win,'' answers the thoughtful general. The Daily Reckoning is written in a spirit of runaway modesty. The more we think, the more we realize how little we know. In fact, it is a good thing that we finished our book when we did, or we would know nothing at all...or even less. ( What book? This one ) We are, frankly, far too much in awe of the world, and too deeply entertained by it, to think that we can understand it today or foretell tomorrow. Life's most attractive components - love and money - are far too complex for reliable soothsaying. Still, we can't resist taking a guess. We may not know how the world works, but we are immodest enough to think we can know how it does not work. The stock market is not, for example, a simple mechanism like an ATM machine, where you merely tap in the right numbers to get cash out when you need it. Instead, the investment markets - like life itself -are always complicated, often perverse, and occasionally absurd. But that does not mean that they are completely random; though unexpected, life's surprises may not always be undeserved. Delusions have consequences. And, sooner or later, the reckoning day comes, and the bills must be paid. In this sense, the investment markets are not mechanistic at all, but judgmental. As we will see, they reward virtue and punish sin. Our approach in The Daily Reckoning is a little different from that of the typical economics tome or investment advisory. Instead, it is an exercise in what is known, derisively, as 'literary economics.' Although you will find statistics and facts, the metaphors and the principles that we provide are more important. Facts have a way of yielding to nuance like a jury to a trial lawyer. Under the right influence, they will go along with anything. But the metaphors remain...and continue to give useful service long after the facts have changed. What's more, metaphors help people understand the world and its workings. As Norman Mailer recently put it, "There is much more truth in a metaphor than in a fact." But the trouble with metaphors is that no matter how true they may be when they are fresh and clever, when the multitudes pick them up, they almost immediately become worn out and false. For the whole truth is always complex to the point of being unknowable, even to the world's greatest geniuses. The world never works the way people think it does. That is not to say that every idea about how the world works is wrong, but that often particular ideas about how it works will prove to be wrong if they are held in common. For only simple ideas can be held by large groups of people. Commonly held ideas are almost always dumbed down until they are practically lies... and often dangerous ones. Once vast numbers of people have come to believe the lie, they adjust their own behavior to bring themselves into sync with it, and thereby change the world itself. The world, then, no longer resembles the one that gave rise to the original insight. Soon, a person's situation is so at odds with the world as it really is that a crisis develops, and he or she must seek a new metaphor for explanation and guidance. Thus, the authors of the present work cannot help but notice an insidious and entertaining dynamic...a dialectic of the heart, where greed and fear, confidence and desperation confront each other with the subtle elegance of women mud-wrestlers. In the financial markets, this pattern is well known and frequently described. In the late 1990s, those who were sure that stocks would always go up - despite having already reached absurd levels - gave countless explanations for their belief, but the main reason was simply that it was just the way the world worked. But after investors had moved their money into stocks to take advantage of the insight, few buyers were left, and prices had risen so high that neither profits nor growth could support them. Investors were deeply disappointed in the early 2000s when stocks fell three years in a row. How could this be, they asked themselves. What is going on, they wanted to know. As we write this, we still do not know. And even mainstream economists find it difficult to come up with an answer. Paul Samuelson, popularizer of the economic profession for Newsweek, has admitted that he and his colleagues do not even have words to describe this 'baffling economy.' Nor has Alan Greenspan been much help. In the late summer of 2002, the most celebrated economist in the world addressed an audience in Jackson Hole, Wyoming. He explained that he did not know what had gone wrong. He would not know a bubble if it blew up right in front of him; he would have to wait, he told his fellow economists, and check the mirror for bruise marks - for only after the event could a bubble be detected. And what difference would it make anyway? America's favorite bureaucrat explained that it made none. Even if he had known, he said, he could not have done anything about it. But we do not write this e-mail newsletter to carp or complain. Instead, we offer it in the spirit of constructive criticism, or at least in the spirit of benign mischief. We do not know any better than Alan Greenspan what the future holds. We only guess that we are at one of history's crisis points - one of its reckoning days -where the metaphors of yesterday no longer seem to describe the way the world works today. The financial markets are not the congenial ATM machines of investors' fantasies, after all. Nor is the political world as safe and as comfortable as people had come to believe. That is another aspect of our Daily Reckoning that readers may find unusual. We dip into military history and market history as if passing from a hot tub to a pool. Both illustrate the lively influence of group dynamics; the currents of mass sentiment are similar. Readers will note, however, that political episodes tend to have tragic endings...whereas markets typically end in farce. Readers may also be curious as to our focus on European history. We make no excuses or apologies for it. Our office in Paris is surrounded by reminders of Europe's past. Can we not help but learn from it? Finally, we do not include the typical formulas or recommendations of an investment advisory, nor the detailed expositions of a book on economics. Instead, we offer only a few simple ideas that readers may well find helpful in the years ahead. I hope you enjoy the ride... Bill Bonner Sign up for The Daily Reckoning today!
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