Here’s the first of a short series of notes I did at the Daily Reckoning that got used – one way or other – in “Mobs, Messiahs and Markets.” This one from May 12 2006 showshow outsourcing might attract global info tech workers to Buenos Ayres. I’ve moved the note to the front of the newsletter from its original place to make it easier to read.
Fri, May 12, 2006 07:04:06 PM
From: The Daily Reckoning
Today’s Daily Reckoning
Don’t Cry For Evita
The Daily Reckoning
London, England
Friday, May 12, 2006
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*** We hate to brag – but we saw this bull market coming from a mile
away…people are losing faith in paper…
*** Unreliable contrarians…debt has a mind of her own…
*** Prices are becoming a barrier to homebuyers…laying low in things
settle down in the United States…and more!
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More views from Bill Bonner…*** Ameriquest, one of the nation’s leading mortgage lenders closed 229
branches and laid off 3800 employees. Households are paying more in
mortgage interest than they have for the last quarter century – 15.8%. It
appears that they have reached a limit. Mortgage applications are
declining. Unsold inventories of houses are increasing. The bubble in
America’s property market is over. At last, it looks as if prices are
becoming a barrier to buyers.
But what will those who need a roof over their heads do now?
Where they will go?
*** Colleague Lila Rajiva, down south, offers a possibility:
“Buenos Aires is bustling. Not just with tourists or casual visitors
either. It seems a lot of foreigners are here to take advantage of the
relatively cheap price of real estate. The real bargains, of course, were
snapped up during the slump a few years ago, but there are still good
deals to be had – especially for refugees from the inflated prices of the
American and British housing market.
“It seems that housing is only one reason people are coming down here. On
the subte (underground rail) downtown, I ran into two visitors who must be
a sign of things to come. The weather is summery right now, though it’s
the beginning of fall in the Southern hemisphere, and both of them were in
the usual get-up of the European at large – khakhi shorts, tennis shoes,
and baggy tee-shirts. So, at first I thought they were students
backpacking for a semester, but Ross, the younger one, was an English
teacher who had taken off a year or two to “lie low” until things settled
down in the United States.
“‘What things?’ I asked.
“‘The economy, politics…everything,’ he shrugged.
“‘Things’ were too turbulent in the United States just now for his taste.
When they settled down, he’d have a better idea whether he even wanted to
return or not, he claimed. Meanwhile, South America was inexpensive and
warm. He’d spent a week lying on the sand in Uruguay and was now on his
way north to the Iguazu falls. When he got back, he’d look for a job. He’d
heard that a lot of businesses were looking for native speakers to teach
English as a foreign language in Buenos Aires.
“‘Just like all those Dell call-centers in Bangalore,’ he pointed out.
“Neil, the older man, was English and a trifle paunchy. He had been in and
out of Argentina for six months. As he chatted, he balanced a laptop on
his knees into which he was busy punching figures.
“‘Checking my portfolio,’ he explained.
“It was a healthy one, from the looks of it.
“‘Telecoms are good investments still,’ he confided. ‘I bought some shares
in a company at home a while back and doubled my money in just two months.
You should try them. Of course, I was working for a telecom at the time
and got them pretty cheap.’
“I wanted to know how he got to take off six months from his job.
“‘Actually, I don’t have one,’ he admitted. Though he was not yet forty,
he was retired. How come?
“‘Sold my house in Nottingham, that’s how,’ he chuckled. ‘The price had
gone through the roof and I knew it was time to get out. I invested the
money and now I travel. I still do a bit of software consulting, but only
over the net. The main thing is to go where it’s warm and cheap to live.’
He looked over at me hopefully.
“‘I was actually thinking of India…’
The price of gold soared last week…and the week before…and the week
before. We at The Daily Reckoning saw the bull market coming seven years
ago. Readers who bought then are nearing a 200% gain. Those who haven’t
bought yet are wondering whether to get in now, or wait for the next
correction. We’re wondering, too.
We don’t get many opportunities to gloat, so we have to pretend we deserve
them when they come. It is a better species of vanity than pretending that
we don’t, and it gives us a suitable soapbox on which to stand while we
address the question our dear readers haven’t asked. What do we see ahead
for the yellow metal?
How did you guess? Of course, we expect gold to go up. Maybe it will
correct in the near-term, but the bull market is far from over, in our
opinion. How far will it go? Probably a lot further than anyone thought
possible, and with a lot more damage to the world’s financial system than
anyone imagines.
Despite the huge increase in the gold price, we see very little in the
press or in conversation that makes us think the public is wising up. If
asked about it, commentators and analysts say, “all commodities are
rising.” That is true, but gold is rising even more, which must mean one
thing and one thing only: people are losing faith in paper.
Yet, the world is awash in the stuff: bonds, mortgages, shares,
currencies, I.O.Us., derivatives, funds of funds of funds holding piles of
paper assets. And of all the forms of paper that swirl around in the
world’s financial alleyways, one is ubiquitous – it is the one in which
even the price of gold is quoted: the U.S. dollar.
We are as wary of group-think as anyone, but the fact that most people
think the sun will shine tomorrow doesn’t make us think it won’t. Nor does
the fact that almost everyone believes the dollar will go down convince us
that it will go up. We may be contrarians, but we are also unreliable.
Sometimes, we figure, the crowd finally gets it right. And what it has
right is that the greenback has become a cat stuck in a tree. Somehow it
must come down. Otherwise, the U.S. current account will go negative by
more than $1 trillion per year.
Of course, there are economists who see no harm even in a deficit of that
magnitude. Then again, these were the same sort of people who thought
Hurricane Katrina would save them from having to water the lawn.
But gold is telling us a different tale. The yellow metal has run the
gauntlet of resistance levels with white-hot speed, slicing through a
hundred dollars in a matter of weeks. Forecasters who predicted that this
was a “spike” caused by speculation have been scorched. The commercial
short-sellers – and there are many of them – have had to eat their losses
and their scoffing. What has happened is simple but historic. Gold has
changed its nature from a mere metal to a benchmark against which all
currencies, not merely the dollar, are being measured. It is trading like
a currency itself, a fundamental one, to which not just greedy, but
frightened money is pouring. And the money that is running scared right
now is the money printed in green ink.
Still, while everyone agrees that the dollar is coming down, few expect
that it will cause much trouble. Even Morgan Stanley economist Stephen
Roach, who used to be reliably gloomy on the future of the world economy
and moaned regularly about the “unbalanced” state of things, now seems to
have lost his balance, spouting claptrap about how “coordinated efforts”
by central bankers will put things right. And what are the bankers
conspiring to do? Bring down the terrified dollar, of course.
And then there’s Harvard economist Martin Feldstein, writing in the Wall
Street Journal, reminding us that a currency devaluation can be relatively
painless, as it was when the U.S. dollar went down nearly 40% in the early
’80s.
But, of course, that was then. A quarter of a century can make a
difference. In the early 1980s, America was still a net creditor to the
rest of the world. The price of gold and credit was high, and stocks and
bonds were low. Now, it is the other way around.
By the mid-eighties, oil dropped to $25-35 a barrel. There was not a
single McDonald’s in all of China, and the sovereign nation of Russia
didn’t even exist. Now, Russia and China are among America’s biggest
creditors, oil trades over $70, and the United States is running $800
current account deficits.
Among the dizzy optimists is former Assistant Treasury Secretary Brad
DeLong, who argues that the deficits are trivial when compared to the size
and growth of the U.S. economy. Real GDP of the United States is growing
by $400 billion per year, he writes. Even after depreciation, the $130
billion that does not go to labor is capitalized at about $1.5 trillion of
wealth. Thus, the current account deficit – even at $1 trillion – is not
overwhelmingly large. The country can sell two-thirds of the increase in
GDP to finance imports and still be $500 billion better off every year.
Yes, say the optimists, the United States could run $1 trillion deficits
soon – but so what? That’s still only 8% of GDP. The interest on this
extra borrowing is only about 12% of last year’s economic growth. And when
the dollar does come down, as it inevitably must, U.S. firms should be
able to export more and will become even more profitable.
Readers might recognize this argument as the same one used to comfort
America’s households. They need not worry about soaring debt levels – not
when their houses are going up in value! But like a headstrong mistress,
debt has a mind of her own. You may have sidled up to her; you may have
encouraged her or even egged her on. But after a time, you no longer
control her. Compound interest takes over. She controls you.
Compound interest has been described as one of the wonders of the world.
Your money grows, and then feeds on itself and grows – as if by magic. But
compound interest works in the other direction, too. When you owe money
and don’t keep up with the interest payments, the unpaid interest keeps
getting added to the principle. And now it’s the amount you owe that grows
– as if by black magic. In no time at all, you’re bankrupt.
Already, Americans cannot keep up with their bills. The interest on $1
trillion may be “only” $50 billion, but the U.S. debt is not growing by
$50 billion per year; it’s growing by $1 trillion! That’s the measure by
which expenses exceed income. In the absence of savings, much of that
amount must be taken up as debt.
And who’s going to lend? Who’s going to want to take dollars?
So you see, dear reader, that cat is coming down one way or another, even
if we have to cut the tree down. Most economists believe it will be
painless…almost effortless. But what’s that noise? It sounds like
chainsaws revving up. We’re moving our car out of the way, just in case.
More news from our team at The Rude Awakening…
————–
Eric Fry, reporting from Manhattan:
“On Tuesday, the Ben Bernanke hiked short-term interest rates to 5%…Over
the ensuing three days, global stock markets have stumbled, the dollar has
dropped 2% and the gold price has skyrocketed more than $50.”
For the rest of this story, and for more market insights, see today’s
issue of
The Rude Awakening
http://www.the-rude-awakening.com/RAissues/2006/march/RA051206.html
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The Daily Reckoning PRESENTS: Eva Peron was a favorite of the poor of
Argentina. She had a warm heart, it was said. But like that other great
champion of the masses, Che Guevara, Eva realized her greatest glories
after she was stone cold dead. Bill Bonner explores…
DON’T CRY FOR EVITA
by Bill Bonner
“One cannot accomplish anything without fanaticism.”
– Eva Peron
One of the strangest of the world improvers to appear in the 20th century
was the wife of Argentina’s Juan Peron, Evita, as the “descamisados” – or
‘shirtless ones’ called her.
We went to visit her grave on our recent trip there. It is in the Recoleta
cemetery, a short walk from our apartment near the French Embassy. There,
you will find a whole city of the dead, laid out in tiny houses of marble
or granite, often with statues on the roof, sometimes with glass domes and
elaborate carvings. Most of the mausoleums have glass doors. Some of the
doors are even open. You can look in at the cobwebs and caskets.
People wander around, down one street, up another – often looking for a
family tomb, or if tourists, just looking. It is a huge place, with a
thousand stories, some of them chiseled in stone.
“Did your father die?” begins a Marx brothers’ routine.
“We hope so,” Groucho replies. “Because we buried him.”
Here, it is no joke. One of the tombs tells the story of a poor girl who
was entombed alive. Cemetery workers found her coffin ajar, and realized
the mistake – but too late.
While most inscriptions tell us of the dead, some recount the stories of
the living. One father was so grief stricken that he gave away all his
fortune and traveled the pampas begging.
“Here it is,” Maria called out to us. After roaming the streets in the
ciudad de los muertos (city of the dead) for half an hour, she had finally
found the corpse she was looking for, that of Eva Peron.
We had expected more: A fountain maybe, or a giant statue of the woman.
Maybe even crowds of poor people, crossing themselves, vowing revenge on
the rich and plotting revolution. But the tomb is like any other, only
less attractive in many ways…plainer than you’d expect, just gray
granite with no particular style or flourish. All that sets it apart from
those around it are the flowers – there were several bouquets – along with
candles and a few notes. There were a few other people visiting the
monument, but they seemed no more interested in it than we were; they were
just casually curious.
Eva Peron was a favorite of the poor of Argentina. She had a warm heart,
it was said. But like that other great champion of the masses, Che
Guevara, Eva realized her greatest glories after she was stone cold dead.
That was when the common people really took to her. For that she can thank
her embalmer, a man who worked on her corpse like Rembrandt on canvas. You
can check for yourself. Eva was pretty enough, but no great beauty, even
when she was young, warm flesh.
Still, it seems she had something going for her. She got a tango singer to
take her to Buenos Aires when she was only 15, and if she gave herself to
him in exchange, as her upper class critics whispered, would that have
been so bad? After that, she managed to make something of a career for
herself and by 24 was already a popular radio actress. She did most of her
real work in the bedroom, went the jealous rumors. All we know is that she
must have had talents that don’t show in a public photograph. She managed
to get one colonel fall for her and then, at a charity event, she got her
hands on another one, Juan Peron, and never let him go.
Juan Peron was then 48 years old. His first wife had died. He has spent
his career in the army and greatly admired the way Mussolini had handled
Italy, some of which he had seen firsthand during officer training in the
1930s. In 1943, when he met Eva, Peron wanted to do in Argentina what
Mussolini had been able to do in Italy – line up the support of the
working classes and take control of the government. But, he desperately
lacked one thing – the Duce’s charisma and powerful personality. According
to most biographers, Peron had no personality at all. On the other hand,
he was a calculating, conniving kind of guy.
When he met Eva, he must have realized that she could supply what he
lacked. Here was a woman with the gumption to elbow her way through a
society crowd so she could sit down to dinner next to him…and then, yes,
he hardly had to say a word…she was in his bedroom before his soup got
cold. What a woman! And besides, she had the right credentials. She was
born poor, and even illegitimate. She had had to make her own way in the
world – we won’t dwell on the details – and now could stand before the
lumpen as one of their own. Publicly, she could be Evita…the Princess Di
of Argentine fascism…the peoples’ princess of the pampas. Privately, she
was more than that – she was a tough and determined arriviste.
In 1945, Peron was arrested. While he wobbled and even considered going
into exile, Evita kept her nerve. She used the money she had embezzled
from an earthquake relief fund and went directly to the unions to rally
support, arguing that Peron was the man they needed in the Casa Rosada,
Buenos Aires’ equivalent of the White House. By October of that year, she
could field 200,000 demonstrators, and forced the authorities to back
down. A year later, she helped Peron win a landslide election victory; he
was well on his way to realizing his ambition of being an Argentine
Mussolini. Later, after Il Duce – and his mistress – were strung up by
fickle followers, Peron would amend his ambition, saying that what he
really wanted was “a fascism that is careful to avoid all the errors of
Mussolini.”
Evita burned hot, but she burned fast. By 1952 she was burned out and
burned up. She appeared at Juan Peron’s side for his second inauguration
in an open car, held up, like El Cid, by a plaster support under a long
fur coat. She was not yet dead then, but almost. Cancer had eaten away at
her and the radiation with which doctors had burned her to try to kill the
cancer. Between the doctors and the cancer, she was left with not much
time. She died seven weeks later, weighing only 80 pounds and only 33
years old, younger than Elvis, the two Kennedys, or Che…but older than
Joan of Arc.
She may have died young, but she did not leave a good-looking corpse. The
burnished beauty that hundreds of thousands of mourners admired, sobbing
into white handkerchiefs…touching her coffin…even kissing it, were not
those given to her by God. No they were the handiwork of the mysterious
Spaniard who embalmed her.
Doctor Ara was a bit of a miracle worker. Jesus Christ himself only
managed to change water into wine, but Dr. Ara all but resurrected Eva’s
worn-out corpse. He laid on the waxes, the paint, and the rouge with a
touch nearly divine, and somehow transformed the gutter girl into a
veritable saint.
If Evita was a humbug and a scalawag, it no longer showed. Bargain
basement when she started out, her price had skyrocketed with her ascent
to power. By the time she flamed out, she was pure Tiffany’s. Yet, this
was a woman who looted the “charitable” foundations that were meant to
serve the poor and who helped hundreds of Nazi war criminals escape to the
pampas. Peron himself made 1,000 blank passports available to the defeated
Germans after the war – again, it was for a price. You see, Eva and Peron
were classic world improvers of the better sort – they could be bought.
On June 6, 1947, Evita began a triumphal tour of Europe. It was even
called a “Rainbow Tour,” anticipating the great celebrity promenades later
in the century. She visited heads of state. She visited Pope Pius XII. She
visited her Swiss bank. She even made the cover of Time magazine. It was
about that time that Argentina became a refuge for war criminals on the
lam. Thus, it was that Juan Peron won reelection in 1951 with money the
provenance of which no one was quite sure, but many thought came from the
grateful Nazis.
The truth is, Argentina may be a hard place to govern, but for such as
they, it has always been a good place to disappear. Debtors, criminals,
and political refugees have always run off to the pampas; a few Nazis
could hardly make much difference one way or another. And the krauts
turned out to have their uses. Later, when the Argentine generals needed
to “disappear” others, it is said they turned to squads of professionals,
trained and originally organized by those who had disappeared themselves
after World War II.
The Perons learned quickly that the masses could be manipulated with
vulgar demagoguery. Evita even gave away Christmas presents to the poor,
and brought in poor orphans so they could be photographed with her, before
they were tossed back onto the streets. But the masses needed to be
controlled, too, and that was the hard part. The collapse of commodity
prices in the ’30s had made them restless and had initially led them to
support Peron. But Mussolini’s economic meddling worked no better on the
banks of the Rio Plata than it had on the banks of the Tiber. In 1949, the
stock market collapsed and made the mobs restless again. The incomes of
the working class fell 30%. And this time, Juan Peron could not pose as an
outsider. This time, he was in power; the plebs held him responsible. At
first, Evita tried grander gestures to appease them, but then the lace
gloves came off. Troublemakers were arrested, and drawing on the talents
and training of Argentina’s new immigrants from the Third Reich, many were
tortured.
And then, when Evita’s corpse had finally cooled and Juan was thrown out
of the Casa Rosada, it was Evita herself who disappeared. The generals
were afraid her dust might provide a rallying point for the mobs, so they
shipped her casket to Germany, then to Italy, and didn’t return it to Juan
until 16 years later. By then, he was living in Madrid and had remarried.
His new wife, Isabel, was ambitious, too. When Evita’s coffin was put in
the living room, Isabel lay on top of it (some say she lay down inside of
it) to draw power from the dried-up corpse.
And what happened to Evita’s Swiss bank account? That disappeared, too.
After her death, Juan Duarte, her brother, who had rushed to Switzerland,
died suddenly and mysteriously on his return in his apartment in Buenos
Aires. Authorities were never able to figure out whether it was murder or
suicide, but either way, the money never turned up.
Epilogue: Juan Peron and his new wife returned to Argentina and retook
power in 1973. But the poor man died the following year, leaving Isabel,
his vice president, to run the country. Naturally, she ran it into the
ground and was overthrown by the army in 1976.
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 Wall Street
Journal best seller Financial Reckoning Day: Surviving the Soft Depression
of the 21st Century (John Wiley & Sons).
In Bonner and Wiggin’s follow-up book, Empire of Debt: The Rise of an Epic
Financial Crisis, they wield their sardonic brand of humor to expose the
nation for what it really is – an empire built on delusions. Daily
Reckoning readers can buy their copy of Empire of Debt at a discount –
just click on the link below:
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