ARROYO GRANDE, Calif. (MarketWatch) — In his 2008 bestseller, “Wealth, War and Wisdom,” hedge fund manager Barton Biggs warns that investors must “assume the possibility of a breakdown of the civilized infrastructure.”
And to prepare for a breakdown of civilization, “your safe haven must be self-sufficient and capable of growing some kind of food … It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc.” Bloomberg Markets suggested that by “etc.” he meant guns, as Biggs added “a few rounds over the approaching brigands’ heads would probably be a compelling persuader that there are easier farms to pillage.”
The end of Wall Street
Chapter Three: This final chapter of the crisis on Wall Street tells the story of the $700-billion bailout, as seen through a reporter’s eyes, and looks at what’s ahead for the global economy.
That warning’s not from a hippie radical. Biggs was a respected Wall Street guru at Morgan Stanley for 30 years. As the chief global strategist Institutional Investor magazine put him on its “All-America Research Team” 10 times. Smart Money said: “Biggs is without question the premier prognosticator on the international scene and a mover of markets from Argentina to Hong Kong.”
Biggs is advising America’s wealthy elite. But what about Main Street Americans? Investors often ask me where to invest today, even Bogleheads and investors committed to the Lazy Portfolio strategy. They see the Goldman Conspiracy manipulating this rally. That worries many.
What do you believe? What value do you give to “the future.” First, answer these three questions: What’s your investment strategy if you know you might die on Dec. 21, 2012, or possibly this year after getting a negative diagnosis from an oncologist or maybe not till 2050 when the United Nations says global population will be 50% higher (from 6 billion now to 9 billion), while demand for energy, oil, gas and coal doubles and the global supply of those commodities remains relatively constant.
Disaster films, terminal illnesses, 2050 and ‘The End’
Behavioral economists have answers. But your gut’s also good at predicting. So here’s what you’ll likely do:
You’ll go see the new disaster film, “2012″ about the end of the Mayan calendar. After all, it’s by the same director who “destroyed” the earth in “The Day After Tomorrow,” “Independence Day” and “Godzilla.” No new investment strategies, but a must-see film, a great catharsis and distraction.
If you had a terminal illness, the future is here, now. There’s no tomorrow. You’re concerned about protecting loved ones and future generations with what you have, and enjoying time with them.
But how to invest for the “End of Civilization” coming around 2050? The next 40 years will be confusing: Accelerating struggles between aging populations and disenchanted youth, soaring commodity prices, global warming, peak oil, food shortages, famine, blackouts, rationing, civil disorder, increasing crime, worldwide jihads, riots, anarchy and other dark scenarios of a tomorrow with “warfare defining human life.”
Yes, that’s how doomsayers label the worst-case scenario. It also must be what Ultra-Conservative-Guru Biggs worries about in his darker moments.
So back to the question: What will Main Street investors do? Here again, even with the planet’s survival threatened, they’ll go watch “2012,” be entertained, experience a catharsis, feel relieved, and afterwards, have dinner, slip back into denial. And later, they’ll vote against anything that offers solutions to future problems, especially if it raises taxes.
Why? Very simple: Our “Brains Aren’t Wired to Fear the Future,” writes New York Times columnist Nicholas Kristof. We’re wired to respond to crises, while pushing off the real big problems (health care, Social Security, etc.)
That’s basic behavioral economics: Over tens of thousands of years, evolution has programmed our brains so that collectively we will behave counter-productive with the future, making an “End of Civilization” scenario inevitable, a foregone conclusion, a self-fulfilling prophecy. Why? Because our brains are handicapped, we are literally incapable of acting soon enough to solve the problem.
Six simple rules
But there must be a very small percentage of you out there with a desire to make your remaining days on Earth as pleasant as possible for you and your loved ones. So here are “Six New Rules till the End of Civilization 2050.” If they don’t scare you, hopefully they’ll amuse you. Or better yet, wake you up, maybe get you into action … before it’s too late … before your grandkids are fighting over what little is left:
Just yesterday, for instance, the Commerce Department reported that new-home sales grew at an annualized rate of 11 percent last month, which was much better than people were expecting.
And if you look under the covers, the annualized rate actually understated the sales pace of 36,000 new dwellings that were bought last month.
Sales of previously owned homes are also improving, although, in the case of both new and used homes, prices are suffering a dramatic drop.
But whether housing is really making a comeback still carries a very big question mark.
What people are failing to realize, says Chris Whalen, who tracks the banking industry for Institutional Risk Analytics, is something that’s being called the “shadow inventory” of homes.
Put simply, these are the homes on which banks and other mortgage holders have foreclosed but which still haven’t worked their way through the courts.
Whalen says that it takes from three to four months for a house to be out of the foreclosure process and ready for sale.
In the case of New York State, he says, the length could be six months.
Experts are apparently concerned that houses are being taken away from delinquent homeowners in much larger numbers than what is now being put up for sale.
In other words, there’s a logjam of foreclosed properties that should hit the market next fall.
And when those properties do come up for sale, banks will unload them as quickly as possible and at whatever price they can get.
That’s where the question (and the question mark) comes in — if the number of houses sold in the fall increases dramatically because of this shadow inventory, is that really a good thing?
And what effect will this flood of foreclosed properties have on solvent people who might just want to move to a different residence?
Will solvent homeowners suddenly be more willing to put their homes on the market at a reduced price?
And banks will feel the shadow’s effect, too — they will finally have to admit that mortgages they are holding aren’t nearly as valuable as they are letting on.
Banks would then have to take additional writedowns.
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“Smoooch!!”
President Obama used a lot of words yesterday when he talked about the relationship between China and the US. He was kicking off an economic summit between our two countries.
But what Obama was really doing was planting a big fat rhetorical kiss on the cheek of China’s President, Hu Jintao.
President Hu seems like a sweet guy, but the niceties probably had more to do with the fact that the guy owns the US.
Our president told their president that our two countries need each other. This co-depend ence goes something like this — China has a lot of money it needs to get rid of, and we’ll gladly take it.
“If we advance those interests through co operation, our people will benefit and the world will be better off . . ,” said our president.
No tirade on human rights? No speech on free elections? How about a little lesson on how China should allow people to protest?
Nope, President Obama was the perfect gentleman and gracious host. He even called China a “great country” without even a smirk.
And why not? This is the busiest week for US debt sales in 24 years.
The US Treasury is selling more than $235 billion in various government securities, and we’d certainly like our friends, the Chinese, to buy more than their fair share even if Beijing has been a little nervous about the lack of fiscal responsibility in Washington.
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We are coming up to the month’s end, when professional traders try their best to get stock prices higher.
The same thing happens during options expiration week — the week that contains the third Friday of the month.
srael has become one of the most important economies in the world, and is second only to the United States in its pioneering of technologies benefitting human life, prosperity, and peace.
Like the Jews throughout history, Israel poses a test to the world. In particular, it is a test for any people that lusts for the fruits of capitalism without submitting to capitalism’s imperious moral code. Because capitalism, like the biblical faith from which it largely arises, remorselessly condemns to darkness and death those who resent the achievements of others.
At the heart of anti-Semitism is resentment of Jewish achievement. Today that achievement is concentrated in Israel. Obscured by the usual media coverage of the “war-torn” Middle East, Israel has become one of the most important economies in the world, second only to the United States in its pioneering of technologies benefitting human life, prosperity, and peace.
But so it has always been. Israel, like the Jews throughout history, is hated not for her vices but her virtues. Israel is hated, as the United States is hated, because Israel is successful, because Israel is free, and because Israel is good.
As Maxim Gorky put it: “Whatever nonsense the anti-Semites may talk, they dislike the Jew only because he is obviously better, more adroit, and more capable of work than they are.” Whether driven by culture or genes—or like most behavior, an inextricable mix—the fact of Jewish genius is demonstrable. It can be gainsaid only by people who do not expect to be believed.
Charles Murray distilled the evidence in Commentary magazine in April 2007. The Jewish mean intelligence quotient is 110, ten points above the norm. This strikingly higher average intelligence, however, is not the decisive factor in overall Jewish achievement.
The three-tenths of 1 percent of the world population that is Jewish has contributed some 25 percent of notable human intellectual accomplishment in the modern period.
What matters in human accomplishment is not the average performance but the treatment of exceptional performance and the cultivation of genius. The commanding lesson of Jewish accomplishment is that genius trumps everything else. Whatever the cause of high IQ, as Murray explains, “the key indicator for predicting exceptional accomplishment (like winning a Nobel Prize) is the incidence of exceptional intelligence… The proportion of Jews with IQs of 140 or higher is somewhere around six times the proportion of everyone else” and rises at still higher IQs.
The great error of contemporary social thought is that poverty must result from “discrimination” or “exploitation.” Because Jews tend to be overrepresented at the pinnacles of excellence, a dogmatic belief that nature favors equal outcomes fosters hostility to capitalism and leads inexorably to anti-Semitism.
The socialists and anti-Semites have it backwards. Poverty needs little explanation. It has been the usual condition of nearly all human beings throughout all history. What is precious and in need of explanation and nurture is the special configuration of cultural and intellectual aptitudes and practices—the differences, the inequalities—that under some rare and miraculous conditions have produced wealth for the world. Inequality is the answer, not the problem.
Israel is hated, as the United States is hated, because Israel is successful, because Israel is free, and because Israel is good.
In his book Human Accomplishment Murray focused on the fact that the three-tenths of 1 percent of the world population that is Jewish has contributed some 25 percent of notable human intellectual accomplishment in the modern period. Murray cites the historical record:
In the first half of the twentieth century, despite pervasive and continuing social discrimination against Jews throughout the Western world, despite the retraction of legal rights, and despite the Holocaust, Jews won 14 percent of Nobel Prizes in literature, chemistry, physics, and medicine/physiology.
He then proceeds to more recent data:
In the second half of the twentieth century, when Nobel Prizes began to be awarded to people from all over the world, that figure [of Jews awarded Nobel Prizes] rose to 29 percent. So far in the twenty-first century, it has been 32 percent.
The achievements of modern science are heavily the expression of Jewish genius and ingenuity. If 26 percent of Nobel Prizes do not suffice to make the case, it is confirmed by 51 percent of Wolf Prizes in Physics, 28 percent of the Max Planck Medailles, 38 percent of the Dirac Medals, 37 percent of the Heineman Prizes for Mathematical Physics, and 53 percent of the Enrico Fermi Awards.
Jews are not only superior in abstruse intellectual pursuits, such as quantum physics and nuclear science, however. They are also heavily overrepresented among entrepreneurs of the technology businesses that lead and leaven the global economy. Social psychologist David McClelland, author of The Achieving Society, found that entrepreneurs are identified by a greater “need for achievement” than are other groups. “There is little doubt,” he concluded, explaining the disproportionate representation of Jews among entrepreneurs, that in the United States, “the average need for achievement among Jews is higher than for the general population.”
Because Jews tend to be overrepresented at the pinnacles of excellence, a dogmatic belief that nature favors equal outcomes fosters hostility to capitalism and leads inexorably to anti-Semitism.
“Need for achievement” alone, however, will not enable a person to start and run a successful technological company. That takes a combination of technological mastery, business prowess, and leadership skills that is not evenly distributed even among elite scientists and engineers. Edward B. Roberts of Massachusetts Institute of Technology’s Sloan School compared MIT graduates who launched new technological companies with a control group of graduates who pursued other careers. The largest factor in predicting an entrepreneurial career in technology was an entrepreneurial father. Controlling for this factor, he discovered that Jews were five times more likely to start technological enterprises than other MIT graduates.
For all its special features and extreme manifestations, anti-Semitism is a reflection of the hatred toward successful middlemen, entrepreneurs, shopkeepers, lenders, bankers, financiers, and other capitalists that is visible everywhere whenever an identifiable set of outsiders outperforms the rest of the population in the economy. This is true whether the offending excellence comes from the Kikuyu in Kenya; the Ibo and the Yoruba in Nigeria; the overseas Indians and whites in Uganda and Zimbabwe; the Lebanese in West Africa, South America, and around the world; the Parsis in India; the Indian Gujaratis in South and East Africa; the Armenians in the Ottoman Empire; and above all the more than 30 million overseas Chinese in Indonesia, Malaysia, and elsewhere in Southeast Asia.
Thomas Sowell of the Hoover Institution reports that in Indonesia the Chinese were 5 percent of the population, but they controlled 70 percent of private domestic capital and ran three-quarters of the nation’s top 200 businesses. Their economic dominance—and their repeated victimization in ghastly massacres—prompts Sowell to comment: “Although the overseas Chinese have long been known as the ‘Jews of Southeast Asia,’ perhaps Jews might more aptly be called the overseas Chinese of Europe.”
Judaism favors capitalist activity and provides a rigorous moral framework for it.
As Sowell writes, these “middlemen minorities,” their “wealth inexplicable, their superiority intolerable,” typically arouse hatred from competing intellectuals. “It is not usually the masses of the people who most resent the more productive people in their midst. More commonly, it is the intelligentsia, who may with sufficiently sustained effort spread their own resentments to others.”
Capitalism overthrows theories of zero-sum economics and dog-eat-cat survival of the fittest. Thus, as in the United States (outside the academic arena), anti-Semitism withers in wealthy capitalist countries. It waxes in socialist regimes where Jews may arouse resentment by their agility in finding economic niches among the interstices of bureaucracies, tax collections, political pork fests, and crony capitalism.
Socialist or feudal systems, particularly when oil-rich and politically controlled, favor a conspiratorial view of history and economics. Anti-Semitism is chiefly a zero-sum disease.
As Walter Lippmann eloquently explained in The Good Society, capitalism opened a vista of mutually enriching enterprise with the good fortune of others creating opportunities for all. The Golden Rule was transformed from an idealistic vision of heaven into a practical agenda. From Poor Richard’s Almanack to rich Andrew Carnegie’s autobiographical parables, all were rediscovering the edifying insights of the author of Proverbs.
Judaism, perhaps more than any other religion, favors capitalist activity and provides a rigorous moral framework for it. It is based on a monotheistic affirmation that God is good and will prevail through transcending envy and hatred and zero-sum fantasies. Judaism can be plausibly interpreted as affirming the possibilities of creativity and collaboration on the frontiers of a capitalist economy.
The incontestable facts of Jewish excellence constitute a universal test not only for anti-Semitism but also for liberty and the justice of the civil order. The success or failure of Jews in a given country is the best index of its freedoms. In any free society, Jews will tend to be represented disproportionately in the highest ranks of both its culture and its commerce. Americans should celebrate the triumphs of Jews on our shores as evidence of the superior freedoms of the U.S. economy and culture.
The real case for Israel is as the leader of human civilization, technological progress, and scientific advance.
In a dangerous world, faced with an array of perils, the Israel test asks whether the world can suppress envy and recognize its dependence on the outstanding performance of relatively few men and women. The world does not subsist on zero-sum legal niceties. It subsists on hard and possibly reversible accomplishments in technology, pharmacology, science, engineering, and enterprise. It thrives not on reallocating land and resources but on releasing human creativity in a way that exploits land and resources most productively. The survival of humanity depends on recognizing excellence wherever it appears and nurturing it until it prevails. It relies on a vanguard of visionary creators on the frontiers of knowledge and truth. It depends on passing the Israel test.
Israel is the pivot, the axis, the litmus, the trial. Are you for civilization or barbarism, life or death, wealth or envy? Are you an exponent of excellence and accomplishment or of a leveling creed of frenzy and hatred? This essay is based on George Gilder’s new book, The Israel Test.
George Gilder is author of 15 books, including the best seller Wealth and Poverty. He is a contributing writer for Wired and Forbes magazines.
T. Boone Pickens, Nacel Energy, Vestas Iberia and others are extolling the virtues of wind as an affordable, sustainable energy resource. What’s taking hold, however, is renewable reality.
