The Daily Reckoning offers neither forecasts nor predictions. Not that we are too modest to pretend that we can see into the future.
On the contrary, we are immodest enough to pretend that we can know, at least better than most people, how the world works. But over many years, we've learned our lesson about forecasting: it is far safer to try to describe how things ought to work rather than what will actually happen.
Curiously, it is more profitable too.
For the last 3 years, we have been telling you what ought to happen, not what would happen. To everyone's astonishment, including our own, much of what we thought ought to have happened, did happen… though not exactly when we thought it should.
Today, we return to the subject. What ought to happen to gold, we ask ourselves?
It ought to go up, we conclude. What follows is not a logical discourse on the gold market so much as a long, windy road of cogitation leading to gold's door.
The problem with this silly old ball we live on is that life is infinitely complex. The closer you look, the more you see. What seems simple from a distance… say, disciplining a teenager or the politics of South Africa… is alarmingly complicated up close. The whole truth, being infinite, is unknowable. And for every tiny little piece of it there's a revolver in some poor fool's mouth… and a special corner of Hell waiting for him.
"Nobody knows anything," they say in Hollywood, recognizing the complexity of the film business. A studio might spent $100 million on a block-buster movie… and the thing might be a complete dud. Or, a young guy with $20,000 might make a big hit.
The old-timers know that even a life-time of experience is no guarantee. Even the pros often guess wrong about which films will box office hits.
But walk up to an investor on the street and he is likely to have an opinion. He may have even bought stock in an entertainment company… after hearing about the block-buster films they had planned for the summer. Of course, he has not read the scripts, nor met the actors, nor ever earned a dime in the cinema business… nor even worked as an usher. Yet, he has an opinion -- based on what he has read in the paper or heard on TV!
People have opinions on everything -- especially things they know nothing about. Voters in Baltimore during the '80s could hardly figure out how their own municipal government worked and could barely get it to pick up the trash. Yet, though very few had ever been there… and almost none spoke the languages or could identify the major ethnic groups of the country… they nevertheless had strong opinions about how to reorganize the government of South Africa!
Yet, the more you knew about the situation in South Africa, the harder it was to have a simple opinion. A knowledgeable man, asked to comment on the situation, preceded his thoughts with: "I don't know..."
Even statements of 'fact' need a qualifying hesitation. A woman may say she loves her husband, and mean it sincerely. But she will surely hate him, too… in some manner, at some time.
"The dollar is the world's most valuable currency," an economist might say, for there is more of it than any other. But he might say the very opposite, too -- "The dollar is world's most worthless currency" -- for the very same reason, because there is so much of it around. Both statements could be 'true'.
Or take an historical 'fact.' As we have remarked in these letters, everyone knows that the Allies won World War II… but it might just as well be said that they lost it, because Germany emerged the clear winner in Europe -- economically, politically and militarily. We've also observed that the statement about the outcome of the American Civil War, which everyone recognizes as true, "Lincoln preserved the union", is a much a lie as a truth. For while his armies defeated the southern states, his policies destroyed the very heart of the union: the liberty of its member states to decide for themselves what kind of government they would have.
"John crossed the road," you may say, confident of disproving our point. But Einstein showed that this was not so. "John did not cross the road, the road crossed John," is just as accurate. "And who knows if John really crossed the road or not," Heisenberg would add.
The more you think about it, the less you know for sure. Here at the Daily Reckoning, we grow more ignorant every day.
Opinions we felt pretty confident about a few years ago are reprised with "Did we say that?" Now, we begin our sentences with... "We don't know...but..." Soon, we will know nothing at all. Perhaps we already do.
The rise of the modern communications -- most recently, the Internet -- vastly increased the amount of information available to the average person. But it was not the sort of information they got on their own, from direct experience. Instead, like the investor in the film business, the new information was public, not private… it was information based on statistics, not individual numbers… and organized according to collective abstractions, and not on an individual's own observations or his own ideas.
Now, men could know less and less about more and more subjects -- and have opinions about nearly everything. A man in Strasbourg could have the same opinions as one in Bordeaux… participate in the same discussions… invest in the same markets and vote in the same elections! It was the 'Era of Crowds,' wrote Gustave Le Bon, anticipating, in 1895, the largest trend of the 20th century.
Crowds have their own way of thinking. They cannot think the truth, because they cannot know it any better than we can. But crowds lack patience with irony, nuance, complexity. Ideas need to be dumbed down and vulgarized so they can be taken up by the masses. They end up as dumb as campaign slogans or war jingos… that is, little more than stupid lies.
The crowd makes no attempt to see the complexities of a modern economy. Its idea of an economy is as simple as an internal combustion engine. If the Fed wants to speed it up, it has only to "push the pedal to the metal," opening up the money spigots as if they were a fuel line. If the Fed wants to slow it down, surely there are knobs and switches it can turn to do the job.
Nor does the new lumpeninvestoriat have any better idea of how the stock market works than the average voter has of how his laws are made. Instead, they are satisfied with the advertising themes -- "Bullish on America," says Merrill Lynch; "Protect the Homeland," says George W. Bush. The crowd asks few questions… for fear it might get drawn into complexity.
Thus are the little guys set up to be the chumps of Wall Street and the patsies of Washington. Both are encouraged to believe they are in control. ("We are the government," wrote Hillary Clinton in her opus. "Wall Street is investors," a brokerage might claim.) But neither voters nor shareholders have any control at all -- outside of the great mass movements of which they are part. Neither the individual shareholder nor the individual voter has enough at stake to justify the time and effort it would take to actually figure out what is going on. If he looked hard, he might discover that government programs are a waste of money… and that corporate executives are overpaid and that most stocks are overpriced. But what could he do about it? What matters is the direction of the crowd. Like it or not, he is swept along, as ignorant as a congressman, with the mob. If the crowd drives up stocks, his stocks go up… if they elect a Republican or Democrat, he must put up with the fool along with everyone else.
And if he reaches in his pocket, he finds no gold. Instead, he sees green pieces of paper. He's been told they are worth something. Everyone seems to agree… for he can exchange them for the things he wants. Today, he can buy an ounce of gold for less than $350. The crowd judges it a fair trade today.
Will it tomorrow?
More to come....
Bill Bonner
13 January 2003
Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter publishing companies, and the author of the free daily e-mail, The Daily Reckoning ( www.dailyreckoning.com ).
Mr. Bonner's newest book "The Soft Depression of the 21st Century: How to Survive the Crisis of Degenerate, Mass Capitalism," (working title), co-authored with fellow Daily Reckoneer Addison Wiggin, will be published by Wily & Sons in September.