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Spontaneous Order

The Daily Reckoning

Rancho San Jose de los Perros, Nicaragua

Friday, December 30, 2005

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*** Bent judgments and twisted financial decisions...debts and regrets...

*** What is good for a few will be bad for many...smite someone!

*** A study in family life...wishing our DR readers health and happiness
in the New Year...and more!

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We don't know yet whether the real estate bubble is really over or not.
That it will be over sooner or later is certain. How and when this end
will come remain mysteries.

In Britain and Australia, real estate bubbles seem to be losing air. Thus
far, neither economy is falling apart. And yet, in those places, as in the
United States, rising property prices bent judgments and twisted financial
decisions far beyond the housing market itself. People bought things they
wouldn't have otherwise bought. The spent money they wouldn't have
otherwise spent. They borrowed money they couldn't have otherwise gotten
their hands on.

When a real bubble deflates...it is always accompanied by regrets. People
have debts they wish they hadn't...and expenses they'd like to get rid of.
After this property bubble bursts, for example, the people who install
granite countertops will have less business....less income...and less
money to spend. They may wish they hadn't bought a condo...for will be
harder to keep up with the maintenance, taxes and condo fees...and harder
to find someone to flip it over to.

We noted yesterday that the New World, we seem to be edging toward is not
necessarily a bad one. Many companies will flourish. Many people will get
richer. And with lower labor rates, the rich may be able to live even
better than they do now. Wealth may become de-nationalized...as production
already has been. No matter where people live...they should be able to get
ahead, if they're smart, fast and lucky. But what may be good for a few
will almost certainly be bad for many...and many are likely to try to do
something about it.

Getting from an old economy to a new one inevitably involves
losses...disruption...and sometimes revolution. America's leveraged
realtors...indebted countertop installers...and mortgaged householders are
bound to suffer when the bubble pops. But the suffering may not end
quickly. The working stiffs can no longer form a union and hold their
industries hostage...they will have to take what they can get from the
global labor market. In short, they will have to compete with billions of
foreigners directly. They will be on a par with working stiffs in
Nicaraguans and Malaysians.

When they finally figure out what is happening, America's lower and middle
classes may not take the news well. They will feel they have been
betrayed...they will think they have been brought low. There is nothing
wrong with the average Mexican or the average Hindu or the average
Argentine; still the average American will feel his amour propre has been
damaged. He has become accustomed to feeling superior to his fellows. It
will come as a shock to him to realize that he is no better off than they.
He will take the fall of the dollar personally. He will feel something
should have been done to protect the empire...and to protect his job...and
protect his house from going down in price. Will he not put on an angry
face and turn to his government? Smite these rich people. Smite these
foreigners. Smite someone!

More news from our team at The Rude Awakening...

--------------

Eric Fry, reporting from Manhattan:

"To judge from outward appearances, the American economy still boasts an
enviable physique. But perhaps this economic supermodel is somewhat more
feeble than appearances would suggest."

Cerebral Striptease, Part II
http://www.the-rude-awakening.com/RAissues/2005/Dec/RA123005.html

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Bill Bonner, with more thoughts from the coast...

*** We are grateful to our dear readers for the kind words and condolences
that have been pouring in regarding our good friend and Agora family
member, Thom Hickling. Thank you for keeping Thom and his family in your
thoughts in this busy time of year.

We came across a very nice snapshot of Thom's life in the Pittsburg
Gazette this morning. You can read the whole piece on the DR site:

In Memory of Thom
http://www.dailyreckoning.com/Featured/Thom.html

*** We are getting to know our children.

That is what vacations are for. When we are in London or Paris, everyone
is too busy to talk. The boys rush off to school. When they come home,
they have hours of homework. Even on Saturdays and Sundays, the homework
continues. Of course, they have their social lives...and their
entertainments. They are naturally loath to surrender a minute of either
to spend talking with Mom or Dad.

Here, it is different. We have long breakfasts, lunches and dinners
together. In the morning, we go to the beach. Again, in the evening, we go
to the beach. And in the heat of mid-day...we read...we write...or we
talk.

Not all the talk is pleasant. Some of it is uncomfortable. Sometimes the
discussions are discouraging...sometimes exasperating...sometimes
frustrating. But it is these difficult discussions that are most
important. It is there that we learn something we need to know...that we
have an opportunity.

Literature of the 19th century was full of careful studies of family life.
Mothers sought good unions for the sons and daughters...and were careful
about who was seeing whom...and about table manners...and what the
servants thought. Good marriages...bad marriages...social status...family
fortunes...family businesses - the happy, healthy prosperous family was an
ideal. But in the 20th century, literature turned on the family like an
ungrateful son. Suddenly, all the plays and novels were full of bad
families. Between 1880 and 1930 all the fathers became alcoholics,
womanizers, and abusers. The wives sought liberation. They wanted careers
of their own...or drugs. And the children all became sensitive poets with
souls bruised and battered by family life. There is hardly a single family
in serious literature after 1920 that didn't have a horrible secret to
hide. And almost none whose members were not better off on their own. In
the 20th century, it was every man for himself - free to go his own way,
make his own fortune...and make a mess of his own life in his own way.

Here on this family vacation...we flip back the calendar more than a
century and wonder again about how a family should work. Should we try to
bring the boys into the business? Or let them figure out for themselves
what they should do? Sophia is getting ready to leave college; how much
help should we give her after her schooling is finished? Should we try to
get her into a good situation where she will meet a man we think suitable
for a husband...or should we wish her well and let her go make it on her
own? And what about Maria? She already knows what she wants to do...but
should we help her decide where...and how? How long should we support her
until her career 'takes off?'

"We grew up with this 'anything goes' attitude," Elizabeth explained. "And
it works fine for some people. But it was a disaster for many people. Most
people can benefit from careful guidance. Because without it, they make
mistakes that can't be repaired...mistakes they have to live with all
their lives. If you read Trollope, or Thackeray or Tolstoy or Henry James
you see that people used to spend a lot more time trying to help their
children avoid mistakes...trying to shape their lives...and trying to
understand what kind of lives they might lead and how to get them onto the
proper path.

"I'm not saying that we should tell our children what to do. Often, we
don't know what they should do. But we should spend as much time with them
as possible discussing what they could do...and how they could do it. When
I look back at all the stupid things we did...it is amazing our family has
turned out as well as it did. We should try to do all we can, without
doing so much that they feel stifled or smothered."

[Ed. Note: Obviously, it's hard to know what's in store for you in the
future - but it never helps to prepare for what could be coming. Check out
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The Daily Reckoning PRESENTS: Here, at The DR HQ in Baltimore, we are
often asked: "So, what exactly do you guys do again?" Admittedly,
sometimes we wonder the same...but Bill Bonner did a brilliant job of
enlightening his employees at this year's holiday meeting - you can find
the speech below...

SPONTANEOUS ORDER
by Bill Bonner

This morning, we stand on our porch and look out at the sea.

Another year has washed up...beaten out by the rhythm of the waves...and
scourged by the salty water.

What became of it?

Every year we stand before our employees in Baltimore and report on the
year that has passed. It is a custom that dates back to the time of
Pericles...and finds expression in American national life in the
president's State of the Union address.

You, dear reader, have no particular reason to care about the business
behind the Daily Reckoning. But we will tell you anyway. The following
essay is adapted from our speech to employees before the annual Christmas
party:

The Daily Reckoning is published by Agora, Inc, of which your editor is
founder and chairman. The business was begun in the late '70s...and has
survived and grown through no particular fault or virtue of its leader.
The Daily Reckoning currently has about half a million dear
readers...about the same as last year and the year before. But Agora has
added employees - to a total of nearly 500 worldwide.

Agora is a publishing company. It began publishing financial newsletters -
it's first launch was the Hulbert Financial Digest. (Mark Hulbert is still
in business, but no longer associated with Agora.) Its second product was
another newsletter, also still in business, called International Living.
By fits and starts since then, the business has grown, and now has dozens
of products - including books, newsletters, e-letters, courses, magazines
and special research reports - and offices in several foreign countries,
including a new office just opened this year in Australia. Continuing our
global expansion, we hope to open an office in India in 2006, where we
will outsource some editorial and Information Technology functions.

Sales are up 15% over last year, giving us an average growth rate of 28.5%
over the last 5 years. Profit margins this past year remained the same as
the year before - higher than expected and probably higher than we
deserve. If Agora were a publicly traded stock it would probably be a
'buy' for most analysts. But the company is not available to the
public...and the owners have been around long enough not to let this
year's success go to their heads. The publishing business is traditionally
a tough business. People don't wake up in the morning and say, "Honey,
we're out of newsletters." No one goes to bed at night wishing he had one
of our research reports by his bedside. Instead, every day is a new day.
And every day we need to come up with ideas and information that people
want to buy. And every year is a struggle to make sure we take in more in
revenue than we spend. For there is no giant corporation backing us. No
bank stands ready to make up the difference by printing up extra currency.
We sell no bonds or stocks to the public. And year in and year out...the
IRS demands a major piece of our success...while accepting no part of our
failures.

What is it that makes our business different from other publishing
businesses? We operate in a very special niche. Unlike newspapers and TV
and most magazines...we do not offer entertainment (though we try to make
what we offer entertaining). Nor do we offer 'what everyone knows' or what
everyone wants to hear. Instead, our products are private and personal.
They are directed towards individuals, not the public as a mass. We tell
people how to make their lives better - with new and better health
ideas...or new and better investment ideas. In International Living, we
give people ideas about where and how they can live better - in Nicaragua
or Panama, for example. In our financial publications, we try to come up
with better investments than people are likely to get from their brokers
or the mainstream media. And in our health publications we offer new
treatments...along with ideas about health that are often not yet in the
popular press. You will recall, for example, that we published Dr. Bob
Atkins for many years. At the time, he was considered a pariah in the
mainstream health press. He told people to stop eating so much starch and
sugar...when the health establishment was telling people just the
opposite, that they should eat less fat and less meat! Poor Dr. Atkins
didn't live to see it, but eventually the mainstream opinion shifted in
his direction. Even the NY TIMES eventually acknowledged that he should be
seen as a prophet, rather than a crackpot.

Agora has been a pioneer in another way, too. Your editor was never a good
manager. Employees would ask for instructions; he was unable to give them.
He merely told them to go away and figure it out for themselves. Thus did
the management structure evolve into a very loose system, which has been
described by economists as a "spontaneous order" and described as various
business consultants as a "mess." People coming into the business are
often shocked by the apparent lack of systematic controls. Some are
amused; others are appalled. But, at least so far, it seems to work. And
lately a professor from George Mason University came to study the
organization. He told us that what we were doing was not so odd after all;
it was 'market based management," he said. We were delighted to hear that
the chaos was a legitimate way to run a business and not merely a
consequence of our own incompetence.

Readers often wonder how we can publish so many things that often seem so
contradictory. One of our researchers says to buy IBM, for example.
Another says to sell it. We publish both opinions.

"What do you really believe?" readers sometime wonder. The answer to this
apparent contradiction is simple: we don't know which opinion is correct.
We are a publishing business; not a seller of IBM stock. We look for
people with ideas...with wit, charm, and style...and with something to
say. We publish them, just as, say, Random House, publishes authors. We
don't know which will turn out to be the genius and which the fool. All we
can ask is that the ideas, opinions and information be honest,
interesting, novel and potentially useful to our readers.

We like to think that we publish extraordinary ideas...and better ideas
than the rest of the world. While we are modest enough (and experienced
enough) to know that this is not always the case...it is always our goal.

People are also sometimes curious as to why we spend so much time in
Europe, when our business is still mostly in America. We have been in
Europe for more than 10 years. We began globalizing our business when we
bought an English publisher similar to Agora. Since then, we have expanded
- with hit or miss success - into several other foreign countries. We are
still committed to international expansion, though we have learned that it
is harder to do that you think. The world is a big, interesting and
remarkable place. We still enjoy exploring it. We still enjoy trying to
make it work for us. Despite many setbacks, we're not ready to give up.

But when we come back to our headquarters and see so many old
friends...and so many new ones...we are humbled by the whole thing. Who
would have thought that the fledgling enterprise begun by poets and
dreamers in a ramshackle office in a bad neighborhood of Baltimore would
have survived at all - let alone evolve into a real business with
subsidiaries in London, Paris, Ireland, South Africa, Spain and
Australia?
We can't take credit for it. We could not even manage the two employees we
started with. No, it was you who built the business...you, the friends and
strangers who came along just when we need you...and our dear readers all
over the world who continue to support it.

We thank you all. And wish you well for the New Year.

Bill Bonner
The Daily Reckoning

P.S. Just a quick reminder...don't forget to check out our exclusive Agora
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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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