The Problem with Democracy…

Submitted by William Bonner, Chairman – Bonner & Partners

War Stories – Richard Russell, RIP

Richard Russell died on Monday.

He was the author of Dow Theory Letters for over half a century and the source of many of the “old-timer” remarks we have referenced over the last 15 years in our daily e-letters.

Richard was a follower of Dow theory. This is a form a technical analysis named after the founder of the Wall Street Journal, Charles Henry Dow. And it reflects his beliefs about the market… which he laid out in a series of editorial columns at the turn of the 20th century.


RussellRichard Russell, the legendary author and publisher of the Dow Theory Letters. His career took off in the 1950s, after Barron’s printed several of his articles. His letter has been the oldest in the entire business that was written continuously by the same person. He has been an indispensable companion of several generations of investors. He has made a number of truly spectacular market calls in the course of his career (such as the 1966-68 market peak and the 1974 low, to name two especially great ones). Richard Russell, RIP.

Photo source: Family photo


The basis of Dow theory is trend analysis. The most important trend is the Primary Trend. This typically lasts many years and takes the market from bottom to top… cheap to expensive… and back again.

The goal was to always be on the right side of the Primary Trend. Richard even had a proprietary indicator – the Primary Trend Indicator – which, he used to say, was smarter than he was.

It sounded easy enough: You tried to identify the primary trend… and then you stuck with it, long or short, until it reached its climax. We have our doubts about the predictive power of Dow theory, but we always admired Russell’s market instincts.


DT sell signalThis may actually be a good moment to remember that a Dow Theory sell signal has been given in August andremains in force. Both averages would have to confirm new highs simultaneously to suspend the sell signal. We have a hunch this isn’t going to happen – click to enlarge.


The “old-timer” in him always had some insight – a comparison with the market in the 1950s… a souvenir from his trading in the 1970s… something a great investor had said to him in the 1990s – that always made the Dow Theory Letters worth reading.

Then there were the war stories. Especially later in life, he recalled his time as a bombardier in World War II. He flew dozens of missions over Germany and Italy. He lived in terror that he would be shot down. As a Jew, he figured that, even if he survived a crash, he would be in big trouble. The more flights he made, the greater the odds that he wouldn’t come back.


North_American_Aviation's_B-25_medium_bomber,_Inglewood,_CalifThe B-25C Mitchell bomber. Richard Russell served as a combat bombardier with the 12th Air Force on this plane during WW II. It was a scary and dangerous job, and those who survived it knew how lucky they were.

Photo credit: Mark Sherwood


+When the war in Europe was over, Richard’s unit prepared for the assault on Japan. Having beat the odds in Europe, he was sure that he’d never make it back from Japan alive. Often, he remembered how relieved he was when Truman dropped the atom bomb on Hiroshima and Nagasaki, bringing the war to a close.

Richard was a thinker. He thought about politics. Art. Music (he loved jazz and slept with the radio tuned to a jazz station). And he kept us all entertained and informed with his observations and recollections. But mostly, he was obsessed with markets. And his enthusiasm, knowledge, and experience all came through in his daily writings, which he kept up until he was 91 years old.

Richard, we’ll miss you. RIP.


Trigger Warning

Our trip back to the U.S. went without a hitch. In Dublin, you can do “pre-clearance” with U.S. Immigration and Customs. This sped up our entry a bit when we arrived back in America.

Airport security is the sort of crowd-based reality we were talking about yesterday. It exists, but only because people believe certain things. They believe they are made safer by pretending that any passenger may want to cause mayhem and that thorough screening for weapons removes the threat. Is it so?

Probably not. First, because there aren’t many people who want to commit suicide on a commercial airline. Second, because the screening process probably wouldn’t stop a determined, death-bent terrorist.




There are at least some citizens who like the new TSA procedures just fine. The disgusting whole-body scanners which were bought at huge cost and enable TSA agents to see everybody naked have turned out to be utterly useless (not surprisingly). Nothing is easier than smuggling guns, bombs, or anything really, through these scanners. A typical tax payer rip-off, benefiting only cronies and bureaucrats.

But we’ve had enough controversy. Over the weekend, we went in for a full frontal lobotomy. And today, we’re determined not to write anything that might give offense or unsettle readers.

But we promised to take up the subject of Argentina’s presidential election. And you can’t talk honestly about politics without offending at least half the population, so we give a “trigger warning”:

If you believe that democracy, circa 2015, is the finest political order ever to grace humankind… and that it is the non plus ultra of civilization, never to be improved or perfected… stop reading here. Because it ain’t necessarily so…


Cronies Versus Zombies

Elections are “advance auctions of stolen goods,” wrote Baltimore’s own H.L. Mencken. Today’s Diary is about the bidders. At the risk of oversimplifying, the fault line in Argentina’s presidential election on Sunday was between two groups: On the left were mostly zombies. On the right were mostly cronies.

The difference between the zombies and the cronies is not the amount of stolen property they are after (both groups want all of it) but the unit price. Cronies go after big-ticket items – government contracts, farm subsidies, and market protection. Zombies – perhaps because they are more numerous – tend to favor the dole, payoffs to union employees, and various welfare and disability programs.


crony and zombieCrony Mauricio Macri (left) and zombie Daniel Scioli (right). The zombies have been in charge in Argentina for a very long time. Now it is the cronies’ turn to rob the population blind.

Photo via


That is the way it works south of the Río de la Plata as well as north of the Río Grande. Mauricio Macri, the crony candidate, won Sunday’s polling in Argentina, beating the zombies’ man, anointed successor of sitting president Cristina Kirchner, Daniel Scioli…

Macri is from one of the richest families in the country. He was educated at Columbia Business School and the University of Pennsylvania’s Wharton School. Being rich has its advantages. But it comes at a price. In 1991, Argentine federal police kidnapped Macri and held him in a box in the basement for 12 days until his father ransomed him.

The story reminds us of Julius Caesar. Pirates captured him and demanded ransom. Caesar’s response: “You better hope they don’t ransom me. Because if they do, I’ll come back and kill every one of you.” (Or words to that effect.)


cesar and the piratesWhen pirates captured a young Julius Caesar off the coast of Asia Minor, he was enraged when he heard that they planned to ransom him for only 20 gold talents. He proposed to them to raise the ransom demand to 50 talents, and promised them that he would come after them once he was free and kill them all. They laughed. A year later, they no longer laughed.

Illustration by Edward Mortelmans


Caesar’s family did pay the ransom. And Caesar did go after the pirates. He caught them and put them to death (though, in an act of mercy, he allowed them to be strangled before they were crucified).

As far as we know, Macri never caught his captors. And he never had them crucified. Which just shows how much public life has degenerated since the Roman Empire.


aleajactaestPirates of the Aegean Sea, after encountering Caesar

Image Credit: Uderzo / Goscinny


A Disastrous Legacy

You wouldn’t expect a guy like Macri to have much of a chance on the pampas. After the huge immigration of Italians into Buenos Aires in the early 20th century, zombies are thick on the ground.

Not that there is something necessarily zombified about Italians. But it was the era of “syndicalization,” inspired by communists, socialists, and radical anarchists. The Italians joined the urban labor unions and favored handouts to – guess who? – themselves.

Unlike Macri, Argentina’s most famous politician Juan Perón spent his career in the army. In 1939, he was sent to study mountain warfare in the Italian Alps… and learned how Mussolini’s brand of fascism worked. He discovered the secret to winning elections, too: Promise the zombies more of other people’s money.


PeronGeneral Juan Domingo Peron. Every time you see one of these psychopath politicians wagging his finger, you should ideally already be on a ship or plane to the other end of the world.

Photo via


In 1946, Péron, running on the Labor Party ticket, beat the centrist Radical Civil Union candidate, José Tamborini, to become president. The voting population of the Buenos Aires proletariat had become so great that it could control the whole nation.

Since then, the Peronist party – experts at zombie manipulation – have won 9 of the 11 elections it has been allowed to contest. And the three times it didn’t win, it was able to drive the president from office before he finished his term.

But the trouble with socialism, observed Maggie Thatcher, is that eventually you run out of other people’s money. That is the problem that caught up with the most recent Peronist government of Cristina Kirchner.


Cristina-Kirchner2Former Argentine zombie party leader Cristina Kirchner, here shown lying about the height of the inflation rate.

Photo credit: EPA


It promised the stolen goods, just as it always had. But it was becoming harder and harder to find something to steal. According to analyst Iván Carrino in our Buenos Aires office (we’re involved in a financial publishing venture there), Kirchner’s legacy includes:


  • An inflation among the highest in the world (private estimates put it at about 25% a year)
  • A fiscal deficit that will reach 7% of GDP by the end of the year
  • A tax burden at record levels in historical terms
  • 4 million public employees
  • A bankrupt central bank, with a negative net worth of $8.6 billion
  • A foreign exchange market that destroys international trade and violates basic freedoms
  • An unpaid public debt bill of about $10 billion


Something had to be done. So, on Sunday, Argentine voters threw out the zombies and elected the crony candidate. His job will be to rebuild the economy on more free-market principles – giving out generous plums to his friends and supporters in Crony-Land along the way, of course.

Then, when the zombies take over again, they will have more of other people’s money to work with.