...Starting with first principles
America First Trust services
Education, analysis, and advice for uncertain times



by William Fox, Oct 1, 2003

“I know one thing, and that is that I know nothing,”

Later in this section I provide a list of commentators whose views, in my opinion, appear to be particularly timely. This is list is subject to change. One reason is that the stock market is in many respects the ultimate “reality show” in which over time it seems to reflect almost all aspects of human nature, ranging from a value orientation to speculative mania, and from conservatism to unbridled greed. Sometimes success in the market means knowing how to be trendy and play mood swings, other times it can mean having a deep understanding of economic fundamentals and underlying sources of fault shifts prior to their realization by the general public. It is very rare that any one particular investment advisor has the intellectual diversification and flexible personality traits to adapt and improvise in all different kinds of market environments. Given the inherent cyclicality of markets, it is often necessary for advisors to assume the Socratic attitude “I know nothing” and periodically reinvent themselves.

One interesting paradox involved in trying to find a competent and timely guru is that often the best gurus are ones whose views are in the minority, yet who are not so contrarian that their views are too far ahead of their time and the investor is left for years in what is known as a “value trap.” Conversely, gurus who reflect consensus views are unlikely to outperform market indices because supposedly their views are already priced into the market. One makes money not by describing where the market is now, but where it is going. This can be particularly tricky, because the market is often a discounting mechanism that prices in today the outlook for six months to a year ahead, therefore, for longer term investors, one needs to see further over the horizon to stay ahead of the herd. Interestingly enough, Forbes columnist Ken Fisher claimed in his April 3, 2000 article "Break their Crystal Balls” that he has developed a forecasting methodology that plans around the year-ahead Wall Street consensus, and that this approach was surprisingly successful in the 1990s. In his March 1, 2003 interview with James Puplava, Dr. Didier Sornette, author of “Why Stock Markets Crash: Critical Events in Complex Financial Systems” approached this paradox from a different perspective. He pointed out that chaos on one end of the market could reflect perfect order on another. For example when a market crashes, this in fact reflects almost perfect order on another level, that is, everyone now agrees that it is time to sell! By the time that public opinion reflects enough “order” to achieve the comfort level of most people’s herd instincts, it is typically too late. In fact, in the case where everyone agrees to sell, it may even be time to start becoming bullish.

One approach to investing is to play an “arbitrage,” that is, look at where the market or certain individual stocks are trading now, and find situations where they may be trading out of line with certain fundamentals that are likely to get priced into the market over the long run. A common example of an arbitrage is to buy a stock that is trading well below the price announced by a major takeover offer by a company likely to consummate its offer. A more abstract form of arbitrage is to play the spread between current pricing of a stock or the overall market and where it will likely be once a different view of reality permeates public consciousness. For various cognitive reasons (referred to in psychology as the theory of selective inattention and cognitive dissonance), it takes time for radically different views of reality to be absorbed by investors. This is even true in the scientific community among supposedly very rational and well-educated people, as described in the work “The Structure of Scientific Revolutions” by Thomas S. Kuhn.

One “psychological” arbitrage I have been playing is the concept that the US Government’s spending growth is completely out of control and that the Fed is increasingly losing traction in its efforts to contain the ill effects of the stock, bond, and real estate bubbles created by aggressive credit expansion since the mid-1990s. The most likely way out of this mess for America’s current leaders will probably entail creating money without limit, that is, resorting to hyperinflation (de facto bankruptcy). This could result in serious economic dislocations similar to the tragic experience of Argentina in the 2001-2002 period. This put half of Argentina’s middle class below the poverty line.

From an investment viewpoint, the scenario of rising interest rates and double digit inflation may mean that stocks will go lower, bonds will also go lower, and real estate will drop. Money is likely to flow into commodity-type investments, similar to what happened in the stagflationary 1970’s. Foreign bonds and precious metals are likely to benefit from inflation and a continued slide in the dollar. Investors who try to survive as ace “stock pickers” will be fighting against the tide as market P/E multiples contract. Investors who try to play it safe by buying relatively short term income instruments will still need to figure out a way to protect their purchasing power from inflation.

If I my interpretation of long term trends and reality is correct, I still expect it to take a number of years for this view of reality to get fully priced into the markets. One reason is that the financial system may be saturated with disinformation, fraud, and manipulation, all of which continues to fool most of the people most of the time and keep them in a state of denial (c.f. my paper “Amidst Bullish Hoopla: A `Behind the Curtain’ Look at Fed Desperation and Intervention Wizardry” which describes how major players have been working furiously to keep up appearances). A second reason is that the broader social, political, philosophical, and historical implications of bearish trends may be too dissonant, anxiety provoking, and painful for most Americans to deal with at present, to include most professional money managers. The comprehensive bear view is too much at odds with the “establishment” view of economics (typically in the “top down” Keynesian and Monetarist camps) and the “Whig theory” of American history that Americans have been fed by our federalized education system. It is also completely at odds with the rhetoric of most politicians and most liberal writers for America’s national media. Last, but not least, America may be heavily influenced by certain special interest groups whose political and economic survival is too dependent on keeping up appearances to let go right away. One example is the Federal Reserve Banking System itself and closely connected banking interests, to include David Rockefeller’s JP Morgan Chase operation with its suspected $25 trillion plus in derivatives exposure.

Some of my favorite gurus as of late are as follows:

James Puplava’s Perfect Financial Storm series. This series has been on target ever since it was started in 2000, and does a good job with charts and basic economic analysis to set the stage for the reader. By staying focused on economic and market issues, it is especially appropriate for investors who are not quite ready yet to get into the more disturbing broader social, political, and historical ramifications of what is really happening in America today and why. Recently he has been writing archived market wrap-ups on Mondays and Storm Watch updates on Fridays that provide his latest views. James Puplava has done a terrific job of interviewing other gurus such as Jim Rogers, Dr. Marc Faber, Bill Murphy listed in his Financial Sense Newshour archives, and also provides a transcript archive.

Grandfather economic report. Please consider the Picture Summary of Five Core Threats and other charts in other sections and ask yourself, if America remains unable to turn around these trends, how much more “bargaining time” do we have left?

David Tice’s bear case article archives for On Wall Street Magazine, a trade publication mailed out for free to most stockbrokers across America. (How many stockbrokers do you think have the honesty to pass this kind of information on to their clients? Readers may enjoy viewing a Saturday Night Live spoof on Wall Street “honesty” that I have also linked via my humor/satire section). David Tice is the investment manager of the Prudent Bear Funds that are about 60% short the market.

Doug Noland’s Credit Bubble Bulletion archive. Doug Noland writes for David Tice’s web site www.prudentbear.com. He provides compelling arguments and supportive data regarding government related spending and Fed and government-related credit creation that helped fuel the greatest stock market mania in history from 1995-2000 (which made reckless investors look brilliant and value-conscious investors look irrelevant or stupid). Now that movie seems to be running backwards. The continued stimulus measures are showing destructive unintended consequences. This may be analogous to the way in which continued drug use by addicts goes beyond forestalling withdrawal symptoms and keeping them high. Eventually it starts to break down their bodies.

Www.lewrockwell.com and www.mises.org. Lew Rockwell is the President of the Von Mises Institute, which is a major interpreter of the “Austrian” school of economics in America today. This is basically the “bottom up” laissez faire, libertarian approach to economic analysis which provides an important counterpoint to the “top down” Keynesian, Monetarist, and “Supply Side” approaches to economics bandied about by establishment sources. (All of these approaches justify Big Government intervention and central bank manipulation of the money supply). The “Austrian” school is the kind of approach that Thomas Jefferson advocated and what most Americans practiced through most of the 1800’s when the US was on the gold standard, there was no income tax, no central bank, and very little government intervention in the economy (with the major exception of Lincoln administration, discussed later). I would encourage the reader to go to my video section and watch the Lew Rockwell interview with Bill Moyers and the Mises Institute video on the Federal Reserve Banking System. Both are eye openers. Lew Rockwell has written some excellent introductory pieces carried in his archive such as his Jan 24, 2003 article “Keynes Rules from the Grave.” This is very relevant to investors who have been continually pitched by Wall Street sources that stimulus measures will inevitably bring about a healthy economy and reignite the 1995-2000 bull market. For the full blown analysis, the pithy essays under the heading "What Has Government Done to Our Money" and the free online book "America's Great Depression" by the eminent late Austrian economist Dr. Murray Rothbard are "must read." America's politicians and economists today seem to be repeating all the mistakes identified by Dr. Rothbard, which is one reason why I can forsee a crash and prolonged depression ahead as a consequence of our stock market, bond, and real estate bubbles and a likely massive default on America's historic debt levels.

As a caveat, I need to point out that there is no one approach to economics (or for that matter political systems) that works in all situations. There are serious vulnerabilities and problems with the “top down” approaches to economics such as Keynesianism, Monetarism, and supply side economics. There are also problems and vulnerabilities with the “bottom up” Austrian or laissez-faire approach. Economic policies are often like design solutions in engineering; every time one heads in certain direction, one usually sacrifices something important in another area. In addition, economic and political systems are like “hour-rated” safes, that is, safes that are rated by their manufacturers according to how long it takes a professional thief to crack them. There is no such thing as an infinite hour-rated safe; and vigilance is the price of liberty in maintaining certain economic and political systems just like it’s the price of keeping bank robbers from stealing your savings held in a vault.

America’s libertarian economic and political “safe” of the 1800’s was eventually “cracked” by a combination of the Lincoln Administration (and its ideological heirs) and the “Robber Barrons” who met at Jekyll Island in 1912 to create the Federal Reserve system (c.f. the aforementioned Von Mises video and my section “Morphogenesis of the Fed Axis” that appears towards the end of my “Amidst Bullish Hoopla” paper.) Throughout much of the 20th century America became a candy store with a broken lock, namely a country with vast resources and a population the equivalent of England, Germany, Scandinavia, and most of France that was able to coast on the educational institutions and entrepreneurial infrastructures created in the 1800s, allowing America to succeed more despite its overtaxing Federal government and meddlesome central bank than because of it.

I would also point out that neither the aforementioned top down nor bottom up approaches to economics still give us a complete picture. Let’s start with Dan Seligman’s May 12, 2003 Forbes article: “Professor Rothman Strikes Again,” He stated, “In The IQ Controversy: The Media and Public Policy (1988), Rothman and Mark Snyderman collected data showing that the press overwhelmingly attributed IQ differences in the population to various cultural artifacts. The authors also surveyed 661 experts –academic psychologists, cognitive scientists, test specialists –who decisively rejected these cultural explanations and collectively stated that some 60% of IQ variance reflected the different genes of the high and low scorers.”

Both the “top down” Keynesian and “bottom up” Austrian economic schools focus on rational human economic action (the “learning” or “rational” side of human behavior.). There is also a different interpretation of economics based on sociobiological and evolutionary theory that delves into the issue of how the genetic make-up that enabled our ancestors to survive prehistoric environments may or may not be adapted to coping with certain contemporary stock market and economic phenomenon. It also addresses tribalistic instincts that have been the basis of “nationalist” economic theory to date. In my opinion this perspective must also be integrated along with the top down and bottom up schools to gain a more complete picture. I think that both this and the Austrian school will come roaring back if the US Government ever succeeds in going bankrupt and America comes apart at the seams, and both perspectives may even one day supplant the centrist, internationalist, top down approach to economic and business theory that predominates in America today.


Dr. Stephen Roach, Morgan Stanley’s chief economist, primary contributor for the Morgan Stanley Global Economic Forum Archive. Dr. Roach supplies valuable facts and has acted as an interesting hybrid between the views of the aforementioned bears and the Wall Street party line.

Thom Calandra’s CBS MarketWatch updates. (A free site but registration required). Thom Calandra has been unusually prescient and accurate for a financial writer carried by a national media source.

Warren Buffet-related consolidated links at www.financialsense.com. Warren Buffet, CEO of Berkshire Hathaway, is one of the richest and most successful investors in America, comments on the overall investment climate in his archived annual letter to shareholders. In the late 1990’s Warren Buffet bought a massive silver position and has more recently sounded off against misleading accounting practices, anti-shareholder piracy by corporate managements, and unregulated burgeoning derivatives market.

Miscellaneous newsletter writers in a “Best of” archive. These writers include:
Kurt Richebacker
Doug Noland (previously cited Credit Bubble Bulletin writer at Prudent Bear)
Richard Russell (top long term track record among newsletter writers)
Robert Prechter (leading exponent of Elliott Wave Theory)
Jay Taylor (top gold guru) whose home page is located at www.miningstocks.com
Bob Bishop (top gold guru)
David Morgan (silver guru, who has his own web site www.silver-investor.com)
Gary North (political commentator, also archived at www.lewrockwell.com)
Bill Bonner also archived at www.dailyreckoning.com



Aden, Pamela and Maryanne (the Aden Forecast) at www.adenforecast.com. A source of intermarket analystis involving foreign currencies.

Longboat Global Advisors Crosscurrents archive.

Prudent Bear’s“Must Read” articles archive.

Survivalist themes: Depression2.tv

Richards, Fred: ‘Tis Only My Opinion archives.

Sennholz, Prof. Hans F. personal web site:

Temple, Chris. “Other Experts” archive at www.nationalinvestor.com

Vaughn, David. potpouri of interesting articles, links and his Gold Report at www.freebucks.com



The Library of Economics and Liberty Free economic encyclopedia and source of articles on current topics. Includes even complete books on line, particularly by libertarian economic thinkers.

The Mises Institute Articles on economic issues from a libertarian perspective. Includes the Quarterly Journal of Austrian Economics, and classic books online such as Dr. Murray Rothbard's "America's Great Depression.".

Post-Keynesian Thought Discussion Forum: Academics and writers share thoughts


Once you have read enough of the aforementioned sources, you may become convinced that there are macroeconomic trends that are coming to head that could be very bad for both you and your investments. The next question is what are America’s power elites doing about this? Now we get into what is called “political economy,” namely the fact that politics is inextricably intertwined with economics (early in the 20th century economics courses were routinely titled “political economy” for this reason). The big political question is whether the various individuals and special interest groups in our society who are best equipped to deal with these problems are in fact making a serious effort to arrest them, or worse yet, is it possible that they are not only covering them up but are actually adding fuel to the fire? This part of the economic analysis gets very “social,” “political,” and “cultural” very quickly.

Www.lewrockwell.com archives numerous columnists with important commentary that relates politics to economic policy, such as the maverick Texas Congressman Ron Paul, Gary North, Lew Rockwell (of course), Pat Buchanan, Joseph Sobran, economist Murray Rothbard, and historian Joseph Stromberg.

William Lind, archived at www.military.com. (Previous articles archived among other Free Congress Foundation authors, you have to hunt and peck a little bit for his stuff and skip some of his more esoteric articles). A longstanding professional Washington beltway consultant who wrote the maneuver warfare manual for the US Marine Corps, Lind is usually on target in his short pithy essays about underlying problems with US adventurism and where major policymakers are likely to lead or deceive us next. On purely military issues, another good source is Col David H. Hackworth. .

American Free Press; A condensed version of my “Bear Case Overview” appeared in the June 23, 2003 issue. This paper specializes in news and analysis suppressed by mainstream media. Stories archived since 2000, when the newspaper staff transitioned from The Spotlight to AFP. This staff has received journalistic awards and produced numerous scoops over the decades leaked by former heads of state and operatives with major intelligence services such as the CIA, Mossad, and the now defunct KGB. In other words, AFP has been a next stop for material too hot for the New York Times and Washington Post to print. Incidentally, The Barnes Review, affiliated with the American Free Press, is an interesting source of alternative historical viewpoints.

The Village Voice: The paper has such impeccable leftist/“cosmopolitan” credentials that it can get away with printing investigative stories that used to only be accessible by mail order subscriptions to sources on the radical right or other specialty observers prior to the Internet. I like the way it “outs” the New York City scene almost to the point of whacky self-parody, an important perspective given the way in which media based in New York City, Los Angeles, and Washington D.C. (NYC being the most important of the three) shape the nation’s thinking on economic, political, and investment-related issues.



How did we get in this mess? I believe that once a person studies American history from the viewpoints provided below, he may wind up becoming surprised if America does not go through a major economic crisis, secular bear market, and even an Argentina-like melt-down.

Sockdolager: A Tale of Davy Crockett.” This quaint story crystallizes the dramatic changes in the American government, economy, and values since the days of the Founding Fathers. We have become so conditioned to liberal, demagogic, pork barrel politics that Crockett’s appeal to Congress for government to refrain from getting involved with charity is a much bigger “sockdolager” today than it was back then.

When the famous French observer Alexis de Tocqueville visited America in the 1830’s, he noted that a distinguishing characteristic of most Americans is that they essentially had no government. Although America had a population larger than his native France, de Tocqueville noted that France had 30 times as many governmental bureaucrats. It was not unusual for an individual American to belong to over twenty volunteer organizations (jury duty, fire department, militia, posse, church charities, and other organizations that handled all the functions typically filled by professional bureaucrats in Europe). This kept political and economic power decentralized in an era where the currency did not depreciate while on the gold standard. The economy grew at about 5% a year, and the average American male could usually support a large family in a medium-sized house and the wife did not need a job outside of being a homemaker. There was no income tax until the year 1913. Today, average American wage earners, who now usually include both spouses to help make ends meet, are taxed at about 50% of income. This takes into account state, federal, excise, and other taxes. This is over 50% greater than the 30% rate in which the average serf was taxed by his lord in the Middle Ages. A Russian anarchist who fled Czarist police and visited America not long after de Tocqueville commented that he had nothing to teach Americans, because they were already living in his idea of a state of “utopian anarchy.” Flash forward to the present era, and savor the irony where Steve Forbes wrote in his magazine’s April 15, 2002 Fact and Comment section, “Early last year President Vladimir Putin junked Russia’s tax system and replaced it with a 13% flat tax…on this issue I never thought I would be outflanked on the right by a onetime KGB agent.”

Sockdolager: A Tale of Davy Crockett” makes another important point consistent with famous comments against democracy made by two Founding Fathers. James Madison stated: “Democracies have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security, or the rights of property; and have, in general, been as short in their lives as they have been violent in their deaths.” John Adams commented: “Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide.”

Since the times of ancient Grecian city states, one of the greatest vulnerabilities of democracy has been the ease with which demagogues can rise to the fore and build their power base with the masses by simultaneously promoting lofty social causes and inflaming envy. They then use all of this to justify playing Santa Claus through wealth redistribution schemes. Confiscating wealth often means damaging the entrepreneurial capital formation process required for economic growth, antagonizing business owners who may be more competent than anyone else in creating useful jobs, enhancing the size and strong arm powers of the state to confiscate wealth, and removing restrictions on the ability of the state to inflate the money supply. (Inflation is a subtle form of involuntary taxation and wealth confiscation). Since anyone can think up virtually endless charitable projects, once the government gets into the charity business, politicians can acquire almost unlimited license to use the formidable police powers of the state to aggrandize themselves on other people’s money through endless pork barrel projects. In the long run, this can turn into a political version of a ponzi scheme, as depicted by the runaway government spending and debt graphs portrayed by the aforementioned Grandfather Economic Report series. Our politicians seem to be addicted to runaway government spending with no end in sight, except perhaps an implosion similar to what happened to Argentina when domestic and foreign creditors finally decided to pull the plug and the Argentinian government had no choice but to launch into hyperinflation (de facto bankruptcy).





High water mark of the Confederacy, Gettysburg Cyclorama

The greatest disaster and turning point in American history was the Civil War, which killed 620,000 Americans. The war killed or mutilated one out of two white Southerners of military age, a higher casualty rate than any World War II combatant. . The “King Lincoln” archive at the libertarian www.lewrockwell.com site analyzes this critical juncture in American history that bears important similarities to the shift in ancient Roman history from its self-restrained republican period to its unrestrained imperial era.

After getting its first major start with the Lincoln administration, the road to centrism, interventionism, and a more perfect pork barrel government includes the following highlights: The William McKinley administration saw America’s first overseas conquests during the Spanish-American War, Theodore Roosevelt pioneered the presidency as a cult of personality that ran roughshod over Congress in making war and expanded the “progressive” social welfare agenda, Woodrow Wilson created the personal income tax and a privately owned central banking cartel as permanent peacetime entities, made massive increases in the size of Federal government, ran global activist government that included WWI entanglement and efforts to redraw ancient borders of Europe, Franklin D. Roosevelt reincarnated WWI-era Federal regulatory authorities as peacetime New Deal entities, pioneered quantum escalations in government size, economic intervention, and global activism beyond Wilson, and Lyndon B. Johnson firmly institutionalized the guns-and-butter social welfare state.

The Lincoln Legend is such an integral part of American ideology that favors socially activist, interventionist, big-spender government that we need to see how well it can be brought into accord with historical facts. If there is a big discrepancy, this raises another important issue, namely if a man like Abraham Lincoln, who has been dead for over 138 years, has been grossly misrepresented to us by our schools, media, and politicians, is it possible that we are also being misled about the current realities of our overall economy and capital markets and the likely future of this country?

Contrary to popular mythology, the real Lincoln was hardly some kind of honest-to-a-fault, softhearted, highly principled rustic lawyer who spent most of his time defending common folks in court with whimsical good humor. In reality, Lincoln became wealthy representing the Illinois Central Railroad (one of the world's largest corporations at the time) and spent most of his political career promoting high tariffs (mercantilism or economic special privilege), public works (corporate welfare), and central banking (private banking monopoly). Lincoln openly admired political machine bosses, exerted close control over his party’s political machine in Illinois, and was tainted with pork barrel scandals in his home state. He consistently promoted the centralized state, even at the price of waging ruthless total war against innocent civilians. General William T. Sherman wrote that Lincoln laughed almost uncontrollably when he recounted his atrocities to him. Scholars have called him America’s first dictator, and have even compared him to “Jacobins” and V.I. Lenin. He closed down dozens of opposition newspapers in the North, illegally suspended the writ of Habeas Corpus, deported a critical Member of Congress, ordered troops to intervene in Northern elections to insure Republican victories and also used them to arrest tens of thousands of Northern political opponents. (Lincoln arrested nearly twice as many political prisoners as Mussolini, the archetype of modern fascism). In “Shattering the Icon of Abraham Lincoln” lawyer Sam Dickson explains how Lincoln spoke out of both sides of his mouth, exemplified a “selective democratic conscience,” slyly provoked war, and artfully cloaked autocracy within the “Whig” theory of history. In “What If the South Had Won the Civil War?” William Lind, a proud descendent of a Union soldier, rethinks the long term impact of a country forced to remain forever conditionally united regardless of the social and political consequences. Lincoln was reviled by many abolitionists because they believed he was really interested in aggrandizing state power and relatively disinterested in freeing slaves. (In fact, Lincoln once voluntarily took on a case where he argued in court for the right of Kentucky slaveholder Robert Matson to reclaim his runaway slaves who sought refuge in Illinois, and early in the Civil War countermanded efforts to free slaves by two of his generals). Also, Lincoln apparently led a complex personal life. He admitted to a biographer that he was infected with syphilis (he may have infected his wife and contributed to her insanity). He shared a bed with another man for four years.

This should provide some food for thought, and we have not even got to McKinley, Teddy Roosevelt, Wilson, FDR, Lyndon Baines Johnson, and the alien agendas found in Hollywood, national media, the Federal Reserve Reserve, Wall Street, and all that. Nor have I gone into tremendous detail why on a political, economic, and demographic level America's high greed/high fraud society just does not seem to work anymore. One example of "high greed" is the widespread way American CEOs keep awarding themselves tens of millions of dollars more in various forms of compensation every year while their corporations flounder through ineptitude and while they simultaneously unmercifally strip away salary and R&D money from employees on the lower rungs by outsourcing jobs. They are quick to lavishly "reinvest" in themselves while ruthlessly disinvesting in their fellow Americans (many of whom have families and desperately need jobs to get by). What country can possibly survive whose top leadership operates on this very short-sighted and greedy level? Without going into further detail now (I have other writing projects on the front burner for the time being), I think that I have accomplished my primary objective, namely to furnish enough leads and ideas to greatly assist the reader in researching and putting together for himself a more realistic picture of “the score” in America today, particularly in regard to making prudent investment decisions

I appreciate hearing your thoughts and comments.




Flag carried by the 3rd Maryland Regiment at the Battle of Cowpens, S. Carolina, 1781

© Text and web design by William Fox. Sometimes William Fox offers viewpoints that are not necessarily his own to provide additional perspectives.