IGNORANCE IS BLISS
by Bill Bonner

"Oh Lord, it's hard to be humble... "

- Mac Davis

A speech given yesterday at the NY Institutional Gold Show:

It is a great honor to be here in front of you. We do not feel worthy of it. What can we say to this audience? This is a convention of gold mining investors and experts; we know nothing about gold mining.

Then again, we know nothing about practically everything.

If there is one virtue we have at the Daily Reckoning, and we say this often, it is humility. And even that is insincere.

People think we are joking when we say so... as if it were some form of false modesty. But the modesty is genuine; we just think it makes us better than other people.

Humility is a great virtue... probably the greatest of all virtues. It helps you in all of life. In investing, it is essential. There is no better insight, no more precise tool, and no surer shield against folly. So, we are proud to be humble. In fact, we are almost arrogant about it.

We don't know anything, we say with pride, and we can prove it. Just a few weeks ago, for example, we thought gold had permanently moved above the $400 mark. It was likely, we said, that "we would never again see $400 gold." A few weeks later we wondered the same thing; gold had dropped to $375 and we wondered if it would ever come back!

In the office we used to argue with one another about who was most humble:

"I'm more humble than you are... " Addison would say.

"No you're not," we would reply. "You just pretend to be humble because you're so competitive."

"Oh yeah... well, you're far more competitive than I am... "

"No I'm not."

"Yes, you are."

.. and so forth.

What do we have to thank for this surfeit of humility? The answer is obvious: our daily attempts to understand the markets. After many years of humiliating efforts, we have been humbled. We finally realize that we know almost nothing.

When we were very young and just starting out, it was a different story. We were sure of almost everything. We knew how the world worked. We knew what tomorrow would bring... and had no doubt about it.

But now that tomorrow has come and gone many times, we take a different view of things. It seems that, with each year that passes, we become less sure... we know less and less... now, it is our teenaged children who are sure of things.

And if this process keeps up, we will soon know nothing at all.

But that is why marriage is such an important institution -- especially for men. When a man begins to think he knows something, his wife will remind him that he knows nothing at all. In fact, if she has a good head on her shoulders, she'll show him that he knows less than nothing, for even what he thinks he knows is wrong. If she succeeds in this, she has done the man a great favor, in our opinion... for only now he is prepared to enter the investment markets with a clear view of his own abilities.

When it comes to investing, no one knows anything. They don't know what is happening today... and they certainly don't know what will happen tomorrow. They have some idea of what happened yesterday... but they have no idea why.

But the average economist, central banker, TV presenter, investment advisor or Wall Street gambler has no idea. He knows nothing... not even that he knows nothing. Knowing you know nothing, that is being humble, is a great advantage. See, humility makes you superior... that's what we mean by being insincere about it.

In fact, most people you meet in the investment world have become the contrary of humble. Like 15-year-olds, they puff themselves up and tell you exactly what is going on in the world... and where it will lead. The lack of humility and modesty is breathtaking. But that is the main difference between a modest investor and an arrogant one. The know-it-all believes everything is as it should be... as he thought it would be. He thinks he knows what is going on and what will happen next. Nothing surprises him. Nothing shocks him. Because he saw it all coming. "It's all under control," he says. "It's all going the way I thought... tomorrow will be pretty much like yesterday."

We humble people, on the other hand, find a lot of things simply astonishing. We are like a bumpkin arriving in New York City. We crane our necks up at the pile of debt, the trade deficit, the price of a pathetic bungalow in Southern California, the explosion of money and credit... a 1% fed funds rate... the $52 TRILLION federal government financing gap... the latest estimate for the cost of the war against Iraq ($500 billion)... rap music... reality TV... auto financing... John Kerry...

.. and we say, like Gomer Pyle, "well go..o..lly!"

Most economists see nothing alarming in any of these things. If you asked them, they'd say they predicted them.

But even the price of gold gets a 'go..o..lly' from us. Not because it is so high, but because it is so low. It trades about the same price that it did a quarter century ago. And what happened during those 25 years? The biggest explosion of dollar-based money and credit in history! Alan Greenspan has created more new money than all the other Fed chairmen and all the Treasury Secretaries combined. Debt, as a percentage of GDP, has approximately doubled. By every measure we can think of, the dollar should be far, far weaker against gold than it was 25 years ago. And now, even as the broad money supply increases by $155 billion per month, gold only inches up... or barely moves at all. And it's still below $400... which we thought we would never see again!

The arrogant economist... the self-sure investor... the know-it-all analyst will tell you that this is all perfectly normal. Don't even think about it.

But we humble know-nothings can't help but wonder why. We don't have a good answer... but go..o..lly, it's strange!

But the whole financial world is full of amazing and wondrous things, isn't it? At least, if you're humble enough to notice. The trade deficit, consumer debt, the government's $50 trillion financing gap... we mentioned these things earlier. But our mouths drop open every time we think of them.

And probably the most astonishing feature... the biggest go..o..lly of all... is this: the past quarter of a century could not have been better for the U.S. We defeated the Soviet Union without a shot. We invented the Internet. We enjoyed the biggest stock market boom in history. During that time we must have gotten richer, right?

Wrong. And here you might want to make sure you're all sitting down. Because the average man in America now earns 6% less than he did in 1977. Is that progress? Is that getting rich?

He thinks he is richer because his house is worth more. But this is an illusion. He has to live somewhere. He can sell his house, but he'll only have to buy another. The real measure of how rich a society is... or how valuable a company is...  is how much it earns. And earnings, in the world's biggest, most dynamic, most flexible, most high-tech, most forward-looking and most innovative economy went exactly nowhere over the last 25 years!

Clearly something is wrong. The American consumer economy has turned out to be a fraud. It doesn't work. It doesn't make Americans richer, it makes them poorer. It puts them deeper in debt and more dependent on the kindness of strangers than ever before.

In the last 25 years, the nation has been transformed. A quarter of a century ago, we were a nation of producers. Now we consume more than we produce. We were a nation of savers. Now, we spend more than we make. We were a nation to which the rest of the world owed money. Now, we're the ones who owe money overseas - more money than any people ever owed in the history of the world.

But the biggest transformation is the way we Americans think. We used to watch the money supply figures, for example, and get excited. Now, the money supply is growing at an alarming rate - 20% per year, annualized from the last 4 weeks' figures. But no one seems to notice or care. We used to worry about inflation. We used to be amazed, alarmed and astonished by all manner of things.

But now, we know better. We're all super-sophisticated know-it-alls who never, ever say 'go..o..lly' about anything. Nothing shocks us. We're in awe about nothing. We know everything with work out. We know there's nothing to worry about because we live in the most dynamic and flexible economy in the world. And we know Alan Greenspan is on the job, making sure that we grow richer and richer, day after day, forever and ever, amen.

We, the humble, on the other hand... we have no idea what will happen. But we think, sooner or later, something will happen. And we think it will take our breath away.

Regards,

Bill Bonnerfor The Daily Reckoning

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):