Source: Wikipedia

Dear Diary, 

“What’s the secret?” 

We had decided to put the question directly. Why not? How often do you have dinner with a Rothschild, much less dozens of them? 

Today, one of Bordeaux’s most notable winemakers goes to her grave. Philippine de Rothschild was already stone cold when we arrived in town on Saturday; she died last week at 80. Today, she will be buried. 

But we came not to bury a Rothschild, but to praise one. That is to say we came not for an unhappy occasion, but for a happy one: the marriage of one of Philippine’s cousins. 

“She was so loved and respected in the wine industry here in Bordeaux,” a relative reported, “that the other winegrowers, merchants, and even the field hands lined the road and took off their hats when they brought her body back from Paris.” 

Philippine told the French leftist newspaper Libération that, despite the family name and the family fortune, she had not always had an easy time of it. 

During World War II, being a Rothschild in France was hazardous. Philippine’s mother was sent to a concentration camp near Berlin, where she was murdered in 1945. 

Philippine used her mother’s maiden name, escaped the deportations and, after the war, she went onstage in Paris as Philippine Pascal. Then in 1988, her father died. And she came back to Bordeaux to run the famous Château Mouton Rothschild wine estate. 

The Rothschild Secret

At the dinner following the wedding we raised a glass in her honor; after all, she had given the wine for the occasion. 

Seated to the left of a charming ambassador and to the right of a lively, elegant lawyer (who had married into the Rothschild clan), we happily passed a few hours in light conversation. 

Between courses came the inevitable question: How had the Rothschilds been so successful for such a long time? 

“They married well,” was one reply. 

“First, they married each other. I guess the Jewish community was small at the time. And families were very tight. Cousins married each other. That way, they kept the brains and the money in the family. But even later, they were careful about whom they let into the group.” 

“They stuck with good industries,” was another hypothesis. “The British branch of the family stayed in finance. That was always a good business in London. And it got better as London became the center of international capital. 

“Whenever the Russians, or the Arabs, or the Austrians, or the French, for that matter, ran into trouble in their own countries they went to London. They’re still doing it. That’s why there are so many Russians and so many French people there now. But don’t get me started on the French…” 

We will not get started on the French either. But we will pause to briefly note that, as an economist, Paul Krugman might make a good dentist. Then he could expound his ideas to an open mouth without causing further damage. 

The Fall of France

Instead, he wrote a remarkable column in the New York Times last Thursday. This time he outdid himself. His “The Fall of France” op-ed piece was exceptionally dumb. 

After berating French president François Hollande for failing to embrace US-style money printing, he noted that the French economy was doing pretty well. 

“Prime-aged adults are a lot more likely to be employed in France than in the United States,” he wrote. France “doesn’t have a trade deficit, and it can borrow at historically low interest rates.” 

Krugman believes Hollande and his “austerity” policies are “failing France” and also “failing Europe as a whole.” 


Here Krugman’s delusions stumble over each other. First, France is not practicing austerity. Government spending is already 57.1% of GDP – five percentage points higher than it was 10 years ago. 

And its deficit is well above the 3% of GDP level allowed by the European Union. And it’s growing infinitely faster than France’s zero-growth economy. 

Second, you do not get genuine prosperity by spending money you don’t have on things you don’t need. Whether you borrow the money… or digitize it into existence… the result is the same: You get poorer, not richer. 

If you could get rich by living beyond your means… and then creating money out of nothing to pay your bills… Zimbabwe would be the richest nation in the world. Instead, it is destitute. 

An Absurd Idea

Krugman fears France will fall into a Japan-like slump because Europe is practicing too much “austerity.” 

But neither fiscal nor monetary stimulus will rescue a debt-drenched economy. For all its 30 years of high deficits, Japan has gotten nothing but more debt – it now has a debt-to-GDP ratio of close to 240%. 

Finally, Krugman believes prosperity is the key to peace. Europeans aim to “secure peace and democracy through shared prosperity,” he writes. 

This idea is absurd when applied to democracy. Democracy was allegedly secured by the ancient Greeks more than 2,000 years ago and again by the American colonists in 1776. Prosperity had nothing to do with it; compared to today’s Europeans, both were appallingly poor. 

Likewise, there is no known link between prosperity and peace. The last century was one long, sad story of the world’s richest peoples trying to exterminate each other with thorough planning and sophisticated, expensive weaponry. 

At the start of World War II, Philippine’s father left to join de Gaulle’s Free French in London. Many other Jews fled to the US. 

Philippine’s mother – a Roman Catholic – believed the Bordeaux officials would protect her and spare her from the Nazi death camps. She was wrong. She was deported to Ravensbrück.

Her cousin was wrong, too. As the Nazis began laying hands on Jews in the occupied zone in France, the young woman fled, accompanied by a young Frenchman who protected her. 

He took her to a remote farm, where she would be safe. He left with these words: “After the war is over, I’ll come back and marry you.” 

Which he did. We were invited to their grandson’s wedding. 

Omnes. Gentes. Alleluia. 


Market Insight:

The Euro Zone Is Still a Mess

From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners



Source: Wikipedia

It’s not just France that’s in trouble. The entire euro zone is dangerously close to falling back into recession. 

But this time around, it’s not the Club Med countries that are the focus of the slowdown. It’s Germany, France and Italy – Europe’s powerhouses. 

As The Economist reports: 

Their collective GDP stagnated in the second quarter: Italy fell back into outright recession, French GDP was flat and even mighty Germany saw an unexpectedly large fall in output. […] Meanwhile, inflation has fallen perilously low, to around 0.4%, far below the near-2% target of the European Central Bank, raising fears that the zone as a whole could fall prey to entrenched deflation. German bond yields are hovering below 1%, another harbinger of falling prices…

Europe faces two major challenges:

1) There is a serious leadership deficit – So, despite the clear need for deep-rooted economic reform, this has not happened. And even if a real leader did emerge, the political union is so weak that it is near impossible to get buy-in from voters. 

The perverse part of it is that the European Union, and the euro currency, were supposed to be the agents of much needed reforms. The aim of the political union was to make less competitive nations – places such as Greece, Spain and Portugal – more competitive, creating stronger local markets for the likes of France, Germany and Britain. 

Instead, these less competitive nations took the cheap money made possible by the single currency and went on a self-destructive credit binge… the effects of which are still being felt throughout the continent. 

2) There is an overreliance on monetary policy – One of the many problems with Mario Draghi’s pledge to do “whatever it takes” to hold the eurozone together is that it has bought politicians time on making those reforms. 

The big question on everyone’s lips is whether the ECB will finally enact full-blow QE to try to stave off deflation and recession, not when politicians will act to reform Europe’s economy. 

As long as this situation continues, we see a bleak future for the roughly $17 trillion euro zone – the world’s largest economic bloc. 

Add to that the slowdown in Asia’s largest economy, China… that economic growth in South America’s largest economy, Brazil, is flat lining… and that there is a serious downturn in Russia, where GDP growth slowed to 0.8% in the second quarter… and it’s very hard to construct a bullish case for global growth. 

Against this backdrop, US stocks are hitting record highs. 

Caveat emptor…