A Great Growth Stock for a Changing World

Featuring Lutts’ Logic:

The True Story of the Pig War

The Double-Barreled Shotgun

A Great Growth Stock for a Changing World

Last week, we tackled the very serious subject of health care in the U.S.  I thank you all for reading and writing.  After that effort, my brain needs a vacation, so today I bring you The True Story of the Pig War … which you might say began 150 years ago today.

At the heart of the story are the San Juan Islands, a group of some 450 islands off the coast of Washington state that are popular tourist destinations today but were once overrun by heavily armed British and American troops, all ready and willing to start shooting … but only if the other side started.

Our story starts, perhaps, in 1845, when the Hudson’s Bay Company, based on Victoria Island, posted a notice of possession on 16 1/2 mile long San Juan Island, the largest island in the archipelago.

At the same time, however, Americans were trekking westward across the country in growing numbers, and more and more were finding their way to the rugged shores of Puget Sound, and even onto the offshore islands, where the good fishing served to ameliorate the general harshness of frontier life.

In 1846, the simple presence of these hardy pioneers helped to support the claims of the United States in the negotiations leading to the Treaty of Washington in 1846, which established the 49th Parallel, from Minnesota to the water’s edge, as the international boundary between this country and Canada.

But the treaty makers, who were generally very precise, were inexcusably vague when they came to the islands dotting the Strait of Georgia. They agreed that the line along the parallel should be projected “to the middle of the channel which separates the continent from Vancouver’s Island; and thence southerly through the middle of said channel.”  Note the lack of numbers, an open invitation for each of the opposing parties to interpret the document in their favor.

The Americans, of course, assumed that the line fell to the west; the English just as firmly believed that the boundary brought the disputed islands into the province of British Columbia.

To bolster their claim, the British used the time-honored legal strategy that possession is nine-tenths the law, and the Hudson’s Bay Company, in December 1853, moved a flock of 1,369 sheep–and several Berkshire boars–onto San Juan Island.

Which was provocation enough for the local U.S. Collector of Customs, Isaac N. Ebey, to declare that the English had imported the sheep “without paying any attention to our revenue laws.”  His move to seize some sheep in payment was, however, thwarted by James Douglas, governor of Vancouver Island, who dispatched troops to protect the sheep.

Then winter came, and all the American pioneers who had attempted to homestead on the island retreated to the mainland, leaving the British sheep and their attendants in possession.

But in March 1854, the formal incorporation of Whatcom County on the American mainland to the east held San Juan and its neighboring islands to be an integral part of the newly created political entity, and the sheriff of Whatcom County was empowered to collect $80 from the Hudson’s Bay Company in property taxes.

Organizing a posse, the sheriff descended on San Juan Island without warning–each of his men armed with a brace of revolvers.  And when the $80 was not forthcoming, the sheriff and his men chose to seize alternative liquid assets; they bundled thirty-four struggling breeding rams aboard their boat, while Hudson’s Bay Company employees stood by protesting.

A few more years went by.  No more sheep were seized. And by 1859 there were about 18 Americans homesteading on San Juan Island.

And then came June 15, 1859, a date that, while it does not live in infamy, at least reminds us that small events can have big repercussions.  

One of the 18 American homesteaders was a fellow named Lyman A. Cutlar, who had cultivated roughly a third of an acre on the island, planting it with potatoes and enclosing it in a manner that proved repeatedly unable to thwart hungry hogs (are there any other kind?).

On the day in question, Mr. Cutlar was angry to find a black boar rooting in his potatoes.  For some reason, this was the last straw; the furious Mr. Cutlar grabbed his shotgun and shot the beast, sending him to hog heaven.

This irritated Charles Griffin, manager of the Hudson Bay Company’s farm and thus the legal owner of the pig.  Cutlar offered $10 in damages.  Griffin asked for $100.  History doesn’t tell us who got to eat the pig, but I assume it was Cutlar.

The following day, the British warship Satellite sailed into view, carrying to San Juan a special envoy with orders to bring Cutlar to Victoria for trial.  Cutlar refused to surrender, and, brandishing his rifle, made it plain that he would blow the emissary’s head off rather than submit to arrest.

Sensing opportunity, U.S. Brigadier General William S. Harney ordered Company D of the U.S. Army infantry, stationed at Bellingham to move to San Juan without delay.  Interestingly, the commanding officer of Company D was none other than Captain George E. Pickett, who would later win immortality as a Confederate general at Gettysburg.

On July 27, Pickett landed on San Juan with his 50 men and pitched camp near the southeast tip of the island.

In response, Charles Griffin, perhaps still grieving the loss of his hog, sent written notice telling the troops they were on Hudson’s Bay Company property and inviting them to depart.

Pickett declined the invitation; in fact, his men dug in as if they were planning to stay a while.  So Douglas attempted to blockade the island, to prevent reinforcements from reaching Pickett.  On August 3, Pickett had talks with the captains of three British warships “guarding” him, who proposed that they establish joint military occupation of the island.  Pickett again refused; instead he sent a plea for reinforcements.

Back on the mainland, Harney granted Pickett’s wish, ordering five companies to charter the necessary steamers and move to San Juan Island, taking all field guns and every bit of ammunition they could muster.

By mid-August, the U.S. force on the island had swelled to nine companies, backed by eight 32-pounders.  At the northern end of the island were 2,140 redcoats, including 600 Royal Marines and engineer troops, supported by five warships and 167 guns.

Meanwhile, the powers in Washington, D.C. decided that a more experienced hand was needed at San Juan.  So President James Buchanan dispatched the Chief of Staff of the Army, 73-year-old Lieutenant General Winfield Scott, who hopped a train, hoping to arrive before blood was shed.

Fortunately, when he arrived, the situation was little-changed.  Both sides were prepared to fight, but neither was willing to fire the first shot.   

So Scott and Douglas talked, and eventually Douglas agreed to the presence of a token American force on the island.  And General Harney, rebuked for his hotheadedness, was relieved and sent back to Washington, D.C.

Yet the issue of the boundary remained unsettled.  And the onset of the Civil War only delayed the ultimate resolution.

In the meantime, tensions developed between the expansionist-minded American civilians on the island and the defensive-minded military troops.

Tensions reached a climax when a resentful farmer stretched a wire fence across the road leading from the U.S. Army camp to the landing. The captain in command promptly ejected the man from the island, whereupon the U.S. district court ordered the captain’s arrest.

So the Federal government got involved again, ruling that the Army should continue to be the dominant authority on the island, the better to keep the British at bay.

But the citizens chaffed at this restraint, and the government of Washington Territory assumed all fiscal and judicial powers on the island, managed to arrest an army major, and levied a staggering $5,000 fine against the offending captain.

In short, the populace wanted an end to life under military rule.  They wanted freedom to live and the freedom to tax.  In response, the U.S. Department of State hastily obtained British agreement to lay the boundary dispute before the president of Switzerland for arbitration.

But certain parties were not ready to make peace.  In that post-Civil War atmosphere, many northerners were angry that the British had supported the South by building the CSS Alabama in 1862.  This screw sloop-of-war, acting as a commerce raider, had a remarkable 22-month career, in which she boarded nearly 450 vessels, captured or burned 65 Union merchant ships, and took more than 2,000 prisoners without a single loss of life on either side … all without ever visiting a single Confederate port.

As recompense, Anglophobic members of Congress not only demanded huge indemnities in payment for the Alabama claims, but the surrender of all British Columbia as well.  In response, the British reacted by backing away from the boundary negotiations with great rapidity.

By 1871, however, the atmosphere was ripe for another try. And as British and American diplomats came together to settle the Alabama claims and other outstanding matters, the problem of the San Juan boundary was quietly handed to Kaiser Wilhelm I of Germany to arbitrate.

The Kaiser referred the issue to a three-man arbitration commission who met for nearly a year in Geneva. Finally, on October 21, 1872 (more than 13 years since the incident with the pig), the commission ruled in favor of the United States, establishing the boundary line through Haro Strait. Thus the San Juan Islands became American possessions and the final boundary between Canada and the United States was set.

On November 25, 1872, the Royal Marines withdrew from San Juan Island, and by July 1874, the last of the U.S. troops had left as well.

As to Lyman A. Cutlar, he removed to the mainland early in the affair, apparently caring more for peace and potatoes than posturing and politics.  He died on April 26, 1874, at age 40, leaving no family.  His possessions, appraised at $489.75, were auctioned off, with the fancy English double-barreled shotgun bringing $14.00.  It is currently on display at the Washington State Historical Museum in Tacoma.

Which all goes to prove what?  That Lyman A. Cutlar was a hothead … and not the only one in the story?  That thanks to cooler minds, bloodshed was averted?  Or simply that history happens?  

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Taking off from the third interpretation, I look around to see what history is happening in the world now and I see above all the rapid development of China.  While here in the U.S. we struggle to regain positive economic growth, this year China’s economy will grow 8% … maybe more.

Which means China is a great place to find growth companies!  

One of my long-term favorites in the country is Ctrip.com (CTRP), which has the country’s biggest travel-related Web site.  The company’s revenues were $99 million in 2006, $160 million in 2007 and $215 million in 2008.  Earnings were equally impressive.

The stock came public in 2003 and had a great run into 2008, with the stock’s progress mirroring the company’s.  But when the global recession took hold, the stock plummeted from 71 to 16, par for the course for a fast-growing highly respected enterprise.

Today, with the economy back on the rails and expectations for Ctrip’s growth once again healthy, the stock is working hard to recover lost ground.

In fact, a month ago, when the stock was trading at 38, Paul Goodwin, editor of Cabot China & Emerging Markets Report, made it his featured recommendation, writing, “At the heart of Ctrip.com’s success is its excellent Web site. If you go to http://www.ctrip.com, you will arrive at a page that asks you to choose your language, with the choices being Mandarin, Cantonese and English. The layout is clean and easy to understand, with tie-ins to packages, car rentals and the company’s award-winning call center. China has developed to the point at which it doesn’t make a lot of sense to describe a company as “the Chinese Google” or the Chinese anything. But looking at this Web site, you can see why Ctrip.com was known for years as “the Chinese Expedia.”

In the first quarter, the company saw revenues grow 21% to $58.6 million, while earnings climbed 19% to $0.32 per share.  

After that report, the stock climbed as high as 48, but it’s now pulled back to 42, and I think it’s a decent buy here.
Yours in pursuit of wisdom and wealth,

Timothy Lutts
Cabot Wealth Advisory

Editor’s Note: Cabot China & Emerging Markets Report Editor Paul Goodwin is our in-house China expert … let him be your guide to this profitable sector! Paul is the man behind Cabot China & Emerging Markets Report success! The report recently beat out 140 newsletters to be named the #1 newsletter for the past five years by Hulbert Financial Digest! The Report surged 22.2% for the five years ending May 31, 2009, trumping the -1.26% return for the DJ Wilshire 5000 during that time.  Paul knows that the emerging markets are growing far faster than the U.S., providing ample opportunity to early investors. Don’t let this opportunity pass you by.



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