God Only Knows

To the question, ‘why must stock prices fall?’ comes the answer: ‘Because they went up.’

The reply is not my own, but comes from Jeremy Grantham, chief investment strategist from Grantham Mayo Van Oterloo with $21 billion under management.

“Stock prices tend to return to average,” he says. “What’s driving stock prices down is that they went up.”

What could be simpler to understand or more elegantly stated? And yet, dear reader, that is how the world works – simply, elegantly, and incomprehensibly.

As inferred from my notes above, Elizabeth has joined me on this trip to London. What a rare delight to have my wife at my side on a business trip! What couple ever divided its labor more exquisitely. I work; she rides. I earn, she spends. I write; she reads. I worry about the important things: money, politics, global warming, war; and she thinks about the trivial problems of everyday life – what we eat, where we live, how we spend our money, the children, the drapes, culture and beauty.

We make such a perfect team…as if designed to fit together by nature…or God himself.

Elizabeth chose a play for us last night: ‘God Only Knows’ written by a fellow named Whitemore, which promised cultural and intellectual enrichment.

The play opens with a discussion of the LTCM hedge fund debacle of the late 90s.

You will recall that LTCM blew up after its Nobel prize winners miscalculated the odds on certain very risky investment strategies. Things that were supposed to be ‘once- in-a-billion-years’ events actually happened within a couple years after the hedge fund began operating.

“People just want to believe that they can do the impossible,” explains one of the characters on stage. “They want to feel they can do what you’re not supposed to be able to do.”

The two couples, relaxing one evening while on vacation in Italy, are interrupted by the arrival of another Englishman…a man on the run. Who is he? What is he running from? What has he done?

It develops that the man is a scholar, Humphry Biddulph, who has been working on some old documents in Rome. Into his hands has come a particularly explosive piece of paper – a letter from a Roman senator, written in 110 years A.D. The letter, whose authenticity is uncertain, reveals that the Senator’s grandfather had participated in what – if true – would have been the biggest con of all time. He claims that the Romans staged the resurrection of Jesus, by getting a lookalike to pose as the Nazarene after the crucifixion.

Why would the Romans do such a thing? Because they found it difficult to keep their subject populations – Jews, Gauls, Britons, Levantines, Aramatheans – under control. To a group of people who were the enemy of so many other groups, “Love Thine Enemy,” had an appealing ring.

And so, according to the letter writer, the Romans conspired to pull off the greatest scam in history, creating a phony resurrection for the man who preached turning the other cheek.

And what a spectacular success! The martyred Jesus was a big hit – bigger than Che or Abraham Lincoln. Within a few centuries, Constantine made Christianity the religion of the Empire. Now the sandal was on the other foot. The Holy Roman Catholic church, to which your editor pretends membership, then began to persecute non-believers and suppress contrary opinion.

“But what does this have to do with you…what are you afraid of?” asks one of the vacationers.

Ah, glad you asked. I made the nearly fatal mistake, explained the man on the run, of revealing the letter to a Roman Catholic priest.

“Don’t you see?” he continues, “If the letter is authentic, no resurrection. No resurrection, and the whole of Christianity rests on a lie.”

The owner of the letter died in a mysterious car crash days later. And now, ‘they’ are out to get our hero, Humphry Biddulph… Don’t you see, dear reader?

Whitmore spends the second half of the play telling us that Christianity is all a big lie. And that the Roman Catholic church has been ruthlessly suppressing the truth for 2,000 years.

“Jesus could not have been born when they say he was born…” explains Biddulp, “and there is no historical evidence for the ‘massacre of the innocents.’ Besides, Herod was dead 4 years before Jesus was supposedly born. And the Virgin Birth? Completely made up. The word used in the original testaments meant ‘young woman,’ which was mistranslated into Greek as ‘virgin.’ And the doctrine of transubstantiation, and the Holy Trinity, celibacy, and Papal Infallibility – all of it invented by the Roman Catholic Church…and all of it nonsense.”

“Faith,” he continues, spitting out the words, “is just an excuse for cowardice and irresponsibility. People don’t want to face up to the truth.”

If only The Truth were so easily faced. Blabbery Trotskyites and self-assured playwrites could produce reams of it – enough to overwhelm whatever secrets might be hidden in Vatican vaults.

But truth is as hard to suppress as it is to disclose. Even in the 21st Century truth does not expose herself readily. She hides as easily in a mountain of information as a desert of ignorance. Even in this Information Age, dear reader, there are questions for which the World Wide Web hath no answers, and problems for which not even the world’s best known public servant since Pilate hath no solutions…

And for every tiny fragment of truth some bloody fool went bankrupt and mad…was crucified by his own hand and now rants in some particularly sweaty corner of Hell.

The vacationers offer only token resistance. “Religion is very useful,” says one, “without it there would be moral anarchy.”

“I don’t care what you say,” says another. “I still believe.”

What a pity. It would have been such a better play if the others had put up a good fight. Catholic scholars and bible thumpers alike have been arguing with these points for centuries. They’ve become very good at it.

“What that play needs is a good Jesuit,” Elizabeth remarked.

More tomorrow…on God, Man and Greenspan…

Bill Bonner
London, England
June 7, 2001

*** What to make of it all? “The evidence is growing that the bear market is over,” writes my friend Mark Skousen. “It’s time to buy again.” The Wall Street Journal reports that people are buying equity mutual funds again. Investors are overwhelmingly bullish. And even Amazon said it would make money – next year, of course!

*** But a look at yesterday’s headlines makes one wonder. “Productivity drop biggest in 8 years,” says the Milwaukee paper. “Retail sales rise 2%, less than expected,” reports the LA Times. “Raft of data show weak U.S. economy,” declares a Reuters story. And with admirably able alliteration, USA Today says “Service sector sinks for 2nd straight month.”

*** Is it really a new bull market…or just a bear market rally – a trap for unwary investors? Or does it matter? Here at the Daily Reckoning we aim to buy low and sell high. We look for bargains. The S&P today, selling for nearly 28 times earnings – twice its normal level, is no bargain.

*** Ending a four-day winning streak, the Dow lost 105 points and the Nasdaq yielded 16 points.

*** Despite a decade-long economic malaise, Japan remains the world’s largest creditor nation for the 10th consecutive year, its Ministry of Finance reported.

*** Meanwhile, Japan’s outstanding liabilities – i.e. money it owes to someone else – declined 4.6% last year. In all, an impressive performance for an economy that most consider to be struggling.

*** Mysteriously, the currency of the world’s largest debtor nation – the USA – remains the envy of the currency world. So certain is its strength that investors seem fearful of holding anything else.

*** Distressing news is pouring in from the culinary world… literally. It seems that some high-end French Burgundy wines are no better than screw-cap jug wines. In fact, the jug wines may be better. Mon Dieu! Have the French lost their touch?

*** Not exactly. USA Today reports that certain unscrupulous wine purveyors “mixed cheap swill with generic wine and poured it into bottles bearing the labels of top- quality vintages. In some cases, old wine set to be made into vinegar was mixed with other lesser-quality vintages and passed off as medium-quality wine. To people in Beaune, Burgundy’s wine capital, these alleged acts bordered on heresy.”

*** Why such behavior should be considered heresy might mystify a few Wall Street types. On Wall Street, packaging low-quality “swill” and selling it as something of great value is called launching an IPO. The practice is legal and it happens every day.

*** In other distressing culinary news, we may be on the verge of an international caviar crisis! 33 tons of the world’s finest caviar from the Caspian Sea sits in cold storage somewhere in Kazakstan, prevented from leaving the country by a United Nations body that believes caviar- producing sturgeon are being recklessly exploited.

*** Without a trustworthy Burgundy to drink and no fresh Beluga caviar to eat, how does one celebrate occasional joys like a rising stock market? Since stocks fell yesterday, we may hold off answering this vexing question, at least until tomorrow. In the meantime, a very cold beer and a big bag of potato chips is not a bad alternative.

*** “With prices back at $30 a barrel,” writes John Myers “…and North American oil reserves standing at 60% of where they stood in 1970, everyone is beginning to acknowledge the crisis in energy. What they don’t know… the same is happening with world supplies of iron, nickel, aluminum, copper, chromium, lumber – even our soil. In the end they will run down just like petroleum. Petroleum is just the first and most noticeable.”

*** Last Tuesday’s Daily Reckoning highlighted J.P. Morgan Chase’s vulnerability “to a weakening economy and struggling capital markets.” Citing a story that appeared on grantsinvestor.com, we noted that the firm’s investment banking revenues fell 22% year-over-year in the first- quarter.

*** Yesterday, J.P. Morgan admitted publicly that it is experiencing tough times. The company warned that its venture capital operation faces large losses and its investment banking operations will yield disappointing results this year. Hmmm…I guess the folks at J.P. Morgan read the Daily Reckoning.

Eric Fry

And from Bill… in London…

*** The Times reports, barely concealing its contempt for American juries, that a California man who smoked two packs of Marlboros a day for 40 years has won a $3 billion judgment from Philip Morris. But the man – who says he didn’t realize until the 1990s that smoking can be dangerous to your health – is either a liar or an imbecile. PM did the world a favor. The jury gave the award to the wrong party.

*** Also on page one of the Times, we find that “tea cosies are posing a growing threat to human health; the toll of accidents caused by humble teapot-warmers almost doubled in a single year.” Mark Henderson, Science Correspondent for the Times, reports that “Britons also need to be much more careful when getting dressed…trouser accidents accounted for five times as many serious injuries as were caused by chainsaws.” It can’t be long before the tort vultures are on the case. Short the Gap and Levi Straus?

*** What would the papers do without tort lawyers? Another report tells of two detectives posing as undercover criminals making a big drug purchase. The two reached into their bags to hand over the money and discovered that the cash was stamped “West Midlands Police.” Well, you can imagine the looks on their faces as their cover was blown. The two were shot in the legs by the drug dealers…and they now seek damages from the police department.

*** But at least my luck held up pretty well yesterday. “The pound sank to its lowest level against the dollar for 15 years,” reports the Times as my wife, Elizabeth, heads out on the town with my credit card.