The Heart's Dupe, Part I

The Daily Reckoning PRESENTS: There are little lies we tell ourselves, and then there are big, mass illusions that sometimes cloud our rational way of thinking. In part one of his essay, Bill Bonner discusses the phenomenon of public spectacles and the great lies and/or small fibs that are necessary to perpetuate them. Read on…


Omnes. Gentes. Alleluia.

Verily, verily, I say unto you. Except a corn of wheat fall into the ground and die, it abideth alone; but if it die, it bringeth forth much fruit.

– Jesus of Nazareth

I stand before you a man who knows no more about his subject that you do. Maybe less. The older we get the less we know about anything. Which is to say, as we come to collect more and more facts, opinions and ideas, the less sure we are of any of them. Besides, we have more and more experience with facts that turn out not to be so.

“Dad, I already finished all my homework,” says Edward, 13.

“Honey,” says our wife, Elizabeth, “I’ll be ready in 5 minutes.”

“We’ll have the car fixed by Wednesday, Mr. Bonner; Thursday at the latest.”

You’ve heard facts like these before, too.

“The brain is merely the heart’s dupe,” said French writer/philosopher La Rochefoucauld, who is quoted as much as any other French writer. We’ll come back to this idea, but I first just want to call attention to the circumstances in which he wrote. Apparently, he would stand at the bottom of the stairway, waiting for his wife to come downstairs so they could go out to dinner. His wife must have been like Elizabeth. So, he had a little cabinet installed at the bottom of the stairs, in which he stashed a pen and a small pad of paper. He is said to have written some of his most important sayings while thus waiting for his wife to get ready.

“The brain is the heart’s dupe.” Elizabeth believes she will be ready in five minutes. Edward believes he has done his homework. And George W. Bush and Tony Blair may have actually believed that there were weapons of mass destruction in Iraq. Reason is slave to our wishes. Our minds work for our desires…not the other way around. So you have to be suspicious of what people say to you…even when they call them ‘facts.’ More importantly, you have to be suspicious of what you say to yourself!

But let us return to the facts that turn out not to be so. “Global freezing”…who can forget that? It was widely believed in the 1960s and 1970s that the planet was getting colder. When the oil shock of 1973 came along, “we will all shiver in the dark,” said the pundits. They must have thought they knew what they were talking about. The oil price was supposed to go to $100 a barrel. Of course, it collapsed down to $10 a barrel and stayed there for the next 20 years. And then, there was the Y2K scare of 1999…when the world’s computers were supposed to shut down. Gary North certainly believed it. And then ‘Dow 36,000’, was just around the corner in the late ’90s. Stock prices had to keep rising, we were told, because there were so many aging people who must invest in the stock market. At the rate of growth since, however, it will take 107 years to reach 36,000.

But these are different kinds of facts. They are not the little white lies we tell each other and ourselves. These are more like big, mass illusions.

And oh yes, remember ‘The Great Crash of 2004?’ This was one of our own mistakes. Even at the time we acknowledged that it was just a guess. But it seemed like a decent one. It was clear to us that couldn’t really get rich by borrowing and spending. Some day, the borrowing and spending had to stop. And when that day came, a lot of people who had come to depend on borrowing and spending would be in deep trouble.

But that day didn’t come in 2004…or in 2005…or in 2006.

Will it come in 2007? We don’t know. We’ve become a doubter. We’ve become a wonderer. We’re too modest to know. It is not given to man to know his fate. At least it isn’t given to us.

We discovered our modesty during the long bear market in gold from 1980 until 1999. There is nothing like a 20-year bear market in your favorite commodity to hone your sense of humility. Year after year, our stock of gold went down in price. From over $800 down – while the dollar lost more than half its value too! Put together, the loss was about 85% to 90%.

But as we were saying, life is full of tradeoffs…of gives and takes…and yins and yangs. As our gold went down, our stock of humility rose. Dollar by dollar, year after year, we became poorer but wiser. It’s a form of tuition…like paying college tuition for your children. Each year you pay $20,000…$30,000…$40,000…in order to make your children wiser. And each year, you get wiser – you realize that your children have been going to beer parties and that your money is largely wasted.

Wisdom costs. You pay…you suffer…you sweat and strain…but you become wiser.

Frankly, we would have rather had the money. But since we were flush with humility at the end of the period, we had to make the most of it. A man has to make the most of what he’s got. A handsome man looks for mirrors. A well-bred man thinks that it is class that counts, while a rich one measures himself in dollars or pounds. But a man who has just lived through a 20-year bear market sees humility as a vital asset; it is all he has left. He comes to see that the proud investor is the one who will take the biggest losses…and comes to believe that the meek will really inherit the world; they just have to wait for those arrogant SOB’s to drop dead.

Which is really what is behind the gloom mongering you hear in the financial press.

We don’t get a chance to talk to normal people very often. We’re too gloomy.

“They shouldn’t let you give speeches, Dad,” says our son Henry. “You’re too depressing. And don’t even think about volunteering for one of those suicide prevention hotlines. People would call up and you’d make them even more depressed. They’d probably kill themselves…even people who got the wrong number. People would call up to order a pizza…and end up blowing their brains out.”

The reason Henry thinks that we are so depressing is that tradeoff we mentioned earlier. For every glass that is half full, there’s one half-empty we remind him. If you don’t do your homework now, you’ll have to do it later, we tell him. You don’t get something for nothing. This sort of give and take goes all the way down to the deepest, darkest roots of our situation here on Earth. When you are born, you are full of life. It is all ahead of you – years of energy and excitement.

But you use them up…you trade them off for experience, wisdom, money. Little by little, day by day, year by year, your life gets used up…until you are all experience…all wisdom…all memories…and you have no life left. That is when your life is all behind you…and there is nothing left in front. We are, as Sophocles put it, nothing but a ‘deathward going tribe’ after all.

This is just a way of describing how the world really works. It’s not just a matter of pulling levers and doing math. You can turn all the knobs and pull all the levers you want; you can’t change the nature of life itself. You still can’t get something for nothing. Instead, you have to give something up…you have to invest time and money. There’s no other way.

The only exception is the grace of God. God can do what he wants.

But what I’m describing is a world governed by moral rules as well as physical equations. Water boils at 212 degrees Fahrenheit…but so too, when you sow the wind, you reap the whirlwind. The yield on the long Treasury may be 4.74%…but there are times when it is better to ‘neither a borrower nor a lender be.’ You may be able to get away with cheating a client, but ‘do unto others’ is a better business practice. And it may be true that stocks will go up this year, but generally, you want to ‘buy low, sell high,’ not buy high and hope to sell higher.

‘Everything is moral,’ said Emerson. He meant that there are rules, principles, lessons that we ignore at our peril. And one of the chief of these rules (or observations) is simply that, over time, everything decays…everything dies. Tout casse, tout passé, as the French say…everything breaks up and passes away. That too, is just the way it works. ‘No tree ever grows to the sky,’ they say on Wall Street. Nothing lasts forever – and certainly not a bubble in the financial markets. Even granite eventually is worn down to fine sand. Everything breaks down; everything degenerates.

Even the church…our religious organizations…are worn down. They degrade…and are degraded. They regress to the mean. They are cheapened…and make fools of themselves. They go through cycles…saints and sinners…bulls and bears…never wholly good, nor wholly bad, but subject to influence.

We are working on a new book, due to the publisher at the end of this month. In the book we try to show that the bubble pattern of a financial market has parallels in other parts of collective life, in what we call ‘public spectacles.’

Now, the critical element of these public spectacles is that people forget the moral rules. They begin to think that they can get away with things…that they can get something for nothing…or that they can do something unto someone else that they wouldn’t want done to them…and not have to answer for it.

Public spectacles follow predictable patterns, we noticed. They begin with lies…typically, the lie that it is a New Era where the old rules no longer apply. Then, they progress to the farce stage…in which the lies begin to catch up to them. Finally, they end in disaster. You can see this pattern playing itself out in Iraq, for example, today. Or in World War II…Hitler’s lies – racial superiority, the need for Liebensraum (living room) in the East, etc. – soon were followed by absurd programs and torchlight spectacles…and later ended at Stalingrad and Berlin.

Large public spectacles require large lies. Small ones need only fibs.

In this light, we watched the latest developments in our own dearly beloved Episcopal Church in America these last few years. We wondered what stage of the public spectacle the church had come to.

First, they rewrote the prayer book. Remember the famous line in which Jesus says: “Follow me and I will make you fishers of men?” They were so eager to make it politically fashionable – that is, by taking out all references to ‘men’ – that they rewrote it as: “Follow me and I will make you fish for people.”

What that means is a matter of emphasis and diction. I will make you FISH for people, is one thing, in which fish is meant to be a noun. As in, we will all become catfish. Or, fish could be a verb. In which, we are forced to fish, as though we were slaves. Or you could put the emphasis on the people…in which case we can imagine a hook through our jaws.

It reminded me of the headline in one of the tabloids following one of the endless sex scandals in London involving Boris Johnson. “Bonking Boris Made Me Pregnant,” it said. Again, you could read that in a number of different ways, depending on where you put the emphasis. We’ll let you play with it yourselves.

But both of these little items suggested to us that we were in the farce stage of public spectacles. The Episcopal Church was making a fool of itself…and so was England’s minor intelligentsia.

Then, just last year, the Episcopalians were at it again. The heirs to the Councils of Nicaea and Constantinople met in solemn session with pink buttons on their lapels that said, “It’s a girl” on them. They were glorying in what they considered the greatest achievement in Christendom since the resurrection: the election of a church primate without facial hair.

The Right Reverend Katherine Schori, the “girl” to whom the pink badges referred, spoke of “Mother Jesus,” a thought new to us and so confusing, we just had to ignore it. Now, we have all the normal politically unacceptable prejudices, but still, we don’t really care whether church leaders shave or what they do in bed; we don’t think about it. What bothers us is that the church hierarchy seemed to think of little else.

To be continued…


Bill Bonner
The Daily Reckoning
January 12, 2007

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).

In Bonner and Wiggin’s follow-up book, Empire of Debt: The Rise of an Epic Financial Crisis, they wield their sardonic brand of humor to expose the nation for what it really is – an empire built on delusions. Daily Reckoning readers can buy their copy of Empire of Debt at a discount – just click on the link below:

Empire of Debt

The news continues to be surprisingly good.

At least, it is surprising to us. We think it ought to be bad.

But for the moment, the bulls have nothing to complain about. Yesterday, the Dow hit a new high at 12,514. This is almost exactly seven years after it hit another landmark high…about 1,000 points lower. Let’s see, that makes about 140 points of gain per year. At that rate, the Dow really will reach 36,000 as forecast – in the year 2114! We can hardly wait.

Also in the news, the Fed says it is comfortable with the rate of inflation…meaning, there is very little of it. True enough. The inflation is in the asset market, and no one is complaining about that. When the prices of apartments in London or art in New York or companies in Bombay go up…who complains?

And now the National Association of Realtors even comes in with more good news: The correction in the U.S. housing market is OVER, it says. Of course, you don’t ask a barber when you need a haircut…and if you think the NAR is a disinterested analyst, well…you might just as well take your investment advice from Wall Street…or your economic outlook from the Fed.

But want more good news? Jobless claims plunged last week…the dollar is actually rising…and David Beckham – London celebrity and soccer player – is going to Los Angeles, with a $250 million contract. Who does this guy think he is – a CEO or something? Maybe a hedge fund manager. Beckham is married to another celebrity – Posh Spice. The duo, Posh and Becks, are regular grist for the British tabloid mill.

It’s all a little bit too much for us. How could a soccer player be worth so much? In America, no less. We didn’t know soccer players in the United States were worth anything…let alone a quarter of a billion dollars. And we see in the news that the Hilton heiress charges $1 million to show up at a party.

But why would anyone want her at a party at all? And why would anyone care about Posh and Becks?

Alas, we don’t have time to think about it this morning…we are rushing off to give a speech to hedge fund managers and investment bankers. Each year, St. Michaels, an Anglican church in the heart of the city, invites a speaker to address the faithful. Below…you will find what we intend to say…

More news:


Chuck Butler, reporting from the EverBank world currency trading desk in St. Louis…

“You know, yesterday I even said that the recent data indicated to me that the BOE ‘should’ hike rates now. But I, and the markets, truly thought they would wait… But why wait? I’m all for ‘going for what you want now!’ So… Kudos to the BOE!”

For the rest of this story, and for more market insights see today’s issue of The Daily Pfennig


And more views:

*** The news may all be good, but the outlook is not so good, according to economist Gary Shilling. He says we face 12 reasons to worry.

“Housing prices will collapse,” he says. Stocks will fall – maybe down below the trough of 2002. A major recession will begin. China will have a hard landing. And the combination of China and the United States – both in economic trouble – will drag the entire world into a slump. There, that’s enough reasons to worry for us.

*** Well, maybe Americans are getting a little sour…and maybe they aren’t. This war against terror seems to put a strain on their sense of humor. They can’t seem to help themselves; they want to take it seriously.

But we found this little item in the British press yesterday:

“I used an excessive amount of discretion,” a police officer explained to the Atlanta newspaper. At least he must still have a sense of humor. For it wasn’t an excessive amount of discretion that was the problem, but too little discretion and too much brute force.

Poor Felipe Fernandez-Arnesto was the object of the flat-foot’s force. The U.K. history professor was crossing the street in Atlanta, whereupon he discovered the keen desire of the city police to protect U.S. citizens from foreign jaywalkers. The professor either didn’t understand what the policeman was saying to him…or simply ignored him…but a few seconds later the middle-aged scholar was on the pavement…his hands wrenched behind his back, with cuffs on. Five cops wrestled the bespectacled intellectual to the ground…and locked him up for eight hours.

Thank God for the vigilance of the Atlanta police.

The Daily Reckoning