GOD ONLY KNOWS

THE DAILY RECKONING

LONDON, ENGLAND

THURSDAY, 7 JUNE 2001

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*** Mr. Market takes a breather... But from what? Bull
market? Or bear market rally? Does it matter?

*** Pound drops to 15 year low against dollar - thank
God...

*** Japan still world's largest creditor... bad caviar, sad
burgundy! and more...


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*** 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." (see: These ARE The
Good Old Days
http://www.dailyreckoning.com/body_headline.cfm?id=1205)

*** 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 Levy 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 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.

* * * * * * * * * Advertisement * * * * * * * * *

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* * * * * * * * * * * * * * * * * * * * * * * * *

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 '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 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. For 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

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