Friday, April 27, 2012

Weisenthal, Again

Here's the latest from that increasingly pro-government intervention web site, Business Insider. Joe Weisenthal writes:
Having watched investors rise and fall over the past several years, we have some advice for anyone in the money management game: Trade Keynesian but speak Austrian.
What does he mean by this? He goes on:
 You see, successful money management involves two things: Making money through good investments is part of it. But before you can make it, you actually have to go out and raise it.How do you raise it? Well there are all kinds of ways, but in the money management business, one popular way to do it is to tell a story. And one of the best stories to tell is the Austrian story that goes something like this....
The government is full of idiots. They confiscate your money and spend it on their crony, corrupt projects. They're ruining your kids future by making you go broke, and they try to stave off this day of reckoning by inflating bubbles and debasing the currency...That's one popular way to raise money: By speaking Austrian.

Well, Joe that's what the government does. Although,  I'm not sure what percentage of the money management industry takes this view. I don't think it is as much. as you imply.

And, Joe, you really don't know what the hell Austrian economics is. You write:
Austrians like Peter Schiff got clobbered in the financial crisis, because his framework couldn't comprehend how when the economy collapsed, gold plunged and the dollar surged. He's been calling for yields to surge, because the Austrian framework predicts that America's sky-high deficits will cause a debt crisis. 
Other investors who have been warning a reckoning for America, like Bill Gross and John Hussman, have similarly tripped up.
Of the three, only Schiff could be classified as close to being an Austrian. As for Gross and Hussman, I have never noticed any strong Austrian tendencies in their views.

Further, the notion that interest rates will push higher if the government issues more debt, is not an Austrian school insight, it is pure mainstream supply and demand economic analysis that is used far beyond the Austrian sphere. The more debt issued, the more upward pressure will be exerted on rates. That's what Gross and Hussman understand, and they are not Austrians.Or, Joe, do you have a theory that there is downward pressure on rates when the government issues more debt?

Oh yeah, Joe, you have this Keynesian theory:
So the game is to trade Keynesian. Government spending isn't a reason to dump bonds. Yes, GDP can improve when the government tries to stimulate. 
When government borrows, it crowds money out of the productive private sector and the money is used on wars around the world and for TSA security theater, real productive stuff, Joe. You should work for the Federal Reserve. Do you really believe that government borrowing for wars and security theater is increasing the productivity of the country?

BTW, your boss, still hasn't taken me up on my offer to institute, at Business Insider, employee rules that I find at various government agencies. If he is so infatuated with government that he is willing to give my money to the government, why isn't he willing to run BI with rules at such government entities.

Joe, I have a stack of government forms you can start filling out right here to see if you are really suitable for BI work. Call me anytime between the hours of 10:00 AM and 11:00 AM on Tuesdays and Wednesdays, if I don't pick up the first few weeks you should just keep trying.



  1. "...GDP can improve when the government tries to stimulate."
    I may be ignorant, someone here can clue me in, but the official GDP numbers include gov't spending, so are distorted by gov't stimulus, yes? Really what we should watch is private GDP, but is there such a number? Thanks.

  2. Actually, if you just bought and held Schiff's recommendations (mostly precious metals and some international/emerging stocks) vs. typical financial advisor stuff (stocks/bonds only), you'd be much better off with Schiff. So he didn't time the 2008 crash. Who did? Some traders, but certainly not the Keynesians or mainstream financial advisors.

    1. Yes, I have heard Peter talk about this, he had some newer clients who didn't know that much about how EuroPacific strategies worked, and when the crash happened, they panicked and sold out at the bottom. Anyone who didn't, following Peter's recommendations, ended up doing fine.

  3. "If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is."

    The above quote, brought to you by the man whom money manager Barton Biggs calls "a genius". I beg to differ.

  4. any company that would employ henry blodgett needs to be completely ignored. how he's not in jail for his filthy fraud during the internet bubble i beyond me. to call him a worm would be an insult to the worm...

  5. I am convinced that Joe is a troll. He is absolutely clueless and BI only allows him to write in order to get traffic from the Austrians/RP Supporters whom he provokes.

    1. ... and he keeps saying, "speak Austrian". Perhaps he means, "speak Austrian economics" but seriously, it would be like saying, "speak Mexican" referring to "Mexican food". Even if people get what he's saying, he just sounds dumb.

  6. I love hearing naysayers try to attack Peter Schiff and Austrian theory based on 2008 performance in, the 08-09 meltdown when everyone's portfolio went down.

    Pick a bigger time horizon. He'd already more than made up for any drops incurred in those years by the time 2010 rolled around...and you really can't be better positioned for the true meltdown than he is. (Legitimately, anyway.) I'd take Schiff's 2000-2012 portfolio over pretty much anyone else's. It's similar to (but I would assume even better than) Ron Paul's. Listen to these numbers and tell me who's done better and who needs to "learn a lesson":

    Making Money Is Controversial? Ron Paul's Profitable Portfolio

    Obviously Peter Schiff has made the vast majority of his clients much better off because of his investment recommendations. The only people who saw an overall decline were those who didn't listen to him when he was predicting what would happen for the better part of a decade and got in at the last minute before the collapse. (And even then, all they have had to do is hang on to what they bought (and buy more) and they've been sitting pretty ever since.)

    He was exactly right about the housing bubble, what caused it, the fact that it would burst, the fact that it was not confined to subprime, he was right about the financial institutions not being sound, he was right about fnma and fhlmc being insolvent, he was right about the complete lack of lending standards in the housing market, he was right about saying that what everyone else said was "wealth" was actually phony, and not any more real than the "wealth" of all the dot-coms in the Nasdaq in the late 90s. He has been right about government intervention making things worse and exacerbating the problems that caused the mess, he has been right about the Fed's monetary policy being inflationary and destructive, he has been right when he says destruction like 9/11, Katrina, tsunamis, and earthquakes do not create wealth and stimulate the economy.

    Watch him dissect the 2008-2009 mortgage 2006:

    Click here.

    And finally, here Schiff directly addresses people like the author of that BI piece.