If you want to see a very funny video on how Economics works under a variety of conditions, click this link: Economic Conditions
There's another, less amusing video making the rounds these days which warns of all kinds of terrible economic catastrophes in a very reasonable-sounding voice, offered as a "public service" by an investment research firm that you had previously never heard of. The video narrator predicts that the very foundation of America will shake, bringing our way of life to a grinding halt. This tour of the future includes riots in the streets, arrests on an unprecedented scale, martial law, soaring prices of basic commodities, banks closing, credit cards not working, a collapse of our monetary system. The author purports to be the only analyst in the world who is paying close attention to the national debt, and uses the most basic scare tactics to induce people to... purchase his newsletter service.
What makes this particular video interesting is that its narrator, Porter Stansberry, has been in trouble with the U.S. Securities and Exchange Commission as far back as 1993 (Porter Stansberry), and he has been labeled a "stock hypester" in discussion forums among investors (Discussion Forum).
But this is only the most obvious example of a scam that is perpetrated by countless tips and toutsters--and even some of the economists that you see on reputable financial channels. It's a variation on an old game played by tipsters at the race track. They would scurry around to different prosperous-looking individuals in the stands, and whisper in their ears a hot tip that a certain horse would win, say, the third race. If that horse lost, that was the last these people would see of the tipster. But if it did happen to win, the tipster would be back, now with a "track record" (this is the origin of the term), to ask for money in exchange for more "sure winners."
In the economic world, this game is played by people who make a living out of predicting bear markets and economic disasters. In the financial services world, we refer to them as "permabears;" that is, people who are always bearish, always warning about a market collapse, no matter how bright the economic sun might be shining. Perhaps the most famous of these is Howard Ruff, whose "Ruff Times" newsletter advised its subscribers during the 1980s and early 1990s to avoid stocks, buy Swiss francs and Kruegerrands, guns, ammunition, dried food, bottled water and a place in the woods where all of this could be defended from the starving millions who, unprepared, would be fleeing the immanent economic collapse. Ruff's followers missed perhaps the best decade of stock returns that the world will ever see again.
How, exactly, does this game work? It's best described by a saying that goes around the investment community: "A stopped clock is always right twice a day." The tipster or economist makes dire predictions all the time, year-in, year-out, and, of course, most of the time the predictions turn out to have been way off-base. The key is to be persistent in your gloom, until you finally arrive at something like the 2008 market meltdown, when the permabears all hit the jackpot. Almost anything they said that sounded remotely dire came true, and suddenly they were geniuses, although no more than you would have been if, every morning, you yawned, stretched, looked at the sun rising in the sky and muttered dire public prophecies of catastrophe.
Now that these permabears have a "track record" of predicting the 2008 meltdown, you can expect to hear a lot more from more of them, telling you that since they predicted that the markets would go haywire and banks would collapse, you should buy their exclusive advice and avoid the next series of terrible events that they see right around the corner. Of course, every meltdown in history has been followed by an even-more-robust recovery, so the "services" of these permabears will likely cost you not only the price of their newsletter subscription, but also the missed years of positive return and economic recovery.
But never fear; you can count on their consistency, and eventually, at some unpredictable time after the markets have passed by their hapless subscribers, they'll be right again, and soon thereafter be sending out more viral videos in hopes of luring in new business and, for their next round of subscribers, destroying all faith in the system's ability to heal itself.
What a wonderful way to make a living.
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
