The Fraud of Selling Fear
If there is one thing that truly infuriates me in the investment business it’s the goofy gurus I call French Bears.
The French, you see, are intellectual descendants of the 17th century philosopher René Descartes. Descartes taught his fellow Frenchmen that consciousness somehow creates reality. His most famous quote is cogito ergo sum — I think, therefore I am. This of course is exactly backwards: it’s because Descartes is what he is, a human being with a brain, that he can think at all. The French have been getting things backwards ever since, always putting theory above reality. This is why the famous joke of the American and French businessmen rings true:
An American businessman is explaining how a business deal would work to a French businessman. When the American finishes, the Frenchman sniffs and dismisses the deal with a wave of his hand. “Well,” he says, “that may work fine in practice, but it will never work in theory.”
There can always be honest disagreement between people who are bullish or bearish on the market. But French Bears are not just folks who think the market is going down — they want it to go down and get really mad when it doesn’t conform to their theory. They want there to be an economic catastrophe, because those who didn’t believe them and follow their advice will get what they deserve and be financially ruined. The Germans have a name for this: Schadenfreude, malicious glee, happiness over the misery of others.
Most French Bears are simply scam artists posing as “investment gurus” who have only one product to sell: fear. Gold is Going to $850!! screams one scammer. The Second Great Depression is Coming!! screams another. You can profit from the coming impoverishment of the entire society! While millions starve and die, you’ll be laughing at them as you laugh all the way to the bank! You’ve seen the ads and the newsletters.
I despise people who sell fear. I also despise them because they don’t know their derrières from a hole in the ground.
A few days ago, I received this 24-page multi-color large-print 16″x11″ con job in the mail called the “Safe Money Report” put out by a French Bear named Martin Weiss. Your stocks and equity funds are about to be SMASHED by the deadliest banking crisis since 1932! Weiss hyperventilates. Your life savings will be wiped out as the Dow crashes to 5,000 and Nasdaq to 800 — unless you pay him money and follow his genius advice.
“Dear Investor,” Weiss begins. “The most cataclysmic destruction of personal wealth in our lifetimes — the greatest banking panic in 71 years — has ALREADY BEGUN!” And here’s the proof: “J.P. Morgan’s stock has plunged from $39.68 a share to a recent low of $15.26 per share… 61.5% of the bank’s market value has been wiped out!” More proof? Morgan Stanley is down 52%! “The Stocks of America’s Biggest Banks are in a Free Fall!” Weiss apocalyptically warns.
Remember, I just got this thing in the mail, on June 8 to be precise. It turns out that J.P. Morgan (JPM-NYSE) went to $15.26 last October. It’s been gaining ever since and is now above $34. As of today (June 11), Morgan Stanley (MWD-NYSE) is near a 52-week high, closing at $49.40. As with JPM, Morgan Stanley reached its low ($28.85) last October.
Guys like Weiss are not investment advisors. They’re con men. The crazy thing is how do they expect anyone with a three-digit IQ to buy their reports, newsletters, books, and tapes when a five minute search of Morningstar or Bloomberg on the Web discloses that what they are claiming is total nonsense.
Incidentally, this applies to folks peddling gold hysteria. The price of gold is a measure of doubt. Gold has no intrinsic value other than jewelry and certain industrial uses. A number of people bugged me when I told them a couple of months ago I thought gold was a lousy investment — and then it proceeded to rocket up, headed it seemed towards $400. But sure enough, that’s all over now. Gold closed today at $355.30 and is heading south.
We all know the key watchwords of the wise investor are “prudent” and “cautious.” But just as you need to avoid pie-in-the-sky get-rich-quick claims and Pollyannic optimism, so should you avoid their opposite. We all know not to buy into something “too good to be true.” Equally, never buy into something “too bad to be true.” Never get taken in by those engaged in the fraud of selling fear.