A Landfill of Investment Propaganda

 

There's a new form of propaganda out there and it isn’t emanating from Wall Street. Every day, thousands of radio talk show hosts interview hundreds of authors, columnists, financial experts, and economists in an effort to entertain growing audiences throughout the nation. Financial and News Talk Radio stations attract millions of advertising dollars from sales reps creatively barkering a wide variety of investment snake oil. Radio guests have the “pleasure” of listening to an endless stream of ads containing economic predictions, chaos hypotheses, doomsday messages, financial panaceas, and other landfill quality scenarios. The problem is that these “sideshow” fringe products and Barnumesque speculations are being given some credibility by talk show hosts and listeners alike!

 

Yesterday, a client told me not to buy any fixed income securities because the “long bond” interest rate was rising, and it was better to sit on cash (at 1.5%, maybe) until rates started to go down again. He had heard about it on talk radio. In recent weeks, listeners to radio shows have called in to ask me: “How much of your clients’ portfolios do you place in gold?”, “How do I go about finding investments denominated in Euros?”, and “How much should I be paying for investment diamonds?”

 

In an afternoon radio interview on the 23rd, I was asked what I thought about the “fact” that the United States has become a “Debtor Nation” and how will we be able to compete with a European Economy (of how many countries?) that has a GNP larger than our own? One of the break time commercials predicted that the dollar would become “valueless” in just a few years. Another suggested that it was a fairly simple matter to make a fortune in currency futures.

 

In the late 1990’s, a Wall Street selling a “new economy” turned investors into speculators. Today, a splinter group of speculation peddlers are painting the strongest economy on the planet as failed in an effort to sell their sideshow products as safe alternatives to more conventional investment mediums...and not an Economics, Ph.D. among them! Even those awful Mutual Funds are safer than precious metals, futures of any kind, currency trading, options, overseas investing and so on.  The Euro is the Yen of twenty years ago…same scenario, same hype, nothing happened. 25% of $100 is $25; 5% of $1,000,000 is $50,000. Which is bigger and better? And when will China surpass Europe as the chic economy?

 

I'm no International Economist, but I've put in enough classroom hours to understand that these things are cyclical as well as statistical, with three basic elements: (1) There has always been a natural migration of funds (and attention) to “hot” economies anywhere in the world. The European Economic Community is no different from Japan, and Indonesia, etc. Smart companies participate. (2) Politics of the moment. The United States has made some rather unpopular moves recently and remains a target of extremists. Other countries can't afford to align themselves with us publicly. Again, smart companies diversify their interests throughout the growing world economy. (3) Our interest rates and inflation rate are among the lowest in the world. Smart foreign companies would rather invest at a short term 7% in Germany, for example, than at 3% in government bonds here, another piece of the weak dollar puzzle.

 

The experienced perspective sees opportunity in everything, and what we have in our economy today is nothing more than a financial “circle of life” scenario without the animated characters. Despite all the hype and criticism, the US dollar, the US economy, and the United States standard of living are still King! Find the profitable international companies and let them make you money…you can't do it yourself, and you can't carry your bullion on vacation.

 

Talk show answers: I've never purchased the long bond, nor have I ever been victimized by higher interest rates, which, for the most part, are good for investors. The fixed income portion of a portfolio should always be added to. It’s called compounding. A “debtor” nation owes money to the government of some other nation. It has nothing to do with securities or the balance of payments. The United States is the biggest net creditor nation in the world. No gold; no Euros; no diamonds. We have individual companies with gross revenues higher than the GNPs of most of the world's countries. The bigger the GNP of other nations, the better for all nations. This is not a competitive sport. The dollar may purchase fewer quiches in France, but that has no bearing on the number of burgers you can buy here. I guess we could fix everything by raising interest rates and increasing inflation to bolster the dollar…hmm.

 

I wonder why they haven't restarted that 80’s rumor (the last time gold got popular, along with inflation, double digit interest rates, and a stronger dollar) that the FBI was doing a door-to-door search to confiscate our $100 bills?