Friday, November 14, 2008

Diogenes in the marketplce

It's said that the Pre-socratic philosopher Diogenes of of Sinope spent his days wandering through Athens carrying a lantern, in broad daylight . When strangers inquired as to his purpose he woud reply that he was searching in vain for an "honest man." His response was invariably met with ridicule.

Financial analyst Peter Schiff can be thought of as a modern day Diogenes, warning the financial talking heads that the impending collapse of the housing bubble would be devastating to our economy and the markets, and all the while being met with ridicule and scorn. Watch this clip, and marvel as those who ridicule him (including Reagan economic adviser and godfather of supply-side economics Arthur Laffer and Ben Stein, among others) heartily recommend that viewers buy up stocks that today are worthless and invest in financial sectors that have been devastated by the bubble's burst.

If you've ever wondered how investment bubbles get their start, and how they sustain themselves, this clip is a good first start toward answering that question (I would also recommend reading Galbraith's The Great Crash, for more examples from previous centuries.)

(Hat Tip: Andrew Sullivan)

1 comment:

ProblemWithCaring said...

Ah Peter Schiff...he is a true wise and rational oracle when it comes to the economy, but he sure put on his partisan hackery hat when it came time to endorse for president, speaking in support of John McCain even after the ''fundamentals are sound'' quote. I was surprised to see vitriol about Obama ''the FDR socialist'' from a man who's been gripping about Fed and US Monetary policy since after 9/11?? To a fiscal conservative guy like Peter, Obama must be scary, but he can't have honestly believed spending in a McCain presidency would resemble anything other than Bush 2.0 x 2.0. So was he just ''servicing'' his ''tricks'' at Fox?

Then there is the matter of his gold worship. I started really following him 2 1/2 years ago when I moved back to Cali & wanting to buy a house. He, like other very smart people, were talking about a ''housing bubble' and much of what they said about America's credit dependency made sense to me (or anyone else with a nose on their face in Sept. 2006). So I got his newsletter and right away I noticed that much of the information was gold propaganda. If people were scared shitless out of the stock market then they would run to commodities, specifically gold. For a long time he seemed right. Then peoepl did get scared shitless - about the stock market and the new ''gold bubble.'' Schiff may yet be proven right, but he was pushing hard about buying bullion even when gold was already over $1000. Really? I tend to agree with economist Nouriel Roubini and think that deflation will prolong a painful US Recession but we aren't going to fall off the monetary cliff - particularly with large scale focused government intervention as we see it now. I am a doom & gloomer to be sure, but I don't know what you have to be to think gold - not stocks but bricks and coins in Switzerland - is the only secure protection during this global economic crisis.

Oh yea..a paultard...


But seriously, props that these guys had the rational detachment to predict this onslaught, but I hope that their disasterous outlooks don't yet have to determine the policy solutions.