Confessions of a Newsletter Man

The Daily Reckoning PRESENTS: The newsletter business can be a fairly dangerous, even cutthroat business to enter into. Some people do it on a whim, and some do it merely because they have no reason not to. Bill Bonner reminisces about a few industry legends…


Was ever there a fairer métier than ours? The poor carpenter risks cutting his fingers or banging his knee. The used car salesman’s hearing goes bad as soon as he takes up his job: “No, I don’t hear any rattle,” says he. The foot-soldier gets sent to a Godforsaken hole like Iraq, where the women are covered up and the liquor stashed away.

But in our trade…hardly a newspaper or a day passes without a good laugh. And our only occupational hazard is a rupture of the midriff.

Perhaps we should explain how we got our start…and whence cometh this heightened sense of humor. Most people, after all, read the news pages for information. They lack the proper training and perspective to fully enjoy all the jolly news. The consequence is that they are always in danger of taking its humbug seriously and finding the people in its headlines important. If you really want to appreciate the media, on the other hand, you have to get close enough to see how it works – like a prairie dog peering into a hay bailer – but not so close that you get caught up in it yourself. The newsletter industry is perfect; it is part of the media, but it wouldn’t be mistaken for a reputable part.

More than 30 years ago, we began our career in the investment newsletter business. Those were the days! They were even more fun than today. Years of television, heavy-handed regulation, and waiting in line for airport security, have taken much of the lightheartedness out of American life. In its place, a kind of earnest timidity has settled over the 50 states. Everything is forbidden, or else it is compulsory – especially in the financial markets. You can barely talk about an honest investment without some ambitious prosecutor wanting to make a federal case out of it.

But back in the ’70s, the folks you met in the newsletter trade were even wilder and more disreputable than those that are in it today. At one investment conference, we remember an investment advisor from East Germany. He had escaped the Soviets’ grip by stealing a small plane and flying to the west. This alone made him a bit of a hero back in the ’70s. But his talk to investors endeared him further. He gave the following discourse:

“Take a look a zis chart,” he would begin, pointing to the bottom of what appeared to be a wave pattern. “Investing is reeelly verry simple. You just buy at zee bottom. Heere! Zen, ven ze stock goes up, vat do ve do? Ve sell. Heere! [Pointing to the top of the wave pattern.] It is reeelly verrry simple.”

“Well, what if the stock doesn’t go up,” asked an investor, fresh off the Great Plains and not prepared for patterns or people that weren’t perfectly straight.

“Ah…ve just keep our eyes on ze chart. If it doesn’t go up, ve don’t buy it.”

We don’t recall the man’s name. It was something like Dr. Friederich Hasselbauer. We were always a bit suspicious of financial advisors who used the ‘Dr.’ title, though many did. Especially when they spoke with thick German accents. We imagined that they had been conducting experiments on Jews before they entered the financial markets.

And then there was the Quack man. His name was ‘Red’ Robin. As near as we could figure, he liked ducks. So he called his financial analysis ‘The Quack Report.’ Apparently, he had once made his money paving airport runways. Then, in his 50s or 60s, he decided to devote himself to financial analysis and saving the world from a small group of criminal conspirators known as the Bilderburgers, who were in cahoots with the English government. Once, flying on the Concorde across the Atlantic, ‘Ol ‘Red’ saw the U.K. Chancellor of the Exchequer, it must have been Lord Barber, on the same flight. He told us that he decided to confront his lordship right then and there, when he had the chance.

“I just went up to him and I said, ‘I’m on to you…ol’ buddy…”

It must have been quite a scene. ‘Red’ Robin was a funny-looking fellow with a paunchy stomach who always dressed in orange coveralls – which made him look a little like a red-breasted sapsucker. Why he wore orange overalls, we don’t know; perhaps they were a holdover from his days working on airport runways when he didn’t want the cement trucks to run him down.

Red also had funny ideas about publishing investment advice. He offered readers a ‘Lifetime Guarantee’ – they could have their money back anytime. But then, he added a caveat: ‘My life, not yours.’ As it turned out, the guarantee was less valuable than readers imagined – or Red himself had hoped. He was gunned down on a beach in Costa Rica, we were told.

He happened to be there on business with his partners – a shady pair who made their living selling business franchises to unwary investors. It turned out that the two had taken out a large insurance policy on him. After he was shot, the two partners put him in their car and drove to the hospital. It was a long, slow drive, according to industry legend. Poor Red didn’t make it.

Many stories surround the partners. One was a huge man called, let us say, “Professor Smith.” He could barely walk and was only able to get about with the help of two canes. How he came to be ambling along on a tropical beach with the Quack man, we don’t know. But equally implausibly – he was said to have had an affair with a young woman. When his wife found out about it, she demanded a divorce. The Professor realized that it would be cheaper to have her killed than to pay off a divorce settlement; so, perhaps with the help of his partner, the poor old lady was soon history. Then, Red Robin was history, and not too much later, the Professor too feared for his life. He sent out a desperate letter to a few newsletter gurus telling them that his partner was going for him next.

We do not report this as fact; we weren’t there. But what we are told is that his alarming epistle did not especially move the fellows in the newsletter business to whom he appealed. If someone were out to get the Professor, they figured he probably deserved it. Whether he had it coming or not, we don’t know, but that he got it soon after we have no doubt.

“Hmmm…” said a friend who had gotten his letter. “I guess he wasn’t lying.”

But that was the strange milieu in which we decided to make our career. What was delightful about it were the nuts and kooks, the charlatans and dreamers, the brazen hucksters and earnest geniuses that made up the industry. Here were thinkers whose thoughts were untainted by any trace of advanced doctrinaire theory, let alone rudimentary training of any sort. Here were mountebanks and scalawags galore…along with a few saints…dispensing market wisdom, stock recommendations, and macro-analysis so far reaching you needed a Hubble telescope to see where it came from. And here, too, were the sort of men whom rich widows were warned about. And the sort of theorists that made you wonder about the limits of human reason itself.

“There’s old A.J.,” a friend remarked recently, about a colleague. “He never stops thinking. Too bad. He should stop. Really.”

Thought leads to action. Which frequently leads to reconsideration and regret. Or, maybe not. Our friend, Gary North, began studying the possible consequences of the Y2K computer problem in the late ’90s. The more closely he looked, the more alarmed he became. He began writing about the subject, and the more he explored it…the more he thought about it…the more convinced he became that it would lead to a complete meltdown of modern society. He looked and he saw commerce coming to a stop. He saw trains that couldn’t run without electronic instruction. He saw cash machines frozen up. He saw power plants idled by their computer brains. And what would happen to all that electronic information – bank accounts, trading records, inventories – on which the whole financial world depended? He saw millions of people with no money…and then no food. He saw riots in the streets…and worse.

Then, he looked around and saw that he and his family were as exposed to the menace as everyone else. He decided to take precautions, moving his family to an isolated rural area where they would be safe from the apocalypse he saw coming.

Maybe he would be wrong, he reasoned. But what if he were right? The cost of being right – and failing to protect himself – could be catastrophic. He moved to a mountain hollow, buried provisions and began the countdown to the year 2000.

Of course, when the big day came…nothing happened. The clocks worked. The trains ran. The power was still on. Apparently, not a single cash machine failed.

People pointed and laughed. But was he wrong? What if the odds of a meltdown had been only 1 in 100 or 1 in a 1,000? Was he not right to give a warning…in the strongest possible terms? And wasn’t it partly because of him and others like him that billions were spent to correct the problem before January 2000?

Colorful eccentrics, careful analysts, cheerful conmen, and self-assured delusionals trying to figure out how things are put together – this is the world of investment gurus.

But guess what? The gurus are often right. True, some financial gurus have gone broke following their own advice. But many have gotten rich.

In the late ’70s, we undertook a study – with Mark Hulbert, who is still at it – of how well these financial gurus actually perform. We wouldn’t presume to summarize Mark Hulbert’s nearly 30 years of work; we will just tell you want we took from it:

There is no right way to invest.

Investment gurus are an original bunch. They come up with all sorts of systems, ideas and approaches. Almost all of them are successful – sometimes. There are a lot of different ways to invest and to make money. And often one that works spectacularly well in one period may collapse completely when the market changes course. So too, an approach that often works poorly under certain market conditions will work poorly in other conditions.

But generally, an investment advisor who works hard to develop and refine a system…and who sticks with it…can do reasonably well, sometimes. He can be a technical analyst…a chartist…a Graham and Dodd follower…even an astrologer. Almost any disciplined approach, pursued intelligently and steadily, can pay off.

We have a theory that explains why this is so. Investing is, when you get down to the basement of it, a competitive undertaking. If you do what everyone else does, you will get the same returns as everyone else. In order to get better returns, you have to do things differently. Investment gurus seem to be favored, in this regard, by their own originality and quirky self-reliance. “Sometimes right, Sometimes Wrong,” they say. “But never in Doubt.” Taken together, they are probably the most independent and contrary professional class in the world. And this contrariness, alone, seems to put them at odds with the great mass of lumpen investors, allowing them to make more – or, often less – than the common results.

By contrast, what seems to doom the average investor is the same mushy quality that seems to be ruining the whole country. He will wait in line – without a word of protest – while guards frisk girl scouts and old ladies for dangerous weapons. If the mob is large enough, he can’t wait to be a part of it…and fears being isolated from it. And he will believe any line of guff – no matter how fantastic – as long as everyone else falls for it also. Dow 36,000? House prices always go up? I.O. Neg Am mortgage?

A man who follows a newsletter guru has no guarantee of making money; but a man who follows this great mass of conventional investors is practically guaranteed that he will not.


Bill Bonner
The Daily Reckoning
February 2, 2007

Editor’s Note: Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of The Wall Street Journal best seller Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley & Sons).

In Bonner and Wiggin’s follow-up book, Empire of Debt: The Rise of an Epic Financial Crisis, they wield their sardonic brand of humor to expose the nation for what it really is – an empire built on delusions. Daily Reckoning readers can buy their copy of Empire of Debt at a discount – just click on the link below:

Empire of Debt

Howl, ye winds…crack, ye thunder…blow, ye professors and scientists!

In America the principle concern most people have is international terrorism. As extraordinary as that is, Europeans have an opposite and equally absurd worry – global warming.

We see it everywhere. Britain’s newspapers reported this week that the United Kingdom was having its warmest January in 50 years! The U.K. press warns of rising seas…scorching temperatures…tornadoes and hurricanes. And here in Paris, scientists have gathered from all over the world to drink champagne, gobble down fois gras, and frighten the masses with lurid tales of Worlds Gone Wild. Drought, desertification, storms, intense heat, melted glaciers, air-conditioning overloads!

One of the reports out this morning says that temperatures will rise from two to eleven degrees by the year 2100. What? Is that all? Hardly seems worth getting lathered up about. As for rising sea levels…the scientists have actually reduced expectations. Maybe only a few inches…from here to the end of the century.

But what is more shocking…that Paris bunch concluded that this climate change will continue for centuries into the future…and that there is nothing we can do about it. Still, there are calls for reducing ‘greenhouse gases’ in the hope that, maybe they’re not right on that point.

What to make of it all? Probably nothing. It may or may not be true that humans are causing the world’s climate to run hotter than usual. It is undoubtedly true that some people would like to get their hands on the thermostat…or merely use the issue to chivvy up their positions…their fortunes…or their social status.

Meanwhile, the price of oil – a prime suspect in the global warming story – nudged up again yesterday, to $57.30. Of course, a number of things went up – the Dow, for instance, hit a new record high of 12,673. And gold rose $5.10 to $663.

We’re getting a little bored with it all. While scientists, media, politicians and commentators all warn about the remote and sketchy dangers of global warming…we are almost alone in warning of the real and immediate dangers of economic cooling. Our Crash Alert pennant still flies, but investors ignore us – bidding up stocks…buying bonds…even plumping down big money for houses. We might as well be a lifeguard alerting the beach crowd to a dangerous undertow…while they frolic heedlessly in the surf ignoring us.

And consumers – the poor schleps should be running for high ground. Instead, they are enjoying the sun and liquidity. The latest numbers tell us that they continue to spend more than they earn – by a wider and wider margin. In December, personal spending went up 0.7%, while incomes rose only 0.5%.

And look at this: U.S. manufacturing is failing. The Financial Times says it is, “on the brink of recession.”

We know they must be on the brink of recession in Detroit. Toyota and Daimler are both selling more cars in America than Ford, according to yesterday’s headlines. And Ford just registered a breathtaking loss of more than $1 billion per month, for 2006. And now comes word that sales are off 19%.

Oh well…what to worry about, dear reader? World Gone Wild? Or Market Meltdown? Take your pick.

More news:


Chuck Butler, reporting from the EverBank world currency trading desk in St. Louis…

“U.S. consumers continue to borrow and spend at a record pace! The result? The U.S. savings rate has fallen to a 74 year low. The last time the savings rate was this low, was in 1933 during the Great Depression.”

For the rest of this story, and for more market insights, see today’s issue of The Daily Pfennig


And more views:

*** Addison and Short Fuse journeyed to the belly of the beast this past week…and came back with some interesting reports. Short Fuse explains, below:

“We went to Washington, D.C. this past Wednesday, to start laying the groundwork with many of the people that we hope to either interview or get input from for our documentary (yes, it is still happening. We have been working slowly, but steadily, on it for almost a year now.)

“Our first stop was a Senate Budget Committee hearing, which we will write about in tomorrow’s Weekend Edition. After that, we had the pleasure of meeting with the Comptroller General of the United States – the Honorable David M. Walker.

“We had no idea what to expect from Mr. Walker …judging from his office – which was about the size of a certain DR editor’s apartment – we were clearly about to meet a pretty big bigwig. Much to our relief, the Comptroller General was an affable and laid back gentleman, who graciously had us sit by his roaring (gas) fire, and asked us to call him ‘Dave.’

“Once we settled in, Mr. Walker’s press secretary asked us to tell them a little about our project…and before we could even begin, Walker says, ‘Does this have anything to do with Empire of Debt?’

“We looked at each other, silently weighing our options. What if he hated the book and booted us out of his office? As we were about to stumble over some sort of ambiguous answer, Walker continues, ‘That’s a great book.’

“‘You read it?’ we asked, openly surprised. After all, we had sent a book to every member of Congress and the House, but not to the Government Accountability Office, which Walker heads.

“‘Oh yes, and thought it was quite good,’ he said, settling back in his chair.

“‘Actually,’ he went on, ‘there’s a story that I often tell that has to do with your book.

“‘Last year, I had just finished reading Empire of Debt while I was traveling to visit my son, daughter-in-law and three-year old granddaughter.

“‘During my trip, I put my granddaughter to bed and was reading her the usual children’s bedtime stories. On a whim, I pulled Empire of Debt out of my bag and read her a particularly sobering passage.

“‘When I finished, she looked up to me and said – no joke – ‘Devastating, Granddaddy.'”

“That story was the icing on the cake. The rest of the meeting went extremely well… we’ll fill you in on more of the details on Monday. Stay tuned…”

[Ed. Note: If you haven’t purchased your copy of the book that David M. Walker’s granddaughter calls, “Devastating”, you can do so by clicking on the link below:

The Most Feared Book in Washington!

*** “Michel, you’re not allowed to smoke in public places any more.”

We had just arrived at a restaurant. There was our friend with a cigarette in his mouth. We thought we should inform him of the new law.

“That’s what they say,” was the reply. “But it’s only a fine…of what, 68 euros? It’s worth it. Besides, no one is complaining.”

Later, after lunch, Michel lit up another cigarette. And so did our luncheon companion, a young woman obviously in the advanced stages of pregnancy.

“You’re still smoking too!” we noticed.

“Yes…I’m not worried about it. There’s probably an exception in the law for pregnant women.”

*** Australia-based colleague Dan Denning reminds us of a Barron’s article from the very peak of the last great bubble. On the twenty-seventh of December 1999, the publication asked “What’s Wrong Warren?”

That article began, “after more than 30 years of unrivaled investment success, Warren Buffett may be losing his magic touch…Buffett, who turns 70 in 2000, is viewed by an increasing number of investors as too conservative, even passé. Buffett, Berkshire’s chairman and chief executive, may be the world’s greatest investor, but he hasn’t anticipated or capitalized on the boom in technology stocks in the past few years.”

Six days earlier Berkshire’s A shares traded for the meager sum of US$58,400. Now, seven years later, they closed a few days ago over $110,000. “That’s a 90% pre-tax return,” says Dan. “In that same time, the Dow is up 15%. And the tech-stock laded Nasdaq? It’s down twenty-two percent since then.”

But now we have a new bubble – in credit and liquidity. And now we have a new group of geniuses wondering if Warren has lost his touch.

“Mark Carhart looks out over the packed New York conference and tells investors that Warren Buffett has it all wrong,” says a Bloomberg article from Wednesday. “Carhart, 40, co-head of the quantitative strategies group at Goldman Sachs Group Inc., uses his July speech to poke fun at the Berkshire Hathaway Inc. chief executive officer’s penchant for investing in market-leading brands like Coca-Cola and Gillette. He cites study after study showing that big-name companies with high price-earning multiples or rapid growth rates make poor bets.

“Traditional stock pickers like Buffett, a fabled raconteur, do have one redeeming quality, Carhart jokes: ‘They tell great stories.'”

Carhart has the floor because he manages what is probably the flagship hedge fund of the world’s flag ship hedge fund business – Goldman Sachs – at a time when the hedge fund industry, and more broadly, the financial industry generally, is flying high.

Goldman’s Global Alpha fund is a $10 billion investment pool for Goldman’s best customers, employees, and friends. But though the fund generated $700 million in fees for Goldman last year, its investors lost money, which is a story worth telling.

Bloomberg continues:

“In the 2005 report filed with the Irish exchange, Global Alpha reported a gross return of 51 percent for the year. The report says only two strategies – global anomalies and the country bond selection – suffered losses of more than 1 percent.

“During the first quarter of 2006, Global Alpha rose a net 9.5 percent, according to the semiannual report filed with the exchange.

“The next quarter, a bunch of the fund’s strategies soured”

What happened? We don’t know. No one outside of the firm knows for sure. Global Alpha uses proprietary trading models, based on the research and development of its own team of math whizzes, Ph.D.s and guessers. But in August, the fund lost 10%…and by the end of November it was down 11.6%.

In December, it climbed again, but still ended the year with a loss of around 6%.

But what do you expect? Trading, hedging, and money shuffling does not create wealth. It only redistributes it. And at the heart of every fund – even an alpha fund – is nothing more than a series of bets. If those bets go well, money is redistributed to the fund and its investors. If the bets go against them, well their money is distributed to others.

Warren Buffett is the second richest man in the world. If he wanted, he could hire as many U. of Chicago Ph.Ds as Goldman – even more. But he knows that bets go both ways, and that each time you bet, the house takes a little more of your money. So, if you stay at the waging tables long enough, you will have no money left.

Hedge funds, he says, are not an investment…they are a compensation system for hedge fund managers.

The Daily Reckoning