Helping James Altucher Understand Gold and Economics

By: Jeff Berwick | Wed, Sep 28, 2011
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In recent months a few people have forwarded James Altucher's blog to us saying it is a funny, creative read. And, they're right. It is quite creative and the man puts out interesting content like Krispy Kreme puts out heart attacks.

James AltucherIt's worth reading if you are looking for interesting ideas or creative ways of looking at things or are just plain bored. His style is charmingly self-deprecating. Most of his blogs lead off with him talking about his seemingly countless failures and how he has gone broke at least a few times in the last decade. However, after having read his blog for a while now it has become very clear why he keeps losing money. Below, we will try to explain to Altucher the basic flaws in his views on economics and investing and will try to save him from himself in the coming decade.


GOLD ISN'T AS FIAT AS CURRENCY

Altucher regularly does an "Ask James" blog and twitter event where he answers people's questions. Given his investing background it is rather shocking that people would even ask him for his views in this field. Unless, of course, they were just going to do the opposite of what he recommends.

But, the man is offering free advice... so people are trying to get their money's worth.

In his most recent "Ask James", @ginger_gal asked, "With Europe about to default, high employment, gold (the ultimate fear metal) on the rise, why should anyone still be bullish?"

Altucher had a fairly lengthy and detailed response, but he started off his response on Twitter with, "Gold is just as fiat as paper. The global economy is bigger than gold. I bet on innovation and not a rock."

Wrong. So wrong. And, right off the top too!

You see, if you've followed Altucher's blog you've probably heard about many of the times he lost money including during the 2008 crash. His problem? First of all, he believes that we are living in normal times. He believes the "green shoots" and "we are in a recovery" stuff that the TV keeps shouting. Altucher seems to think we are just in a standard correction/recession and doesn't seem to be aware that the entire US dollar based financial system is collapsing.

His ignorance of this fact is shown when he says "gold is just as fiat as paper". How he can even begin to justify that statement is hard to imagine.

Here is the definition of "fiat money" according to Investopedia:

Fiat Money: Currency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves. Historically, most currencies were based on physical commodities such as gold or silver, but fiat money is based solely on faith.

How, by this or any definition of fiat money, is gold "just as fiat as paper"? Gold is certainly not declared to be legal tender by any government on earth. And if the fiat paper were backed by gold then it wouldn't need to be fiat anymore. You wouldn't have to force people to use it.

Now, to be fair with James, in any situation other than the current ongoing US dollar based financial system collapse that we are ensconced in, we'd generally agree with him.

Our position in gold right now is because it is serving the role of traditional money. It is holding its value. By saying that we are mostly invested in gold and silver bullion (30% of our current TDV portfolio) what we are saying is that we are heavily in cash at the moment. Not fiat cash. Real cash.

We love capitalism (real free-market capitalism, not US style corporatism) and we love all the innovations that technology has and will bring us. We would be thrilled to be in an environment where we felt it was safe to invest in up and coming technologies. But in an environment where all of the worlds currencies will not exist in their current form any time between 0 and 60 months from now and where the Greater Depression is a 100% certainty (whether we get hyperinflation or massive government default we will get a major depression in the western world either way) we can't justify having any of our capital invested in technology.


ALTUCHER'S DOW 20,000 PREDICTION

James Altucher also predicts the Dow will hit 20,000 within 18 months. He said that in June with the Dow at 12,000 so he is already well-offside. But we will respond to each of his 10 reasons why the Dow will go to 20,000 to show the holes in his understanding of what is going on in the markets.

1. The effects of stimulus usually lag by 6 to 18 months. Therefore, QE2 won't help the economy until the end of 2011.

He is correct on the timing but he is dead wrong on it "helping" the economy. 'Stimulus' is just currency debasement. Sure, the Dow could go up in the coming months and years. The Dow could even go to 20,000... or, heck, 100,000. But by that time a Big Mac will cost $150. By the time the Dow hits 1,000,000, Federal Reserve Notes will be used to light fires to keep the millions of homeless warm. Just look at a chart of the Dow versus gold (that rock James can't justify owning) for the last 10 years to see how well the Dow has performed in real terms.

$INDU:$GOLD - Dow Jones Industrial Average/Gold - Spot Price

2. The market has been supported by the extension of the Bush tax cuts, and Mr. Obama is using the boost in the stock market to help him get re-elected.

This is typical tax slave talk. He is just repeating what the propaganda on TV tells him. If he thought with his brain he wouldn't think in these terms. Bush tax cuts? Giving a few crumbs back to the slaves while taking away in numerous other areas are not "tax cuts". He should be looking at the US Government and the Federal Reserve as massive criminal organizations that are destroying the entire economy of the US.

3. The multiplier effect of the stimulus could be up to 10 times the original $600 billion as its positive effects spread throughout the economy.

Ah, the good old multiplier effect. Again, Altucher has been brainwashed by the US school system and government into believing in this witchcraft. The "multiplier effect" is Keynesian style nonsense that has been completely debunked by Austrian economics. Frank Shostak put this myth to bed years ago (read here: The Myth of the Magic Multiplier).

4. Non-financial companies are cash rich thanks to their fear of a double dip and they can put that money to work if it never comes.

Double-dip? You still believe that nonsense, James? The US has been in a depression since 2000. It's been a highly inflationary depression and has fooled a lot of people. Look at real unemployment figures (23%) and amount of people on food stamps... don't listen to the government GDP numbers. GDP numbers are a fallacy. And, yes, many companies have a lot of fiat cash. A fiat cash that is devaluing, currently, at nearly 15% per year (that is the current growth of the money supply). By the time those companies and their standard trained CFOs figure out that the US dollar will soon be worthless it will be too late.

5. Companies are already starting to buy back their stocks and when supply goes down, price goes up.

We'll give you this one. But this is the only legitimate reason you've given so far as to why anyone should buy stocks. One reason isn't enough.

6. Unemployment numbers may not look very good right now, but temp worker trends are pointing to an improvement.

You believe the numbers given to you by the government on the state of their system? Poor, poor slave. Do some research James, the US Government figured out how to take all of the unemployment out of the unemployment figures years ago. Bill Clinton's group of thieves and liars made quick work of that statistic. Shadowstats.com calculates unemployment the way it used to be calculated in the 90s. Calculated the way it was then, unemployment today would be 23%.

Unemployment Rate - Official vs SGS Alternate

Are temp workers showing some improvement, James? Well then, maybe everything will turn out alright!

7. If S&P profits come in just a little higher than the current consensus of $95 and you put a 20x multiple on that, you get an S&P target of 2000, which likely equates to Dow 20,000.

We are headed for total collapse of the financial system. During the last two near collapses, in the 1930s and 1970s, PE ratios hit lows in the low single digits. The only way you will see Dow 20,000 is in a state of hyperinflation.

8. Many of the large cap stocks are trading at very conservative multiples.

See #7 above.

9. The financial crisis didn't kill innovation - at least not for Apple.

We aren't betting against innovation. But we feel the risks far outweigh the rewards in almost any investment except hard assets for the next few years. Not to mention that the US Government has all but outlawed innovation with all their rules, regulations and taxes. And, by the way, "the financial crisis" isn't over. It hasn't even really started yet. Let's see how Apple handles the next few years.

10. Major demographic changes will affect the markets over the next 25 years.

Okay, this is #10 so he can be excused for reaching a bit here. Major demographic changes HAVE affected the markets since the beginning of markets. This global population chart shows that. We hope James isn't counting on this for his Dow 20,000 call.

Major demographic changes HAVE affected the markets

GOOD LUCK JAMES

James will probably get a hold of this article and feel that we are attacking him. That isn't our intention. In fact, we feel a bit sorry for him and the hundreds of millions of others who have been brainwashed and propagandized into not seeing the true economic reality.

We are hoping this will help enlighten him to some of his misconceptions about the economy and that he won't continue to go broke so much in the future because of it. Although, we submit, this could have disastrous results for his blog. If James starts writing about how he has been making fortunes on gold and gold stocks and how he's been riding around in limos and taking exotic vacations it probably won't be such a good read.

$GOLD - Spot Price

After all, if he had listened to TDV Senior Analyst, Ed Bugos, ten years ago and bought gold instead of frittering it away on numerous tech escapades he wouldn't be such a lovable ne'er-do-well today.

 


The October issue of The Dollar Vigilante is out on October 1st. Subscribe today to get news, information and actionable information on how to protect yourself and profit from the ongoing collapse of the fiat monetary system. In the coming issue, Ed Bugos has a near-term producing gold stock with excellent upside potential and we will have in depth information on how to easily get a 2nd passport in one of our favorite South American countries, easily and cheaply.

 


 

Jeff Berwick

Author: Jeff Berwick

Jeff Berwick
Chief Editor
The Dollar Vigilante

Jeff Berwick

Anarcho-Capitalist. Libertarian. Freedom fighter against mankind's two biggest enemies, the State and the Central Banks. Jeff Berwick is the founder of The Dollar Vigilante, CEO of TDV Media & Services and host of the popular video podcast, Anarchast. Jeff is a prominent speaker at many of the world's freedom, investment and gold conferences as well as regularly in the media including CNBC, CNN and Fox Business.

Jeff's background in the financial markets dates back to his founding of Canada's largest financial website, Stockhouse.com, in 1994. In the late '90s the company expanded worldwide into 8 different countries and had 250 employees and a market capitalization of $240 million USD at the peak of the "tech bubble". To this day more than a million investors use Stockhouse.com for investment information every month.

Jeff was the CEO from 1994 until 2002 when he sold the company and still continued on as a director afterwards until 2007. Afterwards, Berwick went forth to live on and travel the world by sailboat but after one year of sailing his boat sank in a storm off the coast of El Salvador. After being saved clinging to his surfboard with nothing but a pair of surfing shorts left of all his material possessions he decided to "live nowhere" and travel the world as spontaneously as possible with one overarching goal: See and understand the world with his own eyes, not through the lens of the media.

He went on to visit nearly 100 countries over four years and did and saw things that no education could ever teach. He met and spoke with a plethora of amazing people, from self-made billionaires to some of the brightest minds in finance - as well as entrepreneurs from a broad range of backgrounds and locations from tech companies in southern China to resource developers in Mongolia, Thailand, Russia and Chile. He also read everything he could find on how the world really works... politically and financially. A pursuit he continues to this day.

He expatriated, long ago from his country of birth, Canada, and considers himself a citizen of the world. He has lived in numerous locales since including Los Angeles, Hong Kong, Bangkok and currently lives in Acapulco, Mexico and is building a home in Cafayate, Argentina. In essence, everything he writes about here for TDV he has done or is doing.

As well, during his travels, both real and virtual (through the internet), he met some amazing people who have a similar shared vision of what is currently going on in the world and enticed them to come aboard TDV and provide their own brand of analysis.

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TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/