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Beware the Pessimists!

Gloomsayers may not hurt the overall economy, but by playing into older people’s fears they can create plenty of misery.

John Rekenthaler, 02/24/2017

About Those Fedcoins
My wife’s friend was frantic. According to a video posted by The New Yorker, cash as we know it may be scrapped, replaced by electronic “Fedcoins” that would become the global currency. This, suggested the video, might lead to the Federal Reserve’s failure, which would have cataclysmic effects on global stock and bond prices. What did I think? 

What I thought was that it was remarkable that such a huge event had escaped my attention. Google searches revealed: The concept of Fedcoins has been advanced by bitcoin enthusiasts. There is no New Yorker link. Smaller, more-exotic websites (for example, theeconomiccollapseblog, which also wonders “Why is NASA Using the Discovery of 7 New Earth-Sized Planets to Promote the Idea that Alien Life May Exist?”) have expanded those musings into likelihoods. And gloomsayers have made their prediction. 

Here a Crisis, There a Crisis
The gloomsayer who caught my acquaintance’s eye was one Doug Casey, whose books’ titles reveal his themes. “Crisis Investing: Opportunities and Profits in the Coming Great Depression” (1979); “Crisis Investing for the Rest of the 90s” (1993); “Totally Incorrect” (2012); and “Right on the Money” (2013). Totally incorrect, yes; right on the money, not so much. Although it’s true that a deep recession followed his 1979 book, any advice other than to buy mainstream stocks and bonds was wrong for the upcoming decade. As for that impending 1990s crisis… was 15 years too early? 

The bogeyman needn’t have been Casey. There’s no shortage of those who have made their livings by forecasting woes that never arrived. Bob Prechter expected the Dow Jones Industrial Average to hit 400 in the late 1980s; 30 years later, he continues to stand by that very same prediction (you would think he would adjust for inflation, but no), only the date has been bumped to 2021. In 2011, ex-mutual-fund manager Harry Dent foresaw the Dow dropping to 5,000 (better than 400, I suppose). Then there was the Reverend David Wilkerson. Gulp.

The track record of betting against America, to use Warren Buffett’s phrase, has been abysmal. It floundered in the 1950s. It misfired in the 1960s. It succeeded frequently in the 1970s. It flopped in the 1980s. It bombed in the 1990s. It was hit-and-miss during the Oughts. It has sputtered in the 2010s. For the seven decades, the score reads as one clear victory, one mixed result, and five failures.  

That is a whole lot of wrong. While no single Cassandra moves a great deal of money, the breed as a whole has caused hundreds of billions of dollars of damage. True, one investor’s loss is another investor’s gain; effectively, retirees who cripple their personal finances by selling low and watching the markets go high enrich those who take the other side of those trades. The overall economy is untouched. But much misery is created. 

Running Scared
The question arises: Why do people still listen? Why does my wife’s friend listen to variations of arguments—the collapse of the U.S. dollar, a crisis at the Federal Reserve, rampant inflation—that have fizzled, year after year, decade after decade? Why would an intelligent, highly educated, and well-informed person believe sweeping arguments that rely on a mountain of speculation and a molehill of data? 

Three reasons, two of which relate to age. 

is vice president of research for Morningstar.

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