Message From The Land Of Conventional Wisdom 1.0

Letter from the Milken Global Conference

I’ve been to four panels so far and I feel as if I am watching TV. The bottom line is that I have never heard so much conventional wisdom since I watched CNBC which actually was this morning. Actually some of the speakers had something to say but it was mostly investment and macro data, not anything related to what I would call an understanding of the World Situation.

One thing I noticed was that all of the investor types, mostly hedge fund or investment managers, talked a lot about risk. In fact risk pervaded everything they said. I don’t recall hearing that a few years ago. Don’t get me wrong, I think they are mostly focusing on trees but they say they are mostly aware of “macro” events. The guy who heads the State of Michigan pension fund ($50 billion) says that’s what he thinks about most. In other words they all got creamed and the hurt still stings. They are looking for ways to interpret the world but I didn’t hear anything about what kind of marcroeconomic analysis they are employing. One of my lunch mates at my table is a trustee of a County pension fund and he said they lost $2 billion of $6 billion in the crash. They were 4% into RE MBS and CDO investments. Also they were about 6% into real estate. Yikes, that’s a one-third hit. He said they’ve almost earning it all back.

Why isn’t this a way for Austrian theory economists to cash in on this wish to understand how the economy works? It seems as if you have to have credibility and if you aren’t vetted by the Harvard Economics Department, they won’t take the risk of listening. They’ll play it safe because that’s what many of them do.

Last night in my class I discussed the business cycle and played a video of Peter Schiff’s greatest hits. It was amazing that he predicted the future almost perfectly. On the other hand, his investment decisions were way off on the other side of things. So was it a fluke? I’ts all marketing ideas folks. We should be leading the discussion but we are obviously very poor salesmen.

More later.

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8 comments to Message From The Land Of Conventional Wisdom 1.0

  • Buck

    Schiff is, without a doubt, one of the absolute best ‘salesmen’ in the business, and I mean this in the full sense of the word; both positively and negatively.

    On the positive side: accurate and extremely vocal predictions based on refined grasp of fundamentals that he conveys with a delivery that is second to none. This is why he gets airtime, has ‘greatest hits’ videos, and you are able to show them to your students without them falling asleep. He has done volumes to advance your/the Austrian cause.

    On the negative side: his pitch becomes ingratiatingly repetitive and myopic once digested. In volumes of podcast I’ve yet to hear him offer a theory as to why ‘Chinese’ are so ‘stupid’ as to continue purchasing our obviously ‘worthless IOU’s’. Perhaps the anti-dollar thesis was a bit too simplified, or maybe just too ahead of its time. Details are for the mechanics though, not the sales guys! ;)

    I still and always will enjoy Schiff immensely.

    • Keith Weiner

      Schiff claims to be Austrian, at least in the sense of wanting gold as money and being totally opposed to printing.

      But his analysis is Monetarist to a T. A Monetarist thinks that if you double the money supply, you double prices. That’s Schiff.

      Every Austrian is looking at China’s incredible bubble blowing and trying to determine when it might burst, not thinking that China is going to become what the USA used to be.

  • Larry S

    In the markets, being right, doesn’t necessarily equate with making money, as time horizons and other factors come into play. As an example, I remember at the onset of the financial crisis that Peter Schiff had clients that were down 30% due to his asian allocation. Peter told them to hang in, and those that did, were rewarded in the future as asia rebounded. Unfortunately, endless holding of investments is not reality, otherwise anyone who hung on to gold from 1971, through all of its fluctuations, should be considered a genius, at the moment. This is not an attack on PS as he is heads and shoulders above the talking heads, just a realistic assessment of his value.

    • Buck

      I’ve heard and even seen the stories of various clients either losing their shirts or being amply rewarded depending on the timeframes cited. Since I do not personally invest with him and thus was not there to recieve his (or his advisors) specific investment advice, I did/do not think it appropriate to comment on his investment performance.

      To his credit, he goes to great pains to remind people constantly that (nearly all of) his calls are long-term ‘investments’, not ‘trades’. Keeping a position longer than 2-3 years is not an “endless holding of investments” by any stretch of the imagination.

    • I found him to be a bit of a snake oil salesman and from what I heard, he was off a lot more than 30% and had some BS excuses. But, his ‘macro’ view was perfect. I heard him in Vegas last year and he was a windbag. Just trying to be impartial.

  • Carl

    Funny thing about CIOs and investment heads from Pensions and Endowments: they look at investing as first and foremost “how do I NOT get fired?”

    This is why, in spite of what they say, little to no capital goes to rising stars or emerging managers. Stepping out and trying something new is what will get you fired (if returns are not as advertised).

    Instead, most of these plan sponsors invest in the biggest funds out there (Blackstone, KKR, TPG, etc…) on the thought that, “if these big guys screw up, no one will blame me as everyone got burned.”

    So goal #1 is: Don’t get fired.
    A distant goal #2: Don’t forget goal #1.