The Doomsday Trade

My pal Josh Brown pointed out this article at Fortune. It turns out that the Doomsday Trade isn’t working out for the end-of-the-world crowd. One of the biggest flaws in investing is people investing by their ideology. Investing is the ultimate in practicality beating ideology.

For one small group of investors, this return to normal places them in a new, confounding position. While a worried mainstream saw gold as a hedge against short-term instability, the past five years have seen huge exposure, particularly in America, for a set of ideas that sees gold as a protection against the total collapse of the financial system as we know it. Probably the most well-known proponent of this viewpoint is former Fox News personality Glenn Beck, who has persistently warned of the inevitability of hyperinflation, lawlessness, and bread riots in the wake of QE and other Fed initiatives to inject liquidity and expand the money supply.

Starting in 2008 and with little respite since, Beck has kept up a drumbeat of parallels between American monetary policy and disaster scenarios such as Weimar Germany. Whether by correlation or causation, Beck also happens to be heavily sponsored (both in his Fox News days and now in his internet enterprise) by Goldline, a company selling gold coins. Alex Jones, a goldbug and conspiracy theorist only slightly less influential than Beck, is sponsored by Midas Resources Inc., which … well, guess.

Though Glenn Beck and Alex Jones are in many ways fringe figures, they have significant followings, and their goldbug ideas are part of an even larger pattern of thought that encompasses genuinely influential groups including Ron Paul’s Libertarian wing of the U.S. Republican Party, and the even more powerful Tea Party faction. “Anyone who is not looking at a financial collapse of the United States right now is not looking at our debt and the inability of our government to rein in costs. It’s no longer a case of if, but a case of when,” says Norman Cillo, a member of the Tampa Bay Tea Party. With that scenario in mind, gold looks like a pretty good bet, no matter what the market is doing.

Gold’s longtime nickname, “God’s Money,” captures some of the faith these goldbugs put in the yellow stuff as a life raft for the most extreme, yet imaginable, scenarios. For most of the last five years, this has been an easy enough proposition — doomsayers could have their apocalypse and profit from it too, watching gold prices rise in dollar terms while also being confident in the commodity’s value in the lawless, feral world they think Ben Bernanke’s monetary policy is laying the groundwork for.

So their Doomsday forecasts were wrong. Oh well, it’s not the end of the world.

Posted by on August 19th, 2013 at 10:03 pm


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