The Fear Trade Has Been Demolished

The economy continues to do okay, the stock market is hitting all-time highs every day, real estate is back on the up and up, interest rates remain very low by historical terms, the net worth of Americans is back at all-time highs, we’ve just dragged ourselves out of the worst recession in 80 years, but people are still upset about a lot of things.  I guess that’s to be expected in an environment with 7.6% unemployment.  That’s not exactly a happy number.   But I have a feeling that there’s more to this general unhappiness than meets the eye.  And I think a lot of people are mad because the fear case has totally lost out at this point.

If you’ve been paying attention over the last few years, you probably remember how many people predicted hyperinflation, surging bond yields, soaring gold prices, a cratering US Dollar and a collapsing stock market.  This was the fear trade.  You overweight gold, short US government bonds, short the USD, short equities and laugh all the way to the bank.  Parts of that trade have worked out OKAY (like the gold portion over the years), but on the whole that trade has been a big disaster.  In other words, fear lost out – again.  And I think a lot of people who bought into the fearmongering nonsense are angry.  They’re angry because they backed their political beliefs with their wallet.  They’re angry because they listened to so-called “experts” peddling their political beliefs as an understanding of the monetary system.  They’re angry because they read scary websites that claim to have predicted the crisis, but have gotten almost everything wrong since 2008.  They’re angry because they let their emotions get in the way of sound analysis.

Look, there’s plenty to be upset about.  I am not here to claim that all is well in the economy and in the USA.  In a lot of ways this country feels as disjointed as ever.  But I see a lot of people who seem to be upset for reasons that can be pinpointed to little more than their ideological beliefs.  If I am right then these people have no one to be upset at but themselves for constantly buying into this fearmongering nonsense.  You have to be very careful approaching the monetary system and the economy with an ideological or political bent.  It will lead you astray at times.  I know it has certainly led a lot of people astray in the last 5 years….

The good news is it’s never to late to learn from mistakes.  I’ve made plenty of mistakes over the last 5 years.  But I always try to learn from mistakes.  So the question is, will people actually try to approach the monetary system and the economy objectively, rationally and apolitically?  Or will they continue to expose themselves to the same biases and ideological pitfalls that have led so many people to fall for the fear trade?


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.
Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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  • LVG

    You should just say “Austrian economics has been debunked” and move on.

  • FrankH

    Your “measured optimism” has been a positive influence on the way I view things, but let’s be real. We’ve papered over all the problems and we haven’t really fixed anything. Who really things it won’t all happen again?

  • Incognito

    I usually enjoy reading your posts. This one however, I´ll save for the future under the headline “Mission accomplished”.

    “If the Fed were to tighten policy, the economy would tank.”

    So why have a lot of people been wrong, probably because that they didn’t realize that the central banks have abolished bad times. There well never again be another recession, never. All that the central banks have to do is drop interest rates, buy assets and overload banks and the financial system with liquidity….. For how long can they keep going, until they are right (ecenomy reaches escape veloticy)?

    By historical standards, the current business cycle is running on overtime (the recession in 2009 was canceled and cut short). At the same time everyone is expecting that now is the time when the economy really kicks of (without any inflation of course).

  • indignado


    We must admire your optimism. There is no question that the title of your article can not be refuted However, I would say that we are far from having recovered from the great recession. A few observations (the glass half empty if you like).

    The fed is holding almost 1,5 trillion of MBS on their books and have been adding about 30 billion per month this last year. What does this say about the true strength of the housing recovery?

    In general, many companies are cutting costs and maintaining their bottom line with less workers and lower revenues. What does this say about future earnings and todays stock prices?

    You are correct about the fear trade and how damaging it has been over the last few years.

    However, anybody who bought gold in 2008 and got out before the recent fall has booked a fantastic return.

    Anybody who began shorting US long bonds these past few months has done very well.

    In the end it is all about timing, isn´t it? I guess we could say the same about the stock market. Cullen you have posted a few times recently that the path of least resistance is up in U.S. stocks. I guess time will tell. It always does.

  • Shorehaven

    “….many people predicted hyperinflation…..soaring gold prices… overweight gold….” This sounds like Krugman kook-aid.

    I don’t know of any family members or business associates who own gold. And only one friend buys- he buys a couple of coins every so often for the past 20 years off of the US Mint- big deal.

    It seems like all of these gold shops that have sprung up are buyers of scrap jewelry. So who are all of these gold owners that the Krugman types spin about?

  • KB


    I think you need to explain yourself regarding this particular thesis.

    A trade can be “demolished” because the market has not yet got back to fundamentals. NASDAQ short in 1999 or subprime short in 2006 would be good examples. Or a trade can be “demolished” because underlying fundamentals never existed, or have been corrected to a “normal” level, where a trade does not make sense.

    Which case is correct for the disaster trade? And for which part of the disaster trade, because buying gold, shorting USD, shorting treasuries, and shorting equities are not the same thing, and can not be put in one basket.

  • James

    that last question is rhetorical right?

  • Notagain

    A lot of trades have worked for a bit and then got demolished over the last 4 years . The currently most successful trade will also go the same way .I am sure every trader got some wrong and some right.What’s new ??

    This article maybe one more mistake you will learn from Cullen .

  • GreenAB

    excuse me, but that sounds that the US deserves all the credit for digging itself out of the hole. but we live in globalized world. for the US economy to rebound a lot had to go right in the rest of the world.

    -in the first place it needed a democratic president to carry out a gigantic stimulus program, including rescuing bankrupt GM/Chrysler. cash for clunkers, a homebuyer credit, mortgage mods, forgiveness, delaying forecopsures…
    who knows how things would have played out under McCain…?

    -accounting rules for banks have been scrapped. that was even more important than TARP.

    -when the western world was on its heels it was China that took over as the world economy´s locomotive. another multion billion dollar stimulus program.

    -there have been numerous times when Europe was about to fall apart, hadn´t it been for the breach of EURO contracts (no bailout clause) and the ECB overstepping their mandate.

    what we have seen is a wave of unprecetended measures, some seemed to be illegal before the crisis startet. kudos to anyone who has been able to foresee all those things play out the way they did.

    in a certain way one could say that you can be fearless because the markets always force those in charge to do whats best… for the markets.

  • eludog

    I would say that the hole that we are digging ourselves out of is so great that I expect the expansionary part of the business cycle to be longer than prior expansions. Maybe much longer.

  • Adam P.

    >> You overweight gold, short US government bonds…


    US gov bonds were UP UP and UP. They are going down NOW not during the fear trade. Quite delusionary to read this from you. When a post about the US as the new Saudi ?

  • Tyler

    The general unhappiness might come from: high unemployment, lack of quality jobs, stagnant wages, rising living costs, a Congress that can’t agree on anything except to spy on Americans, an administration that seems to have a new scandal every month, exploding college expenses, and the general feeling that most of the wealth being created in the country flows up to the top 1 or 10 percent.

    A great of people in the country don’t give a crap about the stock market and probably don’t even know its at new highs.

  • Johnny Evers

    Some of us are upset because the recovery has uplifted the financial class and those with assets at the expense of workers, manufacturing, the young, the working middle class, etc. We’re upset that some are crowing about the stock market highs when most Americans don’t own stocks.
    I understand that financial blogs are primarily for people with money, trying to make money in the markets; however, don’t forget that your wealth ultimately derives from service and production and not your license to create money electronically.

  • me

    To play devil’s advocate or maybe it’s because I’m forcing myself to read Atlas Shruged for no good reason, but doesn’t the cultural/political part matter in the long run. Did we save the economy this time but take another step towards excepting government control. Are we reinforcing a pattern of over risk, fail, run to the government to save us, give up a little more freedom for safety, and repeat?
    I guess the question is how many times can you enable a behavior before it becomes permanent?

  • indignado

    Interesting post. There does seem to be an inherent anti-democratic nature to MR. I know that it is argued in the MR mission statement to be apolitical. Yet, accepting the basic tenets of MR is a surrendering of individual rights and decisions to large banking institutions as necessary players in our economic system. We relinquish the value of money and savings to a credit creating institution that does not have the majority´s interest as a focus when taking decisions.

  • Glenn

    You’re right about the fear trade crowd. They thrive on doom and gloom while their opposites only see good and sell that. zerohedge sells fear because that’s what their audience wants though they do often hit the nail on the head.

    It seems to me that there are 3 types:

    – doom and gloom
    – muddle through (which could also be mistaken for ‘I don’t know’ or ‘I won’t make a definitive prediction’)
    – It’s all good

    Nevertheless, when I look at the world today I mostly see a mess. Massive debt mountains everywhere, empty cities in China, US barely muddling along, Europe in near depression (as a whole), BRICs faltering, oil at $100+ when it should be $60, crappy demographics, lack of genuine leadership…

    I don’t sense any kind of solid foundation now or ahead and I don’t see that money creation or whatever has genuinely improved anything.

    The Fed may pull this off somehow but they mostly seem to have backed themselves into a corner. Money printing may have worked in the 40-50s when the working population along with much of Europe’s infrastructure nwas decimated and people everywhere were creating a baby boom but it’s not the same now.

    Seems to me we’re much closer to stormy waters than we are to calm seas and navigating back to calm is proving exceptionally difficult if not impossible despite 4 years of creative monetary policy.

    What mostly seems to have changed is that we’ve become accustomed to crisis. It doesn’t scare us anymore because everyone assumes it will be contained which works until one of those crises’ defies containment.

  • George H

    The monetary authority can not be wrong. Or can not be wronged.

    Either way.

  • Blobby

    Sadly due to confirmation bias people will always believe what they want to believe.
    Very rare is the man who holds nothing close and changes his beliefs and values in the face of rational analysis. Emotions always hold sway.

    My goal is to never hold anything dear and just adjust to the facts :)

  • Cullen Roche

    I didn’t even come close to saying “mission accomplished”, but I figured lots of people would take this post the wrong way. Oh well.

  • Johnny Evers

    The city of Detroit filed for bankruptcy yesterday, citing $18 billion in debt.
    Probably half of that is pension obligations, so the Fed could take a week’s worth of QE and help the city honor its pension committments.
    Could we do that? Probably not under the current system, current mindset and the people in charge. But we could if we wrested control of the banking system from the bankers.

  • Cullen Roche

    I guess that’s a big part of my point though. People have been so focused on the potential negative outcomes of govt policy that they’ve totally ignored the potential positives. For instance, if you didn’t understand the profits equation then you had no idea that corporate profits would boom as a result of the trillion dollar deficit. Instead, lots of people said the govt’s debt was going to crowd out private investment, cause rates to rise or turn us into Greece. They had the understandings totally wrong.

    Would you rather be right or would you rather be able to stay true to political beliefs?

  • indignado

    Cullen, you have to admit that this particular post has a bit of a loaded title. You should expect a bit of push back. :-)

  • JoeCoolTrades

    Its all good as long as the Fed balance sheet can keep growing and the national debt and debt ceiling can expand forever.

    The USA should have expanded the Fed balance sheet and national debt years ago. We could have had a great economy and stock market for the last 100 years. Our leaders should have thought of this sooner. There is NO DOWNSIDE!

  • JoeCoolTrades

    I would like to see the national debt double every year and the Fed expand its balance sheet 1000% annually.
    Wheez all gunna be rich!

  • Cullen Roche

    Of course! :-)

  • Cullen Roche

    Completely agree. This is a US centric post, but I have always acknowledged the importance of the global economy. We live in a macro world now.

  • Cullen Roche

    Yeah, I am not saying that everything is great. But I do generally think that the level of unhappiness overlooks a lot of the good things that have occurred. We’re not out of the woods yet, but the woods don’t look nearly as bad as many of people claim….

  • jt26

    Depends on where you live. If your equity benchmark is the EUROSTOXX50 then the fear trade would have been a lot better. Optimistic US investors are just lucky that the Fed took *unprecedented* steps and the government was deadlocked enough not to bring Paul Ryan as major political force and John Taylor as Fed chair.

  • Cullen Roche

    Where’s the evidence that most of us are worse now than we were in 2009? Do you have any real evidence or is this just rhetoric?

  • Cullen Roche

    Well, the USA is not a democracy in the purest sense. We are a representative republic and we vote away our decisions to representatives. Those representatives nominate people at the Fed and make other decisions that are often times not in everyone’s best interest. So, I wouldn’t say that MR works from an anti-democratic view, but instead just understands the system for what it actually is. Some people seem to have this democratic myth floating around in their heads. That’s not the type of system we have. You don’t vote for specific outcomes. You vote for people who vote for outcomes.

  • Johnny Evers

    Just to cite one example: You state that American’s Net Worth is at an all-time high.
    In fact, household wealth of $5.3 trillion is 6.7 pct below the peak when you factor inflation, and 11 pct when you factor population growth.
    The recent surge in Net Worth comes primarily from an increase in the stock market — $1.5 trillion in the first quarter. Unfortunately, most Americans do not own stocks, and this $1.5 trillion increase has accrued mostly to the top 10 pct.
    ‘Average household wealth is less than two-thirds of the way back to pre-recession levels, according to Bill Emmons, an economist with the St. Louis Federal Reserve.
    “The gains will still be concentrated among high-income households,” Faucher said. “It will take much, much longer for middle class households to catch up.”

    — source:

  • Cullen Roche

    So you just adjust things for inflation when you want to prove a point? Nominal household wealth is at records high. The point stands no matter how you decide you want to manipulate it….

  • Johnny Evers

    The St. Louis Fed’s report adjusts for inflation and population.

    Here’s another way to look at this:

    Households in the upper 7 percent have seen their median Net Worth rise by 28 pct since 2009.
    Households in the other 93 pct have seen their median Net Worth fall by 4 pct.

    So for your clients, yes, they are doing better. But for most Americans, their net worth is no better (and we haven’t even touched on wages losses which will hinder their recovery.

  • Cullen Roche

    You’re discussing two different things. This post is about an asset based view of the world and why some people went wrong. It’s not saying that the US economy has totally recovered or that everyone is better off.

    You’re misinterpreting the whole point of the post….just like you do with every single thing I write here. It’s truly astounding how you take every single post I write and somehow manage to flip it into your own personal view of the world which you then “debunk”. Nowhere in this post did I say that every American was better off or that the “mission was accomplished”. I said the fear trade has been a losing trade. That’s all!

  • Tom Brown

    First of all, you can’t lump everybody that believes that there are people who purchased a lot of gold into the category “Krugman types.”

    Secondly I personally know of three: Three gold bug co-workers.

    Thirdly, I can’t offer you any definitive proof (mostly because I’m too lazy to try and go find it), but Peter Schiff exists, and so does and Glenn Beck and Mark Levin (Glenn & Mark do ads for Goldline on their shows… or they used to anyway). Presumably there were enough customers to generate revenue to sponsor these shows. Plus there are other gold advocates: many Austrian economics thinkers, David Stockman, Ron Paul (Rand Paul too?) and whoever wrote the section about looking at bringing back the gold standard into the GOP party platform (and presumably those who approved it as well… I assume they party members/representatives vote on adopting the platform)

    Go to Google News, search for “gold” and look for almost any article talking about how gold has been doing (it’s likely to be about or authored by Schiff, BTW) and then look in the comments. You’ll find a lot of people there who appear to be committed goldbugs.

    Like I say, not definitive proof, but at least an indication that some people have bought into the Schiff/Beck/Levin/Austrian/Paul/Stockman/ message.

  • DRR

    So if so many people stayed out of the market why did it go to record highs? LEVERAGE…..

    The time to be fearful is when the markets are levered as a margin calls can cause a crash…

    A record high stock market and a Q2 GDP of 1+% does not compute…

  • DRR

    Kudos for being correct on that point.

  • Tom Brown

    I’m sympathetic to some of your impressions and even share them to an extent, but I’m skeptical of the idea that there are more crises now than at some point in the past. 1914-1918 and 1939-1945 were periods when huge blocks of the globe were at war… wars of annihilation!

    1948-1990 was a long difficult cold war, with several incidents which threatened to become nuclear wars.

    1929-1941 was a period of terrible worldwide depression and the rise of fascism and communism.

    1970s saw inflation and stagflation and Pol Pot.

    1960s saw terrible social chaos and war. Not just for the US and SE Asia but in China too (social chaos in China was much worse actually).

    1950s had the Korean war, Algeria, French Inochina and China’s “Great Leap Forward” (a time of mass starvation there).

    1918 saw a terrible flu sweep the Earth and kill a tremendous number of people.

    Was the 19th century any better? Civil wars, revolutions (especially in 1948), slavery, colonialism, disease, wars of conquest, ethnic cleansing, Napoleon, etc.

    I think you might be able to point to particular times in this country or another and claim that overall the bulk of people may have been better off in some regards, but for the most part I don’t think you can.

    There’s ALWAYS a crisis of some sort going on in this world! We might very well look back at this time in our history with nostalgia!

  • Geoff

    My name is Geoff and I’m a gold bug. I have been sober for the past 10 years. I haven’t bought one ounce of gold during that time.

  • Johnny Evers

    You asked me:
    ‘Where’s the evidence that most of us are worse now than we were in 2009? Do you have any real evidence or is this just rhetoric?’

    I think the link from the St. Louis Fed answers that question that most of us are worse off.

    Your post postulates that people are upset because their fear trades haven’t worked out. I responded that people are upset because their financial situation is largely unchanged.

  • perpetual_neophyte

    I am really surprised that this article stirred up so many responses like those above.

    Cullen is talking about the Schiffs of the world pushing the same “end of the world” mantra since 2008ish. He is not talking about a two week trade timed just right.

    Adam P. – In the Fear Trade(tm), you short US Govt Bonds because the bond vigilantes are going to drive up interest rates on longer-dated maturities due to the exponential increas of the US Federal fiscal deficit and ever-growing US fiscal debt:GDP.

    You are correct that would have been a terrible trade from 2008 – about May of 2013. That’s part of Cullen’s point. :)

  • Geoff

    Many people are upset because they sold at the bottom of the financial crisis and missed the recovery altogether.

  • bart

    If one doesn’t adjust for inflation, then apples are falsely not compared to apples… and that’s ridiculously poor logic and proven manipulation and promoted ignorance of actual facts.

    “The Fear Trade has been demolished” also sounds much like 1999 or 2007 etc., and the excess emotionalism reminds me of certain ZH posters.

  • Cullen Roche

    Yes, I said one thing, you responded by claiming another thing (that was merely your opinion and had little to do with the actual post) and then you blew through your strawman like you’re Ray Lewis in a fit of rage….Well played, sir.

  • Cullen Roche

    It seems that people think I am claiming the world has been fixed when all I really said was that a lot of people who made bad bets are mad. Two totally different things.

  • Widgetmaker

    “The Fear Trade”. Good one, Cullen, that is so true. And it exists because it is very profitable. If I am out there to grab attention, influence my audience, sell my product I need to hook my audience emotionally, and what stronger (and easier) emotion is there to arouse than that of fear? It is the oldest trick in the book, and our leaders, the poliitical class are so good at it. How did they manage to get so far in their occupation if not by knowing how to manipulate emotions? I don’t believe it was due to cold hard reason and logic.

    Furthermore, our political class has created a demon to unify the tribe, and his name is “Obama”. I don’t understand why so many people hate him so, as I don’t see what it is that he has done. Obama bashing has become an industry among the Right. Fear and hatred needs a target and he is very convenient one at that. So the people out of power want to regain control so the first step is to make people feel miserable and unhappy about the status quo, and this strategy is working to a good degree. So you keep telling people how crappy things are under the current regime and they will believe it, no matter how good things may be otherwise, because nothing is sweeter than righteous indignation.

  • Tom Brown

    O/T: Cullen, is the forum broken down again? I was going to ask what is the Wicksellian natural rate of interest? I see that term “Wicksellian” come up a lot. Here’s the context:

    In David’s 2nd response to Amar in that comment. (His 1st response to Amar makes a nice succinct summary of how MM is supposed to work, BTW).

  • Tom Brown

    I agree with much of that. People need to be more demanding of evidence, and to realize that everyone makes mistakes. People who claim (or imply) they don’t make mistakes (perhaps because they think it’s a sign of weakness) make me especially alarmed! I demand a higher burden of proof from them. We should also be *especially* vigilant about evidence when we *want* to believe something (because those are the times we are most likely to fool ourselves).

  • John Daschbach

    The fear trade is mostly just that. It’s a way for some people to make money in this hyper-media age. There isn’t much media market for careful and thoughtful thinking. It doesn’t gather eyeballs and page visits. It’s part of the whole psychological rise in marketing in all forms. People buy into the fear-trade because, to them, it’s a community.

    Things are far from perfect, but they are far from the world of the sellers of the fear trade most likely.

  • Shorehaven

    The number of gold owners is way over blown.

    Another website picked up Cullen’s article and made mention that the gold etf (GLD) was the second largest holding in self-directed 401k’s. What the website didn’t say was the self-directed 401k’s only make up about 1% of all 401k’s. So what are we talking about, GLD makes up 6% of 1% of all 401k accounts? Are you kidding? Who cares?

  • Cullen Roche

    The forum is really data intensive and I am running the site on a shared hosting plan. Basically, I am going to upgrade the hosting to dedicated servers, but I haven’t found the time to do it. Hopefully in the next week or two. Then the site can run without getting bogged down at times by traffic surges as is happening now….Sorry.

  • Tom Brown

    I hope you’re right… but a few thoughts off the top of my head:

    1. other gold ETFs out there (other than GLD), plus SLV and PPLT, etc
    2. IRAs have brokerage accounts too… like Vanguard
    3. Non-IRA “physical gold” purchases through etc fall outside of IRAs or 401ks.
    4. Hedge fund gold holdings
    5. Gold mining stocks (an alternative to GLD or physical gold some people use)
    6. Precious metal mutual funds (even Vanguard has one)
    7. 401ks have brokerage accounts too (ours does.. and we only have 100 employees… or is that what you meant by “self-directed 401ks?”).

  • Greg

    Excellent post Cullen

    Fear only works so long. If there is no real boogie man everyone will soon discover it.

    I think one takeaway from this is that while there are still many people just playing gambling games with their money in secondary markets (allocating their saving), there are still plenty of people making real investments. We need more people to make these investments to see the economy most of us desire but there are enough currently to keep our economy muddling on and not tanking. There is still plenty of people trying to get real stuff done and not just play with their money in Wall St guided casinos. I think our American spirit, cultivated over the last 3-4 generations, guarantees enough people who not only wish for growth and progress but actually invest in it. They put their money where their heart is.

    The negative Nancys are a minority and always will be in this country.

    This isnt saying there arent things I’m negative about, we still arent getting enough people involved in our recovery but I think our positive people still way outnumber the fear mongers.

  • Tom Brown

    6. should be “precious metals MINING mutual funds.”

  • LVG

    Cullen, speaking of fear, I thought you might be interested in this article by M M T spokersperson Stephanie Kelton who predicted “thousands of” bankruptcies in 2011. They got it just as wrong as many conservative economists.

  • charles fasola

    Bull Shit! Cullen, simply bull shit! And LVG, blindfolded one, a foreclosure is basically a bankruptcy for the average person. Wake up!

  • hangemhi

    ^ exactly Tom. The world and the US has lots and lots of problems – but I don’t see how it is any worse than past years/decades/generations/centuries. The glass half full side case includes the fact that we have far more time on our hands than at any point in history, are much safer from disease, and as this inspiring Ted talk points out – there are now billions of people who can create and contribute to the world

    That said, my glass half empty is global warming/sea rise.

    But I’d rather live in these times tvs. when we were racially segregated, or women couldn’t vote, or a doctor bled you as a cure, and so many other f’ed up things from the very recent past. And oh man, how I love the knowledge I get from the internet… and my smart phone :)

  • hangemhi

    ^ they did – it was the 1980’s.

  • Cullen Roche

    LVG, please don’t start these MMT pissing wars here. It’s not productive. Thanks.

  • Vincent Cate

    If there is any “fearmongering nonsense” in my Hyperinflation FAQ I would appreciate you explaining it away. If you respond to it I will be sure and link to your response at the bottom of my article. So future readers will be easily able to find your rebuttal. I have had over 15,000 views of my Hyperinflation FAQ, so you would be helping a lot of people if there are errors that you can correct.

  • Anonymous

    Ummmmmm I bought Gold at USD300. You base all your ridicule of others thinking on a myopic economic view. Ummmmmm I bought Gold at USD300. On the basis of your post that makes me right about everything and you wrong about everything?

    It’s taken us generations to create this disaster. It will take generations to play out. Closing your mind, based on a couple of years of dodgy numbers, is just plain ignorance.

  • Anonymous

    You chose to ridicule anyone who thinks differently. You have a closed mind which is the most dangerous thing I know when the mind has a public forum.

  • Cullen Roche

    I am not ridiculing. I am asking people to think about their mistakes and consider why they may have gone wrong and how they can fix them. That’s about it. I don’t pretend to have all the answers, but I am a big proponent of introspection and resolving past mistakes so they don’t becoming recurring mistakes. If your ideology and biases led you astray then I hope you’ll consider why that happened and consider the potential answers. I am 100% about being open minded. And any regular reader knows that about me.

  • Shorehaven

    Ok, so you know three goldbugs in your office out of 100 employees. That’s 3%, that’s my point. Or Vanguard Precious Metals is 2 billion in holdings while Vanguard total market is 252 billion. Vanguard’s total holdings in gold as a percentage of their total funds is probably way under 1%.

    Or the federal government owns $300 billion in gold but trillions and trillions in property: military bases, harbors, forest lands, interstate highways, etc. We’re talking about very few owners, and their gold ownership makes up very little of the total net ownership.

  • narayankpl


    This would be true of all the people who made bets in 1999/2000 and people who bought houses in 2005/2006.

    It could also probably be true of people who make bets on stock now.

    In a Ponzi scheme the guy gets in first gets the best deal.

  • Shorehaven

    To answer your question regarding self-directed 401k’s- they are plans that allow you to pick your own stocks.

    The U.S. News article cited, said something like 24% of all Fidelity 401k plans allow this but only 1% of Fidelity plan holders opt for it, 2% of Vanguard and a little over 3% of Schwab. Most other providers don’t offer the self-directed option.

  • Vincent Cate

    Cullen, you have had several posts of the form “the hyperinflationists were wrong because they don’t understand things”. It would be more educational for your readers if you could go point by point down my FAQ and explain how we were wrong. If we are wrong, show us where. Educate people.

  • Cullen Roche

    You’re right. That would be helpful. I’ll work on a post.

  • Vincent Cate

    Thanks! Of the big advanced countries, I think Japan is the closest to getting hyperinflation. So if you want to talk about a concrete example for what things look like before hyperinflation has started, I like Japan.

  • Jib

    I myself and many people I know invested pretty heavily in gold. Bought a small amount of physical gold when the price was between $400 and %800, invested in funds and ETF’s during the run up. At peak, over 30% of my 7 figure portfolio was in gold and PM. Now I am down to 2%. I dont think I will ever sell my physical gold. It is like the coin collection, if I sell it, something very bad has happened.

    I did pretty well getting into and out of gold on time but not getting into stocks. I am holding too much cash, keep waiting for that correction to buy on the dip. I guess that makes me the dip.

  • Mr. Market

    Investors should be fearfull when both the USD & the yen go in a straight HIGHER against e.g Euro.

  • Ray Purdy

    Well Cullen, You could consider yourself the Edward Snowden of the financial world by at least bringing a controversial issue out into the open and getting people talking about it! lol

    I think you are conflating two different things in your posting that need to be separated to get any kind of clarity about what is going on. The “fear trade” among people who play in and out of the markets is TOTALLY different (to me) than the fear/anger that is felt and that you sense in the general population. I support your “fear trade” is dead (or in my view, delayed) in regards to Peter Schiff, the hyperinflationistas etc. But the “fear trade” that you talk about is pertinent to a very small sub-population of the US.
    I DO think that Johnny Evers had a very good point regarding breaking down the data into WHO is more wealthy. You challenged him, he provided data that I felt was relevant. The fear/anger that you still sense from the 99% has nothing to do with Peter Schiff, but has everything to do with the fact that the banksters and well off seem to be getting the lion’s share of the benefits with little trickling down to the lower quintiles. And, this IS borne out by data. I’m going to fault you on this one because you conflate two separate issues (fear in the general population and Fear Trade) which leads to confusion in we responders…..
    Aside from that, I love it that you raised an issue that gets people engaged! 2-3 years and counting in following your blod, and learning each time…….so, I’m grateful.


  • Cullen Roche

    Right, it’s two totally separate issues though. Johnny changed the topic from a trade to a more general economic malaise and I engaged his initial comment for some reason without pointing out that he had changed the topic entirely so he could knock down his own strawman.

    I fully agree that the general malaise hasn’t been resolved. And I fully agree that the rich are getting richer. But that has nothing to do with the post really. The post was about the failure of the fear trade.

  • Ray Purdy

    yes, but……. this IS your statement, which in my opinion, linked something totally different, back into your headline, and thus confused the picture…. “But I have a feeling that there’s more to this general unhappiness than meets the eye.” The general unhappiness may or may not be linked to the fear trade, and I’ve followed Johnny and you, so I know the history. But, you made a link of “general unhappiness” to Fear Trade that was not well supported. If you REALLY were going to stick to your thesis of “the Fear Trade is Dead” you would not have mentioned “general unhappiness” or you would have subdivided the general unhappiness into….”a part o the general unhappiness among stock market participants may be due to ideological, etc etc..” OK, beating a dead horse here. Your general point is recognized, but in my opinion, sloppily presented…! which…considering all that you post, I can readily make allowances for!

  • Cullen Roche

    Fair enough. Guilty of slop! :-)

  • Ray Purdy

    now, get away from this blog and go catch some sea breeze! lol



  • Cullen Roche

    Ha. I’m working today. Not on the site, but on other stuff. I’ll get out there tomorrow. :-)

    Enjoy some sun for me.

  • Tom Brown


    Interesting stats. Like I say, I hope you are correct that not many people have done serious gambling on gold or related investments. The stat that really matters is what is the total $ amount invested in those types of things by Americans. I’ll concede that I don’t see a reason why the stats would be much different in all the categories I brought up from the 401k & Vanguard data you looked into.

    My 401k company is called BMO (a small one I think) but prior to that we had M&I (also small) and before that Fidelity. In all three cases we had the brokerage account option which is relatively popular here (the annual fee is in part based on spreading out the cost amongst those that use the service… thus I recall we have something like about 15 users). I have no idea how many gold bugs there are here, so 3% is a lower bound.

    I looked into using my 401k brokerage service, but decided to use my Vanguard IRA for that instead since I have most of my retirement dollars there (rolled over from previous 401ks) and Vanguard was SO much cheaper! (It’s basically a free service… actually it’s *completely* free for Vanguard ETFs and $2 a trade otherwise. No annual fee).

    Just bringing that up since maybe other people discovered how cheap Vanguard is for that (and maybe some other IRA companies?)) and thus rolled over their 401k funds so they could use the IRA brokerage rather than the 401k one like I did.

  • Tom Brown

    Cullen, I just happened to come across your name here in a Noah Smith article:

    … apparently you (and post-Keyneisans in general) are now counted (by Noah) amongst the “hard money coalition” (HMC)… along with Austrians and conservative traditional monetarists (Cochrane, Phelphs, Bhide, Taylor, Feldstein, Volcker, Meltzer, Rajan, Malpass, Fisher, Melloan, Hatchuel, and the WSJ editorial page).

    Going up against you and the HMC (Noah and others seem to imply) are the ragtag Monetarist Alliance (MA): Smith, DeLong, Krugman, Sumner, Glasner, Rowe, Konczal, Kimball, Beckworth, Christensen, Nunes, etc).


    So Cullen, how does it feel to have “emerged from the woodwork” on this issue?

    Here Noah characterizes the battle lines:

    “This new Macro War is much less of a liberal-vs.-conservative thing than was the fight over stimulus. It’s more about mainstream macro vs. a coalition of non-mainstream groups.”

    Boy I’ll say! Right-wing Sumner has been a LOT more soft on lefty Krugman recently, although he *hates* doing that I think (he’s still “punching hippies” as much as possible… though he’s throwing a few frustrated punches at “conservatives” too recently):

    … and the MA is not w/o other internal strife:

    … but in general the battle lines are set:

    (Lot of good back and forth on that last one in the comments)

    Don’t know if you were aware of that or not… but thought it was interesting. Also, I should say, this is the Krugman piece that led me to Smith’s piece in the first place:

    … of course it’s ridiculous to think that you or any PKers were “driven from the Inflation Hawk line of defense” … but in fairness, I don’t think Smith is asserting that the PKers ever held the “inflation hawk line of defense”… they had perhaps already been at the ramparts that the Inflation Hawks fell back to… (?)… I might be torturing the analogy there a bit…. but then so probably too is Noah!

  • Tom Brown

    Oh, of course I should have realized you would have already seen that! I just now saw your comments in reply to Noah. :D

  • Cullen Roche

    It’s funny that no one knows where MRists sit, huh? MMT people call us conservatives. Austrians say we’re liberals. Noah Smith seems to think we’re a mix of the two or something. I guess that’s kind of the goal though. I would hope that MRists would learn MR and come to lots of differing policy opinions and I think that’s what you see here on this site. In other words, the ideology is largely left up to how the reader perceives things as opposed to the authors forcing something on people. :-)

    And yes, I think Noah gets it right. Mainstream econ is being attacked by the emerging groups. Mainly Austrians though PKers are gaining ground through being right about so much. I personally think it’s not so much a battle as it is an attempt to get mainstream economists to accept some rather basic concepts like banking, double entry bookkeeping, sectoral balances and things that aren’t widely used by mainstream economists. Of course, we also attack the ISLM model, the equation of exchange and some pretty core pieces of mainstream econ thought. But I don’t think any of them have to lose face before they embed PK thinking into their work. In fact, I think Krugman is already doing it.

  • Vincent Cate

    Can you give a link to your attack on the equation of exchange? When I search or pragcap for this I mostly find my comments.…2003.2003.0.3913.….0…1c..21.psy-ab.gwknuLpIcFg&pbx=1&bav=on.2,or.r_cp.r_qf.&bvm=bv.49478099,d.dmg&fp=a03956f548817826&biw=1687&bih=777

  • Cullen Roche

    Tom, you’ll have to let me know what you think of this. I created a new site for the Ask Cullen stuff. That way I don’t have to manage the forum through Pragcap which was a big pain. This way is cleaner, simpler and easier to manage. It’s annoying that it’s a different site, but I like the format. Let me know what you think.

  • Tom Brown

    Took a quick look around… it is a little weird that it works best as another site, but I think anything that works well is OK by me! Looks like it should do the job. Don’t have any questions yet… thanks for putting it up though.

  • Shorehaven

    Over the years our office has had several 401k providers: Putnam, Fidelity, Legg Mason, etc.. We’ve never had the option to trade and we were always offered about ten crappy mutual funds to pick from, and except possibly Fidelity, they always bled us with fees. Right now we are exploring to switch to Vanguard to escape all of the hidden fees.

    Be careful with being anti-precious metals. Many of them have very valuable uses. Back in the 70’s NYC was a horrible place, mostly because of air pollution- young people didn’t want to be there. Today it’s a completely different place because of cleaner air. The EPA of the 70’s mandated cleaner air and a big reason this was achieved was from platinum and palladium. There will be big demand for them in China and India, to clean up their air.

  • Shorehaven

    There is a hierarchy in metals for corrosion. The higher hierarchy metals rot out the lower metals. Higher metals resist corrosion. Precious metals tend to be at the top of this hierarchy.

    For example wolmanized decking used to be treated with arsenic. Arsenic is near the bottom of the metal hierarchy and thus would not rot out aluminum flashing or the common nail. Arsenic for decking was outlawed a few years ago and the new treated protection for decking is copper. Copper rots out common nails and aluminum flashing. Thus flashing is now copper and nails and metal connections are galvanized or stainless steel. The trend in industrial uses is to keep going up the corrosion ladder. It may be a reason autos last longer today.

  • fouad sayegh

    What private investment . I hope you are not referring to the TBTF banks getting into the commodities business,including warehousing and mining.

  • SS

    Reddit for money! Looks awesome. I hope lots of people use it.

  • Mr. Market

    Start with a bond/credit market collapse (=Hyper-Deflation). See Germany after WW I. it had borrowed lots of money to finance the war but lost the war. So, they couldn’t repay their debts. The collapsed credit market forced Germany to finance its expenses by literally printing money. But that printing went into overdrive from say 1921-1923.

    But even then it was a political choice to “Hyper-Inflate”. It was a deliberate attempt to weaken the currency and fuel an economic recovery.

    The question becomes: which bondmarket collapses first ?

  • Johnny Evers

    Thanks, Ray — appreciate that you saw my data points as relevant.

  • Mr. Market

    It’s better to call this thread: “The Hyper-Inflation Fear trade has been demolished”. Being short T-bonds, short the USD and long gold are the signs of an Hyper-Inflation Trade.