So I logged-on to the Yahoo finance page the other day and I came across a main page headline that was a genuinely perfect specimen. No, it wasn’t the “Eight Hottest NFL Wives” or “Superfood that boosts your sex drive” that caught my eye. The headline I read, carefully placed in the dead-center of the page to draw your eye, blared “THE LESSONS OF GOLD’S COLLAPSE”.
Intrigued by the fact that a 29% pullback in 2013 after a monster 500% twelve year bull run could be called a “collapse”, and wondering what sage lessons I might learn from this, I clicked… and was treated to such an outstanding example of a drive-by hit piece that I thought it would be fun to outline all of the techniques used in this article, and frankly many MSM articles, on gold. I think there are actually some valuable lessons to be learned from this thing, but I doubt they are the ones the author wanted me to take from it. So rather than take apart the mistakes of the article one by one (which was largely done in the comments section of the piece by some of the more informed readers), instead let’s examine the standard characteristics of a pedestrian MSM hit piece on gold.
An Overhyped Negative Headline
Much can be learned about the intentions behind an article by examining the descriptive words chosen. Knowing that most casual investors will only scan the headlines, the descriptor in the heading will communicate 90% of the intended message. “The Lessons of Gold’s Collapse” communicates that something ruinous has happened to gold, so terrifying that one needs to learn a lesson from it! Note that a 50% drop in the entire equities market was a “correction”, a 40% drop in a specific stock is a “pullback”, but a 29% drop in gold over the course of a year is a “collapse”.
A few short years ago, Bank of America went from over 19 dollars per share to less than five dollars per share. Did Bloomberg run headlines describing what happened to BAC as a “collapse” or offer snarky articles talking about what the duped investors in BAC should have learned from the loss of more than 70% of shareholder value? Of course they didn’t. Nor did they chastise equities investors as a whole for losing half the value of their portfolios in the 2008-2009 financial crisis. And Mr. Ritholtz certainly didn’t write snarky articles accusing investors of “having a huge emotional investment and an unhealthy investment in the narrative”.
It should be noted that more than half of the ten “lessons” offered in this piece aren’t even specific to gold. Instead, they are standard investing advice (beware of leverage, have an exit strategy, etc) that would apply equally to equities, bonds, real estate, or commodities.
The Pretense of Objectivity
Particularly dismissive articles require a proclamation of neutrality to establish the author’s bona fides. The shopworn pretense is the stance of Hey, I don’t have a dog in this fight, I’m just calling it like I see it. Ritholtz hauls this out early in the piece, proclaiming “As an investor, I am a gold agnostic”. The evidence, however, strongly suggests otherwise.
The first tell is the descriptors used in the article, as mentioned above. The prose is stuffed with negative adjectives and descriptions of gold, including “dead money”, “horrific” price drop, “plummeted”, “trounced with repeated massive selloffs”. The actual article heading at Bloomberg shrieked that gold investors “Lost Their Shirts”! All this hyperbole for an investment that is UP 50% over the last five years, and 340% over the last ten. That is one damn fine shirt!
Next, Ritholtz gives away his game when he writes “This column is not an “I told-you-so” or an exercise in “Goldenfreude” (describing a “delight in gold bugs’ collective pain)”. This is a particularly cheap rhetorical trick, one that would earn even a beginning debate student a sharp reprimand from his or her professor. When an author at Mother Jones writes “I am not one to describe the Republicans as stump-toothed inbred hillbillies” it is crystal clear that this is exactly what he is saying. It is the same as a Republican politician saying “I am not one to call my opponent a terrorist sympathizer or say that she is soft on terrorism”. The pretense of objectivity is even more diminished by the fact that, through the link provided, we learn that Ritholtz actually coined the term Goldenfreude (which ironically would actually translate to something like “golden joy” or “taking joy in gold”… but we know what he meant). This may seem obvious, but one does not sit around coining new terms to describe how sweet it feels when a particular group loses money… unless you are thinking about how sweet it feels when a particular group loses money.
Finally, Ritholtz demonstrates that he is indeed far from an objective observer through an inadvertent admission made via grammatical error. Look closely at the tenses in the following sentence:
“Challenge anyone’s belief on gold, and instead of having empirical, data-driven counterarguments made, the zealots responded with venom.”
Note that challenge is present tense and impersonal (the voice he was trying to speak in for this piece to pretend to objectivity) while responded is past tense and clearly implies the personal “responded to me”. The sentence should read “Challenge anyone’s belief on gold… and people will respond with venom” but Ritholz lapses into a more truthful voice by the end of the sentence, telling how people “responded with venom” to what he, the wording suggests, had to say. Unsurprising, then, that Ritholtz would take delight in gold bugs (those zealots!) collective pain.
Cherry-pick the Timeframes to Support the Narrative
So based on its precipitous 39% drop, gold is “speculative and dangerous” according to this article and should serve as a lesson for what NOT to do in a trade. Horrible, right? Well, I guess it was if you bought all of your gold precisely at 2:51 EST on September 8, 2011. Because that is the exact time you would have had to purchase to achieve the 39% drop used in this article to characterize all gold investing. Neat how that works, isn’t it?
On both a five and ten year timeframe, this “speculative and dangerous trade” as he terms it has outperformed the S&P 500. And the S&P outperforms 60% of all Wall Street money managers in any given year, so it could reasonably be argued that the terms “speculative and dangerous” are more appropriately applied to equities investing in general and to trusting you investments to Wall Street money managers in particular. People like Barry Ritholtz, in fact.
One more thing about timing. Calling something a “bad trade” depends entirely on what your timeframe is for the investment, doesn’t it? If you went long WTI at 43$ / barrel in 2009 and it retreated to 39$ over the next month, would that be a bad trade? Only if you failed to stay long through the run up to 114$. Unless someone has a crystal ball and knows for a certainty what future price is eventually going to be, then we really don’t have any idea whether gold is a failed investment at this moment in time, or is simply in the midst of a healthy correction after a 12 year bull run. That doesn’t stop naysayers from gleefully tap-dancing on gold’s grave after a single, solitary down year, but it doesn’t make them right, either.
Ad Hominem and Dismissal by Definition
Do you know the negative term for people who invest in oil? How about soybean investors, do you know the derisive word used to describe them? What about the dismissive terms for people who invest in real estate, stocks, or bonds? Of course not. Of all investing classes, types, or assets, only investors in gold merit a commonly-known term of derision that is freely used: goldbugs.
There is a good reason for this. Ad Hominem arguments (latin for “to the man”) are a logical fallacy, and are listed as such in every introductory logic or rhetoric course you will ever take. It means attacking the man, not the argument, and it is a logical fallacy for the simple reason that the quality or characteristics of the person making the argument have no bearing whatsoever on the truth or falseness of the argument being made. Once again, use of this term is a cheap rhetorical trick to distract and mislead the listener, and every time you read it you should instantly be wary of the author’s intent because it reveals they are not arguing in good faith.
This goes hand in hand with “dismissal by definition”, under which you libel those who disagree with you as something horribly bad (racists, fascists, pinkos, etc) in the hope that your audience will simply tune out any argument they might make, thus absolving you from having to make an actual argument based on fact, logic, and reason. The use of the term “zealot” in this piece to characterize the already negative term “goldbug” is a pitch-perfect exemplar of this technique. No need to marshal facts or arguments against zealots, eh?
The Credentials Fallacy
One of the more hilarious aspects of this piece was that the author actually attempted to mix it up in the comments section. It was a public forum on Bloomberg, so one might expect a generally uninformed commentary, but I was mildly surprised that at least a significant percentage of comments were well-informed from a PM investing perspective. Though numerous mistakes, assumptions, and dismissals went largely unchallenged (or at least were not called-out in the way they would have been on this board), there were nonetheless some great points made by commenters.
What was especially amusing, however, was the fact that whenever someone would venture their opinion that the gold bull wasn’t dead, Ritholtz would jump in with some snarky version of “Well, what is YOUR public investing track record? What qualifies YOU to make that prediction?”. This is a rather sad version of playing the “Do you know who I am?” card… the answer obviously being “I’m Barry Freaking Ritholtz and you’re not”. In his mind, the only people who are allowed to have an opinion on this matter are those who have posted their investing advice publicly on the internet for the last ten years, all others are unqualified to question his wisdom.
But hypocritically, this doesn’t go both ways. If you offer your opinion and you agree with Barry, he is fine with that and does not demand your credentials. He may even say “great point”. If you disagree with him or suggest that it is too early to call the death of the gold bull, he smears you as unqualified to offer an opinion by dint of the fact that you haven’t been publicly posting stock picks for ten years. I guess some opinions are more equal than others!
Not a shill
Ritholtz notes that he has been called a shill for his anti-gold stance and writings, and I believe this is unfair to him. A shill would be someone who is paid money specifically to produce an anti-gold hit piece like this, where someone (an editor, webmaster, etc) would contact him and say “We would like you to write a piece bashing gold and here is what we will pay you”. I sincerely doubt this has ever happened.
Barry Ritholtz is therefore not a shill. He is a whore. He knows what his employers want to hear without being specifically told, he knows his bread is buttered by producing articles that 1. Pump equities and mainstream investing (preferably creating the illusion that you can thrive in the markets but only if you closely follow Barry Ritholtz), 2. Produce eye-grabbing and mildly sensational headlines to generate clicks and 3. Annoys all the right people, generating just enough controversy to be “interesting” but making sure at the end of the day that alternative asset investors and “goldbugs” in particular are derided and mocked just enough to make sure his employers know where he stands… and he stands foursquare with them, against the barbarians and their barbarous relic.
. . .
So there you have it- a pedestrian hit piece on gold that denies inflation, dismisses Chinese accumulation of the second largest (and possibly the largest?) sovereign gold hoard in the world, disses theories of market manipulation, and goes so far as to claim “the gold market has no fundamentals”(apparently supply and demand do not exist for gold). Undoubtedly some will be fooled by this, while others will gleefully jump on the bandwagon because it makes them feel good about themselves and their worldview (including a former TFMR commenter, interestingly).
But one person’s “horrific price drop” is another person’s golden buying opportunity to stack at cheap prices. I know what I know. And five to ten years from now, I will be happy to compare my “track record” with Barry to see if I am qualified to comment on one of his articles. The question would be, why bother?