Peter Brimelow: Paranoid but still prescient?

By Peter Brimelow
MarketWatch.com
Sunday, October 19, 2008

http://www.marketwatch.com/news/story/paranoid-prescient/story.aspx?guid...

NEW YORK -- Even paranoids have enemies. And make good market calls. Two paranoid but prescient letters are presently pessimistic.

The more I think about Harry Schultz and his International Harry Schultz Letter, the more remarkable its prescience seems. Just go back and read what I wrote way back last year in a column headlined "Schultz sees an apocalypse now":

http://www.marketwatch.com/News/Story/schultz-sees-apocalypse-now/story....

Schultz wrote: "A financial tsunami is upon us." At that time, not even his fellow gold bugs and bears were using that sort of language. But was he right or what?

Caveat: Ironically, Schultz's success as a seer doesn't seem to have helped his performance much, as monitored by the Hulbert Financial Digest.

But this may just mean that monitoring model portfolios doesn't capture all of a letter's value to readers.

Talking of paranoia, Schultz's latest comments advance a distinctive theory of the crash: "There's also the disguised possibility (probability) that the meltdown was engineered by insiders/elite/mega-mega bankers to bring down prices (by busting economies) so they can buy companies, banks, property at Wal-Mart-style discount prices, like 20 cents on the dollar.

"New York bankers and East Coast money did that in Texas from 1984-87, ruining Texas property values, killing off Texas banks, and installing New York banks and East Coast ownership of abundant Texas properties. Suddenly there were no big Texan-owned banks in Texas, and still none today."

Hold it! I know Texans who think this too.

And Schultz is rightly drawing attention to the underreported question of who exactly is profiting from the bailout bonanza.

The current Schultz scenario: "The meltdown will continue until it runs its course, over the next eight-nine years plus or minus, with 6-18 month 'mini-bull-market' rallies along the way, to allow insiders to take profits and sell short."

Although a renowned gold bug, Schultz currently thinks gold may go as low as $621-628 an ounce. But he says that will be a great buying opportunity. Schultz does add that a gold close above $930 would cause him to reconsider.

Schultz's strategy: "Our HSL family is hunkered down, prepared for whatever. We have gold and two-year First-World country non-U.S. dollar bonds (Swiss preferred). With two-year, interest rates don't affect you much. Avoid over two-year. No debt. No margin. Plus a few speculations in chart-happy stocks for trading in and out."

Then there's Bill Murphy's LeMetropoleCafe.com.

Murphy's group of writers has long argued that the gold market is being manipulated by government and private interests to engineer a financial bubble.

Well, we have a financial bubble. And the government is intervening in every other darn place. So why not?

On Sunday night Murphy posted an analysis arguing that last week's gold break was the result of massive short selling, a.k.a. a bear raid.

But, he reported, Indian gold premiums were high, suggesting physical offtake would be strong.

Le Metropole's conclusion: "While the perpetrators of the bear raid, private or official, no doubt went home very pleased with themselves this weekend, in reality judging, by the premiums, they have merely put themselves between the cobra's jaws. Driving world gold into high premium territory in the middle of the main Indian buying season can only have one result."

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