Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Wall Street Snake Oil Salesmen Selling Deflation

InvestorEducation / Scams Jan 28, 2009 - 10:32 AM GMT

By: Oxbury_Research

InvestorEducation Best Financial Markets Analysis ArticleWall Street Snake Oil - I'm sure that movie buffs are familiar with the snake oil salesman character which appeared in many Western films. He was a “doctor” with dubious credentials that traveled by covered wagon from town to town. The fast-talking salesman would sell “medicine”, such as snake oil, using lots of marketing hype and bogus “evidence”.

In order to enhance sales, the snake oil salesman would also always have an accomplice in the crowd (a shill) who would attest to the marvelous beneficial effects of the snake oil. The snake oil salesman would, of course, attempt to leave town before the swindle was discovered.

This practice became known as grifting and its practitioners grifters . Fast forward more than a hundred years and we still have snake oil salesmen who try to sell the public something of no real value. Such characters abound on Wall Street and, like their brethren of the Old West, they usually attempt to “leave town” before the swindle is discovered with millions of dollars from bonuses, etc..

A recent example was that terrific grifter , Bernie Madoff. He sold lots of bottles of snake oil promising investors smooth, steady returns year after year. He sold these bottles with the help of his shills – the feeder funds – who promised their investors that to keep their portfolios healthy they needed a dose of Bernie's “medicine”.

For another example of grifting , just look at all of the complex products that Wall Street sold around the world as “safe” investments without anyone being concerned about the risks involved with many of the securities contained within the products.

That scenario reminds me of a Three Stooges short where Moe, Larry, Curly were trying to sell bottles of medicine. Curly and Larry asked Moe, “What is this stuff used for?” Moe replies, “You want to know what this stuff is for?” Curly and Larry say yes. As Moe slaps them, he says “It's for SALE!” That sure sounds like a Wall Street sales meeting to me.

Wall Street Snake Oil Salesmen

People have to realize that Wall Street firms rarely have the best interests of their clients at heart. If anyone has some spare time, they may want to peruse a new book by John Kay of the Financial Times called The Long and the Short of It . Mr. Kay thinks that the financial world is greedy, cynical and self-interested. Gee, I wonder how long Mr. Kay has known John Thain?

Mr. Kay goes on to say in his book that individual investors should avoid most “professionals” and manage their own money. He has several good reasons for this. Mr. Kay points out that professional money managers need to make money off of your investments, whether you make money from the investments or not. Just think of all the fees paid out by investors to “professional” money managers in 2008, only to have these “professionals” lose a large chunk of their money for them.

Another reason that Mr. Kay thinks that individual investors can do a better job of managing their own money rather than “professional” money managers is that the individual can focus on long-term returns and absolute returns, not “relative” returns. Here's a direct quote from Mr. Kay's book - “The major risk a financial advisor runs is not the risk that his clients do badly, but the risk that his clients do worse than other people”, meaning other advisors' clients.

So if a person goes to their financial advisor and says “hey, I lost 30% last year!” their advisor will say, “Yes, but you outperformed the averages!” The emphasis of “professional” money managers is on relative performance, not on absolute performance.

As Mr. Kay also points out, Wall Street “professionals” think only in the short-term. Their primary goal is to beat the “benchmark” on a quarterly basis. If the “benchmark” is negative 30 per cent, Wall Street money managers are very pleased to have clients' portfolios return a negative 20 per cent. That would mean that they are a “star” in the Wall Street universe.

Unfortunately, this type of Wall Street “outperformance” can be very damaging to a client's long-term portfolio, such as a retirement fund. But such concerns really don't matter to Wall Street “professionals”. Where your portfolio stands in 5 or 10 years doesn't cross their radar screen.

I want to again emphasize another point about most Wall Street professionals who appear quite often on CNBC air. Most of these Wall Street people do not think for themselves, or think outside the box. Most of the guests on CNBC air simply run within the supposed safety of the “herd”.

Professor Richard Sylla, financial historian at New York University's Stern School of Business, says that Wall Street analysts and money managers have little incentive to produce anything that deviates significantly outside of the consensus.

Professor Sylla says, “They reinforce each other. That's the only way they keep themselves off the hook.” In other words, Wall Street money managers have their views skewed by one thing – self-preservation. If the money managers stay inside the safety of the “herd”, then their cushy jobs will be safe. Whether their clients make any money is well down on their list of concerns.

I did laugh when I saw one humorous line from Mr. Kay's book which was in agreement with my contrarian instincts. Mr. Kay said, “The best way to use the expertise of the financial services industry is to do the opposite of what they recommend”.

The Latest Bottle of Snake Oil

This brings me to the latest bottle of snake oil that the “doctors” on Wall Street ,with dubious credentials, are selling – deflation. The deflation trade has become an extremely crowded trade. This trade will probably become even more crowded over the next few months as government figures will come out showing deflation.

This will be the bogus “evidence” that the Wall Street grifters will be pointing toward. The shills on CNBC will be telling everyone “Yes, deflation is here and will be here for a long time. Step right up, pardner, and buy these wonderful zero per cent Treasuries! It will lead to healthy portfolios.” Please do not be suckered by Wall Street's short-term thinking shills, who never look ahead more than three months.

People that want to ride along with the deflation “herd” should take a really hard look at what actual deflationary expectations Wall Street has priced into the Treasury market. According to the Financial Times, the Treasury's inflation protected securities (TIPS) market suggests 4 per cent deflation this year and next, with inflation barely returning in 10 years, and also very little inflation for the following two decades.

This is staggering – the Wall Street “herd” is expecting our country to be wandering in the deflationary desert for the next 30 years! This did not happen even during the Great Depression. Anyone believing this delusional scenario deserves to lose their money to Wall Street, just the same as people who bought snake oil from a “grifter” in the Old West.

For contrarian investors, while the Wall Street “herd” is wandering in the deflationary desert, this scenario should lead them to buying TIPS over the course of the next few months. Where else can an investor get a 4.5 per cent risk-free, real yield?

Don't Become a Victim of Grifting,

By Tony D'Altorio

Analyst, Oxbury Research

Tony worked for more than 20 years in the investment business. Most of those years were spent with Charles Schwab & Co., both as a broker and as a trading supervisor. As a supervisor, he oversaw, at times, dozens of employees. Tony was trading supervisor during the great crash of 1987 and was responsible for millions of dollars of customers' orders.

Oxbury Research originally formed as an underground investment club, Oxbury Publishing is comprised of a wide variety of Wall Street professionals - from equity analysts to futures floor traders – all independent thinkers and all capital market veterans.

© 2009 Copyright Nick Thomas / Oxbury Research - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Oxbury Research Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


iffie floyd
22 Aug 09, 14:11

Instead of baiting people as grifters (or victims of), I would expect an article on deflation to provide analyis regarding industrial output. Are supply and demand suddenly non-factors? Deflationary pressures result from bloated inventories and a wane in demand. Wouldn't retail numbers be useful? More useful than this article, i would suggest.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in