After observing the considerable amount of interest over my most recent article, The Astounding Failure of the US Educational System, I have decided to extend that article into a 3-part series. Here’s Part 2.
Normally I don’t read all the comments on the articles I post due to time constraints. I usually skim them from time to time but I normally don’t have the time to read all the comments that people post on every video I upload and every article I post. I just skim comments to see if people disagree or agree with what I’m saying and also to gain more insight from people more knowledgeable than myself about certain topics about which I have written. In fact, having people call me an idiot, misinformed, and bitter is validating. Why? If my articles don’t provoke at least a handful of haters then that means I’ve probably stopped telling the truth and my views have gone mainstream. So I truly don’t mind the hateful comments that call me a moron, embarrassing, and misinformed, because these types of comments inform me that I am accomplishing what I have set out to do in trying to open up people’s minds to an alternate viewpoint. Furthermore, I’m used to the hate by now.
Ever since I started my investment blog, The Underground Investor, in 2006, I’ve been receiving negative and occasionally sometimes even hateful comments. Back then, people called me crazy for repeatedly and passionately advocating the virtues of gold. In fact, quite strangely, I’ve been called by those that vehemently disagree with me, both a left-wing liberal and a far-right neocon nut; a left-wing liberal for discussing gold and silver-price suppression schemes years ago and for drawing attention to the plight of the starving, and a far-right neocon for labeling President Obama as a banker puppet the minute he selected his Wall Street cabinet. The funny thing is that I consider myself neither left or right-wing but an independent that always takes the side of truth and justice.
There’s nothing ever wrong with others vehemently disagreeing with me. I’ve been wrong in the past, and I’ll be wrong again in the future. I only wish that those that express their opposition in the form of name-calling would make more of an effort to provide constructive criticism that actually contributes to the discourse rather than just accusing me of being angry, foolish, or short-sighted. I don’t know why some believe that happiness and truth have to reside at opposite ends of the spectrum. It seems, these days, that if you tell the truth, people assume you must be some disenchanted, bitter, furious, A Time to Kill - Samuel L. Jackson-type of character that screams “Yeah, they deserve to die and I hope they burn in hell!” I guess this type of stereotyping makes it easier to dismiss the truth.
The late Tupac Shakur once said that when the public started criticizing him very harshly for the stories he told through his lyrics, he became self-conscious and considered self-censoring himself, thinking as he wrote his lyrics, “I can’t write that. That’s too harsh” or that he would start deleting lyrics, afraid that they might offend someone. However, he quickly killed the notion of self-censoring his lyrics. Why? He said when he did so, he would suffer from writer’s block and that the sincerity and honesty of his song-writing disappeared. Thus, he concluded, for better or for worse, that he would no longer worry about how people would react to his lyrics but that he would just right whatever flowed from his heart. I tend to think that I blog in the same manner. At times, I make comments that some people will criticize for being too blunt and too harsh, but I never write with the intent of being offensive to anyone. As they say, the truth ain’t always pretty.
In any event, I want to acknowledge my supporters as well and those that provide thoughtful commentary. In fact, I want to address a commenter on my previous article that stated that parents must take responsibility for the education of their children and that education begins at home. I 100% agree with this statement. However, I believe that in today’s modern society, this responsibility has become increasingly difficult to take on for parents as opposed to within the societal structure that existed 40 to 50 years ago. If any of you have read any of the books about the history of US education not only by John Taylor Gatto but also by Howard Zinn, Joel Spring et al, you will discover that there was a concerted effort by the men that funded the US educational system to end the era of the housewife that stayed at home and cared for the children while the husband was at work. How did they achieve this? By debasing and severely devaluing money so that a one-income family would no longer be adequate and by ensuring that both parents would have to enter the workforce, thus drastically decreasing the time parents had to spend with their children. Thus, the goal of the men that funded the educational system was to deploy more influence over children’s thought processes than even their own parents by engaging children in the educational system more hours a day than they would be engaged collectively by both of their parents.
As I usually write the articles I post when I have spare moments in the wee hours of the morning, I often have one of my administrators skim comments of my articles within the first 24-hours after posting just to ensure I didn’t make any egregious factual errors in my frequent haste to write new articles. Regarding the article that comprised the first part of this three part series, The Astounding Failure of the US Educational System, my admin was genuinely upset about some of the negative comments posted in the article (God bless her heart). She came to me and said, “I can’t believe some of the negative comments on that article. That was probably the least self-serving article you have ever written. You should just stop writing these articles if people are going to attack you for writing them.”
Upon hearing how upset my admin was, I told her to hold on and to allow me a couple of days to read through all the comments. When I finished reading all the comments, I went back to my admin and told her, “I read all the comments. There were 280 comments at the time I read them, and maybe only a dozen that were really negative. Look, if one young adult understands what I write and saves himself or herself a life of debt, then that article is worth 3,000 negative comments. And people can say whatever they want to say. It’s a free world and I don’t have a problem with that. Furthermore,” I told her, “I know that my blogs have achieved what I want them to achieve. There’s a young kid in Seoul that has written me many times that I think is brilliant because he already understands how the matrix works. He’s told me that because of my articles, he’s postponing the traditional educational route and going to strike up an attempt at becoming an entrepreneur first. I know he’s going to be successful because he’s passionate and he’s very intelligent in the unconventional, non-academic sense.”
“Okay, then,” she replied. “But you need to really write an article that lets people know how accurate your predictions have been. If people knew how accurate your predictions have been for five years running and that it has nothing to do with your academic career, then maybe they’ll understand your rejection of traditional business academia to a much greater degree. Maybe then, they would get it.”
So without further ado, I’m ironically going to follow up what my admin considered “the least self-serving” article I’ve ever written with what I believe will be the most self-serving article I’ve ever written. Even so, my embarrassingly shameless self-promotion in this article still has a very important point, and that is to illustrate that higher education is not the Holy Grail to knowledge, intelligence, and entrepreneurial success. On April 23, 2008, when I was not yet writing for Zero Hedge, I wrote an article on my blog titled “Will US Markets Crash Now or Later?” that was printed on Seeking Alpha (see the link). If you visit the link and read the comments, many commenters called me naïve and foolish for writing such an article, even though, 18 business days after I wrote this article, the US S&P 500 started a massive 54% decline from the 1440 level to the 666 level that any normal person would define as a crash. So why did people automatically discredit me and believe the “authorities” that preached the economy was fine and that US markets had begun a new bull market in earnest?
Before I answer that question, let’s consider a very small sampling from a much wider list of predictions that I have provided (1) on my blog; or (2) to my clients over the past five years that have come true. The below are exact quotes that have only been extracted and condensed from much more comprehensive bulletins sent to my clients.
My Past Predictions
June 2006: “The dollar has to weaken not a little, but considerably, for the massive U.S. trade deficit to close considerably. And a stronger U.S. dollar of course makes this less likely to happen (a stronger dollar means that U.S. goods become more expensive for foreign countries, so U.S. exports would be likely to decline). However, because American individuals are burdened with debt as well, Bernanke’s hands are tied as to the number of times he can continue to raise interest rates without causing an economic recession. In the early 2000’s many American’s overextended their credit, taking advantage of historically low interest rates to buy huge houses with low mortgage payments that were really over their budget.”
Outcome: The sub-prime mortgage fiasco and currency fiasco that we warned about became a reality. Within just one year, the U.S. dollar lost 15% against the NZ dollar, 5% against the Sing, and 16% against the Thai baht not to mention huge losses against major currencies like the Euro and Pound Sterling.
August 16, 2006: “Over seven and a half years, if your portfolio has tracked the S&P 500’s index as some 97% of U.S. professional money managers aim to do, you have about the same amount of money you had seven and a half years ago – only with the rapid devaluation of the dollar, your same amount of dollars buys much less today, so in all actuality, tracking the index has lost you money. That’s a whole lot of waiting for a whole lot of nothing. And that’s the good news. The bad news is, as of 2006, the U.S. stock market’s performance will likely become even worse for the rest of this decade.”
Outcome: When I made this prediction, every single one of my former colleagues in the investment industry with whom I discussed this prediction laughed (and some quite literally, laughed out loud) at this prediction. In fact I remember one investment industry professional stating that the probability of the S&P 500 closing lower than its August 16th, 2006 level at the end of the decade was ZERO, even if one took the effects of inflation into account. Today, at the near end of this decade, four years after my prediction, the nominal S&P 500 level stands at 1,183.08, down from its nominal level of 1,295.43 on August 16, 2006. Factor in real inflation rates of 10% to 13% between 2006 and 2008 and more recent inflation rates of 8% to 9% (as calculated by shadowstats.com) and the REAL losses in the S&P 500in the past four years become quite substantial.
September 6, 2007: “Increased volatility in stock markets will occur as $370 billion in sub prime mortgages re-set to higher rates, starting with $50 billion in September and $30 billion every month thereafter for the next 18 months to 2 years. Triple-digit losses in the Dow during single day trading sessions will become commonplace…2007, and possibly into very early 2008, will present the last opportunity to buy gold at less than $700 an ounce, but not without some volatility in between….We will see a strong rebound in the U.S. markets after a deepening and scary correction. The rebound will be manufactured again by the U.S. Treasury with the help of the U.S. Federal Reserve.”
Outcome: Although it’s hard to think back this far, on September 6, 2007, gold was trading at $685 an ounce. I presented the above opinions at the Pan Pacific Hotel in Asia at an investment forum, after which several investment professionals approached me and told me they believed that gold was too expensive and that they would wait until gold dropped below $600 an ounce again before they would consider buying. These professionals may still be waiting to buy. Gold rose from the $680 level in September to over $1,000 a troy ounce by March of 2008. The London PM fix never closed below $700 an ounce since then, even when the Fed Reserve engineered its now infamous attack against gold prices in October of 2008. Triple-digit losses in the DJIA happened almost daily or several times a week to open January of 2008 just as I had predicted.
November 16, 2007: “With financial and housing stocks slumping and big corrections in many major global stock markets, much of the easy money shorting markets has already been made, though more will come in the future. I think mutual fund companies are the next best bet for now. As the crisis widens, I expect outflows from mutual funds to occur. There have been some funds whose share price has defied current trends and those would be the best bet, Janus Capital among them (JNS). Janus has a trailing 12-month P/E of more than 40 versus the 29 of its peers. But there are others as well.”
Outcome: During the next four months, Janus Capital’s share price plummeted more than 38%.
January 2008: “We can be assured that in 2008, that the destruction of monetary value in both Europe and the United States will occur...when smart investors finally realize that no fiat currency is safe, I believe that investors (at least the savvy one) will begin to dump the Euro and the Pound as well.”
Outcome: In August and October of 2008, both the Euro and Pound plummeted in value, both losing about 25% in value in a very short time period.
July 22, 2008: “The global financial crisis is not under control and becoming better as [bankers and gov’t officials] continually publicly state. My downside target for Fannie Mae right now would be $4 a share."
Outcome: Though U.S. Treasury Secretary Henry Paulson stated that “[Fannie Mae’s] regulator has made clear that they are adequately capitalized,” Fannie Mae dropped from $19 a share at the time I made my statement to near nothing (turned out my $4 a share prediction was too optimistic!). On September 10, 2007, the US Gov’t nationalized Fannie Mae.
March 11, 2008: “If you are an “old-school” person that believes in the sacredness of and credibility of banking institutions and view Money Market Funds as “safe”, I urge you to re-assess that belief right now. Many Short-Term MMFs invest heavily in Asset Backed Commercial Paper (ABCPs), many of which are backed by these very shady Mortgage Backed Securities. If the MBS’s go belly up, so does the ABCP, and your MMF, which everyone believes can never lose value, WILL lose value.”
Outcome: It took a little bit longer for this prediction to come to fruition, which of course, opened the doors for people to state I was crazy once again. On September 16, 2008, one of the first and largest US money market funds put a seven-day freeze on investor redemptions after the net asset value of its shares fell below $1. Shortly thereafter, two more money market funds also announced their inability to redeem the fund at a net asset value of $1.
March 6, 2009: I stated to my Platinum clients “now is a good time” to add MORE to physical silver holdings. I further emphasized that this was a long-term play and that while “it is always impossible to determine the timeframe for exactly when these great leaps higher in price will occur, [this] is always why I seek what I feel are low-risk, high-reward entry prices.”
Outcome: Since then, silver has risen 78% from $13.12 an ounce to $23.31 an ounce.
May 31, 2009: I stated to my clients “It’s time to be very cautious with your precious metal stocks”. I explained the reasons why I believed danger was imminent (reasons that have to do with gold price suppression schemes) and why the time was ripe to apply tight trailing stop losses on PM stocks.
Outcome: The AMEX gold bugs index (HUI) plummeted from 398.06 on the first day after I issued the bulletin to 318.27 in the next 15 trading days, a 20% rapid fall.
Now let’s look at some of the predictions of my more "educated", more advanced-degree-having colleagues in the industry.
PhD Ben Bernanke and Paul Krugman’s Predictions
July 2005: Bernanke stated there was no housing bubble in the US: “We've got a growing economy, jobs, incomes. We've got very low mortgage rates. We've got demographics supporting housing growth.”
In an interview in which Bernanke was informed of a premise that a housing bubble existed, Bernanke replied: “I guess I don't buy your premise. It's a pretty unlikely possibility. We've never had a decline in house prices on a nationwide basis.”
July 2007: Bernanke stated “[Home] sales should ultimately be supported by growth in income and employment, as well as by mortgage rates that, despite the recent increase, remain fairly low relative to historical norms…The global economy continues to be strong, supported by solid economic growth abroad. US exports should expand further in coming quarters.”
Outcome: Just two quarters later after Bernanke’s first declaration that the housing market would continue to grow, US Median Housing prices (real prices) started a non-stop slide for the next 3 years, falling more than 35%.
November 2006: Bernanke stated, “The motor vehicles sector may already be showing signs of strengthening.”
Outcome: By September, 2008, Chrysler, GM and Ford asked for $50 billion to pay for health care expenses and avoid bankruptcy and ensuing layoffs. By December, President Bush had agreed to an emergency bailout of $17.4 billion to be distributed by the next administration. Chrysler filed for bankruptcy in May, 2009 and GM followed suite, one month later. (Source: Reuters)
February 2007: Bernanke stated, “We expect moderate growth going forward.”
Outcome: In 2007, the revised US GDP was 1.9%, the slowest rate in 5 years. In 2008, the revised US GDP was 0.0%. The REAL GDP rates (versus the officially reported gov’t numbers) were much less, but that’s a story for a different day.
July 2008: Krugman stated that Fannie Mae (FNM) and Freddie Mac (FRE) "didn't do any subprime lending, because they can't: the definition of a subprime loan is precisely a loan that doesn't meet the requirement, imposed by law, that Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income."
Reality: From1997-2007 FNM and FRE acquired a total of $2.2 trillion in subprime loans and private securities backed by subprime loans. FNM and FRE’s failure to classify these loans as subprime is a matter of semantics. FNM acquired loans that carried a FICO score of less than 660 (a regulatory definition of subprime) though it failed to classify these loans as subprime. (Source: Edward Pinto).
March 20, 2009: Krugman stated, “The Fed is, however, creating a new liability: the monetary base it creates to buy these bonds. In effect, it’s printing $1 trillion of money, and using those funds to buy bonds. Is this inflationary? We hope so!...I’m not complaining; I think quantitative easing (it’s really qualitative easing, but I give up on trying to fix the terminology) is the right way to go.”
Reality: Desiring and "hoping" for significant inflation amounts to the endorsement of theft. Doing so signals a desire to plunder the wealth of every citizen, to cripple the elderly that rely on savings to live, and to punish the welfare of younger generations that choose to save now.
Higher Education Often Encourages Arrogance, Not Intelligence
In regard to my above predictions, though I found little to no use for any of the information I acquired from my MBA studies in making any of the economic predictions I posted above, the act of writing my thesis for my Master in Public Affairs was truly useful to these predictions. My topic for my MPAff thesis was media and information filters and censorship. Learning how information is censored as it passes through the various distribution channels of the mass media provided the impetus for my research into the sources and motives for all information that government agencies and bankers release in the media about capital markets. Understanding this process has undoubtedly helped me to understand how bankers move the prices of capital markets up and down. However, I must emphasize that I gained this understanding not inside the academic system, but on my own, outside of, and in spite of, the academic system. I threw out my Keynesian economics background and studied Austrian economics. I studied the money trails among Central Banks, governments and corporations to understand how price behavior really worked in capital markets and discounted the supply/demand dynamics I had been taught. I researched the origins behind all mountain of statistics that move capital markets and asked questions about the origins of these statistics and the motives of the men that created them. Had I not even completed a college degree, I have zero doubt that I would still be able to make the same predictions I made above with the same degree of accuracy. In fact, only when I shed my elitist feelings about attending an Ivy League school and believing that nothing I learned at this institution could possibly be false, and only when I literally de-programmed my brain from the entire body of business academic knowledge I had accumulated within institutional academia did I finally start making economic predictions that consistently came true, year after year.
So how can those with advanced PhDs from the most prestigious universities in America be so wrong? I think the answer is fairly simple. Because of the admiration society bestows upon those with advanced degrees, those with advanced degrees often develop a level of inflexibility in their thinking that I associate with arrogance. For example, I often got in heated debates with prospects that were scientists years ago when I was still working for Wall Street. Because scientists are so used to working with models based upon statistics, many (not all, but many) of them insisted on studying and understanding the meaning of every single portfolio statistic, including beta coefficients, the r-squared statistics, and so on. When I used to tell these prospects that obsessing over these statistics would not lead to any better returns because the reality of markets is controlled by many factors extraneous to these statistics, they still insisted on understanding every little statistic. Thus, I countered with a different strategy.
I discovered that when I informed these scientists that these Wall Street risk models were developed by PhDs in economics from Wharton, they ceased harping about portfolio statistics and in a matter of seconds, amazingly acquired an immediate faith in the validity of these asset allocation models. This is exactly the bunch of rubbish and rigidity that I associate with higher learning at times. All I had to do to convince prospects about the validity of a model they were unsure was valid one minute ago was to tell them that a PhD from a prestigious university developed the model. This, despite the fact that at no point and time did I ever encounter a single risk asset allocation model developed by a Wharton or Harvard PhD that included gold and/or silver. Not one single time for one single day for one single hour. Because I left the world of Wall Street in 2005, some will rationalize the decision of these PhDs to exclude gold and silver as an asset class from even their lowest risk asset allocation models as acceptable because of their belief that the global monetary crisis had not yet started.
This reason is pure rubbish. By the end of 2005, gold was already five years into its bull run, and silver, three years. Both PMs had already embarked on their bull runs because of the cracks in the monetary system that had already begun to show. As soon as I left the corporate investment firm and started my own firm, from DAY ONE of our launch in 2006, we informed our clients that a monetary crisis was under way and that one of the lowest-risk, highest-reward assets they could purchase was gold. Of course I would never have realized this if I continued believing the rubbish I had learned in my Economics 101 textbook that inflation is caused by rising prices.
So are all PhDs, MDs, JDs, MBAs, etc. stupid and are all teachers in the institutional academic system useless? Of course not. There are brilliant MDs, PhDs, JDs, et al, as well as brilliant individual teachers. Still, the expanded base of information of those in possession of advanced degree does not make them automatically more intelligent than anyone else. Furthermore, the system as a whole still produces, from advanced degree programs, many more rigid thinkers than free thinkers, and many more horrible teachers than wonderful teachers. Too many people still foolishly equate the attainment of advanced degrees with intelligence. But perhaps this is an indictment of exactly what is wrong with our educational system today – if we can’t even agree on something as simple as the definition of intelligence, we’re destined to never acquire any of it.
Stay tuned for the third and final article of this series on education, Why Entrepreneurialism, Not Climbing the Corporate Ladder, Will Save the Global Economy. I'll be posting the final part of this series very soon.
About the Author: JS Kim is the Founder & Managing Director of SmartKnowledgeU, a fiercely independent investment research & consulting firm dedicated to helping Main Street thrive and succeed despite the fraud of Wall Street.