Under the Top

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Kiplinger magazine aimed a soft glove at us. Here, we pause to see what else is between the covers of the January issue…and look for some brass knuckles.

Kiplinger’s complaint was that some of the things we say are “over the top.” We do not deny it. Rather, we protest that we can never seem to get over the top enough. Nature, the markets, and the world itself are simply too…too…over the top themselves. Life is full of surprises, absurdities, and humbuggeries. We have only words to describe them. Our words never seem to be enough. Catastrophe, disaster, horror…where is the word that measures up to the “Death Wave” in the Indian Ocean, for example?

Kiplinger, on the other hand, lives in a different world. It is a world, as near as we can tell, where every thought is commonplace…every idea is convenient… and every stock always goes up. We say that not as a calumny. There is no shame in it. But neither is there any glory. Instead, Kiplinger must live day to day in the dreary dust of following the crowd…painting smiley faces on public buildings.

We stand still in awe and wonder. What beautiful minds construct such a happy, unclouded world? A dear friend of ours believes different areas of the brain control optimism and pessimism. A stroke many years ago changed his personality, he says. Before, he had been evenly balanced between lightness and dark. After the stroke, the windows were always open and the sun always shone. What has happened to the staff at Kiplinger, we ask? Someone should check the water in their Washington, DC, headquarters. Maybe it could be bottled.

We look on the masthead, expecting to find Abby Joseph Cohen as Editor-in-Chief. But no. Instead, there is a Mr. Fred W. Frailey, who begins his opening letter with these intriguing words: “You hate me.”

In truth, it had never occurred to us to hate Mr. Frailey. We never even met the man. We read on with interest to find out what the source of our animosity was meant to be.

“Just six months ago, I declared on this page that I would not buy Google’s initial public offering because I didn’t have the stomach for the risk that would come with paying so much for the Internet stock,” he writes. So far, so good. But he figures readers are pretty mad, since Google went straight up afterwards.

Mr. Frailey’s mea culpa included an admission that Google’s P/E of 118 “freaked me out.” There is nothing particularly astonishing about this. It should have freaked him out, in our opinion. Unless you really understood the business, which neither he nor we did, buying Google shares was pure gambling — hoping that they would go up for reasons that you could neither fathom nor control. Not buying a stock that would take 118 years’ of earnings to pay you back…about whose business model you don’t have a clue…whose managers you’ve never met and whose product you barely comprehend…does not sound dumb to us.

But not buying Google had a strange effect on the Kiplinger editor. It made him feel “stupid,” he says. Why? Because the shares went up! How would he feel if the shares had gone down — smart? As far as we know no actual connection has ever been discovered between financial publishers’ intelligence and stock market movements, but Mr. Frailey seems to think there is some link. He is so disturbed by it that it leads him to a breathtaking turnaround. In “atonement,” he tells us that he is buying the shares now — at $181!

What kind of investment method is this, we wonder? Wait ’til shares go up in price — and then buy them? We have no Googles in our portfolio to prove we are smart. And we certainly have no idea where Google shares will go from here. But we offer this free advice to Mr. Frailey: Think again. Chasing tech shares up to extraordinary levels does not sound to us like a winning formula. Crowd following rarely is rewarding — especially when you’re at the tail end of the group.

Mr. Frailey’s photo suggests a man with the normal cares of middle age. But on the cover is a young couple without a care in the world. Man and wife smile broadly. They’re “looking to buy great stocks at good prices.” That certainly sets them apart, doesn’t it?

“Where to put your money now,” the headline promises. It’s a question loaded with traps and troubles; but it seems so innocent…so easy…so risk-free in the pages of Kiplinger. For there on page 21, we learn that all is well in the economy. “Back into balance,” says the headline. “Steady growth — more jobs, low inflation and slightly higher interest rates in 2005.” How Kiplinger knows these things, we cannot tell you. But they report them in such a matter-of-fact style, you almost believe they are true, rather than mere wild guesses. Of course, they are not. Kiplinger editors are merely reporting a consensus view — one which is likely to be right, wrong, or somewhere in the middle. One thing it is not likely to be is profitable for investors, since everyone and his half-wit brother reads forecasts like this and invests accordingly.

But we push on…why not? It is all in good fun.

“The lackluster market for most of 2004 has set the stage for superb returns in 2005,” says old Kip. “Confidence in the economy will grow…gains of 10% are achievable in the coming year.”

Then, the magazine brings out its cover stars for the month — a doctor from Rockville, Maryland, and his wife, Jessica.

“This is a moment of opportunity,” says the sawbones-cum-market-seer, who “sees opportunity in technology and biotechnology…”

“Given today’s interest rates, stocks are, at worst, fairly priced and perhaps even undervalued,” the magazine continues.

Nowhere do the editors admit that they have no more idea than anyone else. Nowhere do they say…well…at least that’s one guess. Nowhere do they have the modest grace to warn readers that the exact opposite of what they forecast could also come to pass…and that readers ought to at least take a few precautions. Instead, they’ve got the poor schmucks chasing “great stocks at good prices” at the beginning of what could turn out to be a 15-year bear market!

But what the heck, it’s just money.

And over on page 40, they do acknowledge that things might not go entirely as planned. “Some professionals believe corporate profits could actually decline in 2006(!),” they allow. Then, they turn to their handy Rolodex to call up some Wall Street shill pretending to be a pessimist. Stocks, says David Durst of Morgan Stanley in New York City, may return “half of what many people think,” — or 6%! Wow…what a bear! Won’t someone please stop that man before he cuts his wrists?

We searched all 108 pages of Kiplinger’s January issue; we could find no clouds bigger or darker than Mr. Durst’s pathetic little wisp.

Au contraire, the sun is shining everywhere. On page 32, James K. Glassman tells us it is time to reconsider technology. Growth funds, too, are “ripe for a comeback” on page 54. Meanwhile, real estate will have “no bubble trouble,” it says on page 67. Instead, “look for another year of strong home prices.” And here we have another insight into Kiplinger’s strange world; it is a world with only buyers. People never sell. “The youngest baby-boomers are buying up,” says the magazine, “and the oldest are buying up or buying second homes.”

What happens when the oldest of the oldest die? What happens when the sun goes down?

What happens when they switch water companies at the Kiplinger’s headquarters?

Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century.

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