Economist on Wall Street Notes on the Sanctity of Gold, the Value of Money, the Security of Investments, and Other Delusions Peter L. Bernstein John Wiley & Sons, Inc. ffirs.indd iiiffirs.indd iii 7/16/08 9:03:52 AM7/16/08 9:03:52 AM ffirs.indd iiffirs.indd ii 7/16/08 9:03:52 AM7/16/08 9:03:52 AM economist on wall street ffirs.indd iffirs.indd i 7/16/08 9:03:51 AM7/16/08 9:03:51 AM ffirs.indd iiffirs.indd ii 7/16/08 9:03:52 AM7/16/08 9:03:52 AM Economist on Wall Street Notes on the Sanctity of Gold, the Value of Money, the Security of Investments, and Other Delusions Peter L. Bernstein John Wiley & Sons, Inc. ffirs.indd iiiffirs.indd iii 7/16/08 9:03:52 AM7/16/08 9:03:52 AM Copyright © 1970, 2008 by Peter L. Bernstein. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. Originally published by The Macmillan Company in 1970. 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HC106.6.B46 2008 330.973'0924—dc22 2008028075 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 ffirs.indd ivffirs.indd iv 7/16/08 9:03:52 AM7/16/08 9:03:52 AM For Robert L. Heilbroner ffirs.indd vffirs.indd v 7/16/08 9:03:53 AM7/16/08 9:03:53 AM ffirs.indd viffirs.indd vi 7/16/08 9:03:53 AM7/16/08 9:03:53 AM viivii New Foreword by Arthur Levitt Jr. ix Original Foreword by Gilbert E. Kaplan xv New Introduction xxi Original Introduction xxxi Chapter 1 Priorities Is . . . 1 Chapter 2 The Feel of the Market 8 Chapter 3 Infl ation and the Economy 83 Chapter 4 Gold and the Balance of Payments 133 Chapter 5 How Wrong Can You Be? 174 Chapter 6 The Economist as Portfolio Manager 179 Chapter 7 Philosophy and Fantasy 225 Index 285 Contents ftoc.indd viiftoc.indd vii 7/16/08 9:04:14 AM7/16/08 9:04:14 AM ftoc.indd viiiftoc.indd viii 7/16/08 9:04:14 AM7/16/08 9:04:14 AM [...]... predictions made One section, in fact, is designed to show how wrong one can be in this game of trying to guess the future In this connection, I stress once again that these essays should be read with one eye on the date of publication The topicality of what they have to say seems to bear surprisingly little relation to the amount of time that has passed since I wrote them Although the selections in... based on the size of the funds under management rather than in return for brokerage revenue This arrangement, which is standard xxi flast.indd xxi 7/16/08 6:30:21 PM new introduction in the money management business today, has eliminated the long-standing conflict of interest that arises when an investor takes advice from a broker who makes money only when the client trades A long-term, buy-and-hold... heights even in prosperous times It thus fell to Bernstein and his longtime friend and fellow economist, Robert L Heilbroner, to turn out a book that would explain the Administration’s remedies to the public and, more important, to the Congress The result was the immensely popular A Primer on Government Spending, produced after a series of marathon writing sessions starting at six o’clock in the morning,... Peter’s good-natured participation sealed the deal Indeed, getting to know one’s partners on a personal level is one of the benefits of a growing firm, and those relationships soon become part of the culture Peter was a guest at our home, as my wife and I have been at his Indeed, I’ll never forget our first visit to his apartment near Sutton Place I knew Peter as this former Williams College economics professor,... topics and answered other kinds of questions So the issue is moot xxx flast.indd xxx 7/16/08 6:30:24 PM Original Introduction P eople in Wall Street spend an inordinate amount of time telling one another things that are wrong, that the listener has heard already, and that he will soon be repeating to someone else But if all the myths and homilies of the conventional wisdom were true, wouldn’t all of... minority opinions at the time they were printed—and, in retrospect, I find that, the lonelier I felt in the positions I took, the more accurate my forecasts turned out to be xxxiii flast.indd xxxiii 7/16/08 6:30:24 PM ori g i nal i nt roduc t i on Most of the selections are monthly bulletins that I wrote for the clients and friends of my investment-counsel firm, Bernstein- Macaulay, Inc.; space limitations forced... But unlike many others writing in the field, he shuns the emotional and visceral reaction and gravitates by instinct toward a rational and logical point of view To measure the extent of Bernstein s influence as a writer and an economist one need only look back to the days of the Kennedy Administration, an era when the government’s fiscal responsibility to smooth out peaks and xvii flast.indd xvii 7/16/08... presence on Wall Street especially compared to our fledging ix flast.indd ix 7/16/08 6:30:18 PM new foreword enterprise It would be a real coup for us if we could convince Peter and his firm to join with ours Undaunted, I approached a friend, Hal Edelstein, who was an associate with Bernstein- Macaulay, about whether his small but well-regarded investment advisory firm would consider a relationship with... philosophy, and wideranging discussions of the outlook for inflation and the role of gold Part of the fun of writing the releases was the opportunity to break away from the nitty-gritty of investing and explore more of the world around us Those pieces consistently reflect the liberal views I held with such strong convictions at that time—and still do hold, although with convictions less absolute than in the... day, and Bernstein- Macaulay became part of our enterprise, which over the years morphed into what is the Smith Barney brokerage arm of Citigroup During the honeymoon period leading up to and following the merger, Peter displayed some of the traits I find to be frustrating and endearing Over and over, Peter insisted upon the independence of Bernstein- Macaulay His clients, mostly high-end professional and . electronic books. For more information about Wiley products, visit our web site at www.wiley.com. Library of Congress Cataloging-in-Publication Data: Bernstein, Peter L. Economist on Wall Street. AM economist on wall street ffirs.indd iffirs.indd i 7/16/08 9:03:51 AM7/16/08 9:03:51 AM ffirs.indd iiffirs.indd ii 7/16/08 9:03:52 AM7/16/08 9:03:52 AM Economist on Wall Street Notes on. Economist on Wall Street Notes on the Sanctity of Gold, the Value of Money, the Security of Investments, and Other Delusions Peter L. Bernstein John Wiley & Sons, Inc. ffirs.indd