The Financial Newsletter Racket

This chapter is based on Douglas E. French, “PFP266 | Doug French, “The Financial Newsletter Racket” (PFS 2023),” Property and Freedom Podcast (Jan. 1, 2024; www.propertyandfreedom.org), a speech delivered at the 2023 Annual Meeting of the Property and Freedom Society in Bodrum, Turkey (Sept. 24, 2023). The informal tone of the speech as delivered in Bodrum has largely been retained.

Introductory Remarks

Thank you, Hans, and of course, the other doctor and the family, Gülçin [Imre Hoppe], who evidently hasn’t made it up this morning yet—or at least isn’t in the room. I certainly want to thank her, and I want to thank you for the invitation, your friendship, and your hospitality, as always. Anybody who’s been in the conference business knows that this is very difficult to pull off, and the Hoppes make it look very easy—and it’s not. So, we’re all very thankful.

I don’t see her in the room, but I’d also like to thank Lala, Gülçin’s daughter, for being behind the scenes for many years here, keeping things moving. Also, the newest member of management, Nick Hoppe, has been a great addition. If you haven’t met Nick, you should. And of course, the indispensable Jay [Caner (Jay) Baykal]—only goes by one letter—but Jay has been here for years, and I’m not sure what some of us would have done without him.

Having said that, this is called “The Financial Newsletter Racket.” This is probably not one of the weightier papers you will hear presented this weekend, but hopefully, it’ll jumpstart the Sunday program. It is the second iteration in my planned “racket” trilogy. The first was delivered last year, and the third remains to be completed.

Introduction

Those of us of a certain age get emails constantly, many informing us there are easy ways to get rich. Here are just a few I picked out. The first one: “THIS PORTFOLIO HASN’T LOST THIS CENTURY” is what’s being advertised by one newsletter operator out there. And the second: “THESE COMPANIES ARE THE FUTURE OF STOCKS, MY MOONSHOTS.” And my favorite: “BE READY TO ACT WHEN THE WORLD STOPS.” That’s the one you really need to pay attention to. After all, we all need to be ready to act when the world stops.

Now, maybe you were around in 2002 to receive an email from a certain newsletter company—and we will refer to them as “The Newsletter Company.” They had a subject line like: “DOUBLE YOUR MONEY ON MAY 22ND ON THIS SUPER INSIDER TIP.” The email claimed analysts at The Newsletter Company had come into possession of certain details of a pending approval of a major international agreement that “will create more than $2.5 billion in profits for one small company.” The email identified the issuer as a company that was involved in the nuclear energy field and that would benefit from the arms reduction treaty between the U.S. and Russia.

The email, sent on May 14, 2002, it claimed that investors would “make a fortune” because The Newsletter Company had a “senior executive inside the company” as a source for its inside information. The Newsletter Company claimed that the executive was “definitely in a position to know the intimate details of this agreement” and when it would be approved. Therefore, according to the email, The Newsletter Company was in a position to “tell you EXACTLY WHEN” the deal would be finalized and announced to the public.

So, the email encouraged recipients to stake their entire investment portfolios on this unnamed company and suggested investors would be able to double their “investment dollar in a single day.” Finally, the email stated The Newsletter Company “can even tell you exactly which day to buy,” which was May 21st of 2002, “and which day to sell,” which was May 23rd. So, you buy one day, and two days later, you would sell. There was absolutely nothing else you had to do, according to the email.

The email did not give the name of the company, but it indicated it was listed on the NYSE and offered to sell a full report, including the name of the company, to subscribers for the princely sum of $1,000. Five years later, The Newsletter Company paid a significant fine to the SEC. And by the way, the tip did not pan out.

Someone working for this The Newsletter Company is reported to have heard the head man saying to his staff, “We are not a financial news service. That’s what the Wall Street Journal is for. We’re a marketing company. Subscribers come to us for actionable ideas.” The above was an actionable idea that sold over a million dollars in newsletters, according to the SEC.

But the head man, he’s been quoted as saying, “Our company publishes ideas—useful ideas, information, and opinions that make people more independent financially, physically, and intellectually.”

Now, this pitching of actionable ideas started a long time ago. In fact, in 1862, Mark Twain began writing for the Territorial Enterprise in what was then “the richest place on Earth,” Virginia City, Nevada. He started as a newspaper reporter making $25 a week and eventually got a raise to $40 a week. But he didn’t need his salary. When he wrote about the mines, speculators would give Twain shares in their mines. He would sell the shares and live comfortably off the profits. Reporters were given shares on the assumption that they would promote the mines in the newspaper.1

Now, that may seem crazy, but to this day, newsletter writers in the junior gold space—junior resource space—are frequently given shares and warrants to pump up shares in their newsletters. So, it’s a practice that continues until this very day.

Now, Twain learned very valuable lessons in branding and marketing. He learned the value of promoting a product, especially when it was worthless, and how to do so persuasively, with cunning. Mine owners didn’t care what the paper reported, provided they just said something. Twain wrote,

Consequently we generally said a word or two to the effect that the “indications” were good, or that the ledge was “six feet wide,” or that the rock “resembled the Comstock” (and so it did—but as a general thing the resemblance was not startling enough to knock you down). If the rock was moderately promising, we followed the custom of the country, used strong adjectives and frothed at the mouth as if a very marvel in silver discoveries had transpired. If the mine was a “developed” one, and had no pay ore to show (and of course it hadn’t), we praised the tunnel; said it was one of the most infatuating tunnels in the land; driveled and driveled about the tunnel till we ran entirely out of ecstasies—but never said a word about the rock.2

Twain would squander half a column of adulation on a shaft, or a new wire rope, or a dressed pine windlass, or a fascinating force pump, and close with a burst of admiration of the “gentlemanly and efficient superintendent” of the mine—but never utter a whisper about the rock. Mine owners, Twain wrote, “were always satisfied.”3 As Twain wrote,

Occasionally, we patched up and varnished our reputation for discrimination and stern, undeviating accuracy by giving some abandoned claim a blast that ought to have made its dry bones rattle—and then someone would seize it and sell it on the fleeting notoriety thus conferred upon it.4

In this environment,

investment money came roaring in, and the price of shares kept pushing skyward. From San Francisco and other cities, even ‘washerwomen and servant girls’ would pool their resources and send agents to buy shares for them.5

Now, Twain, during this time, amassed a box of stock certificates, and in fact, he resigned from the Territorial Enterprise and moved to San Francisco.6

This reminds me of a certain newsletter publisher—he might have appeared at this conference once before, I’m not sure—but this newsletter publisher has created the “Eight P’s” of resource stock valuation. The first one is People: “Who are the key players involved in the company?” Number two, Property: Keep in mind, 95 to 99% of the land owned or controlled by mining companies will never become mines. Phinancing—with a “ph,” of course—finding financing at a reasonable price. Number four is Paper: Some companies will too quickly dilute existing shareholders by raising money from sweetheart financings.

In fact, all mining companies will dilute their existing shareholders. Most mining companies are very inept at mining minerals, but they are very adept at mining the pockets of shareholders. Number five is Promotion: The fine art of being able to communicate your story to the broad community of investors and analysts. Politics: Research the political climate in a country where your company wants to go mining. The fact of the matter is, even in the United States, it is very risky to mine—not as risky as South America, where once you find the material, once you start mining the material, then the government will quickly—or the shareholders can quickly watch the government—take over the mine or nationalize the mine, and they lose their investment.

Push: Something called push—any important development that either adds value to the company or removes a negative. And then, of course, Price: A deposit may be worthless if the price of an embedded material or minerals is “X,” but may become economic if the embedded mineralization goes to “2X.” At “3X,” the project may be worth hundreds of millions of dollars. But again, through these Eight P’s, what is never mentioned is anything about the rock.

Now, the business plan for the modern financial newsletter is, first, you give away something for free. It’s a daily newsletter, and many of us of a certain age get these newsletters sent to us, whether we want them or not. The free newsletter may give us something amusing to read. In fact, there’s at least one attendee at this conference—not necessarily this particular conference, but in years past—who has been in this business. I was on the free end of the newsletter chain, but what is always gently upsold is the next layer or next step, and that is the newsletter with some good stuff for $89 a year.

And then, once you get the $89-a-year newsletter, they will gently upsell you, the subscriber, to get the “double top secret” information to make sure that you get rich, and that goes for, say, $999 a year. Now, the managers of these operations constantly hector writers at all stages to provide actionable ideas. The writer doesn’t have to be right, but if he or she does happen to be right, it will add longevity to their writing career. The Newsletter Company doesn’t care how well the subscribers do with their investments. If they unsubscribe, new writers and new pitches will be found—pitches like “DOUBLE YOUR MONEY ON MAY 22ND ON THIS SUPER INSIDER TIP.”

Now, besides actionable ideas, the other thing that was stressed to employees of The Newsletter Company is that the writing cannot be too complicated. The writer’s work is run through the Flesch-Kincaid Grade Level test. The company wanted the writing to be at the sixth-grade level and certainly no more than the eighth-grade level. If it was at the 11th or 12th-grade level, that is far too complicated. So, for instance, any of the material on the desk out in front of this room that is for sale would be considered too complicated. And in the case of Stephan Kinsella’s book, far too heavy.7

Now, the way the pay worked is that, using the insider tip case, the newsletter writer would get 10% of, say, the million dollars that was brought in on a particular idea, beyond a small salary. But the pitch writer would also get 10%. It’s the person who comes up with the idea to write “DOUBLE YOUR MONEY ON MAY 22ND ON THIS SUPER INSIDER TIP.” Those are the people who are revered in the newsletter industry. Those are the people who inspire action from subscribers, and these are the people who are held in the highest esteem.

The companies also hold conferences, of course, so subscribers can hear from their newsletter heroes. Past symposium recommendations generated gains as high as 167%, 331%, 458%, even 1,035% in one year. It’s always advertised that if you go to one of these conferences, you’re going to hear something that’s going to make you a lot of money.

Helaine Olen, who authored a book called Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, interviewed a gentleman by the name of Barry Ritholtz. I’ve been on at least one panel with Barry, but he described the whole shebang as a place where “the wealth to unhappiness ratio is simply astounding.” She asked Ritholtz why the well-off would attend such a conference. He replied, “Talk of doom often appeals to intellectuals and others who traffic in ideas.”8 And of course, that may remind us a little bit of yesterday’s presentations.9

I’ve heard it said that optimists get rich while pessimists sound smart. But in fact, Olen writes, “Almost all sellers of doom are excellent marketers.” In fact, they market every day. They send you an email every day that the world is coming to an end, the value of your money is going away, the government’s going to steal your money, and they are relentless, and they market you constantly.

Speaking of doom and gloom, some of you may remember Howard Ruff, the late Howard Ruff, who wrote a book called How to Prosper During the Coming Bad Years.10 At one time, he was bringing in $90 million a year from newsletters, boot camps, a precious metals company, even a board game called Life is Ruff. Eventually, his subscriptions dropped from 175,000 to 3,000, and he would lose his home to foreclosure in the early 2000s.

So, in 2021, The Newsletter Company I spoke of earlier that had been fined by the SEC—this time it and several of its affiliates agreed to pay a $2 million fine to settle a Federal Trade Commission charge that they tricked seniors into buying newsletters that falsely promised a cure for type 2 diabetes.11 This is also fertile ground in the newsletter business—not just investments. People aren’t just worried about their money; they’re worried about their health. So, you can always make outrageous claims to them and sell newsletters that way.

The offending publication was called The Doctor’s Guide to Reversing Diabetes in 28 Days. According to the FTC, The Newsletter Company falsely marketed the Doctor’s Guide as a simple and scientifically proven protocol that can permanently cure type 2 diabetes in 28 days, without any changes to diet or exercise—that was the beauty of it. The FTC alleged that the defendants falsely touted a “100 percent success rate” and claimed that mainstream treatments are ineffective and may even make consumers’ diabetes worse. The Newsletter Company’s marketing materials for the Doctor’s Guide deceptively advertised that the disease—which the company claimed was caused by electronic devices—could be cured by a combination of natural products called “Himalayan Silk,” “Epsom Blue,” and “Chromanite.”

In its complaint, the FTC also alleged that the company and a second group of related defendants marketed other publications, including a book titled Congress’ Secret $1.17 Trillion Giveaway, that falsely promised it would show consumers how to claim hundreds of thousands of dollars to which they are entitled in “Congressional Checks” or “Republican Checks.” Consumers who bought these products, however, found that they merely described an investment strategy focused on dividend-paying stocks, which would require consumers to risk thousands of dollars to obtain the promised amounts.

Now, back to Mark Twain. Poor Mark—and of course, as hopefully everybody in the room knows, or at least most people know, Mark Twain was a very famous humorist and probably one of the prominent men of letters, wrote Huckleberry Finn and other works, at least in the English language. At one time, the Comstock mines were valued at $40 million, and back in the 1860s, $40 million was real money. But the value of those mines fell to $12 million in 1863, and by the end of 1863, they had fallen to $4 million.

During the boom, Virginia City—and if you ever go there, it’s a single street of saloons and things, people selling quartz rocks and things like that—it’s just a little tourist area. It’s a single street, but at one time, it had a population of 25,000 people. But most of them left in 1864 and 1865. Twain recalled,

The wreck was complete. The bubble scarcely left a microscopic moisture behind it. My hoarded stocks were not worth the paper they were printed on. I threw them away. I, the cheerful idiot that had squandered money like water and thought myself beyond the reach of misfortune, had not now $50 when I gathered together my various debts and paid them.12

Now, I want to end on a positive note. The company head—the head man for The Newsletter Company that I’ve referred to a couple of times with the FTC and the SEC allegations—he’s still looking for copywriters, and there could be copywriters in this room, who knows? He says, “I’m always looking for more copywriters, lots more. There just aren’t enough to write the thousands of letters my company needs written every year. And I’m not alone. The whole industry needs more copywriters.”13

He even has something—if you don’t think you have the secret sauce to make this happen—he has a secret; it’s called “indirection.” He calls it not straightforwardness or clear writing, nothing like that. He calls it indirection, a copywriting technique that keeps your reader glued to the page by leading him or her seamlessly through a series of persuasive and compelling ideas.

So, the good news is, ladies and gentlemen, you can buy the secrets to indirection for $29, and you too can be part of the financial newsletter racket.

Thank you.

Addendum

During the Q&A, we had the following interchange:14

Unknown Speaker (Audience)

I have three quick questions. For Doug: What are your three favorite financial newsletters? …

Doug French

First of all, my favorite, by far—and I am a paid-up subscriber—is Grant’s Interest Rate Observer, which has been in business for 40 years. The primary writer and proprietor is James Grant. If you haven’t read James Grant, he has many books and is a big fan of the Austrian School. It’s probably in every other newsletter he mentions Austrian work in one way or another. It’s expensive, I will tell you that, but it’s not as big on actionable ideas and hyperbolic pronouncements. A lot of it is economic history. So if you have the time and you’re interested in just great financial writing, Grant’s Interest Rate Observer is a wonderful publication.

Secondly, I also subscribe to what I consider a financial newsletter, even though they are videos online, and it’s called Real Vision. Real Vision follows the same format. It has a free daily that you can get either on X or you can sign up for it. You get long-form, 30-minute interviews that are quite insightful by people who are outside the CNBC typical financial framework.

Then they have a next step, which is called the Essential step—I forgot what they’re charging for that—and then beyond that, if you really want to dive deep into this stuff, they have another level. It’s set up just like a financial newsletter. Raoul Pal is the proprietor of this. He lives very nicely in the Cayman Islands, it sounds like. I find it very useful because it gives a variety of points of view and makes me think, even though I’m listening to somebody that I don’t necessarily agree with. Sometimes, Keynes said that at some point, you don’t judge the merits of individual securities; you try to guess what the public is going to do next. From that kind of newsletter, from Real Vision, I would recommend trying to do that.

I struggle to find a third because it falls off very quickly, but there probably are others out there. I know people who, until his recent death, were dedicated subscribers to Gary North, and who a few of us know. They were very happy with his work. Those are the two that I can think of.

As far as general advice is concerned, somebody like Doug Casey is, of course, useful, but there’s not so much direct financial advice but simply making you aware of the dangers of the world and how you can protect yourself against those dangers. He thinks along the same lines that we think. I had him here a number of years ago too. He has this website, International Man, I think it is called, that is useful to read, but not if you think, “I will become rich and follow his advice.” He advises you just if you want to protect yourself from inflation, investment in gold and gold mines might be a good idea, and things of that nature—very useful but not directly useful on your way to becoming a multimillionaire.

Unknown Speaker (Audience)

A short question for Doug: I was curious if you’re going to have a third part of your series and what it might be about.

Doug French

Did you have a question for me? What was it? If there’s a third part of your series, what would it be? Well, our gracious host here has not signed on to this yet, but yes, I do have a third part planned. It’s already written, and I’ll tell you what it is: it’s the entrepreneurship academic entrepreneurship racket of teaching entrepreneurship, or as I might call it, teaching the unteachable.

I’ve done the work already; I’ve done the paper. Yes, if there is interest in hearing about that, I know that there are plenty of Austrian friends of ours who are making a handsome living at various US universities, but virtually every US university is now adding an entrepreneurship program because young people view entrepreneurship as being rich. They want to be rich; they want to own their own company, and they believe that’s something you can sit in a classroom and learn. History certainly defies that.

So, yes, that would be the third part to the racket series if there is an interest in anyone wanting to hear it.

Hans-Hermann Hoppe (Audience)

To these people, I would also say, if you are so smart, why ain’t you rich?15 No, entrepreneurship cannot be taught. The only thing that economists can do for entrepreneurs is to help them avoid absolutely stupid mistakes. But that’s the most that they can do. If you see the money supply going up all over constantly, and then people expect that prices will fall next year, obviously, they are making a big mistake. But those are the only things that we can tell them.

There are many successful entrepreneurs who are dumb when it comes to passing a microeconomics class with myself, but nonetheless, they are far richer than I am. Obviously, they have skills that I don’t have, and you cannot teach these sorts of skills. If you could teach them, then you could not even explain why there are successful people and unsuccessful people because then there would be some sort of algorithm that you have to follow, and then you will be a successful man. I don’t know anything about these artificial intelligence things so far, but some people think that artificial intelligence will allow us to make successful predictions in terms of the stock market.

I think that is also all nonsense. If that would really be the case, then all people would use the same sort of artificial intelligence and make the same forecast. But if all people make the same forecast, then these people will not be rich because all buy the same stocks. So, artificial intelligence will not help us. They help us to do certain routine things more easily. I think judges will have difficulties keeping their jobs in the same number because artificial intelligence will tell them all the judgments that were made in similar cases. People who write fundraising letters or something like that—there exist probably thousands of fundraising letters, and artificial intelligence will write a nice letter to tell people why they have to donate for this or that instead of employing deep thinkers to write these fundraising letters. Artificial intelligence can probably just turn them out in a minute for any type of purpose for which you want to raise funds. But entrepreneurship cannot be taught.

Peter Wong

I have some statements to make in response to Doug as well as Dr. Hoppe’s comment on Doug Casey. I try to defend the indefensible regarding newsletters because I’m currently a writer in a financial column. I don’t know whether I should be classified as one of those newsletter producers, and in a way, maybe I’m also selling snake oil.

Personally, I write a financial newspaper column not because I want to teach people how to get rich—firstly, I’m not rich, so I cannot teach people how to be rich. But before I wrote the financial newspaper, I ran a think tank with Nick for a period of time. I tried to get donations from donors and offered the material basically for free regarding free-market teaching. But from my point of view, it didn’t work very well. It’s free material, and not many people care.

But as soon as I put something financial on—what I’m saying is basically the same thing, but I just change the terms with different marketing—people listen to me. I have no intention of making them rich, and I think this is not teachable. Of course, I need to say something, “Oh, this company, based on my knowledge in economics, I think this company runs very well.” I don’t give the timing of when you should buy, I don’t give the entry price, I wouldn’t give at what price you should sell. I just say, “This is a good company because they run it this way. I would love to own the share.” But whether you can make money or not, I have no guarantee.

In the past, I needed to get money from donors, offer the material for free, but as soon as I change the clothes, people pay me to say the same thing. I don’t know the other people in the newsletter industry; maybe they just want to make money, maybe they just want to sell snake oil, I don’t know, but for me, it’s just a market technique to draw eyeballs.

Hans-Hermann Hoppe

Basically, we agree on this, right? I give financial advice sometimes too. I just think that might be a good idea, or that one, no, I don’t think I would touch that. Everybody does it. I think Josef is in that business also, right? You give advice.

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1. 1 See Alan Pell Crawford, How Not to Get Rich: The Financial Misadventures of Mark Twain (Mariner Books, 2017); also Mark Twain, Roughing It (Signet, 2008 [1872]); Gregory Crouch, “Mark Twain’s Real Name: How Samuel Clemens Picked a Pen Name,” Time (June 19, 2018; https://perma.cc/L98E-2455); Wikipedia, “Mark Twain at the Territorial Enterprise” (https://perma.cc/LXK9-GC9K).

2. 2 Twain, Roughing It, ch. XLIV.

3. 3 Crawford, How Not to Get Rich, p. 53.

4. 4 Twain, Roughing It, ch. XLIV.

5. 5 Crawford, How Not to Get Rich, p. 53.

6. 6Ibid.

7. 7 Stephan Kinsella, Legal Foundations of a Free Society (Houston, Texas: Papinian Press, 2023; https://stephankinsella.com/lffs/), presented and published at the 2023 PFS Annual Meeting; see Stephan Kinsella, “Kinsella’s Legal Foundations of a Free Society Published,” Property and Freedom Society Blog (Oct. 12, 2023; www.propertyandfreedom.org).

8. 8 Helaine Olen, Pound Foolish: Exposing the Dark Side of the Personal Finance Industry (Penguin, 2013), p. 140.

9. 9 See, e.g., Thorsten Polleit, “The Economics of The ‘Great Reset’: Getting To The Truth,” speech delivered at the 2023 Annual Meeting of the Property and Freedom Society in Bodrum, Turkey (Sept. 23, 2023), available at “Thorsten Polleit: “The Economics of The ‘Great Reset’: Getting To The Truth” (PFS 2023),” Property and Freedom Podcast (Sept. 24, 2023; www.propertyandfreedom.org).

10. 10 Howard Ruff, How to Prosper During the Coming Bad Years in the 21st Century (Penguin, 2008).

11. 11 Federal Trade Commission, “Publisher Will Pay More Than $2 Million to Settle FTC Charges That It Targeted Seniors with Phony Diabetes Cure and Money Making Schemes” (Feb. 8, 2021; https://perma.cc/22GS-BX3G).

12. 12 Crawford, How Not to Get Rich, pp. 54–55, quoting Twain, Roughing It, ch. XLIV. ch. LVIII.

13. 13 American Writers & Artists Institute, “Bill Bonner: A Driving Force in the Direct-Response Industry” (no date; https://perma.cc/UJ95-GGSZ).

14. 14 Douglas E. French et al., “PFP269 | French, Hoppe, Šíma, Richard, Kinsella, “Discussion, Q&A” (PFS 2023),” Property and Freedom Podcast (Jan. 22, 2023; www.propertyandfreedom.org). This excerpt from the transcript has been lightly edited.

15. 15 See also Stephan Kinsella, “Verstehen and the Role of Economics in Forecasting, or: If You’re so Rich, Why Aren’t You Smart?”, StephanKinsella.com (Sep. 1, 2009; https://perma.cc/TKW7-U92C).

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