The Optimist's Guide to Making Money in the 1980's, by Jerome Tuccille, New York: William Morrow, 1978, 203 pp., $7.95.
It is rapidly becoming common knowledge that, to be rational, any investment plan must be based on a prediction of the future course of the economy. The value of each investment asset will depend on whether we experience mild inflation, rapid inflation, depression, or stability. The economic turmoil of the past has produced a spate of investment books that base their investment recommendations on even greater turbulence ahead; specifically, they say we're faced with runaway inflation, and depression.
Jerome Tuccille's new book, The Optimist's Guide to Making Money in the 1980's, is a frontal attack on the hard-money school, or as he calls them, the doomsdayers. Tuccille's title is a giveaway to his view of the future; he believes that by 1982 the country's economy will undergo a profound shift for the better:
Inflation will remain with us, but probably within limits we are willing to accept—up to 9 or 10 percent and as low as 4 or 5 percent a good part of the time. The dollar should regain its strength as one of the world's most stable currencies, backed by a reasonably healthy gold reserve and a robust economy. Taxes will be a continuing source of irritation, and unemployment will be a major concern only to those who truly want to work and cannot find a rewarding job.
With the future holding out neither hyperinflation nor depression, Tuccille advises his readers to ignore the advice of the hard-money promoters. The new investment opportunities are going to lie in much more traditional markets. Around 1982, he says, "the American stock market will enter one of the strongest and best-sustained bull cycles in history." In conjunction, gold will remain stable, he predicts, and bonds will once again offer stability, while the venerated Swiss franc will fall from favor.
Tuccille recommends the US stock market as the primary vehicle for anyone's portfolio. He offers several strategies for profiting from the market, depending on the individual's desire for speculation or need for safety. They include techniques for increasing stock yields through writing or buying puts, adding to or reducing holdings with market swings, and simply buying and holding. According to Tuccille, his growth strategies should conservatively provide 15 to 25 percent annual returns.
For those seeking income and safety, Tuccille recommends several alternatives that include certain utilities stocks, preferred stocks, short-term discounted bonds, unit investment trusts, and even tax-deferred annuities. For those with tax problems he briefly discusses Keogh and IRA, municipal bonds and bond trusts, and trusts for one's children.
In an apparent attempt to satisfy those hard-money buffs who aren't convinced by his arguments for good times ahead, Tuccille devotes almost a third of the book to a series of mini-chapters, each of which touches briefly on individual investments including most of the hard-money assets such as gold, silver, and Swiss francs. He also speeds through antiques, ceramics, old autos, rugs, commodities options, jewelry, diamonds, platinum, uranium, insurance, real estate, stamps, and interest-rate futures. Unfortunately, in a 200-page book, space doesn't permit adequate development of so many involved topics. Both the knowledgeable investor and the novice will probably find these sections far too general to be of much use.
Before following the recommendations offered in The Optimist's Guide to Making Money in the 1980's, the reader must face two questions: Is Tuccille's analysis of the economic future correct? And, if so, are his strategies for taking advantage of the trend correct?
The key factor in our economic future is the rate of inflation. Tuccille believes it will moderate and cites a variety of factors, including growing support for monetarist economic theory, the liberals' move toward deregulation, high US gold reserves, increasing bank liquidity, and the probability that much of the money that has been piling up in US savings will be funneled back into the economy.
The question Tuccille fails to address concerns the federal deficits. He expounds vigorously on politicians' profligacy and government waste and points out that the federal debt, including government pension promises, now amounts to some $8 trillion, about $200,000 per American. But he fails to explain how that debt can be paid without increasing the deficits and thus dramatically accelerating the growth of the money supply. Economists' growing belief in monetarist theory does point to curtailing the growth of money, and thus inflation, but the belief that we should do that and the ability to do it are two different things.
The other factors on which Tuccille rests his case for lower inflation are also open to debate. If the US gold reserves have not stopped the dollar's plunge in the past, why will they do so in the future? He says the economic contractions of the past few years were caused by the fact that banks overextended themselves financing the past expansions and that they are now more liquid. But bank liquidity is fickle, here today and gone tomorrow. Banks will always lend to the maximum. It is the willingness of the Federal Reserve to finance their expansion that determines their liquidity. And when the Fed provides them with funds, the money supply goes up, and so does inflation.
Finally, Tuccille believes that the money currently in savings accounts will help finance the boom to come. But just because that money is in savings doesn't mean it isn't being used. It has been loaned to others, and they have spent it. Savings accounts are not necessarily a source of new wealth for the United States. The US money supply is a fixed pool of money, and the only effect the holders of that money can have with their decisions to save or spend is to shift demand from one sector of the economy to another. They can't alter the general level of prices.
My opinion is that Tuccille has not made an adequate case to support his predictions for the future of the economy. If the major bull cycle in the stock market is truly dependent on a more stable level of prices, which he insinuates—and as many observers, including myself, agree—then before an investor follows his advice, there must be more evidence presented. In reality, some of Tuccille's systems for using stocks might result in a profit even if we don't enter a bull cycle. His uses of other investments, however, such as bonds and annuities, would result in significant losses if his major premise is wrong.
There is always a tendency for investment advisors to claim that their particular investment system will yield high rates of return. Tuccille suggests that 15 to 25 percent is a conservative possibility. Yet it can be proved that, on average, this is impossible. For example, if the $24 spent for Manhattan Island in 1624 had been invested at just 10 percent, today it would be worth some $34 quadrillion, or about the GNP of the United States for the next 17,000 years. Getting high yields is far more difficult than most people imagine, and individuals who plan their lifetime investment programs around the assumption that they will consistently achieve these returns are likely to be very disappointed. And writers who foster belief in high returns are doing no service to their readers.
Mr. Tuccille is a bright and readable writer. While I doubt if most conservative or hard-money advocates will agree with his optimism about the future, he will certainly find a receptive audience among those who want to believe in a happier decade to come. I hope history proves him correct.
John Pugsley is the author of Common Sense Economics.