Jonathan Lebed and the National Inflation Association: On ending ad hominem attacks

In my last post, “Why Warren Buffet is Wrong about Gold”, which was published first by Mich at Beating the Index, I mentioned that the National Inflation Association (NIA) had decried the massive silver short position that banks, especially J. P. Morgan, had taken. J.T. McGee, 21 year old blogger and college senior, wrote:

The National Inflation Association is a joke, and it is run by a man who has been convicted on pumping and dumping stocks. He’s back at it again, this time he just takes in fees to pump stocks to his newsletter subscribers. Do a search for “Lebed.”

I knew that NIA was using its position to pump their stock choices, mostly junior silver miners.  Whether they are guilty of pumping and dumping is nevertheless unverified and there have been no convictions.  You may as well put me, Mich, and especially Eric Nuttal–for that matter just about every financial blogger in jail because we’ve all pumped our stock choices, and we make decisions to dump–which just means to sell–based upon our target prices.  We all hope that our stocks go up and that we can sell at a huge profit, and if our promotion of the stock helps, well, ain’t that just too bad?

Nevertheless, I did some research on Jonathan Lebed and his relationship to NIA.  Lebed is famous because  at the age of fifteen he settled out of court with the SEC who accused him of a pump and dump scheme whereby he would promote stocks on his website and through Yahoo bulletin boards (pump) and sell them after the suckers who read his recommendations bought in and pushed up the price (dump).  The SEC settled with him for a $285,000 of his earnings but let him keep $500,000.  In a well-researched and balanced article about the subject, Michael Lewis brings up some serious questions about the Lebed case.  He portrays Lebed as a kind of wiz-kid investor who was trading himself to a fortune already as a teenager but whose techniques of promoting his picks drew the ire of the SEC.  The article is an entertaining and informative read.  At one point Lewis asked for a statement from Lebed about the SEC accusations and their attack on him; Lebed responded with a four-page e-mail that began:

I was going over some old press releases about different companies. The best performing stock in 1999 on the Nasdaq was Qualcomm (QCOM). QCOM was up around 2000% for the year. On December 29th of last year, even after QCOM’s run from 25 to 500, Paine Webber analyst Walter Piecky came out and issued a buy rating on QCOM with a target price of 1,000. QCOM finished the day up 156 to 662. There was nothing fundamentally that would make QCOM worth 1,000. There is no way that a company with sales under $4 billion, should be worth hundreds of billions. . . . QCOM has now fallen from 800 to under 300. It is no longer the hot play with all of the attention. Many people were able to successfully time QCOM and make a lot of money. The ones who had bad timing on QCOM, lost a lot of money.

This perceptive response from 15-year old shows remarkable insight into a problem.  The real issue is to ask the question why the SEC was going after some high school kid who used alternate media to promote his stocks, when big names on Wall Street do the same using major media outlets and made billions of dollars?  Is it just because he’s a kid and therefore is not allowed to inform others of his opinion?  We all love Eric Nuttall, but every time he goes on BNN and promotes his stock picks we notice on the next market day a serious surge in the share price of his longs and a painful plunge of his shorts.  Shouldn’t he be fined and imprisoned for expressing his opinion?  Yet by all accounts, his pump and dump has many times greater effect on the oil and gas market than anything Lebed could have done on Yahoo boards and with his pathetic little website.

There is a principle in law that goes back at least to Jesus–one should not go after minnows when there are whales to be caught–or as Jesus himself said while criticizing the Pharisees and the legal experts of his own day (Matt 23.24):  “You blind guides, straining out a gnat and swallowing a camel!”  Nowadays, there are so many laws that governments could probably throw us all in jail and throw out the key, as Stalin’s chief of police said, “You show me the man, I’ll find you the crime.” It is incumbent upon government to show self-restraint and wisdom in the application of the law, lest we all find ourselves in federal penitentiaries.  But perhaps it is time for people to rise up and to curtail this arbitrary and capricious power that governments have to whimsically go after anyone that they feel like, while leaving true crooks free to exploit and game the system.  Just a few days ago, I find out that a marathon runner, Charlie Engle, who bought a couple houses goes to federal prison while the folks at Country Wide, Freddie Mac and Fannie Mae get a pass.  And why?  Because an IRS agent saw him on a running program on TV and decided that he had reason to suspect that the man had lied on his income taxes!  Beware of fame!

The NIA writes about their association with Lebed,

Jonathan Lebed learned at a young age of 15 years old from first hand experience why Americans should never believe the propaganda that is in the mainstream media. His life experiences made him uniquely qualified to write ‘End of Liberty’ and we believe he did a very good job.

End of Liberty is well-done indeed, and it points out how Americans’ constitutional rights are being abused.  I too have become a victim of the US Federal government, which is currently being run as a criminal organization.  So I have great deal of sympathy for Lebed’s opinions.  Is Lebed a good man?  I don’t know him.  Is he guilty of pump and dump?  Probably, but then so am I, Mich, and Eric Nuttall.  Do I recommend the man?  No.  Do I recommend NIA’s videos on inflation?  Yes indeed, because they are telling a very important story about how the US is going down the tubes.

So I commented to J.T. as follows:

The National Inflation Association does promote stocks. I get their e-mails. I never buy the stocks or even look at their suggestions. I found that there is the broad accusation that they pump and dump but no proof and no convictions. So I will consider your criticism ad hominem guilt by association: The logic is basically that my view is wrong because I cited NIA, which has an association with Jonathan Lebed, and both the NIA and Lebed pump and dump and therefore their information can’t be trusted. But it doesn’t deal with the substance of the issue, i.e., how big is the short silver position of the banks.

I find that many people today feel that its ok to shoot down your position by simply associating it with some kind of nefarious or criminal activity–this is classic case of ad hominem and guilt by association.  I would simply respond that when it comes to NIA, you’re gonna hafta do better than that.  When you should be attacking their views on gold and inflation, you instead attack their character.  J.T.’s argument was not substantial on this point but even after I pointed it out, he denied the logical fallacy and continued in his line that they were fear-mongering about inflation.  Well, I happen to agree with NIA and the fear-mongering, for we all need to prepare for Weimar America.

In conclusion, Monty Pelerin writes about ad hominem: “Ad hominem attacks are not refutations of ideas, merely the refuge of scoundrels promoting a logically indefensible agenda.”  Those like NIA, who offer opinions against the mainstream media and the criminals in Washington, will be subject to character assasination.  This should not bother us if our opponents cannot refute the basic arguments.

So without further ado, here is Jonathan Lebed’s (writer) video, The End of Liberty: