Grifting and Gullibility in Market Manias

In the late 1980s, Australia faced a problem with grifters. The country had become a popular destination for channelers—individuals who claimed to receive messages from the dead. Preying on the vulnerable, these channelers took the unwitting public’s money with ease.

That didn’t sit well with Richard Carlton, a journalist at 60 Minutes. He came up with the idea to bring a fake channeler to Australia to see how much free publicity they could get from the other less-than-skeptical news media outlets. His goal was to expose the grifting culture of channelers and demonstrate how easily the public could be manipulated by both charlatans and the media.

With the help of magician and skeptic James Randi, they created a "famous" channeler from the U.S. who claimed to channel the spirit of a 2,000-year-old mystic named Carlos. Randi selected a random young artist named José Alvarez, gave him a few hours of training, and produced a professional PR kit along with a short book as marketing material. The 60 Minutes Australia team flew to the U.S. to capture promotional footage of José receiving a standing ovation from a crowd after a Penn and Teller show. It was all staged.

Randi devised a simple gimmick to convince audiences that José Alvarez was legitimate: at the moment Carlos supposedly entered Alvarez’s body, José’s pulse would appear to stop. An unsuspecting nurse or doctor would confirm that his pulse had stopped. It was an age-old trick—using a ball concealed under the arm and squeezed to temporarily block the pulse.

A week later, Alvarez, Randi, and another random person they chose to act as Alvarez’s manager left for Australia. Randi remained incognito to avoid drawing attention. The media was eagerly anticipating the arrival of the great Carlos. José and his manager embarked on a publicity tour, appearing on multiple media outlets. They were interviewed eight times on primetime Australian TV. Randi, concealed in a nearby room, fed Alvarez lines through a small radio earpiece, guiding him on what to say.

Everything in the PR packet was fabricated. The video footage from the U.S. was fake. A simple call to confirm an event could have immediately exposed the hoax—none of the phone numbers, places, or events were real. Yet, no media outlet bothered to investigate.

Carlos became front-page news. The Australian media, over-eager for a new sensation, embraced Carlos wholeheartedly. They hyped up a free performance at the Sydney Performance Center, where hundreds of gullible attendees gathered. Carlos wowed the crowd, and the crew even set up a shop in the foyer selling items like the "Tears and Sweat of Carlos" and an "Atlantis Crystal" (which was actually a chunk of tar found in the parking lot before the show). While they didn’t actually sell anything, they easily could have made a small fortune, as audience members were eager to buy.

Shortly after the performance, Richard Carlton revealed the hoax in an episode of 60 Minutes. However, many media outlets dismissed it as unimportant. If it had truly mattered, they argued, they would have fact-checked Carlos’s supposed success in the U.S. Meanwhile, audience members who believed in Carlos struggled to accept the truth of the hoax, refusing to let go of their beliefs despite the revelation.

"One of the saddest lessons of history is this: If we’ve been bamboozled long enough, we tend to reject any evidence of the bamboozle. We’re no longer interested in finding out the truth. The bamboozle has captured us. It’s simply too painful to acknowledge, even to ourselves, that we’ve been taken. Once you give a charlatan power over you, you almost never get it back. So the old bamboozles tend to persist as the new ones rise" - Carl Sagan

In today’s social media and AI-driven age, we are once again confronted with a dilemma: how do we maintain skepticism in a world where the media is perpetually chasing sensationalism and virality, rather than truth? How are the next generation of grifters preying on the gullible in this new paradigm?

Well, it’s a bull market, and it seems like everyone is making big gains. The gullible come out in droves, hoping to strike it rich quickly. Who can blame them? Younger generations are in a tough spot. They’ve been burdened by crushing student loan debt, struggling with rising costs of everyday goods, exorbitant insurance premiums, and a housing market that feels utterly out of reach. They’ve been left behind. For many, it seems the only way to achieve any semblance of the financial stability enjoyed by previous generations is to YOLO their savings on the riskiest assets. After all, prices keep climbing every day—how could they possibly go wrong?

Unfortunately, it’s when people are at their weakest and most desperate that grifters emerge in full force. Bull markets bring out the worst in human greed and vulnerability. Schemers, charlatans, and scoundrels can sense desperation the way a lion smells sickness in a mule deer. Like clockwork, they devise new sleight-of-hand tricks to exploit the gullible herd.

Valuing a company based on discounted cash flows? That’s for investors from the Paleolithic era. Today, valuations are built on… well, who knows? For instance, you might see a zombie business buying Bitcoin by diluting shareholders and taking on enormous convertible debt. Their new metric of choice? Bitcoin yield. What does it tell us? Absolutely nothing. It’s all smoke and mirrors. A 60% BTC yield sounds impressive, but it’s a charade that obscures the economic reality. I don’t have any issues with Bitcoin itself, but when companies come up with fanciful new terms to justify taking on huge leverage and dilution, I get skeptical. It’s like judging a marathon runner’s performance by how many pairs of shoes they own instead of how fast they can run, or judging a band by how many tour buses they have instead of how they actually sound.

The bamboozling, as Carl Sagan aptly put it, continues unimpeded. The longer a bull market lasts, the more complacent we all become. When prices keep climbing indefinitely, we tend to reject any evidence that reveals the true reality of the situation. And as the frothy market persists, more and more people begin to embrace the belief that “this time is different.”

But as Carl Sagan also predicted, “So the old bamboozles tend to persist as the new ones rise.” Like hot air, Fartcoin has seen its price multiply tenfold since October. It would take $440 million to buy all the Fartcoin in existence. Who in their right mind would want to do that? Then there’s PEPE coin, valued at $10 billion after a 100-fold increase since January. Even PooCoin is worth $1.95 million, though its price has been in the toilet—down 96% since 2021. Go figure.

On one hand, I genuinely hope some people manage to make money and improve their financial situations. On the other hand, I’m disgusted by the rampant grifting and tomfoolery perpetrated by predators. Because once the tide recedes, the grifters will become obvious to everyone, but by then, it’s too late. The desperate, gullible masses will be left holding the bag. When the market inevitably sobers up, the pendulum of emotion swings violently from euphoric highs to crushing despair. Those who are already struggling will end up in even worse situations, while the grifters ride off into the sunset.

“We are thinking creatures, but often we forget that we have this power to think rationally, to come to our own conclusions. We find it easier to accept something that's already predigested, so we turn to the media and we accept whatever seems to be attractive at the moment. That's the easy way. If you go through your whole life that way, you're going to find that you are a sucker and you're going to be taken advantage of. Look around, and your skin's gone.” - James Randi

When will the euphoria stop? Next week? Next year? I have no idea. 

To some, I might sound like a cranky old man yelling at a cloud—but I’m still an optimist. I still believe there are great, undiscovered microcap companies out there trading on fundamentals. We’re finding them every day right here on MicroCapClub. But I’ll be honest—the signs out there still startle me.

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