Let the Peter Schiff Backlash Begin (I love Peter, but in fairness want to publish both sides)

I've been saying for some time that I'm not particularly impressed with Peter Schiff and his hyper-bearish calls. Fortune just had an article on how prescient Schiff has been:

"As one of the few talking heads who loudly, relentlessly, and more or less accurately sounded the alarm about the mortgage bubble and its consequences - in the process becoming the latest bearish commentator to earn the moniker "Dr. Doom" - Schiff has suddenly emerged as a cult hero and something of a minor celebrity."

Well, Dr. Doom has predicting disaster for several years now, and what we're seeing now isn't quite what Schiff predicted. Jonas Elmerraji of the Rhino Stock Report writes:

While Schiff has proved himself as an economist, his ability to parlay those predictions into profits for his clients was questionable for 2008. For the last few years, he’s been betting big on overseas investments and precious metals – two areas that got hit as hard or harder than the S&P last year.

According to Morningstar, the average international equity fund performed 7% worse than the average U.S. stock fund in the last year.Just look at the iShares MSCI Belgium (EWK), the worst performing ETF last year according to SmartMoney.com, or the iShares FTSE/Xinhua China 25 ETF (FXI), which lost 49% in 2008.

Another of Schiff’s investment strategies has been to exit the U.S. dollar in favor of more fundamentally sound currencies. This too has proved untimely since anxious treasury investors have driven up the dollar in the last year.

And some, like Seeking Alpha contributor Todd Sullivan, are quick to remind investors that Peter Schiff has been bearish on the market since at least 2002, when the S&P was poised to move up 48% over the next five years.

Wrong about hyperinflation Wrong about the dollar Wrong about commodities except for gold Wrong about foreign currencies except for the Yen Wrong about foreign equities Wrong in timing Wrong in risk management Wrong in buy and hold thesis Wrong on decoupling Wrong on China Wrong on U.S. treasuries Wrong on interest rates, both foreign and domestic

That's a lot of things to be wrong about, especially given all the "Peter Schiff Was Right" videos floating around everywhere. The one thing he was right about was the collapse of U.S. equities and no part of his investment strategy sought to make a gain from that prediction.

Peter Schiff concludes many of his articles, books, etc. with the claim he saw this coming and "positioned his clients accordingly".

IN DEFENSE OF PETER SCHIFF: A Response to Mish (http://seekingalpha.com/article/116668-in-defense-of-peter-schiff-a-response-to-mish)

Last night, one of the best and most well read investment bloggers, Mish of Mish’s Global Economic Trend Analysis, ripped into Peter Schiff in a lengthy tirade on his blog titled, “Peter Schiff Was Wrong.”

One thing that Mish gets right and many Schiff fans might not know is that Schiff’s portfolios did not perform well in 2008. EuroPacific doesn’t post performance data but the anecdotal evidence suggests that many of Schiff’s clients were down substantially last year. Fortune Magazine substantiated this in an article from Friday writing:

Ironically, though, the year that Schiff became a star prognosticator on TV was also one of the worst periods ever for his clients. In most cases the foreign markets he likes got hit even harder than the U.S. in 2008 (Australia’s ASX 200, for instance, fell 41.3%, vs. 38.5% for the S&P 500), and even more surprising to Schiff, the U.S. dollar rallied strongly as investors rushed to the perceived safety of Treasuries.

The reason is pretty obvious. Schiff subscribed to the decoupling theory, which is the idea that emerging markets like China and Latin America, would be somewhat immune to the problems in the U.S. As we all know now, this was dead wrong.

I said it was wrong in my “How to Invest in the Coming Bear Market” Report (Jan 9, 2008) post and noted the beginning of its unraveling back in January: “Recoupling: The Real Significance of This Week’s Action,” Top Gun FP, Jan 24, 2008. So did Mish in this post: “Global Decoupling Myth Shattered in Equity Selloff,” Global Economic Trend Analysis, Jan 22, 2008.

Schiff recommended large exposures to foreign equities, with a particular emphasis on commodity stocks linked to global economic growth, and these got crushed even worse than U.S. equities overall.

Mish also rips into Schiff for his hyperinflation call. Mish points out that the dollar has recently been one of the best performing currencies. Mish is also in the school calling for deflation rather than inflation, so he says Schiff was wrong, big-time on this score as well.

Here, I’m going to have to side with Schiff. The dollar is benefitting for now as a safe haven in a time of fear and crisis. (Even so, gold, which Schiff recommends, continues to perform well and this dissonance will likely be resolved at some point). But I do believe Schiff is right about the long-term trends. The Fed is printing so much money and the Federal government running such huge deficits that serious inflation is almost surely going to be the long-term result.

In the Fortune piece, Schiff himself makes this same argument, that he is early, not wrong:

None of this shocks me. Oftentimes in the short run, markets are irrational. And my problem has always been that I see things too clearly and too far in advance. Other people don’t understand what I do, so the markets might not validate what I’m saying right away. But they will eventually. In the end, the fundamentals are going to prevail, just as they did in the housing market.

I also believe that, longer term, the decoupling thesis is correct. The big trend is economic vibrancy and growth moving away from the U.S. and Western Europe and towards Asia, Latin America and other emerging markets. The timing is important for investment performance, but longer term, I do think Schiff has this one right as well. (On this see, for example, “American Power Is On The Wane” (subscription required), Paul Kennedy, The Wall Street Journal, January 14, 2009 - anyone who wants to read this e-mail me and I’ll send you a link).

That’s why I think that even though it’s useful to point out that Schiff’s clients have been hammered in 2008 and he has gotten some things wrong, for the most part, he’s been on the money and he deserves most of the praise and recognition he’s been receiving. He made his points loud and clear, and in a very public way when very few others shared his sentiments and some even went so far as to laugh and mock him on public television (see the YouTube Video “Peter Schiff Was Right”). Peter Schiff never backed down and the course of events has proven him right.

I disagree 100 percent on the decoupling theory. What is coming down the pike in my opinion is synchronized global currency collapse. Today there is no currency backed up by gold or silver. Therefore, they are simply fiat currencies. No fiat currency has ever lasted. The dollar has been a partial fiat currency since 1933 and a complete fiat currency since 1971. That’s 38 years to screw it up completely. The Euro, Pound and virtually every other currency except perhaps the yen and swiss franc are becoming unglued. Every country in the world is massively inflating their currency. Therefore in terms of gold, their currencies are losing value. Since 9-09, the monetary base of the US, M0, currency in circulation-plus deposits by banks in the fed has increase by 100 percent! Until this time, the most it ever increased was 6 percent in a year. Now it is true that banks are not lending and consumers are not borrowing which is leading to a deflationary environment, but this will not last for long. Long term outlook is inflationary, no matter how you cut it. Worldwide loss of faith in paper money in every country. Especially China.

You are the third freeper to send this this week, and truly, I trust no one.`I am aware of all those predictions of his that missed the current deflation. He predicted the rest of the world would carry on without us so we would have stagflation. This is a disaster for anyone who bought commodies near the peak, which he probably was advising. I get scared during sharp booms.

But the fundamentals are pointing to commodities long term as he predicts ,we are headed to inflation. Democrats are going to try to create inflation on purpose, printing money, unions, green energy, no drilling, handouts. Add that to increasing world population and industry creating demand in previously poor countries. And this current crash has cut off funding for commodity development, indicating a future shortage, So his message is relevent to future. But that future may not be this summer.

More-so than investment, I love the conservative messages of his. If I could find an articulate republican with conservative messages relevent as his, I would use them. Freepers read his sharp and witty lines and he rings a bell that we havent heard in a long time.

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