Peter Schiff is loud--a decibel or 12 above everybody else. And it's hard to get him to stop talking. Ask the man a simple question and you get a 10-minute harangue in response. This harangue is likely to feature libertarian political opinions that are by Schiff's own admission pretty extreme--inherited as they were from a father currently in prison (at age 81!) for refusing to pay income tax.
Yet Schiff, 46, is not just some opinionated boor. He possesses a self-awareness that renders him a bit less obnoxious than I've described, and he happens to have done a better job than just about anyone else of forecasting in 2006 and early 2007 what was about to happen in U.S. financial markets. This wasn't a broken-clock-is-right-twice-a-day thing: Schiff appeared on the national scene just as the credit bubble was reaching maximum inflation and offered a critique of the nation's unsustainably debt-fueled economic trajectory that is now--after the fact--widely accepted.
As markets collapsed late last year, Schiff, who runs the Connecticut-based brokerage firm Euro Pacific Capital, briefly got to bask in the glory of his spectacular call. He ran a victory lap of sorts on the cable news networks. A fan put together a 10-minute YouTube clip of his precrash predictions on CNBC and Fox News--complete with smirking and dead-wrong rebuttals from the likes of Arthur Laffer and Ben Stein--that has been watched more than 1.3 million times. ("What makes that clip so good is not so much me as everybody else," Schiff says. "People like laughing at people.")
This year, though, Schiff's TV bookings are down 75% to 85%, says his younger brother Andrew, who handles p.r. for him. About the only things written about him lately have been negative--the result of financial blogger Michael (Mish) Shedlock's pointing out that Schiff's investment recommendations were money losers in 2008. How could a bear have managed to lose money last year? Schiff was blindsided when global investors piled into dollars and U.S. government bonds during last fall's panic. But that rush to safety has already abated, and over longer periods, Schiff's decade-old strategy of steering clients out of U.S. securities and into commodities and overseas stocks has been a big winner. His investment record surely can't be the reason for his fall from media grace.
No, the main issue with Schiff seems to be that he hasn't changed his tune--and it isn't a pleasant tune to listen to. He thinks the "phony economy" of the U.S. is headed for even harder times. He believes that the crisis-fighting measures coming out of Washington are merely delaying the inevitable, debasing the dollar and loading future taxpayers with huge debts.
There is still demand for this kind of market-trashing talk. Schiff's 2007 book, Crash Proof: How to Profit from the Coming Economic Collapse, is selling well on Amazon.com His many YouTube videos keep attracting new viewers. He says he's getting more speaking requests than he can possibly satisfy, many from overseas. Euro Pacific still garners new clients. But with a few exceptions--Larry Kudlow brings Schiff onto his CNBC show occasionally, Liz Claman does the same on Fox Business Network, and I'm writing a column about him--he's no longer invited to mainstream discussions of the economy and economic policy.
Of course, Schiff isn't mainstream. His father Irwin decided in the 1970s that the federal income tax was unconstitutional and has spent the years since shuttling between courtrooms and prisons. Schiff's parents divorced when he was 5, and he was raised by his mother. But it was his father who got him reading libertarian icons Ayn Rand, Ludwig von Mises and Murray Rothbard. And taxpaying Peter is wistful about failing to follow fully in Dad's footsteps. "I'm taking the easy way out," he says.
I happen to disagree with most of Schiff's economic views. But there's a thriving line of academic research showing that including divergent opinions and models of how the world works makes groups better at solving problems. Our society failed spectacularly this decade at solving the problem of how to price houses and mortgage bonds. It would have done better if people had paid more attention to skeptical voices like Schiff's. "The fact that he was right this time doesn't mean he's going to be right the next time, but somebody will be," says University of Michigan social scientist Scott Page. "All models are wrong, and that's why you want a diversity of models." Seconds Schiff: "You're never going to get these correct calls coming from the mainstream. It's not even possible." Schiff's current predictions may well turn out to be all wrong. But that's no reason not to listen to them.
Peter Schiff is now writing for The Street.com website and this is how they have introduced him,
"Peter Schiff is president and chief global strategist of Euro Pacific Capital, a full-service NASD-registered broker-dealer that specializes in foreign securities. He is a recognized expert in the foreign securities markets as well as the currency and gold markets. Schiff has excellent market commentary and analysis on a myriad of domestic equity and sectors."
Topics: - Latest Economic Data - Consumer Confidence - Falling Consumer Confidence would be better then Rising Consumer Confidence - CPI: Do we have deflation? - Falling Prices is what we need. Falling prices are part of the solution.
Strike up the band, boys, happy days are here again! Recently released short-term economic data, including unemployment claims, non-farm payrolls, home sales, and business spending, which had been so unambiguously horrific in February and March, are now just garden-variety awful. With the Wicked Witch of Depression now apparently crushed under the house of Obamanomics, the Munchkins of Wall Street have sounded the all clear, pushing the Dow Jones up 25% from its lows. But the premature conclusion of their Lollipop Guild economists, that the crash of 2008/2009 is now a fading memory, is just as delusional as their failure to see it coming in the first place.
Once again, the facts do not support the euphoria. Over the past few months, the government has literally blasted the economy with trillions of new dollars conjured from the ether. The fact that this “stimulus” has blown some air back into our deflating consumer-based bubble economy, and given a boost to an oversold stock market, is hardly evidence that the problems have been solved. It is simply an illusion, and not a very good one at that. By throwing money at the problem, all the government is creating is inflation. Although this can often look like growth, it is no more capable of creating wealth than a hall of mirrors is capable of creating people.
We are currently suffering from an overdose of past stimulus. A larger dose now will only worsen the condition. The Greenspan/Bush stimulus of 2001 prevented a much needed recession and bought us seven years of artificial growth. The multi-trillion dollar tab for that episode of federally-engineered economic bullet-dodging came due in 2008. The 2001 stimulus had kicked off a debt-fueled consumption binge that resulted in economic weakness, not strength. So now, even though the recent stimulus administered a much larger dose, we will likely experience a much smaller bounce. One can only speculate as to how much time this stimulus will buy and what it will cost when the bill arrives.
My guess is that, at most, the Bernanke/Obama stimulus will buy two years before the hangover sets in. However, since this dose is so massive, the comedown will be equally horrific. My fear is that when the drug wears off, we will reach for that monetary syringe one last time. At that point, the dosage may be lethal, and the economy will die of hyperinflation.
As always, the bulls fail to understand that investors can lose wealth even as nominal stock prices rise. As a corollary, the bearish case is not discredited by rising stock prices. While there are some bears that mistakenly cling to the idea that deflation will cause the dollar to rise, those of us in the inflation camp understand that the opposite will occur.
In the meantime, stocks are not rising because the long-term fundamentals of our economy are improving. If anything, the rise in global stock prices is due to investors realizing that cash is even riskier then stocks. The massive inflation that is the source of the stimulus is essentially punishment for those holding cash. To preserve purchasing power, investors must seek alternative stores of value, such as common stock.
It is important to point out that despite an impressive rally, U.S. stocks have substantially underperformed foreign stocks. In the past two months, while the Dow Jones has risen 30%, the Hang Seng and the German DAX have risen by over 50% in U.S. dollars. Commodity prices are also rising, with oil hitting a five-month high. And gold is shining as well, with the HUI index of gold stocks up 30% during the past two months, and 2/3 of those gains occurring in the past month. If this rally really were about improving economic fundamentals, gold stocks would not be among the leaders. Further, during those two months, the U.S. dollar index fell by 7%, with commodity-sensitive currencies such as the Australian and New Zealand dollars surging 20%.
To me, the relative strength of foreign stocks and currencies indicates that perhaps the global economy is not as impaired as many have feared. It has been my view all along that after the initial shock wears off, the world will be better off – once it no longer subsidizes the American economy. The shrinking U.S. current account deficit is evidence of this trend in action. Renewed strength in foreign stocks and weakness in the dollar may indicate that not only is the world decoupling from the U.S., but benefitting as a result.
So let the Munchkins dance for now. But remember, the Witch is not dead; only temporarily stunned by an avalanche of fake money.
For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read Peter Schiff’s book "Crash Proof: How to Profit from the Coming Economic Collapse".
This week, the Obama Administration failed to push through a reorganization plan for Chrysler that would have, among other things, used government bailout money to give the United Auto Workers a majority stake in the company.
Reacting to the setback, President Obama took aim at the few Chrysler bondholders (including hedge funds and private investors) who had scuttled the plan. He described these "holdouts" as unwilling to make the sacrifices that the company, the workers, the pensioners, and the taxpayers had been prepared to make for the good of the country. Ironically, the "greedy" group that Obama holds responsible for killing the auto industry is the only force capable of saving it.
Singling out hedge funds as the bad guys will not be politically controversial. The accusation falls comfortably into the Administration's view that unfettered capitalists on Wall Street and poor planning by short-sighted CEO's are responsible for our problems. These ideas, echoed in Congress, the media, and on Main Street, completely ignore how government intervention incentivized the bad behavior and brought down our economy.
The investors' reluctance to cave in sends Chrysler to bankruptcy court. Normally, this process would be the best means to reallocate Chrysler's assets in a way that benefits our economy. But Obama made clear that this will be no ordinary bankruptcy. The guiding hand of Washington had already formulated its far-sighted plan to save Chrysler, and this proceeding is meant to strong arm those won't cooperate. As a result, expect a cram-down rather than a negotiation. The sanctity of the bondholder's investment contracts will crumble under the political weight of Obama's vision.
Chrysler has not been profitable for years; and with the Washington calling all the shots, the potential for long-term viability has been dashed. Even after the concessions offered by the unions, the labor and overhead costs are still too high to compete in a global marketplace.
A real bankruptcy is the only solution. In it, current shareholders get wiped out, current contracts and obligations are voided, and the remaining assets, both physical and intellectual, are sold to the highest bidders. But the process would create the opportunity for new management, with private capital, to buy auto-producing assets for pennies on the dollar, hire skilled auto workers at much lower costs, scrap out of date business practices, and produce cars cheaply and profitably. Under the guise of "saving jobs," the Administration has disrupted this process.
In contrast to the holdouts, the Administration claims consensus of all major stakeholders. But this ignores how government has tilted the playing field. Billions of dollars of TARP and bailout subsidies have compromised the ability of the big banks and the Chrysler Board to make decisions independent of politics. They will enter into a bad deal if it helps preserve their Federal lifelines. The independence retained by the holdouts is a thorn that will, unfortunately, be quickly removed.
Giving control of Chrysler, and soon GM, to the UAW and the government will enshrine a culture of failure and seal Detroit's fate. Both companies will become government sponsored entities, not too dissimilar from Amtrak or the Post Office, forever relying on taxpayer funds to create products of dubious quality. Does anyone remember the Yugo?
Peter David Schiff (born March 23, 1963) is an American economist, author, commentator and popular video blogger. Schiff, a licensed stock broker, is the president of Euro Pacific Capital, headquartered in Westport, Connecticut