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Peter Schiff: Wrong On The Economy, Wrong On Healthcare (Part 1)
Monday, July 13, 2009, by Stathis
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I normally don’t bother myself with reading personal views pumped out throughout the Internet. But I came across one of Peter Schiff’s pitches demonstrating just how off the mark he remains. So I felt compelled to address his misguided opinions; not only because he is wrong, but also because he has been inducted into the deceitful media club. And he has used this venue as a manner by which to sway political and economic opinion. Have a look.

Let me begin with a brief assessment of his track record on the economy. As the record shows, Peter’s understanding of the economy is so superficial that he appears to have no idea what he’s talking about. If you don’t agree, you haven’t kept up with his track record.
Some brief examples include his insistence on the decoupling of china from the U.S., which did not happen. Furthermore, his continued insistence on hyperinflation in the U.S., rendering the dollar essentially worthless.
Sure, Peter, many people knew there was a real estate bubble; many people were aware the U.S. consumes too much and produces too little. But unless you’re able to get the details right, you won’t do too well when translating your economic picture into winning investment strategies (hint, hint).
As much of the details as Peter missed or got wrong about the economy before the collapse, he continues to preach his oversimplified and extremist thesis - as any good salesman would do. No Peter, we aren’t headed for hyperinflation. You and the rest of the doom club need to stop preaching this nonsense to millions of sheep out there.
I previously discussed the reasons why hyperinflation isn’t going to happen; at least not in the United States. Remember, I’m the guy who predicted a depression in America’s Financial Apocalypse. Yet, I know when to come back to reality because I’m not in the business of selling gold or securities.  This unbiased perspective enables me to maintain a level head.
Of course Mr. Schiff isn’t the only one preaching these scare tactics. Many other perpetual doomers and gold bugs are as well. But they simply have no idea what hyperinflation means, they’re just mindless, or they want to manipulate the gold and currency markets.
When it comes to the details, Peter got so many things wrong while leaving others out, it’s too voluminous to list here. I know it, and sophisticated investors know it; perhaps some of his former clients know it. Meanwhile, the sheep still have no idea how wrong he has been. This is why they are sheep. This is why they get blown out so often in the stock market.

Let’s have a look at Schiff's track record.

Schiff's Overall Thesis
US Equity Markets Will Crash.    <<== how long has Schiff been saying this? Since the 1990s. If you listened back then you lost out on the greatest bull market in history.
(1) US Dollar Will Go To Zero (Hyperinflation).
(2) Decoupling (The rest of the world would be immune to a US slowdown).
(3) Buy foreign equities and commodities and hold them with no exit strategy.
(4) Now let's look at some memorable quotes by Schiff….
"The whole idea is to get out of the US Dollar. It is on the verge of collapse. The people who don't get out of the US dollar are going to be completely broke and that is obvious."
"This is hyperinflation; this is Zimbabwe; this is the identical monetary policy of the Weimar Republic."
"I am just as convinced that people who have their money in US dollars are going to be just as broke as people who have their money with Madoff."
This sounds like fear-mongering to me. Only a clueless goof would take Schiff’s scare tactics seriously.
Schiff cannot and will not change his ridiculous views because this extremist approach represents his sales pitch, which is intended to scare people into sending him their money to invest. And sheep like extremes because such ideas are easy to grasp.
The following is from a chapter in his book called ‘Hot Stuff’ on page 105.
Schiff writes: "What I want you to take away from this chapter is the knowledge that there is extraordinary excitement in commodities, which are in the early stages of a historic secular bull market...”


$CRB Commodities Monthly Index


 

 

Schiff continues. "There is extraordinary excitement in commodities."
‘The Little Book of Bull Moves in Bear Markets nailed the exact cyclical peak in the commodities boom, but claimed that there was much more upside. Ironically, the subtitle to his book is ‘How to Keep Your Portfolio Up When the Market Is Down just didn't pan out because the commodities market collapsed thereafter.
 

12 Ways Schiff Was Wrong in 2008
(1) Wrong about hyperinflation
(2) Wrong about the dollar
(3) Wrong about commodities except for gold
(4) Wrong about foreign currencies except for the Yen
(5) Wrong about foreign equities
(6) Wrong in timing
(7) Wrong in risk management
(8) Wrong in buy and hold thesis
(9) Wrong on decoupling
(10) Wrong on China
(11) Wrong on US treasuries
(12) Wrong on interest rates, both foreign and domestic
 
Yet, you may have seen numerous "Peter Schiff Was Right’ videos floating around everywhere.
The one thing he was right about was the collapse of US 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. But instead of exploiting the collapse, he advised his clients to invest in bull markets that did not exist. He was wrong where it mattered most, protecting client assets.
Furthermore, Schiff made huge investments in PR and marketing. And these investments paid off well; but only for Schiff as he drew in investment capital of sheep.
Most people have very short memories, they don’t truly examine historical track records and they don’t follow the capital markets closely enough to see how wrong Schiff has been.
The only way sheep would realize how wrong Schiff has been is if they actually invested with him. But even then, many of them would probably remain in denial. This is why they are sheep. Sheep always get slaughtered. 
 
An Actual EuroPacific Capital Portfolio

 

 

The client claims that he invested $70,000 and is now down to $27,000. That is a loss of 61%
Next, he adds more data points to confirm his analysis…
Schiff's investment thesis can be summed up as the following: Buy and hold foreign stocks, foreign currencies, and commodities.

The bottom line is this. During Schiff’s shining moment, when the market crashed, he apparently lost a huge amount of money for his clients. If you call that being right, than I prefer to be wrong.

But as the facts show, I was right – the commodities bubble collapsed, real estate prices declined by 30-35%, Fannie and Freddie collapsed and were bailed out, the Dow collapsed to near 6000, there would be a New Deal, gold and oil would soar but be highly volatile and should be traded – all in my 2006 book America’s Financial Apocalypse, released BEFORE Schiff’s book.

In fact, it appears as if Schiff has conceded how badly he missed the mark. Perhaps this is why he is releasing Crash Proof 2.0: How to Profit From the Economic Collapse, 2nd Edition in a couple of months. He wants another try since he failed miserably the first time.
My, my. Two books in a year along with 100s of lectures, appearances on TV, radio, 100s of articles. When does Mr. Schiff find the time to manage his firm and properly analyze the economy and markets?
It’s should be clear to anyone with an IQ of at least 100 what the situation is. Schiff is a marketer, plain and simple. His understanding of domestic and global economics is rather scant despite the fact that he actually has an economics degree and despite the fact that he serves as the global investment strategist for the brokerage firm he heads (which in itself is rather odd).
I’m still wondering why Schiff never revealed the tremendous risks of investing in emerging markets, especially China. While I have advised clients to invest in China, I have done so stressing a small and conservative position, while explaining what can go wrong.
Chinese companies have nowhere near the transparency and regulation as in the U.S. And while I certainly like the growth prospects in China and other emerging markets, I would place a good possibility that China will face a catastrophic blow-up of its equity markets due to fraud at some point, probably within the next 10 years.
I’m wondering if Europacific Capital even has a compliance department because with what appears to be a good deal of his clients down by 50%-70%, I certainly wouldn’t want to be at the helm of that firm, especially if I were the guy making all of the investment calls. Perhaps that is why Schiff wants to exit the investment business and enter politics.

Those who have bothered to research Schiff’s track record understand he has been pitching the same doom lines for well over ten years now.

Anyone can be right if they predict rain in the dessert. But if you leave out or miss the details, your predictions are useless. What matters most is knowing how hard and long the storm will be, how much it will rain, how hard it will be, how much of the dessert will be covered and who will be affected.
The really amazing thing is that Schiff had numerous opportunities (almost daily) to change his mind or revise his “global investment strategies.” Instead, he took on the personality of a parrot, mimicking the same lines over and over as any good salesman would do. Apparently that was enough to satisfy the sheep whose brains remain glued to the financial media.
Today, Peter has fans clubs all over the Internet, demonstrating why individuals such as Kevin Trudeau make so much money and hit the New York Times Best Seller list
What’s truly funny is that it is unlikely any of these Schiff fans have money invested with him. If they had, I’ll guarantee you they’d be singing to a different tune. The verdict is in; America has been transformed into a nation of brainless sheep.
So now I’d like to take the opportunity to teach Mr. Schiff and his fellow perpetual doomer colleagues (Faber, Rogers and their lackeys) a few lessons in economics, investment management, and of course healthcare. Let’s begin. 
 

Lesson #1: Gold is not a hedge against inflation
Having worked on Wall Street, Peter should realize this. But all you really need is some common sense. I don’t think Peter is a dumb guy. But when you’re trying to pitch a sales line in order to get more business, the results often make one seem as if they were not too bright.
As the facts show, gold is a hedge against deflation. The misinterpretation often arises when the gold bugs fail to consider that gold provides a short-term safe haven during crises. Inflation happens to be a frequent side effect of these crises. I discussed this in a recent article.
However, over long periods, gold has not held its value when adjusted for inflation. For instance, the big argument the gold bugs cling to centers upon gold’s previous high of around $900 made in 1980. They claim that since the inflation-adjusted price is now let’s say $2200, that’s the price gold will reach. 
That all sounds good until you remember that gold is in no way linked to inflation since we are no longer on the gold standard. Therefore, the real value of that $800/ounce gold is only about $365.
If gold is a good hedge against inflation, I’d like to know why it peaked in early 2008 and has not reached the highs since then, despite the fact that we experienced a very intense period of inflation.
What about the 1980s and beyond? Why did gold remain lower in price than in 1980 for nearly 30 years? And if gold hedges against inflation, why hasn’t it increased steadily after the bubble burst? The reason for this is because the previous gold bubble experienced a typical post-bubble correction period. I discussed these points in the following article. See here.
The good news for you gold bugs out there is that gold is likely to go considerably higher in the coming years. However, similar to the gold bubble in 1980, when this one bursts, you had better be in cash ahead of time because the higher it climbs the faster and harder it will fall.
Gold prices are driven by supply-demand dynamics, crises, and market manipulation; not inflation. Unless we get back on the gold standard, inflation cannot and will not drive gold prices (other than for short periods). Gold serves as a hedge for deflation and sometimes inflation (due to indirect causes and only for short periods).
Anyone who buys AND holds gold will most likely be stuck with fool’s gold. While I believe there is a real possibility that gold could reach $2200, it will not be due to inflationary pressures. It will be due to a crisis. Alternatively, it could rise due do the self-fulfilling prophecy being created by the gold bugs.
 

Lesson #2: Gold Provides a Hedge Against Market Decline
As any competent investment strategist should know, the real value of gold as an investment is as a defense tool since it provides a hedge against dramatic market declines. Still, that doesn’t matter to most investors because the best hedge against a market decline is to stay out of the market.  See here.
Based upon what I have seen and heard, Mr. Schiff doesn’t seem to be particularly good at forecasting market movements. As far as he’s concerned the market is going down, down, down. How many years has Mr. Schiff made these forecasts now? Fifteen? 
Always remember this. Extremists are never right, and they are often dangerous. You have to know when to change channels, even if it’s for a brief period.
Any reasonably experienced investor knows that the most critical skill required to handle bear markets (or any market for that matter) is the ability to forecast major market movements; up and down.
I suppose if you lack this ability, you might want to stay invested at all times and buy some gold to mitigate potential declines in your portfolio. But let’s face it. That’s a buy-and-hold bozo approach.
 

Lesson #3: Gold Should Be Traded, Never Held Long-Term
Furthermore, I know this isn’t going to go over well with the gold bugs that encourage investors to buy physical gold, but the fact is that gold should only be traded due to its propensity to manifest wide swings in volatility. Doing so not only lowers the cost basis, but also reduces short-term liquidity risk.  
 

Lesson #4: Economics & Healthcare
I find it ironic how Mr. Schiff’s investment strategies have been equivalent to his proposed economic and political solutions; an empty bag.
Furthermore, I find it a bit arrogant for Mr. Schiff to assume he actually has the expertise to address something as complex as healthcare. Perhaps his self-proclaimed “celebrity status” on various bubble networks has elevated his sense of importance.
This demonstrates just one of the dangers with the media. Once guests build an audience, they sometimes become overzealous and claim to be experts in everything. These are the same people who are often experts in nothing other than sales and marketing.
Peter, we both know the financial media is designed to lead the sheep into the slaughterhouse. We both know the financial media is a way for guests who are compliant with the media's unwritten rules of behavior to add millions of dollars to their bank accounts by marketing to a large audience of sheep.
This compliance means staying away from issues media executives don’t want to touch, such as why the banking executives have not been indicted for securities and possibly tax fraud.
Evidently, Peter fails to realize that healthcare cannot be addressed purely from a financial perspective. It also takes a tremendous understanding of various elements within the industry in order to get a good handle on the problem.
It takes even more expertise to devise viable solutions.
I have no reason to believe Schiff possesses an adequate understanding needed to criticize Obama’s healthcare plan, much less propose alternative solutions. His recent article confirms this. 
Like all others in the media club, Schiff lacks a full understanding of the problems within the healthcare industry, and therefore cannot provide a real solution; or else he has chosen to avoid discussing the real solutions as a way to align himself with the political agendas of the media. If the later possibility explains his views, then I completely understand his position. After all, the media serves as his main entree to the sheep gravy train; it’s how he sells his books and attracts new investors. He wouldn’t want to bite the hand that feeds him.
The key to repositioning America back on top of the world is to restructure free trade, provide some form of universal healthcare, ban all lobbyist activities, and send hundreds if not thousands of financial executives to prison.
Furthermore, we must close the two-way revolving door that exists between former politicians and the private sector. This would do well to prevent corporate favoritism. These things are required if America wishes to transform itself from the current pseudo-free market economy and crony capitalism into a real free market economy with real accountability.
If you disagree with this Peter why don’t you come out and say it. I’m willing to bet you any amount of money that the majority of America agrees with me. And if you do agree, why have you never stated these things during your media appearances?
Could it be because you know the media would not want these issues to be broadcast?
Could it be that you’re only interest is Peter Schiff?
And yes Peter, we absolutely need government regulation. You seem to forget that it was the illusion of government regulation which led to this financial apocalypse. 
And now for a breakdown of Schiff's views on healthcare in Part 2.

 
 


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