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| 2009/2/20-22 [Finance/Banking, Finance/Investment] UID:52613 Activity:high |
2/20 Interview with Peter Schiff (economics, 2008)
http://blog.mises.org/archives/008039.asp
\_ gee, a government-is-evil site has an interview with a
government-is-evil guy. how useful. -tom
\_ How's that hedge fund going Petie? OOOOPS.
\_ Peter wants to go back to the Gold Standard. I agree with that.
\_ You mean you agree with Mr. My Hedgefund Completely Imploded?
Yeah, he sure seems like a *smart* guy.
\_ You can be right about some things and wrong about others.
You can also be right but get the timeframe wrong.
Hedge funds make bets that are inherently uncertain.
\_ He was a consistent bear from 2002 until now, so he was
dead wrong for five years. A stopped clock is right
twice a day. -tom
\_ One could correctly recognize the dot com bubble, oil
bubble, and housing bubble. It's much tougher to know
when it would pop, and what the world reaction would be.
\_ Exactly. I thought <DEAD>dot.com<DEAD>s were overpriced and
yet they kept going up and up and up! Eventually,
I was proven right but the devil is in the details.
\_ Well, I guess that justifies being a fringey Austrian
econonomics nutcase.
\_ Peter Shiff Was Wrong
http://tinyurl.com/ca3gkr (Mish's blog)
\_ Yeah, basically, Schiff was wrong about just about everything. |
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| blog.mises.org/archives/008039.asp website and quote some of their theories (ABCT, Broken Window), what got you interested in this school of thought? Peter: I was introduced to the Austrian school early on by my father. According to my dad saying Austrian economics makes as much sense as saying Chinese physics. Tim: What do you think the Austrian school contributes the most to financial planning? Peter: My investment advice is rooted in my understanding of economics. It is that understanding that allowed me to accurately forecast the trends of the last decade, and to have positioned my clients in advance to both protect their purchasing power and profit from what has already played out. admitted that you are right in your assessment of our current mess. Do you think a trade deficit is always bad for a country? The problem with our deficit is that we import consumer goods we can not afford to pay for with either exports or foreign earnings. As such we accumulate external liabilities that we will never be able to repay and our nation's future productive capacity continues to deteriorate. We are de-industrializing and are condemning ourselves and future generations to falling standards of living. Tim: Can you elaborate more on the manner in which America is de-industrializing? Peter: More Americans now work for government than in manufacturing. Most other Americans are employed in retailing, financial and other professional services, healthcare, and education. We "pay" for those imports with IOUs (dollars) yet we lack the industrial capacity to ever redeem them with genuine goods. Plus they even admit as much, though they refer to it as "adding liquidity" a politically palatable euphemism for creating inflation. Tim: Who is ultimately financing the emergency loans to various financial institutions? Peter: Anyone with US dollar denominated savings, investments, pensions, insurance policies, wages, or other dollar based assets or income streams. Peter: They are caused by the Fed setting interest rates too low. The false economic signals that are sent result in an artificial boom characterized by malinvestments that must ultimately be liquidated in the inevitable bust. This pattern, labeled the business cycle, is not an inherent flaw in capitalism, but in central government planning and price fixing. Tim: How would you characterize the proposed restructuring plan from Paulson? Tim: Would you characterize the Paulson plan as cartelization, nationalization, reregulation or all of the above? Tim: Will these moves prevent booms and busts from occurring in the future? Tim: Why won't this plan create the stability or growth that central planners want? Tim: Isn't the stimulus package supposed to prevent or stymie the effects of a recession? Peter: That may be the intention but it will not be the result. Since our problems stem from too much borrowing by consumers, more of the same will only exacerbate our predicament. Tim: After nearly a century of managing the expansion of credit, interest rates, and the monetary supply do you think the Fed should be allowed to continue its role as a central planner? The market needs to set prices, including interest rates and allocate resources. If it were up to me we would abolish the Fed and return to the gold standard. Absent that, the Fed should be completely removed from the political sphere, its dual mandate replaced by a single mission to provide the nation with sound money. This does not mean stable prices, but rather gradually falling consumer prices that are the natural bounty of capitalism. Peter: By guaranteeing mortgages against default they created the moral hazard that allowed risky loans to be originated and securitized, which provided the initial air that inflated the housing bubble. Tim: Various numbers are thrown around regarding personal debt, savings, equity and consumption. What sources do you consider valid metrics to analyze the solvency of both enterprises and individuals? Peter: For companies, profits, balance sheets, and dividend yield. For individuals, income producing financial assets net of debt, not counting primary or other non-investment residences. For nations, savings rates, industrial production, infrastructure, and balance of payments. True Money Supply aggregate devised by Murray Rothbard and Joe Salerno? Tim: Do you think it is a better measurement of what policy the Fed is attempting to implement? wrote a fable about 5 Asians and 1 American stuck on an island; how the 5 Asians produce wealth and capital and the American merely sends them IOUs (T-bills) in exchange for their goods. Do you believe this is still an accurate assessment of the situation? Tim: How much longer do you believe this will be tolerated? When do you think the various Asian decision makers will turn off the spigot? Global inflation is spiraling out of control as foreign central banks try to maintain the dollar's value relative to their own currencies and the coffers of sovereign wealth funds bulge with surplus dollars. Tim: In what way are foreign entities such as the central banks of China and Japan propping up the dollar? Peter: They are directly intervening in the foreign exchange markets by buying dollars. They are also talking up the dollar and declaring their intentions neither to abandon it as the reserve currency, abolish their pegs, nor price key commodities, such as oil, in another currency. However in the end they will stop throwing good money after bad and abandon their support for the dollar. What makes these segments more desirable than investing domestically? Once they come to their senses they will stop inflating. In the meantime they have viable economies that are well positioned to flourish once they bite the bullet on the dollar. disservice to their shareholders by investing in failing banks? Peter: Of course, but they are doing a greater disservice to their citizens by having these funds in the first place. They should cease accumulating dollars, liquidate these funds, and return the proceeds to their respective citizens to invest or spend the money as they please. Tim: Last year you wrote a highly acclaimed book Crash Proof: How to Profit From the Coming Economic Collapse. How would you advise the average American to simply protect his wealth and financial security in face of a potential world financial crisis? Peter: It is not a world financial crisis but American financial crises. For the rest of the word, we could be headed for the greatest economic boom of our lifetimes. Divest yourselves of depreciating US dollars and refuse to be a patsy in "bail out Ben" Bernanke's helicopter drop. You can accomplish both by investing in high yielding foreign stocks, precious metals, and commodities. Since that time those ETFs have grown dramatically, and a spate of new ETFs providing exposure to other commodities, foreign markets and currencies. In light of this, do you still believe it is essential for American investors to open accounts to trade securities overseas, or is it now possible to have sufficient hedges against hyperinflation without leaving the American exchanges? Peter: Yes, it is easier to gain some protection through domestically listed securities, but the best most well balanced, protection can still only be found abroad. Tim: Some people say that if you are always predicting a crash, eventually you will be right. While it is true that I have been predicting an economic collapse in the US for many years, if the underlying economic fundamentals of our economy were in fact sound, then such a collapse would never occur. It is only because my observations regarding the false nature of our prosperity were correct all along that my analysis is finally being vindicated. Tim: As governments invest in and mandate the use of biofuels, do you believe this contributes to driving up food prices? Tim: Do you believe that the federal subsidies of corn to produce ethanol will create the unintended consequences of long lasting agflation? For instance, do you think it is the driving factor behind the dramatic increases of certain commodities (Rough Rice up over 100% in 12 months) or if its simply another consequence of the de... |
| tinyurl.com/ca3gkr -> globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html Peter Schiff Was Wrong There are numerous YouTube videos, articles, and references to Peter Schiff being "right" rapidly circulating the globe. While Schiff was indeed correct about the US imploding, most of the praise heaped on Schiff is simply unwarranted, and I can prove it. Peter Schiff concludes many of his articles, books, etc. Mr Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly. Specifically I would like to see the average returns posted by EuroPacific clients for 2008. I have talked with many who claim they have invested with Schiff and are down anywhere from 40% to 70% in 2008. They are entirely believable for the simple reason Schiff's investment thesis was flat out wrong. I have an actual portfolio statement from one of Schiff's clients at the end to discuss, for now let's discuss the main points of Schiff's thesis. Unfortunately, his investment thesis centered on shorting the dollar in a hyperinflation bet, and buying foreign equities rather than shorting US equities. Furthermore, Schiff made no allowances for being wrong and had no exit strategy whatsoever. What happened in 2008 was that foreign equities sold off much harder than US equities, and a strengthening US dollar compounded the situation. In other words, Schiff failed where it matters most: Peter Schiff did not protect his client's assets. Let's take a look how, and more importantly why, starting with charts of various foreign indices. click on any chart in this post for a sharper image $SSEC Shanghai Stock Exchange Weekly $NIKK Tokyo Nikkei Weekly Chart $TSX - Canada TSX Weekly Chart $AORD Australia ASX Weekly Chart $SPX S&P 500 Weekly 2008 Equities Bloodbath 2008 was a global equities bloodbath. The Shanghai index (China), Nikkei (Japan), TSX (Canada), AORD (Australia), and virtually every world equity index collapsed along with the S&P 500, the DOW, and Nasdaq in the US. Many, if indeed not most, foreign equity markets did worse than the US indices. Let's investigate why this happened, starting with the decoupling thesis itself. Global Decoupling Thesis Please consider this excerpt from the Little Book of Bull Moves in Bear Markets, page 41: "I'm rather fond of the word decoupling, in fact, because it fits two of my favorite analogies. The first is that America is no longer the engine of economic growth but the caboose. When China divorces us, the Chinese will keep 100% of their property and their factories, use their products themselves, and enjoy a dramatically improved lifestyle." Tail Wags Dog Theory Blows Up At every peak there are always ridiculous predictions. In the dotcom bust, it was all about the "gorilla game", the "new economy" and "click counts". When the Shanghai Stock Index rose from 998 to 6124 in about two years, we heard the same sort of thing about growth in China. Instead of click counts, the theory in vogue was called decoupling. China was supposed to be the 800 lb gorilla with insatiable demand for commodities and perpetual growth for the next decade. That decoupling theory was based on the belief that the US no longer mattered, that China demand was self-sustaining, that China could grow forever with no problems, etc. The tail does not wag the dog no matter how many people think otherwise. Let's explore decoupling by looking at manufacturing, employment, and capital flows. Xinhua says there will be more unemployment and social revolts in 2009. State council adviser Chen Quansheng, warns that unemployment is much more serious than portrayed by the official statistics. According to Chen, so far at least 670,000 small industries have been closed, leaving 67 million people unemployed, but this number refers only to registered workers. But there are millions of people working in the underground economy, coming from the countryside, who are being fired and are forced to return to their villages without any unemployment benefits. The academy of social sciences is also warning about the worrisome number of firings. In 2009, the government will have to create work for at least 33 million people, including migrants, young people seeking their first jobs, and new graduates. The odds of China finding work for 33 million workers without printing vast amounts of money are slim. Monetary conditions might exacerbate the Chinese adjustment by Prof. Synopsis: Chinese monetary policy has locked the country into a dangerously pro-cyclical trap. Hot money flowed into China and pushed the economy into overheating. Those inflows have reversed sharply, perhaps by as much as $100bn last quarter, equivalent to around 8% of Q4 GDP. These outflows are causing a credit contraction and an even sharper economic slowdown at exactly the worst possible moment. One Tail Cannot Wag Six Dogs Those hot money inflows were all part of the global credit boom that is now unwinding. Now that the US consumer has thrown in the towel, a key question arises: Can China expand enough to make up for the contraction in US and European demand given that the two economies are more than six times the size of China? Housing had already weakened but commercial real estate had not. US retail stores and malls were being built at an unsustainable blowoff pace and those stores were crammed with goods coming from China and Japan. The decoupling theory was that loss of the US consumer would not matter to the commodity producers like Canada and Australia or the manufacturers like China and Japan. Schiff Audio On US Hyperinflation The whole idea is to get out of the US Dollar. The people who don't get out of the US dollar are going to be completely broke and that is obvious. Bernanke is going to run up printing presses as fast as he can. 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. With the dollar dropping 5% a week at this point, could it snap back? At some point a year from now the dollar could be dropping 5% a day. The inflation rate in Zimbabwe is over 100 million percent a year. " That was quite some rant, enough to scare many who listened. The simple fact of the matter is Schiff was wrong where it mattered. The dollar is substantially higher now than it was at the start of 2005. His explanation for the recent rally is there is no "real demand" for dollars, it's just deleveraging. The answer is everyone herded into anti-dollar plays based on decoupling and hyperinflation theories that did not pan out. The bulk of the carnage is likely over but the losses have been immense. US Dollar Bulls Still Right, Here's Why On November 9th, I went neutral on the dollar as the US dollar index came close to hitting my target. Since then there was a massive flight out of US dollars into anything else. That flight continued into 2008 even though the fundamentals were changing. The fundamentals of China and the commodity producers were simply not very good once the US consumer threw in the towel. Zimbabwe's central bank will issue a 100 trillion Zimbabwe dollar banknote, worth about $33 (22 pounds) on the black market, to try to ease desperate cash shortages, state-run media said Friday. Prices are doubling every day and food and fuel are in short supply. A cholera epidemic has killed more than 2,000 people and a deadlock between President Robert Mugabe and the opposition over power sharing has dampened hopes of ending the crisis. Hyperinflation has forced the central bank to keep issuing new banknotes which quickly become almost worthless. There is an official exchange rate, but most Zimbabweans resort to the informal market for currency transactions. Does that sound like anything that is happening or is going to happen in the US? However, let's assume for a moment that hyperinflation is going to happen. Where then could one get the most bangs for their buck to take advantage? The answer to that question is in real estate, where one can buy on 5% down. Note that there has never be... |