Monday, January 26, 2009

Major Hit Piece On Peter Schiff

Peter Schiff has been getting some well deserved positive publicity for his very accurate warnings about the economy. Part of the focus on Schiff has been the result of his clever video marketing of his calls juxtaposed against attacks on him by the likes of Ben Stein and Arthur Laffer, who got their calls on the economy wrong. However, when you live above the fold, you are likely to be eventually attacked from above the fold. It's the nature of entertainment, ah excuse me, serious news reporting. The long knives will eventually come out. The first knife directed at Schiff is out. It is wielded by Michael "Mish" Shedlock, and it has drawn blood against Schiff.

In a vicious attack, Mish uses a poor performance by Schiff portfolios over the last year to twist and turn the knife.

Mish writes:

...most of the praise heaped on Schiff is simply unwarranted, and I can prove it.

First, let's start with a look at the claim being made. Peter Schiff concludes many of his articles, books, etc. with the following statement.

Mr. Schiff is one of the few non-biased investment advisers (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...

I would like to see some proof of that statement. 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. There are many other such claims on the internet. They are entirely believable for the simple reason Schiff's investment thesis was flat out wrong.
I think this is a cheap shot.

As Mish should know, one of the toughest things to do when it comes to investing is to get timing exactly right in the short-term. To point to an investment track record over an isolated period of less than a full business cycle is an extreme disservice. Schiff's portfolios are down big over the last year, so what? Warren Buffett's Berkshire Hathaway is down by more than 40% from its 52 week peak. Does this mean Buffett is a clueless investor? Based on Mish's logic used against Schiff, investors should probably be selling short Berkshire Hathaway for the rest of their lives. (Note: Not recommended for the truly sane.)

Further, Mish distorts Schiff's investment philosophy. It just so happens that an EPJ reader sent me, a few weeks back, a clip of Schiff defending himself on his radio show against an irate caller/investor who had lost money investing with Schiff. What stood out about the call was Schiff's defense. It was quite remarkable. He asked the caller who he clearly didn't know, "Are you still getting dividends from the stocks in your portfolio?"

So Schiff had hedged against the possibility that he might be wrong, or early in his investment strategy, by buying dividend paying stocks. Nice move, I thought to myself when I heard this, very nice. Schiff was humble enough in his investment thinking to lock in solid yields in his investments, so that if things went wrong, at least his clients could sit and collect dividends while things turned around. Folks, this is an investment adviser who has his clients interests at heart. Things have gone wrong, short-term, in Schiff portfolios, but his clients have locked in yields that, I'm guessing, were locked in at very high rates.

As for Schiff's overall philosophy of investing in non-dollar denominated foreign stocks, it is sound. It is based on the belief that US monetary policy is out of control and that the government will attempt to print its way out of disaster. This money printing will ultimately lead to major inflation in the US and a crash of the dollar. Thus, high quality foreign stocks are exactly where you want to be.

The poor performance by Schiff portfolios last year was a result of Fed chairman Bernanke being so clueless that he didn't know how to properly, from a technical perspective, inflate the money supply. Money growth stopped all summer, this was a major reason behind dollar strength. Bernanke finally got the money printing mechanics figured out, and his outrageous money printing over the last couple of months will ultimately crash the dollar, and Schiff has his clients perfectly positioned for this.

It is pretty outrageous for Mish to attack Schiff and scare investors who are following Schiff. Schiff's investment philosophy is sound, and will prove very correct. Ultimately, what Mish has done is attack Schiff the way Laffer and Stein did, earlier, (Although Mish is scared enough of Schiff's analytical skills to not go completely against Schiff's call, and, thus, Mish hedges all over the place). But when all is said and done, Mish will sadly look like Laffer and Stein by attacking Schiff.

I'm sure Schiff has downloaded Mish's attack. He'll bide his time and wait for the dollar crash to begin and mash Mish in a marketing piece, just like he did Stein and Laffer.


  1. It seems that everyone else is printing just as fast as the US -- if not faster. It seems likely to me that the Euro will crash along with the US dollar.

    But it does seem like China will come out of this scenario healthier than the US. I remember that the US felt the worst effects of the Great Depression, but look where it went!

  2. nice defense of Schiff. Mish obviously has a conflict of interest because he's a competitor for client money. He writes like it's a public service, but then pitches his firm.


  3. Peter Schiff is wrong about these problems being restricted to the USA (but he is right about the rest of it). Housing bubbles are at the root of the problem, and these have occurred in most of the first world, for very similar reasons. One being investment money from countries like China, Japan, and Saudi Arabia. Another being environmental concerns resulting in urban growth restrictions that prevented supply responses to demand for housing, and forced prices up. Lastly, government's taxation policies also contributed to housing looking like "the best investment" for many.

    There is widespread denial about these factors, all over the world, and especially denial about the collapse or impending collapse of house prices and mortgage equity levels; for which the USA is merely a pattern (albeit a major one), not a unique case.

  4. Dont miss Schiff's self-defense, posted today at his website.