Friday, April 10, 2009

Why Peter Schiff is Wrong about the Current Stock Market Rally

In a recent videoblog, Peter Schiff calls the current stock market rally a bear market rally. He leaves a little bit of an escape hatch by saying that if the market does continue to go up, it will be because of inflation.

Schiff is one of the best analysts around. He appears to have Austrian Business Cycle Theory down cold, but I think he is looking too far out in his analysis. Since September 2008, Ben Bernanke has been pumping huge amounts of money into the system. This is what is fueling the current rally. A bear market rally occurs when some who have kept their powder dry during the initial decline decide to jump in to catch the next run up. That is never enough fuel to start a bull market, but when the dry powder investors are backed by Fed money printing, the sails are full of wind.

As I said, Schiff points out that this money printing will result in inflation. True enough, but that is at least 9 to 12 months down the road, maybe more. In the meantime, the stock market will be very strong and there will be a lot of money to grab.

As for other comments that Schiff makes about foreign markets being even stronger, he is right on (and don't forget Iceland's bonds) and he is right on about the long term prospects for gold.

But for right now there is a helluva a run up ahead in the stock market, and no one should take Schiff's comments as a reason to short the market.


  1. I have nothing against Schiff and I often agree with his investment opinions but I have a few problems with the way he argues at times. In his book he mentions how great his currency picks have performed (at the time) against the dollar in the prior 12 months. Since then, the dollar has trumped all of the currencies he mentioned. When pressed about it during media appearances he claims that (1) 12 months is too short of a time frame and (2) they are all fiat currencies so it doesn't matter. That is dishonest dialogue.

    For my full review of Schiff's book please go to

  2. I like Schiff too on macro commentary, but if you can't time your trades down to the year, you're a lousy trader. Also, the Germans are on to inflation. It's in their best interest to not stimulate because, as the world's biggest exporter, they only need everyone else to stimulate.