Peter Schiff Rebuttal- A Response to My Critics

My popularity on television and the internet has led a very small money manager to use his popular financial blog to promote his fledgling business by attacking the recent poor performance of my long-term investment strategy. The post is causing quite a stir and compels me to provide some badly needed context.





To achieve his ends, this individual has distorted much of what I have been saying and writing, and has twisted the facts to support his own preconceived conclusion. In essence, his piece is nothing more than an overt advertisement (and a highly deceptive one at that) to use my popularity to advance his career. In so doing he has given my critics, particularly some who have been embarrassed by their roles in the "Peter Schiff was Right" video, their moments of retribution. In addition, some members of the press who have never been among my greatest fans are seizing the opportunity to discredit me as well.

The crux of the blogger's arguments are that my beliefs in "decoupling, hyperinflation, and that the dollar is going to zero" have been completely discredited by the events of 2008, and that the resulting investment losses suffered by my clients last year confirms the fatal flaws in my approach.

In addition to mischaracterizing many of my beliefs, he also is confusing short-term market fluctuations with long-term economic trends.

First of all, the hyper inflation issue is a straw man at best. While I often talk about the possibility of hyper inflation, I have always said that it would be a worse-case scenario that would play out over many years. The fact that it did not appear in the first year of the economic crash (2008) does not invalidate my position. I have always maintained that this worst-case scenario will likely be avoided by what will ultimately be a dramatic shift in policy once our leaders come to their senses. However, until then the dollar will likely lose a substantial portion of its value.

Second, I never said that the dollar would go to zero, either in 2008 or any year thereafter. I have said that in the event of hyper inflation the dollar's value would approach zero. My actual forecast in my book "Crash Proof" was that the Dollar Index would fall to 40 (currently about 85), with a realistic worst case scenario, assuming very high but not hyper inflation, of 20 or lower.

Third, the blogger points out that because the decoupling theory (foreign economies improving while the U.S. falters) that I wrote about in "Crash Proof" has yet to occur, that the theory itself was ridiculous. In my book I wrote that this process would not occur overnight, that initially our creditors would come to our aid, and in so doing our problems would become manifest abroad. I wrote that it would take time for the world to realize that what had been decoupled from the economic train was not the engine but the caboose. In fact, that is precisely the way it is playing out.

Chapter Ten of "Crash Proof" is specifically focused on the need to keep funds liquid to take advantage of the buying opportunity that would initially develop once our stock market began its collapse. I specifically mentioned that when U.S. stocks began to fall, we could expect sympathetic declines overseas. While I did not know the precise timing of those events, I advised readers to prepare.

I did not expect the huge dollar rally of 2008. But to discredit my long-term view of the dollar based on an eight month move is absurd. So while I believed that a weak dollar would cushion the temporary decline I expected in foreign stocks, a strong dollar ended up exacerbating it. In the meantime, I believed that the high dividends these stocks were paying would make it easier to ride out any correction. The problem was that the dollar fell so far leading up to the crisis (in 2005-2007) that by the time the crisis finally erupted the dollar was poised for a bounce.

Central to the argument that my investment thesis is wrong is the belief that the crisis is over or that the recent trends will continue until it is. But the crisis is just beginning and the movements thus far in the dollar, commodities, and foreign stocks, are mere head fakes. Once the speculators have been flushed from the markets, the underlying long-term trends I have been following should return in earnest.

To illustrate the flaws in my investment strategy the blogger has posted a client's statement that shows a loss in excess of 60%. In addition, he claims to know of other Euro Pacific clients who have experienced similar losses. The inference of course is that most, or all, of my clients must have suffered similar losses, and the existence of such losses proves that I am wrong. In fact, some have gone a step further, claiming that such losses prove that I am a fraud.

First let's deal with the one client's account. I have been following several key investment themes for the past ten years. The basis for my strategy is that recent U.S. prosperity has been false, and that the consequences of the bursting of our bubble economy would ultimately play out in a substantial decline in the value of the U.S. dollar, higher commodity prices, the re-monetization of gold, and foreign equities substantially outperforming U.S. markets. From an investment perspective, those themes played out extremely well in the eight years from 2000-2007. Recently we have seen a sharp, and I believe temporary, reversal of these trends. Those that came late to the party (at least based on where we are today) now have to ride out a particularly difficult correction.

For example, the account in question belongs to the son of a long-standing Euro Pacific client, who is still adding funds to his accounts. Without specially commenting on the performance of the father's account, it must have been compelling enough to finally persuade the son to come on board himself in early 2008. However, as is often the case, by the time he came on board, foreign stocks and commodities were about to sell off, and the dollar was about to begin its unexpected rally. Following such a sharp correction, the son now regrets his decision and must blame me for my part in helping him make it.

Perhaps as a stockbroker I should have persuaded the son to wait for a correction. However, while this clearly would have been the right call with the full benefit of hind-sight, it was certainly not as clear given the information I had at the time. However, I never held myself out to be a market timer. My advice was always geared to long-term investors. Given the thousands of clients that I have, and the large number who joined near the recent dollar peak and market tops, it's no wonder that a few have contacted this blogger to complain; especially since he has actively sought them out. Of course, the fact that the overwhelming majority of my clients are not complaining, to him or anyone else for that matter, says a lot more about what is really going on.

To the extent that the long-term trends I have been following continue, I am confident that even those whose short-term timing was bad will still do well in time. This is especially true if they take advantage of this pull back by adding to their accounts, either with new funds or by re-investing their dividends. However, to examine the effectiveness of my investment strategy immediately following a major correction by looking only at those accounts who adopted the strategy at the previous peak is unfair and distortive.

Since I have been advising investors to follow these trends for ten years, I will leave it to the public to draw their own conclusions as to how long-term followers of my strategy have fared. However, for those who only recently adopted my approach in 2007 or 2008, the road has been a lot bumpier than they or I thought it would be when they climbed on board. Yet if these long-term trends re-emerge, though the journey may be different than planned, the ultimate destination will remain the same.

The blogger in question implies that all of my clients are down by levels similar to the account he cites. He has asked me to refute his allegations by providing broader performance figures for more clients. But, since Euro Pacific Capital is a brokerage firm and not a Registered Investment Advisor, I am prohibited by regulators from providing any details on the investment performance achieved by my clients. The blogger in question makes his challenge knowing full well that I am legally prevented from accepting it. He then uses my failure to refute his false claim as validating its accuracy.

In addition, consider that 70% of the account in question happens to be invested in mining and energy stocks. These were the two sectors that got hit the hardest in the recent downturn. This is a very aggressive exposure to those sectors and not typical of Euro Pacific clients. While it is true that many of my clients are interested in these two sectors and specifically seek portfolios heavily weighted in these areas, most take a more balanced approach, with mining and energy typically representing 20% to 30% of their portfolios. I also have clients with minimal or no exposure to these sectors.

All Euro Pacific client accounts are different reflecting the individual objectives of each client. In general the goals of my clients are to get out of the dollar and hedge against inflation. However the way each client chooses to pursue these goals varies. Some choose a relatively conservative approach, consisting mainly of utilities, property trusts and bonds, others choice a more balanced approach, adding exposure to infrastructure, agriculture, energy trusts, and transportation, while some are more aggressive with heavy exposure to resources, junior mining companies, and oil and gas exploration companies.

Some clients specifically seek to gain or avoid exposure to certain regions, sectors or currencies. Some are focused more on long-term preservation of purchasing power, while others look to maximize long-term appreciation. Most of my accounts are yield oriented, but many of my clients specially request more aggressive growth oriented portfolios. In a down market to evaluate my investment strategy based solely on the performance of the most aggressive accounts is completely unfair. Doing so ignores the better performance of less aggressive accounts that were not hit nearly as hard.

In addition, to look only at the performance of foreign stocks, while ignoring other aspects of my investment strategy only tells part of the story. What about gold, foreign bonds, short positions in financials, home builders and subprime mortgages (or merely avoiding long exposure to those sectors), or other investments people have made, either at Euro Pacific or elsewhere based on my insights? What about dividends earned, or gains realized on closed positions?

Mainstream economists, journalists, and investment professionals have never liked my message and have never resisted the temptation to shoot the messenger. When my investment strategies were performing well, I got little credit for it. Instead, all the attention was focused on the apparent failure of my dire economic predictions to materialize. Now that the economy is collapsing along the lines that I correctly forecast, criticism is being focused on the recent poor performance of my investment strategy (a fact that I have never tried to hide). Of course by the time my investment strategy is once again in step with my economic forecasts, an event that I believe will occur sooner than most people think, it will likely be too late for most people to do adopt it.

My critics have often referred to me as a stopped clock. I believe that the accusation is best leveled at the accusers. Having been wrong for so long, they are now enjoying their brief moment in the sun. They should enjoy it while it lasts. For now, they are creating fodder for some future "Peter Schiff was Right" piece where those who now criticize my investment performance will look just as foolish as those who once criticized my economic forecasts.

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 my new book “Crash Proof: How to Profit from the Coming Economic Collapse.” Click here to order a copy today.

For an updated look at his investment strategy order a copy of his just released book ‘The Little Book of Bull Moves in Bear Markets.” Click here to order your copy now .

By Peter Schiff

Euro Pacific Capital

http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

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Comments

Concerned Connecticuter

29 Jan 09, 17:09 Awesome Peter!

I want you to be my senator! schiff2010.com

Peter Buchmann

31 Jan 09, 08:41 Do not waste too much of your precious energy

Dear Peter, YOU will always have detractors - just for plainly speaking out. Sense the bile, and may be you may realize their arguments are only a factual disguise for slander. It will always hurt though - this is the price you pay for being independent and likeable. You cannot be part of main stream - concentrate on your crowd - and try to ignore them - do it for your sympathisers all over the world - like me. Regard Peter Buchmann

Linda Hotton

01 Feb 09, 20:26 Peter Schiff Rebuttal

The fact is, Peter Schiff's investments began decreasing last January (2008). My husband and I put our 401(k)s with his firm in July, purchasing things recommended by his brokers. Our 401(k)s promptly lost 1/3 of their values, each, until we withdrew our money from EuroPacific in October. Commissions on his trades are also relatively high compared to other firms - 2 to 3%. There were several problems, and I have several complaints against Peter Schiff. Schiff was WRONG because he believed that when the crash occurred, the foreign markets would do well while the U.S. declined. That was WRONG, WRONG, WRONG. I wish we had just kept our money in a stable account, we'd still have all of it today. We contacted the brokers at EuroPacific many times; they didn't advise us to pull our money out or make any changes in our portfolios. There was no oversight of our portfolio on our behalf, and when we asked for advice, all we got was to ride it out. (Glad we didn't wait longer than we did to pull our money out.) Also, when we first brought our money to EuroPacific in July, ethical brokers should have told us to wait to purchase anything at that time, since everything was in a downward trend and the bottom wasn't in sight. But no, they got their commissions as we purchased around 12 or more funds in Asia on their recommendations - recommendations based on Peter Schiff's hypothesis that everything would be ok except in the U.S. Another way Schiff was wrong is that the US Dollar did not decline as much as other currencies and markets. Schiff was right about the crash, but he was wrong about what would happen to the USD and global markets in relation to the U.S. That has been shown without a doubt now, and I don't see how he can try to refute the facts. I know of others who are down over 60% because of Schiff's mishandling of their money. I wish we'd never heard of Peter Schiff - we are way behind where we were before we put our money with him, and I have nothing good to say about him. On the contrary, I think people should be warned to stay away from his firm. Linda Hotton Arvada, Colorado

shaun

02 Feb 09, 04:44 Keep it up Pete

Good work Peter, yes these people that rush out with the mob at the last minute and then complain when they lose there money. Investment is about the long term. I know the people with you for more than 2 years are more than happy with their initial returns. Don't listen to the flack if you can.

Dan

03 Feb 09, 00:18 Canada

Is Canada a good place to invest or not?

7eleven

03 Feb 09, 22:41 Canada - The future of the world - next big boom

Hi, you may laugh about me but while others are betting on asia and europe, I am confident that Canada will be the most prosperous country in 2020. Canada has all resources (water, gas, oil, gold, silver, uranium, etc...) is politically stable and has great people that love their lives more than fast money. All we have to do is sell our commodities at high prices to the chinese. Americans will be broke by then. They may knock on our doors to ask for water supplies though since they have wasted all their natural resources on their everlasting thirst for $$$ more $$$ fast $$$ and talking, talking, talking, marketing, zero commitment to Kyoto and fastfood. By 2030 the americans will be old and frustrated. Mothers will have babies to support with hard work as substitute for their vanished retirement plan. Once this workers class is back, innovation will return, hard work and an honest and sustainable growth. Peter has gutts - he has helped me understand what is going on. I am certain we will see banana republic in US as soon as the chinese sell their useless bonds to invest in commodities as hedge against inflation. It is already starting.

Clark Jenkins

03 Feb 09, 22:44 Righteous Indignation

Righteous indignation is an emotion one feels when one becomes angry over perceived mistreatment, insult, or malice. It is okay to be able to change your plans as the facts change. In this case Peter, it looks like you have been schooled by Mish. The right thing to do now is to learn from your mistakes and make some improvements. That said, as of today I am up 21% for the year. I do not listen to either Peter, or Mish. Clark Jenkins FishGoneBad.com

Richard Steven Hack

03 Feb 09, 23:18 What part of long term investment doesn't the lady above understand?

I don't have specific knowledge of Mr. Schiff's precise advice, but I see the lady above got in after the downturn started and when it worsened, she pulled out barely four months later. This is not how you do investments. Anybody would know not to buy into a downturn until the bottom was clearly signaled, and once in, to ride out any short term downturns if the advice is predicated on longer term reversals or continuation of longer term trends, which clearly Schiff's article says his advice is. She has only herself to blame for her misfortune, not Mr. Schiff, from what I can see of her own account. For the gentlemen who asked about Canada, would you think I was smart if I asked if Mars was a good place to invest? You don't invest in places, you invest in markets, companies, industries, and the like.

Dan

04 Feb 09, 10:49 Yeah, well...

...Now that the economy is collapsing along the lines that I correctly forecast, criticism is being focused on the recent poor performance of my investment strategy... The first part of this sentence is a lie, and the second part proves it. Sure there is a crisis, but it is nothing like the crisis that Mr. Schiff predicted. That's why his investment strategy has done so poorly. Describing Mish as "a very small money manager" is ridiculous. "Rising superstar" would be more accurate.

dr.rock

05 Feb 09, 10:01 NAFTA

ah, mrs.7-11, have you ever heard of nafta? that means our corporations will get your resources, and strip mine your country just like the oil-sand pits.btw, those oil-sand pits are a real enironmentally-friendly operation.and how are the chicoms going to sell those bonds w/o taking a bath themselves.so just relize when the us goes down we're gonna take all you wimps down with us

Linda Hotton

06 Feb 09, 22:19 Response to Mr. Richard Steven Hack

" don't have specific knowledge of Mr. Schiff's precise advice, but I see the lady above got in after the downturn started and when it worsened, she pulled out barely four months later. This is not how you do investments. Anybody would know not to buy into a downturn until the bottom was clearly signaled,..." You just repeated what I stated in my comment - what was wrong with Peter Schiff's firm. We gave him our money- we weren't the experts. We weren't aware of what was going on at the time we gave him our money, but HIS BROKERS WERE. They should have advised us to keep our money in a stable moneymarket account because the bottom wasn't in yet. This is what I said. His brokers took advantage of our ignorance and recommended several positions, which we took on their "expert" advice. How you can say we have only ourselves to blame, when we put ourselves in the hands of Peter Schiff's "experts" is beyond me. When we drew our money out, we were going to put it into another firm but were advised to wait before buying. This is what Peter Schiff's firm should have done, but didn't. We didn't know when we gave Schiff our money that his investment picks had been declining since January, BUT HE DID!! We were just given bad investment advice, plain and simple, which is what you just said - except the fault is on Schiff, who knew better, not us, the trusting customers!

redneck

22 Feb 09, 18:04 response to Linda Hotton

Why not reveal the 12 funds you were first buying,and then jumped out of? Then we all can see in a few years who did the right/wrong thing....

booger

09 Mar 09, 05:30 linda H.

Hey linda, do what redneck says and post your funds

soVun

12 Dec 10, 15:28 Hyperinflation now a "possibility" ??

What ... a ... joke ... "I have always maintained that this worst-case scenario will likely be avoided by what will ultimately be a dramatic shift in policy once our leaders come to their senses." - Peter Schiff Bologna. I have videos saved on my computer when Peter was speaking of hyperinflation saying: There is no chance I'm wrong. This is what we call: Backpedaling and spin control.

