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.



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 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 .

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.

Schiff's Overall Thesis

US Equity Markets Will Crash.

US Dollar Will Go To Zero (Hyperinflation).

Decoupling (The rest of the world would be immune to a US slowdown.

Buy foreign equities and commodities and hold them with no exit strategy.



investment

Peter Schiff did not protect his client's assets.

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

Global Decoupling Thesis

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. [The second] 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. Such beliefs eventually became a religion.



The tail does not wag the dog no matter how many people think otherwise.



Global Manufacturing Contracts

China’s manufacturing contracted for a fifth month.

European Manufacturing Contracts At Fastest Pace On Record.

Russian Manufacturing PMI Shrank the Most on Record.

U.S. Manufacturing Shrinks as Orders Hit 60-Year Low.

Millions of Chinese Struggle to Find Jobs

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 6.7 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.



Hot Money Outflows Exacerbate Chinese Problems

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

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?





Peter Schiff on 2009-2010 USA Hyperinflation

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. Look at what Ben Bernanke did. Interest rates are zero. Money is free.



Bernanke is going to run up printing presses as fast as he can. This is pure inflation Latin American style. 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.



I do not know how much time you have. With the dollar dropping 5% a week at this point, could it snap back? But what if it keeps falling? What if it's down 5% next week? And 5% the week after that? And then what if it drops 10%? and another 10%? 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.

Hyperinflation or Hyperventilation?

But what if it keeps falling? What if it's down 5% next week? And 5% the week after that? And then what if it drops 10%? ....

US the Next Zimbabwe?

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.

EuroPacific Thoughts on the Financial Crisis

by Andre Sharon, Consulting Research Analyst for Euro Pacific Capital

What Now?

Only three possible outcomes:



1. We inflate to the level of the debt, i.e. we "fulfill" debt obligations, but in mini-dollars

2. We take the hit, cleanse the system of excesses and move on. Result: deflation, bankruptcies, high unemployment, etc...

3. We disinflate veeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeery slowly, like Japan. Won't happen: the American psyche won't take 16-odd years of no growth. Different cultural mindset: you can't prick a balloon slowly here.



My guess: combination of 1 and 2. I would hope for a bias towards 2. Terrible for many, but healthier for the system long-term. Schumpeter's concept of creative destruction trumps Keynes, in my book. That's life, and progress, with all its faults and flaws.

Result: deflation, bankruptcies, high unemployment, etc...

Schiff cannot and will not change because he has two books calling for hyperinflation

I called for deflation and it is here right now. I do not have to wait for it. The only debate is how long it lasts.

Closer Look At Currency Fundamentals

The credit crunch now threatens the sacrosanct

Last October, the ECB signed a currency swap agreement with the Swiss National Bank. The obvious purpose was to support the solvency of the Swiss Franc. The reason why the franc needed support was that the country’s banks had undertaken huge obligations in foreign currencies, which exceed the Swiss national income, probably by many times. Who knows how many? Last week this agreement was renewed and extended in volume.



The case is similar with Iceland. That tiny country was one of the richest and most reliable in the world, a kind of small Switzerland. But Iceland’s banks were found at the beginning of credit crisis to have huge obligations in foreign currency. When the banks started to go insolvent the government of Iceland stepped in and nationalised them.



In the case of Switzerland - along with the ECB - came the American central bank, the Fed, to support the solvency of the franc with foreign swap agreements. Who on earth wants the Swiss banks to fail? In short, nothing has been settled in the credit crunch crisis and the entire world continues to support those who created the problems in the first place.

Think the Swiss Franc is a safe haven? I don't.

Trichet Vision Unravels as Italy, Spain Debt Shunned

European Central Bank President Jean-Claude Trichet’s vision of economies converging behind the shield of a shared currency may be unraveling.



The gap between the interest rates Spain, Italy, Greece and Portugal must pay investors to borrow for 10 years and the rate charged to Germany has ballooned to the widest since before they joined the euro. The difference may grow further as Europe’s worst recession since World War II hurts budgets and credit ratings across the region.



Diverging bond yields hurt Trichet’s argument that the ECB’s inflation-fighting mandate ushered in an era of stability for nations that once suffered rampant price growth.



They also make it tougher for the ECB, which cut its key rate to a record yesterday, to set one benchmark for all 16 euro nations. That may delay recovery as governments try to fund stimulus plans.

Monetary union has left half of Europe trapped in depression

Events are moving fast in Europe. The worst riots since the fall of Communism have swept the Baltics and the south Balkans. An incipient crisis is taking shape in the Club Med bond markets. S&P has cut Greek debt to near junk. Spanish, Portuguese, and Irish bonds are on negative watch.



Dublin has nationalised Anglo Irish Bank with its half-built folly on North Wall Quay and €73bn (£65bn) of liabilities, moving a step nearer the line where markets probe the solvency of the Irish state.



A great ring of EU states stretching from Eastern Europe down across Mare Nostrum to the Celtic fringe are either in a 1930s depression already or soon will be. Greece's social fabric is unravelling before the pain begins, which bodes ill.



Each is a victim of ill-judged economic policies foisted upon them by elites in thrall to Europe's monetary project – either in EMU or preparing to join – and each is trapped.



In Lithuania, riot police fired rubber-bullets on a trade union march. Dogs chased stragglers into the Vilnia river. A demonstration outside Bulgaria's parliament in Sofia turned violent on Wednesday.



Latvia's property group Balsts says Riga flat prices have fallen 56pc since mid-2007. The economy contracted 18pc annualised over the last six months. Leaked documents reveal – despite a blizzard of lies by EU and Latvian officials – that the International Monetary Fund called for devaluation as part of a €7.5bn joint rescue for Latvia. This was blocked by Brussels – purportedly because mortgage debt in euros and Swiss francs precluded that option.



Spain lost a million jobs in 2008. Madrid is bracing for 16pc unemployment by year's end.



Private economists fear 25pc before it is over. Spain's wage inflation has priced the workforce out of Europe's markets. EMU logic is wage deflation for year after year. With Spain's high debt levels, this is impossible.



Italy's treasury awaits each bond auction with dread, wondering if can offload €200bn of debt this year. Spreads reached a fresh post-EMU high of 149 last week. The debt compound noose is tightening around Rome's throat. Italian journalists have begun to talk of Europe's "Tequila Crisis" – a new twist.



The Euro could possibly replace the United States dollar as the world's reserve currency

.

So what about Australia? Can it decouple?

CommSec equities economist Savanth Sebastian says that is the worst fall in records dating back to 1960.



"It's no doubt that it will have a big impact on consumer spending going forward adding further downward pressure after we saw those job losses in terms of full-time employment," he said.



"So it suggests that for the Reserve Bank and for the government further stimulus will need to be on the agenda."

Australia Won't Hesitate To Stimulate

“We will not hesitate to take whatever further action is necessary to support growth and jobs,” Swan, 54, said in speech notes received via e-mail. “Major financial institutions, some of which have withstood world wars and the Great Depression, have either collapsed or been bailed out.”

While other countries are creating inflation, Australia's central bank is raising interest rates to keep inflation in check.

Australia May Cut Interest Rate Below 2%

Fraser, Reserve Bank of Australia chief during the nation’s last recession in 1991, said policy makers may reduce the overnight cash rate target to less than 2 percent from 4.25 percent now. The bank’s board gathers for the first time this year on Feb. 3.



“This recession will be deeper and longer than the last recession in 1991,” Fraser said in a phone interview today from his home near Canberra. “The Reserve Bank could go below 2 percent; they will go as low as they need to and a further stimulus from the government will be required.”

Peter Schiff did not see or simply ignored the ramifications of the unwinding of various carry trades. All gains in the Australian dollar have been wiped out since 2003.

US$ Trading Range Theory

What About Commodities?

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

"There is extraordinary excitement in commodities

was

extraordinary excitement

The Little Book of Bull Moves in Bear Markets nailed the exact cyclical peak in the commodities boom.

How to Keep Your Portfolio Up When the Market Is Down

Peter Schiff was wrong about deflation.

Base Money Percentage Change From A Year Ago

Using monetary expansion alone, one would conclude there was massive inflation during the great depression, starting in 1931!

Is Peter Schiff Early?

Schiff's book was the ultimate contrarian indicator.

Schiff's Investment Thesis

US Dollar Will Go To Zero (Hyperinflation).

Decoupling (The rest of the world would be immune to a US slowdown.

Buy foreign equities and commodities and hold them with no exit strategy.





12 Ways Schiff Was Wrong in 2008

Wrong about hyperinflation

Wrong about the dollar

Wrong about commodities except for gold

Wrong about foreign currencies except for the Yen

Wrong about foreign equities

Wrong in timing

Wrong in risk management

Wrong in buy and hold thesis

Wrong on decoupling

Wrong on China

Wrong on US treasuries

Wrong on interest rates, both foreign and domestic



positioned his clients accordingly

Fortune Magazine Examined The Hype

'Dr. Doom' became a star by predicting last year's market meltdown. And now his 2009 forecast is even scarier.

An Actual Schiff Portfolio

Schiff's entire invest thesis seems to boil down to "Buy and hold foreign stocks, foreign currencies, and commodities, come hell or high water, and hold on to them." Hell has arrived for those following Peter Schiff's philosophy.

Sitka Pacific vs. Europacific Philosophies

Because There's A Bull Market Somewhere.

Sitka Pacific Strategies

Chart of Hedged Growth Since Inception

Absolute Return Since Inception

none of our strategies was net short in 2008

90+% of Sitka Pacific accounts are either Hedged Growth or Absolute Return.

Gains Needed To Get Even

Client Letters

How Sitka Pacific differs from Madoff, hedge funds, and mutual funds.

We are not a hedge fund.

We offer managed accounts.

The accounts are in investors names.

Statements are from a brokerage house not us.

We cannot manipulate earnings because we do not produce the statements.

We have no access to investor funds.

If someone sends us a check made out to us, we send it back. As a strict rule, we never handle client money.

We have no exit penalties and no exit restrictions.

Someone can close their account for any reason at any time and can even do it without telling us. If you do not like how we are trading your account, you can close it.

We do not use leverage.

We often have high cash positions.

Clients can see every trade we make. This is unlike hedge funds where you typically cannot see anything, or mutual funds where all you see is a snapshot at the end of the month.

We have trading rights to accounts; all other aspects of the account belong to the client.

Your account is not commingled with any other account.

High Risk, High Reward Strategies

" 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. ...people who have their money in US dollars are going to be just as broke as people who have their money with Madoff.

Where To In 2009?

ought