Monday, January 26, 2009

Peter Schiff's Clients Got Hosed This Year, Too

Some facts that should pop the aura surrounding Peter Schiff.


Sure his on-air sparring makes for some great TV. And his pointed criticism of the stimulus plan is spot on, especially at a time when people believe the answer to our pile of debt is to spend like crazy. But that doesn't mean Peter Schiff has been an amazing steward of his clients' cash.

Michael Shedlock punctures the Schiff aura, saying he's heard from several clients who claim losses of 40%-70% after investing with EuroPacificCapital. How could this be? Hasn't Schiff been bearish during a horrible year for US equities? Yes, but that negative on US equaties was just a part of his overall strategy

Shedlock sums Schiff's complete 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.

Schiff was correct about point number 1 above. The US equity markets crashed. That was a very good call. 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.

Bottom line: Not all doomsayers are going to make money in a bad investment. And you can be extremely sharp and insightful with your analysis, but it doesn't mean your investment theses will pan out. In fact, there's frequently a disconnect between people who call for doom and their actual results


googleheim said...

ok same question - given that the FDIC is not even 100 billion and if wave after wave of bankruptices occur, then could there be a point where the FDIC has to issue temporary IOU's to folks like Argentina did in their bank runs in 2001 ??

Not doomsayin' but just being practical given that the FDIC pool is not really so big afterall.

mike norman said...

The FDIC has the unlimited backing of tbe Treasury, so there is never any problem unless it is imposed politically.

Argentina was on a dollar peg in 2001 and couldn't issue currency. The IOU's were a way around the fixed exchange constraint. Eventually they gave up the dollar peg and reissued the peso and the problems stopped, but only after dozens of people were "killed in the streets."

googleheim said...


but could not the unlimited backing require at least 3 months to get the IOUs into full swing.

in Argentina, it took months to reopen the banks and there were limits on withdrawals.

with the way things are looking here, i don't think anyone is acting fast enough nor could act fast enough to juice up the FDIC to respond.

is the FDIC backing accomplished by the Fed's ability of depositing of accounts ?

i thought that nobody understands that ... even the Feds ???