After gaining notoriety and YouTube fame for his prescient calls on the housing bubble and U.S. stocks, Peter Schiff of Euro Pacific Capital has recently come under fire.
First blogger Michael Shedlock and then The Wall Street Journal noted how Schiff’s investment thesis – centered on shorting the dollar and buying foreign currencies, commodities and related stocks – had run aground in 2008.
A “number of” Euro Pacific Capital clients lost 50% or more in 2008, when the S&P 500 fell 38%, The Journal reported.
Schiff does not deny some clients of his broker/dealer firm (he’s not a fund manager or registered investment adviser) suffered big losses last year; they were hurt as the dollar experienced what Schiff calls a “phony” rally that hit commodities and subjected many foreign holdings to a “double whammy.”
- It’s unfair to tarnish him for one bad year after seven-plus years where his strategy had great success.
- The “game” is only over if the clock stops on 12/31/08 and clients are forced to sell positions for a loss, which isn’t the case. In fact, he says clients are taking advantage of the dollar’s temporary strength to continue their “exit strategy” from dollar-based assets and into foreign currencies and stocks at depressed levels.
- He’s not a market timer and is positioning clients for a “major collapse” of the dollar – which he very much still believes will occur, as detailed in part 1 of our interview.
I admire Schiff for sticking to his convictions now and in years past, when he was laughed at by other pundits (literally, in some cases). Some, like Ben Stein, have since apologized but others are surely taking glee in this tarnishing of his reputation.
But a more important issue is he does appear to “make no allowances for being wrong and [has] no exit strategy whatsoever,” as Shedlock claims.
It was edited out of the video, but Schiff essentially said “there’s no chance I’m wrong” when I asked what the risk is to his scenario of a collapsing dollar, which entered Friday at a four-week high vs. the yen and has been rallying vs. the euro even as (or because) the ECB held
steady on rates at its policy meeting this week.
With the bailout tally rising and Treasury potentially borrowing $3-$4 trillion in the next 18 months alone, it’s hard to argue with Schiff’s dire view of the dollar’s fundamentals. But hubris is the deadliest sin and the biggest risk Schiff faces is the market staying irrational longer than he (and clients) can stay solvent.