Syndicate content

Does lightning strike twice? Peter Schiff at IFC

Ryan Hahn's picture

Peter Schiff, the now well-known author of Crash Proof, visited the IFC earlier this week to talk about the future of the dollar as the reserve currency. Schiff has gotten famous by correctly predicting the financial crisis well before we found ourselves in our present predicament. (See, for example, this Youtube video of Schiff going head-to-head with Art Laffer in August 2006.) Coming off of one prescient call, Schiff is now arguing that the U.S. dollar will very likely lose its reserve status - soon and very suddenly.

So, does lightning strike twice? I can't say there was anything new in Schiff's presentation that convinced me. Essentially, Schiff argues that it won't be long before the rest of the world is unwilling to purchase any more U.S. debt. But where will investors looking for safe assets go? No prediction on that one, even though this seems to be the crux of the issue.

Schiff is also extraordinarily skeptical of the Keynesian measures being taken to stimulate economies around the world, particularly in the U.S. This seems to drive his view that the dollar is in trouble - if all that money is simply wasteful expense that doesn't promote growth, then investors will grow wary. But the U.S. is due for investments in certain public goods, particularly infrastructure (which in turn can help improve the business environment to generate the taxes to pay off the debt.)

Other phrases I scribbled down during the presentation:

  • "There's no intrinsic value to paper money."
  • "Everything that is produced gets consumed."
  • "If you're an investor, you want to be in assets that will gain value."

All I can say is that it's hard to disagree with statements like that.

Update: Perhaps lightning didn't even strike once. Check out this extended post from Mish's Global Economic Trend Analysis. Money quote:

Schiff was correct...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.

In other words, Schiff failed where it matters most: Peter Schiff did not protect his client's assets.

Comments

Submitted by Mad Dog on
I am often perplexed by the inability of people to understand the difference between a fundamental value judgement and timing. Warren Buffet has no idea if the stocks he buys will go up next week, next year or in five years. He buys based on intrinsic value and not based on crystal ball prognostications of short term market price movements. So the dollar has not declined rapidly since Schiff's comments. That is irrelevant. The underlying fundamentals support the thesis. The dollar will fall and fall precipitously. We don't know when. Another Buffet saying is the market has the ability to remain irrational longer than your ability to remain solvent. Current dollar values are irrational. The dollar decline is assured. We just don't know when, how quickly or slowly over time. It may or may not be a long term event. Confidence is tricky. As we saw in the opening of the credit crisis in August 2007 and much more broadly in the autumn of 2008, once confidence is lost, panic can rapidly set in. I think we are in a short term deflationary environment. The recovery is an illusion driven by bloated government spending money they don't have. Buy gold on dips because eventually the dollar will collapse and runaway inflation will hit with a fury as the fed prints money to inflate away the debt. MD

Submitted by Ryan Hahn on
@MD: I see at least two problems with your comment. First, you contradict yourself. You state that "the dollar will fall and fall precipitously." But later you state "The dollar decline is assured. We just don't know when, how quickly or slowly over time." Either we know it will fall precipitously, or we don't know how fast it will fall - we can't have it both ways. Second, it was Schiff who stated the fall in the value of the dollar will happen soon. Now, maybe that doesn't mean in one or two months, but that definitely excludes five years. And he seemed quite assured of his views during his presentation. I don't argue that there are underlying fundamentals that will weigh down on the dollar in the long term, but this is a very different position from the one that Schiff holds (or at least held, I haven't followed him since the presentation).

Add new comment