A bit of a blogging war has erupted in cyberspace on the subject of Peter Schiff, president of Euro Pacific Capital - relating largely to whether he was right or not.
For a bit of context, Peter Schiff established himself as the definitive dollar bear over the latter half of the naughties, predicting (with some accuracy) that the US, and world, was due for a major financial correction on the back of a significant global rebalancing. He even penned the book explaining how to invest through the gloom, dubbed “Crash proof”. To make his case, he frequently aired his “extreme” views on financial networks, where he was - needless to say - mostly ridiculed by fellow guests and presenters alike.
Fast forward to 2008, and Peter Schiff’s views suddenly didn’t seem so extreme. In fact they looked rather prescient, especially when you watch this video montage that popped up on YouTube recently.
This has not gone down unnoticed by Schiff’s critics, who claim “even a stopped clock is right twice a day”. Among the most vocal of these has been blogger Mike “Mish” Shedlock of the Mish’s Global Economic Trend Analysis blog. In his post “Peter Schiff was wrong and I can prove it post” he asserts that while Schiff may have correctly predicted the economic collapse, his dollar bear position has actually cost him credibility and lost his clients a lot of money. Mish references client letters as evidence, all of which he says describe very disappointing returns.
Adding momentum to the criticism has also been the Wall Street Journal (for which Peter Schiff has written opinion pieces before). In the article “Right forecast by Schiff, wrong plan” it is Schiff’s dollar view again that causes the greatest upset. As the WSJ writes:
Mr. Schiff’s Darien, Conn., broker-dealer firm, Euro Pacific Capital Inc., advised its clients to bet that the dollar would weaken significantly and that foreign stocks would outpace their U.S. peers. Instead, the dollar advanced against most currencies, magnifying the losses from foreign stocks Mr. Schiff steered his investors into.
Unsurprisingly, Schiff has now come out with his own defence. In a note posted on EuroPacific Capital’s website and dated January 30, Schiff asserts:
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.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.So there you go: his views are long-term, always have been, and his investors were aware of that. And Schiff still believes that even those whose short-term timing was off will do well in time.
To be fair, Schiff was always transparent about his being a long-term view. What is more, as Schiff himself points out, even when his investment strategies were performing well, mainstream economists, journalists, and investment professionals gave him little credit for it.
We feel that perhaps he is getting a slightly rough ride.
Related links:
Right forecast by Schiff, wrong plan - WSJ
Sweet televisual vindication - FT Alphaville
