Peter Schiff: Right On The Crisis, Wrong On Investing?

There's no doubt that Euro Pacific Capital's Peter Schiff has struck a chord among the legions of angry Americans looking to make sense of the financial crisis. He's a constant and controversial presence on cable news shows, and over the past few years has built his free-market, hands-off approach to fixing the crisis into a formidable one-man brand, including two books in addition to his money management business.

So how do Schiff's clients actually fare? Mike Shedlock a.k.a. Mish says not so well. In a long discussion of Euro Pacific's strategy, he lays out Schiff's investing thesis and lists "12 Ways Schiff Was Wrong in 2008":

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

That's a lot of things to be wrong about, especially given all the "Peter Schiff Was Right" videos floating around everywhere. The one thing he was right about was the collapse of US equities and no part of his investment strategy sought to make a gain from that prediction.

Peter Schiff concludes many of his articles, books, etc. with the claim he saw this coming and positioned his clients accordingly."

If you're a Schiff fan or a critic, read the whole post. I'm sure Peter will respond (Update: He does so here to the Baltimore Sun's Jay Hancock), but for further consideration take a look at a few predictions from my Q&A with him back in May 2008:

What are your best or worst calls through this downturn?

I've been bearish on bonds. U.S. bonds have lost a lot of real value but not nominal value. I still think that's going to be proven to be correct. While the housing bubble was inflating, I was telling people to rent. I was telling people to get out of tech stocks in 1998 and 1999. They kept rising, but then they collapsed, and I turned out to be right. The reality is I don't think I've been wrong on anything.

Most people disagree with that sort of pessimism. If you're staying in the United States, how do you invest?

If you want to be in U.S markets, you avoid anything connected with the American economy. You avoid retailers, the home builders, the financials—anything having to do with consumers buying something or paying back the money they borrowed. If you want to invest in U.S. markets, stick with exporters and resource companies. I've been saying that for five or six years; I haven't gotten anything wrong. We shorted subprime mortgages. I have clients that made 10 times their money. We've never sold an oil stock. We've never sold a gold stock.

Why don't you think soaring oil, grains, or commodities prices are the next bubble?

These prices do not constitute bubbles. They simply constitute the repricing of goods to reflect the diminished value of our money. The way you can tell there's not a bubble is that these markets are clearing. People are buying food and eating it. They're buying gasoline and using it. Speculators aren't buying gasoline and warehousing it in big facilities because they think the price is going to go up. At the same time, we've increased the supply of money dramatically, and the Fed is increasing it even faster now to deal with the bursting of the housing bubble. The only thing that can happen is for prices of commodities to rise to reflect the equilibrium of a greater supply of money. It's not even that oil prices are going up. Oil prices are staying the same. What's happening is the value of money is diminishing, so we need more units of currency to buy the same amount of oil or wheat or corn or whatever.

How about some predictions?

• I think the stock market is headed lower. Gold is going to be $1,200 to $1,500 by the end of the year. That puts the Dow at a less-than-10-to-1 price ratio to gold. Right now, it's about 13 to 1. That's another 30 percent drop in the real value of stocks by the end of the year if you price them in gold. The Dow was worth 43 ounces of gold in 2000. It'll get to 10 by the end of the year and continue to fall from there.

• Oil prices had a pretty big run and might not make more headway by the end of the year. But we could see $150 to $200 next year. I don't think oil will hit $250 because there will be enough destruction of demand in the United States to keep it from doubling. The big problem for us is if the Chinese substantially allow their currency to rise. It could increase at least fivefold against the dollar over the span of a year or two. That reduces the price of oil by 80 percent for 1.3 billion Chinese. Consumption would go through the roof, and that will drive prices through the roof for us.

• At a minimum, the dollar will lose another 40 to 50 percent of its value. I'm confident that by next year we'll see more aggressive movements to abandon the dollar by the [Persian] Gulf region and by the Asian bloc. That's where the stuff really hits the fan.

Now, the above includes both good and bad bets. He's right on the consumer, for example, but wrong on the dollar. Presumably, his call on bonds could've been reversed and Schiff could have sold gold or oil stocks before they fell off a cliff (even though he sounds like a buy-and-hold fan). Also, this interview took place before the worst of the credit crisis hit, and Schiff has been right about extent of the damage done last year to markets and the economy. It's just not clear how well his clients have done. Mish wants Schiff to post the average returns for his clients on a year-by-year basis. I'd like to see that as well.

Bonus: Here's our own Luke Mullins' Q&A with Schiff from last week where he continues to bang the anti-bailout drum.