The Emperor Schiff Has No Clothes

September 7, 2009 at 4:00 am 16 comments

ShiffPic

In the Hans Christian Andersen fairy tale The Emperor’s New Clothes, the emperor unwittingly hires two swindlers whom he pays to create a special make-believe suit, which the cons claim appears invisible to stupid people. When the emperor cannot visibly see his clothes, he sheepishly avoids confronting the swindlers to escape appearing stupid. Not until a little boy, who is watching the royal precession, points out the “emperor has no clothes” does the emperor finally realize he has been had.

Peter Schiff, former stockbroker and President of Euro Pacific Capital, has been proudly parading along the business media network on route to his senatorial candidacy, taking credit for accurately predicting the timing of the economic financial collapse. Endless amounts of praise have swarmed the airwaves and cyberspace through countless interviews and YouTube clips.

Maybe the same lessons learned from aforementioned fairy tale can be applied to Mr. Schiff? Perhaps he too wears no clothes?!

Let’s take a look at Mr. Schiff’s track record. Certainly Mr. Schiff was correctly bearish on the housing market, albeit about five years too early. I thought “timing is everything?” Apparently not for the media masses judging Peter Schiff’s track record. Let’s take a look at the chief tea-leaf reader in 2002 when he was calling for NASDAQ to reach 500 and the Dow Jones Industrials to reach 2000.

As you can see documented in the video, the Dow didn’t ever come remotely close to collapsing from 10,000 to 2,000 and the NASDAQ didn’t plummet from 1,700 to anywhere near 500. The significant percentage of the Fortune 500 he predicted to file bankruptcy never materialized either. Rather the market proceeded to march upwards on a five year bull market run that led to a doubling in the S&P 500 index from the bottom in 2002. Like a broken clock, if you stubbornly stick to one position, chances are you will eventually become right (at least twice per day).

I am not the only person to question the accuracy of Mr. Schiff’s persistently bearish and often inaccurate calls.

For one, Mike Shedlock of Mish’s Global Economic Trend Analysis gave an incredibly detailed review of Schiff’s track record in an article titled, “Peter Schiff was Wrong.” To get a little flavor of the piece, here is an excerpt:

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

Todd Sullivan from Seeking Alpha wrote an equally scathing, although shorter, look at Mr. Schiff’s track record.

More recently the ever-bearish Schiff continues to call for a collapse in the U.S. dollar and economy but refuses to short (bet against) the U.S. market because a hyper-inflationary period may ensue, driving U.S. index prices higher. Wait a second; is he saying that buying U.S. equities would be a good hedge against rising inflation? All this talking in circles is getting me dizzy. As for his position on gold, just last year he said gold would hit $2,000 per ounce by 2009 – well if it rises 100%+ in the next few months, then Mr. Schiff will be right on target.

Peter Schiff certainly lacks no confidence in making bold predictions despite his spotty record. Whether you think Peter Schiff is an overly bearish buffoon filled with hot air, or you think he is the greatest market prognosticator since sliced bread, it never hurts to wipe your eyes to make sure the media king du jour is wearing clothes?

Wade W. Slome, CFA, CFP®  

Plan. Invest. Prosper.  

www.Sidoxia.com 

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct position in  any security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

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16 Comments Add your own

  • 1. Peter Schiff  |  September 7, 2009 at 4:49 am

    Once again a critic tries to discredit me by taking comments out of context, and by quoting unreliable, biased sources, which make the same mistakes. Why don’t you play that entire video? I proudly display it on my web site. Here is the link.

    http://www.europac.net/schiffvideo_wm_lg.asp

    Any investor who followed the investment advice I gave in that interview made a ton of money. At the time I believed the stock market would fall much further, as I did not realize the extent to which the Fed would go to blow up a housing bubble to avoid the pain. However, by 2003 in was obvious what they were doing, and I changed my forecast on the Dow. I called for a huge rally, but stated it would be in nominal terns only. However, I told people not to buy U.S. stocks but to buy foreign stocks, commodities and gold instead. My advice was spot on. Since that interview the Dow has fallen sharply priced in gold and foreign stocks and commodities have sharply out performed U.S. stocks.

    As for the losses suffered by my clients in 2008, they are highly exaggerated, and most of those losses have already been recoup in 2009. Many who where down then are now up, and most long-term clients were never down at all ,but merely temporarily lost some of the profits they had earned over the years.

    Reply
  • 2. sidoxia  |  September 7, 2009 at 9:18 am

    Peter Schiff’s response to my blog listed above.

    Reply
  • 3. Peter Schiff  |  September 7, 2009 at 11:46 am

    here is a link to my youtube rebuttal

    Reply
    • 4. Dodge  |  November 24, 2009 at 3:55 am

      Well said Peter! When so much of what you said came to pass, I find it incredible that people still try to attack your track record.

      Reply
  • [...] a gold adjusted basis. Since Peter Schiff’s Dow 10,000 to 3,000 forecast never came to fruition (See Schiff’s other questionable predictions), he rationalizes it this way, “So if you price the 2002 Dow in gold, the Dow is at 3,000 now.” [...]

    Reply
  • 6. Clashing Views with Dr. Roubini « Investing Caffeine  |  October 29, 2009 at 2:01 am

    [...] story) and Armageddon expectations are off base. Perma-bears like Roubini and Peter Schiff (view article) have gloated and danced in the media limelight due to their early but eventually right calls. Over [...]

    Reply
  • [...] surprised her. Investors need to be wary of prognosticators that get thrust into the limelight (see Peter Schiff article) for a single prediction. The law of large numbers virtually guarantees a new breed of extreme [...]

    Reply
  • [...] talking heads don’t even manage client money or are not held accountable for their predictions (see Peter Schiff article). I like Barron’s Michael Santoli’s description of these story-telling market mavens, “A [...]

    Reply
  • [...] the drain of the global financial crisis. Throughout 2008 bearish pundits like Nouriel Roubini, Peter Schiff, Meredith Whitney, and Jimmy Rogers came out of the woodwork (read more about Pessimism Porn) [...]

    Reply
  • 11. Getting off the Market Timing Treadmill « Investing Caffeine  |  February 21, 2010 at 11:32 pm

    [...] will fly before he’ll ever release a full list of his past forecasts, including the bloopers.” (See also Peter Schiff and Meredith Whitney [...]

    Reply
  • [...] Peter Schiff: The Emperor Schiff Has No Clothes [...]

    Reply
  • [...] I take a significant grain (or pound) of salt when listening to economists and strategists like Peter Schiff, Nouriel Roubini, Meredith Whitney, John Mauldin, et.al. Typically, these financial astrologists [...]

    Reply
  • 14. John Mauldin: The Man Who Cries Wolf « Investing Caffeine  |  September 8, 2010 at 4:58 pm

    [...] The other technique is to ignore the forecasting mistake and merely push out the timing (see also Peter Schiff). A simple example would be of Mr. Mauldin extending his recession prediction made last April, [...]

    Reply
  • 15. Why it’s NOT Different This Time « Investing Caffeine  |  September 29, 2010 at 12:09 am

    [...] extremists have sprouted up to the surface, like perma-bear Peter Schiff and his call for Dow 2,000  or his $5,000 per ounce gold estimate. More recently, Robert Prechter has one-upped Schiff by [...]

    Reply
  • 16. The Central Bank Dog Ate My Homework | Investing Caffeine  |  April 14, 2013 at 11:11 pm

    [...] been a painful four years for the bears, including Peter Schiff, Nouriel Roubini, John Mauldin, Jimmy Rogers, and let’s not forget David Rosenberg, among others. [...]

    Reply

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