Investing Caffeine

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 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?