Being Wrong for Five Years Makes Peter Schiff Right Now?

by: Todd Sullivan November 19, 2008    
Todd Sullivan

Todd Sullivan

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Here is my problem with the praise being heaped on Peter Schiff. Watch the following video.

 
Here is Schiff in 2007:


Great, right? No.

The problem? Here is Schiff in 2002: Schiff predicts Nasdaq 500 and Dow 4000


Now, had you listened to Peter in 2002, 2003, 2004, 2005, 2006 or even 3/4 of 2007, you lost your shirt. Had you placed bets based on Schiff's market calls, you lost everything you wagered.

The S&P (.INX) went from 1054 in May of 2002 (the date of the interview) to 1561 in Oct. 2007, a 48% gain and the Dow (.DJI) rose 40%.

Banking stocks, the primary victim of the housing bust, went up (JP Morgan (JPM) 36%, Bank of America (BAC) 41%, Wells Fargo (WFC) 39% , Wachovia (WB) 31% and American Express (AXP) 51%) during that time frame (dividends excluded which would dramatically add to results).

Bottom line? Had you listened to Mr. Schiff at anytime before Oct. 2007, you lost...big. To those who did, there is little consolation in the praise being heaped on him today.

Milton Freidman said, "markets can stay dislocated longer than you can stay solvent." For those who bet with Schiff between 2002-2007, they know the statement well.

Why is it a big deal? After all, Berkshire's (BRK.A) Warren Buffett claims he cannot time the market and often watches share prices decline in investments (like recent investments in Goldman Sachs (GS) and GE) before a rebound. How is this any different?

For one, Warren's loss is limited to his investment. He buys 1 share of stock "a" at $25. $25 is the most he can lose.

Now, if we listen to Peter and "short" stock "a" at 25, our loss has no limit. If it goes to $100, we lose $75. In shorting, we are only limited in our upside. If "a" goes to zero, "Schiffers" profit $25.

Buffett's strategy is an investing one and Schiff's is a trading and timing one.

Buffett followers can hold their shares, collect their dividend and wait for the rebound. Schiff followers collect no dividend and watched for over 5 years as their bet went wrong. How many stuck around? How many shorted into every market drop or "presumed" top over 5 years, only repeatedly losing money as the market kept rising and Schiff kept pounding his message home?

Schiff should not be getting the praise he is getting today for being "so right" after saying the same thing and being "so wrong" for the previous 5 years.

Disclosure ("none" means no position): Long GS, GE, WFC, none

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This article has 46 comments:

  •  
    Nov 19 10:56 AM
    Schiff had been flogging commodities and select emerging-market equities during that time. I don't recall him pushing people to short the equities you've mentioned. I believe you'd have done well with Schiff's commodities and EM plays over that time period, up until recently, and you'd probably still be up big even now if you'd invested at the start of the run. Where Schiff appears to have been proven wrong (temporarily) is that he was in the stagflationary bear camp, whereas guys like Mish Shedlock correctly called for a deflationary crash and were able to see through the smokescreen of rising commodity prices. Schiff may yet be proven right if, in the end, the government inflates its way out of the current mess.
    Reply | Link to Comment
  •  
    Nov 19 10:58 AM
    ...unfortunately, the world abounds with pundits -- on both sides of the investment camp...unfortunately, no one ever aasks them to document their performance with REAL brokerage statements showing REAL trades...my personal pet peeve is Jim Rogers...thirty years ago the guy made his money with Soros and retired...he hasn't managed a dime of anyone else's money since...and he doesn't publish his personal investment history...yet his name is used EVERYWHERE as an authoritative opinion...everyone should be required to take a course in critical thinking.
    Reply | Link to Comment
  •  
    Nov 19 11:34 AM
    Mr. Sullivan,

    I don't know what your problem is with Mr. Shiff. Considering your remarks I think its the timing issue solely and a few missed (inflationed) profits during the period you '02-'07.
    What actually is the true case about Mr. Shiff, is that the man is talking long-term. Long term in my views is minimum 5 years and longer. Simply said, fundamentally he was right all along.

    In my view, your comments are a rant against the missed timing of his remarks, but then you should know, that timing isn't a virtue we receive from by looking at a cristal ball or so.
    The man saw the fundamentals of the US economy long before the pundits at Fox a.o. and even the most 'important' economists in the world ever saw a glimpse of the total devistation lying ahead. Mind you, where not even close to what is coming. Its just the beginning of the demise.

    Basically, your column of today is just a rant. A missed opportunity to focus on the actual problem of his wrong timing caused by the former manipulating US (republican-lead) government apparatus. The FED's lack of sound monetary policy, starting from Greenspan till the horror that is prolonged by Bernanke and Paulson. These are the so called experts. It's a scam. And by what you say, you should join them self-fulfilled zombies.

    Mr. Shiff earns all the credits he gets momentarily, after being demised for the last 5 years. The man was right all along, and I'm glad I bought his books some time ago. Sure I was sceptical, but every point I investigated (as far as I could) he was spot on right, relatively. Timing will always be "manipulated"... by external, non-controllable parties of (counter) interest.

    brgds,
    Reply | Link to Comment
  •  
    Nov 19 11:47 AM
    wait a minute!.........this is the period he's sounding the alarm on. these are the first stepping stones to the apex of the monstrosity and you try to veer to some kind of disparaging clarity against Schiff??? and so stock-ing is all about thievery?? even when you knew better, you still engaged in "take the money and run" practices. all the gains that you elude to were wealth on paper or in theory.
    it was credit then and its credit now. the paper worth. fool's gold. these are the years of the thief 1997-2007 with Enron as the big bust and being the caper that exposed the whole mess (thieves art) of cooking books. It was all misleading as you are doing now with this mother goose tale of a story.
    Reply | Link to Comment
  •  
    Nov 19 11:48 AM
    Schiff clearly has a bent toward the negative, and in the instance of the housing, mortgage, and credit markets, this inclination served him quite well, Todd.

    What is more interesting revealed in those videos is the utter denial
    and outright scorn of the commentators responding to Schiff.
    Reply | Link to Comment
  •  
    Nov 19 12:02 PM
    "In the beginning of a change, the patriot is a scarce man; brave, hated, and scorned. When his cause succeeds, however, the timid join him, for then it costs nothing to be a patriot."
    Reply | Link to Comment
  •  
    Nov 19 12:23 PM
    Only a perma-bull could actually conceive to write this article as if relevant. Criticizing him for being right but early is not relevant. This man was right when 99.9% of the population was wrong. As a 'student' of the marketplace, shouldn't you try to learn from someone who is wiser than you? Humility and honesty are virtues Mr. Sullivan.
    Reply | Link to Comment
  •  
    Nov 19 12:39 PM
    The quality control of Seeking Alpha with regard to articles has been declining. This was a place for serious thinkers and writers. Enough with the Buffet worship and spilling ink over TV charlatans of all kinds.
    Reply | Link to Comment
  •  
    Nov 19 12:44 PM
    "Buffett's strategy is an investing one and Schiff's is a trading and timing one."

    Absolutely not. Schiff's strategy is one of buying and holding dividend yielding foreign stocks, mostly in the natural resource sector (I have an account with his company). To make money in the recent stock market bubble you had to be a trader, ie. buy low and get the heck out at the top. Schiff isn't right about everything, but he is a refreshing dose of reality in a world of talking heads on TV telling you to buy-buy-buy at dow 14000 and that your house is going to make you rich, goldilocks economy, etc. Schiff has been saying for years that the US economy is seriously unbalanced and there is going to have to be a period of painful readjustment. Now the stuff is hitting the fan you have to give him credit.
    Reply | Link to Comment
  •  
    Nov 19 01:56 PM
    Mr. Sullivan,

    You quoted : Milton Freidman said, "markets can stay dislocated longer than you can stay solvent. "

    Per Quote Details :John Maynard Keynes said, "The market can stay irrational longer than you can stay solvent."

    And I also happen to think that it takes some courage for a man to speak against "the tide". After all, it is not that easy to take the road less traveled.


    Reply | Link to Comment
  •  
    Nov 19 02:57 PM
    I stand by every prediction I made back then. Watch the entire show then decide. As for my Dow and Nasdaq forecasts, they would have come true had the real estate bubble burst sooner. However, adjusted for inflation, those predictions will come true as well --who knows, at the rate we are falling we might even get there nominally as well.

    www.europac.net/schiff...


    Also, if you have time watch a 2006 presentation I gave to a convention of mortgage bankers and tell me how wrong I was!

    uk.youtube.com/results...
    Reply | Link to Comment
  •  
    Nov 19 03:01 PM
    One more point -- I am not the one who has been wrong for five years, that distinction belongs to my critics who foolishly believed the bubble economy inflating before their eyes was real. My guess is that Todd Sullivan is among the many who were so completely fooled!
    Reply | Link to Comment
  •  
    Nov 19 03:11 PM
    One last point. I first made my NASDAQ 500 prediction when it hit it's high of 5,000 in 2000. Pretty close wouldn't you say. I wonder what Todd Sullivan was saying about the NASDAQ back then? I sure know what most people were saying in 2000 when I predicted a 90% crash in the NASDAQ. I guess I was wrong as it only fell 80% -- but as i wrote, at the rate it is now falling it might hit 500 yet. Of course, adjusted for inflation, its practically there already!
    Reply | Link to Comment
  •  
    Nov 19 03:34 PM
    Hmmm..... a 'peter schiff' on SA with only 2 comments and not linked to his actual biography? Nice try 'anonymous', was good for a laugh though...
    Reply | Link to Comment
  •  
    Nov 19 03:41 PM
    It's me. I have never commented on this site before and do not know how to link to my bio. Just watch the full interview and form your own opinion.

    www.europac.net/schiff...

    I put that video up on my web site for a reason. It is not as though Sullivan had to dig it up!
    Reply | Link to Comment
  •  
    Nov 19 03:43 PM
    raytayzmd wrote: "unfortunately, the world abounds with pundits -- on both sides of the investment camp...unfortunately, no one ever aasks them to document their performance with REAL brokerage statements showing REAL trades ...."

    The investment community, under the auspices of some trusted overseer (Barrons? Hulbert? the SEC?!?), should set up a play-trade playpen where pundits and others could place their bets on the record. They could then display their PP (PlayPen) scores in parentheses after their name, when they published an article. (If not, it would look suspicious.)
    Reply | Link to Comment
  •  
    Nov 19 04:06 PM
    R.K., your idea is a nice try. But, this sort of system may dismiss the 'prophets' (for lack of a better word), those voices in the wilderness who may underperfom the markets, or just look merely average, leading up to the Black Swan event. Hindsight is the great vindicator. As always, it's best to listen and do your own homework
    Reply | Link to Comment
  •  
    Nov 19 04:22 PM
    This is the worst article I've read. ever.

    You obviously didn't listen to a word he's ever said.

    Boo!
    Reply | Link to Comment
  •  
    Nov 19 05:10 PM
    Whether it is Peter Shiff himself or a fake, its doesn't matter.

    We carry Peter on this one.
    He's on my list of most visionary people to keep an eye on in the future.

    brgds
    Reply | Link to Comment
  •  
    Nov 19 06:41 PM
    Peter would have been right if Greenspan had not done the unthinkable back in 2003: lower the Fed rate to 1%. The US economy was on very shaky ground back then, and was leaning to deflation by early 2003. I doubt back in 2002 Peter believed that Greenspan would cut the fed rate to the bone, and also tell the public to load up on ARM's.

    This time the Fed doesn't have an magical wand to re-inflate the economy, without causing mass inflation. For the short term, deflation is going to be in control. Sooner or later the US treasury market is going to crash and well see a full throttle push into to mass inflation. The US is going to continue to load up on new short term debt. At some point the global market is not going to be able to absorb new govt' debt (especially in global recession). When the Treasury bond market crashes (6% or higher on short term bills), it will be the end of road. Suddenly US interest payment outlays will soar, which will eventually consume a high percentage of tax revenue. This will force the gov't to print dollars to pay its bills. Lets not also forget the huge entitlement programs, which outlays are now shifting into higher gears.


    Reply | Link to Comment
  •  
    Nov 19 06:48 PM
    If your doctor said you had cancer and could live only a little while longer, are you going to say the doctor was wrong if you have a temporary remission? No, the doctor was still right.
    Reply | Link to Comment
  •  
    Nov 19 08:25 PM
    I think Peter and his Dad are both very smart men. No one is always right, but both men think well and have the courage of their convictions.
    I tried to invest with his company but the person I dealt with was pretty snooty, and didn't seem interested in me.
    Reply | Link to Comment
  •  
    Nov 19 11:44 PM
    Here Mr. speculation, and not Sullivan is out telling us "I said, I predicted, remember when I said...etc, etc, et al. and so on" Every talking head wants to remind us what he said, and what some other guy said.

    Anyone can say they predicted xyz. Did he capitalize on it? And If he did, he would be enjoying the fruits of his speculation, not blowing hot air on SA.

    See ya Todd, wouldn't want to be ya.

    PS. Here's a tip. Food Stamps can get 80 cents on the dollar on the black market
    Reply | Link to Comment
  •  
    Nov 20 01:07 AM
    If the remission proved temporary, there would not be much to say.

    Think of a different analogy. Something without a non recourse end. A bear market can die, but the stocks exchange stays open. The cancer victim succumbs, that's all she wrote.


    I


    On Nov 19 06:48 PM willynill wrote:

    > If your doctor said you had cancer and could live only a little while
    > longer, are you going to say the doctor was wrong if you have a temporary
    > remission? No, the doctor was still right.
    Reply | Link to Comment
  •  
    Nov 20 07:28 AM
    Peter,

    If this you a couple points....I hear you have a "response" coming

    no reason to watch a 2006 presentation...I already said that recently you have been "very right"..

    the point was for 4-5 years you were very wrong in regards to dow / nasdaq..

    you don't get points for yelling "it's 3 o'clock" every hour and then when it is actually 3 o'clock looking around and saying "told you so".

    "I would have been right had housing collapsed sooner" you say.....ok...if Kennedy had ducked he'd still be here. What is the point? If a lot of things would have happened differently a lot of things would have ended differently...

    It didn't and you weren't..

    In regard to the dollar, it is just the opposite...you were very right for a while, before being very wrong now. Problem is that as late as July I believe you were saying the dollar was doomed yet it is up what 25% since then?

    The markets in general. The international markets you invest in rode the wave up and now down with the US market, many far worse on the downside now. No idea what your positions are (not listed) but one has to assume you have not "bucked the trend" based on your writings.

    Guys like Ackman, Tilson and Paulson, who began going short mortgages (and by-products) in 2005-2006 are the ones "who were right".

    There is more but I guess I'll save it for the rebuttal??


    On Nov 19 03:11 PM Peter Schiff wrote:

    > One last point. I first made my NASDAQ 500 prediction when it hit
    > it's high of 5,000 in 2000. Pretty close wouldn't you say. I wonder
    > what Todd Sullivan was saying about the NASDAQ back then? I sure
    > know what most people were saying in 2000 when I predicted a 90%
    > crash in the NASDAQ. I guess I was wrong as it only fell 80% --
    > but as i wrote, at the rate it is now falling it might hit 500 yet.
    > Of course, adjusted for inflation, its practically there already!
    Reply | Link to Comment
  •  
    Nov 20 07:29 AM
    Wiley..

    the analogy is the dr. said you have 6 months to live, you sold and gave everything away and lived 6 more years without anything...

    pissed at the doc?


    On Nov 20 01:07 AM degreenodal wrote:

    > If the remission proved temporary, there would not be much to say.

    >
    >
    > Think of a different analogy. Something without a non recourse end.
    > A bear market can die, but the stocks exchange stays open. The cancer
    > victim succumbs, that's all she wrote.
    >
    >
    > I
    >
    >
    > On Nov 19 06:48 PM willynill wrote:
    Reply | Link to Comment
  •  
    Nov 20 09:21 AM
    Even a clock is right twice a day, timing is tough and his foriegn stock recs. 35% down or more . Inflation will come again and cycles will continue until the end. Place your bets?
    Reply | Link to Comment
  •  
    Nov 20 09:28 AM
    Common Sullivan, you arguments are getting lamer by the minute.

    You know we never invest/give away more than 5 to 10 percent of total investment capital all at once.

    There is always family inheretance that can use some capital.
    Crazy analogy.
    Reply | Link to Comment
  •  
    Nov 20 10:32 AM
    @ degreenodal (Nov 19 11:44 PM) who said:

    > Here's a tip. Food Stamps can get 80 cents on the dollar on the black market

    What planet are you on? Food stamps only get you 50 cents on the dollar. If you are getting 80, 30 cents of it is charity.
    Reply | Link to Comment
  •  
    Nov 20 10:42 AM
    Mr. Sullivan, maybe you could apologize?

    Your argument that Mr. Schiff was wrong about the timing and distance of market changes is petty, innaccurate and of little value to your audience.

    It is more than clear that Mr. Schiff has consistently recommended commodities and some foreign issues. At no point to my knowledge, was there a recommendation to short the index.

    Mr. Schiff has had to endure a long period of rude, unnecessary and uncalled for public ridicule from an unapologizing media. Because he refused to agree with an incorrect consensus. Although you are a minor offender, you would be the first to apologize for what has been incorrect and inappropriate media behavior.

    I am getting very tired of all the mud slinging and witch burnings of Mr. Schiff. I am not sure I could have kept my sanity and resolve this long.
    Reply | Link to Comment
  •  
    Nov 20 11:19 AM
    "Had you placed bets based on Schiff's market calls, you lost everything you wagered."

    I didn't hear him once tell people to short stocks. So I guess you're equating missed gains with losses even though there were plenty of other opportunities that did not involve overvalued US company (particularly financial services) stock. Are you trying to tell us that Schiff was wrong and all that occurred between '01 and '07, particularly in real estate was not ludicrously overvalued due to speculation driven by cheap borrowing and facilitated by the Fed? That would put you in danger of resembling a blowhard moron. Aside from picking the exact date, he nailed it in '01. He just didn't foresee Fed policy and irrational exuberance delaying the inevitable for so long. Can you blame him? Looking back does any of that run up make sense really? In '01, '02, '03....? Or have you forgotten what historical averages are?
    Reply | Link to Comment
  •  
    Nov 20 11:23 AM
    Many of you are greedy, pathetic, morons. I've read very little here that lends itself to building a better future. One underlying point Todd is making is the concept of investment, which built this great nation. Greed put us off course, and if your greed makes you want to leave America, then take your money and go, so the rest of us can rebuild this great nation on saving, investing, working hard and having faith in good-spirited people.