So Why is the Journal (Sort of) Defending Peter Schiff’s Simply Wretched Investment Performance?

Now naive folks like me subscribe to the fantasy that a reputable newspaper maintains a church/state separation between its editorial pages and its news section. And then we have the Wall Street Journal as a telling counterexample.

Last week, the Journal ran a op-ed piece by one Peter Schiff, a rather vocal libertaran and goldbug whose claim to fame is that he foresaw the economic downturn. He also runs a broker-dealer called Euro Pacific Capital.

A mere three days later , blogger Michael Shedlock in “Peter Schiff Was Wrong,” savages Schiff on his frequent claims to having made good trend forecasts and positioning his clients “accordingly.”

Shedlock examines Schiff’s investment thesis, marshals considerable evidence to show that most of the key elements were way off. Shedlock also provides a screenshot of a Schiff account statement (scary) and reports from selected investors in managed accounts of horrific losses in the last two years (60% to 70% range), a stark contrast to his alleged foresight about the developing crisis. (I must note that the first 3/4 of Shedlock’s post is factual and pointed, Shedlock has an overly long section at the close touting his firm’s results, which undermines the solid work that precedes it).

So what do we see today? A Wall Street Journal article rationalizing, as best it can, Schiff’s performance: “Right Forecast by Schiff, Wrong Plan?” Although the second sentence is punchy (“The bust-up he didn’t foresee was the one that made mincemeat of investors who took his advice in 2008”) and the article does make clear that most Schiff accounts underperformed the S&P 500 handsomely in 2008, there is too much stuff like this:

Such losses came as something of a surprise. Mr. Schiff’s prescient call for the collapse of the U.S. housing market and the weakening of the financial system helped him gain fame as an economic guru and savvy investor who promised shelter from the financial storm.

This verges on pandering. Schiff as an economic guru? Please.

In fairness, the article does contain specific, and quite negative information about Schiff’s 2008 results, and suggests that investors taken with the the aggressive promotion of Schiff’s message, piled into his firm at the worst possible moment.

Even though the article does tell both sides of the story, there is too much real estate devoted to Schiff’s defense. I counted 13 neutral or Schiff friendly paragraphs versus 7 unfavorable. By virtue of contrast, see the article on storied investor Bill Miller’s fall from grace, with a record 15 years of outperformance followed by 58% losses in 2008. Even with a very long backstory of his rise, which is legitimately postive, the article is close to even on favorable/neutral paragraphs versus unfavorable, and the negative ones are often very cutting.

Any media outlet that didn’t have an existing editorial relationship would have taken the same fact set and played up the angle that Schiff does not live up to his PR and delivered dreadful returns at what should have been his moment.

Now I cannot blame the reporters given the genesis of this article. A hot potato landed in their laps and they dealt with it as best they could (and who knows how much of the softening came in the editing process).

If nothing else, the existence of this article, even though it makes no reference to the Shedlock post, was clearly prompted by it, and is thus a backhanded acknowledgment of his reach.

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75 comments

  1. Anonymous

    I’m not surprised by their pandering. Schiff has turned into a media darling of sorts thanks to his own self promotion. I’m grateful to Mish for calling him out. Schiff’s refusal to acknowledge deflation as a possible outcome of the credit bubble bursting caused me to dismiss “Crash Proof” for what it is…a sales pamphlet for Europac. I guess you can’t make money advising cash or treasuries.

  2. Anonymous

    Mish’s returns are nothing at all to be proud of. For someone who went on and on and on about deflation and a banking collapse, his performance last year was absolutely underwhelming. His Sitka Pacific Absolute Return fund was up 6% last year. That is better than the S&P but is pathetic if you look at his investment themes. If he thought there was deflation, why did he not buy long bonds or short copper and oil? If he thought banks were toast (e.g. Bear, Lehman, WaMu), why did he not short banks? It is rare in life you believe things are going to zero and get a chance to short them. How is it possible to provide only 6% return?

    As another investment manager recently wrote, “Being ‘right” in your analysis is virtually irrelevant to success in the financial markets. If your surgeon had done as bad a job in operating on your gallbladder as the “doom and gloomers ” who predicted the crash did in managing your money during the fall of 2008, he’d be jailed for malpractice.”

    Mish should equally be jailed for malpractice. He’s a great blogger but a terrible investor and trader given his stated themes and poor strategies and tactics.

    The S&P was down for the year, so Mish feels like a hero, but he massively underperformed his own themes. You may say there is a difference between being a blogger and a trader. Fair enough. But why does Mish advertise his services of money management and then fail to capture any of his major trends and themes? Schiff is obviously a bad trader, but Mish also can't trade his way out of a paper bag.

  3. DownSouth

    We’ve got ourselves a real whorehouse brawl here.

    All three of the protagonists live in their own little world, the insular environment of the bordello. While they scrap over the dininishing spoils that befall their brothel, they are oblivious to the broader implications of their morally questionable libertairian creedo, the devastation it has wrecked, and the fact that the world outside the walls of their compound is crumbling.

    I say a curse on all their houses.

  4. Panda

    totally agree with Yves on peter schiff.
    Also has anyone checked out Marc Faber’s track record or Jim Rogers,these guys are wonderful “newsletter”/book writers but what id their track record in terms of making money?

  5. Andrew Bissell

    It's worth pointing out that Mike Shedlock is also a vocal libertarian & Austrian, and bullish on gold.

    As far as making money advising people hold cash and buy Treasuries, another vocal libertarian & Austrian, Robert Prechter, has been doing just that for over a decade now. Although, granted, there's probably no way to rake in brokerage fees off the idea, but Prechter has grander ambitions than that.

  6. Anonymous

    I invested about 30% of my saved wealth with Schiff in the Fall of 2007, with obviously bad results. And, I admit, the fact that he was one of the few “investment advisers” I heard that even mentioned the fact that the U.S. economy was in dire straits helped attract me to him.

    I used his firm to hedge the fact that the U.S. dollar would collapse. I still believe the dollar will collapse eventually, so I am still in foreign stocks. But I did not know that all asset classes would collapse before the dollar would continue its tumble.

    Schiff has a weekly internet podcast, which I often find both illuminating and entertaining. Once you get past his self-promotion, he offers a refreshing spin on the financial news, including a lot of insights served in a comical way (like Jon Stewart during the darkest days of George W. Bush), most recently concerning Wall Street retention bonuses as a nauseating effect of the government bailouts.

    Nevertheless, Schiff has admitted on-air that he relies on 3rd party research for stock picks (i.e. outside firms), but wants to soon create an in-house position for researching companies. I bet he kept a lot of people from buying houses, but a lot of that goodwill could have been torpedoed because he all but recommended that if one were to own a house, to take all the equity out of the house and send it to a europac account.

    As for Marc Faber’s track record, I only recently started subscribing to his newsletter. His take on things is much more nuanced and careful. Still, his short-term January pick has done extremely well in the past week.

    Both Faber and Schiff recommend holding gold outside the U.S., which still seems like a good idea.

  7. Andrew Bissell

    “Both Faber and Schiff recommend holding gold outside the U.S., which still seems like a good idea.”

    Yeah, when these monetarist and Keynesian nutcases figure out that gold is allowing people to save wealth (horrors!), irrespective of their monetary manipulation, gold is going to come under fire somehow. Mish thinks an extremely high tax rate on the capital gains is possible.

  8. donebenson

    I think there is a lot of naivety being expressed here. If anyone has been in the investment business for very long they realize that generally their is a substantial difference between offering [good] advice and being able to translate that into good performance. As in academia, those that can, perform, and those that can’t teach. So what is so different in the market. At least Mish had an up year, while Schiff lost badly. But anyone who is a serious investor realizes he/she has to take the advice offered, weigh it, and then translate it into investment performance [something much easier said than done].

  9. Anonymous

    Shedlock and Schiff are both very bright guys. Stock picking within a manipulated market is dicey at best, so anecdotal evidence of failure might be suspect. That being said, it’s worth noting that both men like gold.

  10. Anonymous

    “but a lot of that goodwill could have been torpedoed because Schiff all but recommended that if one were to own a house, to take all the equity out of the house and send it to a europac account.”

    Wow. Can you say greed?

  11. Anonymous

    “So Why is the Journal (Sort of) Defending Peter Schiff’s Simply Wretched Investment Performance?”

    To legitimize the scam.

    The Wall Street Urinal is in reality defending the casinos rigged game (and by extension, the higher level gangsters that own and operate it) by defending/legitimizing a highly visible player/loser.

    Financial, ‘experts, advisers and gurus’, are now held in as much contempt by the public as the crooked cops, judges, and politicians, that uphold the fast crumbling scam ‘rule of law’ that they ALL operate under.

    Pimps, crack whores and used car dealers are now far more more trustworthy than financial experts … and they have superior, more tangible, products …

    Deception is the strongest political force on the planet.

    More skepticism please!

    i on the ball patriot

  12. Anonymous

    Can we all agree that none of us know the direction the dollar is heading but that the coming $4 trillion bank bailouts might mean that it is heading down? If so, then Schiff’s clients might do very well indeed. As far as I can tell, Schiff’s views look more on target than the deflation-centric Mish over the long term. It strikes me as irrational to judge long-term performance by the events of the past several months and that is exactly what Mish has done in his rant about Schiff. Reading his post, it strikes me that Mish’s ego is equal to Schiff’s.

  13. ballyfager

    IMO Shedlock is a sham. He’s going on and on about deflation because he realizes that the deflation we are experiencing is, more or less, the deflation we will have. Whereas he has led his followers to believe that deflation will be the endgame.

    What comes next is roaring inflation (and he knows it). Then someone can write the same negative column about him that he has written about Schiff.

  14. Stuart

    Please, ENOUGH already with Schiff and Mish! Hopefully all blogs will move on to more important matters. Way too tabloid this topic is.

  15. Anonymous

    “Way too tabloid this topic is.”

    Excuse us Yoda, some people like accountability from their gurus.

  16. Anonymous

    Take a look at the list of advice A Gary Shilling gave back in January 2008. His advice changed from long treasuries to high-grade corporates back in Decemeber 2008. Once again, the right advice. I didn't follow Gary's advice for long treasuries, because I'm a coward about long bonds, given that I don't have any inflation hedge, and I'm also a coward about commodities or short-selling. (I retired early, rent, and live off my investments.) But I did go for short treasuries until switching to corporates and so earned about 10% for the 2008. And now I'm still in corporates and flat for 2009. I've been reading Gary's advice since I became nervous about the tech boom back in 1999, and following the advice that doesn't scare me. Mostly, that means being in t-bonds, CDs and AAA munis and trading back and forth between short and intermediate terms to goose my returns a bit. My average return is about 7% since then, with little risk or volatility. Gary thinks stocks will bottom at 600 for the S&P500. Once gain, I'm going to leave some money on table by buying in 50% at 700 and then maybe 75% at 600. Knowing your own limits is important.

    Best thing about Gary is that he doesn't espouse all this Austrian gobblydegook. He's been down on gold for a long time and I agree. It's a massive bubble, just like oil, destined to collapse to under $400 as soon as it becomes evident that the future is one of high real rates of interest, regardless of whether we have mild deflation or mild inflation. (Gary thinks hyperinflation is absurd and I agree, and I don't think anybody expects massive deflation.) Folks, there's way more than enough production to meet inelastic industrial demand, a monster amount of inventory, and the primary use is as jewelry, a highly discretionary purchase by financially unsophisticated third-worlders, for whom jewelry is a substitute for stocks and bonds. $900/oz is as unsustainable under these circumstances as selling $500,000 houses in Stockton California to farm workers making $15,000/year. Sure, any fool can make money in a bubble, just like any fool can lose money in a bubble. The mark of the wise investor is to avoid bubbles entirely and concentrate on legitimate INCOME-PRODUCING assets, especially those that are currently undervalued and have the potential for reversion to mean. This spells corporate bonds right now, and stocks if and when they drop further in price. For those who want the hassles of being a landlord, residential or commercial real-estate should offer some bargains in the near future.

  17. YK

    From the Wikipedia:
    “If the first part of a tsunami to reach land is a trough (draw back) rather than a crest of the wave, the water along the shoreline may recede dramatically, exposing areas that are normally always submerged. This can serve as an advance warning of the approaching tsunami which will rush in faster than it is possible to run. If a person is in a coastal area where the sea suddenly draws back (many survivors report an accompanying sucking sound), their only real chance of survival is to run for high ground or seek the high floors of high rise buildings.”
    ***
    Maybe his reasons are selfish, maybe he is not a high profile seismologist, but Peter Schiff is trying to point the way to the high ground. How much time do we have before the inflation tsunami hits?

  18. Anonymous

    “Way too tabloid this topic is.”

    Reading this beef between Mish and Schiff is like listening 2pac and Biggie rap it out back in the 90s. It is all very entertaining.

  19. Yoda

    “Excuse us Yoda, some people like accountability from their gurus.”

    No kidding, really? Such a nice 30,000 ft motherhood statement that was. Much of this is nothing more than people sitting on a bench taking in a good old fashion piss fight and munching on popcorn to boot. Move on.

  20. Anonymous

    In all fairness I think the Shedlock’s pitch of his current firm was more a function of the fact he was recently listed by Time magazine as a the top financial blogger. Let’s face it, its a marketing opportunity that few people could pass up (and rightfully shouldn’t).

    I have followed his blog for some time and I only see the Sitka thing rarely, if at all. He deserves the free press!

    However, if it becomes more regular, it can only count against him.

  21. Anonymous

    ballyfager at 10:02– I think it is unfair to say Mish is a sham. (Uh-oh does this mean I’m a Mish follower?) Mish hasn’t said that deflation is the endgame, just the current game with an as yet undetermined end-point. He has said that things will turn at some point. And indeed it will be interesting to see if his ideas are as good when the turning point comes as they have been for deflation. No hint of sham yet though.

  22. Anonymous

    I hope Mish doesn’t respond. He’s done his damage. Let the chink in the armor be widened by others.

  23. Andrew Bissell

    “Best thing about Gary is that he doesn’t espouse all this Austrian gobblydegook. He’s been down on gold for a long time and I agree.”

    This betrays a poor understanding of Austrianism and the reason Austrians recommend gold. Yes, some Austrians are goldbugs and permabulls on gold, and they should be more careful with that advice, because it causes some damage to people who become convinced that gold will only go in one direction and invest on that basis.

    But then again, Robert Prechter is an Austrian who fully expects deflation and a decline in gold to $600 or lower. Marc Faber says, “buy gold, but hope that it goes down.” It’s an insurance policy against central bank stupidity, and that is a form of insurance *everyone* with savings should own.

    Unfortunately, the bright technocrats we’ve put in charge of the currencies appear determined to make them useless, so there is a *chance* that gold will have to take over the job of serving as a medium of exchange.

    Hell, I’m an Austrian and I both own physical gold and puts on GDX (the puts, much to my chagrin over the past couple weeks).

  24. ballyfager

    Anonymous 11:04,

    I started reading Mish a long time ago. At that time he was all deflation, all the time. No mention of a shift to inflation. More recently he has moderated his position to an admission that deflation will turn to inflation.

    I also specifically remember him saying that he would tell his followers when this change was about to occur. I think his head has been turned by having a lot of newbies on his site who swallow whole everything he says.

  25. Aaron

    Yves,

    It would appear you have a particular hatred for Schiff, I’m not sure where that comes from, but I digress.

    Correct me if I’m wrong but isn’t deflation a decrease in the supply of money, and inflation the opposite?

    Can we really debate whether the supply of money is increasing?

    I think there are several charts showing that the only thing that happened during all this mess was the supply of money temporarily leveled off!!

    As far as the account losses at EuroPac. Paper gains and losses mean nothing.

    It’s not where you start, or where you are at in the middle, but where you finish that counts.

    I think when the dust settles you’ll see some vindication from the temporary losses of account holders at EuroPac.

    And when that happens, an apology might be in order.

  26. Andrew Bissell

    “Correct me if I’m wrong but isn’t deflation a decrease in the supply of money, and inflation the opposite?

    Can we really debate whether the supply of money is increasing?”

    It’s not the supply of money that matters, it’s the supply of money *and credit*. Credit was the Fed’s main device for devaluing the dollar over the past couple of decades. Now that credit is imploding, they’ve completely lost control of that side of the equation, which is why we have deflation even in the face of aggressive increases in base money supply.

    Failure to understand the importance of credit is the main reason so many Austrians have egg on their faces *for the moment.*

    It will take either a shift in psychology (in favor of borrowing) or a suicidal increase in base money to get inflation going again in earnest. I think either one is unlikely for years. But, you never know, maybe there will be helicopters in the sky tomorrow. Own some gold.

  27. Andrew Bissell

    “As far as the account losses at EuroPac. Paper gains and losses mean nothing.”

    I’ve heard Schiff say this before, too. It’s the number one excuse for speculators to hold on to losing positions, the kind of rationalization that completely wipes out accounts.

    Paper losses are real losses. Period. Maybe they will turn into paper gains, and it makes sense to hold on, or maybe not.

  28. YK

    Andrew Bissell:”It’s not the supply of money that matters, it’s the supply of money *and credit*”

    Credit followed by bailouts is not exactly credit.

  29. Stevie b.

    Shedlock is a good read and has had an interesting and thought-provoking point of view for quite a while and it’s certainly made me re-evaluate my own.

  30. VoiceFromTheWilderness

    Funnier still is the game Peter Schiff is playing, not just his economic predictions.

    A week or so ago Schiff had an article out touting ‘free markets’ as the great and glorious solution to all problems.

    In todays news: Schiff begging for taxpayer support of asset prices. Whose asset prices do you suppose he wants supported?

    This guy has learned the lessons of the modern age well: Spin, Spin, Spin, then behind closed doors, (or even as with the other real masters of this game, right out in the open) manipulate for personal gain.

    At this point I see one thing and one thing only in that guy: a manipulative player willing to say, and do, anything, if he believes it is in his benefit. That he was one of the earlier callers of serious trouble ahead, is irrelevent if his actions are self serving at the expense of the society. Which… they are.

  31. russell1200

    To add to what Andrew said earlier, you also have velocity: which is how often the money turns.

    At the moment it is not turning at all.

  32. Andrew Bissell

    “In todays news: Schiff begging for taxpayer support of asset prices. Whose asset prices do you suppose he wants supported?”

    Could you provide a link, please? I find it very hard to believe Schiff is saying this. Unless Bill Gross is using a mind control ray on him, or something.

  33. Anonymous

    “In todays news: Schiff begging for taxpayer support of asset prices. Whose asset prices do you suppose he wants supported?”

    Reference, please. I don’t buy it.

    Are you sure you’re not thinking of Bill Gross?

  34. Anonymous

    As a rule of thumb, people with a strong ideological bent such as Schiff are very entertaining to listen to, occassionally enlightening, and always a horrible choice for investment.

  35. YK

    russell1200 said…
    “To add to what Andrew said earlier, you also have velocity: which is how often the money turns. At the moment it is not turning at all.”

    I thought the facilities like TARP are doing exactly that….turning the money.

  36. SteveW

    Not enough attention is being paid to how toxic Schiff’s 65% drawdowns are.

    1. A 65% drawdown requires a 200% gain just to get back to breakeven. Where is Schiff going to come up with a 200% gain?

    2. Who’s going to stick around with Schiff after experiencing a 65% loss? Even if he outperforms from here it will only benefit those customers who are extraordinarily brave (or stranded on a desert island).

    His hyperinflation call has no guarantee of coming true.

    As far as Schiff and his supporters saying these are just paper losses, that’s just more Mark To Model (“My model says you haven’t lost anything”).

  37. VangelV

    Mish makes some serious fundamental errors in logic that will cause his future returns to be just as poor as those he had before 2008.

    Let us keep in mind that Mish has been a permanent voice arguing in favour of deflation and that anyone who paid attention to him has likely lost so much money that the recent 2008 gains will be insufficient to produce positive returns. If you just heard of Mish in 2008 and followed his advice you did well but if you followed his advice for the past five to seven years you are still looking at losses even as Schiff’s long time clients are sitting on some excellent gains. Where Schiff does badly is on the shorter term and it is not surprising that new clients have done badly.

    But before we throw Schiff under the bus even over the short term let us remember that even last year he was recommending that clients hold cash that can be used to pick up bargains, own physical gold, short the financials, home builders and industrials. All those turned out to be profitable because gold’s 2008 return (as measured in the USD) was positive while the sectors that Schiff recommended shorting went down just as he said that they would.

    The big problem with Mish is his recommendation that people have exposure to bonds that are paid off in a fiat currency at a time when the government and central bank are relying on the printing presses to increase the supply of money. This is not the 1930s when the purchasing power of the USD was supported by its link to gold. The simple fact is that there is no political incentive for the Mish scenario to play out because it would reward America’s foreign creditors while it would wipe out America’s indebted voters. In a social democracy all roads inevitably lead to inflation and only fools bet on prudent government actions or a central bank that would protect the currency instead of the banking system.

  38. Anonymous

    “The big problem with Mish is his recommendation that people have exposure to bonds that are paid off in a fiat currency at a time when the government and central bank are relying on the printing presses to increase the supply of money. This is not the 1930s when the purchasing power of the USD was supported by its link to gold. The simple fact is that there is no political incentive for the Mish scenario to play out because it would reward America’s foreign creditors while it would wipe out America’s indebted voters. In a social democracy all roads inevitably lead to inflation and only fools bet on prudent government actions or a central bank that would protect the currency instead of the banking system.”

    Your words contain great truth, Kemosabi!

    Most people don’t understand that 95% of the time, gold is a horrible investment, but 5% of the time it is the only investment. Gold is not a “buy and hold” asset. It is a way to preserve capital in uncertain times.

    Anyone who doesn’t understand that this deflation is being caused by the credit contraction will be caught flat-footed when the world-wide central bank money-printing response creates inflation. When? 1 year? 3 years? I don’t know, but you can count on it as sure as the sun rises.

    The big pain is yet to come. 45% losses in 401Ks will likely turn to 65% losses. Then the real buying power of the remaining assets will get hammered by inflation.

    I doubt hyper inflation will occur, but double digit inflation is around the corner.

  39. Tompain

    Mish is a moron.

    I don’t know anything about Schiff but I know this: EVERY time you hear about some guy who is an investment genius because he made this call or that call, or he had a good year or a string of good years – it’s LUCK. All of the evidence says this is true. There are a zillion people making a zillion different “calls” and a zillion different investments. In any given environment, a few of the zillion are going to be correct. Bill Miller, Eddie Lampert, Bill Ackman, Dan Loeb, Warren Lichtenstein, Steve Cohen, Nassim Taleb, Jim Cramer, Jeff Gendell, Jim Rogers, Marc Faber, Nouriel Roubini, Elaine Garzarelli, Marty
    Whitman, Long Term Capital’s Nobel prize winners…ANYONE that you thought was a f-ing genius because of his record: LUCK. (Or worse: FRAUD) Look at how easily some of these geniuses LONG-TERM records were completely destroyed in one year. MAYBE Warrent Buffett is an exception.

    This does not mean these guys are not smart, it just means that even really really smart guys can’t reliably outperform the market. It will always, at any given point in time, look like SOMEONE was smart enough to do it. But with time it will become apparent that that someone was just another lottery winner.

    A soon as people stop believing in these charlatans, they will stop falling for the absurd schemes that Wall Street comes up with to fleece them. If you want to invest in equities, buy a low fee index fund.

    Watch, now someone is going to post “yes, I mostly agree with you except for THIS guy, he’s REALLY got the goods.” No, he doesn’t.

  40. Sivaram Velauthapillai

    VangeIV: “The big problem with Mish is his recommendation that people have exposure to bonds that are paid off in a fiat currency at a time when the government and central bank are relying on the printing presses to increase the supply of money. This is not the 1930s when the purchasing power of the USD was supported by its link to gold.”

    How about the fact that Britain still posted negative CPI in 1932 and 1933 (and zero in 1934) even though it was off the gold standard by 1931?

    But the best example is Japan in the 1990’s and 2000’s. Japan has injected huge amounts, to the tune of almost 180% of GDP, yet little inflation to be seen anywhere.

    The flaw wtih the inflationist thinking is that (i) they believe that central banks can overcome the free market (i.e. can outprint deflationary forces,) and (ii) do not consider credit, particularly credit contraction, in their calculations. In regards to those points, do you honestly think that the governments of the world will print or borrow $30 trillion just to make up for all the wealth that was destroyed in the last 2 years? So far, all the borrowing and printing of all the central banks barely approaches $3 trillion right now, with most of them not being “real money” given how they are swaps and other liabilities that will be paid back.

  41. Ken

    Aaron wrote: Paper gains and losses mean nothing. It’s not where you start, or where you are at in the middle, but where you finish that counts.

    Could you be a little clearer about this “finish”?

    Is the idea that if you just wait long enough, the losses will be reversed? That’s uncomfortably similar to the gambler’s idea that if he just keeps playing long enough, he’ll hit that lucky streak and wipe out his losses.

    Or is the finish at some date certain? I didn’t hear anything about the Apocalypse having been set, so it would have to be a more personal target date; perhaps Schiff has chosen his retirement age?

  42. Anonymous

    I don’t understand this post.

    Yves’s first paragraph is rather snide. That might work if its accusation against the WSJ were true, but it isn’t. The WSJ has one of the most liberal news sections of newspapers. The editorial section is, of course, quite conservative.

    http://www.sscnet.ucla.edu/polisci/faculty/groseclose/Media.Bias.8.htm

    Then there is this:
    “I counted 13 neutral or Schiff friendly paragraphs versus 7 unfavorable.”

    How do the 13 paragraphs break down into neutral vs. friendly? If it’s a 50/50 split, you have a neutral article.

    This is not one of Yves’s better posts.

  43. Stevie b.

    “But the best example is Japan in the 1990’s and 2000’s. Japan has injected huge amounts, to the tune of almost 180% of GDP, yet little inflation to be seen anywhere”

    and at a time when the rest of the world was still living on borrowed time and actually growing – hardly the case now.

  44. Yves Smith

    The thing I fault Schiff for is misleading and aggressive self promotion. His various pieces contend that he foresaw what was coming and “positioned his clients accordingly.” In reality, he was wrong in a number of the particulars (as in he saw only certain aspects of what was coming, has ballyhooed them loudly, and missed others) and lost his clients a ton of money. Per VangeIV above, there is no way he can make it back (unless we do have hyperinflation and they get it back in nominal but very badly depreciated real terms).

    No one should lose that much money for clients EVER, save perhaps in partly giving up monster gains (if you were up 85% and give back 15%, that’s OK. You are still way ahead over time. But even if you were up 300% and gave up 65%, I’d question the wisdom of a strategy that was that volatile. It would have to involve tons of leverage, which means high odds of a train wreck).

    One of the biggest rules of investing is to be attentive to capital preservation. That has been eroded by the propensity to measure managers against style benchmarks.

    Another well honed trading rule is to cut losses and let gains run. If you take a big loss (15-20%), self preservation says go flat, rethink your thesis, and maybe look for a lower reentry point. As Keynes famously said, the markets can be irrational longer than you can stay solvent.

    Schiff seems to need to be right more than he need to do well for his clients. That is a very bad headset for a money manager. Frankly, you should be at least a little scared all the time. Benoit Mandlebrot pointed out that markets are much much riskier (the two “much” are his, not mine) than the standard theories assume.

    As for the 6% that Mish returned in 2008, virtually all asset types were down (save three small stock markets, one of which was Ecuador, and the yen and Treasuries did well too). It was an unheard wipeout in the degree of correlation down across markets. 6% up puts Mish in the top 1%, maybe even top 1/2 of 1% of money managers in the world. You may take issue with his performance in other years, but shooting at his 2008 performance is wrongheaded.

  45. Anonymous

    I made a little money last year, but would have made a lot more if it wasn’t for the sinking Bernanke/Paulson Put! The fact is is that these people stared the monster in the eyes and told everyone what it looked like…why is it that they get taken out to the woodshed to be whipped while gurus the likes of (Oh, I can’t think of his name the idiot from San Fran…), and their ultra-poor performance get muted? What is wrong with the market is that it is way too baised to the upside and in doing so does our economy a dis-service. JustinTheSkeptic

  46. Anonymous

    5:07, you didn’t read the post clearly, and I don’t agree with you. No US paper is liberal, despite conservative claims otherwise, and if you are a long-standing reader, Yves has often called out the WSJ on market cheerleading reporting.

    As for the 13 v. 7 point, that makes for only 1/3 negative. At first I thought Yves was making a bit much of this, but then I read the Bill Miller article. Yves is right, Miller was a far far better investor and got far rougher treatment than Schiff did. 50% negative is a lot more negative than 1/3.

  47. philip from santa clara

    I read Mish and Yves and Ritholz, among others, and I have to say Mish has had a better sense of what the near-term situation was going to be. He doesn’t go more than a few percent short in his fund so his possibility of gains was somewhat limited, but really if you were up 6% in the last 12 months you are so far ahead of the game that to quibble about his performance is petty. He has admitted deflation might turn to inflation (but not hyperinflation) and he honestly says he doesn’t know when and will call it if he sees it. The macro situation is so complicated and subject to influence from individual actors that it CANNOT be predicted. Deflation IS here and Mish called it. Deflation is not permanent but when it leaves we don’t know. I have some physical gold (about 5% of my investments), some treasuries and bonds (401k choices are limited), some shorts in my brokerage (since I don’t trust a manager to do shorts), and the other half is with Mish. I am neither thrilled nor sad about the performance over the last 6 months. But compared to my friends with 50% losses I am laughing. And Schiff is simply a liar (claiming he helped is investors) and needs to be called out. Mish’s calls (combined with careful thought, and others sources) are a good basis for assessing the economy. and until he goes into the weeds he deserves the acclaim.

  48. Anonymous

    This is 5:38 again. And the point in the first paragraph IS correct, this article ran because the Journal has put Schiff on its op-ed pages and was implicitly endorsing him. Now they discover he isn’t all they thought he was and need to do some CYA.

  49. Democraatus

    In the current investment environment, I would be happy to be 6% up overall over the year 2008.

    Mish has Schiff by the balls, end of story.

  50. Carnap

    I never understood Schiff’s popularity, I’ve been complaining about him for about 2 years now.

    The guy is a salesman and gives piss poor arguments for his positions (if he gives one at all…).

    Mish, like Schiff, certainly has a dogma. But he is willing to change his mind when the environment changes. I don’t take either of them very seriously in terms of investing though.

  51. Anonymous

    >But, you never know, maybe there will be helicopters in the sky tomorrow. Own some gold.

    Idiotic advice. If you really want an inflation hedge, and don't want to buy real-estate due to the hassles, then buy stock in a diversified portfolio of corporations, all of whom have huge amounts of fixed rate long-term debt, but whose costs and revenues are neutral with respect to inflation/deflation, and which can currently just barely cover their long-term debt payments. Avoid the basket cases which can't cover their debt payments right now, since inflation isn't guaranteed.

    If there is no inflation, then the stocks will perform so-so, since the current prices will reflect zero inflation expectations. If we do get inflation, then costs and revenues go up substantially, while those debt payments are fixed, so net income skyrockets and so do the stock prices. If we get deflation, then the stocks will all go bankrupt, given that they are currently deep in debt. Better make sure about your prognosis of inevitable inflation. I expect mild inflation, which is why I plan to simply buy the market (VTI ETF) once the S&P500 drops under 700, as I am sure it eventually will.

    Meanwhile, gold, like all commodities, merely keeps pace with inflation (less holding costs) other than the effects of speculative bubbles/busts, which are impossible to predict and can go either way, given that gold is currently in a speculative bubble.

  52. Anonymous

    “The thing I fault Schiff for is misleading and aggressive self promotion. His various pieces contend that he foresaw what was coming and “positioned his clients accordingly.” In reality, he was wrong in a number of the particulars”.

    And what is your track record Yves Smith? All I have seen in your blog are Keneysian nonsense, and few potshots at the bankers. Have you made any real financial forecast that anybody invested in, or do you derive your primary income by sucking the teats of the government (like all other economists do)?

  53. Anonymous

    Yves wrote:

    > No one should lose that much money for clients EVER,

    So no one should invest in stocks? Or you should one sell one's stocks when you think they will go down farther? Yves, your ideas in your comment here are very, very odd. You appear to believe in market timing and that the John Bogle view is baloney.

    In fact the evidence is that when stock prices decline, odds are that one should buy more.

    Additionally, the academic evidence is pretty overwhelming that if there are people can outperform the market, the number of people is extremely small, and you don't know beforehand who those people are.

    How do you reconcile this with your views?

  54. Anonymous

    No one should lose that much money for clients EVER, save perhaps in partly giving up monster gains (if you were up 85% and give back 15%, that’s OK. You are still way ahead over time. But even if you were up 300% and gave up 65%, I’d question the wisdom of a strategy that was that volatile.

    Yves, it sounds like you are from the Madoff school. Unfortunately, in the real world, the volatility of an asset class and its return are related.

  55. Anonymous

    >Yves, your ideas in your comment here are very, very odd. You appear to believe in market timing

    I suppose you bought the S&P500 at 1550 back in oct 2007 without thinking anything was amiss. After all, boglehead religion says it is impossible to know whether the market is expensive, fairly-priced or cheap. Right. Actually, there ware quite a few of us who have a very good idea as to what constitutes fair value and we can easily beat the market, though only over a period of twenty or more years. Only individuals can do long-term market timing, incidentally, since all institutions have a one to two year investing horizon before they fire the manager for underperformance. Long-term market timers have been out of stocks (and into bonds) ever since the late 90's, since stocks were in bubble territory all that time up until Oct 10, 2008. They are currently below fair value, but human psychology makes it inevitable that they will drop further, so the long-term timer are still mostly in bonds and waiting patiently for an entrypoint into stocks.

  56. Yves Smith

    Anon of 7:10,

    The research is badly contested. If you really believed research you’d never ever put money in individual stocks and most certainly never with a money manager, you’d just buy index funds and be done with it.

    McKinsey has its own in-house investment management operation (it chooses managers) and its research found that in PE and hedge fund, a cohort of top managers did outperform. So you tell me. I am quite skeptical of that sort of finding, but I know the work was rigorously done (and contrary-wise, McKinsey was early to tout that equity managers do not outperfrom over time).

    A big problem with all this research, BTW, is that it is done with comparatively short time horizons that assumes comparability over time. It gives no weight to changes in tax treatment, regulations, institutional arrangements (for instance, the legal and regulatory regime of the 1990s was clearly more business friendly than the 1970s).

    15-20% across an entire portfolio is a big number. People have become inured to that due to the big stock market declines. The purpose of investing is is earn a positive return on capital (preferably, a positive real return).

    People have asymetrical return preferences (this is WELL demonstrated in abundant research). They would rather not lose money than make money. And recall, the way the math works actually says that is not mere risk aversion. If you lose 20%, you have to make 25% on your now lower amount of dough to get back to square zero.

    Benoit Mandelbrot has written at some length about how most of the widely accepted notions of finance as taught in CFA courses and business schools are badly flawed, including CAPM, the efficient market hypothesis, and Black Scholes. Because the main assumptions of finance theory (normal distribution and that market prices are independent of each other) are flawed, all constructs built on them are flawed too. Specifically, they understate risk. They overprice stocks, they underprice options, and they therefore understate the equity financial institutions need to hold to be able to bear market risk.

    Now as far as academic theory is concerned, it says that investors should be diversified by asset class. That greatly reduces risk while only somewhat lowering returns, which in the long run leads to superior performance. But the industry has touted that people should be heavily invested in stocks, 50-80%. Frankly, having worked on Wall Street and seen what goes on on the sell side, I have long thought that was way too high, and Mandelbrot confirms that.

    Equities are a lousy promise. Management will pay you dividends if and when they feel like it and can dilute you or announce stupid acquisitions. To make a proper evaluation of an equity holding, you need to have a private equity type relationship: you need to know management’s intentions and integrity, understand their strategy and competition. Disclosure is a partial but inadequate solution. A company cannot disclose enough for an investor to make a truly informed decision; they’d be giving too much competitively valuable information away.

    But investors have been lulled into complacency and because markets are liquid (most of the time) they have come to accept investing based on inadequate information.

    FYI, he notion of “asset classes” as defined in academia is far narrower than what is touted in the media. Hedge funds, for instance, probably do not qualify as an asset class, In theory, commodities could, but there is evidence that managed CTAs don’t fit.

    But real estate, domestic stocks, foreign stocks, domestic bonds, foreign bonds are asset classes.

  57. Richard Smith

    Dan Duncan, you are on a roll! And a sort of metaphor for anyone who can’t think straight.

    Your points:

    – Naked Capitalism is not a stock tipping blog. You might as well make the point that Yves hasn’t published any cake recipes. Your criticism is true but irrelevant.

    – Yves’ non-existent track record is irrelevant to the criticism of Peter Schiff’s track record. You don’t understand this because you don’t understand why ad-nominem argumemt cannot ever lead to the truth.

    – Making a wild guess about Yves’ teat-sucking activities is ad hominem but I salute the grotesque flourish you have managed to introduce. Quite an image.

    – Peter Shiff’s rejoinder doesn’t convince me. There – I have
    contradicted you, but we have made no progress. Putting in a link and claiming victory is as futile a strategy when I do as when you do it. Actually Schiff’s problem is that he’s not *allowed* to offer any counter-evidence to Mish’s underperformance claim. Are you accusing him of a regulatory breach?

    – “So no-one should invest in stocks” – straw man. Yves didn’t say this, so there’s no point in rebutting it.

    – “Or you should one sell one’s stocks when you think they will go down farther?” Well, what’s odd about that, at the onset of a depression?? Seems like plain common sense to me. Explain why this is a bad idea.

    – “Market timing” – another straw man. No point in imputing views to Yves that you rebut yourself. Doesn’t have anything to do with Yves’ views.

    – “In fact the evidence is that when stock prices decline, odds are that one should buy more.” But when it isn’t like that, it isn’t like that at all. Buying the dips between 1929 and 1933 wouldn’t have been too bright. Think the economy is coming to life real soon? Make your case, be right, and you will be famous.

    “the academic evidence is pretty overwhelming that if there are people can outperform the market, the number of people is extremely small”. If this is correct then you can’t tell if Peter Schiff is any good, either. In any case, if true, this claim wouldn’t need reconciling with Yves’ views since Yves is saying Schiff looks *bad*, and Mish’s strategy is Absolute Return, for which the market is not the benchmark.

    Picking through this mass of logical errors was fun. Thanks!

    I will do it again sometime, if there’s nothing on TV. But now, bedtime!

  58. Aaron

    Aaron wrote: Paper gains and losses mean nothing. It’s not where you start, or where you are at in the middle, but where you finish that counts.

    Could you be a little clearer about this “finish”?

    Sure…I’m not a broker with Schiff, but I would assume that with the anti-dollar strategy they have, when the fundamentals of a country’s currency are so painfully obvious the “finish” would be when you feel the currency is actually valued where it should be.

    Which is currently much lower than where it is(although it’s heading down as we speak).

    As far as the inflation/deflation myth. Just because people are hoarding money and not spending does not mean the money supply is not inflating.

    I’d love to be corrected if I’m wrong, but I’m pretty sure(I can’t seem to find the graph I was referring to) the overall money supply is increasing, EVEN with regards to credit.

    As far as Schiff’s self promotion. I’m weary of it just as much as anyone, the man has a definite chip on his shoulder.

    But he sees macroeconomics better than many in my opinion. He has been wrong in the short term and has owned up to it.

    Doesn’t mean his long term views won’t pan out in the next few years.

    Especially with new appointments and offices such as the “Chairmen of the committee on Bailout oversight” and the like.

    We keed raising the bar on ridiculous.

  59. Anonymous

    BTW Schiff’s latest book has some interesting career advice for young people in the United States. No, not medical device engineering, or biotechnology, or similar high tech stuff that I would recommend. But rather shoe repair, since supposedly we’ll all be so broke we won’t be able to buy new shoes (not even the shoes made in Vietnam and Bangladesh and similar economic powerhouses) but rather will have to repair the ones we already have. I got this info from amazon.com reviews, since I’ll be damned if I’m going to waste my dollars (yes, I keep all my wealth in US dollars) actually buying one of Schiff’s books.

  60. Anonymous

    Boy, there are some real doozies in this thread.

    Per Yves’ comment on 300% up and 65% down, and the rejoinder on asset class volatility. Name me an asset class that has that sort of volatility. Yves’ point was that that sort of return would almost certainly be the product of leverage.

    What is so wrong with saying that no one holding himself out as a money manager should every lose 65-70% of client money in a year? That is either incompetent or criminal. Even with 2008 being the worst investment year because so many different markets did badly, can you name a market index that fell that far? There is no way to justify this result.

  61. charlie

    I agree with the 15-20% down, go flat comment. Why?

    The critics all invoked investment theory. But go look at the link and see the sample Schiff portfolio.

    Schiff’s portfolio don’t tally with any conventional theory. The portfolio is all stocks or units in trusts, save one perpetual preferred, and looks to be putting all his chips on energy and gold. Too little diversification either by asset class or within asset class.

    That isn’t investing, it’s speculating, And in that game you are a trader. You do cut losses and let gains run. That is, assuming you plan to have any longevity.

  62. michael

    Lots of people here seem to be writing all sorts of comments on Schiff’s investment strategies without ever having read his “Crash Proof” book.

    Yves, same for you?

    He actually recommended that people keep one third of their worth in foreign high-dividend paying stocks, one third in gold and the rest in cash for buying opportunities.
    Euro Pacific is not an investment adviser, but enables people to buy foreign stocks at reasonable broker fees. However as most people have no idea what Singapore or New Zealand stock to buy, he gives stock recommendations – but it the client himself who decides what to really buy.
    If people followed this advice with cash they actually owned (no margin , equity withdrawals and so on) they might have made -10% overall performance. If they used the cash part to buy some Ultrashort ETF’s they should have ended positive in 2008.
    Why should I go to Sitka et al. where most of the hopefully better performance end up at the company for performance fees and high portfolio turnover?

    Yves, aren’t all investments with a long term average return higher than GDP growth either Ponzi or Martingale schemes?

  63. bg

    Yves of 7:45 PM
    I strongly agree with all of your observations about Mandelbrot and general euphoria in the public perception of the safety and profit possible in the stock market. I also agree that money managers are on average mediocre performers. I think there are two disadvantages they have. First, if they could reliably perform, they wouldn’t manage your money. They can make more managing a different clientel. Second, investing for a fee creates an asyncronous incentive, which encourages risk taking and flock following.

    Neither of these cases imply the market is efficient. Today Municipals are cheap, and treasuries are dear today. Smart, informed people can, and do, make smart investments on public information.

    I will also tell you that my blue blood family has had money diversified in the market on a consistent strategy for over 100 years. It was a good move.

  64. Anonymous

    I disagree with the anon who assumes gold is in a speculative bubble. More likely it is a vote of “no confidence” in the global financial system.

    We all send our savings across the country to a black-box called Wall St. and now we’re surprised our wealth is being stolen?

    The system is based on fraud and I for one am happy to see it implode.
    And i’m saying this after making a fortune shorting the p.o.s. institutions that knew exactly what Madoff was up to. There is no way that scumbag could have gone past Goldman Sachs and the SEC without their complicit or implicit
    approval.

  65. Anonymous

    I don’t like idea of Mish attacking a philosophical ally in a time when we need both of them as leaders when our country is falling apart.
    Just to make a buck?
    I like what Mish has to offer, but right now he is acting like a greedy pig.

  66. Anonymous

    Will I invest in the stock market now, no.

    Do I think that the Government is doing the right thing, No.

    Do I know what the right thing is ? NO.

    Let’s just stay in short term cash for now, ever vigiliant, eh. There is not one currency in the world worth a fiddlers damn.

    As I look at my beautiful home, and we go forword with this thing, I recall my grandfar’s experience. He worked a four shift in the Mountain Con Mine.

  67. Anonymous

    Whomever pointed out that just because money is being hoarded doesn’t mean there isn’t any, sure got that right.

    It never ceases to amaze when gold is decried as a relic and people are so apologetic about not having any. If you don’t like gold don’t buy any.

    If the founding Fathers appear as just a bunch of old geezers that had no clue as to the meaning of life then don’t follow the leaders at your own peril.

    Not sure what the point of this posting was unless it was Wall Street takes care of its own causes. Just proves you can correctly time the markets’ demise but can get on the wrong bus. I’m sure manipulation comes into play too.

  68. Anonymous

    Both Mish and Schiff have interesting views on the economy and investing in general. Schiff defended himself in a recent post on safehaven, and I think there is some merit to it. The clients losses that Mish referred to are individual and not necessarily reflective of all his accounts. Riskier portfolios that began in early 2008 would be slaughtered–however long term investors may be up, and more risk averse investors may be doing well. Gold certainly is maintaining it’s value, and Schiff has been a huge fan of the yellow metal.

    All this means is that 1) you have to be risk averse, never put your eggs all in one basket and 2) you have to make investment decisions yourself because you are the one to live with them.

    I for one look forward to reading what Mish and Schiff have to say about the economy for some time to come.

  69. Anonymous

    For the poster who said Mish didn’t do well before 2008, his Hedged Growth portfolio results were:
    12% in 2005, 13% in 2006, 9.5% in 2007, 13.7% in 2008. His Absolute Return portfolio ranged in those same years from a low of 3.4% to a high of 16.8%, and was 6.9% in
    2008. There was never a negative year. He was up both before and after the crisis when nearly everyone else was way down. Give the man some credit.

  70. Junior

    Am I the only one excited that the attention whoring battle of Doomsayers overwhelms the catfights on “Flavor of Love” and other such moronic reality TV shows?

  71. Deva

    I could not understand one thing…peter was so convinced about US$ falling through and it takes a lot of courage to have a view which is so different from the others and speak about that on national TV…only when a man has so much conviction can he say and do all those things…

    when he knew this in advance why did he not short those stocks…he could have made a fortune…like John Paulson made 3Bn$ in 9 months shorting Sub prime…and hedging risks by taking CDS against lehmann bros and other in sub prime..i am sure there are many who would have benefitted a lot by shorting them….

    why did peter have to go outside in foreign markets to earn money whereas he and his clients could have earned a heck of a lot by shorting subprime bonds in US…

    i do not think there is any point in criticising Peter for his calls as he says that because of the temprorary rally in the $ he has lost…however eventually he and his clients will profit….

    if peter had profited from this like John Paulson then people could have said that it was improper on his part as all his earnings are made after making a lot of people broke!!!! but is that not what stocks market is all about??

    though i think what peter says will eventually prove right…

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