The Shedlock-Schiff Affair: A Chronicle 36 comments
-
Font Size:
-
Print
- TweetThis
Popular econoblogger Michael "Mish" Shedlock triggered a firestorm this week when he took down outspoken investment advisor Peter Schiff, claiming that although Schiff may have been right about the U.S. economy imploding, clients who had invested in his funds in the hopes of profiting from his prophecies had seen their accounts decimated:
First, let's start with a look at the claim being made. Peter Schiff concludes many of his articles, books, etc. with the following statement.
"Mr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly."
I would like to see some proof of that statement. Specifically I would like to see the average returns posted by EuroPacific clients for 2008.
I have talked with many who claim they have invested with Schiff and are down anywhere from 40% to 70% in 2008. There are many other such claims on the internet. They are entirely believable for the simple reason Schiff's investment thesis was flat out wrong.
Big Picture author Barry Ritholtz predicted Shedlock's post would set off fireworks "via a major media outlet that picked up the specific details from Mish, and independently verified them. Look for a major story soon (possibly as early as Weds/Thur). As is so often the case these days, a blogger discovered something newsworthy, and the MSM picked up on it afterwards." More from Joe Wiesenthal (aka The Stalwart).
He was right. Today, WSJ's Right Forecast by Schiff, Wrong Plan? does exactly that (though it curiously leaves out any mention of Shedlock):
Peter Schiff predicted a collapse of the U.S. financial system. The bust-up he didn't foresee was the one that made mincemeat of investors who took his advice in 2008.
WSJ speaks with a bunch of Schiff investors, including one who claims his account fell 63%: Schiff "goes around saying that he was right. He was right about one thing and wrong about everything else," he says.
Meanwhile, Schiff responds to Shedlock (without naming him):
Central to the argument that my investment thesis is wrong is the belief that the crisis is over or that the recent trends will continue until it is. But the crisis is just beginning and the movements thus far in the dollar, commodities, and foreign stocks, are mere head fakes. Once the speculators have been flushed from the markets, the underlying long-term trends I have been following should return in earnest.
It remains to be seen whether Schiff will now take on the Journal as well, or leave it at that.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 36 comments:
Jeremy Grantham
John Mauldin
Steve Roach
Just to name three - In Mauldin's case he was on the subject at as early as Jan 2007.
Wether it be Peter, or from the lying criminals of CNBC. I always try to take the middle road. Always. Taking the extreme has always been the wrong move.
I deeply respect Peter, have read his books, and understand his thinking. I respect that he has stuck to his guns. Yes, he is a bit over exposed now, so it was only a matter of time before folks started going after him.
However, Peter being temporarily wrong, pales in comparison to the thousands of so called "experts" paraded around on TV daily, who have been dead wrong for years, destroyed 100 times more wealth than Peter has, and yet are now STILL paraded around on TV doling out investment advice, acting as if they haven't lost anyone a cent. The bottom in the market was called almost 2 years ago by many of these people, then called again at DOW 10K, and again and again, each time lower and lower.
Again I am not a Peter Schiff, kool-aid drinker, worshiper.
However, there are countless hundreds of other "TV market mavens" who quite frankly should be put up against a wall and stoned for their outright lies, knowing they have zero accountability for their predictions and advice.
Now:
For those who complain that they lost money with Schiff's firm: "Get over it. Investing involves risk, and is NOT an entitlement system."
I prefer to reference my own saying which I use all the time: "Things take time to occur."
In my opinion, one should be positioned for a minor recovery in the US, and more major recoveries in other economies. I do agree with Peter and I believe that over time the world will come to realize that relying on 5% of the world population (the USA) to drive the majority of the world's economic growth is a huge mistake. Not when your own country's people have the same desire to consume and manufacture their own goods. This scenario in my opinion will take a decade to play out, and I think Peter's time frame was to short, for he assumed that things would change quickly.
Based on the amount of rhetoric we are hearing from the worlds leaders, the US is no longer going to be the "model" the world follows for economic growth. Consumptive lifestyles, fueled by very easy credit, financed thru debt bought by others, is not going to be the model for the world going forward.
While our leaders do everything they can to return the US to that model, instead of seeing what the future should look like, the rest of the world (except for the UK, they are in really bad shape) will come out of this crisis sooner than later.
The US will always be relevant, however contrary to the lies the gov't and financial media put out, we are not going to have the same level respect we once enjoyed nor the same level of persuasion we once had.
Best of luck to all in this tough environment.
The other 49% of hedge funds are delivering long term returns same as passive mutual fund investing in SP 500, only hedge funds charge 20-50% for it, mutual fund 0.25%.
And then there is 1% of hedge funds who survived crash of 70's, 80's, 90's, 2000 and current crash, are not funds that manage billions $$$, only small funds can make money consistently and their size can not be more than 500 mln$, the big hedge funds that had billions and now will be liquidated were not made to make money from trading, they are good marketing firms and good fraudsters and bear market found them naked and now it's time to face it.
Look at it this way.
Two businesses went out of business:
Asia (who has money in the bank, savings, burgeoning industry)
Western Civ (who has debt at every level, no savings, collapsed industry)
How does this end up?
I don't know what he tells his clients, but he probably doesn't claim to run a hedge fund designed to exploit transient conditions across currencies and market sectors world-wide. They probably wish he did (and as I wish I had the skill to do). But remember that a few years ago Warren Buffet, among others, stayed too long in contra-US$ currency positions as the dollar rebounded somewhat. He later regretted not having put that capital to work into world equities, which have since tanked. Only time will tell whose instinct and analysis proves right, but there is no news in the fact that there is a range of opinion.
I moved to 40% cash in early #2008 & left 60% in GG & CFK. What was the result? Failing to use stops & committed to my plan, I TOO LOST $$$$'s!
GG $52-14 CFK $10-2...with the latter reporting a TRIPLE in its 4th qtr earnings...
Schiff called the collapse but what happens after is still open for debate. Even if he is proven right in the future if his timing is wrong he won't profit. "The Market Can Stay Irrational Longer Than You Can Stay Solvent"
Also in response to:
"Look at it this way.
Two businesses went out of business:
Asia (who has money in the bank, savings, burgeoning industry)
Western Civ (who has debt at every level, no savings, collapsed industry)
How does this end up?"
Look at it this way, we exported pieces of paper, and they exported pieces of plastic. Do you really think that excess TVs and Pokemon action figures or other lead painted toys constitute 'value'? The excess crap that the leveraged borrowers were buying was non essential and in a down time it will be worth less or worthless.
This is what happened in the 1920s and which happened again in the past five years. Peter is basing his overall judgment on the validity of Austrian economic theory. I believe he will be proven correct, despite the near-term glitch caused by the deleveraging.... Time will tell.
On Jan 30 06:46 AM Ice wrote:
> There are many other who were on the right track
>
> Jeremy Grantham
> John Mauldin
> Steve Roach
>
> Just to name three - In Mauldin's case he was on the subject at as
> early as Jan 2007.
SA why is this article linked with GOLD? Because Schiff advocates gold?
Austian Economics is NOT being used. Thanks for telling us all what it says but please step into reality. I'm not advocating this "guess" at economics style or that "guess" at economics style, but too many people are fixated on textbook crap written long ago.
I'd be interested to see someone who actually brings up the Internet's effect on people in terms of their economic activities. For instance - now with the internet anyone can trade stocks, etc on their own. Not to mention the amount of free data and opinion you can get or how many sites like this people can leave their "expert" comments on the issues of the day. Sure for many they lose due to lack of knowledge, but many people are able to do better than they would paying some money manager.
How about the fact that the media has now gone from being a reporting mechanism to a rumor mongering, what is the latest and greatest(currently most disasterous) story we can print. What crooked guy's car can we follow on his way to court, what CEO can we try to get fired, etc...Facts are often at a minimum...These sites are little more than a trash magazine. Also this leads to no secrets anymore. Internal company emails are sent to the news outlets almost immediately after being sent. Its sad, especially since some people cheer this as transparency.
Transparency - HA. What a joke. Be careful what you wish for, although many people these days seem to be rooting for a US failure and the sad part is these people are Americans. I hope the investment in shorts they always talk about aren't denominated in $'s. It would be a shame for them to realize after a downfall that have $1000 instead of $10 doesn't matter when they are all worthless.
Whether Schiff is ultimately right or not, in the short term he was WRONG and he did not SUCCEED at his JOB. So if you're going to give him a free pass, then you should also be giving a free pass to bank CEOs because although their profits over the near past were all unduly elevated, they produced and over the short term of last year they didn't. Sounds pretty on par with Schiff. Sure Schiff's future prospects seem better than the bank CEO's, but that is unknown.
In the end, make your own decisions and no matter what your thoughts are, in the end you should be rooting for the US if you live here. If you feel so strongly as to actually root for the downfall of the US you should be moving to country of your choice that is so great as to match your ideals, good luck finding it.
Does anyone think we can sustain trillion dollar deficits to the horizon without the dollar losing its role as the global reserve currency? Does anyone think that we can take on so much personal and national debt without consequences? Does anyone think that we can be a service economy without making anything?
Perhaps this is a cry to the policy makers. For the investors, buy TIPS.
1. The dollar was already straining from excess credit creation and tons of reserves sitting in other countries atleast 6 trillion or so (China 1.5t/Japan 1t/Russia ,5t/GCC 1t and on it goes).
2. This excess credit creation was caught flat-footed when the bubble burst and the so-called assets (over-valued homes) could not be isolated since they were securitized. As has been correctly pointed out (post-haste and many times post-facto) by a legion of commentators -the MBS was but one of the many over-leveraged products on the US pannational banking centers menu-CDO's, CDS,etc.
3. This necessarily led to the panicked response where trillions were pumped into the banking centers to preserve capital ratios, ameliorate or disguise losses, etc.
The above is a very short list. But in essence the game is up. The value of the dollar is done. It is simply a matter of time before creditors recognize that the US is tremendously over-leveraged (by some accounts upt 350% of GDP) and that a lot of its GDP (some estimates 40 percent from the Financial sector- which may be insolvent) was over-inflated.
The logical outcome of this is basically what Schiff's talking about. Investment moving out of the US to emerging markets (which was happening anyway- for better profit margins due to tremendous labor savings and government incentives). Ultimately the realization that many fiat currencies in many countries are running the same model (Europe/China/India) and that the ultimate stor of value will be in commodities. In short -what Jim Roger's said.
The short term effect of de-leveraging caused these same dollars to be pulled from the emerging markets because -no one -not even Roubini knew the staggering sums that had been leveraged to the sky. The US alone has sent 8 trillion down the drain. Throw in Europe/Russia/China etc and your talking about a scale never seen -as far as we know.
Obviously this will bring short term strength back into the dollars as relative to other currencies. It will bring shocks to markets -that have lasted 3 months so far -perhaps a year. But- in the long run - 5 years out. The dollar has lost its luster for ever. The US has been exposed as the naked emperor. The manufacturing bases have permanently shifted to Asia. The commoditiy dependent country's will benefit -because they have both a surplus of cash and commodities to buffer their economies.
If the US lost half its banking income (20% of GDP) and consumer confidence erodes and the demand for multi-billion dollar weapons of war are extremely curtailed -because governments would rather spend money of please the populance projects like roads, bridges than F-18s and cluster bombs. Well what happens - basically its not good. As 2009 has already shown we are entering the steep end of the decline -and it will get steeper. Inflation still exists -as per CPI, unemployment is approaching 15 percent or more as per John Williams. And we are just getting started.
And while we're talking about sour grapes, I imagine Mish's outrage is due to Schiff getting all the attention, while Mish had a similar view but actually seems to have made money off it.
Look, whoever got there first doesn't matter-if one can get a portfolio to work in these weird times of ours, all the better for them.
Now let us get on with the work and figure out how this can be done for others ---hmmm?
Perhaps Mish would do us all a favor if he could also show us Schiff's returns, vs the average, over the 3 years, 5 years, and 10 years (if his fund is that old?) ending December 31, 2008.
Investing is supposedly for the long-term.
and Lew Rockwell's libertarian site have been right since 1999.
I want to thank them again. Shiff is a good man taken out of context
by cretins.
(You heard it here first, folks. The Nikkei is going back up to 40,000 — possibly to 80,000! Why? Because Japan has money in the bank! They have savings! They have burgeoning industry!)
I would give Peter Schiff until January 2012 to either be proven right or wrong. It took investors four years (from 1989 to 1993) to finally be proven wrong about the stock market and real estate bubble in Japan. Shedlock had started picking apart Schiff’s investment portfolio as early as January 2008 when talk of “decoupling” was still strong.
Whether you agree with Peter or not, it's a bit early to be saying anyone was wrong except those who didn't see it coming at all (95% of those on TV).
Market shake outs happen and if I'm on the same side of the table as guys like Jim Rogers, George Soros and Warren Buffett in any market then I don't feel completely stupid.
If you're looking for a metric to figure out what might happen, consider demographics. Chinia, Japan, UK, Europe all have older populations than the USA. India has a very young population. You will see relative strength wherever there is a group of young people who can work and consume for many years. This means after the US dollar corrects against the major currencies, they'll all go down together, staying more-or-less even in exchange rate. Peter Schiff bet the exact opposite way, and lost a ton of money.
BTW: Shedlock's company, Sitka, has performance charts on their web site, and they're pretty good. They pride themselves on extreme transparency.
On Jan 31 09:27 AM R.D. wrote:
> Mauldin was on it Jan.2007??????. HAR, A few at KITCO
>
> and Lew Rockwell's libertarian site have been right since 1999.
>
>
> I want to thank them again. Shiff is a good man taken out of context
>
>
> by cretins.