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MIke NO LONGER posts on Seeking Alpha. Mike Stathis is the Managing Principal of Apex Venture Advisors, a business and investment intelligence firm for the private and public markets, serving the needs of venture firms, corporations and hedge funds. Mike’s work in the private markets includes... More
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  • Peter Schiff: Wrong on the Economy, Wrong on Healthcare (Part 3 of 4) 10 comments
    Jul 16, 2009 2:15 PM | about stocks: HWAY


    Peter Schiff: Wrong on the Economy, Wrong on Healthcare (Part 3)
    Lesson #5: Extremists are Always Useless and Often Dangerous
    Certainly, President Obama is not going about things in a manner I would advise. But Peter, you cannot use his extremist approach (or I should say that of Larry Summers and others who are really running the show) to validate your own extremist views of the “dangers” of prudent and accountable regulation; something the United States has not had in decades. 
    It appears as if Mr. Schiff possesses the same flaw as many others who sometimes hit the target after countless years of shooting. In the meantime, they miss out on many years of easy money.
    What’s worse, once they finally hit the target, they never hit the bulls-eye due to their persistently extreme views which are centered more upon sales and marketing than credible analysis. And if you can’t hit the bulls-eye, you will seldom win. This also applies to the investment process.
    Extremists are never good for anyone. In fact, they’re often dangerous, whether they’re from the “no government” or “complete government” intervention camp. As with everything, the real answer lies somewhere in between.
    Moderation is always the best solution. But being the great salesmen that he is, Mr. Schiff realizes that most people can more easily grasp extreme viewpoints because such arguments are cut and dry, lacking complexity. Unfortunately, they often lack validity.
    There’s no easy way. Things are rarely black or white. The truth is that most things have a shade of grey. Those who choose to believe things are black or white are most often those who get things just as wrong as the blind. 
    Perhaps Peter has fooled his "fans," who only see him for his “celebrity status." But sophisticated investors understand how far off the deep end he remains. Now let’s have a look at some of his misconceptions about healthcare.
    “The last thing we need right now is to further encumber our economy with higher taxes and additional regulations.”
    If Schiff really understood America’s complete economic portrait, he’d realize that higher taxes is a certainty, and has been even prior to this financial apocalypse.
    Perhaps if he’d spent more time doing what an investment strategist is supposed to do instead of less time devoted to marketing, he’d have realized this.
    Perhaps his “we don’t need higher taxes” speech is a warm-up for some political aspirations. 
    “The meteoric rise in health care costs, which has become an unending nightmare for U.S. businesses and consumers, is not an accident. This painful condition has arisen from excess government involvement in the system, tax provisions that encourage the over-utilization of health insurance, and government support of an out-of-control malpractice industry. Rather than allowing more bad policy to drive health care costs further upward, we should be looking at ways to allow market forces to rein them back in.”
    Yes, the “meteoric rise in health care costs…..is not an accident.” It’s a refection of excessive administrative costs in the private system that are up to seven times higher than those seen in public healthcare, and six times higher than nations with universal healthcare.
    The outrageous cost of U.S. healthcare is also due to unencumbered price hikes in prescription drugs. In contrast, every other nation on earth sets price caps for prescription drugs. As a consequence, Americans continue to subsidize the costs of prescription drugs for the rest of the world.
    These cost spikes have also been due massive fraud – mainly drug companies and entire hospitals bilking billions of dollars each year from the public healthcare system. In contrast, in no other nation do you see anywhere near the same level of fraud as in America’s “free market” healthcare system.
    Finally, the ridiculous costs found with the world's most expensive healthcare system are also due to the unfair business practices of the insurance industry, which behaves like a mafia, setting the rules of the game and changing them as they like in order to maximize profits. 
    Contrary to Schiff’s blanket claims, medical costs due to malpractice suits and insurance are actually quite low. Rather than repeating the same propaganda lines as neo-con radio talk show hosts, if Schiff had examined the research conducted by non-partisan, unbiased researchers, he would realize the truth. While the threat of malpractice often creates excessive tests and lab work, it’s cheap price to pay for a system of checks and balance.
    I suppose Mr. Schiff would prefer to have no penalties for incompetent physicians or surgeons who operate on patients while drunk and high (and yes, this does happen as the data confirms). I guess Peter wants U.S. healthcare to resemble Wall Street more than it already does. Maybe he plans to start a healthcare business soon.
    “If left alone, the free market drives quality up and costs down. Government programs produce the opposite result.”
    If that is so, can you explain to me why Texas residents have been paying 100% higher prices for electricity than the national average ever since the state deregulated the market?
    Face it Peter, America has not had a real free market economy in several years. It’s an economy based on industry collusion and consumer exploitation, buttressed by crony capitalism.
    And certainly the current healthcare system does not resemble free market dynamics. You cannot have free market healthcare when providers determine both supply and demand for medical services. If you disagree, go to your doctor and insist you need a knee operation when you don’t.
    Due to both the complexity and guess work in medicine, most consumers have a poor understanding of medical treatments. So they rely on their physicians and other healthcare professionals to do what’s best. Unfortunately, HMOs place profits as the first priority, and this often dictates the kind of care physicians are able to administer.
    Moreover, the medical-industrial complex has forced many physicians into the role of entrepreneurs; a task for which they have not been trained; a task that is inconsistent with the role of caregiver. Many physicians have embraced this mentality, buying expensive diagnostic equipment, taking payments for sending patients to certain clinics, etc. These physicians have been led astray by of the medical-industrial complex and the misguided benefits of entrepreneurial medicine, so they often provide too much care.
    Is this the type of free market healthcare you are talking about Peter? There are many other aspects to this argument, but anyway you slice it, America’s current healthcare system bears little resemblance to real free market dynamics. This is a statement of fact that can be confirmed by anyone who truly understands America’s healthcare system.
    “Simply providing more widespread health insurance, as the Obama plan offers, is not a solution. In fact, it will aggravate the problem. Since consumers no longer pay for routine medical expenses out of pocket, comprehensive health insurance creates a moral hazard for both patients and doctors.”
    Perhaps Mr. Schiff has some special type of medical plan since he’s a “celebrity.” Perhaps he has GM’s healthcare plan. But everyone I know has to pay a deductible. Whether you pay a deductible or not, the vast majority of Americans still pay for routine medical expenses out of pocket, whether for office visits, prescription drugs or the annual deductible threshold which is independent from these other out-of-pocket costs. 
    While President Obama’s plan isn’t exactly the best solution, Schiff’s arguments fail to address why Obama's plan falls short of a real solution. You see Peter, it’s all about cost containment. Obama doesn’t plan to put in price controls like other nations have because the healthcare lobbyists are much too powerful in Washington, with nearly four lobbyists per congressman.
    And yes Peter, some form of cost containment is critical for establishing a true free market healthcare system. Healthcare is unlike any other industry. Thus, a free market solution to healthcare should be expected to have some unique features.
    Free market doesn’t mean free to screw consumers. The proponents of a free market system imply there will be no industry collusion. Also implied is competitive pricing for goods and services.
    When you have a healthcare system by which there is virtually no price transparency, consumers are unable to shop around for the best deal. Thus, there is no need for the industry to price services competitively. In fact, lack of price transparency actually facilitates industry collusion.
    Furthermore, when U.S. consumers are able to buy the exact same medications in Canada for 80% less than prices charged by drugstores in the U.S., that doesn’t exactly demonstrate competitive pricing. 
    Finally, the moral hazard argument simply doesn’t apply to healthcare. Medical services aren’t like hamburgers. People won’t line up for more just because they’re free. This has been proven through several studies. Of course, Mr. Schiff isn’t an expert in healthcare so I wouldn’t expect him to know about these studies. Perhaps he should rely on some common sense and the principles of fairness instead of political agendas.
    Even if consumers lined up for free medical services, physicians would still dictate allocation aside from doctor’s visits, which would be tagged with a co-pay, as many nations have done with universal care. 
    Instead of worrying about a moral hazard when it comes to universal coverage, perhaps Mr. Schiff should start worrying about the moral hazard that’s been created due to lack of government regulation and accountability within the financial industry; his industry.
    Perhaps if he began focusing on that, one might actually form the impression that Peter cares as much about the people as he does himself.
    Stocks: HWAY
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Comments (10)
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  • Tom Au, CFA
    , contributor
    Comments (6879) | Send Message
    Peter Schiff "misses out on years of easy money?" He is one of the bst investors around.


    It is this "easy money" mentality that got us into this mess. Money is usually earned "by the sweat of your brow." People who think otherwise are foolish.
    16 Jul 2009, 02:53 PM Reply Like
  • Mike Stathis
    , contributor
    Comments (81) | Send Message
    Author’s reply » Preaching doom during the great bull market of the 1990s doesn't qualify one as "one of the best advisers around." There is nothing wrong with riding the bubble up as long as you know its's a bubble; as long as you know when to exit. The greatest investors actually do this. They don't sit around preaching doom for their entire lives as a way to justify buying gold and always remaining in "value investments." The greatest investors know when the tide turns and they adjust their strategies accordingly in a timely manner.


    The best advisers DO NOT deal with retail investors. This is a statement of fact.


    Even during the collapse when Schiff should have done quite well if he really knew what was going on, it appears as if quitethe opposite occured. Ithas been well-documented that Schiff's clients didn't fare too well. This is just one example. I know of many others, such as his clients complaining how they were down by more than the Dow.




    Evidently, you didn't have your money with his firm. Perhaps you watch too much CNBC.
    16 Jul 2009, 03:10 PM Reply Like
  • Jason722
    , contributor
    Comments (70) | Send Message
    "Medical services aren’t like hamburgers. People won’t line up for more just because they’re free. This has been proven through several studies."


    This is contrary to everything I have seen/heard on the issue and against my own anecdotal evidence. I am not disputing your claim, but could you provide one (or better all) of the studies? I would like to review them to see if I am wrong.
    16 Jul 2009, 03:43 PM Reply Like
  • tph1239
    , contributor
    Comments (2) | Send Message
    Peter Schiff was right because he understand business/trade cycles.


    Peter Schiff is right about health care as well.


    I was told I did not know what I was talking about I said the housing price would collapse by 50% a few years ago. That same individual called for my investment advice last October.


    Peter Schiff is well educated and trained in classical economics so this current situation is not difficult to understand.


    Listen to Peter Schiff and act accordingly.


    I speak not from lack of knowledge but as an individual who earned a master's in finance which is simple applied economics and much of my course work and studies afterwards is in business cycle theory. As I write this blog on my laptop which contains over 100 economic digital books and articles involving business cycle or monetary theory.
    16 Jul 2009, 04:48 PM Reply Like
  • Idaho
    , contributor
    Comments (4) | Send Message
    "Preaching doom" is how some see it.
    Peter always gave detailed reasons for his dark outlook, and gave alternative actions and enough information and forewarning to anyone who wanted to take shelter from the storm.
    You are standing in the middle of a train trestle, someone who has studied the track's traffic and schedule warns the you the afternoon express may come by any minute, as has been observed on in the past at about this time of day.
    Another simply observes that there hasn't been a train for hours- so it must be safe. Put up a tent in fact, nice camp spot with a view to boot.
    Anyway, trains come and go, so maybe he is a doomsayer, but those who listened are grateful.
    16 Jul 2009, 10:00 PM Reply Like
  • User 449441
    , contributor
    Comment (1) | Send Message
    Mike Stathis, you are lightweight. You have no business blogging on Schiff. You're not even in the same intellectual stratosphere. Your comprehension on all things economic is sophomoric at best. Why don't you blog on Buffet, his investments are down more than Schiff's. Why not tell us all how one of the greatest investors the world has ever seen "got it wrong" too.
    16 Jul 2009, 11:14 PM Reply Like
  • User 449510
    , contributor
    Comment (1) | Send Message
    "there is nothing wrong with riding the bubble up as long as you know its's a bubble; as long as you know when to exit". No doubt you have a different cliente as compare to Schiff. Your advice is mainly for hedge funds and corporations, where they take unlimited amount of risk with disregard to downside. Exiting wasn't one of their primary concerns. As long as they make their bonuses on the way up, that counts for everything. For Schiff, knowing everything is an illusion, a mirage, he knows he has to help his client to protect their investments. And he based all his recommendations on logic, sound fundamentals, and good insight.


    I cannot understand the how any advisor could advise their clients to enter into a bubble knowing that it is a bubble and it would burst any time? When do you know it is the right time to exit? How do you know it will not burst right after you enter? This is also what set Schiff apart from typical advisors.
    17 Jul 2009, 03:14 AM Reply Like
  • SweetLiberty
    , contributor
    Comments (2) | Send Message
    "if Schiff had examined the research conducted by non-partisan, unbiased researchers, he would realize the truth."


    Name your "unbiased" sources. Oh, wait, you can't. They don't exist.


    You are clearly in favor of socialized medicine and haven't a clue as to what free markets are all about and how they work. To conclude that America currently has a free market healthcare system is preposterous given the current levels of government regulation and interference. America isn’t going bankrupt fast enough for you, Obama, and the other liberals. You want to increase our unfunded liabilities (Medicare, Social Security) exponentially by socializing Health Care? Brilliant.


    Welcome home, comrades!
    17 Jul 2009, 11:44 AM Reply Like
  • mlimberg
    , contributor
    Comments (17) | Send Message
    Not listening to Peter Shiff at this point is like being the radio operator on the Titanic who did not pass along the information, something about an iceberg?


    Yes, Grasshopper, the sky "IS" falling... or was that Chicken Little.... these darn details keep getting in the way of a good story....
    20 Jul 2009, 05:21 PM Reply Like
  • Freedom! Forever!
    , contributor
    Comments (2) | Send Message
    The deregulation of Texas electricity has a lot of factors into it. Besides, deregulation isn't going to solve anything. Getting the government completely out of the business is going to help.


    And in some cases, the companies that were deregulated were actually lower than the costs of the regulated, state provided electricity.


    As an economist I'd hope you've done your philosophy studies. What is ethical about taking money from a healthy person to pay for someone who is unhealthy? Sure, charity is nice. And my bet is that a lot of people would willingly give money charitably (unless of course people don't have faith in people anymore). However, forced charity is not charity. That's the antonym of charity.


    Another thing that boggles my mind is you even referring to Canadian drugs being cheaper than American. This hurts your argument for more than it helps. I am not quite sure if the FDA has finally made it legal to buy from Canada but I do remember quite the restraint against it. Or at least hesitance. Furthermore, the FDA has done a study (I am skeptical of it myself) has done a study on generic brand drugs compared to Canadian drugs. They found that some American drugs were not more expensive. Not only that but the FDA tries to outlaw anyone who makes claims that anything else other than drugs can help cure, prevent, or treat a disease. Perhaps garlic can't CURE you of a disease but it can most certainly prevent diseases. Although, the FDA would convince you otherwise.


    And it's crazy not to think that HMO's and lawsuits do not push up the healthcare rates. If you think I am wrong, just look at what the malpractice suit lawyers make. They might as well have their own MTV Cribs show. It's unbelievable. You want an example of affordable rates without health insurance or medicare or medicaid, read the congressional testimony of Dr. Robert Berry. Why wouldn't people, if they have an unlimited supply of healthcare coverage, ask for more drugs for things that can be treated alternatively? Of course people will do that. People are going to abuse the system and the people that don't are going to have to suffer for it.
    27 Jul 2009, 05:47 PM Reply Like
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