Your Sins Remain Unresolved.

“Come unto me, all ye that labour and are heavy laden, and I will give you rest.” Matthew 11:28

ROUND 2: Mike Shedlock vs. Peter Schiff

Between the first and second rounds, the WSJ published its own take on this piece here. The crowd around the Octagon is surprisingly quiet. There are no cheers when the opening bell rings. Peter Schiff’s left eye is swollen shut and he’s got a little blood mouse swelling under his right. Getting off his chair, the staggering giant Peter Schiff moves forward with determined vigor.  He stops abruptly motioning for Shedlock to come to him. Unfortunately, Schiff looks a bit punch drunk. Schiff’s latest response begins with subtle ad hominem attacks rather than addressing the issues. And when he addresses the issues, he does so without regard for Austrian economics or use of principles. I am disappointed–very disappointed. I had hoped Schiff would either produce a plausible argument or concede. I did not expect him to back pedal and rely on market timing. INMO, market timing is an excuse. One call always time life by saying that we’re all going to die someday. Predicting when, however, is critical. And so it is that the crowd is not cheering this fight. Round 2 goes to Shedlock. Schiff will get one more opportunity in round 3 but it doesn’t look so good for him right now. I am a Shedlock fan but I am also a Schiff fan. I wish Schiff would adjust his fighting style. I have posted Schiff’s entire response here:

A Response to My Critics

By: Peter Schiff, Euro Pacific Capital, Inc.

  My popularity on television and the internet has led a very small money manager to use his popular financial blog to promote his fledgling business by attacking the recent poor performance of my long-term investment strategy. The post is causing quite a stir and compels me to provide some badly needed context. To achieve his ends, this individual has distorted much of what I have been saying and writing, and has twisted the facts to support his own preconceived conclusion. In essence, his piece is nothing more than an overt advertisement (and a highly deceptive one at that) to use my popularity to advance his career. In so doing he has given my critics, particularly some who have been embarrassed by their roles in the “Peter Schiff was Right” video, their moments of retribution. In addition, some members of the press who have never been among my greatest fans are seizing the opportunity to discredit me as well.

The crux of the blogger’s arguments are that my beliefs in “decoupling, hyperinflation, and that the dollar is going to zero” have been completely discredited by the events of 2008, and that the resulting investment losses suffered by my clients last year confirms the fatal flaws in my approach. In addition to mischaracterizing many of my beliefs, he also is confusing short-term market fluctuations with long-term economic trends. First of all, the hyper inflation issue is a straw man at best. While I often talk about the possibility of hyper inflation, I have always said that it would be a worse-case scenario that would play out over many years. The fact that it did not appear in the first year of the economic crash (2008) does not invalidate my position. I have always maintained that this worst-case scenario will likely be avoided by what will ultimately be a dramatic shift in policy once our leaders come to their senses. However, until then the dollar will likely lose a substantial portion of its value. Second, I never said that the dollar would go to zero, either in 2008 or any year thereafter. I have said that in the event of hyper inflation the dollar’s value would approach zero. My actual forecast in my book “Crash Proof” was that the Dollar Index would fall to 40 (currently about 85), with a realistic worst case scenario, assuming very high but not hyper inflation, of 20 or lower. Third, the blogger points out that because the decoupling theory (foreign economies improving while the U.S. falters) that I wrote about in “Crash Proof” has yet to occur, that the theory itself was ridiculous. In my book I wrote that this process would not occur overnight, that initially our creditors would come to our aid, and in so doing our problems would become manifest abroad. I wrote that it would take time for the world to realize that what had been decoupled from the economic train was not the engine but the caboose. In fact, that is precisely the way it is playing out. Chapter Ten of “Crash Proof” is specifically focused on the need to keep funds liquid to take advantage of the buying opportunity that would initially develop once our stock market began its collapse. I specifically mentioned that when U.S. stocks began to fall, we could expect sympathetic declines overseas. While I did not know the precise timing of those events, I advised readers to prepare. I did not expect the huge dollar rally of 2008. But to discredit my long-term view of the dollar based on an eight month move is absurd. So while I believed that a weak dollar would cushion the temporary decline I expected in foreign stocks, a strong dollar ended up exacerbating it. In the meantime, I believed that the high dividends these stocks were paying would make it easier to ride out any correction.

The problem was that the dollar fell so far leading up to the crisis (in 2005-2007) that by the time the crisis finally erupted the dollar was poised for a bounce. 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.

To illustrate the flaws in my investment strategy the blogger has posted a client’s statement that shows a loss in excess of 60%. In addition, he claims to know of other Euro Pacific clients who have experienced similar losses. The inference of course is that most, or all, of my clients must have suffered similar losses, and the existence of such losses proves that I am wrong. In fact, some have gone a step further, claiming that such losses prove that I am a fraud. First let’s deal with the one client’s account. I have been following several key investment themes for the past ten years. The basis for my strategy is that recent U.S. prosperity has been false, and that the consequences of the bursting of our bubble economy would ultimately play out in a substantial decline in the value of the U.S. dollar, higher commodity prices, the re-monetization of gold, and foreign equities substantially outperforming U.S. markets. From an investment perspective, those themes played out extremely well in the eight years from 2000-2007. Recently we have seen a sharp, and I believe temporary, reversal of these trends. Those that came late to the party (at least based on where we are today) now have to ride out a particularly difficult correction. For example, the account in question belongs to the son of a long-standing Euro Pacific client, who is still adding funds to his accounts.

Without specially commenting on the performance of the father’s account, it must have been compelling enough to finally persuade the son to come on board himself in early 2008. However, as is often the case, by the time he came on board, foreign stocks and commodities were about to sell off, and the dollar was about to begin its unexpected rally. Following such a sharp correction, the son now regrets his decision and must blame me for my part in helping him make it. Perhaps as a stockbroker I should have persuaded the son to wait for a correction. However, while this clearly would have been the right call with the full benefit of hind-sight, it was certainly not as clear given the information I had at the time. However, I never held myself out to be a market timer. My advice was always geared to long-term investors. Given the thousands of clients that I have, and the large number who joined near the recent dollar peak and market tops, it’s no wonder that a few have contacted this blogger to complain; especially since he has actively sought them out. Of course, the fact that the overwhelming majority of my clients are not complaining, to him or anyone else for that matter, says a lot more about what is really going on. To the extent that the long-term trends I have been following continue, I am confident that even those whose short-term timing was bad will still do well in time. This is especially true if they take advantage of this pull back by adding to their accounts, either with new funds or by re-investing their dividends. However, to examine the effectiveness of my investment strategy immediately following a major correction by looking only at those accounts who adopted the strategy at the previous peak is unfair and distortive.

Since I have been advising investors to follow these trends for ten years, I will leave it to the public to draw their own conclusions as to how long-term followers of my strategy have fared. However, for those who only recently adopted my approach in 2007 or 2008, the road has been a lot bumpier than they or I thought it would be when they climbed on board. Yet if these long-term trends re-emerge, though the journey may be different than planned, the ultimate destination will remain the same. The blogger in question implies that all of my clients are down by levels similar to the account he cites. He has asked me to refute his allegations by providing broader performance figures for more clients. But, since Euro Pacific Capital is a brokerage firm and not a Registered Investment Advisor, I am prohibited by regulators from providing any details on the investment performance achieved by my clients. The blogger in question makes his challenge knowing full well that I am legally prevented from accepting it. He then uses my failure to refute his false claim as validating its accuracy. In addition, to look only at the performance of foreign stocks, while ignoring other aspects of my investment strategy only tells part of the story. What about gold, foreign bonds, short positions in financials, home builders and subprime mortgages (or merely avoiding long exposure to those sectors), or other investments people have made, either at Euro Pacific or elsewhere based on my insights? What about dividends earned, or gains realized on closed positions? Mainstream economists, journalists, and investment professionals have never liked my message and have never resisted the temptation to shoot the messenger. When my investment strategies were performing well, I got little credit for it. Instead, all the attention was focused on the apparent failure of my dire economic predictions to materialize. Now that the economy is collapsing along the lines that I correctly forecast, criticism is being focused on the recent poor performance of my investment strategy (a fact that I have never tried to hide). Of course by the time my investment strategy is once again in step with my economic forecasts, an event that I believe will occur sooner than most people think, it will likely be too late for most people to do adopt it. My critics have often referred to me as a stopped clock. I believe that the accusation is best leveled at the accusers. Having been wrong for so long, they are now enjoying their brief moment in the sun. They should enjoy it while it lasts. For now, they are creating fodder for some future “Peter Schiff was Right” piece where those who now criticize my investment performance will look just as foolish as those who once criticized my economic forecasts. For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar, read my just released book “The Little Book of Bull Moves in Bear Markets.” Click here to order your copy now. For a look back at how I predicted our current problems read my 2007 bestseller “Crash Proof: How to Profit from the Coming Economic Collapse.” Click here to order a copy today. More importantly, don’t wait for reality to set in. Protect your wealth and preserve your purchasing power before it’s too late. Discover the best way to buy gold at www.goldyoucanfold.com. Download my free Special Report, “The Powerful Case for Investing in Foreign Securities” atwww.researchreportone.com. Subscribe to my free, on-line investment newsletter, “The Global Investor” athttp://www.europac.net/newsletter/newsletter.asp.

Ron Paul vs. 4 on MSNBC

Old? Yes. Nevertheless, Congressman Paul is still sharp as a tack and his commentary brilliant. Great message Dr. Paul!

My favorite part of the video is the last question of whether he is willing to accept 15% employment in order to get back to prosperity.

In the Economic Octagon: Mike Shedlock vs. Peter Schiff

If you all are clueless as to what the Octagon is, please put your purse down before you continue reading. This fight over economic theory is going to get bloody. It’s about the near term and long term future of America’s economy. 

Fighting Economic Theory and Analysis are Two Contestants:

Peter “Dr. Doom” Schiff is like Chuck Liddell. You think he’s a heavy but he’s really not. He believes in Hyperinflation or severe inflation. Allegedly, his clients have lost a hell of a lot.

Mike Shedlock (aka “MISH”) for those in the know. MISH is the challenger but he’s sharp like Randy Couture and has Schiff’s number like Rampage Jackson had Liddell’s. MISH holds that there’s not enough cash to service the bad debt let alone the good debt. MISH’s management fund is smoking and has been so for several years.

Fight Commentary: ROUND 1

Peter Schiff has been over hyped like some genius regarding the catastrophic fall of the economy. To wit, Fortune Magazine published this drivell: “Dr. Doom’ became a star by predicting last year’s market meltdown. And now his 2009 forecast is even scarier.” 

MISH is a rising star in the blogosphere and its where the writers at the OATH have been for the past several months. He points out in several places how wrong Peter Schiff is and how much money he’s lost for his clients.

I almost feel bad for Schiff because he stuck his Austrian neck out only to have it in MISH’s guillotine. MISH is another Austrian who is untrained in economics. Incredible! Absolutely incredible that someone with little training could display such a grasp in this economic time. 

The main issue comes down to whether there is going to be INFLATION or continued DEFLATION. Schiff argues for the former. At the moment, Shedlock has got him.

But here’s a response from Schiff’s management fund attempting to stop the blood flow that includes a response from Schiff’s brother Andrew Schiff. (Apparently Peter is dumbstruck by Shedlock’s decisive speed and needs more help.) Curious, though. If Shedlock is wrong about the losses and the claim is that he’s trying to get more business for himself, why hasn’t Schiff filed a libel / defamation suit? Answer: Truth is a defense.

Round 1 goes to Shedlock. We’ll see if Schiff can continue.

Eric Cantor’s Bailout Flip Flops

Politico has an article out where the GOP allegedly is trying to return to its roots. I found it somewhat inconsistent of Eric Cantor to vote for Bush’s bailout and then acting as the No.2 Minority Whip, urge Republicans to vote against this one. (The other RINO leader, Boehner, seems to be pretending that he likes to vote against stimuli, too.)

Spark it up critiqued Cantor for this back in September of 2008. It is this brand of flip flop RINO conservativism that has cost us credibility with the public and tarnished the brand we once stood for. Why? Because the middle of the road types, not to mention our own party, no longer trusts the flip floppers.

I will begin a weekly roundup to point out the flip floppers so that we will remember them in the future. Once we clean house, we can restore the Republican Party and the Republic.