March 31, 2012

Peter Schiff who predicted the 2008 crash is back

Peter Schiff is the analyst who somewhat predicted the market crash of 2008. Before the crash, he tried to warn the world against the sub-prime/real-estate bubble. Here is a video summary about his predictions before the crash with a very poor video quality, but you get the idea.

Peter Schiff became a "rock star" in 2008 and 2009 when it turned out his predictions were corrects. You couldn't watch Bloomberg or other media without someone quoting Peter Schiff. He has now disappeared from the media, probably because his predictions have been partly wrong since then. If you read his book Crash Proof, written in 2007, he said the following:
  • Move out of the US dollar - the bad american economy is going to weaken the USD against other more solid currencies
  • Buy emerging markets stocks and move out of US stocks
  • Buy gold and gold-mining companies
  • Get into cash

This is what happened since the book was released in 2007:
  • The US dollar did not crash in 2008 because of the poor US economy - it did actually increase since the US dollar is a safe currency in times of crisis. This may however change in the future - but which currency is going to replace the USD? The Euro? The Yen? One problem is that the members of the Euro Zone also have poor economies. And the Japanese debt is among the highest in the world
  • The emerging markets stocks did move lower compared to US stocks in 2008. However, the emerging markets stocks have recovered since the crash
  • Buy gold and gold-mining companies. Gold did actually crash in 2008. Gold moved from a high of around 1000 to 600. Since then, gold has moved up to 1660
  • Selling some of your stocks in 2007 was a good idea. The book was released in 2007, but it is hard to say for how long before that Peter Schiff was negative to US stocks

These predicitions from his book were however long-term. The US economy is still in a poor shape, the debt ceiling is increasing each year, and the unemployment is still high. Saying that Peter Schiff was somewhat right is correct, but saying that he was wrong long-term is still hard to say. 

Peter Schiff is however back with another new prediction. He doesn't believe in the capabilities of Ben Bernanke to repair the US economy with methods such as "quantitative easing" and "Operation Twist." These methods only repair the economy short-term. The problem with the US economy is, according to Peter Schiff:
"We consume more than we produce and we borrow abroad, but we are never going to be able to pay them back"
"All of the people who were 100% wrong [back in ‘08] are saying that everything's OK [now]. I am telling them they didn't solve the problem and are making it so much worse."

Peter Schiff expects a massive crash over the next two to three years as a bond market bubble collapses under the weight of excessive debt.

Source: Forbes, Crash Proof