Schiff's latest prediction: depression, riots and end of economy

[daveportman]

Peter Schiff sent out this letter today to his investors. It's scary, daunting and depressing (literally)

The Beginning of the End

October 10, 2008

Peter Schiff, President and Chief Global Strategist

While I have warned for years that the United States was headed into the eye of an economic hurricane, nearly every other "expert" from Washington, Wall Street, the press and academia saw nothing ahead but sunny skies. Now, suddenly, there is an overwhelming consensus that absent the Federal mortgage bailout, my dire forecast would have come to pass. While I'm glad that rose colored glasses have finally been removed from so many eyes, the vast majority of these observers are still blind. In truth, the bailout plan substantially increases the threats to the U.S. economy.

When I wrote my book "Crash Proof", I not only predicted that our consumer/mortgage credit-based economy would fall apart, but that the government would ineptly try to repair it. The magnitude of those potential policies formed the basis of my worst case scenario. My fears have now been confirmed, and the U.S. Government is now set to destroy all hope of economic recovery.

Make no mistake; had the government resisted the political pressure to interfere with the markets, we would now be experiencing a very deep recession. But by refusing to let the markets work, policy makers are resisting the only medicine capable of curing the economic disease that afflicts us. The same mistakes were made in the early 1930's, causing a severe financial crisis to morph into the decade-long Great Depression.

The government will now attempt to keep bad loans from failing and real estate prices from falling. Rather then allowing market forces to rein in excess borrowing and replenish savings, it will encourage even more borrowing and drain what is left of our savings pool. Rather than allowing our economy to return to one based on legitimate production, it will continue to encourage reckless consumption.

In the end, by refusing to allow market forces to work their cure, our economy will inevitably die from the disease. Our economy will now face death by hyperinflation, which will cause a complete loss of confidence in the dollar and result in prices and interest rates skyrocketing out of sight. The evaporation of our national wealth will lead to civil unrest, food and energy shortages, and the possible imposition of martial law. If such a scenario unfolds, what is left of our Constitution will surely be completely shredded.

Although this reality looms as large as anything I have ever seen, investors still do not see the forest for the trees. Convinced that the bailout will actually work, and that foreign governments are derelict for not launching similar plans, global investors are fleeing other currencies in favor of the dollar. Soon investors will discover that foreign politicians and central bankers have acted responsibly. When they do, the current gains seen by the dollar will reverse violently.

Investors seem to be bracing themselves for a global depression that will not occur. Foreign stocks, particularly those exposed to China or natural resources, are trading at the lowest valuations I have seen in my entire career. Fears of a global meltdown are based on the misconception that the U.S. economy is the tent pole for economic activity around the world. The premise of my entire argument is that the U.S. economy, by consuming so much of the world's resources and manufactured goods, and borrowing so much of the world's savings, has in fact been a drag on the global economy.

The enormous global vendor financing scheme is finally coming to an end as the vendors discover that their biggest customer is flat broke. In the short run, our creditors are experiencing some pain because they finally realize that they will never get their money back.

Once the foreign stock markets take this hit, they will be far better poised to grow than their American counterpart. Foreigners will reclaim their productivity and savings for themselves, and will subsequently experience the biggest global economic boom in history. America on the other hand will fare much worse, as we will be left with a hollowed out manufacturing base, dilapidated infrastructure, no savings, and a gigantic Federal Government that will regulate, spend, borrow and print our economy into ruin.

For an updated look at my investment strategy, order a copy of my just released book, "The Little Book of Bull Moves in Bear Markets." While the "bull moves" I forecast have yet to materialize, I am confident that given time they will. The good news is that now you actually have some time to put my strategy in place at favorable prices and exchange rates!

-- Peter Schiff is the President, Founder and Chief Global Strategist for Euro Pacific Capital. He is widely acknowledged as a expert in international markets, and in global economic strategy. He is a speaker at all the major investment conferences. He is regularly featured on CNBC and Bloomerg TV , and often quoted in the Wall Street Journal, Barron's, New York Times, the Financial Times, Investors Business Daily, and many others.

Video & rest here: http://www.newmogul.com/item?id=1002

 

[Random.Capital]

While I appreciate his concerns and share many of them to a considerable extent, IMO he is wrong about hyperinflation. For all the jokes made, the US is nothing like Argentina - the quantities of debt held externally are mind booglingly large - any attempt to hyperinflate out of this mess will hit a brick wall within two Treasury auctions.

Barring a miracle of foresight and international cooperation, the way this will end is with a sever contraction in government spending and a hell of a nasty recession. How long that recession lasts will depend entirely on how quickly the citizens and political leadership can come to terms on a prudent fiscal policy.

IMO it is extremely likely virtually all defined-benefit and gov't (fed & state) pension funds will have significant "redefinition" of benefits as PBGC is as underfunded as FDIC.

Ditto for Social Security. Medicare will not, IMO, survive at all, and will be replaced with a quasi-private insurance solution along the lines Obama has suggested. Defense spending will be greatly curtailed.

The bills are coming due.

All that said, the sun will still come up every morning. Life keeps flowing...

 

[makloda]

Peter sounds scared. He must have been totally killed this year.

a) Long gold mines = killed
b) Long MLPs & Canadian Royalty Trusts = killed
c) Short USD = killed (Peter: "The USD will goto zero, buy foreign stocks as you are not exposed to the imploding USD then". Problem is foreign stocks went down much harder than US stocks. Emerging markets have been killed. Emerging market currencies imploded 30, 40% in the last 3-4 months.)
d) Long coal miners = killed (I remember Peter was running his mouth in 2007 of how 'The new gold is black, buy Canadian coal stocks!!!!')
e) Long China stocks = killed
f) Long physical gold is still standing. Let's see how that shapes up for the rest of the year. Silver is down 55% from the March 2008 peak. I don't see why gold can't follow suit.

Soon investors will discover that foreign politicians and central bankers have acted responsibly.

He's delusional. The UK, Germany, France are bailing out banks and tinkering with the economy. The ECB and BOE started cutting rates in panic. Bail outs and interfering with markets aren't purely a US phenomenon.

The good news is that now you actually have some time to put my strategy in place at favorable prices and exchange rates!

Read: "I was completely wrong and lost you money, but heck, I think I will still be right like I always am!!!!"

 

[Topsurfi]

at least in one thing he is right, there are better places to invest compared to US, I think China is one of them (very long term). People there have no dept and the gouverment has lots of fire power because they have so much cash on hand (1 Billion US-Dollar allone). You will have to avoid US-Bonds though, I think they will get slaughtered.

 

[flytiger]

Governments ready for you . They may do shit to protect you, but they are ready to protect themselves from you.

March 13, fourth set of secret Congressional meetings in the history of the once great US. 3rd ID coming home to train in tactics like 'crowd control.' 6 Executive Orders dealing with Martial Law.

All documentable facts.

BTW. Our wonderful leaders in Washington, I am told by those paid to express the interests of Companies that retain them, are afraid to walk down the street. They well full realize that all it takes is one guy, 401K in the drink, no job, divorced, to flip over the edge.

 

[traderdragon2]

He's wrong for many reasons, but the over all reason is that markets are now global.

People who tried to find shelter in foreign markets lost just as much $$$.

The EU is down about 40%, same with japan, china even more, brazil with its energy independence is down 57%? percent.

"Foreign" markets barely exist anymore. We are one great big huge global market now.

LEH failed at 31 to 1 leverage. Some of the EU's biggest banks are at 61 to 1 leverage. They made all the same mistakes and even worse.

What we are seeing now are hyper-boom-bust cycle since modern electronic markets and arbitrage have linked all markets so tightly. You have a world of lemmings all following one another that will create bubbles and busts like we have never seen before.

This is why even gold and oil failed as a hedge. They are barely commodities now. Instead, they are liquid trading instruments and when all the lemmings hit the sold button at the same time, they too crashed.


This high speed drop was caused by shear panic. Everyone all over the world took their money out at the same time and its sitting in cash in brokerage accounts everywhere waiting to be invested somewhere after things cool off a bit. With the threat of inflation everywhere, its going to start pouring back into the markets shortly and you are going to see insane rallies like we have never seen before, once again causing by the global lemming effect, where everyone starts buying at the same time.


I just feel sorry for the weak hands that washed out at 40% down and will get left behind.

 

[Topsurfi]

Quote from traderdragon2:

This high speed drop was caused by shear panic. Everyone all over the world took their money out at the same time and its sitting in cash in brokerage accounts everywhere waiting to be invested somewhere after things cool off a bit. With the threat of inflation everywhere, its going to start pouring back into the markets shortly and you are going to see insane rallies like we have never seen before[/B]

you nailed it. People will realize that Cash is just another asset and Cash with all the money now beeing pumped into the system (and you can never get it out again) will be the worst asset class during the next 10 years. It is possible that we see a very short lived deflation but it will probably last only a year.

 

[sg20]

Quote from flytiger:

Governments ready for you . They may do shit to protect you, but they are ready to protect themselves from you.

March 13, fourth set of secret Congressional meetings in the history of the once great US. 3rd ID coming home to train in tactics like 'crowd control.' 6 Executive Orders dealing with Martial Law.

All documentable facts.

BTW. Our wonderful leaders in Washington, I am told by those paid to express the interests of Companies that retain them, are afraid to walk down the street. They well full realize that all it takes is one guy, 401K in the drink, no job, divorced, to flip over the edge.

I don't fear the financial distress as much as I fear the racial riots after the election. Damn if Obama wins and Damn if McCain wins.

 

[plugger]

After watching the video you can see how out of touch and DEAD WRONG that Art Laffer was on the economy. It's sad that guys like that have the ear of policy makers.

Schiff's message of returning to saving, investing and producing is dead on. If one of the presidential candidates latched on to this message, it would definitely fly with the American public at this point.

 

[mail2smitty]

Quote from traderdragon2:
What we are seeing now are hyper-boom-bust cycle since modern electronic markets and arbitrage have linked all markets so tightly. You have a world of lemmings all following one another that will create bubbles and busts like we have never seen before.

This is why even gold and oil failed as a hedge. They are barely commodities now. Instead, they are liquid trading instruments and when all the lemmings hit the sold button at the same time, they too crashed.


This high speed drop was caused by shear panic. Everyone all over the world took their money out at the same time and its sitting in cash in brokerage accounts everywhere waiting to be invested somewhere after things cool off a bit. With the threat of inflation everywhere, its going to start pouring back into the markets shortly and you are going to see insane rallies like we have never seen before, once again causing by the global lemming effect, where everyone starts buying at the same time.


I just feel sorry for the weak hands that washed out at 40% down and will get left behind. [/B]

Agreed traderdragon2. Believe this will be a challenge for traders - adjusting to the "quickening" of movements on all timeframes. Find myself being correct about the next swing, but reacting at the speed that was optimal last time around - too slow. It will be interesting to see if the increasing speed of market movement is a just another bubble as well...