I'm not one to kick a guy when he's down, but that's what some segments of the media did to Peter Schiff in 2008 when his client's holdings at Euro Pacific Capital allegedly decreased by 60%-70%. Mish's Global Economic Trend Analysis, a very popular financial blog, really piled on and threw him under the bus with a scathing review of Schiff's investing acumen in January of 2009. Schiff in return has written a rebuttal to all of his detractors in Crash Proof 2.0 which basically stated that he is a long-term investor and those that chided him were myopic in their leanings. Crash Proof 2.0 is the newest edition of Schiff's Crash Proof that was published in 2006 and correctly called the housing bubble and subsequent implosion in 2008. I'll give credit where credit is due and Schiff did call the financial meltdown of the housing and stock markets. His timing was impeccable, but some of that is attributed to riding with lady luck. Crash Proof 2.0 essentially reprints most of the first book and gives addendum's at the end of each chapter that were written in the aftermath of the crash.
If you are not familiar with Schiff, besides being president of Euro Pacific Capital, his resume also reads economic advisor to Ron Paul's presidential campaign, so you can infer he is to the right of right. As he says in both books: "I, along with a handful of others using the same lens, am simply applying the basic laws of classical Austrian economics. The Austrian school is not considered mainstream these days, so guys like me are few and far between.". That's probably a good thing. I've written at length about the Austrian School of economics in previous posts so I won't go into great detail about it only to say that they essentially believe in ending the Federal Reserve, going back to the gold standard and minimal government intervention. While I don't agree with Schiff and the Austrian economists who seem to be coming out of the woodwork these days, on 99% of the dogma they adhere to I do concur that there is still more fallout in the market. In the author's note to Crash Proof 2.0, Schiff states: "while most believe that the economic collapse is over, the reality is that it has only just begun. What we have witnessed thus far are merely the events that have set the collapse in motion. It will take some time for all of the dominoes to fall.".
The Dow Jones Industrial Average at 4,000-5,000. Gold at $5,100 an ounce. The dollar bottoming at 20, maybe lower. These are all eye-popping predictions Schiff makes in his book. He claims he is not your run-of-the-mill perma-bear who are like stopped clocks and can be right a couple of times. But, he has been bearish for as long as I have been aware of him. He even states in Crash Proof 2.0 that he had his clients stay out of tech stocks in the 1990s. He contradicts himself more than once during the book. For example he advises readers to invest in only conservative dividend paying foreign stocks while warning about the evils of investing in ADRs because the stocks are too big and well known. I'll call off the dogs here because the purpose of this article is not to trash Schiff, but to take another "expert's" opinion on why the market is going to correct. However, at the risk of belaboring a point, he and John Downes (who co-wrote the book) do contradict themselves at times.
The investment advice Schiff gives can be summed up as follows: Put 70% of your money in foreign stocks, 30% in gold and sit tight and wait out the crash, not in worldwide securities, but in American stocks. He deems the sun is setting on the American Empire because of all the debt the government has accumulated. Schiff believes in markets decoupling, that the greenback will no longer be the world's reserve currency and probably be replaced by the Euro. I couldn't disagree with him more. Crash Proof 2.0 is well written, but I have a problem with it in that it is like a lot of other books written by Austrian School economists. They all say the same thing except for Robert Prechter in Conquer the Crash. Prechter believes in deflation, not hyper-inflation like the rest of the herd. I tip my hat to Schiff for predicting the 2008 real estate meltdown in Crash Proof, but cannot recommend his newest book because it's a couple of years too late.