Peter Schiff and His Predictions

Mark Meredith, CFP®

Peter Schiff is known for his doomsday predictions on the US economy, and being a permabull on the price of gold. Why is he famous? He predicted the housing market collapse and the ensuing deep recession we experienced 2007 – 2009.

If you watch the collection of old clips from 2006-2007 in the video below, you will think Peter Schiff is some type of financial prophet. Unfortunately, other data will show he isn’t.

Peter Schiff runs an investment firm (EuroPacific Capital), where you would imagine clients performed quite well during The Great Recession, and you would be wrong. This 2009 article from the Wall Street Journal details how many of the investors at his firm experienced significant losses during that timeframe. Here is a direct quote from the article:

“Among investors who turned to Mr. Schiff’s firm just as his strategy began to falter, Brian Kullberg, a design engineer in Portland, Ore., says he started to worry about the state of the U.S. economy in early 2008. He put $70,000 into a Euro Pacific account, hoping it would benefit as the U.S. economy and the dollar weakened. By late January 2009, his investment had shrunk to about $25,000.”

My calculator says that is over a 60% decline. From peak to trough the US stock market fell about 51% during The Great Recession, which means investors would have been better off in US stocks than following Peter Schiff’s advice.

Also in the article, Mr. Schiff is quoted as saying “I think the dollar is going to get destroyed”. Here is a chart of the US dollar index the last 10 years, which measures the US dollar’s strength relative to a basket of foreign currencies:

Not only has the dollar not been destroyed, it has strengthened considerably during this time frame. Now maybe Schiff shifted his views since 2009. He’s a smart guy, he would adapt with the market as it changes right? The US stock market started to rally in mid March 2009 and has retreated too much since then. Let’s see what else Schiff has said along this ride upwards:

Now you see quite a few predictions about the price of gold and how it will hit $5,000 an ounce, and how US stocks will crash once again. Today the price of gold stands at $1,421 an ounce. Here is a chart from the start of 2009 through July of 2019 comparing the performance of gold to the US stock market (gold is portfolio 2, US stocks are portfolio 1).

$10,000 initially invested in gold in 2009 would be worth $15,397 today, that’s somewhere around 4.20% annualized, not too shabby but a far cry from $5,000 an ounce. $10,000 invested in US stocks would be worth $41,302, close to 14.40% annualized. Investing in gold can make sense in a well diversified approach, but outlandish predictions should be removed from the thought process.

Listening to Peter Schiff’s market forecasts or anyone else’s can cost you big time. If someone had the capability to correctly call large turning points in the market or asset prices, they most likely would not go on the news telling the world about it. They would keep that information closely guarded to enrich themselves, as asset prices do adjust quite quickly to new unknown information.

Good advice is not always free, but bad advice can cost you greatly.

Originally published on August 1, 2019

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