Why Peter Schiff Preaches Paranoia

RealCrashThe Real Crash is the most recent piece of economic doomsaying peddled by pundit Peter Schiff.   You’ve probably seen his ads or received email spam touting his warnings about hyperinflation and financial armageddon.   We are not fans of his economic forecasting for two primary reasons:

  1.  He is consistently wrong; and
  2.  His forecasts are tied directly to the investment programs that he is selling from which he profits.

Is Schiff engaged in a scam?  We think so only because he is peddling provably false information for the purposes of extracting money from potential clients.   But we’ll offer some of the information we’ve found about Mr. Schiff and leave it up to our readers to arrive at their own conclusions.

Mr. Schiff is a stockbroker with no degree in economics.   According to his Wikipedia page,  Schiff is CEO and chief global strategis] of Euro Pacific Capital Inc., a broker-dealer based in Westport, Connecticut.  His father is a well-known con artist who sold books and led seminars claiming no one had to pay Federal taxes and told followers his “secrets”. Schiff’s father is now serving a 13-year prison sentence for tax evasion, his second prison term (he previously served a four year term, again for tax evasion), although his son refers to his father as a “political prisoner“. Peter Schiff’s supporters state that he correctly warned about collapses in the housing and financial markets that led up to the financial crisis of 2007-08. However, since 2008, Schiff has made a series of discredited predictions of hyperinflation and economic ruin; for example, predicting that the price of gold would rise to $5,000 per ounce by 2015.  He repeatedly expresses bearish views on the US economy and dollar and bullish views on commodities, gold, and foreign stocks and currencies.

He gained a lot of attention in 2007 when he appeared to predict the 2008 economic downturn fueled by the banking sector meltdown.   He, along with numerous other commentators, warned that real estate prices were too high and would self-correct.   However, he didn’t publicly indicate that he had knowledge of the kind of market manipulation that led to the 2008 banking crisis.   And since 2008, he has been consistently wrong in his predictions.

For example, as per Paul Krugman’s analysis, his predictions about hyperinflation have been repeatedly discredited.  Worse yet, Schiff appears to rely upon intellectually dishonest data to support his allegations.   In 2013, he predicted a housing crash.   As chronicled by Forbes Magazine, his predictions were debunked and continue to be wrong.

But his critics go far beyond Krugman or Forbes Magazine.   Again, according to his Wikipedia page:

“Schiff is known especially for his bullishness on gold and his belief that gold will protect investors against a prolonged decline of the US dollar. He introduced the first 100% physically backed gold/silver accounts integrated with the global debit card system back in 2011 through Euro Pacific Bank Ltd, his offshore bank. Schiff has made several predictions regarding precious metals. In 2011, when gold prices had reached a record high of $1800 per ounce, Schiff said that the price of gold, which was then around $1700 per ounce, would rise to $5000 per ounce in a few years.  On April 16, 2013, Schiff told a CNBC interviewer that gold may go to $1000 per ounce but that if it does, the price will present a buying opportunity because it will subsequently rise to $2000 per ounce.  Again, in June 2013, he claimed a “vicious” gold rally was coming,the biggest in history,in August, he reiterated that a “spectacular” gold rally was coming; and in September, he claimed that whatever the Fed did, gold would rally.   However, it never happened.  In fact, gold prices dropped by almost 30% over the year, to a three-year low, where they remained on course to clock their first decline in 13 years and were kicked into 2014 with a “drubbing.” Goldman Sachs correctly predicted gold would “grind lower” over the course of 2014 after a brief rise after geopolitical events (such as in Ukraine), the metal began slumping back to its New Year lows, “hitting new multiyear lows relative to the Standard & Poor’s 500 Index” The downward trend in gold prices continued into the summer of 2015, with gold at less than $1200 per ounce”

Schiff maintains that he is looking “long-term” at gold prices rising again.  Time will tell.  But in the meantime, Schiff’s clients have lost money.   In January 2009, economic blogger and investment adviser Michael Shedlock wrote, “I have talked with many who claim they have invested with Schiff and are down anywhere from 40% to 70% in 2008.”  Even though Shedlock shares Schiff’s interest in gold, he heavily criticizes Schiff’s “delusional” assertions.  Later that week, an article appeared in the Wall Street Journal reporting that Schiff’s broker-dealer firm had “advised its clients to bet that the dollar would weaken significantly and that foreign stocks would outpace their U.S. peers” but the dollar later advanced against most currencies, “magnifying the losses from foreign stocks.”   Another analysis estimates that he lost 60% to 70% of customer assets in a two-year period when he was supposedly making correct macro calls

Other knowledgeable commentators have reviewed Schiff’s track record and been less than impressed.  For example, his gold investment strategies have been deemed as a bait-and-switch scam.   Putting aside his questionable predictions, his factual assertions rarely stand up to scrutiny.  

The following 5 minute video provides a fair amount of data about Schiff’s investing track record and is required viewing for anyone considering an investment in Schiff’s books or investment firm:

Our strong recommendation is to exercise extreme caution in giving Mr. Schiff and his associates any of your money.  We encourage you to conduct your own “due diligence” before even buying his self-serving propaganda.  Like so many “investment” pundits on the Internet,  they will rarely admit they are wrong and will distort economic data to support their dubious contentions.   What he offers isn’t so much investment advice as much as a faith-based appeal to armageddon believers.   And, once they are stuck in Mr. Schiff’s investment scheme, they’ll find it exceedingly difficult to extract themselves.


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