Tuesday, January 27, 2009
In defense of Peter Schiff
Voltron says: GASG readers know that I've been a fan of Peter Schiff, his company EuroPacific Capital and his book "Crash Proof" There have been some articles (link here and here) that point out that although he predicted the popping of the housing bubble, his investment strategy of buying high dividend paying foreign stocks has not worked out well because it assumed that the rest of the world would "decouple" and the dollar would collapse. In fact the world stock markets have done even worse than the U.S. and this has been compounded by the rally in the dollar. I think that the rally in the dollar is temporary and it's impending collapse is still my greatest concern. My investments have done well because I predicted deflation would occur before the inflation sets in, but as soon as the situation turns around, I will be dumping my short positions and aligning my portfolio with Peter's. Eventually the dollar will collapse and the world will decouple. It is important to note, that the foreign stocks I've bought (DKA, DBN and DBU) have continued to pay very high dividends (almost 6%). So although they cost less now, they are still worth the same as they were based on cash flows and so they represent an even greater value. These companies are not laying people off and they are still profitable. It's like the opposite of the housing bubble . . . the thundering herd of idiots drove up house prices even though the cash flows (rent vs own) were negative. Peter failed to predict that the Thundering Herd of Idiots (THI™) would irrationally dump their (positive cash flow) foreign stocks and buy (negative cash flow) US Treasuries. Like the housing bubble, the "Treasury bubble" will pop and Foreign stocks will make a comeback with the exception of financial stocks, which Peter specifically warned against.