If you own dollar-denominated assets, then you're a fool. It's really that simple in the black and white world of American fatalism that is the trademark thesis of Peter Schiff, the CEO of Euro Pacific Capital.
"Unfortunately, because we raised the debt ceiling, because we continue to spend money, the cost of government is going to be born by those foolish enough to hold U.S. currency," Schiff tells Breakout.
In fact, as much as the Wall Street pundits may attack him, Schiff's longstanding affection for gold and other non-U.S. assets has served him well. Accordingly, there's no strategic shift in sight from the man who's says economic Armageddon will come because the debt ceiling was raised, not because it (almost) wasn't.
"You can't have a portfolio that's entirely gold and silver, and we don't," Schiff says, then lists foreign stocks, non-dollar denominated bonds, commodities and currencies as alternatives. But his go-to favorite, gold, still holds a special place in his heart and has lots more room to rise.
"If you look at the value of U.S. stocks in terms of gold, the Dow peaked in 2000 at about 43 ounces. We're now at barely 7 ounces of gold for the Dow [7 x $1650 = 11,550]. Ultimately, I think we see that ratio come down closer to 1 to 1," he says. That would require either much more Dow decline, a lot more gold gains, or some combination of the two.
Just playing with some numbers here, if gold and the Dow Industrials both had 75% respective gains and losses from their current levels (approx. $1650/11,550), we'd be looking at $2887 to reach a 1-to-1 Gold-to-DJIA ratio. You can run your own scenarios, but the mere thought of that is chilling.
So what do you do?
"There are a lot of ways to protect yourself from this disaster that awaits the U.S.," Schiff says. While he thinks "the U.S. is in more serious trouble right now than Europe," he says Europeans should likewise divest themselves of their currency. "There are a lot of currencies you can own to get out of the dollar without being in the euro," and Switzerland, Norway, Sweden, China, Singapore, Canada, Australia and New Zealand are suitable alternatives.
Additionally, Schiff's inflationary outlook supports owning oil, agricultural commodities and industrial metals. "If the global economy is doing well, commodities are going to rise. There are a lot of commodity shortages and they will do well because governments will continue to create inflation. They're going to keep on printing money, so commodities will rise."
To that effect, Schiff also asserts that "QE3 is coming. In fact, it might already be here. The Fed might have launched it in secret and we'll find out about it [later]."
Finally, Schiff isn't waiting for forecast revisions and slumping GDP results to confirm what he already knows. "We're back in recession. What are they [the Fed] gonna do? That's all they know -- to print money. Unfortunately, that's the source of our problems. It's like trying to put a fire out with gasoline. It's not going to work, but they keep putting more gasoline on it because that's all they know."
Is Schiff right? Is it time to bail on America or time to load the boat?
Give us your feedback below, via email at BreakoutCrew@Yahoo.com, or you can reach me on Twitter @MattNesto.
- Peter Schiff