The Doom In Investing With Doomsayer Peter Schiff

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Persistent doomsday forecaster Peter Schiff remains a popular investment advisor, particularly among conservatives who believe the U.S.’s high debt and liberal fiscal policies will have catastrophic consequences. Having shot to fame by correctly forecasting the financial crisis when such alarms still sounded wacky, hundreds of thousands of investors continue to consume his advice on investing ahead of an even worse economic collapse. Schiff has his own blog, YouTube videos, books and radio broadcasts, and he’s a frequent interview guest in the financial press.

Five years past the Lehman Brothers collapse, mainstream Wall Street is pretty much done with doomsday scenarios, despite ongoing crises in Washington. So the lasting phenomena of Peter Schiff made us wonder: are the food, fuel and gold hoarders of the financial markets really making a lot of money these days? We took a look at a homemade portfolio based broadly on the investments Schiff suggests.

Schiff’s investment advice hasn’t changed much in the years since 2008. Generally, he advises buying gold, crude oil and agricultural commodities, as well as foreign investments. These are the hedges, he contends, against the inevitable economic decline the U.S. will experience from its high debt and Fed intervention in the financial markets. (His 2012 book is called “The Real Crash: How to Save Yourself and Your Country,” which follows on the 2007 “Crash Proof: How to Profit from the Coming Economic Collapse.”)

Gold is Schiff’s go-to investment. He has been predicting “gold at $5,000” since 2000, adding expectations of “over the next few years” in December 2009 and again in February of this year. Gold prices in the past five years, however, are up a nice, but hardly extraordinary, 77% to $1,387 an ounce, having never topped $1,875 during that time. The chart below shows the actual price and the SPDR Gold Shares (GLD) ETF, which is one of the most popular ways to invest in gold.

Gold Price in US Dollars Chart

Gold Price in US Dollars data by YCharts

Other commodities have been a mixed bag for investors. West Texas Intermediate crude oil is selling at prices about 5% higher than it this time in 2008. Corn, wheat and soybean prices have had different journeys, but they haven’t added up to great long-term investments. The iPath Dow Jones-UBS Grains Total Return ETN (JJG), which closely tracks those commodity prices, is down 13%.

JJG Chart

NYSEARCA:JJG data by YCharts

Schiff has consistently shunned U.S. stocks in favor of foreign shares on the assumption that a U.S. economy, crippled by debt and inflation, will especially hurt domestic companies. That was a particularly bad call in the early days of economic recovery, and the damage of missed opportunity from sticking with that strategy has gotten worse. Here’s a look at several ETFs that track foreign markets over the past two years. They’ve returned about 11% to 19% in the past three years. The U.S. equivalent SPDR S&P 400 Index (SPY) is up 51%.

CWI Chart

NYSEARCA:CWI data by YCharts

In fact, all of these investments look particularly bad for investors who bought them more recently. Gold is down 20% in the past 12 months. Crude and agricultural commodities have bled value, as we can see by the chart of ETFs that track various commodity prices.

CORN Chart

NYSEARCA:CORN data by YCharts

Some of the fundamentals simply haven’t panned out the way Schiff predicted. He expected (and still expects) rampant inflation to create a long, sustained decline in the value of the dollar; a scenario that likely would have pushed gold prices higher, for example. But generally, the dollar has been getting stronger since late 2011. Inflation has remained tame, too, even though his forecast of 10-year-Treasuries above 4% is looking on target.

Real Trade Weighted US Dollar Index: Major Currencies Chart

Real Trade Weighted US Dollar Index: Major Currencies data by YCharts

Schiff doesn’t disclose his own clients’ returns, and we can’t extrapolate from this experiment whether those investors are happy or not. Their fortunes would depend on investment mix, timing and the vehicles they chose. They could have picked corn over, say, over oil, and made a lot more money, or picked the exactly right foreign shares to buy. That’s what Schiff did in January 2009, when he rattled off the names of five small and obscure foreign companies as his favorite stocks to Fortune Magazine. Each of them has given investors phenomenal returns.

It’s clear, however, that an investor who has been blindly following Schiff’s broad investment ideas could easily be disappointed by now. Investors who did enough financial research on their own to cherry-pick his recommendations surely came out the best, as they would have in following any investment guru. For example, those that took Schiff’s advice about gold for a couple of years -- then coldly ignored his reassurances while they sold with everyone else late last year -– more than doubled their money.

Of course, it’s possible that Schiff is once again being the sole voice of logic while most of the market is blissfully ignorant of a coming storm. So we’ll repeat a few of Schiff’s current forecasts here: the value of the dollar will drop spectacularly; the housing market will collapse; oil is going to $200 a barrel; gold prices will be higher by the end of the year and then “into the stratosphere.” Before putting money down on any of those predictions, you might want to do your own financial research.

Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at editor@ycharts.com. Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.


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