Great article, Karen!

It is sad to see some people who should have known better go around searching with a fine-tooth comb for ANY piece of dirt they can find on Schiff just to generate a Tu Quoque (“you are, too!”) argument, as if that made their misconceptions and foolishness less obvious.

Well said Caveman.

I must say that if it wasn’t for Peter Schiff by way of Ron Paul I might never have seriously studied Austrian Economics. I was quite disappointed and confounded when Mish let loose on Schiff. Confounded because they are both proponents of the Austrian school and I am certain that they agree on much more than they disagree. I was disappointed with Mish’s article as effectively all it accomplished was to give ammunition to the Keynesians that Schiff has been battling pretty much single-handedly in the mainstream media.

This article is great as it points out the most important fact – that Schiff is pretty much the only Austrian Economist who is getting regular mainstream attention and even though he is outnumbered he is still extremely effective at refuting all the common economic fallacies extolled day after day. I am sure Schiff has introduced many people to the Austrian School who might not have been otherwise. I was one of them.

These desperate hacks who are trying to after Schiff conveniently ignore the fact that all kinds of incorrect predictions were made by investors and investment advisors with many decades of experience. Of course, they also know that most people probably are not aware of this.

Being an economist and being a speculator are two very different things.

It is as different as being an astronomer and being an astronaut.

Economics is a science that tells one how the market works. It is necessarily big picture.

Speculation is a whole different discipline. You have to guess the changes in valuations of many different people and it is, was and will be the most difficult profession known to man. There are many variables and it is not as simple as markets being rational or not. Also in todays semi-statist world one also has to factor in the actions of the states and their central banks, as well as regular market participants.

Lets say you are speculating on commodities. You need to factor in changes in production and demand, and every little bit of information that could effect these variables. Also you need to factor in changes in taxes, interest rates, government subsidies, etc. Not only this raw data but the effect of this raw data on the other speculators.

One can be a great speculator without knowing any economics.

On the other hand being an economist can be an asset to the speculator. Especially in this world where governments manipulate and fix prices.

Being an economist, one can foresee that a war would cost a lot and the country in the war can not raise taxes because it wouldn’t be smart politically. Also being an economist, you can foresee the only other way to finance the deficit is borrowing. As an economist you can also foresee the additional borrowing should increase interest rates and if interest rates do not increase this means only one thing. Money that is being lent to the government is coming from monetary inflation. And as an economist you can foresee the effects of inflation from creating booms that eventually turn to busts, to the effects of inflation on the currency exchanges and even international trade.

But these are big picture knowledge and prices are formed according to subjective valuations of individuals that gather tiny bits of information. These bits of information is related to the big picture but causal chains are so long it is very hard to follow back to the source. The above are major factors that will eventually effect those prices but as a speculator you don’t know exactly when.

Gold was 500 dollars 2-3 years ago. It got as high as 1000 dollars and then it fell as low as 700 dollars. And now it is 950.

You would have made a great return if you would buy it at 500 and hold on to it for 3 years.

But one would make a killing if he went long at 500, then went short at 1000 and went long again at 700 dollar.

Schiff’s positions may be in the red for now. But if he doesn’t realize his loss there is nothing lost and 2-3 year performance could be spectacular. This doesn’t change the fact that there can be much more spectacular alternative gains but those are either very rare or “what if” scenarios looking back.

The first inconvenient truth is that Schiff lied about protecting his clients from the collapse. The second inconvient truth, and a more subtle one at that, is that Schiff is not pure Austrian. I believe it was these inconsistencies with Austrian theory that led to his investment errors. Ego, stubborness, and a lack of risk controls made matters worse.

The first truth will likely come out, and when it does Schiff’s star could extinguish just as quickly as that of the Beardstown ladies (except that theirs was an honest mistake). If/when that happens, all of the Austrian supporters of Schiff will have some explaining to do. Hopefully, the Austrian school will not be discredited in the process. This is my real concern.

It is obvious that Schiff is doing his best to distract attention from any attempts to verify his investment claims. He hides behind his broker-dealer status. He accuses his critics of ulterior motives. He takes credit for what he got right and blames the irrationality of the market for what he got wrong. He even claims investors could have benefitted from short selling when he expressly warned against this activity due to the risk of hyperinflation.

Why do we fawn all this shameless self-promoter and not hold him accountable? This reminds me of the lemming Republicans who never held Bush accountable. Look where it got them.

On the jacket of his latest book, ‘The Little Book of Bull Moves in Bear Markets,’ reads the claim, “Having accurately predicted the current market turmoil in his recent bestseller ‘Crash Proof: How to Profit from the Coming Economic Collapse,’ the CNBC-dubbed ‘Dr. Doom’ has helped savvy investors protect their portfolios in some very turbulent markets.”

I’ll give Peter Schiff credit: He is very consistent and clear-cut in his public statements. And he clearly claims to have protected his clients from “very turbulent markets” (past tense). Okay, so what exactly was this wonderful advice he served up in ‘Crash Proof’? I suggest his admirers read chapters 8, 9, and 10. Again, Schiff is crystal clear, even suggesting weightings for various asset classes (foreign stocks, gold, mining stocks, etc.) I’ve run the numbers and come up with a 40% loss for 2008 (and I believe that’s generous).

If Schiff was all about the dollar collapsing, and it hasn’t happened yet, how do you explain his celebrity? Of course it’s because he’s taking credit for predicting the U.S. economic collapse (true, with an asterisk for missing the global collapse) as well as “positioning his clients accordingly.” (false)

Yes, his detractors were arrogant and I will admit to cheering him on on many occasions. And yes, Schiff nailed the U.S. meltdown and the bursting of the U.S. housing bubble, as well as the downfall of Wall Street. Read in ‘Crash Proof’ his succinct and understandable explanation of Austrian business cycle theory – excellent! Give credit where credit is due.

But are you suggesting we dismiss the significant areas he got wrong, especially when translating Austrian theory into investment advice? Are you suggesting we allow him to make false claims, just because he battles the statists in the mainstream media? Are you suggesting Austrians, who as a group pride themselves on pursuit of the unvarnished truth, suddenly participate in his little white lie because he brings our movement “exposure”?

Caveman, you make some fair points. Having been in the investment business for 20 years, I can appreciate being “early.” Unfortunately, Schiff’s poor performance in 2008 was not due to a wrong call on the dollar (as the Dollar Index was up less than 7%), but almost entirely because he got the decoupling theory wrong. He felt the U.S.’s pain would be Europe and Asia’s gain. Many of the stocks he recommended (e.g. 3 picks in a June 30, 2008 Barron’s article) got decimated and will never recover, regardless of what the dollar does.

I am actually quite sympathetic to some of Schiff’s current views, especially that inflation is on the way and U.S. Treasuries are a bubble. We’ve been early ourselves in being short the 30-year T-bond, but believe Schiff will be vindicated.

This is a very humbling business and we’re all human. All I’m asking is that Schiff come clean and admit his mistakes. He would certainly gain my respect, as well as most of his Austrian followers. To do otherwise risks doing serious harm to the cause of liberty, in my humble opinion.

In the words of George Orwell, “In times of universal deceit, telling the truth becomes a revolutionary act.”