“Tens of millions of people unemployed, inflation spiraling out of control, the government instituting price controls that result in shortages and blackouts and long lines for things. I think things are going to get very bad.”
“From an investment point of view, investors need to stay clear, because they need to realize that it’s not just U.S. stocks and real estate that are going to lose value, but U.S. bonds. This is the last bubble yet to burst. I think we’re going to see a collapse of the bond market sometime during Obama’s first term, and interest rates are going to spiral out of control, and the dollar is going to just be destroyed.”
People aren’t laughing any more at the way-out-there predictions of Peter Schiff, whose long-standing pessimism about the economy and stock market has been largely borne out.
Schiff heads Euro Pacific Capital, a brokerage in Darien, Conn. with more than $1 billion in assets under management. He has silenced critics because he predicted the collapse of the housing market, the subprime crisis and the soaring of oil prices in his market commentaries before they came to pass.
A YouTube video called “Peter Schiff Was Right” shows him being repeatedly mocked when he went on TV stock shows to make those ultimately correct calls in 2006 and 2007, including forecasting a recession 2 1/2 years ago.
Now, in the midst of what’s already the biggest financial crisis in decades, the prominent purveyor of gloom and doom still sees far tougher times ahead – including a depression and a bear market he thinks will last another five years or more.
In a telephone interview with The Associated Press, Schiff outlined views that remain on the far side of gloomy compared with virtually all other pundits but still envision some buying opportunities for investors. He foresees grimmer prospects in the U.S. than elsewhere, perhaps a reflection of the fact his firm focuses more on international investments than domestic ones:
Q: What sectors of the economy do you expect to do well in 2009?
A: I don’t know if any sector will do well. But ultimately, whether it’s going to be 2009 or whenever the turnaround is going to be, I think the only sectors of the U.S. economy that are going to improve are going to be those that are related to exports – manufacturing, mining, energy, agriculture, commodities-related businesses. I think the slowdown in the global economy will be short-lived. But I think the U.S. depression is going to be with us for a long time.
Q: How bad do you think things will get?
A: Tens of millions of people unemployed, inflation spiraling out of control, the government instituting price controls that result in shortages and blackouts and long lines for things. I think things are going to get very bad.
From an investment point of view, investors need to stay clear, because they need to realize that it’s not just U.S. stocks and real estate that are going to lose value, but U.S. bonds. This is the last bubble yet to burst. I think we’re going to see a collapse of the bond market sometime during Obama’s first term, and interest rates are going to spiral out of control, and the dollar is going to just be destroyed.
Q: Why do you oppose bailouts of troubled companies?
A: Nobody should be bailed out. Failure is supposed to be punished and success is supposed to be rewarded, not the opposite. When companies fail, their resources, their assets, get redistributed. What happens is people who are incompetent lose their assets and people who are competent buy them, and they reorganize them. The government is propping up and rewarding bad behavior.
Q: But wouldn’t letting the auto industry fail have huge negative consequences for the economy, just as Lehman Brothers ‘ bankruptcy had major ripple effects?
A: Look, the only thing that the U.S. government did right was to let Lehman Brothers fail. Everything else they did wrong.
If Ford and General Motors are allowed to go bankrupt, there will be adverse consequences, no doubt. But there’s going to be more adverse consequences by bailing them out. So the lesser of the evils is to let them fail.
Ultimately, I don’t think it’s going to be the end of the automobile industry in this country, I think it’s going to be the beginning of a better automobile industry. I think the new people who buy up the General Motors plants and can find a way to employ all those skilled workers in Detroit to make cars profitably. Obviously the management of GM is incapable of doing it. Look at these guys. These guys are paying themselves $20 million, $25 million salaries to run these companies into the ground.
Q: Where should investors have their money in 2009?
A: In international. You need to be in stocks that are going to benefit from this change in global leadership as the American economy collapses and the American consumer no longer reigns supreme. … So the key is to buy value around the world. Buy these viable companies that still have good businesses, good balance sheets, good income potentials. A lot of U.S. stocks are down a lot, but they’re going to keep falling. A lot of foreign stocks are down a lot but they represent good buying opportunities because they’re not going to keep falling, they’re going to snap back. And especially once the dollar turns around, then these foreign investments are really going to look good.
Q: What do you see happening with oil prices now that they’ve fallen $100 a barrel from their peak last July to under $50?
A: This pullback is an incredible buying opportunity for oil company stocks. Oil prices are going to be much, much higher as a result of this huge plunge, because this big drop is going to put on the back burner for years any alternative plans, any big exploration plans. Because when oil is back above $100 a barrel next year, nobody is going to want to spend any money on oil exploration because they’re all going to be afraid of another major collapse. That’ll give OPEC another three or four years of $150, $200-a-barrel oil where no one is doing anything about it. OPEC is probably loving this price decline, because they know it’s laying the foundation for a bigger price increase down the line.
By DAVE CARPENTER
12.03.08, 03:39 PM EST