It’s hard to look at Peter Schiff with anything other than awe.
After all, the 44 year-old president of Euro Pacific Capital was mocked on networks like CNBC and Fox for predicting “wild” things like a real estate bust, a credit crunch, and a deep recession. Two years later, and Schiff’s original prophecies have come true.
That validation has been earning Schiff some much-deserved credibility in the financial world, where until now he’s been dismissed as overly pessimistic. “Schiff has suddenly emerged as a cult hero and something of a minor celebrity,” said Fortune’s Brian O’Keefe in a recent article.
According to the article, Schiff, a broker, even recently applied to become, “a licensed investment advisor so that he can actively manage clients’ money for the first time.”
Schiff’s Painful Performance in 2008
But does Schiff really deserve the acclaim he’s gotten found recently?
While Schiff has proved himself as an economist, his ability to parlay those predictions into profits for his clients was questionable for 2008. For the last few years, he’s been betting big on overseas investments and precious metals – two areas that got hit as hard or harder than the S&P last year.
According to Morningstar, the average international equity fund performed 7% worse than the average U.S. stock fund in the last year.
Just look at the iShares MSCI Belgium (EWK), the worst performing ETF last year according to SmartMoney.com, or the iShares FTSE/Xinhua China 25 ETF (FXI), which lost 49% in 2008.
Another of Schiff’s investment strategies has been to exit the U.S. dollar in favor of more fundamentally sound currencies. This too has proved untimely since anxious treasury investors have driven up the dollar in the last year.
And some, like Seeking Alpha contributor Todd Sullivan, are quick to remind investors that Peter Schiff has been bearish on the market since at least 2002, when the S&P was poised to move up 48% over the next five years.
Follow the Money Trail
Just because Schiff’s favored investments didn’t do well doesn’t mean that others’ investments didn’t. Just look at former hedge fund manager Andrew Lahde, whose real estate fund made 866% last year by betting that defaults would rise (Note: Lahde’s anti-industry farewell polemic is definitely worth reading).
Likewise, a lot of individual investors did well in 2008 by betting against the market – the ProShares UltraShort S&P (SDS) and Direxion Financial Bear 3X ETF (FAZ) are a couple examples of exchange traded funds that returned deep in the double digits.
Making Money in 2009
If you’re still trying to decide where to put your money in 2009, you’re not alone. While the market’s a lot less volatile than it was six months ago, it’s still wild enough to give pause to even the most decisive investors right now.
That said, I think Warren Buffett’s on the money buying undervalued American stocks (though I don’t agree with some of his recent choices). It’s a strategy that made these subscribers 15% in 2008, after all.
Now, I don’t think Schiff should be written off – he took a risky stance against CNBC’s perpetual bulls, and it paid off. He’s also helped to bring attention to some of our country’s very real financial problems. That’s something he should be congratulated for.
We’ll see where his investments go in the future, but it doesn’t look like his opinions are wavering for the time being. “…My problem has always been that I see things too clearly and too far in advance,” he said in the Fortune article, “Other people don’t understand what I do, so the markets might not validate what I’m saying right away. But they will eventually.”
Disclosure: SDS is a long position in the Rhino Stock Report’s model portfolio.
