Posted tagged ‘Peter Schiff’

Peter Schiff on Relaxing Mark-to-Market: Let’s Play Pretend!

April 5, 2009

Let’s Play Pretend!
by Peter Schiff

When elementary school kids want to escape the confines of their circumstances they pretend to be pirates, princesses, and Jedi knights. Now, with the relaxation of “mark to market” valuation rules announced yesterday by the accounting trade’s self-regulatory body, our bankrupt financial institutions can escape their own reality by pretending to be solvent. The unraveling of our fairytale economy over the last few months has not yet convinced us that the time has come to put away childish things. The applause that greeted the news yesterday on Wall Street is a clear sign that we still have some growing up to do.

The imaginative conceit that lies behind the accounting change is that the toxic assets polluting bank balance sheets are not really toxic at all. They are in fact highly valuable assets that for some irrational reason no one wants to buy.

Using the “mark to market” accounting method, mortgage-backed securities were valued relative to the latest prices fetched by the sale of similar assets on the open market. Currently, those bonds are being sold at deep discounts to their original value. By “marking” their unsold bonds down to those prices, the insolvency of our financial institutions had been laid bare. The new accounting changes will allow the nervous owners to assign more “appropriate” (i.e. higher) values. Problem solved.

It is important to note that the Financial Accounting Standards Board made their rule modifications only after intense pressure had been applied by Washington and Wall Street. In their heart of hearts, I can’t imagine that there are too many bean counters happy with the outcome.

The banks and the government have argued that the assets should be valued based solely on current cash flow. Most mortgages, after all, are not delinquent. Therefore, a few bad apples should not spoil the whole cart, and those that are not yet delinquent should be valued at par. This method assumes we have no ability to look into the future and make assumptions about what is likely to happen, which is presumably what the market is already doing by valuing the assets lower than the banks wish.

All kinds of bonds (corporate, government and municipal, etc.) that are not in default frequently trade at discounts. In fact, the reason that agencies such as Moody’s and Standard and Poor’s rate bonds is to assess the probability of default. The higher that probability, the lower the value placed on the bonds, regardless of their current cash flow.

For example, GM bonds that mature 10 years from now currently trade for only 8 to 10 cents on the dollar, despite the fact that GM is current on all interest payments. The 90% discount reflects investor awareness that GM will likely default long before the bonds mature. By the new logic, financial institutions with GM bonds on their balance sheets should be able to ignore the market and value these bonds at par.

Some argue that the comparison is invalid because GM’s bonds are liquid while mortgage-backed securities are not. However, if sellers of GM bonds were holding out for 70 or 80 cents on the dollar, those bonds would be illiquid too. The reason GM bonds are trading is that sellers are realistic.

The same should apply to bonds backed by mortgages. To assume that a 30-year, $500,000 mortgage on a house that has declined in value to $300,000 has a high probability of remaining current to maturity is ridiculous. The borrower could lose his job, his ARM might reset higher, or he may simply tire of paying an expensive mortgage for a house that is unlikely to be sold at a profit. Any bond investor with half a brain will factor in these probabilities and look for deep discounts. The only way to accurately assess a real present value is to let the market discover the price.

Despite the pleas from bankers and politicians, mortgages are not plagued by a lack of liquidity but a lack of value. If sellers would be more negotiable, there would be plenty of liquidity. Who knows, at the right price I might even buy a few. The problem is that putting a market price on these assets would render most financial institutions insolvent, which is precisely why they do not want to let that happen.

Simply pretending that all these mortgages will be repaid does not solve the underlying problems. It may keep some banks alive longer, but when they ultimately do fail, the losses will be that much greater. In the meantime, solvent institutions are deprived of capital as more funds are funneled into insolvent “too big to fail” institutions – hiding their toxic assets behind rosy assumptions and phony marks.

Going from the sublime to the completely ridiculous, in a speech at the just-concluded G20 summit in London, President Obama urged Americans not to let their fears crimp their spending. It would be unwise, he argued, for Americans to let the fear of job loss, lack of savings, unpaid bills, credit card debt or student loans deter them from making major purchases. According to the president, “we must spend now as an investment for the future.” So in this land of imagination (where subprime mortgages are valued at par), instead of saving for the future, we must spend for the future.

I guess Ben Franklin had it wrong too – apparently a penny spent is a penny earned.


April 5, 2009

Peter Schiff is president of Euro Pacific Capital and author of The Little Book of Bull Moves in Bear Markets and Crash Proof: How to Profit from the Coming Economic Collapse.

Copyright © 2009 Euro Pacific Capital

Peter Schiff Goes Viral

January 26, 2009
Nice article about Peter Schiff in Fortune magazine:

Peter Schiff: Oh, he saw it coming

(Fortune Magazine) — A couple of years ago, when Peter Schiff first began appearing regularly on TV to warn of an impending real estate collapse that would crash the U.S. economy and stock market, he was surprised and disappointed to find that he was rarely, if ever, approached by strangers in restaurants.

“I’d walk down the streets of New York and figure, ‘Gee, you know, I’m on CNBC, CNN,'” says the brash 45-year-old president of brokerage Euro Pacific Capital. “But nobody ever recognized me.”

Those days, as Schiff will triumphantly tell you, are over. Perhaps no market soothsayer has had his profile raised higher over the past six months. As one of the few talking heads who loudly, relentlessly, and more or less accurately sounded the alarm about the mortgage bubble and its consequences – in the process becoming the latest bearish commentator to earn the moniker “Dr. Doom” – Schiff has suddenly emerged as a cult hero and something of a minor celebrity.

Recently he’s even gone viral. One ten-minute video on YouTube that’s packed with some of his “greatest hits” – with, for instance, clips of Schiff predicting a brutal recession and massive credit crunch while prominent debate partners, such as writer and actor Ben Stein and former Reagan economic advisor Art Laffer, make what now sound like laughably optimistic counterarguments – has been viewed just over a million times at last count.

Read the rest:…tune/index.htm

Over a million views on the video mentioned is fantastic news. I really hope people are starting to actually pay attention and trying to understand what is going on with this economy. And if they’re learning from Peter Schiff, they’ll be so much better off – and so will the rest of us who have known for quite some time that he was right all along.

Economic Predictions for 2009

January 5, 2009

Predictions about the year ahead from three investors who are almost always right – Peter Schiff, Jim Rogers, and Karl Denninger.

Here’s Peter Schiff:


Jim Rogers:


Karl Denninger:

Where We Are, Where We’re Heading (2009)

We keep hearing so-called “pundits” talk about how “we must spend like mad or we will have a Depression.”  Folks, that die was cast in 2001 when the decision to avoid a recession by pulling forward demand through excessive debt.  It is no longer possible to avoid the outcome, we can only choose when the outcome occurs, and the longer we wait to do it the worse it will be as a direct consequence of the fact that in all modern monetary systems money issued by the government is in fact debt and the problem is that we have too much debt already!

FDR has been widely hailed as a hero.  He was no such thing.  FDR’s policies in fact caused a second wave of depression after the original downdraft that originated in 1929.  This is not commonly reported but it is in fact true – there was a second, nearly 20% contraction in GDP that occurred as a direct consequence of FDR’s policies.  Repeating what FDR did to any material degree will not help, and any apparent “relief” will be false.

In short, as pointed out in The Ticker of the 20th – We are all Madoff in one form or another.

Continue reading…


And one more “predictions” article about the year ahead for technology …

10 things that won’t survive the recession

 By Mike Elgan

December 23, 2008
The government says we’ve been in a recession for the past year. Experts say it’ll be at least another year before it’s over. And everybody says it’s the worst economic downturn since the Great Depression.
Nice sound bite. What does that mean?

Who knows? We can be sure that this downturn will differ totally from the Depression, and also different from the many recessions we’ve suffered every decade or every other decade since the ’30s. I’m not an economist or a historian, but it seems to me that this recession will be something unprecedented.

One reason is that that there was no Internet or mobile technology in the 1930s. That means individual people and companies have very low-cost, high-efficiency alternatives for doing a wide range of activities. That will accelerate the demise of those things fated to be replaced anyway.

Here are 10 things that I believe won’t survive the recession.

1. Free tech support
The practice still employed by some companies of paying humans to answer phones and solve technical problems with hardware or software purchased for consumers will become a thing of the past. PCs, laptops, and hardware peripherals, as well as application software — these categories will be purchased like airline tickets, with price becoming the sole criteria for many buyers. In order to compete on price, companies who now offer real tech support will replace it with message boards (users helping users), wikis, wizards, software-based troubleshooting tools, and other unsatisfying alternatives.

2. Wi-Fi you have to pay for
Everyone is going to share the cost of public Wi-Fi because the penny-pinching public will gravitate to places that offer “free” Wi-Fi. Companies that charge extra for Wi-Fi will see their iPhone, BlackBerry, and netbook-toting customers — i.e., everybody — taking business elsewhere. The only place you’ll pay for Wi-Fi will be on an airplane.

3. Landline phones
Digital phone bundles for homes (where TV, home networking, and landline phone service are offered in a total package) will keep the landline idea alive for a while, but as millions of households drop their cable TV services and as consumers look to cut all needless costs, the trend toward dropping landline service in favor of cell phone service only will accelerate until it’s totally mainstream, and only grandma still has a landline phone.

4. Movie rental stores
The idea of retail stores where you drive there, pick a movie, stand in line, and drive home with it will become a quaint relic of the new fin de siecle (look it up!). The new old way to get movies will be discs by mail, and the new, new way will be downloading.

Continue reading…


There’s No Pain-Free Cure for Recession

December 27, 2008

Excellent op-ed by Peter Schiff in today’s Wall Street Journal. Schiff’s analogies and analyses are always right on target and this piece is no exception.

It would be irresponsible in the extreme for an individual to forestall a personal recession by taking out newer, bigger loans when the old loans can’t be repaid. However, this is precisely what we are planning on a national level.

I believe these ideas hold sway largely because they promise happy, pain-free solutions. They are the economic equivalent of miracle weight-loss programs that require no dieting or exercise. The theories permit economists to claim mystic wisdom, governments to pretend that they have the power to dispel hardship with the whir of a printing press, and voters to believe that they can have recovery without sacrifice.

As a follower of the Austrian School of economics I believe that market forces apply equally to people and nations. The problems we face collectively are no different from those we face individually. Belt tightening is required by all, including government.

Governments cannot create but merely redirect. When the government spends, the money has to come from somewhere. If the government doesn’t have a surplus, then it must come from taxes. If taxes don’t go up, then it must come from increased borrowing. If lenders won’t lend, then it must come from the printing press, which is where all these bailouts are headed. But each additional dollar printed diminishes the value those already in circulation. Something cannot be effortlessly created from nothing.

Continue reading…

More Peter Schiff Videos

December 23, 2008

12/16/2008 Part 1/4 Peter Schiff On Kudlow & Co: Target Rate To Record Low

Part 2
Part 3
Part 4

12/16/2008 Glenn Beck Radio Show: “The Most Socialist Time Of The Year”

U.S. Economy : The Philosopher’s Stone

December 18, 2008

Another incredible video from Aravoth. Be sure to note the dates shown during the clips of Peter Schiff and Ron Paul warning of the economic crisis now upon us.


Dow -99.80  (-1.12% ) 
Nasdaq -10.58 (-0.67% ) 
S&P 500 -8.76  (-0.96% )

US Dollar Index At 9:38PM ET: 78.57   -2.11 (-2.62%)

Fed Finale = Gold Overture

Yesterday’s Fed rate cut-induced euphoria gave way to sober and more defensive plays among investors. By this afternoon, oil prices slipped to under $41 as OPEC failed to convince traders that its output cut would be effective in generating higher prices in the face of fast-slumping global demand. Stock markets turned negative as financials and utilities dragged and as investors once again showed a preference for Treasurys, gold, and little else as they seek to preserve capital.

The Fed cut rates to a ‘range of from zero to a quarter’ and promised to deploy everything in the way of deflation-fighting weapons available to it, should the conditions show further deterioration. Levels of confidence in the global economy fell this month as the US-led recession spread to the rest of the world and made for an ugly year-end picture for many a hitherto immune country.

The US dollar continued its sharp correction, slipping to just under 79 on the trade-weighted index and gave indications of a growing de-couple from oil (if not yet from stocks). The greenback fell by the most against the euro since that currency was born in 1999. Against the yen, the American currency traded at near 13-year lows.

Gold prices naturally made significant gains in the wake of the aforementioned conditions, with spot bullion trading as high as $882.50 an ounce early in the session. Light profit-taking was then seen developing in the afternoon, with prices easing back to $868.60 per ounce at last check. Caution remains visible and neutral-to-defensive plays are advised by deflation-watchers. Mr. Dennis Gartman comes to mind. Inflation-scouts are at the top of their form in the meantime. Rooting hard.

Silver was up by 17 cents, quoted at $11.38, while platinum added $3 to $866 and palladium fell $2 to $176 per ounce. Carmaker Land-Rover Jaguar was seen fighting for its survival and sought talks with would be surrogate parents.

Continue reading…

Two New Peter Schiff Videos

December 4, 2008

Peter Schiff Schools Mainstream Econohacks on Great Depression
A compilation of clips with Peter Schiff telling the truth about what caused the Great Depression.


 Peter Schiff On Automobile Corporatism December 2nd 2008 Bloomberg