It is really common to
read news of great stock pickers, great economic forecast by so-and-so in the
newspapers. Are these people so
great?
Actually, you should
remember this: A broken clock is right twice a day!
The so-called
"great person" has been bearish and calling for stock crash for
>10 years and obviously he will be right at least once isn't it?
You can also read the
news that I had attached below.
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The man who called the last stock
crash is already blaming the Fed for the next
By
Anora Mahmudova
Published:
Nov 20, 2014 5:06 p.m. ET
NEW
YORK (MarketWatch) — The investment adviser who accurately predicted the crash
of 2008 is once again sounding the alarm.
This
time around, Peter Schiff, the chief executive officer of Euro Pacific Capital
who memorably predicted the collapse of the housing market in 2008 and the
global financial crisis of 2010, is speaking out against the Federal Reserve,
which, he claims, has inflated the prices of stocks and bonds with its
ultraloose, unconventional monetary policies.
“The
recession the Fed is fighting is the cure,” Schiff said in an interview with
MarketWatch. Schiff espouses the view that a good, old-fashioned recession may
be exactly the catharsis the markets require, in the wake of a fleet of
quantitative-easing measures that have merely buoyed stock values temporarily.
Schiff
was right about the housing market’s myriad flaws in 2006, but his predictions
about the fall of the dollar, hyperinflation, the collapse of the U.S. economy,
and global economic decoupling remain unfulfilled.
Contrary
to his theory, the dollar has strengthened against other currencies as the rest
of the world — most notably Europe — has seen faltering growth.
Here’s
a montage of some of Schiff’s more prescient moments in and around 2006 — just
a year before the real-estate implosion tore a gaping hole in the global
economy — being mocked by a string of pundits:
Schiff
has been one of the most vocal bears and Fed critics. Here he is at the
Vancouver Resource Investment Conference last year:
His
book: “The Real Crash: America’s Coming Bankruptcy — How to Save Yourself and
Your Country,” was published two years ago.
Schiff’s
been prophesying economic armageddon for a while now. And, as the old saying
goes, even a broken watch is right twice a day.
To
be sure, Schiff isn’t alone in his criticism of the Fed. Guys like Jeremy
Grantham, co-founder and chief investment strategist of Grantham Mayo van
Otterloo, said in a quarterly newsletter released on Monday that the stock
market is headed in the right direction for a crash.
Opponents
of the central bank’s easy-money policies, like Schiff, over the years have
warned that the billions of dollars’ worth of liquidity injected into the
financial system would eventually create inflation. They also warned that stock
prices — inflated by the liquidity — would fall dramatically once the program
ended.
But
besides a brief October scare, U.S. stocks have been on a monster tear,
notching new records on a regular basis. On Tuesday, the S&P 500 SPX,
+0.20% registered its 43rd record close
for 2014, closing at 2,051, while inflation has been trending dangerously
lower.
That
sensational and rapid run-up may alone be sufficient reason to harbor concerns
about what’s fueling the market’s run. A super-low-interest-rate environment
has forced investors into a stock-hungry frenzy. Where else are investors going
to go for yield?
Bulls
argue that there have been clear signals the U.S. market is on much healthier
footing than the rest of the global economies, notably Europe and Asia.
Confidence in the U.S. market has resulted in the dollar rising about 11
percent since early May against a basket of rival currencies.
Schiff
points to gold as his safe harbor investment. His theory is that the dollar
will plunge, and gold will skyrocket, once the market realizes stocks are
overheated.
“Gold
prices will go ballistic, once people realize that the dollar is overvalued,”
Schiff said, forecasting that the value of the currency will fall by 90%.
It’s
entirely possible gold could get pricey. What is difficult to imagine is the
depreciation of the dollar, or a jump in inflation on the scale Schiff
envisions.
Schiff
believes that the dollar will tank because of too much Fed intervention. He
predicts it will begin QE4 at the first sign of serious weakness in the stock
market or the economy, which would lead to a loss of confidence in the Fed and,
by association, the greenback.
The
S&P 500‘s correlation with the Fed’s balance sheet is presented as evidence
of impending doom.
Ethan
Harris, a global economist at Bank of America Merrill Lynch, has a problem with
Schiff’s view and the assumptions tied to the Fed balance sheet chart often
used to support the idea of the tenuousness of the market:
“Implicitly,
this chart assumes that the markets are not forward looking and it is the
implementation of QE that drives the stock market: when the Fed buys, the
market booms and when it stops, the market swoons.”
Harris
thinks this relationship is a classic case of spurious correlation: anything
that trended higher over the last five years has a 90%-plus correlation with
the Fed’s balance sheet.
He
further comments that QE is far from over, as the Fed is not going to shrink
its balance sheet for a very long time.
Asked
about the risks of inflation, Harris dismissed it. “People confuse bank
reserves with money. Until banks start lending their reserves, those funds are
not going to enter the economy. And even when they start lending, there is no
automatic link and the process is gradual.”
Investors
are still voting with their wallets, however. Gold prices fell more than 28%
last year and are slightly down this year. This chart shows the ratio of gold
to the S&P 500. The current ratio indicates that investors are confident
about the U.S. dollar and the stock market. Compare this period’s levels with
the heady levels of 2000, when stocks were clearly in bubble territory.
Yahoo
Finance, Federal Reserve
History
lacks precedence for what happens when the Fed keeps rates at near zero for so
long and holds trillions of dollars on its balance sheet. So some serious
rockiness is a given.
However,
Schiff paints an apocalyptic picture. While stock markets can and will at some
point correct, and maybe even crash, hyperinflation in the U.S. is unlikely.
The
Fed knows exactly how to fight inflation, it’s the deflation that leaves the
Fed and other central bankers grasping at straws. At this point, the Fed would
welcome 2%+ inflation, to ensure the economy is growing and has positive
momentum.
In
the world of currencies, it’s a zero-sum game. The dollar rises or falls
against another currency. For it to devalue by 90%, other currencies would have
to strengthen by an equal amount.
For
that to happen, another economy would have to step up and serve as the reserve
currency of the world, as the U.S does now.
It’s
important to note that Schiff was right about the last crash but wrong about
the impact on U.S. currencies. They rallied as the rest of global economy
buckled.
And
right now, his feelings about the dollar couldn’t be further from the reality.
The dollar continues to reach new multiyear highs against its major rivals, and
most analysts expect it to strengthen through 2015.
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