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Peter Schiff: What If "They" Are Wrong (Again)?
Submitted by Peter Schiff via Euro Pacific Capital,
While the world can count dozens of important currencies, when it comes to top line financial and investment discussions, the currency marketplace really comes down to a one-on-one cage match between the two top contenders: the U.S. Dollar and the Euro.
In recent years the contest has become a blowout, with the Dollar pummeling the Euro into apparent submission. Based on the turmoil created by the European Debt Crisis and the continuing problems in Greece and other overly indebted southern tier European economies, many investors may have come to assume that Euro boosters will be forced to ultimately throw in the towel and call off the entire experiment, thereby leaving the Dollar completely unchallenged as the champion currency, now and for the foreseeable future. This is a stunning turnaround for a currency that was seen just a few years ago as a credible threat to supplant the dollar as the world's reserve.
Putting aside the fact that there are many important currency relationships besides the euro/dollar axis, economists, journalists, and investors have forgotten the 16-year history of the Euro and how the currency has survived and prospered after many had assumed it might be consigned to the dustbin of history.
The Euro was created in 1992 by the Maastricht Treaty (which created the European Union) but did not come into being as an accounting unit (not a physical currency) until January of 1999. In the lead up to its launch, many had argued that the Euro would become the heir to the rock solid Deutsche Mark, the German currency that had risen to preeminence on the back of Germany's post war resurgence, high savings rate, enviable trade balance, and post-Soviet unification. With German bankers in a firm leadership position in the European Central Bank and the European Union, many had hoped that the new Euro would adopt the virtues of the Mark. As a result, the Euro debuted with a value of 1.18 dollars. But the honeymoon was short-lived.
Almost immediately from the point it began freely trading the Euro began to encounter severe headwinds. The Russian debt default and the Asian currency crisis in the late 1990's caused investors to sell assets in the emerging markets and seek safe havens in the dominant economies. This provided a crucial early test for the Euro. But the new currency failed to attract much of this fast flowing transnational investment flow. On the other hand, the U.S. markets and the U.S. Dollar were beckoning as extremely attractive targets.
In the second term of Bill Clinton's presidency, America, at least on paper, looked very strong. From 1998-2000, based on Bureau of Economic Analysis (BEA) figures, GDP growth averaged 4.4%, which is roughly four times the rate that we have seen since 2008. The expanding economy and the relative spending restraints that had been made by the Clinton Administration and the newly elected Republican Congress resulted in hundreds of billions of annual U.S. government surpluses, the first such black ink in generations. Many economists comically concluded that the surpluses would become permanent (in fact they lasted just a few years). At the same time, U.S. stock markets were notching some of the biggest gains in their history. From the beginning of 1997 to the end of 1999 the Dow Jones surged by approximately 69%. The tech heavy Nasdaq, the epicenter of the "dotcom" bubble, rallied by an eye popping 294%.
As a result, international money began pouring into the Dollar, taking the wind out of the sails of the newly launched Euro. The stretched valuations that had pushed up U.S. stocks to nosebleed levels failed to dissuade investors from piling in well into the mid-point of 2000. Not only had Wall Street spread the gospel of the new economy, where negative earnings and high debt no longer mattered, but many were convinced that the interventionist tendencies of the Alan Greenspan-led Federal Reserve would protect investors against losses.
As a result of these forces, the Euro first fell to below parity against the dollar on January 27, 2000 when it closed at 98.9 U.S. cents, a fall of 16% from its debut. After that psychological barrier was breached, the selling intensified. By May 8, 2000 the Euro traded at just 89.5 U.S. cents, an additional 9% decline in just three months. This prompted news stories like a BBC article entitled "Was the Euro a Mistake?" Top economists and investors began wondering if the new currency would last much longer.
The Euro's reputation was further tarnished in September of 2000 when Danish voters rejected their country's plans to adopt the Euro. The distaste shown by a small country widely considered squarely in the mainstream of Western European culture was a huge black eye for the Euro experiment. The pessimism sent the currency down another 6% in just one month following the Danish election, reaching what would become an all-time low of just 82.7 U.S. cents on October 25, 2000. At that level the Euro had fallen a full 30% from its debut valuation. It looked like game over. The Euro vs. Dollar was shaping up to be a Bambi vs. Godzilla scenario.
By the late 1990's gold had been in a bear market that had lasted almost 20 years. As a result, investor sentiment for the metal, which had historically been considered a safe haven asset, was at an all-time low. As a result, many Europeans moved into the dollar to seek shelter instead. At that time gold was trading below Euros 300 per ounce (FRED, FRB St. Louis). Those who had exchanged their Euros for Dollars (when the Euro was 83 cents) would have seen those holdings decline by 50% over the following eight years. On the other hand gold nearly doubled in Euro terms over the same time frame. As this article is being written, gold is now trading at 1,000 Euros per ounce (even after the recent big drop) while the Euro hovers around $1.10. So Europeans who bought and held Dollars continuouslywhen the Euro hit its low in 2000 would be down 25%, but those who bought and held gold instead would have seen those holdings triple. (Past performance does not guarantee future results).
The bursting of the dotcom bubble in mid-2000 finally caused a decisive break with the investment trends that had predominated in the previous number of years (see my recent article "The Big Picture"). Just as the dotcom wealth began disappearing, taking the U.S. federal budget surpluses with it, the emerging markets began to recover, and the much-maligned Euro started getting some attention.
By January 5, 2001 the Euro had hit 95.4 cents, a stunning 15.3% rally in just over two months. And although the Euro zigzagged substantially over the next year and a half (with an early retreat in 2002, causing the Organization for Economic Cooperation and Development (OECD) to wonder whether the Euro was a "Doomed Currency"), by the second half of 2002 the uptrend was firmly in place, with the Euro reaching parity again with the Dollar by July 15, 2002, 30 months after it had fallen below that level. By April 22, 2008 the Euro traded at $1.60 to the Dollar, a price that represented a 36% increase over its debut level and a stunning 93% rally from its October 2000 low.
But when the Financial Crisis of 2008 reached full flower in August, September, and October of 2008, investors once again panicked as they had eight years before. In seeking a safe haven, they once again chose the U.S. Dollar (perhaps motivated by the low valuations then assigned to the greenback). As funds began flowing out of the Euro and into the Dollar, the Euro dropped rapidly. By the end of October the Euro only fetched $1.26, a 21% drop from its April high. But when the markets stabilized in 2009 so did the Euro. It essentially traded sideways against the Dollar over the next two years, reaching back to $1.46 by June 6, 2011.
Compiled by Euro Pacific Capital using data from the Federal Reserve Economic Data (FRED) from Federal Reserve Bank (FRB) of St. Louis
When the European debt crisis really started grabbing headlines in 2011, with yields on sovereign debt of the so-called PIIGS nations (Portugal, Italy, Ireland, Greece, and Spain) widening to record territory in comparison to the sovereign bonds of Germany, scrutiny of the Euro came into question once again. The uncertainty over possible bailouts for European banks that were holding potentially toxic government debt was too much uncertainty for the market to handle. The pressure on the Euro was intensified by the slowing Eurozone economy. These forces combined helped to push the Euro down steadily during 2012 and 2013.
But the straw that really broke the camel's back came at the end of 2014 when it became clear that the European Central Bank, under the new leadership of Mario Draghi, would finally succeed in short-circuiting the anti-bailout restrictions of the Maastricht Treaty and outflank the objections of the German financial and political establishment in order to bring full blown Quantitative Easing (QE) to the Eurozone. The QE program essentially involves creating Euros out of thin air in order to buy government debt and hold down long-term interest rates.
Expectations about European QE came at a time when most observers concluded that the U.S. economy was finally on track for a strong recovery in 2015 and that the Federal Reserve (which has already showered the United States with almost six full years of QE) had finally done away with the program and would begin raising rates for the first time in almost 10 years. Despite a languishing economy, the U.S. markets had once again delivered stellar returns, with the S&P 500 rising 64% between 2011 and 2014, doing so without ever experiencing a correction of more than 10%.
These movements provided a strong rationale for investors to sell Euros and buy Dollars. In the 12 months from May 2014 to May 2015 the Euro fell by about 20%. When it bottomed out at $1.05 on March 11, 2015, the Euro had fallen 34% from its peak seven years earlier. This revived the opinions that the Euro was dead and that the Dollar would be the only real reserve currency for the foreseeable future.
But what if the assumptions about a U.S. economic recovery and Fed rate hikes were wrong? Could observers be mistaken now about the trajectory of the Dollar vs. the Euro as they were back in 2000? While some had warned that the dotcom bubble of 2000 could end badly, very few understood how deeply the mania was the root of the economic expansion and how severely the final flameout would threaten the entire economy. Similarly, very few had foreseen the dangers that the housing and mortgage bubble had presented to the wider economy in 2008. The economic and market contractions in 2000 and 2008 might have been much worse if the Fed had not been able to cut interest rates by almost 500 basis points in the face of the crises. (No such options are available if the economy contracts today). In other words, complacency can be very dangerous, especially if there is no ammunition to combat a crisis if it arrives unexpectedly .
Confidence is the only thing that really undergirds modern fiat currencies. But confidence can be very ephemeral...disappearing as quickly as it arrives. The U.S. Dollar benefits from confidence that the Euro currency may just be unworkable, that the U.S. economy will continue to improve, and that the Fed will raise rates throughout the remainder of 2015 and into 2016. If these expectations are unfulfilled, there could be a Euro reversal.
When a trend remains in place for a while, people tend to think it will continue forever. When it reverses, the shock can be widespread. Just as currency speculators over-estimated the strength of the U.S. economy in 2000, I believe they are making the same mistake again today. But the U.S. economy is actually much weaker and more vulnerable now than it was in 2000. If the spell of confidence surrounding the Dollar is broken, it may also reverse the fortunes of other beaten down currencies. This could present a sea change in the global investment landscape for which wise investors should be prepared.
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well..the Dollar is going over 100 and euro vs usd going to below 1.0 .. gold will see 1000 before 1200 again and crude likely 25$ .. triggering a 2008 equity panic..
Gold And Silver Spot Prices Increasingly Detached From Reality..& from 2010
Theoretical chart foreshadowing a 2015 crash? #VXX #SPXgood...let the criminal Crimex continue to destroy themselves while manipulating the paper prices of gold and silver to nothing...fine by me.
I love how everyone says gold is worthless when at the same time just 1 ounce of it will get you 23 gallons of crude oil. So 2 ounces will get you a 50 gallon barrel of sweet crude.
Gee, if gold is so "worthless" how come so little of it can get you so much oil? Or just one ounce of gold can get you nearly 450 gallons of gasoline????
Keep stacking on the way down. Little by little or whatever fits comfortably in your own individual budgets of extra fiat on a bi-weekly basis.
The lower the Crimex pushes the paper price the higher the premiums will get and the less supply there will be. Good luck finding much out there.
You can pay 17/oz now for silver w/ a relatively small premium and get it now...or you can pay 20/oz in the future when silver is at 10 with a 10 dollar premium (like what happened in 2008) and who even knows if/when you've ever get the metal. 2016 will not be like 2008...you can bet your stack on that!!!
Or it'll be 50 bucks or higher once again in time....it's coming.
Same concept for phyzz gold.
We saw what happened in 2008. The next one will be what? 10, 20, 100x's worse than before????? Who knows...but gauranteed it's going to be multiples worse.
And we all know there's 90% less phyzz available now compared to then and that the miners have been destroyed making supply so much more of an issue now than anyone ever imagined 7 or 8 years ago.
Don't fuck around, folks. Keep stacking everyting: phyzz, guns, ammo, food, water, other essential supplies.
And get ready for the big one.
Just sayin'...
24 barrels.
Also 60% of the silver supply today comes to us as a by-product of base metal mining. When copper, zinc and lead mines close down from a global commodity collapse it's bye-bye silver...
The Fed has painted itself into a corner and now has two choices, neither of which is pleasant. Either they continue with QE to infinity OR they allow a crash and reset to happen.
The "Way out" they have likely selected is to push rates by 25 basis points then go out of their way to stress that that is it. Then wait and see what happens. If nothing they push ahead. If Equity markets enter a steep correction, they immediately move back in with QE4.
Either way, they generate "Cover" for their actions. If they do nothing for much longer they loose what little credibility they still have with some.
Most people equate value with the price qutoed in $US. Big huge error.
Brainwashed into this Ponzi. We are conditioned to quote in $US to define value. Take that rug our from opinion? There is no value in $US. Been collapsing for decades. Nothing has value unless it is defined in real terms.
And real terms do not involve any currency. Any derivative mark to fantasy. Race to the bottom as if that will help.
Get the frig out of the system. It looms closer.
US dollar strength is backed up a lying Fed and fake economic statistics, a corrupt controlled financial press, unlimited spying by the NSA on foreign governments and companies, HFT trading (like Citadel hammering the Chinese market) and by the trillion dollar a year US military.
Let me gaze into the future..........aaaaahhhhhhhhh!!!!!!!!!!!
My god, they are wrong. Run away, run away!!!
there will be no fed rate hike...ever
yup. the fed will be abolished first
(and replaced with something even more machievellian)
Nope. Like a cornerex rat they will fight until they destroy humanity.
Kinda iike the Clintons and Bushies. Makes me wish to be ill.
Revolution is truly the only way. (but "they" already know that) Revolt is the only way. Get out of the system. Take every dime away that you can. Quit playing and starve the beast.
i'd like to say hi to irwin schiff who was absolutely right and destroyed by the government.
he is a patriot and a scholar and ought to be set free from his ridiculous prison term.
+100
Stay strong Irwin
You havent been forgotten
I have worked with Irwin in my past and in my eyes he is a hero and partiot..
444 E. SaharaLas Vegas, Nevada 89104
My love to him, he can no longer see,, his eyes a gone, these motherfuckers in this shit hole government.
I will never forget what he tought me!!!!
God bless him!!
I remember Schiff on a fox news youtube where these two clowns were saying how STRONG the housing market was back in 2007.. they literally laughed at his prognostications of it being a bubble..Same thing is going on today with the LOW interest rates. Back then I thought it would crash quicker but it took a couple years to come to fruition..
Didnt mark Cuban make his BILLIONS shorting correctly the tech bubble? hmmmmm...
Greece, puetrto rico...this sheeeit seems obvious...its just timing it...tomorrow? next month? dammit...
Petro Rico you say? There's oil down there? Now all becomes clear.
12/31/2006 Fox "news".
https://www.youtube.com/watch?v=60CLQse27p8
Mike Norman, "I have no idea what Peter Schiff is talking about."
I appreciate that, thanks Forrest..
Election cycle is the mandate, The crowning of the beast. Timing will be with the crowning of the HILDEBEAST.
So we got time to stack. Gold/silver will crash beyond belief before the crowning of the beast.
Get out of the system. Starve the hungry ghost pretenders. Destroy the PONZI by not participating. If possible pay all debts and take on none. Get your $ out
You can compare peaches and apples and grapes until the cows come home. But currenciy? Race to the bottom of robbery. Thing is they are all worth LESS than toilet paper. Toilet paper had a use. Way more than Yankee friggin buck. Bankers do not. Bankers are toilet paper. Nothing more.
I hold in my fingers, i hold production, Potatoes. cherries, carrots,,,and gold/silver. These are not items that can be keyboarded into exiistence. NO YELLEN can feed her family with her printing ink. No Bernak can feed his family with his toilet paper and useless existence. NO Mark Carney can runaround downgrading currencies and buy food with his crap. They DO nothing. They produce nothing. Stroke of the keyboard puts milllions in debt. Stroke of the keyboard removes liberty and hands off control of every real assest to the few.
It is in the open now. The looting of Greece. The set-up. the cooking books, the downfall/default, the LOOTING of real assets to pay back the Ponzi keystroke that produces nothing. God bless the Queen. God bless Brussels. GOD BLESS GOLDMAN SACHS. Keystoke creation of debt/default...scoop anything that is real...back to serfs and slaves. GOD BLESS.
It is really so very simple. it truly IS.
SO one basic reaction is get out of the control.
Get out of the system. Get out.
Fiat currency is all about confidence, but only relative confidence. Little confidence in the U.S. Is bad, but better than no confidence in something else.
Would you rather put your faith in the frauds of Beijing? The clowns in Tokyp? The criminals in Moscow? The . . . whatevers at Bitcoin?
Please.
C'mon. Really? Back to grade 1.
Here we go, I know its like beating a couple of dead horses BUT time for the old nags date with the glue factory...according to 2007-2014 tax returns (released Friday afternoon, naturally...lol) 99% of Bill & Hillarys! "charitable gift giving" in those years went basically to themselves...
"Hillary Clinton late Friday afternoon released her 2007-2014 tax returns, showing that she and Bill reported $139.1 million in adjusted gross income, paid $43.9 million in taxes (a 31.6% tax rate), and made $15 million (10.8% of their AGI) of charitable contributions, $14.9 million of which went to the Clinton Family Foundation and the Clinton Global Initiative."
A true champion of everyday Americans! ;-)
http://taxprof.typepad.com/taxprof_blog/2015/08/hillary-clinton-releases...
Come on man, that just proves that they believe in the work that the Clinton Globull Inititive is doing.
<sarc>
lol...certainly but their idea of "charitable giving" (as you note) is a lot different from yours or mine and its nice to know the Regulatory State approves.
Makes claiming shit for our filing much easier! ;-)
I think that even scumbags like the Clintons should be able to evade/avoid the federal confiscatory behemoth.
Question is, for how long should they and their unindicted co-conspirators evade/avoid the noose?
Well the rule of thumb is buy low sell high right? Buy Euros sell dollars?
When have "They" ever been right?
A good interview by Stefan Molyneus with Peter Shiff here today
Why The US Dollar Will Collapsehttps://www.youtube.com/watch?v=lj-XxQ5fvFk
Yeah, yeah, Stefan is either brilliant or brilliantly annoying, but Schiff is coherent and cogent. Worth a listen.
Consumer confidence depends on the average consumer having excess money to bear the cognitive dissonance they will experience when they consume. Most people today realize that there is little consumer confidence that people will have the required monies in the future to purchase the consumer items they will want. In other words, we are in a depression, and heading deeper into it each passing month. Politicians do not breed confidence, and media is known to be less than honest when it comes to the truth about anything let alone the economy.
Who are you going to call?
I could see the EUR hitting 1.20-1.22 IF janet doesn't pull the trigger in September AND everything else stays in the closet E.U. wise long enough.
More likely not though. I think the hike in September will likely push EUR/USD back into the 1.05 area and after that it isn't going to really matter anymore because the shit will have hit the fan.
"Confidence is the only thing that really undergirds modern fiat currencies."
Bullshit!
Thee government and banker mandated monopoly on currency, enforced through violence is the only thing that undergirds modern fiat currencies.
Ask JFK ... Ask Saddam Hussein.
The only reason Bitcoin still exists is because JP Morgan holds the patens on it.
"Confidence is the only thing that really undergirds modern fiat currencies."
Bullshit!
The government and banker mandated monopoly on currency, enforced through violence, is the only thing that undergirds modern fiat currencies.
Ask JFK ... Ask Saddam Hussein.
The only reason Bitcoin still exists is because JP Morgan holds the patens on it.
I don't believe Schiff really likes the Euro. He is too smart for that. He is just trying to make what is probably a correct short term call that appears conventional so it improves his street cred. If you cornered him at the pub he would tell you to keep stacking.
Oh he's made it clear many times in the past that he hates the euro. It's just not the WORST fiat currency (which isn't saying much).
Man there ain't no need to be believing this or that when you can be BTFD.
Almost more important than the Fed's interest rate is the value of the dollar in comparison to other currencies. The yen and the euro are in serious trouble, and the pound is very vulnerable to contagion. The path Janet Yellen has continued down is reckless, but what the ECB and BOJ have done borders on criminal. While there are not many Bond Vigilantes there are a slew of Currency Vigilantes and they are ready to make their presence known.
It appears the dollar has been in a consolidation period and when the next leg up begins risk will dramatically increase. This could signal the onset of the next global crisis to which 2008 was just the warm-up. More on the problems this will cause in the article below.
http://brucewilds.blogspot.com/2015/08/dollar-about-to-soar.html
Peter Schiff is a fucken douchebag. Unbelievable he's not in jail for the scams he was running through his investment firm euro pacific capital.
I don't think you know what a scam is. Out of all investment firms, it's HIS that's the scam?
who GAS about confidence when the EMs have been conned into $9T of totally outside the US debt - that has to presumably be paid back at some point. That is many times the size of QE3 folks... These poor EM debt slaves will have to pick up this bar tab buying dollars to cancel this out, and for quite a while. The dollar can't tank until after that. Meanwhile the EM currencies are tanking, and so this rock is getting heavier to push up hill.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/114654...