Peter Schiff, President and Chief Global Strategist
For much of the last decade, most investment professionals chortled and laughed as I advocated exposure to foreign stocks, natural resources and precious metals. Derision aside, it appears that by 2007 many of my erstwhile critics ultimately adopted the strategy themselves.
The change became clear during a May 2007 Bull-Bear Debate in which I participated, at the Las Vegas Money Show. (Click here to watch it on YouTube) My two usually bullish opponents, Louie Navalier and Joe Battapaglia, though still bullish on the U.S economy, actually made investment recommendations very similar to my own. Though they certainly had different reasons for their recommendations, they had concluded that my investment recipe was ripe for success.
As a contrarian, I had some initial concerns regarding the apparent conversion of my critics. In hindsight their about-face amounted to a form a capitulation, where investors jumped on bandwagons that they did not understand. Years of foreign stock outperformance and surging commodity prices had lured many skeptics into the market right near what turned out to be a significant short-term market top.
As the wave crested in mid-2008, these newly arrived investors jumped off as quickly as they had jumped on. After the ensuing carnage in commodities and foreign stocks, it is likely that most of the money that entered the market in 2007 and 2008 has been flushed out. Since many of these investors did not understand the true reasons behind the momentum, they lacked the conviction to hold through the sell-off. The fact that many were also leveraged to the hilt also contributed to their being forced out of the market.
Those that came relatively late to the party (which is really just beginning) did so based on their feelings that continued health in the U.S. would pull along the global economic train. But once the global financial crisis developed, this thesis quickly fell apart, as did any investment strategy based on it. However, my reason for investing abroad and in commodities was based on a collapsing U.S. economy and the inflationary policies that would likely follow in an effort to prop it back up. Since that is exactly what has happened, my thesis remains unchanged.
The synchronized decline in stock markets and global economic growth that began after the U.S. economy rode off the rails is not that surprising. The short-term dollar rally continues to be a conundrum; however, recent dollar strength in no way alters how I expect this entire crisis to ultimately play out.
Most financial professionals have strongly concluded that recent market action has completely disproved the decoupling theory that I have espoused. This is premature. It will take some time for the rest of the world to realize that what has been decoupled from the economic train is the caboose, not the engine. In the meantime, I am heartened by my return to pariah status. With criticism of my investment strategy once again flowing with the same vigor it did earlier in the decade, I think the coast is clear for the long-term trends I have been following for years to resume in earnest. The good news (unless you're selling, of course) is that being out of favor means that the assets I am recommending are still cheap.
Now that the weak hands have been completely shaken out of the market, I think the stage is set for a major rally. How long it will take foreign stocks or commodities to make new highs, or the dollar to make a new low is anyone's guess, but I'm sure when they do, those who recently cashed out will be looking to get back in.
For much of the last decade, most investment professionals chortled and laughed as I advocated exposure to foreign stocks, natural resources and precious metals. Derision aside, it appears that by 2007 many of my erstwhile critics ultimately adopted the strategy themselves.
The change became clear during a May 2007 Bull-Bear Debate in which I participated, at the Las Vegas Money Show. (Click here to watch it on YouTube) My two usually bullish opponents, Louie Navalier and Joe Battapaglia, though still bullish on the U.S economy, actually made investment recommendations very similar to my own. Though they certainly had different reasons for their recommendations, they had concluded that my investment recipe was ripe for success.
As a contrarian, I had some initial concerns regarding the apparent conversion of my critics. In hindsight their about-face amounted to a form a capitulation, where investors jumped on bandwagons that they did not understand. Years of foreign stock outperformance and surging commodity prices had lured many skeptics into the market right near what turned out to be a significant short-term market top.
As the wave crested in mid-2008, these newly arrived investors jumped off as quickly as they had jumped on. After the ensuing carnage in commodities and foreign stocks, it is likely that most of the money that entered the market in 2007 and 2008 has been flushed out. Since many of these investors did not understand the true reasons behind the momentum, they lacked the conviction to hold through the sell-off. The fact that many were also leveraged to the hilt also contributed to their being forced out of the market.
Those that came relatively late to the party (which is really just beginning) did so based on their feelings that continued health in the U.S. would pull along the global economic train. But once the global financial crisis developed, this thesis quickly fell apart, as did any investment strategy based on it. However, my reason for investing abroad and in commodities was based on a collapsing U.S. economy and the inflationary policies that would likely follow in an effort to prop it back up. Since that is exactly what has happened, my thesis remains unchanged.
The synchronized decline in stock markets and global economic growth that began after the U.S. economy rode off the rails is not that surprising. The short-term dollar rally continues to be a conundrum; however, recent dollar strength in no way alters how I expect this entire crisis to ultimately play out.
Most financial professionals have strongly concluded that recent market action has completely disproved the decoupling theory that I have espoused. This is premature. It will take some time for the rest of the world to realize that what has been decoupled from the economic train is the caboose, not the engine. In the meantime, I am heartened by my return to pariah status. With criticism of my investment strategy once again flowing with the same vigor it did earlier in the decade, I think the coast is clear for the long-term trends I have been following for years to resume in earnest. The good news (unless you're selling, of course) is that being out of favor means that the assets I am recommending are still cheap.
Now that the weak hands have been completely shaken out of the market, I think the stage is set for a major rally. How long it will take foreign stocks or commodities to make new highs, or the dollar to make a new low is anyone's guess, but I'm sure when they do, those who recently cashed out will be looking to get back in.
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