Peter Schiff: Gold Will Rise, Dollar Will Collapse....

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Wednesday, 19 November 2008 14:48

The opinions expressed in this presentation are those of the interviewee and interviewer and may differ from those of other persons. These views are not intended to be a forecast of future results, or investment advice. The information is not intended to represent any past or future investment recommendation, and any market conditions described may not continue.

Mike Norman, HardAssetsInestor.com (Norman): Hello everybody, and welcome back for another installment of HardAssetsInvestor.com’s interview series. I’m Mike Norman, your host. Well, he’s back. Mr. Doom and Gloom is here … Peter Schiff, president of Euro Pacific Capital and author of the new book just out, “Bull Moves in Bear Markets.”

Peter Schiff, president of Euro Pacific Capital (Schiff): “The Little Book ...”

Norman: “The Little Book …”; it’s in The Little Book Series. Well look … the last time you were here, things were kind of going your way, but it looks like things have turned upside down.

All kidding aside, I know your big thing over the last seven or eight years has been gold. We’re very supportive of gold on this show; we think that probably people should have some gold as part of their overall portfolio mix. But let’s just look at what happened.

Several weeks ago, the U.S. stock market had its worst week in history … even going back to the 1930s … worst week in history. I saw a breakdown of various assets – all assets really – stocks, bonds, gold, commodities, oil. Gold was at the bottom of the list. The top-performing asset, and something that you hate, was the U.S dollar.

So how do you explain that? If we are going through the worst economic and financial crisis in history – precisely what gold is supposed to protect against – why would it perform so bad?

Schiff: Well, I think it will perform very well; you got to give it a little bit more time.

Norman: More time or more decimation?

Schiff: No, what’s happening right now, Mike, is just de-leveraging, and so gold is going down for the same reason a lot of stocks are going down, a lot of commodities are going down. There’s a lot of leverage in this system, there’s a lot of margin calls, a lot of liquidation; a lot of people are having to sell whatever they own to pay off their debts.

Norman: But look at where the money is going … the money is going into U.S. sovereigns, Treasuries … it’s going into the U.S. dollar.

Schiff: For now.

Norman: Why for now?

Schiff: Right now there’s some perception of safety there, but it’s the opposite of the leveraging. If you’re selling your assets, you’re accumulating dollars; but ultimately right now, it’s like there’s been this gigantic nuclear explosion in the United States, and everybody is running toward the blast. Pretty soon they’re going to figure out they’re going in the wrong direction.

Norman: You always talk about gold as a currency, and we have seen currencies appreciate – the yen, for example, the dollar tremendously, for example, but gold has not held up.
Schiff: Well, if you actually look at gold versus other currencies, in the last couple of weeks gold has made new record highs in terms of the South African rand, the Canadian and Australian dollars … so gold was not doing as poorly as many of the currencies, and I think this is all short term.
I think you’re going to see a lot of money moving into gold, and if you look at how much gold has gone down from the peak, the peak was about a thousand … it’s off about 25%. Stocks are off 40%. Gold is still up during this year against the Dow.

Norman: Let’s see the performance from this point forward; we’ll look back at this again and we’ll revisit this issue.
Let’s talk about something else, something that you have also … and I just mentioned it … the U.S. dollar. You were very, very negative. In the last month, we have seen unprecedented actions by the U.S. Fed in terms of expansion of the monetary basis; in other words, printing money … what you call printing money … and despite that, the dollar has remained incredibly strong.
How do you explain that according to your logic?

Schiff: Everything the government is doing is inherently negative for the dollar, and all of this…

Norman: It’s not playing out that way.

Schiff: It will; you’ve got to give it time.

I remember when I was on television talking about the subprime and people were telling me it’s no big deal, and I said, just wait a while; give it time.
Look, everything that we’re doing – all the bailouts, all the stimulus packages – this is all being financed by inflation. It’s inherently terrible for the dollar.

Norman: But you just said yourself that everything is deflating.

Schiff: But right now, Mike, you’re getting this de-leveraging, and this is benefitting the dollar, so despite the horrific fundamentals for the dollar, it’s going up anyway.
But ultimately, when this phony rally runs out of steam, the dollar is going to collapse, and that’s when we’re going to have a much greater crisis because now you’re going to have a collapsing dollar, which is going to push long-term interest rates up, commodity prices up.

Norman: I still don’t understand why the dollar is going to collapse. So you’re saying that the Fed is just going to allow … or leave this enormous amount of liquidity in there, that at some point down the road, if we recover, they’re not going Scto take it out?

Schiff: Look, they have no control over it. The Fed is trying to artificially reflate our phony economy, right?
We had this economy that was based on Americans borrowing money and then spending it on products. We have this huge debt finance bubble which is collapsing, and it’s being supported by foreigners.
But when this artificial demand for Treasuries goes away, the Fed is going to try to print a lot of money and the dollar is going to get killed.

Norman: All right; I’m going to ask you to hold on. Folks, check back because we’re going to do the second part of my interview with Peter Schiff, so check back to this site. This is Mike Norman; bye for now.