Thursday, April 29, 2010

The Longer It Takes the Dollar To Fall, the Bigger the Drop Will Be

Yahoo Finance -


Fear of a sovereign debt crisis in Europe resurfaced Tuesday, sending stocks tumbling around the globe. In the U.S. the Dow shed 213 points and the S&P lost 28 points. Meanwhile, gold rose to its highest level in 2 weeks, hitting $1165 per ounce at its intraday peak.

In other words, today was a great day for Peter Schiff, president of Euro Pacific Capital.

"A lot of people were confused – they thought the market going up was somehow ratifying what the government had done – that the stimulus and bailouts were good and the economy was improving – it's not," Schiff says. "The economy is in worse shape than in 2008."

Rather than resolved the crisis, all we've done is papered over problems in the banking system with "phony accounting" and "dug ourselves deeper into debt," says Schiff, a longtime deficit hawk.

The crisis of 2008 was merely the "overture" to the "real crisis" Schiff (still) sees coming: "The real crisis is going to be a currency crisis, a funding crisis, a sovereign debt crisis – and that's when we have to pay the piper," he says. "We're in very bad shape. Sovereign credit risk in the U.S. is just as great -- if not greater than [in] Greece."

Even the most casual watchers of financial media know that Schiff has been saying much of the same thing for a long time now. Clearly, the U.S. stock market and the dollar have fared better in the past year than Schiff expected (at least judging by his public pronouncements).

But, as always, the Senate candidate and author remains undaunted and unbowed, as revealed by the following quotes:

-- "The market has rallied because it dropped so substantially," he says in the accompanying clip. The Dow lost 50% from its 2007 peak so "you're going to get some kind of short-covering bounce, especially when you have the Federal Reserve throwing money at the market."

-- "In the short run, markets are typically wrong – they do the wrong thing. In the long run, the fundamentals win out." -- “The fact the dollar is rising when it should be collapsing doesn't surprise me

-- it makes perfect sense; they same thing happened with dot.com stocks and condos in Vegas. The dollar is just as flawed and will collapse – it's only a question of when. The longer it takes to fall, the bigger the drop.”

Like his warnings about America's coming demise, Schiff’s investment thesis also remains the same: He's "trying to capitalize on better opportunities that exist abroad" by being long commodities like gold and sliver, agriculture, global resource producers and emerging market stocks, notably in China.

Schiff admits some of his stocks "have gotten beaten up in the last couple of days" as the global market, including in China, has shuddered. "But I'm not short-term focused; I'm looking at the big picture so I'm not too concerned," he says.