In my last post I noted how Peter Schiff’s analysis has much in common with those other great economic critics out there – Mac Faber, Jim Rogers and Ron Paul. Little am I surprised, then, to see these giant names in his book. Marc Faber wrote the Foreword and the back cover blurbs are written by Ron Paul, Glenn Beck and Jim Rogers.
One thing I can already tell that is quite amazing from this book is that Schiff has written it for the average anybody-whatsoever. He doesn’t assume you are any certain kind of investor or even know much about the stock market at all. So he begins by telling readers just what he means when he uses various terms (this is a very laudable move on his part). Hand in hand with this clarity of course is Schiff’s total humility and matter-of-factness. There’s no pretension or elitism here. He has no private axe to grind or something to sell you (aside from the information and results of his analysis, so to speak).
So he defines terms like a secular bull/bear market – a long-term bull or bear market lasting upwards of 20 years or so. Whereas a primary bull or bear market (or just “bull” or “bear market”) lasts from a few months to about five years. When a bull market reverses its course it’s called a correction; when a bear market reverses its course it’s called a bear market rally.
Schiff also defines inflation – an increase in the money supply that has the effect of lifting asset prices. The kicker, though, is that the government doesn’t include this inflation in the consumer or producer price indexes, which thus appear smaller than they actually are. Hence Schiff currently “estimate[s] real inflation at between 8 and 10 percent despite the CPI reflecting only a mere fraction of that number, around 4 percent.” (Of course this will be slightly different now, post-crash when we’re seeing some short-term deflation – but everyone knows Big Inflation is right around the corner waiting for us).
Schiff thinks that the U.S. has been in a secular bear market since January 14, 2000 – we just had a big bear market rally between then and July 2008 (when we returned to bear market status in a big way). Moreover, Schiff thinks this secular bear market is going to continue well into the 2010’s. It’s interesting to compare some of his comments from early 2008 with the situation we are faced with today. Such as this:
“Like Merrill Lynch, Wall Street generally is “bullish on America.” It wants its public to think we’re either in a bull market or near the end of a bear market, a happy choice between upward momentum and bargain prices, which is to say a market perennially favorable for buyers of what the Wall Street firms are selling.”
Obviously Wall Street doesn’t have that kind of public clout anymore, but it isn’t hard to remember what it felt like to be a happy investor back in June 2008.
In order to understand what Peter Schiff’s all about, you have to only understand his central thesis – the premise on which all of his strategy and investment decisions are made. That central premise is his understanding that “the U.S. dollar will continue to lose purchasing power as expansionist monetary policy, in a futile effort to revive our consumer-based economy, creates additional inflation.”
Peter Schiff (as you already know if you’re familiar with him) thinks the U.S. dollar is headed towards collapse.
What’s interesting is that although he thinks the U.S. is in a big secular bear market, he thinks the overall world economy is in a concurrent secular bull market in commodities, agriculture and other resources. Obviously on the world scene we currently see some kind of short-term correction as panic has spread. But Schiff thinks that is temporary. Here’s a look at the secular bull and bear markets in the past 100 years or so:
1906-1921: bear market
1921-1929: bull market
1929-1949: bear market (with some bear market rallies in there)
1950-1965: bull market (can you say cars and TVs, please?)
1966-1982: bear market (with some 1-2yr bear market rallies)
1982-2000: bull market (yuppies, second homes and SUVs)
The main take-away point is that you’d better darn well know whether you’re in a secular bull or bear market and not just a more short-term rally or correction. Because historically it’s been a disaster to stay invested throughout secular bear markets once inflation has been factored in. And let’s face it, how many 20-year markets are each of our working selves going to be able to live through? Probably one big bull and one big bear?
The U.S. is headed into a deep secular bear market, and Schiff doesn’t want you to be invested in it. Remember the saying that “there’s always a bull market somewhere”? Schiff wants to lead us to it, and he thinks it’s not going to be in US dollars or US stocks. That’s basically the aim of the book.
“The goal is to help you preserve and enhance wealth that can be reinvested in America after fundamental economic reform has taken place.”
Those words seem especially apt today – sounds like Schiff is still on the money. In my next post, I’ll start going over some of the trends, details and practical tips that Schiff recommends later in the book.
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