Schiff- Crash Proof

[Ash Housewares]

I just finished reading “Crash Proof” by Peter Schiff, and thought I’d run some of his thoughts by the members of this blog. The gist of the book is that:

1) US Dollar is doomed- there is no way we can meet all our spending obligations (he goes on to explain the ramifications of this- decreased consumption in the US, increased standard of living for Asians once the initial shock of losing a big customer wears off)
2) You should protect yourself by investing in foreign securities, gold, and staying liquid.
3) His firm, Euro Pacific Capital, is the greatest thing since sliced bread and we should all rush to open an account. Literally the last 1/3 of the book sounds like it is straight out of a glossy brochure for his firm.

I think we can more or less agree on point 1, although there has been some disagreement on this board regarding the speed of the decline. Point 3 is not worth discussing; let’s focus on #2.

Schiff claims that even at ~$600 an ounce (when he wrote the book in 2006) gold is very undervalued. His reasoning is that gold will once again be used as currency, and this will boost demand tremendously. He feels certain that we’ll all have debit cards that deduct x amount of gold from our accounts, in the same way we now use dollars. This will happen, he says, even if governments fight it, because private companies won’t trust fiat dollars after the mighty dollar collapses. They will set up the market themselves if they have to.

The other part of the book I found interesting was the claim that foreign equities will outperform domestic stocks during the dollar decline. Seems logical on the surface, but when one digs deeper doubts emerge. For example, here is a chart of the last few day’s action on the DOW and iShares Europe-Pacific ETF:
http://tinyurl.com/2dr59h
Sure looks like they move in tandem to me. Is this because the EAFE Index stocks are large multinationals who happen to be based overseas, so they are not all that different than large multinationals based in the US? If this is correct then one would need to purchase shares of much smaller companies overseas whos markets are local, not international. That takes a lot of homework.

Has anyone else read this book? What are your thoughts?

[4plexowner]

I haven’t read Peter’s book but I have some thoughts related to numbers 1 and 2

– the world is in need of a new reserve currency (the US dollar is toast)
– China is the next economic super-power (the US is a dying empire the same way the English empire died at the turn of the 20th century) but the yuan and Chinese financial entities don’t have the economic depth or breadth to back the world’s reserve currency

idea: China backs the yuan with gold and instantly provides the world with a new reserve currency – this would also firmly cement China into its role as the economic super-power of the 21st century

~

thought related to above: the world works in cycles – everything cycles from one extreme to another and then back again

the existence of fiat currencies is an example of a cycle – the world goes from extremes where there are NO fiat currencies (every country using commodity backed currency) to the opposite extreme where there are NO non-fiat currencies (every country printing money and claiming it has value by fiat)

we are currently at the ‘no non-fiat currencies’ extreme of this cycle – that’s right, there are NO non-fiat currencies on planet Earth right now (the Euro claims to have 15% backing in gold but the Euro itself is not exchangeable for anything other than more Euros)

I believe that this fiat currency cycle is due for a reversal – as people realize that all of our current financial troubles have fiat currency and reserve banking as their root cause (have any of you realized this yet?), they will increase the pressure to move back to real money (currency backed by something tangible)

China will most likely be the first country to implement a gold backed currency because it will leap-frog them into the lead role on the world’s financial stage

[4plexowner]

I haven’t read Peter’s book but I have some thoughts related to numbers 1 and 2

– the world is in need of a new reserve currency (the US dollar is toast)
– China is the next economic super-power (the US is a dying empire the same way the English empire died at the turn of the 20th century) but the yuan and Chinese financial entities don’t have the economic depth or breadth to back the world’s reserve currency

idea: China backs the yuan with gold and instantly provides the world with a new reserve currency – this would also firmly cement China into its role as the economic super-power of the 21st century

~

thought related to above: the world works in cycles – everything cycles from one extreme to another and then back again

the existence of fiat currencies is an example of a cycle – the world goes from extremes where there are NO fiat currencies (every country using commodity backed currency) to the opposite extreme where there are NO non-fiat currencies (every country printing money and claiming it has value by fiat)

we are currently at the ‘no non-fiat currencies’ extreme of this cycle – that’s right, there are NO non-fiat currencies on planet Earth right now (the Euro claims to have 15% backing in gold but the Euro itself is not exchangeable for anything other than more Euros)

I believe that this fiat currency cycle is due for a reversal – as people realize that all of our current financial troubles have fiat currency and reserve banking as their root cause (have any of you realized this yet?), they will increase the pressure to move back to real money (currency backed by something tangible)

China will most likely be the first country to implement a gold backed currency because it will leap-frog them into the lead role on the world’s financial stage

[4plexowner]

I haven’t read Peter’s book but I have some thoughts related to numbers 1 and 2

– the world is in need of a new reserve currency (the US dollar is toast)
– China is the next economic super-power (the US is a dying empire the same way the English empire died at the turn of the 20th century) but the yuan and Chinese financial entities don’t have the economic depth or breadth to back the world’s reserve currency

idea: China backs the yuan with gold and instantly provides the world with a new reserve currency – this would also firmly cement China into its role as the economic super-power of the 21st century

~

thought related to above: the world works in cycles – everything cycles from one extreme to another and then back again

the existence of fiat currencies is an example of a cycle – the world goes from extremes where there are NO fiat currencies (every country using commodity backed currency) to the opposite extreme where there are NO non-fiat currencies (every country printing money and claiming it has value by fiat)

we are currently at the ‘no non-fiat currencies’ extreme of this cycle – that’s right, there are NO non-fiat currencies on planet Earth right now (the Euro claims to have 15% backing in gold but the Euro itself is not exchangeable for anything other than more Euros)

I believe that this fiat currency cycle is due for a reversal – as people realize that all of our current financial troubles have fiat currency and reserve banking as their root cause (have any of you realized this yet?), they will increase the pressure to move back to real money (currency backed by something tangible)

China will most likely be the first country to implement a gold backed currency because it will leap-frog them into the lead role on the world’s financial stage

[an]

For example, here is a chart of the last few day’s action on the DOW and iShares Europe-Pacific ETF:
http://tinyurl.com/2dr59h
Sure looks like they move in tandem to me. Is this because the EAFE Index stocks are large multinationals who happen to be based overseas, so they are not all that different than large multinationals based in the US? If this is correct then one would need to purchase shares of much smaller companies overseas whos markets are local, not international. That takes a lot of homework.
Base on a 5 days chart, it might look like it move in tandem but if you look at a 5 years chart, there’s a huge difference. I think his logic is that although the price change of the stock market might be the same/similar, if you add in the devaluation of the dollar, that will be the difference. Since the dollar doesn’t move that quickly, 5 days chart won’t show it.

[an]

For example, here is a chart of the last few day’s action on the DOW and iShares Europe-Pacific ETF:
http://tinyurl.com/2dr59h
Sure looks like they move in tandem to me. Is this because the EAFE Index stocks are large multinationals who happen to be based overseas, so they are not all that different than large multinationals based in the US? If this is correct then one would need to purchase shares of much smaller companies overseas whos markets are local, not international. That takes a lot of homework.
Base on a 5 days chart, it might look like it move in tandem but if you look at a 5 years chart, there’s a huge difference. I think his logic is that although the price change of the stock market might be the same/similar, if you add in the devaluation of the dollar, that will be the difference. Since the dollar doesn’t move that quickly, 5 days chart won’t show it.

[an]

For example, here is a chart of the last few day’s action on the DOW and iShares Europe-Pacific ETF:
http://tinyurl.com/2dr59h
Sure looks like they move in tandem to me. Is this because the EAFE Index stocks are large multinationals who happen to be based overseas, so they are not all that different than large multinationals based in the US? If this is correct then one would need to purchase shares of much smaller companies overseas whos markets are local, not international. That takes a lot of homework.
Base on a 5 days chart, it might look like it move in tandem but if you look at a 5 years chart, there’s a huge difference. I think his logic is that although the price change of the stock market might be the same/similar, if you add in the devaluation of the dollar, that will be the difference. Since the dollar doesn’t move that quickly, 5 days chart won’t show it.

[beachhunter]

I have invested in both peters company and Rich/john’s company.. I believe in rich and john.. I can speak from great experince and results. one is down money since day one and one is up since day one.. “return on and return of most important to me.. plus customer service and returning calls are a big big difference.. fees are big at Euro pacific..

[beachhunter]

I have invested in both peters company and Rich/john’s company.. I believe in rich and john.. I can speak from great experince and results. one is down money since day one and one is up since day one.. “return on and return of most important to me.. plus customer service and returning calls are a big big difference.. fees are big at Euro pacific..

[beachhunter]

I have invested in both peters company and Rich/john’s company.. I believe in rich and john.. I can speak from great experince and results. one is down money since day one and one is up since day one.. “return on and return of most important to me.. plus customer service and returning calls are a big big difference.. fees are big at Euro pacific..

[stansd]

Has anyone considered the idea that other countries have similar entitlement obligation issues to what we have in the US. In fact, there are also demographic problems in other countries (Italy/China) for example, that are far worse than what we have here.

I am almost entirely in foreign stocks and TIPS. I always like to break it down to the basics (foregoing economic jargon).

People need stuff. Young people produce more stuff than they consume (US. savings rate notwithstanding). Old people produce less stuff than they consume, but have savings to finance their consumption. As there are more old people and fewer young people, we have two issues: 1. the government has promised more to old people than the young will be able to produce. 2. There won’t be enough young people to produce all that young and old people plan to consume.

This can’t persist, so:

Wages for the young will increase. Returns on the assets of the old will decrease. This will persist until things balance again.

Old U.S. folks will be comfortable to the extent they have assets to support their consumption. Others who haven’t saved are screwed because the government can’t pay what it’s committed. The Chinese will be a bit better off due to their higher savings rates (personal and governmental), but worse off from demographics (net negative in my view).

I haven’t put this whole puzzle together yet, but those are some of my thoughts on how this plays out (unless the Chinese euthanize, which is a real possibility at some point in my mind).

One conclusion I have reached, though: There is a better demographic story in the U.S. than in many other countries. This will have a more positive impact than many assume.

Stan

[stansd]

Has anyone considered the idea that other countries have similar entitlement obligation issues to what we have in the US. In fact, there are also demographic problems in other countries (Italy/China) for example, that are far worse than what we have here.

I am almost entirely in foreign stocks and TIPS. I always like to break it down to the basics (foregoing economic jargon).

People need stuff. Young people produce more stuff than they consume (US. savings rate notwithstanding). Old people produce less stuff than they consume, but have savings to finance their consumption. As there are more old people and fewer young people, we have two issues: 1. the government has promised more to old people than the young will be able to produce. 2. There won’t be enough young people to produce all that young and old people plan to consume.

This can’t persist, so:

Wages for the young will increase. Returns on the assets of the old will decrease. This will persist until things balance again.

Old U.S. folks will be comfortable to the extent they have assets to support their consumption. Others who haven’t saved are screwed because the government can’t pay what it’s committed. The Chinese will be a bit better off due to their higher savings rates (personal and governmental), but worse off from demographics (net negative in my view).

I haven’t put this whole puzzle together yet, but those are some of my thoughts on how this plays out (unless the Chinese euthanize, which is a real possibility at some point in my mind).

One conclusion I have reached, though: There is a better demographic story in the U.S. than in many other countries. This will have a more positive impact than many assume.

Stan

[stansd]

Has anyone considered the idea that other countries have similar entitlement obligation issues to what we have in the US. In fact, there are also demographic problems in other countries (Italy/China) for example, that are far worse than what we have here.

I am almost entirely in foreign stocks and TIPS. I always like to break it down to the basics (foregoing economic jargon).

People need stuff. Young people produce more stuff than they consume (US. savings rate notwithstanding). Old people produce less stuff than they consume, but have savings to finance their consumption. As there are more old people and fewer young people, we have two issues: 1. the government has promised more to old people than the young will be able to produce. 2. There won’t be enough young people to produce all that young and old people plan to consume.

This can’t persist, so:

Wages for the young will increase. Returns on the assets of the old will decrease. This will persist until things balance again.

Old U.S. folks will be comfortable to the extent they have assets to support their consumption. Others who haven’t saved are screwed because the government can’t pay what it’s committed. The Chinese will be a bit better off due to their higher savings rates (personal and governmental), but worse off from demographics (net negative in my view).

I haven’t put this whole puzzle together yet, but those are some of my thoughts on how this plays out (unless the Chinese euthanize, which is a real possibility at some point in my mind).

One conclusion I have reached, though: There is a better demographic story in the U.S. than in many other countries. This will have a more positive impact than many assume.

Stan

[drunkle]

i think the chinese are in a better position due to the extended family.

americans may have to return to traditional extended families. and a return to extended families justifies (continued) reduction in wealth of americans.

family values? having your clan live under one roof, sending you, your wife and kids off to work while your elderly do the chores.

[drunkle]

i think the chinese are in a better position due to the extended family.

americans may have to return to traditional extended families. and a return to extended families justifies (continued) reduction in wealth of americans.

family values? having your clan live under one roof, sending you, your wife and kids off to work while your elderly do the chores.

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