Peter Schiff calls USD/Commodity move 'headfake'; 'true believers' will prevail

Discussion in 'Wall St. News' started by makloda, Aug 26, 2008.

  1. Good ole' Peter argues that while the price swings were violent, there was no real fundamental change in economic data, hence the price moves should be ignored and faded (i.e. short USD, long commodities). Has nobody told this clown that markets move first and fundamental data substantiating the price move often is revealed later, sometimes much later? There is never a 'fundamental reason' for a price to bottom or top out exactly where it reverses.

    The way Schiff is talking about his gut feelings and 'belief' I wouldn't be surprised for this guy to copy & paste the below even when commodities drift down and USD up another 20% from here: "Hey guys don't worry, there's no fundamental reason, so just ignore price!!!!".

    Investors Chase Phantoms

    In football, when a running back intends to cut to the left, he often first fakes right. This move is designed to make the defense commit their resources in the wrong direction. It is my experience that markets often follow a similar path. Just prior to a major move in one direction, markets often make a sharp move in the opposite direction first. With respect to the dollar, gold, oil and other commodities, many on Wall Street have bought into the head fake, and will soon be watching in amazement as the runner sprints to the end zone.

    Over the last few months, as the dollar rose more than 10% against a basket of other currencies, and as gold and oil sank to multi-month lows, many investors concluded that a threshold had been crossed, and that the bearish trend for the dollar and the bullish trends for commodities had finally come to an end. But rather than representing a sea change, these counter trend moves more likely signify that the established trends are about to kick it into a whole new gear. My take is that if you thought you had seen a bear market in the dollar and bull market in gold, oil, and other commodities, well, “you ain’t seen nothing yet”.

    Corrections are often vicious, designed to shake loose as many investors as possible prior to a major move. The best bull markets carry as little excess baggage as possible. With few speculators on board to sell into every rally, the true believers who remain can receive the full benefit of a fundamental upswing. Violent downward moves also force out those that were too highly leveraged, or those who showed up late to the party with little understanding of the true fundamentals. Those who panicked and jumped out too low often scramble to reestablish positions at higher prices, further fueling the bull market.

    This recent correction saw the most dramatic change in sentiment that I have ever witnessed. But the head fake that caused the market to commit was in fact not worthy of a high school benchwarmer. With absolutely no significant developments that could explain either a bottom in the dollar, or a top in commodities, investors placed their faith in price moments alone. Once the numbers started to show some retrograde motion, everyone simply assumed that a real change had taken place, and the momentum buying and selling began. The rapid movement reveals how clueless participants in these trades had become. Even those fund managers that seem to understand the fundamentals were fooled by the sharp price movements and the rhetoric they spawned.

    Lacking any real change in fundamentals, such abrupt changes in sentiment following extreme price swings are as bullish a sign as I have ever seen. There is absolutely no basis for a significant dollar rally, or further weakness in gold, oil, or other commodities.

    The U.S. is the focal point of the world’s financial turmoil. We convinced creditors around the globe into loaning us trillions of dollars. Now that it’s becoming increasingly apparent we cannot pay the money back, Wall Street has concocted a scenario where our shell shocked creditors respond by loaning us even more. More alarming is that many brain dead investors see this as a likely development.

    The fact is that the outlook for the dollar has never been bleaker and the prospects for gold and other commodities have never been brighter. The rationale for a new dollar bull market, or bear markets in commodities, is just as flawed as those used to justify investments in internet stocks and subprime mortgages. Interestingly enough, it’s mostly the same suspects advancing the arguments.
  2. m22au



    It's all really a matter of timeframes. Two investors can have opposing views, but if they have different timeframes they can both be right.

    While it is unlikely that gold will go above 1,000 before the end of the year, if Schiff has a multi-year timeframe, then he may be proven right in the years to come, if gold goes well above 1,000.

    As Cutten pointed out in another thread, gold and other commodities had a huge pullback in the mid 1970s, which could have been perceived as the end of the multi-year move.

    It wasn't.

  3. I agree with what you said.

    All I am pointing out in the argumentation of Schiff is that any counter move in the USD and commodities from here until eternity is simply a harmless short-term correction in an infinite longer term trend. His views are inflexible as he thinks its absolutely impossible for the markets to do something that would go against his macro analysis.

    All I know is that any bottom/top ever made in financial history never had any fundamental news come out the same day that gave the 'all clear' signal to go long/short and simply lean back and hit the golf course.

    He sounds like one of those guys that will never change his tune even well after when markets (at some point) start marching in a completely different direction.
  4. Cutten


    This guy will be right until the bull market ends, then he will end up a bagholder just like the & Goldilocks economy true believers.

    In the meantime, traders can profit by being in cash or shorting the current commodities downtrend, then getting back long once the bearish phase has ended and the bull market resumes.
  5. its just good marketting for his business..its ironic how all these doom/gloom guys who seem to imply that anything other than the dollar index going straight to zero is nonsense still decide to live within the US borders...The whole doom/gloom/goldbug thing is absurdly irrational and cult like...
    "true believers"