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Peter Schiff - Dollar Bulls Beware

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March 12, 2010 – Comments (8)

By late 2009, as the U.S. dollar flirted with multi-year lows against most foreign currencies, big investment players crowded into trades that shorted the greenback. Commentators noted that the anti-dollar momentum had taken on a life of its own and that the trade had become too crowded. It is true that markets have a nasty tendency to move against the crowd. When a lot of traders agree on a particular trade, it's more likely that in the short-run the opposite trade will be a winner.

The 2008 "flight to safety" rally of the U.S. dollar was a once in a lifetime event that presented huge opportunities for aggressive currency traders. By December 2008, after rallying 25% over the previous five months, the dollar topped out. However, there were many speculators who had come somewhat late to the party, as well as many others who had ridden the dollar up and were thus sitting on huge unrealized gains.

Those technical reasons, combined with the re-emergence of strong growth in emerging markets and solid earnings from overseas companies, redirected investment flows away from the dollar. 2009 became a year of dollar weakness, with the buck giving back nearly all of its gains. At that point, most people made the reasonable conclusion that the decline would continue.

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8 Comments – Post Your Own

#1) On March 12, 2010 at 3:43 PM, outoffocus (23.75) wrote:

Yea I'm surprised I haven't heard anyone "yellen" about the new Fed nominee. Well I'll just keep shoring up my PM positions as the poop comes dangerously close the the fan.

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#2) On March 12, 2010 at 4:45 PM, silverminer (31.38) wrote:

I'm with Peter.

Repeated from my comments to another blog post:

Constructs of inflation are like those of God or politics ... they are rather pointless to debate.

I will remain in my stagflation camp, Keynesians will go on believing reflation is/was the right course of action and systemic risk is no more, and those swallowing the fantastical fairy tale of domestic recovery will shudder with fear of runaway velocity-driven inflation. 

Unlike with God and politics, however, time will provide the final referee.

Those who misunderstand the capacity for currency devaluation to drive stagflation even in midst of prolonged economic contraction may just be in for the rudest awakening of all. Welcome, fellow Fools, to the earliest days of a post-Keynesian world.

Do does anyone sincerely think there is a limit to the degree of quantitative easing that those in charge will employ to combat future chapters of this multi-year deleveraging event? Does anyone think they could choose an opposing strategy from this point even if they wanted to? How many trillions will ultimately be required to bail out the states?... have you given this serious thought? If you've been believing in this fairy tale recovery born of a counter-cyclical fueled by unprecedented government largesse and a parroting media message market rally, then where did you think the sustainable catalyst lay?... You can't have a jobless recovery in a consumer-driven economy, and the spending underway to sustain this mirage is the very undoing of any chance at a sustainable recovery.

That is why on the eve of the TARP vote I stood on the lawn of the U.S. Capitol building and asked my fellow Americans to continue voicing their opposition to the TARP (a pulic symbol for the much larger spending underfoot) as a misguided reflationary strategy that never had a chance of overcoming the ultimately unstoppable systematic deleveraging of what was a $1 quadrillion-plus global derivatives market.

 - TMFSinch ... long and strong precious metals.

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#3) On March 12, 2010 at 9:10 PM, ChrisGraley (30.24) wrote:

Beware of the "Ides of March"

+1 rec 

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#4) On March 12, 2010 at 9:11 PM, bigkansasfool (71.50) wrote:

I always get a kick out of the people that listen to Peter Schiff. A little due diligence by anyone that listens to him would mean he wouldn't have a job. First he's a broken record (i.e. anti-US anything). Second, he co-wrote a book with is father about the illegality of taxes. His father was part of the "tax protester" movement and was convicted of tax evasion. Peter learned economics and his general mindset from his father. For the last 20 years he's said the same thing no matter what the ecomomic conditions are, "buy gold, short the dollar." Investors that have followed him would have been better off throwing darts at a board.

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#5) On March 12, 2010 at 9:45 PM, AvianFlu (35.15) wrote:

It is clear from the actions of the federal government over the last 10 years or so that the US dollar is simply too risky to participate in owning. So to avoid losing the purchasing power of whatever you have managed to save you will need to take some kind of evasive manuever. Certainly major US equities will provide substantial cover for massive inflation and a falling dollar.Of course, US dollars, bonds, and treasuries will be a nice way to lock in poverty. However, doesn't it make more sense to purchase equities based in countries that are not currently committing financial suicide?

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#6) On March 12, 2010 at 10:49 PM, awallejr (82.96) wrote:

bigkansasfool  don't bother. There is a small "I love Peter Schiff" fanboy group  quick to point out the few times he was right but never when he was wrong.  Free speech and all.  let them have their say.

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#7) On March 13, 2010 at 10:35 AM, kdakota630 (29.77) wrote:

bigkansasfool

Peter Schiff is of the Austrian School.  If you're not a believer of laissez faire economics, fine.  He's not "anti-US", but clearly he's not a fan of the direction the U.S. has taken in the last 20 years.  Investors that followed him would have been better off throwing darts at a dartboard?  That line warrants little more than a chuckle.

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#8) On March 14, 2010 at 2:22 PM, AvianFlu (35.15) wrote:

What I don't understand is how prognosticators who are spectacularly wrong seem to always get a free pass. Nobody ever mentions their previous poor calls. However, if Schiff is off on his timing then that becomes a reason to completely discount his entire premise.

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