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Peter Schiff - For Whom the Bell Tolls

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December 20, 2010 – Comments (8)

There is an old adage on Wall Street: no one rings a bell to signal a market top or bottom. Yet, I have found that bells do ring; it’s just that few people know exactly what sound to listen for. 

Perhaps the biggest and most liquid of all markets is for US government bonds. That market has been rallying for almost thirty years. The bull can be traced back to 1981, when Treasury bond yields peaked at about 15%. At that time, high inflation and a weakening dollar had justifiably squelched demand for Treasuries. Even the ultra-high interest rates were not enough to attract buyers.

But this was also when the proverbial bell was rung. Fed Chairman Paul Volcker had signaled, by jacking up interest rates so high, that he would stop at nothing to break the back of inflation. Volcker's iron will, and Reagan's unflinching support, restored demand for Treasuries for the next three decades. 

We have arrived today at a similar inflection point. After falling steadily for 30 years, bond yields are now heading north with a full head of steam.

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8 Comments – Post Your Own

#1) On December 20, 2010 at 5:13 PM, cdulan (90.25) wrote:

Not yet.

Why are you still listening to Schiff?  His performance is horrible.

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#2) On December 20, 2010 at 5:25 PM, kdakota630 (29.58) wrote:

cdulan

Following Schiff's advice seems to have done me pretty well so far.

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#3) On December 20, 2010 at 5:41 PM, AvianFlu (40.02) wrote:

Cdulan:

I have an account with Schiff's company, Europacific Capital. I opened that in July 2009. Since then, the value of the account has increased about 70%.

If this performance is "horrible", perhaps you could advise me of a better use of my investment money. Your suggestions?

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#4) On December 20, 2010 at 6:20 PM, AvianFlu (40.02) wrote:

I forgot to add that the 70% figure is after commissions, which are higher than I am used to paying. But it takes money to fund a research department...

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#5) On December 20, 2010 at 9:57 PM, outoffocus (22.83) wrote:

If this is finally the bursting of the bond bubble then the final biggest, ugliest {pick a phrase: "shoe is about to drop", "chicken is coming home to roost", "turd is about to hit the fan"} and its going to make what happened in 2008 look like a light drizzle...

The big event probably wont hit for real until late 2011, early 2012, so we all have some time to prepare for the carnage. 

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#6) On December 21, 2010 at 2:41 PM, rfaramir (29.34) wrote:

Peter Schiff's timing has not been great, but nobody's can be, consistently, really. Timing has to do with when 'everyone' finally 'gets it'. Peter Schiff gets it, and so can you, but you never know when the market will finally agree.

My CAPS score has skyrocketed since I 'got it' and my Real Life investments have to some extent also. The timing thing gets in my way, too. That and learning a sell strategy (better in Real Life than CAPS on that score).

Google (or youtube) "Peter Schiff was right". It's a riot. Watch the Lamestream media practically laugh him off the screen, then fail to follow up when he is proven right. And he is not just a perma-bear, or stopped clock (right twice a day). Learn some Austrian economics at http://fee.org and http://mises.org today.

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#7) On December 22, 2010 at 9:26 AM, jrod87 (83.14) wrote:

Peter tell me! give me some free advice on FBP and UWBK! Please and thank you. -jrod87

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#8) On December 22, 2010 at 9:48 AM, lctycoon (< 20) wrote:

Bond prices and interest rates move inversely.  Interest rates are at zero for the shortest term securities.  How anyone can think that bonds will keep climbing is beyond me.  Unless we are somehow able to sell bonds with negative interest rates (fat chance), then Schiff has a point.  Bonds will fall because that's all they can do.

This has already started.  Take a look at the long bond since the Tax Deal was announced.  Rates are rising and prices are falling.

Schiff's timing is not the greatest, as was already mentioned.  But timing is a matter of market psychology, not fundamentals.  The dumb money has been pouring into bonds over the past two years.  When everybody thinks an investment is great, that's a great time to short it.

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