Two observations

[Wonk]

1. Just noticed that Peter Schiff's book title "How to Profit from the Coming Economic Collapse" looks a heckuva lot like Harry Browne's "How You Can Profit From the Coming Devaluation."  Coincidence?

That brings me to the next observation/question:

2. One of HB's most famous quotes is "The best-kept secret in the investment world is this: Almost nothing turns out as expected."  Did he ever resolve that quote with his book about the 1970s devaluation?  I haven't gone through all of his radio shows and books, so maybe he addressed it.  Craig?  Medium Tex?

[craigr]

Yeah he resolved it by admitting that he was just flat out lucky. He talks about it in his radio show. Not many investment advisors I've run across have the honesty to admit such things.

Please keep in mind that Schiff has been down on the dollar for ages. Problem is that many of the assets he advises investing in (like foreign stocks, commodities, etc.) have their own problems. His advice followed into the 2008 market created huge losses above and beyond a simple 100% total stock market portfolio would have had.  The dollar bears were shocked when LT bonds came out and stomped the living daylights out of the gold miners that people thought would protect them for instance. A portfolio needs to be far more diversified than what Schiff normally recommends just in case that future doesn't pan out as expected.  

[Wonk]

Yeah he resolved it by admitting that he was just flat out lucky. He talks about it in his radio show. Not many investment advisors I've run across have the honesty to admit such things.

Please keep in mind that Schiff has been down on the dollar for ages. Problem is that many of the assets he advises investing in (like foreign stocks, commodities, etc.) have their own problems. His advice followed into the 2008 market created huge losses above and beyond a simple 100% total stock market portfolio would have had.  The dollar bears were shocked when LT bonds came out and stomped the living daylights out of the gold miners that people thought would protect them for instance. A portfolio needs to be far more diversified than what Schiff normally recommends just in case that future doesn't pan out as expected.  

Thanks Craig--I was wondering if/how he resolved it.  Although I'm curious if he was just being humble so that others who followed his message later wouldn't be tempted to speculate the same way--especially if they were less sophisticated investors.  I guess we'll never know for sure.

As for Schiff, I'm with you.  I did read "Crash Proof" several years ago and I'll give him credit for inspiring me to learn more.  Turns out the more I learned, the more I realized all of the worst case scenarios don't have to play out for the world to go on.  There will be more pain, but the dollar won't have to collapse for the imbalances to correct.

[Lone Wolf]

Thanks Craig--I was wondering if/how he resolved it.  Although I'm curious if he was just being humble so that others who followed his message later wouldn't be tempted to speculate the same way--especially if they were less sophisticated investors.  I guess we'll never know for sure.

Yeah, there's no doubt some element of that.  From listening to his radio shows, though, I'm convinced that Browne believed luck played a large role in his success.  He still had all the knowledge of an ace speculator when he was doing his radio show but said that he had "lost his taste for it."  He spent a few shows going over the best ways to speculate with the "money you can afford to lose".  (For me, this is limited to whatever money I can find in my couch cushions.)

What he pointed out over and over is that with speculation came not only issues of correctness but also of timing.  You could be right about a prediction (for example, that the US government would not be able to fix the price of silver) while you could be wrong about the timing (not realizing that the silver price could be fixed for decades before the government had to give up.)  If the government had been able to hold on for some reason he could have done very poorly.

It's impressive that Browne was humble enough to realize this and build an entire investment strategy around protecting the fortune he had built out of his "lucky" maneuver.

As for Schiff, I'm with you.  I did read "Crash Proof" several years ago and I'll give him credit for inspiring me to learn more.  Turns out the more I learned, the more I realized all of the worst case scenarios don't have to play out for the world to go on.  There will be more pain, but the dollar won't have to collapse for the imbalances to correct.

Peter Schiff is a great example of a guy with a strong understanding of economics and good predictive abilities.  He pulled the alarm on the housing crisis like nobody else was doing.  In spite of all this, he has at times gotten completely creamed in the markets.  This is due in particular to being "too sure" of a particular outcome and not accounting enough for timing (or, as a substitute, getting lucky.)  Are we in grave danger of high inflation at some future date?  Absolutely.  Is it guaranteed to happen?  And is it certain to happen next week?  No to both.

Being smart just isn't enough sometimes.  This is why diversification rules.

[murphy_p_t]

very interesting thread.

"What he pointed out over and over is that with speculation came not only issues of correctness but also of timing. "
This is something I recall picking up from ones of Dines' books, maybe the Mass Psychology book. It seems the timing is extremely critical to minimize risk, which may have been where HB felt he was lucky. For the VP speculation, for myself, I think I resolve this by:

-recognizing there are no guarantees
-never use borrowed money
-invest w/ dominant trends
-hoping that I won't talk myself into selling a losing position shortly before it takes off
-spread out my speculations
-use PP techniques like rebalancing & EDV to offset an unexpected market crash (EDV is unproven for my speculations to date & is certainly underweighted)
-have cash in the VP to take advantage of pullbacks & double down when the larger trend is still in force
-try to exercise patience to buy when shares have sharp pullback, and have the confidence to pull the trigger when the opportunity presents itself. A term I heard Mercenary Geologist use recently to describe this is "stink bid".  I had an execution last week doing that...up 40% in that position.

Having said all that, exercising patience is the hardest part for me. Fear & greed !

[AdamA]

As for Schiff, I'm with you.  I did read "Crash Proof" several years ago and I'll give him credit for inspiring me to learn more. 

Same for me.  That was the first book I read that made me think that maybe holding 100% stocks buy and hold style wasn't the best idea in the world. 

I went through a period where I thought Schiff's word was economic gospel, which is comical to me in retrospect. 

[Lone Wolf]

Same for me.  That was the first book I read that made me think that maybe holding 100% stocks buy and hold style wasn't the best idea in the world. 

I went through a period where I thought Schiff's word was economic gospel, which is comical to me in retrospect. 

Yeah, Schiff is still my favorite of the fortune-telling "gurus".  He's a genuinely funny guy, has a great way of putting things, and is like a pit bull in terms of not letting the government off the hook for the countless ways that they screw up and distort the economy (and then blame the "free market".)

Plus, he's got those eyes that kind of go back and forth on TV like one of those vintage cat wall-clocks.  Very hypnotic. 

Even though I really enjoy Schiff as a market commentator, I've got two big disagreements with his worldview.

First, like we've talked about above, predicting what will happen is pretty hard.  Predicting when and how extensively something will happen is really hard.  Like, extremely hard to the point where I'm not sure anyone can really do it consistently.  This is why in spite of making a brilliant call on the housing market before the '08 crash, Schiff took losses when he bet hard against the dollar.  His thesis that the dollar is headed for serious trouble is plenty convincing.  However, what I am not convinced of is that you can tell when and how such trouble will emerge.  If you believe that you can predict and time the future you often don't hedge your bets the way that you should.

Second, he views China through rose-colored glasses.  Although China has clearly recognized the benefits of harnessing many free market forces, it is still a very corrupt, un-free place with a raft of social problems and massive government interference in the economy.  The government still decides who is permitted to live and work in what city, where they are permitted to go to school, etc.  Hardly a recipe for the most efficient allocation of resources.  On top of that, it's a very opaque, closed economy and one's investment opportunities there are just as opaque and difficult to understand.  While I see tons and tons of long-term potential in Asia, giant un-hedged bets on China don't make much sense to me.

[MediumTex]

Lone Wolf,

You said Schiff reminds you of a pit bull.

He reminds me of a dachsund.

[Lone Wolf]

He reminds me of a dachsund.

Hmm, I could see that.  One of those dachshunds that would lift his leg at the sight of a Ben Bernanke-shaped fire hydrant.

Ultimately, I've still gotta go with "vintage cat wall-clock".  We can agree to disagree, though.

[MediumTex]

He reminds me of a dachsund.

Hmm, I could see that.  One of those dachshunds that would lift his leg at the sight of a Ben Bernanke-shaped fire hydrant.

Ultimately, I've still gotta go with "vintage cat wall-clock".  We can agree to disagree, though.

Perhaps a dachsund body but a vintage cat wall-clock head.  Like something you might see in a Tim Burton film.

[Wonk]

We report, you decide:

[MediumTex]

I was thinking more along the lines of this:



You can get your dog a Peter Schiff t-shirt like this:



Here is a good cat head wall clock pose:



If this clock could talk, it would say:

"Buy gold!"
"Vote for me for the Senate!"
"Buy my new book!"
"Did I tell how right I have been?"

[AdamA]

Yeah, Schiff is still my favorite of the fortune-telling "gurus".  He's a genuinely funny guy, has a great way of putting things, and is like a pit bull in terms of not letting the government off the hook for the countless ways that they screw up and distort the economy (and then blame the "free market".)

He definitely makes the free market argument very articulately, and I find him very entertaining.  I've recently come to agree with MT in that he's a bit like a pull-string doll who kind of repeats the same five things, though.  

I'm a little bit skeptical of the let-the-market-decide-everything paradigm that he pitches too.

You guys know his dad is in prison for tax evasion, right?  When I read Fail Safe Investing I wondered if it was Irwin Schiff to whom HB was referring when he spoke of a "certain individual" who recommended various don't-file-a-return schemes.

[Lone Wolf]

Okay, I LOL'd at MT's cat-clock side-by-side.  And man, that is one cute dachshund.  (Wonk's dachshund, that is.  That thing with a woman's head on it is nightmare material.)

He definitely makes the free market argument very articulately, and I find him very entertaining.  I've recently come to agree with MT in that he's a bit like a pull-string doll who kind of repeats the same five things, though.

The repeat "five things" bit is interesting, actually.  This is actually kind of a common thing.  I find commentators that make very specific, strong predictions do this when certain things turn out differently than they expect.  If I predict X, but Y happens, it's not because I was wrong about X happening.  It just means that X is gonna really happen now because everything that made me predict X is just as true, probably moreso.

Browne talked about this pattern 25 years ago in "Best-Laid Plans".  Amazing how well the observation still holds up today.

I'm a little bit skeptical of the let-the-market-decide-everything paradigm that he pitches too.

I think Schiff's right about this, which is certainly a big part of why I enjoy listening him.  It's always fun to listen to somebody that flatters one's own sensibilities.    (Browne and Frederic Bastiat probably make more elegant arguments, but they're not as funny as Schiff.)

You guys know his dad is in prison for tax evasion, right?  When I read Fail Safe Investing I wondered if it was Irwin Schiff to whom HB was referring when he spoke of a "certain individual" who recommended various don't-file-a-return schemes.

I would assume so, considering that he competed with Schiff for the '96 libertarian party nomination (which Browne won.)  Browne was very skeptical in general about joining big movements like this for the reason that it places a target on your back, curtailing your freedom (see "Freedom in an Unfree World").  While they no doubt had a lot in common politically, I think it's clear that these two disagreed sharply with respect to methodology.

[craigr]

I know someone personally that served five years in a federal prison on tax evasion for doing what Schiff's father recommended. It's a really bad idea.

[MediumTex]

I know someone personally that served five years in a federal prison on tax evasion for doing what Schiff's father recommended. It's a really bad idea.

As a person who is not just a lawyer, but a tax lawyer, I can say unequivocally that most people like Schiff's father just don't seem to get that the people who enforce the rules (the IRS) are also the people who make the rules (the IRS) (Congress typically grants the IRS very broad discretion in creating regulations for the Code provisions they enact), and thus anyone who attempts to challenge them are at an extreme disadvantage (courts also tend to defer to the IRS's positions in many areas).  It simply makes no sense to pick a fight with an entity like this.  It's pointless.  Even if you have airtight arguments, the IRS has more time and resources, as well as the ability to change the rules midstream.

It's much better to develop tax strategies that are consistent with a conservative interpretation of the rules (and which are generally accepted by the IRS).  By doing this you are able to save money AND stay out of trouble. 

I notice that some people have a tendency to get hung up on abstract notions of "rights" and overly technical arguments that they believe automatically make their cases persuasive.  What they seem not to understand is that "rights" are meaningless outside of some structure in which they may be enforced, and no matter how much YOU like your arguments, if a court doesn't recognize them or find them persuasive you are out of luck.

[AdamA]

I notice that some people have a tendency to get hung up on abstract notions of "rights" and overly technical arguments that they believe automatically make their cases persuasive.  What they seem not to understand is that "rights" are meaningless outside of some structure in which they may be enforced, and no matter how much YOU like your arguments, if a court doesn't recognize them or find them persuasive you are out of luck.

I'm pretty sure Peter Schiff would agree with you.

http://www.youtube.com/watch?v=yiMz43zdE8k

(If you don't want to watch it, it's basically six minutes of Peter Schiff saying exactly what you did above to someone who is interviewing him about his father...it's kind of sad, because you can tell he really loves his dad). 

For the record...I agree 100% that tax evasion is a terrible idea. 

[craigr]

I know someone personally that served five years in a federal prison on tax evasion for doing what Schiff's father recommended. It's a really bad idea.

As a person who is not just a lawyer, but a tax lawyer, I can say unequivocally that most people like Schiff's father just don't seem to get that the people who enforce the rules (the IRS) are also the people who make the rules (the IRS) (Congress typically grants the IRS very broad discretion in creating regulations for the Code provisions they enact), and thus anyone who attempts to challenge them are at an extreme disadvantage (courts also tend to defer to the IRS's positions in many areas).  It simply makes no sense to pick a fight with an entity like this.  It's pointless.  Even if you have airtight arguments, the IRS has more time and resources, as well as the ability to change the rules midstream.

It's much better to develop tax strategies that are consistent with a conservative interpretation of the rules (and which are generally accepted by the IRS).  By doing this you are able to save money AND stay out of trouble.  

I notice that some people have a tendency to get hung up on abstract notions of "rights" and overly technical arguments that they believe automatically make their cases persuasive.  What they seem not to understand is that "rights" are meaningless outside of some structure in which they may be enforced, and no matter how much YOU like your arguments, if a court doesn't recognize them or find them persuasive you are out of luck.

We tried to explain this to him. Even if he's right, there is simply no way the govt. is going to cut off their income tax feed line.

In fact, the prosecutor told him they were going to load the jury with public employees (teachers, firemen, govt. workers) so he would have to explain to them why he shouldn't have to pay their salaries. He took the plea bargain with the prosecutor, BUT the judge ignored the plea bargain and gave him the maximum sentence anyway. This was highly unusual but the judge obviously wanted to make a statement.

Pick your fights carefully.

[murphy_p_t]

its interesting reading this to consider the the (1st) American revolution had taxation by an overbearing gov't as a central issue.

[Wonk]

its interesting reading this to consider the the (1st) American revolution had taxation by an overbearing gov't as a central issue.

Which is why inflation is always the preferred means of taxation by the ruling class.  Raising taxes presents a clear trail of indictment and can become a rallying cry for a movement.  Facilitating inflation makes it much more difficult to pin the tail on the donkey.

[Storm]

How did I miss this thread for so long?  Your thoughts on Schiff mirror mine exactly.  Schiff's book "Crash Proof" predicting the housing crash was the beginning of my journey to financial enlightenment (does it really ever end?), but now I find Schiff's views childish in their own way.  I think it's nice to have contrarian view, but the more evolved standpoint is the PP view where you can be completely emotionless about potential outcomes and still make returns.

I would love to have the guts of Schiff and put all of my eggs in the precious metals and long term asian equities markets - but I'd probably lose a lot of money.

[craigr]

How did I miss this thread for so long?  Your thoughts on Schiff mirror mine exactly.  Schiff's book "Crash Proof" predicting the housing crash was the beginning of my journey to financial enlightenment (does it really ever end?), but now I find Schiff's views childish in their own way.  I think it's nice to have contrarian view, but the more evolved standpoint is the PP view where you can be completely emotionless about potential outcomes and still make returns.

I would love to have the guts of Schiff and put all of my eggs in the precious metals and long term asian equities markets - but I'd probably lose a lot of money.

I think Schiff is fun to listen to. But the problem with a prediction is that you need to be right in a couple areas:

1) You need to be right about the market direction that is going to happen (up down or whatever).
2) You need to be right about how to position your assets to deal with the problem when it happens.

Schiff was right on #1 (Then again, so was I. But I didn't write a book.). But on his solution on how to protect yourself he was very wrong. The dollar didn't go down, it went way up in 2008. The funds he recommended got hammered with more than 50% losses. This was even worse than the US Stock Index results that year. It was brutal.

So predicting the future in the markets is fun, but there are many things you need to get right. Not just predicting the crash, but how the markets will respond to it. Then of course there is the last stage which is what do you do with your assets after you predicted the crash and correctly positioned yourself. The branches of decisions is endless and one incorrect call can wreck everything.  

[AdamA]

Schiff was right on #1 (Then again, so was I. But I didn't write a book.). But on his solution on how to protect yourself he was very wrong. The dollar didn't go down, it went way up in 2008. The funds he recommended got hammered with more than 50% losses. This was even worse than the US Stock Index results that year. It was brutal.

He gets overly defensive when anyone calls him to task on this, as if the economy cheated somehow and he wants to take his ball and go home.  

In fairness, I think he's at least fairly well diversified in that he seems to advocate physical precious metals, precious metals stocks, foreign stocks of  all varieties, as well as foreign bonds (both government and corporate)...

I think a lot of his fans/followers don't get this b/c if you listen to his show, people will call in and say things like, "I just sold all of my US stocks and bought 1/3 reminbi, 1/3 silver, and 1/3 cotton futures.  I'm up 500% over the past year.  When do you think the dollar's going to collapse?"

[melveyr]

I know someone personally that served five years in a federal prison on tax evasion for doing what Schiff's father recommended. It's a really bad idea.

As a person who is not just a lawyer, but a tax lawyer, I can say unequivocally that most people like Schiff's father just don't seem to get that the people who enforce the rules (the IRS) are also the people who make the rules (the IRS) (Congress typically grants the IRS very broad discretion in creating regulations for the Code provisions they enact), and thus anyone who attempts to challenge them are at an extreme disadvantage (courts also tend to defer to the IRS's positions in many areas).  It simply makes no sense to pick a fight with an entity like this.  It's pointless.  Even if you have airtight arguments, the IRS has more time and resources, as well as the ability to change the rules midstream.

It's much better to develop tax strategies that are consistent with a conservative interpretation of the rules (and which are generally accepted by the IRS).  By doing this you are able to save money AND stay out of trouble. 

I notice that some people have a tendency to get hung up on abstract notions of "rights" and overly technical arguments that they believe automatically make their cases persuasive.  What they seem not to understand is that "rights" are meaningless outside of some structure in which they may be enforced, and no matter how much YOU like your arguments, if a court doesn't recognize them or find them persuasive you are out of luck.

Posts like this make me wonder about the ETF tax loss harvesting. I'm talking about when one sells VTI and then buys SPY in order to harvest a loss in VTI.

What do you think MT? Does anyone else do this? I have thought about using this strategy but haven't yet.

The strategy is definitely bending the rules...

[AdamA]

Posts like this make me wonder about the ETF tax loss harvesting. I'm talking about when one sells VTI and then buys SPY in order to harvest a loss in VTI.

Totally different. 

At the very worst, you may get audited and have to pay back taxes for something like this (although I doubt it as what you are describing is 100% legal). 

People go to prison for tax evasion...that is, failing to file altogether or failing to disclose large sums of money to the IRS on purpose. 

I am NOT a tax expert or a lawyer, though.