Schiff was spot-on in his predictions, and yet investors who signed up with him got burned.
Thanks to YouTube and the Internet, his prescient calls on the CNBC and Fox News freak shows are now preserved for good, but I’m sure he must be feeling pretty bad at the way he called the markets right but got it wrong with the timing and implementation.
Wouldn’t it be ironic if the people sneering at him in the recordings from 2006/07 had actually done better, performance-wise, over the last year? Knowing the chutzpah of some financial market professionals, it wouldn’t surprise me if some of those guys turned around now and told us they’d been sellers all along – and never mind the evidence.
Meanwhile, a lot of the more bearish fraternity have been suffering as badly as Schiff. Bill Ackman, a renowned short-seller, lost investors in his Pershing Square IV fund nearly 90% of their assets in two years, despite being on the right side in his overall market views.
David Einhorn of Greenlight Capital, whose book on the tribulations of a short seller is an excellent and educational read, still lost his investors 17.6% in 2008, in a market that should have been manna from heaven to a bear.
In my first job at an asset management firm, more than 20 years ago, I remember that we used to write in our responses to consultants’ questionnaires that “our investment philosophy is research-based, and reflects our view that markets are driven by economic fundamentals.”
Several bubbles and crashes later, I don’t think I could repeat that anymore with a straight face. It seems to me that things have become ever more manic and irrational. Maybe that’s the way things always were.
But the message for an investor must surely be to diversify, not to try and time investments too much, and to be patient. I still think it’s possible to gain by taking asset allocation views on a long-term time frame, but that also means being absolutely sure about one’s ability to handle losses if one gets the view right too early (which is a polite way of being wrong for a while).
Meanwhile, here’s one chart that caught my eye this morning (Bank of England data on lending to private, nonfinancial companies in the UK, courtesy of JP Morgan).
Despite the quantitative easing programme of the UK central bank, credit conditions are getting tighter. Can you say “de-leveraging”? Evidence for the deflation camp is mounting daily.
There are lots of anecdotal reports in London of a pickup in house prices. One agent told me yesterday that there had indeed been a flurry of activity in the last six weeks and some price appreciation, but he put a lot of this down to the reduced levels of inventory on agents’ books. His firm is carrying just 10% of the property listings for sale that it had two years ago, as owners have removed them in view of the falling market, or switched to renting.
While the Bank of England lending data does show some signs of greater mortgage activity, albeit from very low levels, reports the FT this morning, it’s difficult to see this being sustainable if the rest of the economy is shrinking, unemployment is picking up and credit is becoming ever scarcer.