September 17, 2007

HOUSINGPANIC EXCLUSIVE: Interview with world's #1 housing-bubble-buster and REIC nightmare Peter Schiff of EuroPacific Capital


You'll love this interview HP'ers. Peter Schiff is the man, and while David Lereah, Nicholas Retsinas, Alan Greenspan, George Bush, Kendra Todd and millions of REIC on commission were out saying "it's different this time" and "bubbles are for bathtubs", Schiff was one of the lonely voices in the wilderness saying "hey, hold on, this sucker's gonna blow".

And as we all know now, Schiff was right and all those cheerleaders were wrong, and now the world pays the price.

Please join me in thanking Schiff for not shutting up when housing was skyrocketing, for not backing down to the REIC, and for being a cool dude and interviewing on HP.

Here's Schiff, and for A.D.D. HP'ers I bolded the good stuff.


HP: You nailed the housing bubble and crash. When the masses were still listening to David Lereah and Nicholas Retsinas in the mainstream press, a few people who looked harder heard your message, sold their homes and rented. Do you feel vindicated, and do you think the MSM has housing crash blood on their hands today?

Schiff: I do not necessarily feel vindicated as I have always known I had this one right. However, as was the case with the internet mania, my early diagnoses of the problem caused many arguments over the years.

However, even now most of my critics still do not give me the proper credit for having laid it out so correctly years in advance. I would recommended reading some of the commentary I posted on my web site over the years to get an idea of accurate my forecasts were.

Also, my book “Crash Proof” has an entire chapter devote to the real estate bubble. Those who have not read it yet can order a copy here

However, not all of my predictions on real estate have come true. Prices have not yet collapsed to the extent that I expect they will and we are not yet in the serious recession I predict will follow the bursting of this bubble. However, I am confident that I will be 100% vindicated on every prediction I made on the real estate market, the economy, the dollar, commodity prices, etc.

HP: If I handed you $500,000 today, what would you do with it?

Schiff: My advice would be to convert your dollars to foreign assets, mostly quality, high yielding stocks, as well as some physical precious metals and mining and energy stocks.

Under no circumstances should anything be left in U.S. dollars. The biggest casualty of the real estate bubble, and any attempted government bailout, will be the value of our currency.

HP: You've heard the rumblings for some sort of government bailout, led by the Democratic Congress and Bush. What do you think about this idea, and is a bailout even feasible?

Schiff: No bailout is possible as just about every American with a mortgage is going to need one. The moral hazards of any “bailout” will only exacerbate the problem, and anything that prevents real estate prices from returning to normal levels simply guarantees an even bigger “bailout” being required in the future.

Of course, contrary to the political rhetoric, it is the lenders, not the borrowers, that need the bailout. Most borrowers either put nothing down, or extracted any original down payment with home equity loans. For most homeowners, all the losses will be mental, as the illusions of paper real estate gains fade.

However, the lenders will loss real money, as they funded the bubble. Even if some government bailout results in lenders get their money back, the dollars they receive will have very little purchasing power. No matter what, the lenders will be the biggest losers.

HP: In order, who/what were the top five causes of the Great Housing Ponzi Scheme?

Schiff:
1. Greenspan and the Federal Reserve
2. Wall Street Investment banks
3. Lenders (banks, originators, etc)
4. Freddie Mac & Fannie Mae
5. Congress & Pres. Bush
6. Appraisers
7. Rating agencies
8. Individual home buyers and speculators
9. Realtors
10. The media.


I guess I did not want to leave anyone out...

HP: You bump into Alan Greenspan in an elevator, what do you say to him?

Schiff: I’d ask him if he had read my book. If he had not I would give him a copy. If I thought he would give me honest answers there would be a number of questions I would ask him as to why he did what he did, but I doubt that he would be forthright.

I just hope he lives long enough to see the full results of his incompetence.


33 comments:

Anonymous said...

Check out what Schiff said a year ago before the mortgage dived.

http://www.youtube.com/watch?v=lEj80hTVHyc

Peter is the Sh!t!

Anonymous said...

Schiff, Shiller and HP against the REIC

Anonymous said...

Might want to move Realtors up the list there Petey Boy. Appraisers? Please! These clowns only reported the bubble, they didn't make it. In the end the number one causes were cheap and plentiful money for all. I blame Alan and the rating agencies.

-Tobby

Anonymous said...

Thankyou, Mr. Schiff.

We all (outside of Congress that is) look forward to the day when housing becomes completely unstuck from this devestating ponzi scheme it is now embroiled in and Americans can once again buy homes they can afford to pay for.

As an aside, is there any way, any way at all, to kill Fannie Mae and her brother Freddie? I think doing so would go a long way towards making homes trully affordable , thereby building stronger neighborhoods and communities. The US could use a little of both right now. Fannie stands in the way.

Bitterrenter said...

This is what you get when you let a republican single-handedly control the fiscal policy. America is getting what it deserves for voting republican and going conservative for the last 30-40 years. All you Reagan democrats who thought voting republican would drop your taxes to zero and allow you the good life are sure f*cked, now, aren't you? You believed the republicans who told you it was the poor that were dragging you down, that welfare was where your taxes went. Too bad you didn't have the brains to learn that welfare never accounted for more than 7% of the budget. But now you middle-class, republican-voting jerks are going to get a taste of downward mobility if you haven't already.

Enjoy! Hope you starve!

Anonymous said...

I would invest in foreign stocks, but I don't think Europe is any better off than us and Asia owns most of our worthless debt. Is there any country that won't suffer in the coming years? I don't like gold, either.

Maybe guns, ammo, gas and food is the only safe bet.

fish said...

From GATA/LeMetropole Cafe:

The key to understanding Greenspan is to think of him not as an economist, as which he was always mediocre at best, but as a bureaucrat in a large bureaucracy, and in this he excels, and has the kind of power that comes with time-in-place. In this he is more like J. Edgar Hoover than Paul Volker.

Here is an anecdote from Pierre Rinfret, an economist and seasoned Republican who has known Sir Alan first as a colleague at Columbia, then as a fellow economic consultant on the Street, and as an associate in several presidential administrations.

"One of the absolute lies about him is that he retired from his consulting business a wealthy man. Absolutely and totally untrue. (His emphasis, not mine. Jesse).

When he closed down his economic consulting business to go on the Board of the Federal Reserve he did so because he had no clients left and the business was going under. We even went so far as to try and hire some of his former employees only to find out he had none for the 6 months prior to his closing. When he closed down he did not have a single client left on a retainer basis. His only source of income was his speech making. As a speaker he had to be the ultimate bore exceeded only by Paul McCracken about who Richard Nixon told me on many an occasion "When he talks MEDGO" meaning "my eyes doth glaze over".

"He had a horrible record on forecasting the American economy. He missed calling, in advance, every single recession in the entire postwar period with only one exception. He neither called recessions nor expansions for the very simple reason that he has never been one to stick his neck out. In American industry they don't pay consultants for Pablum or for saying what everybody else does!And that is what he has always served up; Pablum. The driving force that may push Greenspan more than anyone or himself realizes is that he graduated from the "Bronx High School of Science" and that his peers included one Henry Kissinger and other famous (infamous?) politicians of about his age. A classmate of his once said to me that Alan had to prove to them that he was as smart as they were!"

Can this really be how things happen, not with careful planning, forethought, and measured stewardship, but through old school connections, inertia, organizational politics, and serendipity? To anyone who has worked for any length of time in a large government or corporate organization, the answer is apparent.
Jesse

From a Feb 13, 2004 MIDAS (another Café member):

Mr. Rinfret's accounting of Alan Greenspan as private economic consultant with his defunct firm, Townsend & Greenspan, is stunningly consistent with what a good friend of mine from the University of Chicago, who knew one of Greenspan's employees at the time, told me back in the early '90's. To paraphrase my friend: Greenspan was the laughing stock of those who were serious econometricians and was notorious for horrendously incorrect forecasting. He also had told me that Greenspan barely had a pot to piss in when he was appointed to the Fed.

Anonymous said...

Why is it that so few of the supposedly great minds saw the writing on the wall years ago...like in 2003? It was all so obvious.

Kudos on the interview.

Greg said...

"Appraisers? Please! These clowns only reported the bubble, they didn't make it. In the end the number one causes were cheap and plentiful money for all. I blame Alan and the rating agencies."

Actually appraisers are just as to blame as the brokers. If the loan guidelines say that you can only loan up to 90% of the value of the home. The appraiser working in conjunction with the broker (who is also his employer) can just lie on his report and claim that the house is really worth 10%, 20% or 30% more than it's really worth and all of a sudden your purchase price is only 85% of the supposed real value and the loan can go through.

andy in nz said...

I don't have A.D.D!

I just can't sit still and listen to MSN BS. It drives me to distraction.

Mr Schiff and HP were the best investment I made!

andy in nz

Peter and the Wolf said...

I agree, Peter is the Sh!t!

However, I would caution HPers about taking all of Peter's advice, and making a contradistinction between Schiff and Nouriel Roubini.

Foreign stocks? Some exposure certainly, but the recent turmoil shows how tightly coupled the foreign markets are to the S&P and American economy. If there's a recession, these risk taking a beating every bit as bad as the U.S.

Metals? 5-10% of total assets a good idea. Commodities are also susceptible to a recession -- big buyers include jewelry makers and electronics. In contrast to Peter, NR asserts that these are in a bubble that will also correct.

Finally, Schiff comes to his views through clear thinking and a complicated personal history. His father Irwin Schiff is an outspoken and recently imprisoned (2006) opponent to U.S. Federal Income Tax.

I wonder what fraction of Peter's views are his undeniable sagacity, and what fraction are colored by his unique family experience? I want to trade on the former, but not the later.

Trevor Cordes said...

Kudos to Schiff. Read everyone of his weekly commentaries. Listen to his radio show once in a while. If you're new to Schiff, then buy his book.

He's been dead right since I first found his site in 2004 and because of him I made over 10X my initial investment shorting housing stocks in 2005-2007.

Everything he says will be try, but like all bears, we must remember that the entire world is rigged against us and we must allow lots of time for our predictions to come true. If you buy puts, buy 2-3 year out LEAPS. The "long" world will try everything they can to postpone the pain. But as Peter says, the day is coming...

Paul E. Math said...

Great dramatic flourish at the end: hoping Greenscam lives long enough to see the consequences of his incompetence.

I kind of hope he dies soon so we can have a more impartial appraisal of his legacy. The MSM will be reluctant to humiliate a doddering, grandfatherly old man while he's still alive. But if he's dead then the gloves are off (after a period of 'mourning').

Did I really just say I hope Greenspan dies soon?? Oh, heaven forfend!

Anonymous said...

Millions of home debtors wish they had found Schiff before now

Anonymous said...

Schiff's got big brass balls, and he is the man.

FlyingMonkeyWarrior said...

Wow, you mean Ayn Rand's teachings on a Darwinian Economy, as she mentored Greenspan, are not working?????
Shocking I say. Shocking.









Not really.............

David said...

Great interview Keith. You rock!

Mammoth said...

The top five reasons for the Housing Ponzi Scheme is invalid unless we include:

- Individual home buyers and speculators

They are the ones who made the decision to sign on the dotted line and buy the overpriced real estate.

Personal responsibility. Period. Is there any left in the world, or is it always the other person's fault?

Anonymous said...

Question:

Would owning shares in a foreign index fund (e.g., VEIEX, EFA) traded on a U.S. exchange be the same (or close enough) as owning foreign shares outright?

Would you still be fairly protected from a U.S. currency decline by investing in foreign funds??

Anonymous said...

Greenspan's now warning about double-digit inflation, but it's because of what he did that we're even having the inflation problem," said Peter Schiff, CEO of Euro-Pacific Capital Partners.

"Greenspan says, 'You don't know a bubble until it pops.' But he created the stock market bubble and the housing bubble and set up the commodities bubble - all because of the cheap money he threw around for so long," Schiff added.

Schiff's new book, "Crashproof: How to Profit in the Coming Economic Collapse," dubs Greenspan's over 18-year reign at the Fed as the "most inflationary and irresponsible in American history."

"Greenspan kept rates too low for too long, and there's no reversing the damage anytime soon," said Schiff, whose fund showed a return of 400 percent over the past two years by investing against Greenspan's moves.

"We're on our way to a train wreck," Schiff warned in an interview with The Post two years ago. "We've been living in this fantasy bubble for too long."

http://www.nypost.com/seven/09182007/business/fed_up_with_al.htm

Anonymous said...

Democrats had nothing to do with it.

Nope. All Bush's fault. Not one Democrat bought a house during the boom. Nope. Only Republicans bought homes. Only Republicans worked as realtors. Only Republicans worked as mortgage brokers. No Democrat ever takes money from Wall St. And the ex-CEO of Goldman wasn't a Democrat Senator. The current chairman of Goldman wan't a Clinton cabinet member.

No folks, this bubble was not touched by anyone on the left.

Veronica Lodge said...

RE: Schiff was one of the lonely voices in the wilderness saying "Hey, hold on, this sucker's gonna blow.":


The earliest heads up that I remember seeing was THIS item, dated June 21, 2002:

"The U.S. financial system is now dependent to an unprecedented degree upon one prop: the greatest housing-real estate bubble in human history. A hyperinflationary spiral has sent home prices shooting up by 10-40% annually in recent years—depending on the region of the country—and artificially pushed the price of millions of homes into the $400,000 to $1 million range or above."

"For the banks, the aim is: If the price of a home can be fictitiously doubled, say to $400,000, then the market value of the mortgage attached to the home can be fictitiously doubled to $400,000, and the income cash flow stream of principal and interest payments that can be looted, can be doubled."

"But a wave of mortgage defaults is inevitable."


These are only excerpts from a random sampling. The entire article makes very good reading -- especially when you consider that it was written over 5 years ago.

V.L.

sonny said...

Hey all,

I love the site. I have 43k ( My life savings ) that I recently moved out of domestic growth mutual funds at American Century into a money market. If I take his suggestion of getting funds into anything but dollar based, what should I do with the 43k, and how do I do it? Some of the posters here are pretty mean and harsh. Please forgive my inexperience.

Anonymous said...

Hey, Peter's kool. I swapped e-mails with him 3 or 4 months ago. He writes back, which is surprising as he's pretty busy.

charlatan said...

Wow, you mean Ayn Rand's teachings on a Darwinian Economy, as she mentored Greenspan, are not working?????

lol. like he actually followed them at the fed!

Anonymous said...

Anonymous said...
Question:

Would owning shares in a foreign index fund (e.g., VEIEX, EFA) traded on a U.S. exchange be the same (or close enough) as owning foreign shares outright?

Would you still be fairly protected from a U.S. currency decline by investing in foreign funds??

September 18, 2007 3:53 PM

---------------

You should be, as long as the fund does not hedge its currency exposure.

Anonymous said...

sonny said...
Hey all,

I love the site. I have 43k ( My life savings ) that I recently moved out of domestic growth mutual funds at American Century into a money market. If I take his suggestion of getting funds into anything but dollar based, what should I do with the 43k, and how do I do it? Some of the posters here are pretty mean and harsh. Please forgive my inexperience.

September 18, 2007 7:04 PM

--------------------

With 43K, getting into low cost mutual funds that emphasize the appropriate themes (gold, silver, and oil, quality international stocks) is probably the best bet. Buying shares of a blue chip energy company might also be a relatively low risk way to get started. BP for one has a free (or almost free) DRIP plan. You should also try and educate yourself about investing instead of getting anonymous advice from the internet. You can probably get (borrow) Robert Shiller's "Irrational Exuberance" book from a public library to get started.

Anonymous said...

keith, i agree in general with Sciff.

However, (and you may have particular insight on this), I do a lot of business in Europe. Some of my family lives there.

The bubble is alive in kicking there - especially in the UK and in Spain. From what I can gather Spain RE is essentially Florida Euro-style.

So.... if the statement is invest in 'foriegn stocks' - which would theoretically means Europe included. is this a good idea?

I imagine they will have the same "unwinding" we do - assuming the euro bank follows the fed (which it will). it seems like the same situation will play out gloablly

Thoughts?

PS Even Australia is not exempt. I was doing some research 2 months ago on Australian t-Bills (~7% return). When I went to an Aussie bank site for some more info, the banner add read "did you miss the housing boom". They were talking of Australia - not the US.

Anonymous said...

As a professional in the escrow industry I would certainly add Mortgage brokers to the list of causes. We saw this comming for years as we processed loans to thousands of unsuspecting homebuyers who bought into the mortgage brokers line of BS. We knew then these loans could never be repaid! Buyers were placed in loans they didn't understand and sold a bill of goods! Some responsibility lies with them for signing what they didn't understand, but moreover the mortgage brokers put them in loans that most of them had no business being in. All so they could buy high priced homes they could not afford. The rest of them were placed in these horrible loans even though they qualified for a mainstream fixed product so the mortgage broker could make larger commissions. Average $15,000.00 per transaction! We saw it EVERDAY! The banks not only allowed it they pushed for it! The banks didn't complain about paying the high priced commission to the mortgage brokers. Who was watching over these mortgage brokers that were selling out the consumer every day? NO ONE! Where the hell were all the advocacy groups? There is no one to report the fraud to either, believe me there was plenty of fraud! These guys have taken their money and ran! Real peoples lives have been ruined and their families have been ruined and no bailout is going to help them or the rest of us we just have to ride this one out and pray its over soon. It's so sad, this is a example of what greed will do. God help us one and all!

Thank you Peter Shiff!

Anonymous said...

Anonymous said...
keith, i agree in general with Sciff.

However, (and you may have particular insight on this), I do a lot of business in Europe. Some of my family lives there.

The bubble is alive in kicking there - especially in the UK and in Spain. From what I can gather Spain RE is essentially Florida Euro-style.

So.... if the statement is invest in 'foriegn stocks' - which would theoretically means Europe included. is this a good idea?

I imagine they will have the same "unwinding" we do - assuming the euro bank follows the fed (which it will). it seems like the same situation will play out gloablly

Thoughts?

PS Even Australia is not exempt. I was doing some research 2 months ago on Australian t-Bills (~7% return). When I went to an Aussie bank site for some more info, the banner add read "did you miss the housing boom". They were talking of Australia - not the US.

September 19, 2007 12:44 AM

--------------------

Europe has the balance of trade thing working in its favor, at least compared to the US. Australia produces and exports a lot of commodities, i.e., the stuff that's been going up in price and is likely to continue going up in price. A lot of the biggest resource companies are either European or Australian (e.g., BP, Shell, Rio Tinto, BHP Billiton, ...). I probably wouldn't invest in European or Australian subprime lenders though. I expect that all the fiat currencies will lose value against gold and silver so long term bonds sound like a bad deal too.

How can one buy Australian T-Bills? That might be a good idea.

Anonymous said...

Sonny said: "If I take his suggestion of getting funds into anything but dollar based, what should I do with the 43k, and how do I do it?"

If you want to know how to implement Schiff's ideas, simply call his company, EuroPacific Capital. They'll be happy to help you. I like John Catalfio at the Phoenix branch best although I live in a different state.

At the same time, I recommend doing a ton of reading and getting up to speed quickly because I can't imagine taking anyone's financial recommendations blindly.

Anonymous said...

Might want to move Realtors up the list there Petey Boy. Appraisers? Please! These clowns only reported the bubble, they didn't make it. In the end the number one causes were cheap and plentiful money for all. I blame Alan and the rating agencies.

-Tobby


Check out DrHousingBubble's real homes of genius series. I think appraisers deserve a great deal of scorn for their part. Comps??? How about some common sense??? Lot's of blame to go around though, I agree.

Anonymous said...

Dude you have way too much hostility to realtors, mortgage brokers Bernake, etc, etc

Your momma didn't love you or something? A realtor or mortgage broker stole your girlfriend?

Though doth protesteth too much as the old Shakespearian saying goes.

In the end even if homes drop by 50% realtors will still sell them as will brokers finance them. They won't go away. It was just paper profits for most of us. You are acting up way too much over this. Get a life dude