The guy who called it

April 16, 2009 7:48 AM

[MLYT] Peter Schiff gives a talk to the Western Regional Mortgage Bankers Association, describing exactly the ongoing economic meltdown. (Part 1, 2, 3, 4, 5, 6, 7, 8). The catch? The talk was given in 2006. Listening to his bullish counterpart in parts 6-8 is a real scream.

Previously.

posted by valkyryn (23 comments total)

Yet, Peter Schiff's funds actually did worse then the rest of the economy. He thought that foreign stocks were 'decoupled' from the U.S. and that investments should be done overseas. In fact, the reverse was the case and overseas stocks actually did worse.
posted by delmoi at 7:51 AM on April 16, 2009 [3 favorites]

Interesting, delmoi. That would seem to bolster my own growing suspicion that no one really understands the whole picture. Still, Schiff's description of the mortgage meltdown does ring true.
posted by valkyryn at 8:00 AM on April 16, 2009

Austriasaurus: DOOM! DOOM! EVERYONE WATCH OUT A GIANT PIECE OF THE SUN IS GOING TO FALL FROM THE SKY, WE NEED TO GET ONTO A MOUNTAIN TOP AND PRAY TO THE MOON TO SAVE US!
Other dinosaurs: LOL what a pussy. Come on y'all lets have an orgy!
[dino orgy]
[asteroid hits earth]

Neoconisaur: wtfwtfwtf
Austriasaurus: SEE I TOLD YOU SO, NOW LETS START BREATHING IN AS MUCH OF THIS DUST AS POSSIBLE SO WE CAN FLOAT TO THE MOON
Libereodocus: Shouldn't we try hiding in caves? or something?
Austriasaurus: THATS THE KIND OF THINKING THAT GOT US INTO THIS MESS
Neoconisaur: omgomgomg
posted by Potomac Avenue at 8:06 AM on April 16, 2009 [17 favorites]

Look, the guy was right about this. That doesn't mean he has the economy figured out and that his word should be taken as gospel from now on. I've seen this on a lot of blogs now -- people championing this guy. He has had some pretty zany ideas in the past. It's always easy to look in retrospect and find people that were right about an idea but that doesn't mean their predictive power is any better than the rest. See Philip Tetlock's work a better explanation.
posted by proj at 8:14 AM on April 16, 2009

Got a link, proj?
posted by valkyryn at 8:15 AM on April 16, 2009

Philip Tetlock, "Expert Political Judgment"
posted by milkrate at 8:32 AM on April 16, 2009 [1 favorite]

Yeah, because he was right, he's probably wrong now. The coin owes us a tails.
posted by krilli at 8:50 AM on April 16, 2009 [1 favorite]

It's always easy to look in retrospect and find people that were right about an idea but that doesn't mean their predictive power is any better than the rest.

On the other hand, a person whose predictive power is "better than the rest" was, by definition, right about ideas in the past.
posted by Rykey at 9:03 AM on April 16, 2009

The problem here is that there are so many people out there making various predictions that inevitably one of them will be right and look like a genius. But is that person really a genius, or just lucky?

Consider 100 economists. There's a 90% chance that the economy will go the "obvious" way, and 90 of them predict this. There's a 1% chance that the economy will go in one each of 10 "wacky" ways, and 1 each of the remaining predicts this. What happens is that in that 10% chance that the economy goes "wacky," one guy who took the long odds ends up looking like a "genius." I posit that these "geniuses" often really just got "lucky" with their predictions, and they've no more predictive power than the lottery winner who hit the jackpot by predicting that day's numbers.

With enough disparate theories, someone has to be right. It doesn't mean the person who was right actually was right for the right reasons, or will continue to be right.
posted by explosion at 9:26 AM on April 16, 2009 [3 favorites]

These days, this is my naive heuristic for determining the value of an economist:

(every 10 minutes of straight talk) / (number of assumptions my intuition doesn't like)

This guy scores pretty high on the straight-talkiness metric, but there were some chunks that were hard to swallow. Still, he scores better than 50%.
posted by krilli at 9:30 AM on April 16, 2009

Yeah, because he was right, he's probably wrong now. The coin owes us a tails.

It's worse than that. If he's right once, but wrong all the other times, then the coin is biased and we can generally expect a "tails", on average.
posted by Blazecock Pileon at 9:54 AM on April 16, 2009

In support of delmoi's comment:

Mish's analysis of why Peter Schiff Was Wrong
posted by FuturisticDragon at 10:01 AM on April 16, 2009 [3 favorites]

For the record, I found his critique far more edifying than his recommendations.

I'm still trying to find someone who has basically Austrian-looking critiques of neoclassical economic gibberish who doesn't veer of into la-la-land when it's time to make positive suggestions with what to do with your money. I'm totally with them on the idea that assets don't magically increase in value. I fail to see why this means we need to go back to the gold standard.

Anyone got any names?
posted by valkyryn at 10:05 AM on April 16, 2009 [1 favorite]

Anyone got any names?

Mike Shedlock
posted by FuturisticDragon at 10:07 AM on April 16, 2009

I generally like Schiff for his ability to communicate basic factors in a clear, well-worded manner, as seen in his semi-regular appearances on Fox. He was saying exactly the same things I would have said but better.

Howevers, I think it is possible to go too far overboard with the negativity and miss some other factors that will prove one's thesis overly pessimistic and/or plain wrong.

In previous guises here I was the bubblehead trying to argue home prices were unsustainable and that the prosperity we had 2004-2006 was largely illusional and created with borrowed money and the unproductive economic activity surrounding the housing sector.

That thesis proved correct and we are in retrenching mode now, but I also think we can bounce back from crashes. This is an immensely productive nation and I do think we have the capacity to farm, mine, manufacture, and produce sufficient wealth to pay our way in the world, if & when we focus on real economic activity and not the fake economies of real estate speculation and financial services.

I sense a strong anti-"Big Government" streak in Schiff and his ideological compadres in the general teabagging movement, a basic conservative opposition to government increasing its encroachments into the private sphere, particularly mandated health insurance to go along with SS and Medicare. The Right is deathly afraid that Democrats will monkey with the current health system to their detriment, for good reason, since equal access to a quality health system is one of the main economic injustices in the status quo.
posted by mrt at 10:12 AM on April 16, 2009

Anyone got any names?

Karl Denninger is right up your alley.

While he is also a prominent member of the teabagger movement -- Accuracy in Media gave him a blogger award this year -- I've been following his daily market commentary for months now (paid the annual $150 for access to his daily commentary videos) -- and he IMO has assembled a pretty reliable worldview of what's going on. He knows where to look in the financials to spot stress points and coming trends. He is not overly bearish and is willing to trade the tape he is given, unlike Schiff apparently. He plays mainly in the S&P e-mini futures and I suspect he pulled in at least a 1000% gain last year, likely more. There was a lot of money to be made for people able to see where things were going, had the capital to play, and disciplined trading strategies to bank the profit when it came.
posted by mrt at 10:19 AM on April 16, 2009

What if Schiff's point about hyperinflation eventually comes true (rather than further banking collapse and deflation) especially with all the money being put into the economy by the US government to prop up these banks? What the heck do you do with your money to protect against high inflation? Or is Mish right and the premise wrong?
posted by eye of newt at 10:30 AM on April 16, 2009

Mish would probably argue that we already had our period of inflation (think housing prices , college tuition and oil prices over the past several years) and that the current deflation is simply bringing the system back into equilibrium.

There is an alternative argument, the so called "Ka-Poom" theory of Eric Janszen.

I would love to put Schiff, Mish and Janszen in a room and let them duke it out over this issue.
posted by FuturisticDragon at 10:37 AM on April 16, 2009

What the heck do you do with your money to protect against high inflation?

IMHO, there can be no aggregate inflation without wage inflation. Do employees have the bargaining power to refuse work until employers pay more? As long as that answer is no then inflation is not in the cards, rather a rebalancing of costs will occur, largely in the over-inflated real estate market, where prices rose all beyond the inherent ability of borrowers to pay. The more stressed the average american gets, the lower land prices will go.

There will very likely be inflation in areas where producers enjoy pricing power; this might be energy production and healthcare delivery.

This was the exact dynamic seen in Japan, where prices declined for 15 straight years (and land prices in the Tokyo area are still amazingly expensive, literally a patch of dirt -- too small for a parking space -- in a very nice area is on the market for $500K.).

I was in Safeway this weekend and it sure seemed to me that prices are back to 2005 levels. There is no doubt immense overcapacity for all the junk foods sold there so the producers have the option of not producing their goods or cutting their prices to find sales.
posted by mrt at 10:57 AM on April 16, 2009

Here's an excellent talk by Philip Tetlock which explains the points explosion, milkrate, and proj were making.

I've seen about a half a dozen posts on mefi over the past year with titles like "The guy who called it". But there's an asymmetry to going back in time, discovering these guys post event, and then declaring them prognosticators. At the time you don't have any idea that the information being presented to you is relevant. It only becomes relevant after the event occurs. The economic problems we currently see are the only reason Schiff's comments are relevant, if the economic meltdown hadn't occurred would this be a FFP on metafilter?

Once you realize that this asymmetry exists, prediction becomes a falacy. You can then stop focusing on people like Schiff and things like prediction, and start focusing on the core problem. Namely, in an unpredictable world how do I minimize the impact of negative events you can't predict? Once you're able to start asking those questions, start reading Nicholas Nassim Taleb and see if what he's saying makes any sense. Then go through his notes and references and read those guys.
posted by herda05 at 1:09 PM on April 16, 2009 [2 favorites]

Once you realize that this asymmetry exists, prediction becomes a falacy

I was on the fence about home value erosion until I learned about how Casey Serin scammed $2.1M in late 2006. Then the macro picture became clear to me and I knew home values were built on fraud and this fraud was going to unwind to a great extent.

Further data thanks to Calculated Risk put numbers on the amount of home equity drawdowns 2004-2006, hundreds of billions of dollars a year of consumption being funded by debt.

It didn't take a crazy person in 2005 to see this was going to end badly, quite the opposite in fact.
posted by mrt at 2:30 PM on April 16, 2009

Karl Denninger is right up your alley.

Weird. I remember Karl from Usenet, he was deeply involved in online censorship & early anti-spam issues. Hang around long enough & everybody gets to reinvent themselves.
posted by scalefree at 3:21 PM on April 16, 2009

Stopped clocks. Twice a day.
posted by five fresh fish at 5:17 PM on April 16, 2009