Prime Time for the u2018Crank' Alternative

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In the wake of the worst financial crisis in recent memory, is there an opportunity for unconventional schools of thought to force their way into the investing consciousness?

The investment industry is spotted with "cranks" – fund managers, brokers and advisers who distrust the whole structure of the economy and markets and believe that returns can only be made by exploiting the inherent flaws. (They are distinct from the large number of fund managers who adopt "contrarian" market views.)

Some of the "cranks" are given labels such as "perma bear" or "doctor doom" and include investors such as Marc Faber, the late Tony Dye and Nouriel Roubini. Others are simply ignored. Typically, they manage or advise modest amounts of assets and command a niche, but loyal, following. But in the US, in particular, there are some signs that the investment orthodoxy is starting to come under pressure from these outsiders following recent sharp losses in portfolios.

Peter Schiff, of Connecticut-based Euro Pacific Capital, an investment house credited with having predicted the meltdown of the housing and financial markets, is one of the voices bringing pressure to bear. Mr Schiff has become something of a celebrity in the US in recent months in the wake of a number of interviews he gave to CNBC and Fox News in 2006-7.

His view then that the US housing market was about to collapse was frequently met with on-air guffaws by other interviewees.

He was subsequently proved correct and when a compilation of the interviews was posted on YouTube this year it received more than 1.5m hits from an audience that revelled in the tables being turned on Mr Schiff’s tormentors.

Yet, despite the accuracy of his forecasts, Mr Schiff has received little acclaim in the mainstream media (YouTube excepted).

"No one ever admits they are wrong," he says. Worse, he was practically shunned afterwards. "I was invited on Fox and CNBC several times a week back then. Now it is once a month at most."

One reason is that his views continue to be unpalatable to those who yearn for a return to soaring house prices and stock markets. He believes US government and Federal Reserve actions since 2000 have set the US on a path to eventual economic ruin. The government, he says, will never be able to manage its debt, and will have to inflate its way out of the problem. "This will be disastrous for the dollar," says Mr Schiff. "I think in terms of per capita GDP, the US is eventually going to fall out of the top 20, behind even some of the poorer countries in Europe."

He advises his clients to avoid any dollar-denominated assets and to invest in overseas stocks and bonds, particularly in Asia and especially in companies that do not have significant exposure to the US. Commodities and precious metals are also recommended.

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