Don Luskin Attacks Peter Schiff

While I like to read Don Luskin’s blog once in a while (and he did recommend me to Forbes when they wanted a column on Paul Krugman’s winning of the Nobel Prize in Economics, for which I am grateful), I think this commentary on Peter Schiff is wrongheaded.

First, it is true that in the short run, some of Schiff’s clients have lost money (as everyone else’s clients are doing), but it is because of what Peter has said is a short-term rise in the dollar-denominated assets, but only short-term.

Second, there is a sleight-of-hand analysis going on. Here is the logic behind it: (A) Peter Schiff has made some dire predictions about the fundamentals of the economy and the government’s actions, (B) gold and commodities have lost value since last summer, (C) therefore, Schiff is wrong about the economy.This is a false syllogism. Peter has been right for the past two years, and his predictions over time have been on the money. The “optimists” like Luskin and his friend Lawrence Kudlow might not like Schiff’s dire predictions, but nonetheless Peter is going with the fundamentals, and they are out of balance right now.

The real test of a financial analyst’s competence is seen over the long haul, not just in a few months. Peter has said so time and again regarding short-term losses in the investments that essentially are a bet against the dollar. But when the Fed has created record amounts of bank reserves and when the Fed chairman has said he would be willing (figuratively) to “throw money out of a helicopter” to “stimulate” the economy, then we know that inflation is on the horizon.

Peter has advised his clients to hedge against what he sees (logically) as a coming inflation. The fundamentals as they exist certainly seem to be in his favor, and all the optimism of the other pundits cannot change that situation.

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7:48 am on January 29, 2009