Peter David Schiff - UC Berkeley
Executive Global takes an exclusive look at some of the most successful and competent executives in numerous industries around the world. From banking and finance, private aviation, energy, technology, lifestyle, corporate services, and wealth management, to legal advocacy, education and academia, we take a look at thought leaders and senior level decision makers in their respective industres, in addition to their tips for success in business.
Chief Executive Officer - Euro Pacific Bank Ltd.
In our special interview on Wealth Planning Strategies with PETER SCHIFF, Founder & Chairman at Euro Pacific Bank Ltd, Executive Global explores the integral relationship between gold, the U.S. dollar, and global economic markets as we take a special look at one of America’s leading investment companies facilitating the preservation of wealth for both retail and institutional investors. We examine the critical measures that should be taken to mitigate against any potential risks posed by global sovereign debt, inflation, and Central Bank policy, as we sit down with one of America’s most renowned financial analysts aiding diversification into hard assets.
Peter Schiff CV
1963, United States
University of California, Berkeley
1989 - Stockbroker at Shearson Lehman Brothers brokerage
2005 - CEO and Chief Global Strategist of Euro Pacific Capital Inc., (1996) founder and Chairman of Euro Pacific Bank Ltd.
2007 - Author of Crash Proof 2.0, appearing on New York Times and Wall Street Journal Bestseller lists.
2008 - Economic adviser to Ron Paul's 2008 Presidential Campaign
2010 - Former Republican US Senatorial Electorial Candidate in Connecticut
2010 - Winner of GetAbstract International Book Award for How An Economy Grows And Why It Crashes, featuring again on the New York Times Bestseller list.
2012 - Author of The Real Crash: America's Coming Bankrupcy
>Introduced the first 100% full reserve precious metals backed accounts integrated with the global debit card system
>CEO and Founder of over five successful companies with offices around the world
>Author of six New York Times and Wall Street Journal bestselling books
>Frequent commentator on CNBC, Boom Bust, and Fox Business
Wealth Preservation Strategies
EG: Can investors currently disregard short term gains in order to achieve long term returns, even though it may appear as though they are failing at the moment?
Peter Schiff: Whenever markets are overvalued, fraught with speculation, and defined by momentum and unfounded optimism, disregarding short-term paper gains is imperative to achieving long-term real returns. Such is the nature of value investing, and of being a contrarian, which over the long run, will produce the most consistent investment success.
EG: If the U.S. dollar does crash, is there still a possibility for the U.S. stock market to go up?
PS: Sure if the dollar loses enough value, the dollar price of U.S. stocks will rise. But those gains will be illusory, as they will only exist relative to a dollar that has lost even more value. If U.S.
stocks rise in terms of dollars, but fall in terms of other currencies or gold, those gains may be meaningless. What is important is the purchasing power represented by stock prices, future earnings, and dividends, not their dollar price. In a dollar crash the price of almost everything goes up, including stocks. But higher stock prices would merely reflect the loss of value of the dollar, not an actual rise in value of stocks. However if the Fed reacts to a dollar crash with aggressive rate hikes, then its possible that U.S. stocks could lose even more value than U.S. dollars, in which case a dollar crash could also lead to a stock market crash, even as stocks are priced in lower valued dollars.
EG: Regarding the crash of the dollar, what can investors do to protect themselves from the repercussions of this event?
PS: MInvestors can protect themselves from a dollar crash by not owning dollars, or financial assets dominated in dollars, particularly bonds or insurance policies with U.S. dollar cash values. They do that by owning gold, and investing in assets denominated in sounder currencies, located in less fiscally irresponsible nations with better underlying economic fundamentals and asset valuations.
EG: Besides gold, when it comes to providing stability where the USD fails, are there
presently other currencies that are a good investment against the dollar to
preserve one’s wealth?
PS: While all fiat currencies will likely lose value relative to gold, most will gain value relative to the dollar. The purpose of gold is to protect your purchasing power. Owning gold is not about gaining wealth, but about preserving the wealth you have. If you want to grow wealth you have to invest. But with a coming dollar collapse and over-priced U.S. financial assets, most dollar-based investments will destroy wealth. However there are opportunities to grow wealth in real terms, provided you invest in the right stocks, at the right prices, in the right countries, with earning in the right currencies, which is what I am trying to help my clients do at Euro Pacific Capital.
New Technologies, Global Trends
EG: Considering the advent of new technologies and the shift in global economic trends, what are some of the most profitable ventures of investment at the moment?
PS: I believe that understanding how global wealth and consumption patterns will shift as a result of a major decline in the value of the U.S. dollar, and how the economic position of the United States will diminish relative to the rest of the world, are key to long-term investment success. The dollar centric global economy will be coming to an end. That means the world will no longer be perpetually financing U.S. budget and trade deficits. As a result consumption in America will fall as it rises in other nations. As less money is used to buy U.S. treasuries, more will be freed up to buy resources and consumer goods. Instead of loaning money to Americans, foreigners will use their savings to finance local investment instead. This will result in large profits for those investors that position themselves to ride this wave. Investors who don’t see it coming will be crush beneath it instead.
EG: Seeing as the move towards alternatives such as precious metals and cryptocurrencies are likely in part a response to the eroding confidence in the USD, what could have been done differently to preserve the dollar as a stable world reserve currency?
PS: Preserving the dollar’s status as the world’s reserve currency requires a level of fiscal responsibility that no elected leader will deal advocate, much less adopt. It would require significant cuts to government spending, particularly entitlements, and a hands off approach to the next recession, which would result in lots of investors losing money, as assets prices collapse and banks fail. Even bank depositors and holders of U.S. treasuries would have to be forced to take haircuts to preserve the dollar’s value. But since I believe the politics of doing the right thing are so bad, the likelihood of it happening are very low. Instead the value of the dollar will be sacrificed on the altar of political expediency, and its role as the world’s reserve currency will be lost. Also lost will be America’s unique ability to live beyond its means. The mighty American consumer will finally be dethroned, as his temporary reign was a function of his ability to borrow rather than produce.
EG: What are some of the biggest opportunities that will be enabled by the revaluation of gold?
PS: The most obvious is the opportunity to profit from its rise. This includes not only gains from the metal itself, but also the much larger gains from companies that mine it. Given the widespread belief that inflation will never again rear its ugly head, that stock markets will continue to rise with minimal volatility, and confidence that central bankers can solve any problem by manipulating interest rates or printing money, few investors have seen the need to hedge by owning mining stocks. When these myths are shattered, gold prices will rise sharply, and gold mining stocks, currently at near-record low valuations, in relation to both the overall stock market and the price of gold, will skyrocket.
EG: Relating to the last question, what could be expected from competing markets, whether it be giants such as China and Russia, or emerging economies across the world?
PS: I believe China will emerge as the dominant economy in the 21st century, most likely starting in its 3rd decade. The value of the Chinese yuan will surge, enabling a massive increase in Chinese GDP, real incomes, and domestic consumption. The same will also be true on smaller scales with respect to Russia and other emerging economies. In fact, the emerging economies will finally have emerged, and the U.S. economy will submerge. Wealth will shift form the world’s biggest debtor and consumers of what others produce, to the world’s biggest savers and producers. Profiting from this global transformation and realignment of relative living standards is the driving force behind the investment strategies we employ at Euro Pacific Capital.
EG: Considering the influence of fiat currencies in the world, if gold were to prevail over the global economy, how would it affect the economy in the US?
PS: In the long run all economies would benefit by retuning to a gold standard. Sound money better enables economic growth by limiting the power of government to meddle in the economy. Gold is a far better store of value than any fiat currency, and is far more conducive to the type of long-term savings and capital investment necessary for real economic growth and rising living standards. Gold forces governments to live within their means. Since spending could no longer be easily funded with debt and money printing, the natural aversion to higher taxes would result in much smaller governments than exist today. So not only would we end the boom and bust cycles driven by central bank created asset bubbles, but reduced government spending would free up more scarce resources to be invested more productively in the private sector.
In the short-run, the U.S. has the most to lose from the return to a gold standard, as it currently gains the most from the current dollar based system. With the dollar as the reserve currency, the U.S. government can sustain massive budget deficits, the U.S. can run persistent and equally massive trade deficits, and Americans can enjoy artificially enhanced living standards as they consume what the rest of the world produces, and “borrow” what the rest of the world saves. For the rest of the world, the opposite will be true. Liberated from the burden of supporting the United States, both consumption and livings standards outside the U.S. will rise, as will the value of their assets relative to assets in the U.S.
EG: Cryptocurrencies are without a doubt a major buzz at the moment, but are they really an avenue of investment or more of a hype-fuelled gamble?
PS: I think crypto currencies, or more accurately crypto “assets”, are pure speculation. I think they will never actually deliver on their promise to function as mediums of exchange and long-term stores of value, which is the very basis of the speculation, and that the current mania is a classic bubble, perhaps the biggest the world has ever experienced. I do not know how much larger the bubble will grow before it pops. It’s possible that we have already seen its peak, and that the air is now coming out. As is the case with all bubbles, in the end the losses will be widespread, while the gains will be concentrated among the few who got in early and got out. Most of the losses will be on paper, as unrealised profits vanish, but like all pyramid schemes, the gains enjoyed by some will equal the losses suffered by others, less all transaction costs incurred by both.
EG: Tell us about the full-reserve banking offering provided by Euro Pacific Bank?
PS: While most banks loan out their depositor’s balances, exposing them to the risk of loss due to failure and bail-in, Euro Pacific Bank is a 100% reserved bank. That means we do not loan out any depositor’s funds, and derive all of our income by charging fees for services. But since our overhead is so low, the fees we charge are actually lower than the fees most traditional banks charge. So you pay less for banking services, while also exposing your deposits to less risk. Traditionally depositors have been compensated for risk by earning interest on their deposits. But in today’s low interest rate environment, this small benefit is hardly worth the enlarged risk. To the extent that Euro Pacific bank customers want to earn returns on their deposits, they have access to invest those deposits themselves through our brokerage subsidiary, without also exposing other bank depositors to those risks.