Monday, November 14, 2011

Peter Schiff's Boldest Call Ever - Beacon Equity Research

Sentiment for a euro swan dive must stand at a record; it must dwarf any negative reading the U.S. dollar ever had. No fresh data are available on the sentiment for the USD:euro cross, but the chatter everywhere about the imminent demise of the EU is truly deafening.

The Mr. Magoo of Wall Street, Euro Pacific Capital’s Peter Schiff appears to have not noticed.  As the crowd runs from talking nice things about the euro, he just muddles along with his prediction of a renewed U.S. dollar weakness against the euro—and sterling, yen, Swiss franc and the other small-weighted currencies making up the UDX. Sign-up for my 100% FREE Alerts!

“Our short-term target for the euro, maybe by year end, will be up near 1.48,” Schiff told KWN on Oct. 25.  “I think that’s going to catch a lot of people off guard who were writing the obituaries for the euro, to see the euro approaching the 1.50 level.  The dollar index should be headed back down to the 72 level.”

Schiff appears to be completely alone with that call.  Even Jim Rogers and Marc Faber cannot be quoted about the overly negative sentiment in the euro.

That should trouble contrarian investors; it reminds us of similar negatve sentiment of the U.S. dollar prior to Lehman’s death.  At that time, the USDX hovered at an all-time low of 72 in March 2008, scaring the bejesus out of the financial media of an imminent collapse of the dollar.

And like magic, the USDX soared approximately 24 percent to 89 by March 2009—a year latter, amid the Lehman Armageddon and talk of ‘deflation’ of 2009.  Jim Rogers and Marc Faber were among the handful of market savvy observers who warned of too many traders on one side of the boat before Lehman.  Not so today.

So, fast forward to today; it’s the euro’s turn.  And like clockwork, the media’s favorite apologist for the dollar among the gold community, Dennis Gartman, told Bloomberg News on Nov. 4, “The driving force in the gold market is the problems in the euro,” Gartman said in a telephone interview. “Central banks in Europe and individuals will want to lower their euro holdings and buy gold since no one knows what is happening to the euro. The euro is heading towards parity once again.”

The drama in Europe has been prime time media coverage since March 2010 with the trouble in Greece.  If Hugh Hendry was around, he’d laugh at Gartman for his much-too-obvious recommendation.

Side note: Why Gartman talks about gold in euro terms when nearly three of four visitors to his Web site are from either Columbia or Canada is as strange as his persona.  The chart from, below, indicates that most of the traffic to the Gartman Letter Web site originates from the country of Columbia.

Maybe the underground in South America needs to know which currency to counterfeit (tin-foil hat translation: for the ‘good guys’ to spend?).  Shouldn’t Gartman forecast gold in terms of the Columbia pesos, then?

Contrast Gartman’s latest assessment to Schiff’s call.  Schiff added to his Oct. 25 interview with KWN that the gold price could possibly trading at $2,000 by year end.  In U.S. dollars!

“I think we will come pretty close to hitting $2,000 on gold this year,” Schiff predicted.  “It would be hard for gold not to be above $2,000 in 2012.  I really think it would be unlikely that we wouldn’t see prices north of $2,000 next year.”

He continued, “The dollar is headed right back to the lows and I think it will take out the lows.  If it does break to new lows, that’s when we might see another crisis because then we might start to see the world questioning the viability of the U.S. economy….”

From the chart, above, the USDX has traded below its 20-month moving average (a metric which famed author of The Dow Theory Letters
, Richard Russell, likes to use as a guide for major turns) since November of 2010.  And with so much hype for a euro collapse in the face of the USDX trading below its 20-month moving average may not tell us where the euro is going from here, but this phenomenon should not be taken lightly, nor should Peter Schiff’s call for a lower dollar and higher gold prices—in U.S. dollars! and euros . . . and Columbian pesos.