Prognosticators: Right but Wrong

Peter Schiff talked about the subprime crisis before it happened, so unlike others, he actually fingered the prime mover. But he also predicted that this would imply a weaker dollar and the US equity market would underperform. This latter implication seems totally reasonable, and highlights how tricky it is to predict the future, because even if you have a crystal ball and see one part of the economy doing something, the complexity of the economy makes it not obvious as to how best to play that hand. From the WSJ:

Peter Schiff predicted a collapse of the U.S. financial system. The bust-up he didn't foresee was the one that made mincemeat of investors who took his advice in 2008.

Mr. Schiff's Darien, Conn., broker-dealer firm, Euro Pacific Capital Inc., advised its clients to bet that the dollar would weaken significantly and that foreign stocks would outpace their U.S. peers. Instead, the dollar advanced against most currencies, magnifying the losses from foreign stocks Mr. Schiff steered his investors into.

Investors open accounts at Euro Pacific to take advantage of Mr. Schiff's investment advice, which generally involves shunning investments in dollars. Individual returns can vary. Some investors may like gold-mining stocks, while others prefer energy-focused stocks.

Most had one thing in common last year: heavy losses. A number of investors said their Euro Pacific portfolios lost 50% or more in 2008, worse than the 38% drop in the Standard & Poor's 500-stock index last year. People familiar with the firm say that hardly any securities recommended by Euro Pacific brokers gained ground in 2008.