Peter Schiff’s Boldest Call Ever

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 Alexa.com, 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.

Jim Rogers: Running to the Dollar, “It’s the Wrong Thing to Do”

Speaking with Russia Today’s Lauren Lyster, Tuesday, investor and financial author Jim Rogers of Rogers Holdings said the world is awash with “serious, serious problems facing it” and that U.S. policymakers have only exacerbated the problems of sovereign debt.

In Washington, while the 2012 election cycle begins in earnest, politicians seek to appease angry constituents by jumping on the opportunity to scapegoat China as the source of a horrendous jobs outlook in the U.S.

“We’re already in a trade war,” U.S. Senator Charles E. Schumer (D) of New York told NY Times. “We can’t afford to just do nothing. This is a message to China that the jig is finally up.”

The latest bill that’s slated to clear the Senate this week, which calls for punishing China as a currency manipulator, would be a serious matter if not taken within the context of an election year, according to Rogers.

“It’s [Senate bill] a media charade,” he said.  “. . . if you read the bill, you see that there’s an out.  They leave it up to the Department of the Treasury to determine what to do.”

But Rogers turned serious at the thought of the possibilities of election year posturing escalating to bona fide sanctions on Chinese goods to the U.S.  He said history shows that trade wars can easily lead to a slippery slope down to shooting wars.

“But Lauren,” Rogers continued “this could be terribly, terribly dangerous if we turn into a trade war.”

“If America does put on tariffs on the Chinese, the Chinese have various weapons at their disposal; they can stop buying American government bonds; they can sell American government bonds.”

“If they did that interest rates in America would go through the roof.   The value of the U.S. dollar would go down a lot, perhaps a lot, at least a little.”

A trade war is not good for the U.S. and not good for China, he said, and could back leaders on both sides into a corner if the economics in the U.S. don’t improve.

“But what happens, Laura, whenever people get slapped in the face, they always think they have to slap back,” said Rogers.

On the dollar.  “The standard reaction is in times of confusion is to run to the U.S. dollar.  It’s the wrong thing to do in my view, but I know they’re all going to do it, so I’ve done it [before the run].”

“Many people, wrongly in my view, wrongly, believe the U.S. dollar as a safe haven.  I own it.  I don’t own it as a safe haven.  I own it because I just assume everyone else is going to run there.  It could go much higher for a while.”

But in the end, Rogers sees the U.S. in worse shape than Europe’s economic problems, though right now the focus remains on Europe.

“The U.S. as a whole is the largest debtor nation in history,” he said.  “And we have a lot of independent states, Illinois, California, New York, to name a few, which are in very dire straits, like Greece, Portugal and Ireland.  So all of us in the West have serious problems.”

Richard Russell says Dollar must be backed by $5,000 Gold

The legendary financial newsletter writer Richard Russell stated in his Wednesday edition that the U.S. will eventually have to back the dollar by gold to halt its decline.

As the dollar has climbed against the euro in the wake of renewed concerns in Greece, and to a lesser extent, concerns in Portugal, both the euro and dollar have dropped in terms of gold.

The dollar: what was once the ultimate safe haven has taken a backseat to the truly ultimate safe haven asset, gold.  “Is this a preview of the future?” Russell asks.

“To compete, I believe that somewhere head the U.S. will have to back its current irredeemable fiat currency with gold” he stated.  “In order to do that, the U.S. will have to boost the price of its huge gold hoard to a level where the dollar may be backed anywhere from 50% to 100% with gold. That could mean unilaterally raising the price of gold to maybe $5000 and ounce or more. ..I  thought that gold, closing higher, in the face of the stronger dollar, was significant.”

As most of the components of the the Conference Board’s Leading Economic Indicators (LEI) roll over, portending a downturn in the U.S. economy in the next three to six months, the Fed’s decision to halt its purchases of newly minted Treasuries in June comes at a time when the Fed’s liquidity may be needed most (many theorize).

Russell believes the numerous pundits of the Fed’s quantitative easing policies (including two Fed governors) need quelling before announcing further money printing.  And a way to do that is to allow a significant market decline, or crash, as some predict, leaving little hope for employment, retail sales, production and housing gains.

“With inflation heating up as far as American consumers are concerned, the pressure is on the Bernanke Fed to ‘cool it’ on its quantitative easing,” Russell noted.  “I think the stock market (now slumping) and the dollar (now rising) are reflecting this. Thus the Fed might be setting off a temporary slump in the summer economy.”

“If so, Bernanke could announce, ‘See, if we ease up, the economy eases up as well.’ All of which strengthens the case for QE3. Of course, President Obama would love a late pick-up in the U.S. economy as the nation moves into the 2012 election period.”

So what’s the game plan for investors?  Russell suggests holding gold during the roller-coaster ride and to be happy you did following an anticipated Fed announcement of some form of a continuation of its quantitative easing some time in the second half of 2011.

As Bill Gross stated in March, without the Fed buying newly issued Treasuries, who will buy them?  And the Fed’s plan to re-liquify the banks and to debase the dollar won’t be feasible if the 10-year Treasury yields north of 5%.

Therefore, Russell stated, “Prepare for the summer doldrums (maybe even a slump), and then be ready for an economic revival in the fall and into 2012.  Also get ready for all-out inflation as the Fed steps on the QE3 accelerator in late 2011.”

He added, “I think the gold action goes along with the above scenario. Why take profits or sell your gold, when the real move in gold is slated for 2012 and beyond?”

The most ominous point Russell made was regarding gold’s record advance against sterling and the euro this past week.  Investors fleeing currencies have bought dollars and gold during the recent unwind out of the anything-but-dollars trade, while gold advanced against all major currencies.  If this is, indeed, a preview of things to come, more investors could wake up in horror with the realization that there is no place to hide from sovereign debt crises other than gold.

And Russell’s thoughts on stocks?  That asset class doesn’t look appealing either based on his technical work.  As the Fed, presumably, ends QE2, it’s also assumed that the Fed’s POMO operations to boost stock prices will also go.  There’s nothing like getting the attention of the Fed’s nay-sayers with a quick drop in the Dow to turn some hearts around.

“Warning — I have applied the ‘fan-line principle’ to the NYSE Composite Index. Here we see three consecutive trendlines violated,” Russel wrote.  “According to the fan-line principle, three trendlines are drawn from the same base. When the third fan-line is violated the trend has reversed and turned down. Based on this chart (above), I would not be holding stocks at this point.”

$100 Silver in 2011? Jim Rogers Weighs In

Speaking on Financial Survival Radio, commodities investor, author of several financial books and chairman of Rogers Holdings, Jim Rogers, told FSR host, Jay Carter, he expects the silver price to reach the triple-digit price level, but is increasingly “worried” that a $100 silver price tag by year end would qualify the move in his mind as “parabolic.”

“I certainly hope it [$100 price in 2011] doesn’t happen because I own silver and want to buy more,” Rogers said.

Rogers, the 68-year-old Quantum Fund co-founder (with George Soros), doesn’t believe the 153% move higher in the silver price from the July 28 low of $17.35 should be characterized as a “parabolic” one.  “No, not yet,” Rogers maintained.

However, if the silver price continues to soar along its recent two- to three-week trajectory and pass through the $100+ level, Rogers would most likely be a seller—but qualified his comment with an important condition: if a parabolic move in silver is not accompanied with a collapsing U.S. dollar against other major reserve currencies, he would consider offloading his silver holdings. If the dollar collapses during a parabolic move in the silver price, he intends to remain hedged against a dollar devaluation.

“My hope is, silver and gold and all commodities will continue to go up in an orderly way for another ten years or so, and eventually the prices will be very, very high,” he said.  “Yes, we’ll have triple-digit silver, but if it happens this year, Jay, I would probably start to think about selling.”

Rogers added, “Now, maybe the U.S. dollar is going to become confetti in 2011, and if that’s the case and silver goes to $150, then obviously I wouldn’t sell my silver.  It would be the U.S. dollar which is collapsing. But if silver goes up the way you’re talking about without currency collapse, I would be very worried.”

To understand better Rogers’ opinion about the possibility of $100 silver in 2011, his earlier comments about his outlook for the U.S. dollar for 2011 may help add context to his expectations for the silver price in 2011.

In a Mar. 17th interview on Yahoo Finance’s new daily trading and investing program Breakout, Rogers had said he was considering buying the U.S. dollar, but was also fearful that the tipping point for the U.S. dollar could conceivably be only weeks away.  He had said he was going to monitor the movements of the dollar very closely.

“Somewhere along the line we’re going to have a tipping point for the dollar, then, it’s all over,” he had said in the Breakout interview. “I thought it would happen in a few years; maybe it’s going to happen in a few weeks.”

Rogers had stated, “If it [dollar] keeps going down, I’m going to have to dump the rest of my dollars, and then it’s all over for the dollar.

“If it [the U.S. dollar] goes down 3% or 4% from here, I would have to sell and get out and hope I’m still solvent.  Then it’s going to, you know, multi-decade new lows.”

On the day of the Breakout interview of Mar. 17, the USDX closed at 76.04.

As of 08:45 EST on April 20, the USDX stands at 74.36, down 2.2% from the March 17 close and trades only 14 cents from its cycle low of 74.227 set on November 25, 2009.