Peter Schiff puts his money where his mouth is: Euro Pacific Canada


“I was right.”

Peter Schiff is President and Chief Global Strategist of Euro Pacific Capital, a full service, registered broker-dealer, which specializes in foreign securities. The firm was founded in 1980, and has offices in New York City, Los Angeles, Westport, Conn., Newport Beach, Calif., Scottsdale, Ariz., and Palm Beach, Fla.

Schiff is recognized for his knowledge of the foreign securities markets as well as the currency and gold markets. He has gathered international attention for accurately predicting the collapse of the housing and credit markets, the subprime crisis, and the increasing price of gold relative to the United States

Schiff delivers lectures at major economic and investment conferences around the world. He is quoted often in the print media, including The Wall Street Journal, Los Angeles Times, Barron’s, BusinessWeek, Time and Fortune. His broadcast credits include regular guest appearances on CNBC, Fox Business, CNN, MSNBC, and Fox News Channel, as well as hosting a weekly radio show. As an author, he has written four bestselling books, including his latest, Crash Proof 2.0: How to Profit from the Economic Collapse and How an Economy Grows and Why It Crashes.

In January, Schiff came to Toronto for the launch of his first Canadian venture, Euro Pacific Canada, which seeks to bring his proven track record of big picture economic forecasts to Canadian investors. Euro Pacific Canada is a full service brokerage headquartered in Toronto, specializing in foreign markets and securities. It utilizes the investment philosophy of Schiff, focusing on protecting and growing assets by investing in global stock markets, commodities, energy and precious metals. Part of the firm’s investment strategy will be domestic stocks, as Schiff is a fan of Canadian commodities and resourced-based markets.

Euro Pacific Canada gives investors broad access to global stock markets in order to best prepare for what Schiff sees as a bigger economic crisis to come. Speaking to a crowd of over 400 at the Toronto Stock Exchange, Schiff discussed his thoughts on the financial crisis of 2008, how effectively Canada is tackling the issues and how Euro Pacific Canada can help protect Canadian investors from what he fears is a coming crisis.

“We haven’t solved the financial crisis of 2008,” says Schiff. “We have continued to travel in the same direction and continued to take on more debt. The crisis was postponed for a while by nationalizing the debt, but the debt is still there.” Schiff describes this debt as a plague and urges investors to confront the fact that rates will rise in North America like they have in Europe and to understand that this will have a disastrous effect on the economy. “This is not a sequence of random events—rather, a consequence of the monetary and fiscal policies that we are pursuing. I want to make sure people are prepared for it financially, that they see it coming, and have the right mix of assets in their portfolios so they aren’t blindsided.”

Euro Pacific Canada

The opening of Euro Pacific Canada is a nod to Schiff’s faith in Canada’s resource-based economy. We asked how the Canadian economy fits into his macroeconomic forecast, and Schiff explains his belief that Canada is in a much better fiscal position than the U.S. and that the proximity between the two nations is “both a blessing and a curse for Canada.”

“Canada is part of my allocation,” he continues. “We have quite a few Canadian companies that we own mainly in the resource sector: mining, agriculture and energy. As the major supplier of raw materials, Canada is there.” For its U.S. clients, Euro Pacific Capital has historically overweighed Canada dramatically relative to its percentage of world investments. “Euro Pacific Canada will have a much bigger domestic component than my company in the U.S., where we have a very small domestic investment.”

When asked about the Bank of Canada’s recent decision to leave interest rates unchanged, Schiff responds, “They never should have lowered them as much as they did. They need to raise them. The rates are still too low. The market needs to determine what they should be.” A vehement critic of Ben Bernanke, Schiff has, unsurprisingly, strong opinions on Mark Carney, the Governor of the Bank of Canada. “I think that they are making mistakes. Rates are too low in Canada and the central bank is erring. The Central Bank might say that rates aren’t too low if you judge them in terms of the U.S. dollar. But you do have a weakening Canadian dollar if you measure it in gold, oil, soybeans, wheat, sugar, copper or any one of a number of different things.”

So it is clear that that Schiff believes there is an inflation problem that is building in Canada. “It is not as severe as it is [in the U.S.] but it’s there and it’s because Canada’s central bank is too easy. But just because other central banks are too easy…it’s like when your mother used to say, if all your friends jump off a bridge, would you too?” It’s because we are making a mistake, Canada shouldn’t make the same mistake.”

We asked Schiff why he thinks he is portrayed at times as a fringe analyst, and why so many mainstream economists are reluctant to share his beliefs despite his track record. He sees an adherence to Keynesian economics as a fundamental fallacy, comparing it to “witchcraft”.

“Mainstream economists are wrong, but they don’t know they are wrong—but they also prescribe to Keynes, and Keynes was wrong,” says Schiff. “So if you are a Keynesian economist, you aren’t really an economist. It’s like if you are a witch doctor, you’re really not a doctor. So I’m practising medicine, they’re all practising witchcraft. That’s why they think I’m in the fringe.”

Occupying the space that was given to the housing bubble a few years ago, Schiff today speaks at length about the U.S. Federal Reserves’ decision to engage in so-called “quantitative easing”. Much has been made in the media of the controversial choice to ostensibly print more money. “It’s not controversial with me, it’s just a mistake,” says Schiff. “Quantitative easing, or QE, is a way to describe monetizing debt. It’s different words used to make it sound better, to dress it up. QE is what Zimbabwe does; it’s printing money and buying government bonds. It’s the worst thing you can do. We’re at the end of our rope. It’s going to continue, they are going to do more of it. QE2 is not the end. They are going to launch QE3, QE4, it’s going to keep on coming until the economy sinks. We shouldn’t be comparing the economy to the Queen Elizabeth; we should be comparing it to the Titanic.”

Peter Schiff was right

For his part in the discourse of the financial crises, Schiff has become something of a cult icon. Almost 2 million people have viewed the YouTube video called “Peter Schiff Was Right 2006-2007”, turning Schiff into a celebrity voice of reason. The video traces a series of Schiff’s prescient TV interviews, made well before the subprime crises began, where he warns viewers of the impending collapse in U.S. real estate and the resulting recession it would cause. What makes the video most ironic is that it is interposed with many “mainstream” economists laughing at his views on-air.

Schiff downplays the popularity of the video, countering that he makes many appearance and videos and they don’t all go viral. “[It was] that one video that made the rounds. I didn’t produce that video so I didn’t put it out there on YouTube, but yes, for a week or two it really went around.” [Ed note: Schiff underestimates the video’s notoriety, which garners daily views, two years after it first appeared]. “I think it spread the word to a lot of people who may not have known who I was….people saw it and did some more research and so it helped me.”

Schiff’s hopes for Euro Pacific Canada are to offer global diversification to clients who are looking for a firm that understands the macro picture. “When you understand [the macro picture] you can better navigate the investment world. We understand the rules, while most people are playing blind. I think a lot of people know my name…enough to build a viable business. I think it will also be good for us. We do a lot of banking deals in my country and one of the attractions is the retail component which I think will help Canadian companies that want to raise funding here in Canada. The fact that we will have a big retail component where you can have solid, long-term investors is something that the issuers are going to find attractive.”

As for Schiff’s famous prescience, we could not resist asking his prediction for the economy in 2011. His answers were not optimistic, however he insists that with the proper knowledge, anyone can be prepared for the worst. For 2011, Schiff believes, “Resources will do well; precious metals will do well; emerging markets will do well.”

That said, his outlook on the shaky fundamentals for the U.S. economy is that they are going to deteriorate, despite numbers on the surface that appear to be improving. At some point, Schiff says, we are going to have a “major financial event”. Whether that is in 2011 or 2012, he can’t say but he predicts it will be in the form of a funding crisis with the U.S. government; it will be a collapse in treasuries; a collapse in the dollar—it will be a situation when the Federal Reserve will be forced to raise rates aggressively when the economy is already weakening. “It’s going to be a worse financial crisis than 2008. Mistakes are bigger now. 2008 in hindsight will look like a tremor. What’s coming is an earthquake.”

Ultimately, Schiff’s message is things are better when you are prepared in advance. “You don’t want to be caught off guard like most people will be,” he says. “If people are prepared, they are better able to weather any storm.”

By Anna Guy