Schiff vs Prechter: Celebrity Doomsayer Deathmatch
Peter Schiff, an "inflationist" interviewed Robert Prechter, a "deflationist". Both are libertarians and largely agree on most things except how the dollar-price of assets will perform over the long term.
The interview is somewhat difficult to listen to because Schiff is an annoying interviewer, constantly interrupting Prechter, and often, not really listening to his arguments. As I've said before, my personal view is that the structure of the economy is "deflating", i.e., deleveraging, but this is happening in terms of gold, not dollars. In addition, the Fed's actions are causing in a debasement of the dollar which will eventually result in hyperinflation of dollar-prices. These two processes are happening simultaneously.
So if I had to side with either one, I believe my views more closely match Schiff's. Having said that, I think Schiff too easily brushes aside the following arguments from Prechter:
* The last time people were talking about inflation was in 2008 when oil prices were acting bubbly. That was precisely just before the onset of a massive acute deflationary wave. Similarly, only over the last month have people started talking about inflation again. Personally, with the way the silver market recently had a parabolic rise and reversal, I think there's a good chance that another deflationary wave has begun. Prechter's point is a good one: just because everyone is talking about inflation doesn't mean inflation is going to happen.
It just as likely means inflation is a crowded trade and a reversal is imminent. Schiff has made this argument himself when he reminds everyone that back in 2006, as real estate was rising parabolically, everyone thought he was an idiot, but he doesn't seem to recognize Prechter's argument that we may be at a similar inflation peak today.
* Inflationists have to answer certain questions. Why are stock prices lower than their 2007 peaks? Why are interest rates low? Sure the rise of commodity prices and precious metals prices seem to point to inflation, but those are not the only data worth evaluating.
My personal view is that we will have periodic waves of inflation and deflation. 2008 was the prior inflation peak. Sept 2008-March 2009 was a great deflationary wave. March 2009-now has been an inflationary wave. As I said above, I think there's a good chance the next deflationary wave has begun. My disagreement with Precther is that I believe one of these days, the inflationary wave will take off and go to infinity. However, I take seriously the view that this may not happen and the forces of dollar-deflation will rule.
* Social mood changes. The public was largely against the prior bailouts, TARP, QE, stimulus, etc, and in their eyes, those measures have not really worked as unemployment remains high and standards of living continue to erode. Just because TPTB had the political capital to enact a bailout last time doesn't mean they will have it the next time. The environment has already changed drastically since 2008 and 2009. Republicans control the House. Obama is a lame duck. Tea Party movement exists. Keynesians like Krugman are ever-more unpopular. Jim Grant even has an opinion in the NY Times arguing for a new gold standard. A static analysis of what politicians can pull off is foolish.
As I said above, I come down on Schiff's side, but I think Schiff brushes aside Prechter's arguments too quickly.
One big takeway: There's one strategy that will work no matter which one of them is proven correct: physical gold. Everything else is up in the air.