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Schiff On The Phantom Recovery

9 June 2010 No Comment

In Peter Schiff’s latest commentary, he discusses further why the so-called recovery is anything but.  First up for a Schiff smackdown, the latest jobs report:

Last Friday we received the latest indication that the real economy is not recovering in the slightest. The Labor Department reported that non-farm payrolls increased by 431,000 jobs in May. In a press statement, the President himself crowed at the news, noting that the official employment rate fell to 9.7% from 9.9%. However, just inches below the headline, red flags were everywhere. Only 41,000 of those jobs were generated in the private sector – far below the median forecast of 180,000. Even more troubling was the fact that the Census Bureau alone accounted for 411,000 new jobs, which were almost exclusively temporary positions.

Rather than a recovery, the jobs data seems to indicate that we are still mired in the first economic depression since the 1930s. Back in 1931, two full years after the Crash of 1929, there were still very few people who thought that the recession then underway would one day be called the Great Depression.

In the medium term, Schiff also predicts that oil prices will resume their rise:

Once the euro finally stabilizes against the dollar, I expect commodity prices to resume their rise, especially oil. Normally, the uncertainty created by the disastrous oil spill in the gulf, and the resulting moratorium on deep-water drilling, would have sent crude oil prices skyrocketing. However, fears of a global slowdown, euro weakness, and general risk aversion have held prices in check. As Asia continues its growth and Europe regains its footing, I expect a delayed surge in oil prices, which will put yet another obstacle on the road to US recovery.

I’ve been slowly rotating into some oil names, including a position I started last week in Transocean (RIG) after it fell 10% in a single day.  I too am of the belief that oil prices are going much higher in the future.  Use dips in the price to gain exposure.

Lastly, Schiff talks about how the sovereign debt crisis will ultimately end up in the United States:

Our last remaining leg of support has been the activity of Asian central banks, who have continued in their herculean efforts to prop up the dollar and bail out Americans with low interest rates and cheap imports. However, when sovereign credit risk eventually rears its head in America, look for Asian policymakers to finally wise up. Once that prop is removed, there will be no questions about the gravity of our situation – and little dispute that it amounts to a depression.

The real danger will be if we follow our own foolish advice that Europe appears to have rejected. Treasury Secretary Timothy Geithner has bluntly suggested that European governments should print and spend money in order to keep their economies out of recession. In reality, cutting government spending is a far better stimulus. Maintaining lavish budgets through the use of the printing press will only result in disaster. Not only will such action fail to avert a double-dip recession, but it will practically ensure an inflationary depression.

He has plenty of critics, but you gotta hand it to him as he sticks to his guns.  He’s been wrong on the Euro, but his track record is still plenty better than most investment experts and economists.  If policy was based on Schiff, we would never be in the mess that we are in today.  Either way, his commentaries are always worth a read over at Europac.net.

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