Peter Schiff: Nobody Wants to Deal With the Truth
The stock market got a nice bump on Monday with the news that there was a “truce” in the trade war. That lasted all of one day. The markets tanked on Tuesday as investors realized the “truce” really didn’t mean anything. The Dow Jones plunged 799 points, a 3.1% drop. The S&P 500 declined 3.2%, while the Nasdaq was down 3.8%. As one news outlet put it, “investors are quickly realizing that the US-China trade war is not over. The tariffs already put in place remain. And new tariffs could be implemented if the two sides fail to make progress.”
Well, yeah. Duh.
In his latest podcast, Peter Schiff said he wasn’t surprised at all by the drop.
I did not know we would drop this much this quickly, but it doesn’t surprise me. This is a bear market, as I’ve said, and we had a bear market rally.”
Fear that the economy is slowing down also fueled yesterday’s stock market selloff. On Monday, the yield curve between the 2-year and 5-year Treasuries, and 3-year and 5-year Treasuries both inverted. This is widely viewed as a signal that the economy is slowing down.
The market is saying it thinks sometime two or three years from now, the Fed is going to be cutting rates because the economy is going to be in a recession. And so people think yields will be lower three years from now then they are today because they think the economy will be into a recession at some point in the future.”
Peter said where he thinks the markets have it wrong is that the recession will be here even sooner than they think.
In fact, we may even be in a recession now. We don’t know yet. We won’t know yet until the government goes back and revises all the numbers. But that is what they will do, because if you look at what is going on beneath all the headlines, the real economic data is weak. I don’t care that the unemployment rate is still low. The unemployment rate can spike higher very quickly.”
And there are all kinds of signs that the economy is slowing. We’ve talked about the auto and housing sectors. And just consider the increasing oil reserves and the falling price of crude. That signals we are using less energy, something that happens during an economic downturn.
But as Peter put it, right now people are still in denial. The price of gold provides one sign that people still don’t get it. Even with the steep selloff in the stock market, gold was only up a few dollars Tuesday.
What has happened in the last week is very, very bullish for the price of gold, and the price of gold is not catching much of a bid. I think again, the main reason for this is because nobody gets it. People still think this is a bull market. They’re not worried about the decline. They think it’s just a buying opportunity. It’s just a correction. They still think the economy is good. Even though the bond market doesn’t, even though the yield curve is inverting in the front end of the curve, people are dismissing that. They’re dismissing the housing data; they’re dismissing the build in the crude inventories. They’re not looking at any of the real data because nobody wants to believe it. Everybody still wants to believe all the hype — that this economy is great, that this economy is booming. Nobody wants to deal with the truth; because you know how grim the reality is? Because if you have to accept the fact that this economy is going into recession, then you have to accept a lot of unpleasant things that nobody wants to admit.”
Chief among those unpleasantries will be a tanking dollar and spiraling inflation if the Fed goes back to its easy money policies in an attempt to reinflate the bubbles.
If we are going into recession and if the Fed is going to go back to the QE well and take rates back to zero, the dollar is going to tank and the inflation fire that is already burning is going to heat up and it’s going to be stagflation. Nobody understands that we can have recession and inflation at the same time, but that is exactly what is going to happen. That is what’s going to make this next recession so much greater than the last one — because instead of being relieved by lower prices, unemployed people are going to be burdened with much higher prices. Even if you still have a job, your paycheck isn’t going to go as far because everything you want to buy is going to cost a lot more.”
Peter also talked about the political realities that will come about due to the crash.