Peter Schiff recently appeared on SmallCap Power with Mark Bunting to talk about the stock market bubble. He said it’s the same type of bubble as 2008, only bigger.
The source is the same. It’s artificially low interest rates. It’s quantitative easing. The central bank, the Federal Reserve, is responsible for the rise in the stock market.”
Peter pointed out that in 2019, corporate earnings actually declined slightly even as the stock market was up some 30% and making record highs.
That’s all the Fed. If we really had a good economy, you would have expected corporate earnings to reflect that. But they didn’t.”
Bunting noted that one of the Fed governors admitted that the Fed’s interjection of liquidity in the money markets was a sort of “QE light.” Peter said it’s not QE light.
It’s actually QE extra. Because they are doing more QE now than before. The only distinction they’re making, which is really a distinction without a difference, is that the last time they did QE, when they did QE3, they were buying longer-term government bonds. Now they’re buying shorter-term government bonds. But they’re still buying government bonds. They’re monetizing the debt. Their balance sheet is expanding. And so it’s quantitative easing whether they want to admit it or not.”
The reason the central bankers don’t want to admit this is QE is because they had to do it during the Great Recession and now they’re trying to pretend that the economy is great.
Yet they have the same monetary policy as when the economy was lousy.”
Bunting called Peter a voice in the wilderness, much like he was in the years leading up to the 2008 crash. Peter said the same dynamics are at play.
The same people that were fooled by the illusion prior to ’08 are being fooled by it again.”
Peter and Bunting also talked about gold. Pete reiterated that he’s bullish on the yellow metal. Peter said it’s important to take a long-view of the gold market. They tend to just look at what happened from the $1,900 peak in 2011 and forget that it was the culmination of a 10-year run that started under $300.
So, that was a huge move in the price of gold. And obviously, the gold price got ahead of itself somewhat in 2011. But the reason it corrected the way it did, down to 1,000, was because everybody began believing that the Fed was going to be able to normalize interest rates and shrink its balance sheet, and so the markets began to discount that into the gold price. Well now, people are finally discovering that they were wrong to have believed that, that QE is going to go on indefinitely, that interest rates are never going to normalize. And during this environment, gold has finally moved up by 50% over the last four years. That’s not a bad move. And gold stocks have beaten the S&P over those four years.”
Interestingly, gold stocks are down this year despite the fact that the price of gold has continued to climb. The last time the price of gold was this strong in a January along with gold stocks being relatively weak was January 2000.
That was at the bottom of the 20-year bear market in gold. That was at the peak of the Nasdaq bubble. And on that environment, you had a lot of bearishness still hungover, leftover for gold stocks. … I think this is a great contrarian indicator.
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