Economic guru Peter Schiff is known for making bold proclamations when it comes to the stock market, and he was back at it on a podcast recently, saying “the truth is we don’t have a booming economy.”
“The truth of the matter is, we don’t have a booming economy. We have a bubble. And when you have a bubble economy, debts go up. Budget deficits go up. Trade deficits go up because you’re not productive. You’re just going into debt to consume.”
Considering October was the worst month for the stock market since September of 2011, he could be on to something.
In fact, the rally over the final two days of the month was the lone bright spot. Global equities also took a hit, losing 7.5 percent of their value for the worst month since May 2012. Including the rally, it was the largest monthly decline for the Nasdaq since 2008 in the throes of the Great Recession.
As Schiff notes in a recent podcast called “Bulls Ain’t Afraid of No Bear Market,” the bulls were out in force for All Hallows’ Eve.
“All of the bulls were out in force on the financial networks claiming that the correction is over. Everybody was confident that the lows are in, that the big back-to-back rally is proof and you better buy now, otherwise you’re going to miss the rally, and this is the typical correction and now it has run its course,” Schiff said.
“And you know what? If this really was the end of the correction, most likely there wouldn’t be so many people that were so confident that it’s over. You’d have a lot more fear, especially on Halloween. The fact that there is no fear, to me, shows that it’s more likely that this is not the end of the correction, but the beginning of the bear market and that this rally is a correction.”
Schiff asks what is more likely, if the end of the record bull market is here, or if it’s just a correction before noting that not only did stocks get hammered in October, but junk bonds also took a hit for their worst month since 2008. This is all happening because the economy isn’t booming the way we think it is, Schiff said.
“If the economy is booming, why would people think that the risk of a company defaulting is going up?” he said. “Because when the economy is really good, that’s when companies don’t default. It’s when the economy is bad, that’s when companies might default.
“All the bulls who are just so confident that this is a correction that’s already over are ignoring all the signs that the economy is not nearly as strong as everybody wants to pretend it is.”
To Schiff, a big indicator that we don’t have a booming economy is rising interest rates and the ballooning federal deficit. Normally, you borrow in bad times and pay back in the good. Yet the U.S. Treasury plans to borrow another $425 billion in Q4 2018, pushing the year’s total borrowing to $1.34 trillion, which is unheard of in a booming economy.
“The truth of the matter is, we don’t have a booming economy. We have a bubble. And when you have a bubble economy, debts go up,” he said. “Budget deficits go up. Trade deficits go up because you’re not productive. You’re just going into debt to consume.
“What (the bulls) don’t understand is nothing has changed, which is exactly why they should be worrying, because the economy was a bubble back then and it’s still a bubble. The only difference is the bubble may have pricked. See, the fundamentals have not changed; that’s true. They were lousy before October and they were lousy in October. That’s what they don’t get. The market never should have been going up.”
Click here to listen to Schiff’s podcasts.
