The Dow Jones, Nasdaq and S&P 500 have seen 7 to 10 percent in losses during the month of October, so why are so many people still so bullish? Peter Schiff would like to know.
“It’s not going to work again. The third time is not the charm. When the Federal Reserve has to try to revive the markets and the economy … when they have to take interest rate back down to zero and do quantitative easing again, the dollar is going to implode.”
Schiff, a noted economist, financial broker and dealer, author and podcast host, has been sounding the alarm for a couple of months now, ever since the Federal Reserve followed through with its latest interest rate hike in September, signaling another hike for December and likely three more in 2019.
Per his latest podcast:
“This has probably been one of the worst Octobers on record, which of course was exactly what I was saying was going to happen … in my podcast. I feel particularly worried about the markets. I was pretty sure that the probability of a big decline this October was much greater than what I had seen in the past. When you look at what was going on beneath the surface already with the home builders and the autos and the Fed — if you remember the title of my podcast, at the very last rate hike, my title was “The Hike That Breaks the Market’s Back.”
“I looked at the hike and what was being said at the time by (Fed Chair Jerome) Powell, and I didn’t understand how the markets could possibly ignore what was going to be happening with interest rates and the trade war, and what had already happened to the overseas markets that had already gone down,” he continued. “It didn’t make sense that the U.S. markets could continue to defy gravity in the face of overwhelming negative evidence that was taking place. And it seemed to me that if the market was going to break, October was a pretty good time for that to happen, given the history we’ve had with October.”
Schiff said the thing that most surprises him about the markets this month is the lack of bearishness. Generally when there’s this much volatility, people start pouring money into gold.
“Gold was up a bit yesterday, but not that much. We closed at $1,233 an ounce, so the the price of gold is still creeping higher, but if there was more fear out there, if people were worried about the market, they would buying gold,” he said. “To me the lack of buying in gold stocks is a lack of fear and lack of concern.”
Schiff said he watches financial coverage from a number of channels and he’s surprised there isn’t more concern as even the big FAANG stocks are entering bearish territory — and it’s actually the FAANG stocks that have been propping up a sagging market for a while now. FAANG is an acronym for Facebook, Apple, Amazon, Netflix and Google.
“Overwhelmingly, people are saying there’s nothing to worry about, which is exactly what they were saying before the 2008 financial crisis. People like to call me a perma-bear because I’m always bearish. But I’m not always bearish on the stock market.
“So, whenever a bear market begins, all the perma-bulls say, ‘It’s a correction, buy.’ Then, once the market is down 20 percent and we’re in a bear market, then they say, ‘Well, you know, it’s too late to sell now. We’ve already had the bear market. Now it’s time to buy more because we’re about to have another bull market. So in other words, you never sell. You just hold forever and hope.”
Schiff said he is bearish on the market now as a whole because of the Fed’s raising of interest rates.
“Now, I am not a super bear because I still believe the Federal Reserve is going to reverse course and do something to put a floor beneath the market,” he said. “If they don’t, there will be no floor and the market will keep falling.
“At any moment, the Federal Reserve can throw a lifeline to the market in the form of an about face on monetary policy.”
But, Schiff said, the Fed won’t be able to bail out the perma-bulls this time around with its monetary magic.
“It’s not going to work again. The third time is not the charm,” Schiff said. “When the Federal Reserve has to try to revive the markets and the economy … when they have to take interest rates back down to zero and do quantitative easing again, the dollar is going to implode.”
Listen to his entire podcast here.