The Dow Jones fell 603 points on Friday and was down about 1% through the first month of 2020.
As Peter Schiff pointed out on his latest podcast, if the old saying “so goes January, so goes the year” turns out to be the case, 2020 could longest bull market in history could be at its end.
The S&P 500 also had a big 1.8% drop on Friday and is slightly in the red in 2020. The Nasdaq fell Friday, but remains the only index that is positive on the year. The Russell 2000 is down about 3.3% on the year.
As Peter has pointed out, the Russell 2000 is the only index that did not set a record high in 2019.
“That is the index that is most sensitive to the US economy, and despite all the talk about how great the US economy is, that is the index that is the weakest.”
The mainstream narrative is that the shellacking on Wall Street Friday was due to worries about the coronavirus. Peter said the coronavirus is not the reason the stock market is going down.
“It is the excuse that investors are using to sell the market. But if it wasn’t the coronavirus, they would have found another excuse.”
Peter said for months that once the US and China agreed to a trade deal, the market was vulnerable to a decline.
“Another old Wall Street adage is ‘buy the rumor, sell the fact,’ and traders and investors had been buying the rumors of a trade deal for months. And now we got one. And what was I saying on this podcast would happen to the market once a trade deal was signed? I said the market would sell off on the news. And that’s what’s happening. Maybe it didn’t sell off on the day of the news, or the very next day, but it didn’t take very long for the markets to come up with a reason to do what they were going to do anyway, which is go down.”
Peter noted that a lot of the stocks really getting hammered don’t have any connection with coronavirus. You would expect airlines to take a hit, but we’re seeing a lot of weakness in retailers — with the lone exception of Amazon. The XRT – an index of retailers – dropped 3% on the day Friday. And that includes Amazon’s rise.
“So, if the US consumer is really so strong, why are all these retailers so weak? I mean, it’s not just Amazon. Amazon is part of it, but it doesn’t explain this massacre. It shouldn’t be this bad if the consumer is really this flush.”
Peter also offered some analysis of the GDP numbers that came out last week. He noted that the inflator number dropped to 1.4%, which seems suspiciously low. Peter said he’s always skeptical of government numbers, especially when it comes to inflation.
“I really don’t expect any honest numbers on inflation. Because the last thing the government wants to do is be honest and level with the American public to the extent to which they’re getting robbed through inflation. And of course, they need to pretend inflation is low so the Fed can keep interest rates low.”
The expectation was that the inflator would jump to 2.0%. If that had happened, the GDP would have dropped to 1.5% for Q4.
GDP growth for 2019 came in at 2.3%, the weakest number of the Trump presidency, despite the Fed reversing course on interest rates and returning to QE. So, 2019 brought a lot of unexpected monetary stimulus. On top of that, we continued to get massive fiscal stimulus through government borrowing and spending.
“So, we had a double-barrel of Keynesian artificial stimulus – monetary stimulus and fiscal stimulus – and yet the only fake growth that they could buy, temporary fake growth with al that artificial stimulus, all they can get was 2.3% GDP growth. How is this the greatest economy in the history of America? I mean, it’s not even the greatest economy in the modern era. It’s not even the greatest economy of this century … This is simply a continuation of the big, fat, ugly bubble that Donald Trump inherited from Barack Obama.”
Peter referenced the Chicago PMI. It remained in contraction for the seventh consecutive month. The only time the Chicago PMI has been under 50 for this many months straight was during a recession.
“If we have economic indicators that are so bad that historically we have only seen them when the economy was in a recession, how is it possible that the economy we have now is the greatest ever?”
Peter also talked politics and the 2020 election in this podcast and offered some in-depth analysis on the importance of profits in an economy.
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