During the 2019 Las Vegas MoneyShow, Peter Schiff participated in an investing panel with Alexis Christoforous, Keith Fitz Gerald, Mark Skousen. The four discussed “where to invest.”
When you boil it all down, it was Peter taking on the conventional wisdom.
There were some pretty lively exchanges with Peter driving home the point that the Federal Reserve has hopelessly distorted the economy and the next crash is on the horizon.
Peter led off the panel saying he believes we are in a bear market.
“I think the rally that actually took us briefly to new highs was still a bear market rally. I think the market really peaked out in January of 2018, and I think there is a lot of downside in the market. I think the trade war is only going to make it worse, but there is much a bigger problem that we have — the Federal Reserve inflating this bubble.”
Peter noted that last year during the Las Vegas MoneyShow, he predicted the Fed would have to prematurely abort raising interest rates and shrinking its balance sheet.
“The reason that the Fed had to do that was because we have so much debt as a result of them having kept interest rates so low for so long that it is impossible to normalize rates or shrink the balance sheet. But it was the false belief that the Fed could accomplish that – that is the reason that we had the dollar rally, the reason that the market rallied. But I do believe that the next recession that will be worse than the one we had in ’08. The Fed will go back to zero, they will go back to QE, but instead of inflating another asset bubble like they did in the past, they’re just going to prick the bubble on the dollar, and I think we’re going to have an inflationary recession and it’s going to be a very difficult environment for US stocks.”
Peter talked about the trade war, saying he thought the market has underreacted to the potential problems. He said the US depends more on imports than any other country.
“We don’t produce most of the manufactured stuff that we consume. All of it has to be imported. We rely more than any other country on foreign savings. I mean, we have tremendous debt in the United States — the federal government, corporations, individuals, local governments, states — and we have minimal savings. So, we have to borrow money from the rest of the world in order to fund the economy. That’s what’s keeping this whole thing afloat.”
Peter emphasized that the only thing that’s been keeping the US afloat is the ability to live on the productivity and savings of foreigners.
“And this relationship is in jeopardy right now.”
This sparked a pretty lively debate about trade.
The issue of low interest rates came up. Some on the panel said that they had been good for the economy. Peter pointed out that artificially low rates have created a tremendous misallocation of resources and malinvestments.
“That’s why we had the housing bubble. The financial crisis was they payback for the Fed keeping interest rates too low for too long. Well, this time they’ve kept them lower longer. And what the Fed is resisting is the market’s attempt to rebalance the economy. We need higher interest rates, but the Fed is afraid of allowing that to happen.”
Pete made a tremendous point about the choice between free markets and capitalism.
“If you believe in capitalism, you believe in the free market and price discovery. And interest rates should not be picked by a bunch of bureaucrats who want to decide what the interest rates should be. We need to let the free market decide on the interest rate so that we have the proper amount of savings and investment in the economy.”
When it comes to investing, Peter said he sees US stock markets as easily having a 50% downside risk. He emphasized that when the Fed tries to go to the punchbowl again and reflate the bubbles, it’s not going to work.
“We are going to have a dollar crisis.”
So where do we invest? Peter said, “There is a place for some gold.”
As for the price of gold right now, Peter said it reflects “a lot of complacency.”
“People out there don’t realize the risks that are out there. They still have confidence in the Fed, confidence in other central bankers, confidence in the US economy. That will fade. And when it does, they’re going to be buying some gold.”
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