The Dow pushed above 28,000 on Friday. The Nasdaq also closed on a record high above 8,500, and the S&P 500 made a new record high of 3,120. This despite some more gloomy economic data that came out during the day. Industrial production dropped more than expected, falling by 0.8 in October. Inventory numbers were also revised down. All of this led the Atlanta Fed to revise its Q4 GDP estimate down to 0.3.
In his most recent podcast, Peter Schiff said that it’s QE and Federal Reserve policy that is driving the stock market, not a great economy. In fact, the Fed is creating all kinds of bubbles. And like all bubbles, they will eventually pop.
Despite the weakening economy, the stock market continues to roar and Donald Trump continues to claim credit for the rising stock market and holding the stock market out as evidence of the success of his presidency.”
Ironically, a rising stock market and unemployment were the same two things Barack Obama pointed to as evidence of his success. Peter said this is really all about the Fed.
When Obama was president, we had a rising stock market and a falling unemployment rate and basically for the same reasons we have a rising stock market and a falling unemployment rate now. The stock market was going up because of the Fed, because of artificially low interest rates and quantitative easing. Well, that’s exactly why it’s going up now — artificially low interest rates and quantitative easing.”
Peter said today we have one more thing driving stock markets — talk of a trade deal.
As long as the White House can goose the stock market by pretending there’s a trade deal, well, then they’re going to keep pretending.”
But Peter said he thinks the effects of all the trade deal talk are secondary to the impact of the Federal Reserve — three rate cuts this year and quantitative easing. And he said despite Powell saying the rate cuts are on pause, he thinks the central bank will likely keep cutting.
The market is rising today for the same reasons it rose under Obama. Trump knew that that was phony. He knew that the stock market was a big, fat, ugly bubble and he called out the president, and that’s one of the reasons, or the main reason, I think, that he got elected. The same thing with unemployment.”
It’s the same phony economy and the only thing keeping it going is the Fed. It’s a bunch of bubbles and like all bubbles, they will pop. In fact, some of them have already popped. Peter mentioned the recent IPOs and the cannabis stocks in particular.
These are warning signs. If you think popping bubbles are going to be contained to the IPO market or to the pot stocks, no. All of the bubbles are going to pop, including the total bubble in the US stock market overall – not just in these sectors but in the entire market is in a bubble. In fact, the bond market is in a bubble, the dollar is in a bubble. There are bubbles everywhere and they’re all going to pop.”
Peter talked about President Trump’s plea for negative interest rates. Trump said, “give me some of that!” But the US is actually benefitting from the negative rates in Europe because investors are fleeing the euro. Negative rates in the eurozone and Japan are driving capital into the US.
We are benefitting from negative rates by not having them.”
Peter also touched on Powell’s testimony before Congress. The Fed chair continued to claim the economy was good and scolded Congress about the national debt.
It’s the Fed that is enabling all the deficits. The Federal Reserve cannot call out Congress and say, ‘Get your house in order, you have too much debt,’ while they’re doing quantitative easing, while they’ve got interest rates artificially low. Because as long as they’re doing that, Congress is never going to act responsibly.”
Powell actually did admit that at some point, there is going to be a day of reckoning.
I think the day of reckoning is going to happen a lot sooner than Powell thinks.”