Stocks soared, and gold and silver sold off Monday after Pfizer announced success in stage III coronavirus vaccine trials.
During his podcast, Peter Schiff talked about the crazy day in the markets and suggested we might want to tap the brakes when it comes to the excitement about a COVID vaccine because there is no vaccine for what actually ails the economy.
Gold suffered its biggest decline since June 2013, falling nearly $100 at one point. Despite the selloff, gold did manage to hold support at $1,850 and pushed back to about $1,865 by the end of the day. Silver also dropped, losing 5.5%.
Meanwhile, the Dow gained 834 points while the NASDAQ sold off into the close, primarily due to investors dumping the “stay-at-home” stocks such as Netflix and Zoom. The Dow also sold off from its highs. At one point, it was up some 1,700 points.
Pfizer and BioNTech wrapped up stage III trials. Forty-three thousand individuals received the vaccine during the trial and the data suggested it was 90% effective in preventing the coronavirus.
But Peter said it would be wise to tap the brakes. In the first place, we have no idea whether or not the vaccine will receive approval. The FDA has already said it needs more time to analyze the possibility of side-effects.
One thing I know for sure. If we do get a COVID vaccine from this particular product, it’s not going to happen this year. In fact, it’s not going to happen during the coming flu season.”
Peter said, at best, we might see the vaccine rolled out in the spring.
That means it’s not going to do anything to prevent a second wave of COVID or any kind of economic damage that may occur as a result of any kind of lockdowns or other policies that governments pursue in order to mitigate the spread of the disease.”
So, if this is a positive, it’s not in the immediate near-term. It’s at least six months away.
We also have no idea if a vaccine will be a one-time thing or if it will need to be repeated every year. We don’t even know if there can be permanent immunity against the coronavirus.
Peter said he thinks the main reason there were such big moves in stocks based on this announcement was the amount of leverage and speculative money in the markets thanks to the Fed and other central banks and the artificially low interest rates “that have turned the stock markets into casinos.”
While stocks gained Monday, bonds got clobbered. The yield on the 10-year US Treasury approached 1% and the yield on the 30-year was at about 1.75%. Peter said he could see the 30-year yield making a bee-line to 3% and that would be a big problem for the Federal Reserve.
I don’t think the Federal Reserve is going to sit back and allow yields to rise to that degree. Because we had a problem when the repo market was blowing up. That’s the reason back in 2019, before COVID, that’s why the Fed quietly restarted QE because of the problems in the short end of the curve. Well, if we get a bigger problem in the long end, if we start to see 30-year bonds tanking, 10-year bonds tanking, that is big trouble for the whole financial system.”
In effect, you’re talking about increasing interest rates and that’s not a good scenario given all of the debt in the economy.
If people are starting to look beyond the COVID mountain into the valley of economic growth that supposedly lies on the other side, what’s going to happen? Well, the Fed has to start hiking interest rates. The economy is coming back. So, the Fed needs to respond by raising interest rates and withdrawing all of that emergency liquidity that it supplied when the COVID emergency was still going. Except it’s impossible to do that. Because we now have a bigger addiction to stimulus than ever before.”
Investors still haven’t wrapped their heads around the fact that the Fed, along with various levels of government, have done far more damage to the economy than COVID-19.
The problem is not really the fact that we have a disease, but that we’re addicted to the cure, which was cheap money and all this debt. And so now, it’s the addiction to the cure that’s the real problem. The disease doesn’t even matter anymore. Because even if we get rid of the disease, we’re still addicted to the cure. And the Fed can’t take away the cure without causing an even bigger problem than the initial disease that the cure was meant to cure because now the problem isn’t the disease. Who cares about that? The problem is the cure that was so addicting. And now we’ve got an even bigger problem than the one we started with. And that problem’s not going away. There is no antidote or vaccine that’s going to work for that. We are stuck with that.”
The bottom line is there is going to be more money printing. It doesn’t matter whether the COVID-19 vaccine works or not. The bigger problem was created by governments and central banks.
All that debt and all the money printing doesn’t go away even if COVID goes away.”
Peter said despite the plunge Monday, gold is the safe haven – not from COVID-19, but from the government cure.
It’s a safe haven from the monetary and fiscal policy mistakes that were made in reaction to COVID. That’s why gold was going up [during the pandemic]. And it’s because the government is going to continue to make the same monetary policy and fiscal policy mistakes after COVID, that’s why gold is going to keep going up. And in fact, because of all the money they printed before COVID, because of all the extra debt that we accumulated during COVID, that’s why the Fed can’t dial it back. That’s why if the economy recovers from COVID, it can never recover from the addiction to stimulus. That’s why the stimulus has to continue long after the disease it was meant to cure goes away. That means inflation is going to run out of control.”