Peter Schiff Warns "We're Ripe For A 1987-Style Crash"

Via SchiffGold.com,

Stock markets have settled down after an awful couple of weeks earlier this month.  On Feb. 5, the Dow Jones suffered its largest-ever drop in terms of points. It was down 1,600 at one point and ultimately lost 1,175.21 points, a 4.6% drop that day. At one point during that week, the Dow was off 10% in correction territory. But everything is calm now and most of the mainstream is once again feeling bullish and optimistic.

Peter Schiff spoke at the Vancouver Resource Investment Conference 2018 last month before the market tanked. But his message remains relevant in the aftermath of the plunge and the subsequent recovery because the dynamics in the market remain pretty much the same. Conditions are still ripe for a 1987-style market crash.

Investors have not been this optimistic...since 1987. They are even more optimistic than they were at the height of the technology bubble, the dot-com bubble, the new era. Of course, 1987 didn’t end well, right? We had a stock market crash, and there’s a lot about what’s happening today that reminds me about what was happening in ’87.”

Highlights from the Speech

“The economy has not improved under Trump. We don’t have a booming economy. I mean, Trump keeps telling us we have a booming economy, but nothing is booming.”

“When Donald Trump was a candidate for president, he said that the unemployment numbers were phony. They were fake. They were a fraud. They were a con. He said the real unemployment rate is 30%, 40%. Now, every time there is an unemployment number that comes out, he’s tweeting about how great it is we have this record low unemployment and we should all give him credit for it.”

“Now, the tax cuts, are they going to grow the economy? No! Because they didn’t cut government spending. See, you don’t get government for nothing. Taxes pay for government. But if you cut taxes and you don’t cut government, how do you pay for that government?”

“I believe the debt and inflation we have to create to finance the tax cuts will be a bigger drag on the economy than the tax cuts are a boost.”

“Where there will be growth is in the budget deficits and that kind of is where I see some of the similarity now in the 1980s – 1987 – because these big budget deficits are going to be a big problem.”

“Rather than having continuous economic growth, I think the economy is going into recession. Now, I believe that had Donald Trump lost that election, the US would already be in recession. I think we were clearly headed to recession before he won. And when he won, he created this huge burst of misplaced optimism that probably postponed the onset of that recession by another year or two.”

“The most recent trade deficit hit the highest level I think in six years... The trade deficit is heading much higher and so is the budget deficit. You have these twin deficits. And the last time they were a big problem was 1987.”

“I believe that this year, the dollar is going to hit an all-time record low. I think we’re going to crack below 6-to-1 in yuan.”

“If the dollar is going down, why would anyone outside the United States want to buy a 10-year Treasury yielding 2.6%?”

“Here’s the problem. America’s broke. America has more debt than ever before … The debt has more than doubled since the financial crisis. Why did we have a financial crisis? We had too much debt!”

“What has really been propping up the US economy is cheap money and cheap gas.”

“Here is the self-perpetuating spiral that we’re in. As the deficits go up, now we have to sell more bonds. Well, that puts more downward pressure on bond prices and more upward pressure on interest rates. So, as rising interest rates create bigger deficits, those bigger deficits create rising interest rates.”

Comments

mtl4 Haus-Targaryen Wed, 02/21/2018 - 08:51 Permalink

If I keep telling the doctor I have cancer for 50 years and he keeps telling me no then one year I come in and he finally tells me you know what, you're right you do have cancer, how right was I?.........doom and gloom gold bugs just never quit.  There's no doubt this ship is going down but the US is in far better shape than some of the other governments around the globe and believe me there will be a USD stampede and a rip your face off massive stock market rally before the dust settles.

In reply to by Haus-Targaryen

nuerocaster purplewarrior Wed, 02/21/2018 - 10:24 Permalink

EURO PACIFIC CAPITAL  Some may not realize that's the name of his co.

So where are capital flows going after this US crash? Far fewer perceived alternatives than 09.

The Swiss devalued, Brazil penalized. India and China have been fighting capital flight and corruption all along.

China's black box is the only alternative sufficiently large and robust to be plausible.

What is Shiff touting? Why isn't it mentioned in these articles?

Because the switch pitch sounds quite different from the bait pitch.

 

 

 

In reply to by purplewarrior

TonyRUs mtl4 Wed, 02/21/2018 - 10:29 Permalink

The analogy is at best incomplete. If you know you have cancer, you and everyone that's important to you (that trusts your judgement) is preparing for your eventual incapacitation and death. So you are 'right' to all the people you need to be right to. Who care's what the doctor says? 

In reply to by mtl4

Endgame Napoleon directaction Wed, 02/21/2018 - 10:06 Permalink

On Eighties wages, rent was high, but it did not absorb more than half of your pay. The inflation is already here. In all of those years, wages have barely budged for most, unbeknownst to the corporate-owned MSM.

Now, buoyed by their bigly tax cut, corporations are buying back stock, so he is right: They are not going to invest that money in their own country to create quality jobs and growth.

Never fear, though, in addition to tax cuts for the rich, Swampers doubled child tax credits for parents with unearned income to bolster wages, including spousal income. Spousal income often comes from a part-time job that boosts household income, allowing parents to indulge in more luxury purchases since a spouse already covers the major bills.

Swampers did the same with the refundable child-tax-credit welfare that hoists earned income up with other unearned income from government. This unearned income from Uncle Sam covers the major household bills of single moms, working part time to stay below the earned-income limits for multiple monthly welfare programs, and for immigrant households with a sole, male breadwinner, staying below the limits in traceable income.

Since the child-tax-credit pay out for max womb productivity was already at $6,444—1/3rd of yearly take-home pay in many full-time jobs—single moms working part time to stay below the earned-income limit for for programs offering free housing, free groceries and monthly cash assistance should spend it up post tax cut, stimulating the economy by spending their enhanced child-tax-credit welfare on things like trips to Florida beach motels with boyfriends or expensive tattoos.

https://www.irs.gov/credits-deductions/individuals/earned-income-tax-cr…

It will not make up for the dearth of full-time jobs, especially for those who cannot rely on sex and reproduction to bolster earned-only income—i.e. the millions of citizens forced to cover all household bills on earned income alone.

Trump was right that the economy was horrible during the Obama years, even though the corporate-owned MSM called it a “recovery” then as now. It has been bad for a long time—since 2005–with 94% of the growth in new jobs coming from the largely unacknowledged part-time-high-turnover-temporary-1099-gig job sector. The Swamp keeps feeding this job sector. 

https://krueger.princeton.edu/sites/default/files/akrueger/files/katz_k…

https://www.google.com/search?q=krurger%202005%20all%20job%20growth%20p…

That was one of the great things about Trump during the campaign season; he told the truth about the dismal economy. Subsequently, they decided to pursue the same path as the others, advantaging the part-time-working moms and the legal / illegal immigrants, giving them more free stuff from government, as long as they have more kids than they can afford to feed.

It is not just the dramatic unfairness of the lopsided welfare programs. It is the fact that the part-time-work-contingent welfare and tax-welfare systems incentivize moms to work part time while providing employers with a willing, part-time, low-wage workforce, making the creation of more quality jobs for those lacking unearned income even more unlikely.

People often say welfare recipients do not work part time. That is not accurate. A good way to find out why it is not accurate is to take the tests, going through the lengthy hoop-jumping process to get a state job, whereupon you will see the Earned Income screens at the Department of Human Services.

You cannot work full time without exceeding the income limit for the programs, and even if they raised the limits a little, the earned-income limit would still be far FAR, FAR below what it takes for a single, childless citizen to cover all household bills, including rent that consumes more than half of his/her earned-only income. “The system” is designed to destroy the lives of multitudes of US citizens, while paying the womb producers for their trouble. 

 

In reply to by directaction

Richard640 Last of the Mi… Wed, 02/21/2018 - 10:22 Permalink

2-15--DO NOT WASTE MONEY BETTING AGAINST STOCKS-HERE'S WHY=

*******************************************************

I have a good friend/colleague who works at big public pension fund. He did a “stress test” study with the data available to him on all big public pensions. He concluded that, based on the current stated amount of underfunding at every big pension fund, if the Dow/SPX declined 10% or more over a sustained period of time – where “sustained period” is defined as 3-4 month – every public pension fund in the country would collapse.

*****************************************************************

The Fed added $11 billion to its SOMA account for the week ending yesterday. It purchased $11 billion in mortgage securities directly from banks. This injects $11 billion into the banking system. Cash is “high powered” money, meaning it can be leveraged 10x (banks need to hold 10% in reserves against “high powered” money. $11 billion is $110 billion of leverage for the banks to use for activities such as propping up the stock market.

***************************************************

This certainly explains why there appears to be another “V” recovery in the stock market after a near-10% drawdown in the Dow and the SPX. This is very similar to the 10% market plunges in August 2015 and January 2016, both of which were followed with highly unusual “V” recoveries.

***************************************************

You’ll note in the graphic above that the three 10% drops in the Dow since August 2015 were followed with sharp, “V” recoveries. Each one encompassed 10% drawdowns which were remarkably brief. The latest 10% plunge has been met with an equally forceful recovery, with the 10% decline allowed to persist for less than three trading days.

*********************************************************************

 These factors discussed explain why the Fed will not let the stock market sustain a meaningful sell-off 

***************************************************************

In reply to by Last of the Mi…

Richard640 Last of the Mi… Wed, 02/21/2018 - 10:22 Permalink

2-15--DO NOT WASTE MONEY BETTING AGAINST STOCKS-HERE'S WHY=

*******************************************************

I have a good friend/colleague who works at big public pension fund. He did a “stress test” study with the data available to him on all big public pensions. He concluded that, based on the current stated amount of underfunding at every big pension fund, if the Dow/SPX declined 10% or more over a sustained period of time – where “sustained period” is defined as 3-4 month – every public pension fund in the country would collapse.

*****************************************************************

The Fed added $11 billion to its SOMA account for the week ending yesterday. It purchased $11 billion in mortgage securities directly from banks. This injects $11 billion into the banking system. Cash is “high powered” money, meaning it can be leveraged 10x (banks need to hold 10% in reserves against “high powered” money. $11 billion is $110 billion of leverage for the banks to use for activities such as propping up the stock market.

***************************************************

This certainly explains why there appears to be another “V” recovery in the stock market after a near-10% drawdown in the Dow and the SPX. This is very similar to the 10% market plunges in August 2015 and January 2016, both of which were followed with highly unusual “V” recoveries.

***************************************************

You’ll note in the graphic above that the three 10% drops in the Dow since August 2015 were followed with sharp, “V” recoveries. Each one encompassed 10% drawdowns which were remarkably brief. The latest 10% plunge has been met with an equally forceful recovery, with the 10% decline allowed to persist for less than three trading days.

*********************************************************************

 These factors discussed explain why the Fed will not let the stock market sustain a meaningful sell-off 

***************************************************************

In reply to by Last of the Mi…

NickyGall Wed, 02/21/2018 - 08:43 Permalink

And to think that "cheap money" back then was lent to borrowers at no less than 8.7 percent.  Makes us realize how we are living in completely unique times.

balz Wed, 02/21/2018 - 08:44 Permalink

Schiff have been calling for a crash every year since 2009. One day he'll be right, like a broken watch who gives the right time twice a day.

Haus-Targaryen balz Wed, 02/21/2018 - 08:47 Permalink

Schiff has made the same mistake many of us make: 

"But for constant and ever-increasing intervention by market makers and central banks, market fundamentals would have this thing crash today."

His market analysis is correct -- like ours is.  What he and many other very educated people have gotten wrong is the powers that be determination to break any laws and do "whatever it takes" to "save" this financial system from its inevitable fate. 

In reply to by balz

Easyp Wed, 02/21/2018 - 08:44 Permalink

The $ is down and so is Gold.  Proof if any were needed that all conventional markets are rigged.

Maybe thats why Dimon hates cryptocurrencies?

Peak Finance Wed, 02/21/2018 - 08:54 Permalink

Cheap gas?

First off - Gas is not cheap

Second off  - There is a lot of evidence that the gas price is SUPPORTED, not SUPPRESSED, which means it should be and will be even cheaper. 

 

Son of Captain Nemo Wed, 02/21/2018 - 08:58 Permalink

Peter.

What you leave out in this comparison to "1987" is the $155 trillion of insurmountable and unfunded liabilities that we didn't have 31 years ago when our currency USD was still worth something and didn't have global war(s) of choice (to loot) in order to pay for that debt!...

And that the Federal Reserve for lack of a better characterization now dons a 'camouflage" outfit to exact it's collection from anyone who dares says "NO"!

What I wouldn't give to "ground hog day"  the1987 crash like Bill Murray for eternity!