The last week or so has been rough for US (and global) stocks.
In his podcast Monday evening, Peter Schiff said he thinks the bear market rally is over.
Long live the bear market. This bear market rally is dead. We are going a lot lower.”
China announced it will impose higher tariffs on most US imports on a revised $60 billion target list. On Tuesday, a little optimism returned after Pres. Trump said he thought trade negotiations would prove successful. But Peter doesn’t think so. He said he still doesn’t think there will be a deal – and even if there is, it won’t be a significant “win” for the US.
I’ve been saying for a long time that even if we got a deal, it was going to be a ‘buy the rumor sell the fact.’ But I also said it was becoming obvious that Trump had so overpromised about a great deal that it was almost impossible to have a deal without disappointing the markets. So, I think Trump made a calculated decision that no deal is better than a deal that disappoints, especially since he had already goosed the market up to new highs so even if we sold off, Trump could say, ‘Well, this is some short-term pain. It’s necessary for the long-term gain.’ And it may be the catalyst that causes the Fed to cut interest rates and launch QE, which is what Trump wants.”
Yesterday, Peter said that if the market really understood the gravity of the situation, it wouldn’t be down 600 points, it would be down 6,000 points.
Gold got a little boost from the trade war, briefly trading above the $1,300 per ounce mark, but never really gained any traction above that important technical level.
Gold would be up hundreds of dollars an ounce if people really perceived reality, or understood what this means.”
When the Chinese announced retaliation for the higher tariffs the US levied on Friday, Trump basically said, “Bring it on.” Trump even tweeted out that the strong GDP number in the first quarter was due to the tariffs.
Peter said the tariffs actually did have some bearing on the GDP number — primarily the timing of some imports and the big inventory build. But he said the truth is, there were a number of one-off factors that masked a weakening economy.
By the second quarter, those factors will not be there and the weakening economy will be laid bare for everybody to see and it is going to be a lot weaker because America is not going to win this trade war. We are going to lose this war and we are going to lose it badly and the winner is going to be China.”
Peter said the reason the Chinese are going to win is because they have been losing the trade game with the US for a long time.
We have been riding on a Chinese gravy-train. We have been relying on China for capital and we have been relying on China for consumer goods. The supply us with the savings we don’t have and they allow us to import the products we consume.”
Peter discussed some of the retaliatory measures that China is threatening to take and the impacts they might have. He also explained how the Chinese have financed America’s big government and all the debt it has run up.
We used to save. We used to make capital investments. We don’t do that anymore. We just borrow and spend. And where do we get the money that we’re borrowing? From the Chinese and other nations that are doing the savings for us. So, they’re saving for us. They’re producing for us. And we’re living off their productivity and their under-consumption. And that party – that global gravy train is about to come to an end.”
Trump says America just needs to start making things itself. That’s a fine idea, but as Peter said, it’s easier said than done. Companies would have to build factories, buy machines and create completely new supply chains. That takes time and requires capital – capital that doesn’t exist in the US because the Fed has completely discouraged savings.
Anybody can consume. The hard part is to produce.”