The Debt Numbers Are "Spiraling Out Of Control"
Submitted by QTR's Fringe Finance
Over the weekend I had the pleasure of talking to my friend and favorite economist, Peter Schiff. Over the course of our exclusive hour-long conversation, I wanted to pick Peter’s brain about several key questions:
Why gold miners are lagging the price of gold
Whether or not the stock market is going to move higher or lower
Why Peter thinks CPI could wind up moving higher yet again
Is there a case for deflation as well as inflation?
Does the forthcoming Bitcoin spot ETFs validate the crypto enough for him to get behind it yet?
Here are all of the key points from our conversation.
Why Gold Miners Are Lagging The Price Of Gold
Watching gold miner stocks lag gold over the last week, I wanted to ask Peter why he thought this gap existed, what it would take for miners to move higher, and whether or not this means the gold rally can’t be trusted.
Peter told me: “This, you know, one is—and this is kind of ironic—but inflation has actually really hurt gold mining companies. You would have thought, well, inflation is going to be good for gold miners because it's going to mean people are going to want to buy gold to hedge inflation. The gold price is going to go up, and so you would think that the miners would benefit from inflation. But what happened was inflation really pushed up the cost of mining, their raw material costs, you know, their energy cost, their labor costs.”
He continued: “It's an expensive procedure to mine gold, and the cost of mining kept going up and up. So even though the price of gold has gone up to $2,000, the mining companies are not that much more profitable than they were when gold was $1,000, because the costs have gone up commensurate. In fact, in many cases, the costs have gone up more than the price of gold. And so, that's been a problem.”
“But also, stocks are more of a reflection of investors' outlook for the future, and now you're trying to discount that future to the present. It's very forward-looking. So when investors are looking at a gold company and they see the price of gold at $2,000, they extrapolate what the profits are going to be over the next five or ten years,” Peter told me.
He concluded: “They have to make an assumption about where they think the price of gold is going to be over the next five or ten years to have any indication of what the profits are going to be. And if you look at the assumptions, they're generally for a lower gold price in the future than the price we have right now. So it's because the stock market investors are so bearish on the future of gold that they're not discounting a positive earnings impact of a rising gold price. Right? Whereas the gold price itself is just a reflection of what it costs to buy gold right now. What is the current supply and demand? What is the price? It's not what the price is going to be in a year or two or ten; it's what's the price right now. So it's kind of a different market. And to me, it's been a positive-negative indicator, a reverse contrarian indicator.”
Why Are Stocks Still Moving Higher Despite Ugly Economic Data Incoming?
I also am baffled by the market’s moves of late — with a coming crack up boom and 20 years of toxic market sentiment and behavioral psychology the only reasons I can think of for a stock market moving higher at this valuation.
Peter told me: “The market's going up because the buyers are more motivated than the sellers. You know, and the prices are going up, but the buyers are operating under a lot of false assumptions that are going to come back to bite them. But my approach, and what I have been advising my clients, is...(READ THIS FULL INTERVIEW AND LISTEN TO THE FULL PODCAST HERE).
