Bubble Fundamentals: This Market Needs More Cheap Money (Video)

On CNBC Asia on Wednesday night, Peter Schiff defended his forecast that the Federal Reserve is very unlikely to raise interest rates in December. He argued the Fed is focused on keeping a market bubble inflated, instead of allowing the US to experience a painful, but necessary economic recovery. Peter pointed to companies like Amazon as proof that market valuations are completely out of line with fundamental realities:

Amazon sells stuff for less than it costs. They just keep selling stuff and losing money… This is the problem everybody has – when you have companies that are selling at a loss because they’re trying to drive their revenues, not their profits. Because the people buying the stocks just don’t care.”

Highlights from the interview:

“People have thought [a Fed rate hike] was a sure thing for a long time now. So I still don’t think you can bank on the Fed raising rates in December. They might, but it’s not a done deal. I think if the Fed does raise rates, it’s not going to be the beginning of the tightening cycle, but it’s going to be the end. I think that if the Fed ends up raising rates, the next move might be to reduce them back down to zero, because the economy is rapidly decelerating into these rate hikes. We could be back in recession in 2016. I think that the Fed is really reluctant to raise rates for that reason alone. It doesn’t want to look foolish to just raise rates very slightly and then have to bring them back down to zero again and launch another round of quantitative easing…

“The market is definitely vulnerable, because the only thing the market has going for it is the Fed and the cheap money. It doesn’t have the underlying fundamentals, and it doesn’t have the earnings. But it’s not the US economy that needs cheap money. It’s the bubble that the Fed has inflated in place of the US economy. That needs more air. I think what the Fed needs to do is prick that bubble, allow it to deflate. Unfortunately, that means another protracted recession, maybe another financial crisis to get the real economy back on track. That was never able to happen. We never had a legitimate recovery, because of the Fed. The Fed prevented a recovery and replaced it with a bubble. That’s what the Fed is trying to nurture today…

“[I think Q4 growth will disappoint.] Yesterday, we got the revisions to Q3. The reason they took the number up was because of the big inventory build. This has been going on all year, where businesses have over estimated the strength of the consumer based on all the recovery propaganda. I think businesses have made a mistake, and they have too much inventory that they can’t sell. That mistake is going to lead to weaker GDP in the future. In fact today, the Atlanta GDPNow just downgraded their estimate for Q4 from – I think it was 2.2 – Now they’re down at 1.8. I think they’re going to have to go even lower than that…

“[My wife] does most of her shopping now on the internet. I think internet sales are going to continue to improve. But it’s not going to improve enough to offset the decline that you’re going to see in the bricks and mortar. And of course, why not buy stuff online? Because these companies don’t even care about making a profit. Look at Amazon. Amazon sells stuff for less than it costs. They just keep selling stuff and losing money. So I’m willing to buy my merchandise from a retailer that doesn’t mind losing money selling it to me. This is the problem everybody has – when you have companies that are selling at a loss because they’re trying to drive their revenues, not their profits. Because the people buying the stocks just don’t care.”

Get Peter Schiff’s latest gold market analysis – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning more about physical gold and silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!