Peter Schiff: Brutal Week Sparks Doubt in Fed

In this episode, Peter recounts a brutal week for the markets. He discusses why the size of the Fed’s expected rate cut this month is now more important than ever. With several alarming indicators, including the semiconductor index tanking and an overall dismal jobs report, the market is worried the Fed won’t cut rates by enough to stave off recession.

The market’s confidence in what the Fed will do is slipping:

“The markets then found some support with the solace that, okay, we didn’t get the rate cut in July, but now we’re going to get 50 in September. And that kind of put a floor under the market and we got a bounce in stocks… But what’s happened this week and particularly today is that the markets no longer believe we’re going to get 50 basis points. The consensus is now for just 25. Now everybody knows we’re going to get a cut. But 25 basis points is not enough.”

Tech giants like Nvidia and Intel got clobbered last week. It seems the stocks that have been lifting the market to new heights are starting to falter:

“The semiconductor index was down 11% on the week. Nvidia, which is the darling of the AI bubble, was down 13.5% on the week. One semiconductor stock that’s really been getting beat up is Intel. Intel hit a 14-year low today, 14 years. And also to put this in perspective, Intel today is 25% lower than it was 20 years ago. Now 20 years ago, Intel was the darling of what became the dot-com bubble.”

Peter expects further declines in market confidence if the Fed doesn’t cut rates by 50 basis points, although some parts of the market will hold up better than others:

“If it doesn’t get 50 basis points, it’s going to have a tantrum. And if you look at how the market closed today, this was, first of all, the worst week for the stock market or for the S&P 500 since March of 2023. It was the worst week for the NASDAQ since sometime in 2022. Now the Dow held up relatively well on the week. And I’ve been talking about this, and that’s because you have more defensive value-type stocks.”

One asset that is unsurprisingly falling is Bitcoin. Peter thinks the coin will continue to fall in value in the coming weeks:

“Bitcoin earlier today got down to about $52,500. It’s bounced back up to close to $54,000 as I’m talking here. And Ethereum got below $2,200. We’re almost at the lows that we hit that Sunday night. And in fact, Bitcoin itself got very close to $50,000, but then bounced. I think there’s a very good chance that by Monday morning, we’re going to be below $50,000 on Bitcoin. And if that’s the case, it’s going to be a long weekend for the people who own these ETFs.”

Even though the unemployment rate fell by 0.1% in last week’s jobs report, other elements of the report were less positive, with nonfarm payroll additions missing expectations by nearly 25,000 jobs:

“Let me get to the jobs numbers, the weakness in the labor market that is prompting the fear. And again, the number was weak. But what the markets are worried about is that it wasn’t quite weak enough. There were some aspects of the jobs report that people think were strong, which wasn’t even true. But most people think that. And they think, you know, this shows that things aren’t that bad. And so the Fed doesn’t have to cut by 50 basis points, and the markets are tanking.”

The Fed is stuck between a rock (abandoning the fight against inflation) and a giant cliff (fighting inflation and tanking the economy). There’s no way it’ll choose the latter:

“Americans have never lived through something as bad as they’re going to live through if the Fed fights inflation, which is why they’re not going to fight inflation. That’s the whole point that I’ve been making. They’re not going to. But now, the pretense is over. The Fed has to stop pretending that they’re going to be vigilant and they’re going to do whatever it takes to bring inflation back down to 2%, because they don’t have the guts to do what it takes.”

Be sure to also check out Peter’s most recent interview on Kitco News, where he discusses the debt crisis and de-dollarization.