If the Market Believes in the Fed, the Market Has Problems (Video)

Shortly after the Federal Reserve’s rate hike announcement on Wednesday, Peter Schiff appeared on Fox Business alongside Moody’s Chief Economist John Lonski and Fox Business correspondent Charlie Gasparino. For once, everyone seemed to agree with Peter that the Fed’s decision does not actually mean the US economy is truly recovering. As Peter pointed out that everything from housing to sovereign credit is in a bubble, Lonski pointed to the terrible performance of the S&P 500 this year:

Even if we go to the S&P 500, throw out all the energy companies that got hammered in the third quarter, the remaining companies in the S&P 500 showing year-to-year sales growth of less than 1%. Believe me, there’s no way in the world we’re going to continue to see payrolls growing as rapidly as we did…”

Highlights from the conversation:

Peter Schiff: [I don’t think the market is right to be celebrating the Fed rate hike.] What’s the most significant here is normally, when the Fed begins to raise rates in a tightening cycle, it’s early in a recovery. You have a lot of pent up demand; there’s a lot of upward momentum. The Federal Reserve has waited so long that this so-called recovery is basically over, and we’re about to begin the next recession, if we’re not already there…

John Lonski: Peter’s right. Never before has the Fed hiked rates with the junk bond spread wider than 700 basis points, and that’s usually an indication that we’re in the later innings of this game. I would think that the upside for interest rates going forward is quite limited, both short-term rates and longer-term bond yields…

Charlie Gasparino: There’s no economic rationale for raising rates now. Inflation’s low. 7-year economic cycles, we’re probably at the end of this one. We have a commodity bubble that burst… Junk bonds are getting hammered. There’s no reason to do it, unless you believe there are bubbles in the market. I think this is the problem. You keep interest rates this low for this long…

Peter: The whole recovery is nothing but a bubble. We didn’t have a legitimate economic recovery. We just had a bubble. And the bubble needs to be pricked. If you look at all the forward economic indicators, they’re all flashing recession. The only one that isn’t is the unemployment rate, which is a lagging indicator, because employers don’t fire people in advance of a recession…

Housing is still a bubble, because prices are too high. That’s why home ownership rates are at a 50-year low. This time it’s a different bubble. Most people now are renting. It’s the hedge funds and private equity guys that took all this cheap money and have speculated in single family homes that they’re trying to rent out. When rates move up, all these bubbles are going to burst. And not just junk bonds. There’s a bubble in sovereign credit. There’s a bubble in Treasuries…

John: Even if we go to the S&P 500, throw out all the energy companies that got hammered in the third quarter, the remaining companies in the S&P 500 showing year-to-year sales growth of less than 1%. Believe me, there’s no way in the world we’re going to continue to see payrolls growing as rapidly as we did…

Charlie: I think what the market liked was the fact that she [Yellen] said we may never raise rates again. That’s essentially what she said…

Peter: I think they’re doing QE4 next year. That’s the problem. And not because any of this works. It doesn’t work. We are trapped in this… The gold market is going to like it…

John: If the market believes in the Fed, the market has a problem…

Peter: I think the Fed has no confidence. That’s why they’re raising rates, because they’re afraid to admit they have no confidence. So to cover up their lack of confidence, they’re having this symbolic rate hike. But if they had confidence in this economy, they would have raised rates years ago…

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!