Stock Volatility Is a Precursor to Recession (Video)
Early last week, Newsmax TV interviewed Peter Schiff and Steve Beaman, Chairman of The Society to Advance Financial Education. The had a friendly conversation about the factors that triggered the dramatic fall in Chinese and US stocks. Surprisingly enough, Beaman agreed with much of what Peter said about the Federal Reserve, though he still maintained that investors need not worry about a looming recession.
Productivity has been falling. The first quarter of this year and the fourth quarter of last year we had big drops in productivity. Corporations have already spent all that cash in record share buybacks, and of course they bought back all that stock at much higher prices. That was cash they should have used to invest in plant and equipment, which is the oldest it has been in over 60 years. Whatever cash they have left, they’ve borrowed. I think corporate balance sheets are a mess. So are individual balance sheets. Everybody in this country is loaded up with debt, including the federal government.”
Highlights from the interview:
“The Chinese stock market is about unchanged on the year, slightly down. The US market is down a lot more in 2015 than the Chinese market. The Chinese market did spike up earlier in the year, but it simply reversed that spike. The Chinese market is considerably lower than it was back in 2007, whereas the US market has had a huge ride. It’s been surfing the quantitative easing, the zero percent interest rate wave. You know, you just referenced 2011. The Federal Reserve saved the market in 2011 with a round of quantitative easing. They’ve been threatening to take away the punch bowl. Everybody has been expecting a rate hike. That’s what really rolling the markets all around the world. It’s not about China. It’s about the Fed threatening to end the party by raising interest rates…
“It’s not about can they do QE4. They shouldn’t, but they have no alternative. The Fed has been saying that they’re data dependent. The data has been awful all year. The Fed just refuses to acknowledge that. Q3 GDP is going to be lucky if it prints above 1%. It was 5% last year. That’s an 80% slow down. The first half of this year, GDP grew at 1.45%. This economy is rapidly heading toward a recession and this latest drop in the stock market is what’s going to push it over the edge. It is a US recession that is on the horizon. If this is true, we’re finally going to see a big increase in lay-offs…
“Productivity has been falling. The first quarter of this year and the fourth quarter of last year we had big drops in productivity. Corporations have already spent all that cash in record share buybacks, and of course they bought back all that stock at much higher prices. That was cash they should have used to invest in plant and equipment, which is the oldest it has been in over 60 years. Whatever cash they have left, they’ve borrowed. I think corporate balance sheets are a mess. So are individual balance sheets. Everybody in this country is loaded up with debt, including the federal government. They’re the leaders of the debt parade, and the debt has gotten much bigger since 2008. The financial crisis was about having too much debt. Well know we have more than we did then…“
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