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Beware of the Bear

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The bulls are running down Wall Street, but are bears lurking just around the corner? The mainstream doesn’t think so, but Peter Schiff does.

The Dow Jones climbed nearly 400 points Thursday after the Chinese announced a willingness to resume trade talks with the United States. No agenda was set, but the mere prospect of progress injected a shot of optimism in the market. Walmart also helped drive the surge, rising 10% after it beat earnings expectations.

In his most recent podcast, Peter asked the obvious question: why did the slimmest hope that we could see some resolution in the trade war give the stock market such a big bounce? It’s not like the market tanked because of the trade spat. In fact, everybody expects America to win. It’s the Chinese market that has been killed because of the trade war. It didn’t rally at all based on the prospect of talks 

Maybe it’s because investors are convinced the Chinese are going to come on their hands and knees and just cave, and just, you know, give Trump everything he wants. And now we’re going to have this sweetheart trade deal and then all of a sudden, our trade deficits are going to go away, and it’s just going to be a booming economy and it’s going to be even more jobs. This is all a bunch of fantasy. Even if these conversations take place, nothing really substantive is likely to emerge from it, unless, of course, the president wants to claim credit for something when in fact he gets nothing, which is something that he may in fact do.”

The narrative is that Trump’s tough stand will eventually force the Chinese to give in. Peter said it’s possible the Chinese could give up something unsubstantial, but that the administration would try to spin it into a big win.

This is just another in a long line of “reasons” for stock markets to climb. In fact, next Wednesday will officially mark the longest bull market in US history. Or perhaps we should say it’s the biggest stock market bubble in US history. Peter said there is always euphoria right before a crash.

I guess near the end of a bull market, people are really insane about what news they consider to be bullish, and so the market was bid up on what really amounts to nothing.”

The fact that we are nearing the longest bull market in history should give investors pause in and of itself. We’re due for a downturn just based on the history of the market cycle. But that’s not how the mainstream is spinning it. All of the pundits are optimistic, saying the bulls still have a long way to run. We’re not hearing anybody out there in the mainstream financial press saying, “Hey, be cautious. We’re living on borrowed time. Bull markets don’t normally last this long.”

That is not the sentiment that is being expressed. It’s like, ‘Hey, let’s celebrate because the good times are going to keep on rolling.’ You know, this may be the biggest bull market ever, but it is going to be followed by the biggest bear market ever. And we’ve had some big bear markets in the 70s and in the 30s. This one is going to be bigger. Not only in how long it lasts, but in how deep the losses are.”

Peter said he doesn’t think the losses in dollar terms will necessarily be worse than say the Great Depression. But in terms of purchasing power, that’s where you’re going to see the real impact of the next crash.

Just remember, during the Great Depression, prices dropped along with stocks. So, even if you lost some money in stocks, if the cost of living also went down, in real terms, adjusted for inflation, it wasn’t as bad. This is going to be much worse. Because while stock prices are going to be tumbling, the prices of goods that you need to buy are going to be skyrocketing. So, in terms of adjusting the losses for inflation, this bear market is going to result in investors losing more wealth, more purchasing power than they’ve ever lost in any bear market in history. And it makes sense that that’s how the pendulum would swing. We have the biggest bull market and it’s followed by the biggest bear market, just like the biggest booms are followed by the biggest busts. “

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