Fake Financial News Clueless About Why Stock Market Tanked

It turns out Friday’s 666-point Dow Jones plunge was just a prelude. On Monday, the Dow suffered its largest-ever drop in terms of points. It was down 1,600 at one point and ultimately lost 1,175.21 points, a 4.6% decline. According to Reuters, declines for the benchmark S&P 500 index and the Dow Jones Industrial Average were the biggest single-day percentage drops since August 2011. Monday’s crash ranks in the top-20 of all time Dow Jones drops in percentage terms.

Peter Schiff actually predicted a Monday crash in his podcast last Friday. Yesterday, he took to the microphone again, noting that even with the precipitous fall in the stock markets, the mainstream “fake financial news” remains clueless.

You’re not going to get any factual information on what’s going on or why on your fake news –  the fake financial news – because no one on those channels understands what’s going on. So, it’s the blind leading the blind.”

Now, a lot of people will say that comes as no surprise that Peter predicted the stock market drop because he is always predicting a stock market crash. But that’s not really true. In fact, for a long time, Peter was saying he expected the market to go up as long as the central bankers maintained artificially low interest rates and quantitative easing.

It wasn’t until very recently that I began talking about crash. In fact, on the way up, one of the reasons I thought the market wouldn’t crash was because I thought the Fed would save it. You know, it would reverse course. It would take back the idea that it was going to raise rates or shrink its balance sheet. But recently, as it became obvious that Fed was not giving up and the market was increasing the expectation of rate hikes and I saw the big drop in the bond market, which I’ve been warning about for the last several weeks,  I’ve been talking about – hey wait a minute – this market’s going to crash. I mean, the only reason the market was rising was because of the cheap money, and I knew if you took the cheap money away the market would implode.”

It’s just like we said in an article yesterday — the economy turns sour. The Fed puts out the easy money punch bowl. The economy gets good and drunk on the punch. The Fed takes the bowl away. The partiers throw a fit.

Yesterday, we saw the fit.

Peter said he spent a lot of time watching coverage on CNBC as the market plummeted. Everybody acted shocked.

If they had listened to my podcast last week, they wouldn’t have been surprised. They would have expected it. But they have no idea why the market is going down, and they just think it’s a healthy correction.”

The New York Times reflected this general optimism in its reporting, focusing on the “strong economy.”

Instead of reflecting economic pessimism, this stock market sell-off seems rooted in a form of optimism — that employers will have to pay higher wages, cutting into profits, and that higher inflation will cause the Fed to raise rates faster than had been assumed. Throw in some worry that markets were getting a little overheated and you have a recipe for the downturn we’ve just witnessed.”

Peter said this is a lot of nonsense.

The economy is not good, right? And even if it was good, it ain’t gonna stay good. Because it’s not just the stock market that needs cheap money. It’s the economy. It’s this phony, bubble economy. That is its life-blood, its mother’s milk. You can’t take that away. But that is exactly what is in the process of happening.”

The easy money policy has driven the pileup of global debt that has occurred over the last decade. According to a recent S&P Global Rating Report, the number of “highly leveraged” companies is now higher than it was on the eve of the financial crisis, and the agency warns that the number of defaults by heavily indebted companies could rise significantly as credit conditions tighten. Household debt is also at levels not seen since right before the 2008 crash. The pundits and prognosticators ignore these dynamics, instead focusing on dubious government numbers.

Peter said ultimately he thinks the Fed will back off its current course and maintain the easy money gravy train. If it doesn’t the stock market will go into the biggest bear market ever.

I believe the Fed is going to be under tremendous pressure – political pressure by the Trump administration – to get with the program and start the fiscal stimulus.”

Meanwhile, the political class in Washington D.C. is talking about an infrastructure program that will add to an already enormous federal debt. How is the government going to finance this if the Fed isn’t buying Treasuries and isn’t even rolling over the ones it has as they mature? Who will buy all the paper?

Peter once again said this looks a whole lot like 1987, only worse.

This is impossible. This is a tidal wave of debt that’s coming on in the market. And I’ve been drawing the contrast between 1987 and now because of the stock market. The reason I’ve been talking about 1987 is because we had a stock market crash. That’s what got me talking about it. Because I was expecting another crash because the markets have been so oblivious to the same type of fundamental problems that they ignore in 1987 until all of a sudden, they couldn’t ignore it anymore. And that is rising trade deficits, rising budget deficits, which were causing bond prices to fall and the dollar to fall. And that is exactly what’s been happening again, only this is going to be so much worse … I do believe at some point the Fed is going to cry ‘chicken’ in this game, but until then, this market is going down.”

Of course, there’s no telling if Monday’s drop is the beginning of the crash, or merely a prelude. But the pieces are certainly in place.

Peter also said he expects money to start rushing into gold at some point.

We’re going to have a big up-move in gold. If not tomorrow, the next day. I mean if the market keeps falling money is going to rush into gold. It’s just a question of when. The fact that people aren’t buying it now just shows you how complacent everybody is. Nobody is worried, right? Everybody thinks it’s OK. They’re not hedging the gold.”

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