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Peter Schiff: A December to Remember

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This is shaping up to be a December to remember.

Wall Street is on pace for its worst December since 1980.

Monday was another bad day for stocks with every index dropping 2%. The Dow Jones fell 507.53 points. That pushed the index 10% below its record high. The S&P500 hit a 14-month low. The latest slide also erased the NASDAQ’s slim gain for the year. The Russell 2000 is officially in a bear market, having now dropped about 21% off its high.

In his latest podcast, Peter pointed out that these big drops are becoming a recurring event and they add up.

The mainstream even started to talk about the specter of a bear market after Jeffery Gundlach brought up the subject during a CNBC interview. But Peter was talking about it being a bear market even when the indexes were down 5% or so.

What I said on this podcast is all bear markets start as corrections, but that doesn’t mean they weren’t bear markets. So, we now know that when the Russell 2000 was down 5% it was not in a correction. It was in a bear market because now we’re down 21%. We’re in a bear market. That means the entire 21% drop was part of the bear market. It’s not like we were in a correction going down 19.9% and the whole bear market is just this one-and-a-half percent since we crossed that threshold that  Wall Street uses to describe a bear market. No. We were in a bear market the whole time, just that nobody recognized it. People thought it was a correction. They were wrong. Well, they’re still wrong about the Dow and about the S&P. We’re not technically in bear markets yet, but we are in a bear market because I don’t believe we’re going to stop it down less than 20%.”

Peter said a pundit on Fox Business said even with the precipitous drop in the stock market, he didn’t see a recession on the horizon. And even if he is wrong and there is a downturn it will be mild. Peter said this doesn’t make sense.

Why should it be mild? Why is this guy so sure that if we have a recession, it’s going to be mild? I mean, if we have a recession, it’s going to be horrific. It’s going to be a depression. Because the recessions are proportionate to the artificial booms that precede them. And they’re proportionate to the amount of stimulus that the Fed uses to create the phony boom. And we had unprecedented stimulus, zero percent interest rates for six, seven, eight years. We barely raised them above that. We had three rounds of quantitative easing. We had the TARP. We had the bailouts. I mean, they threw everything, including the kitchen sink at this economy and therefore the hangover is going to be much worse.”

We had a lot more of the Fed’s monetary heroin this time than we did in the runup to 2008.

We were high as a kite. We were much higher in this bubble than we ever got in the previous bubble, which means the come-down is going to be much worse. This is a much bigger hangover that is coming as we come down from this high. So, it’s not going to be a mild recession. There’s no shot of that.”

Peter said people shouldn’t just be worried about the stock market. They should be worried about the economy. He pointed out some data that came out yesterday to emphasize the point. For instance, the  Empire State Manufacturing Index came in at a 19-month low. This indicates a major slowdown in manufacturing. Homebuilder sentiment also dropped to a 3.5 year low.

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