Peter Schiff: A US Stock Market Crash Is Long Overdue But People Are Oblivious

The Nasdaq had the biggest gain last month since the year 2000.

In his most recent podcast, Peter Schiff reminds us what happened right after that 2000 peak.

The Nasdaq – it declined approximately 80% from peak to trough. So, the fact that we haven’t had a month this strong since 2000 should give people pause.”

Of course, there is no pause and seemingly no cause for concern, despite the fact US stock markets are so long into a bull market.

Everybody assumes this time it’s different, right? Even though this is already the longest bull market in history, most people are acting as if it’s just going to continue. I mean, a lot of people think we’re never going to have another bear market, or if we do, it’s so far into the future that there’s no point thinking about it. The same thing with a recession. Even though this is the second-longest economic expansion ever, instead of people being worried that we’re close to a recession, most people think that a recession is nowhere in sight. So, just playing the probabilities, you would think that people should be worried. But people are betting that we’re not going to have another recession and we’re not going to have another bear market – maybe ever.”

As Peter said, if you’re going to assume, it’s a much safer bet to assume we will have another recession and another bear market – and relatively soon.

It’s long overdue. It can start at any minute … But people are oblivious.”

Of course, not everybody is oblivious. Recently, investment and commodities guru Jim Rogers said we’re heading toward the worst bear market in his lifetime. But Peter’s right. Most people out there in the mainstream remain completely oblivious.

As Peter pointed out, it’s not even like every stock market in the world is running with the bulls. A lot of emerging markets are getting clobbered. Some are even at decade lows.

This is not a situation where stocks all around the world are going up. You’ve got the US stock market kind of going up all by itself because everybody perceives that the US is the one strong market – the safest place to hide out. It’s like the only game in town. If you want to be long stocks, you have to be long US stocks because that’s the market that’s going up.”

The problem is the US stock market is going up based on a slew of misconceptions about the US economy, about the efficacy of Fed policy and the future trajectory of Fed policy.

When reality sets in, you’re going to see the US market tank.”

Peter said while the US markets may well go south quickly, some of the foreign markets may do quite well. Why? Because the thing that is causing so much trouble for a lot of the emerging markets right now is the strength of the dollar.  The US is sucking up capital from all around the world in what Peter called a “giant crowding out effect.” In fact, this is also what is dragging down gold.

The dynamics are very similar to the bull market we saw in the late 1990s.

In fact, the bull market that ended in 2000 was the longest bull market ever until this one. And so, we just broke that record, and as I’ve been saying, we just had the longest bull market – it’s going to be followed by the longest bear market, not only in duration, but in severity, if you want to measure it by a real loss in purchasing power.”

Many of the countries that are struggling with their currencies right now have current account deficits. Of course, so does the US. In fact, the US has a huge current account deficit, both in terms of real numbers and as a percentage of the economy.

But also, the bigger difference is we still have really, really low interest rates on Treasuries and US debt. That is helping to keep our current account deficit lower because we don’t have to pay as high an interest to all of our creditors. Well, what happens as interest rates really go up? That’s going to put upward pressure on our current account deficit. But what’s so pernicious about the US current account deficit is we don’t borrow for capital investment like these other economies. We borrow for consumption. We borrow to finance our trade deficit. So, Americans are borrowing to consume. They’re not borrowing to invest and produce. And when we have our currency crisis, our economy implodes because we know it’s all based on spending. It’s all based on buying foriegn products with cheap money and credit, and all that’s going to come tumbling down.”

Of course, when the dollar does come down, that will be a giant relief for the rest of the world.

Peter also talked about trade and Labor Day in this podcast. He said we should really be celebrating the labor of the entrepreneur.

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