Peter Schiff: Divided Government Would Not Be Bullish for the Stock Market
In a recent podcast, Peter Schiff talked about the “Trump tariff put” – this idea that the president will be able to call off the trade war to rescue the market should it start to fall. Peter called that idea nonsense.
It is the type of wishful thinking, the type of just ignoring all of the bad news, whistling past the graveyard, the type of mentality that you have in a bull market where everything is good news and there is nothing to worry about.”
In his most recent podcast, Peter tackled another similar myth – that a divided government will be bullish for the market.
There is a strong possibility the Democrats will take control of the House in November. They could even win the Senate.
One thing that could push the elections over the edge is a drop in the stock market between now and then. Peter said that’s certainly a possibility. After all, the bond market is weak and the dollar has been trading on the low end of its recent range – even after trade tensions ratcheted up again early this week.
That shows me there is some vulnerability here in both the bond market and the dollar that ultimately could spill over into the stock market. That could happen before the midterm elections. And of course, since Trump is claiming so much credit for the rise in the stock market and using that rise to validate his policies, to prove the efficacy of his policies … If the stock market is falling as voters are going into the polls, then the more recent performance could be what is more important than the absolute performance since Trump took office. And who knows? The market could crash at any moment.”
And of course, the whole Brett Kavanaugh Supreme Court nomination fiasco could hurt GOP candidates at the polls.
So, there is certainly a strong possibility that the Democrats could gain control of at least one house of Congress. Oddly, some pundits are saying this would actually be bullish for the stock market.
The stock market bulls are saying that if we have divided government that this is historically positive for the markets, and therefore it will be yet another positive for this stock market.”
Peter said, “This is a bunch of nonsense.”
Now he conceded that historically, divided government has probably been good for the stock market. After all, divided government means you’re less likely to see progress in legislation. Since laws are generally harmful, the fewer laws Congress passes, the better off we are. But Peter said the hope that we have now is that there will be continued deregulation.
Obviously, if we lose control of the Congress, if the Democrats take control of Congress, if you were hopeful that we would have more deregulation, then your divided government will put a stop to that. So, if divided government stops government from getting smaller – if that was ever going to happen – then it is not a good thing.”
Here’s the thing. The booming stock market is supposedly built on the success of the Trump agenda. His ability to continue pushing that agenda forward will be severely curtailed if Democrats control even one house of Congress.
Nothing that Trump wants to do will get through Congress, so if you’ve been betting that it would then the Republicans losing control of Congress is definitely a bad thing … Why would losing a Republican Congress that is thought to be supportive of business and a pro-business agenda, why would losing control of Congress to the Democrats – to socialist Democrats – why is that bullish for stocks? How could you possibly think that is bullish for stocks? If you think what we have now is bullish, and now we lose a chunk of that, that just shows you that it doesn’t matter what happens. These analysts are always going to say it’s bullish. No matter what happens, it’s bullish for stocks because stocks are going up because we don’t want to even fathom the possibility that something that could happen would be negative for stocks.”
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