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Peter Schiff: The Fed Is Going to Have to Give

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We are now officially in the longest bull market in US stock market history. Yesterday took out the record set in the 1990s. As Peter Schiff pointed out in his most recent podcast, the old record run ended in 2000.

And we all know how badly it ended. It ended with a 50% collapse, an 80% collapse in the Nasdaq, and the Federal Reserve had to slash interest rates to 1% and inflate a housing bubble in order to prop the market back up.”

Peter said he believes this bull market will meet a similar if not worse fate.

In fact, I think that the coming bear market … will be the worst bear market in US history, not probably in a nominal sense, but a real sense. Meaning how much value the US stock market loses if you want to price it in gold.”

Pres. Donald Trump continues to take credit for the bull market, despite the fact that the vast majority of it happened before he ever took office. Of course, as a candidate, Trump called the market a “big, fat, ugly bubble.” He was right then, but as the saying goes, he’s forgotten where he came from.

Of course, now that it’s his big, fat, ugly bubble, it’s no longer ugly, it’s no longer a bubble, it’s probably no longer fat either. It is just a record-setting bull market that he wants to claim credit for.”

The Federal Reserve released its August minutes yesterday. It didn’t reveal anything new and had little impact on the markets. The central bank appears on pace for another rate uptick in September and then again in December. But there was a little dovish sentiment buried in the minutes as a number of the FOMC members expressed concern about the trade war, and indicated they could slow the pace of hiking if it continues to heat up.

The Fed also acknowledged some weakness in the housing sector. Peter said he thinks they are actually understating it. Existing home sales numbers released yesterday showed the fourth straight monthly decrease. As Peter noted, that hasn’t happened in five years.

I think we’re going to get another declined next month, and if the Federal Reserve is concerned a bit about weakness in the housing market, why would they want to continue to raise interest rates? Because part of the problem for the housing market are the interest rates that are making homeownership more expensive.”

The Fed also mentioned concern about emerging markets. Some analysts fear the currency crisis in Turkey could spread to other emerging economies. The expectation that the dollar will continue to strengthen is the real problem for emerging markets.

And the main reason that everybody believes the US dollar is going to continue to strengthen is because they believe the Fed is going to keep raising rates and shrinking its balance sheet. So, the longer the Fed is going to keep up the pretense that it’s going to raise rates and shrink its balance sheet, then it continues to put pressure on emerging markets and it continues to put pressure on the housing markets. So, ultimately, the Federal Reserve is going to have to give, and what the markets are going to have to start anticipating is the end of the cycle. Because even though the Fed is still talking about removing the monetary combination, there’s not much left that they can remove without the whole thing coming toppling down. In fact, the evidence is already there that the economy is weak, despite the refusal of the markets to acknowledge that. And clearly, Donald Trump wants to continue to pretend that the economy is strong.”

Peter said talking up the economy is really the only thing the president has left to take public attention away from the political mess that’s unfolding.

Peter goes on to talk about the political turmoil Trump now finds himself embroiled in. He said that the president’s denial of the obvious compounds his mistakes. Listen to the whole podcast to get Peter’s take on Trump’s troubles and what it could mean down the road.

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