Peter Schiff: Things Are About to Get a Lot Worse for the Stock Market
Stock markets rallied to close out March and ended up in the black for the holiday-shortened week, but markets were down on the month and also for Q1 2018. In fact, it was the first quarter in the red for stock markets in 10 quarters.
During his most recent podcast, Peter Schiff said he thinks this was just the first of many down quarters to come, reiterating a theme he hit on last week.
Remember, the market action that I’ve been observing really, to me, looks like a bear market.”
Peter said he still sees a lot of shakiness in the economy. The Atlanta Fed did upgrade its Q1 GDP forecast to 2.4%, up from 1.9% from the week before. Part of the optimism stemmed from a large increase in inventories. That offset a larger than expected gain in the trade deficit, a figure that would subtract from GDP.
Inventories are a positive contributor to GDP. But as Peter pointed out, that’s a two-edged sword.
When you see this big buildup in inventory, there’s a good chance that all your doing is borrowing GDP from the future – that we’re taking GDP from the second quarter and moving it forward into the first quarter. Because, if companies can’t sell that inventory, then the inventories aren’t going to draw down. And I don’t think they’re going to be able to sell it. I think, again, it’s about businesses being over-optimistic about what their customers can afford to buy.”
Peter may have a point when you consider retail sales have fallen three-straight month. In fact, we might be seeing the beginning of a retail apocalypse.
To me, it makes sense that the inventories are building if people aren’t buying the stuff, so it’s sitting there on the shelves, piling up, and that to me is not indicative of a strong economy.”
In another bad sign, Chicago PMI dropped for the third consecutive month and fell to its lowest level in a year. Analysts had forecast 62.8, but the number came in at 57.4.
Meanwhile, the prices paid index is jumping. That’s an indicator of inflation. So, these are not good signs.
You’ve got a weakening economy. You’ve got a stock market that to me is now in a bear market, not a bull market. And that was really the driver of a lot of the optimism. It was a function of the stock market. A lot of the reason people felt good about the economy was because the stock market was so high. In fact, that’s what Donald Trump kept talking about. ‘The market is hitting new highs, the market is hitting new highs. I’m doing a great job! The economy is booming because the market is making new highs!’ So, a lot of the belief that the economy was doing great had to do with the stock market. But then again, the stock market was going up because everybody believed the economy was doing great. So basically, there was really no proof that the economy was doing great because the market was just buying it on faith.”
Peter once again brought up the fact that the tax cuts are not going to create the promised economic growth because the government is still growing and it will still have to be paid for, whether by higher taxes down the road, or money printing and inflation.
I think that is going to be a bigger drag on the economy than whatever boost you might get from the tax cuts.”
The bottom line: this first down quarter in ten for the stock market is just the tip of the iceberg.
Things are about to get a lot worse for the stock market.”
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