Peter Schiff: Are We Close to Exhausting the Bull Market in Stocks?

On Friday, the Dow Jones was up around 400 points early in the day, but closed down just over 200 points. Meanwhile, gold had a solid rally that held up. The yellow metal was up about $20 on the day. Could this be a sign of things to come? In his podcast over the weekend, Peter said he thinks it just might be.

I think the action in the stock market and the gold market Friday potentially is telling as to the future course of both markets.

Some will argue the late stock market selloff was due to quadruple expiration of various options and futures contracts that happens every quarter.

But I think beneath the surface, I think the market action actually is telling you, potentially, that we have exhausted this bear market rally in the stock market.”

Gold closed the day around $1,744 an ounce. This is the highest weekly close of the entire stock market bull run that started after the March plunge.

So, gold is continuing to look like its getting ready to break out. … This might have been a significant day and week in indicating that the stock market is about to break down, and gold and gold stocks are about to break out. “

For one thing, a lot of the initial economic news surrounding the reopening has been better than expected. This has juiced the stock market rally. People had prepared for the worst, but so far, they haven’t gotten the worst.

But people forget that before the pandemic, the stock market was already priced for perfection. It was extremely overvalued.

There is no reason for the market to return to the level that it occupied prior to the collapse because it never should have occupied that territory in the first place.”

The real problem will come when people start to realize we’re not recovering to where we were. We’ll be recovering to a recession/depression.

Because the economy was going to turn down even if we never had COVID-19, even if we didn’t have these mandated business shutdowns. We were long overdue for a recession anyway. We had the biggest expansion in history. A recession was going to start. To think that that recession is already over – that somehow a recession that began worse than any in US history even worse than the Great Depression –  that it’s already over, that it’s going to be a one, two quarter phenomenon, that is ridiculous. The recession started with a bang for a reason because it is going to last for a long, long time and be much worse than anybody imagined.”

At some point, this will have to be factored into stock prices. Peter said he thinks this will be coupled with a breakout to the upside for gold and gold stocks.

There is another shoe that needs to drop – a breakdown in the US dollar. Several people in the mainstream have warned about this in recent weeks. Yale economist Stephen Roach’s warned that “the era of the US dollar’s ‘exorbitant privilege’ as the world’s primary reserve currency is coming to an end.” Meanwhile, Guggenheim Investments Chief Investment Officer Scott Minerd said that while “there are no signs the world is questioning the value of the US dollar” right now, it’s clear that the greenback is  “slowly losing market share as the world’s reserve currency.”

Peter agrees. He said he thinks the dollar is on the precipice of a significant decline.

The biggest player in all of this is the Federal Reserve. Jerome Powell testified before both the Senate and House last week and promised that the extraordinary monetary policy will remain in play. As Peter pointed out in a podcast last week, Powell’s comments revealed an ugly truth. The Fed’s policy is not about the economy. It’s about propping up Wall Street.

At some point, the failure of the Fed’s policy will come to light. Powell admitted there is no plan to shrink the balance sheet. Remember, it was the anticipation of normalization that caused the dollar to bounce back and gold to sell off after the 2008 crisis.

That whole bubble, that whole recovery was predicated on the ability of the Fed to shrink its balance sheet and normalize interest rates. Well, now that everybody should know, because the Fed has told them that neither of those things are ever going to happen, the bottoms got to fall out of the dollar and gold’s going to go through the roof, and this whole house of cards is going to come tumbling down.”

Peter also talked about what he sees as over-optimism in the housing market and why a good Fed chair could never be popular in bad times.