Peter Schiff: Irrational Exuberance in the Stock Market Casino
The Dow Jones and the S&P 500 hit new all-time records on Tuesday (Oct. 26). In his podcast, Peter Schiff focused on a few speculative stocks that have had meteoric rises (and in some cases crashes) over the last few days. He said this is evidence of the speculative fervor in this massive bubble.
What we’re seeing today is just another indication of the casino-like nature of today’s stock market that is completely the byproduct of artificially low interest rates, the inflation that the Federal Reserve and other central banks have created.”
So far, this latest round of speculative excesses has not marked the top of the market. After all, the markets continue to set new records.
I don’t know that this latest iteration of the speculative fever means that the markets have topped out. But it does provide additional evidence of the bubble-like nature of this market. And eventually, it’s going to come crashing down. If not now, sometime soon. And if it doesn’t come crashing down, it’s only because the dollar came crashing down instead.”
If we end up going down the hyperinflation route, we won’t see a stock market crash in nominal terms in dollars.
But everything will crash even faster and further in terms of real money. So, if we have hyperinflation, yes, these bubbles will implode, but you won’t be able to see the implosion if your prism is the US dollar. But it will be far more visible if you’re looking at it through the lense of gold.”
The first stock Peter discussed was Tesla. The stock hit an all-time high interday Tuesday although it closed off that mark. Nevertheless, the market cap is over $1 trillion. Only four other stocks in the world have market caps of over $1 trillion. Apple and Microsoft have market caps of over $2 trillion. Google is at $1.8 trillion, and Amazon has a market cap of $1.7 trillion.
That means Tesla is the fifth most valuable company in the world even though its earnings pale in comparison to those other four companies.
None of this would be possible but for the monetary policy of the Fed.”
So, why did Tesla stock go up so much?
The stock price surged after Hertz announced it would buy 100,000 cars from Tesla. The projected revenue for the contract is $4 billion. That means even if Tesla makes a 25% margin (an unlikely scenario), the profit would be just $1 billion. Meanwhile, the value of Tesla stock increased by over $100 billion on the news.
It makes absolutely no sense. It went up by more than 20 times the added revenue of the deal, 100 times the added profit of the deal. Why is that sale so valuable to Tesla? Does the market just believe that everybody is going to give Tesla these kinds of orders, like all the rental car companies? But even if they got all the rental car companies’ orders, it still isn’t going to be worth the increase in the market cap of the stock. This is just pure speculative frenzy.”
The point to understand is the increase in the market cap of Tesla stock has no relationship to the news that drove the price up. Nobody cares. It’s “buy now and ask questions later.”
Peter discussed some other stocks with crazy valuations, including Donald Trump’s company Digital World Acquisition Corp. and Bakkt Holdings, which saw a big rise on news of a crypto partnership with MasterCard.
In this podcast, Peter also talks about Jack Dorsey’s hyperinflation warning, Stanley Druckenmiller’s failure to understand the Fed is the problem, and how politicians aim their weapons at billionaires but end up hurting the middle class.