Peter Schiff: The Dollar Takes a Dip

On Friday, Peter went live to discuss the first trading week of Donald Trump’s second term. Throughout the episode, he describes the dangers of excessive consumption and how global investment in AI might sedate the economy in the short run. He also explains the recent drop in the U.S. dollar and gives his unfiltered take on why he thinks gold prices are poised to launch sooner rather than later.

Peter starts by examining some of President Trump’s new policy initiatives, including the Stargate Project, which allocates $500 billion to AI research. Discussing the short-run costs of large-scale AI development, Peter reminds listeners that resources devoted to one project are necessarily diverted from another:

What I do know is that in the short run, there is a big expense to the world investing 500 billion dollars. Of course, that’s not all the investment. There’s more. But if we’re going to invest this money, it’s got to come from someplace. That means that other investments that might have been made that may have had a shorter payoff, payback, they’re not going to get made. Everybody wants to talk about how if we invest money, it stimulates the economy. If we build a bridge, it’s going to stimulate the economy. The building of the bridge doesn’t stimulate the economy. In the short run, it actually sedates the economy because resources to build that bridge need to be diverted from something else.

He goes on to underscore the phenomenon of “head fakes” in currency markets, especially with the U.S. dollar recently slipping from its highs:

This week was a big drop, about 2% drop in the dollar index. Now, it’s still pretty high in the scheme of where it was before Trump was elected. We’re about 107.5. But we got above 110 last week. So we’re about 2.5% below the high. The euro is back at like 105 after being, I think, slightly below 102 when it hit the low. But we’ll see what happens next week. I think if we get another drop next week in the dollar, I’ll be pretty confident that we’ve seen the highs. And this whole move up in the dollar was a gigantic head fake just to get all the traders positioned the other way before they get the rug pulled out from under them.

Commenting on this week’s movement in gold stocks, Peter offers a particularly bullish forecast, calling this next market cycle potentially “bigger than what we saw in the 70s”:

This is, I think, going to end up being the biggest bull market that we’ve ever seen in gold, probably bigger than what we saw in the 70s, which is a tough act to follow, if you recall the 1970s, when gold went from $35 an ounce to $800. So I’m talking about something that potentially is going to be bigger than that. But the biggest bull market in history, accompanied by the most skepticism, the most bearishness. There is no greed.

As Trump’s protectionist rhetoric develops, Peter questions his intention to follow through on high and far-reaching tariffs:

And if Trump was right, if it’s a freebie, if Americans get it for nothing, if we really could put the cost of our government on the Canadians or the Mexicans or the Chinese, why not do it? And, you know, why stop at 20 percent? Why not 40 percent? Why not 100 percent? Make the world pay for everything. Just get rid of the income tax and have the Chinese pay for everything. Have the Europeans pay for everything. If that’s the case, because it’s not the case.  It sounded great to campaign: ‘We’re going to raise taxes on foreigners who can’t vote.’ But when it comes down to it, he doesn’t really want to do it.

Peter wraps by criticizing Trump’s initiatives on the global stage. To take one example, he believes calls for hefty global military spending are out of step with fiscal realities:

Now, one of the crazy things that Trump said is he wants the rest of the world to increase their military spending and spend 5 percent of their GDP on the military. Now remember, a lot of the rest of the world is in debt too. I mean Europe has got a lot of debt, and Trump wants Europe to spend more on defense. They’ve got to spend less. Everybody’s got to spend less, including us. 

For more commentary on Trump’s first week, listen to Joel on the SchiffGold Gold Wrap Podcast!