Peter Schiff: The Fed Is Printing Cash to Buy Trash

The stock market continued to rally last week despite the fact that the economy remained on lockdown. Stocks made gains even after the weekly report revealing that another 6.6 million people filed for unemployment, bringing the three week total to nearly 17 million people. That’s 10% of the workforce.

In what kind of world does this make sense? Peter Schiff talked about it in his podcast.

The Federal Reserve announced yet another massive quantitative easing program to the tune of $2.3 trillion. The Fed committed to make hundreds of billions of dollars in loans to mid-size businesses and to purchase short-term notes directly from states, counties and large cities. The central bank also announced it will buy investment-grade and junk bonds.

As Peter said, the Fed is basically buying everything at this point.

The Fed is going to be using all of this freshly printed cash to buy all the trash. They’re going to be buying junk bonds and muni bonds. And you name it, if you can’t sell it, the Fed is going to buy it from you.”

The Federal Reserve’s balance sheet increased to a record $6.13 trillion last week. It’s already over $2.2 trillion bigger than it was at its previous peak in 2015. Meanwhile, the money supply has surged by $800 billion. That’s nearly $1 trillion of new money injected into the economy in just 14 days.

In effect, the Fed is conjuring up trillions of dollars out of thin air and bailing out everybody. And that is why you see the stock market rallying despite the gloomy economic prospects. It is nothing more than a stimulus-fueled rally.

During a talk last week, Federal Reserve Chairman Jerome Powell promised that the Fed was going to put away all of these tools once the coronavirus past. As Peter pointed out, this is the same lie Ben Bernanke told.

The tools are actually breaking the economy more. So, now you need to use the tools in an even bigger way because you made the mistake of using them in the past. We need to blow up these tools. We need to throw away these tools so the Fed never uses them again.”

When the Fed was engaging in all of this market intervention after the ’08 meltdown, it was described as a bazooka. One analyst last week called this latest round an atomic bomb. And he said, “It seems inconceivable that this gargantuan economic and monetary stimulus from the US government cannot cause rising and even problematic price inflation down the road.”

That, of course, is good for gold.

Gold hasn’t been in the spotlight of late. In fact, it’s been in a bit of a tug-o-war between its role as a safe haven and a rush to liquidity in order to cover losses in the stock market. Nevertheless, it has been quietly pushing upward. The yellow metal hit $1,700 per ounce a couple of times last week and gold futures climbed to a seven-and-a-half-year high last Thursday.

Even without a headline-grabbing gain, gold is up more than 15% year-to-date, versus a more than 14% decline in the S&P 500

Peter said right now we are just buying time before we see an explosive rally in the price of gold.

It’s coming almost any day.”

Gold stocks have also started to recover. Keep in mind, gold stocks tend to lag behind a rally in the price of physical gold. Peter said Newmont mining is the third-best performing stock in the S&P  500.

But as they say, you ain’t seen nothing yet.”

Peter talked a little bit about the performance of EuroPacific Capital’s funds. They have rapidly been improving compared to the market, even though they are still underperforming the US markets.

That’s not going to last long either. I think we’re going to quickly regain all of the underperformance because we were being compared to a bubble. How do you outperform a bubble? I mean, you can’t. All you can do is sit out the bubble and wait for it to pop. And then everybody who doesn’t know its a bubble loses all of their money. And that’s exactly what’s going to happen.”

Peter said there are basically two ways things can go. The Fed will either continue on the path it’s on and destroy the value of the dollar, or it will stare into the abyss of hyperinflation and pull back. Of course, that would collapse the house of cards built on a table of debt. Neither option looks too good at this point.