Peter Schiff: We’ve Sold Our Monetary Souls to the Devil

Stocks continue to surge upward thanks to optimism about a coronavirus vaccine. Of course, stocks have been on a bull run ever since their big March drop at the beginning of the pandemic. This led Peter Schiff asks a poignant question during his podcast: if COVID-19 didn’t hurt the stock market, why should a vaccine help?

This week Moderna announced success in a coronavirus vaccine trial, adding to the optimism that an effective vaccine could be out soon. Stocks were up and gold sold off, but not to the extent that we saw with the Pfizer announcement last week. Peter asked, “Why is the market even rallying on a COVID vaccine?”

I know it is good news. If we get a COVID vaccine, then more people can go back to work. More people will feel comfortable traveling and doing all sorts of things that they used to do pre-COVID that they’re no longer doing. So, all of that is good news, except none of the bad news was ever priced into the stock market. The stock market is not way down because of COVID. It’s at record highs. So, if the stock market didn’t go down at all because of the COVID pandemic, why should it rally if the COVID pandemic is going to come to an end?”

Not to mention the fact that we don’t know when, or even if, these vaccines will actually come on the market. The FDA may never approve any of these vaccines. It could take months to mass-produce them even when and if they are approved.

Peter said he could see how stocks would be rallying on vaccine news if they had been clobbered by COVID, but they didn’t get killed at all.

Thanks to the Federal Reserve, thanks to all the stimulus, the market is higher post-COVID than it was pre-COVID. So, why should any positive news be positive for stocks when the negative news wasn’t negative for stocks?”

Peter said the only thing that makes sense to him is that traders know it doesn’t really matter what happens with COVID. They understand that it’s the stimulus that has kept the market blown up over the last several months when it should have sold off due to the economic impacts of the pandemic.

Because of all the cheap money, the artificially low interest rates, the money printing, that’s what caused the market to go up. I think that traders recognize that even if COVID goes away, that that cheap money is here to stay.  Because if traders believed that the end of COVID also meant the end of zero percent interest rates and quantitative easing, stocks would not be rallying on a COVID vaccine. They would be getting killed on a COVID vaccine because the vaccine would kill all the stimulus.”

Federal Reserve Chairman Jerome Powell spoke on Tuesday and said that the central bank cannot end emergency measures too soon and again called on Congress to pass additional fiscal stimulus.

The reason he’s saying this is because he knows there’s no turning back. And I think the markets know we’ve sold our monetary souls to the devil and there’s no getting out of this deal. That is the predicament. Because of the sheer volume of the money printing, and the QE, and the zero percent rates, that monetary policy in the face of COVID was so extreme and so reckless, the economy has now been given such a massive jolt of this monetary heroin, that there’s no dialing back the dosage. We have so much debt now, the markets are now such a massive bubble that the Fed wouldn’t dare risk pricking it.”

In simple terms, the Fed has no way out.

A COVID vaccine could be the best of both worlds. It will help the economy improve, and earnings will likely increase, but the monetary stimulus will continue as well.

The Fed is not going to take away the punch bowl. If the Fed was going to respond to the startup of the economy by winding down its stimulus, if the Fed was going to start raising interest rates and shrinking its balance sheet, that would override the growth of earnings that would result from the economy starting up again because of the COVID vaccine. So, what the markets now believe they’re going to get — they’re going to have their cake and eat it too. The economy is going to come back because of the vaccine, but because the bubble is now so big, and the Fed created such a massive addiction, that we’re going to continue to get COVID monetary policy even after COVID is no longer an issue.”

This means prices will have to surge.

Inflation is the elephant in the living room that nobody wants to acknowledge that they see. But it’s there. It’s staring us in the face. And it’s going to become more and more obvious as 2021 really begins to play out.”

This means that a coronavirus vaccine is not bearish for gold.

People weren’t buying gold because of COVID. They were buying gold because of the monetary and fiscal policy that was a response to COVID. Well, since those policies are not going to go away — in fact, they’re going to get worse, we’re going to have even more monetary and fiscal stimulus, even if these vaccines work than we had before. So, there’s no reason to be selling gold based on a COVID vaccine. You should be buying gold based on the reality that it doesn’t matter what happens to COVID. We’re going to keep printing money and we’re going to keep interest rates artificially low.”