The SchiffGold Friday Gold Wrap podcast combines a succinct summary of the week’s precious metals news coupled with thoughtful analysis. You can subscribe to the podcast on iTunes.
The stock market continued its yo-yo ways on Friday. After three straight days of healthy gains, the Dow Jones Industrials fell 572 points to end the week, closing below 24,000. The Nasdaq also plunged, dropping 161 points.
Peter Schiff has been saying for weeks this is a bear market. Well, now even Pres. Trump has said investors may see some short-term pain in the stock market. But the president says it will all be worth it because we will get long-term gain, referring to the benefits we’ll reap when we win the trade war. In his most recent podcast, Peter said that’s not how it’s going to play out.
We’re going to have short-term pain and then the pain is going to get worse in the long-run.”
The big problem is, nobody is really ready for any pain at all.
There has been a lot of volatility in the stock market over the last couple of months. Peter Schiff has been saying we are already in a bear market. But most mainstream analysts remain upbeat. They insist the recent volatility is normal. The economy is picking up steam. Inflation remains tame. The jobs market continues to grow. Everything is great!
But there are realities underlying this market few people seem to be paying any attention to, and they reveal a serious disconnect between corporate America and Wall Street.
Companies are drowning in debt.
In his most recent podcast, Peter Schiff said gold could explode at any minute. Maybe the mainstream was listening because some big players, including Goldman Sachs, have suddenly turned bullish on gold.
Commodity analysts at Goldman say they expect gold to “outperform” in the coming months due to an uptick in inflation and “increased risk” of a stock market correction. According to a CNBC report, it’s the first time in more than five years Goldman’s commodity analysts have been bullish on the yellow metal.
The SchiffGold Friday Gold Wrap podcast combines a succinct summary of the week’s precious metals news coupled with thoughtful analysis. You can subscribe to the podcast on iTunes.
The Federal Reserve bumped up interest rates another 25 basis points this week. The target federal funds rate now stands at 1.75%.
“Well, OK,” you might be thinking. “But this is just a bunch of wonkish policy stuff. What’s it to me?”
In a nutshell, it means your debt is going to cost you more. And that’s not good in an America where household debt has spiraled to record levels.
The Federal Reserve followed its script yesterday and raised interest rates another 25 basis points. But the central bankers did surprise some people by hinting at just two more hikes this year. Analysts have been fixated on the possibility of four 2018 rate increases.
The Fed’s slightly more dovish tone on rate hikes sent gold climbing. The yellow metal gained about 1% in the aftermath of the FOMC meeting.
Nevertheless, even while dampening expectations of faster tightening, the Fed continued to talk up the economy. In fact, the central bankers project continuing rate hikes all the way into 2020. In his most recent podcast, Peter said the Fed sounded even more optimistic about the economy than it has in the past. He called it “all politics,” designed to maintain the illusion that everything is great.
Expectations that the Fed will continue and perhaps even quicken the pace of interest rates hikes have created headwinds for gold. But there another side to the rising interest rate phenomenon that a lot of people in the mainstream seem to be missing. According to a recent Bloomberg report, the prospect of a higher interest rate environment is feeding signs of financial stress among debt-laden consumers.
This doesn’t bode well for the US economy and could spur safe-haven demand for gold.
The Federal Reserve opens its March Open Market Committee meeting today. Most analysts say there is a 100% chance for a rate hike during this go-round. Overall, there is a decidedly hawkish attitude when it comes to the Fed. The real debate right now revolves around whether the central bank will hike three or four times in 2018.
But Peter Schiff said in his most recent podcast he isn’t certain about all of these rate hikes.
The fact is I’m still not 100% sure the Fed is going to hike on Wednesday. Now, I would argue or agree that it’s more likely than not that the Fed is going to hike because they’ve been hiking interest rates all along. The Fed, so far, has not given any indication that they’re not going to hike because they don’t want to give up the ghost of this vibrant recovery where they need to raise rates because everything is going so well. But that whole narrative, that whole illusion, seems to be fading very quickly.”
So, could we see a more dovish Fed before the week is out?
The Federal Reserve claims to be tightening. According to the conventional wisdom, the Fed will raise interest rates at least three times in 2018 – maybe even four. And last fall, the central bank announced its plan to begin shrinking its balance sheet.
But have you actually looked at the Fed’s balance sheet? Dan Kurz of dkanalytics.com has. In fact, he has dug deep into the Federal Reserves opaque world of financing and concluded all of this talk of shrinking balance sheets and normalized interest rates is pure fantasy.
As sure as night follows day, before all too long the world’s leading central banks will be abandoning both fledgling interest rate increases and QT fantasies (reducing the size of their balance sheets by selling bonds and stocks) out of ‘status quo necessity.'”
