The markets seem to think that everything is fine. They believe the Fed has effectively beat price inflation and it can mop it up without crashing the economy. In his podcast, Peter Schiff said in reality the Fed is at a fork in the road, and there is an imminent disaster waiting no matter which way it goes. He also warned that the biggest crisis is the one nobody sees coming.
The bond selloff continued last week. With yields rising coupled with dollar strength, gold got clobbered, closing the week below $1,850. That represented about a 4% drop in the price last week. Gold stocks fared even worse with the GDX dropping about 8%.
Peter said that it wasn’t the move he would expect given what’s going on.
Although I understand it because you have so many people that don’t get what’s going on. They look at this rise in interest rates, and they look at persistent inflation, and I’m going to get to the economic news in a bit, but the news that came out again was consistent with more inflation and the Fed being higher for longer. And that narrative is what’s driving gold prices down.”
Peter said the market has this completely wrong.
This is all bullish for gold and it’s bearish for the dollar. It’s not a sign that the Fed is going to have to fight harder to win the fight against inflation. It’s a sign that the Fed has already lost the fight against inflation. It doesn’t matter if it fights harder. It can’t win. And in the meantime, if it keeps on fighting, it is going to collapse the economy.”
Every element of the economy will be subject to the collapse from governments, to corporations to individuals.
Everybody that’s been borrowing money for the past 15 years – there is going to be a crisis if the Fed keeps interest rates at this level or raises them.”
That’s the position the Fed is in, but the markets seem to think the Fed can manage it without collapsing everything.
But Peter said we’ve reached a fork in the highway.
The Fed has been able to successfully kick the can down the road, and we’ve now caught up with the can and there’s a fork in the road at this point. But no matter which direction the Fed kicks that can, there’s an imminent disaster waiting.”
Either the Fed keeps fighting inflation and causes an economic meltdown, or it tries to avoid the meltdown in the economy and the banking sector by pivoting and cutting rates. That would mean even more inflation.
They have to do one of these two things, but either way, there’s a disaster. There’s no policy choice this time, I think, where you don’t have an imminent disaster.”
The markets see rising interest rates and they are reacting based on their perception that it’s bearish for gold. Peter said the problem is they’re not looking beyond one move ahead.
They’re all playing checkers. I’m playing chess. I see this through to the checkmate. I know how this game is going to end. I know that ultimately, everything that is happening right now, is bullish for gold, and it’s bearish for the dollar.”
Peter said most of the mainstream people have no idea what’s right around the corner. These are the same people who had no idea that the 2008 financial crisis was right around the corner.
It’s the same people making the same mistakes.”
And he reminds us that the worst crisis is the one nobody sees coming.
Peter said he took advantage of the selloff and bought more gold stocks.
I’m happy that gold sold off because it gives me a chance to buy more gold stocks at a better price, and I think everybody else should be viewing it the same way. When this thing changes — when the people who don’t have any idea what’s about to happen find out, when they’re blindsided by what happens, then they’re going to be rushing to buy gold.”