Monday, January 4, 2016

Peter Schiff interview with Gold Eagle

Gold-Eagle:  Fed Chair Janet Yellen recently hiked interest rates by 0.25%. What impact do you believe this will have upon US stocks and the national economy?

Peter: The air was already coming out of the bubble prior to this tiny rate hike.  But now that the hole has been made larger by the hike, the air will rush out that much faster.  The key is how much longer the Fed will wait before admitting that the economy is much weaker than they believed and reverse course.

Gold-Eagle: The last time the Fed increased the Federal Funds Rate was nine years ago in June 2006. In your view do you believe the Fed will continue raising rates in 2016 with the objective of increasing inflation to stimulate economic growth?

Peter: No, I believe the Fed will reverse course sometime in 2016 and lower rates back to zero, and may in fact reduce them below zero.  I also expect the Fed to launch another round of quantitative easing, not because it works, but because it’s the only policy tool they believe they have.

Gold-Eagle:  The US Dollar Index has been rising vis-à-vis other currencies for nearly two years…and it surged up recently closing 99.32 on the news of the Fed hiking rates. In the event the US greenback continues to strengthen through 2016, what effect might it have on the US stock market?

Peter:   I do not believe the dollar’s strength will continue now that the rate hike currency markets have been anticipating for years has finally materialized.  In fact, I believe the foreign exchange markets have priced in a much higher degree of tightening than the Fed will actually deliver.  So the “fact” will not live up to the hype of the “rumor”, and I expect the dollar to be sold aggressively as a result.

Gold-Eagle:  Various international stock market analysts are forecasting bear markets worldwide. Do you concur…and if so why?

Peter:  No, I think foreign stock markets are already experiencing bear markets based on dollar strength, and the fear that the dollar will get even strong as the Fed raises rates further.  However when the Fed surprises the markets but reversing course, cutting rates and launching QE4, the dollar will fall sharply, providing substantial relief to many foreign economies, in part by reducing the cost of repaying dollar debt, and by increase the price of commodities which foreign economies export.  Also as money flees U.S. assets in search of alternative safe havens, some foreign markets will be the beneficiaries of those flows. 

Gold-Eagle:  All US stock indices are near all-time highs. Moreover, the present Bull Market in Wall Street stocks is one of the longest in history. Furthermore, one of the most accurate indicators of a market top has always been the New York Stock Margin Debt…which today is also at an all-time high – even higher than it was in 2001 and 2007 when stock market crashes began.  In light of all of the above, do you feel we are in for a moderate stock market correction, or a mind-boggling STOCK MARKET CRASH?  Specifically, how low might the Dow Industrials and S&P500 fall in 2016?

Peter:  If the Fed were to attempt to normalize interest rates or shrink its balance sheet, I think the stock market would fall sharply.  My guess would be at least a 50% decline from recent highs, if not more.  That would be similar to the declines suffered during the last two bear markets.  However I believe the Fed will use monetary policy to prevent such a sharp decline from happening a third time, but in the process sacrifice the value of the dollar.  So priced in gold, I expect U.S. stocks to lose a lot more than 50% of their value.

Gold-Eagle:   As you well know gold has been correcting since October 2011, when it reached an all-time high of $1,926/oz….which translates to a humongous correction of -45%.  Surely, gold will most probably bottom in the next year…when the public finally realizes that fiat money offers NO guarantee of future buying power. Consequently, what is your estimate of where and when gold will finally bottom…and again resume its secular bull market that began in early 2001?

Peter: I believe gold fell for the same reason the dollar rose, and gold will reverse those losses now that the Fed has finally raised rates.  But it will rise much faster once the markets begin pricing in the next easing cycle, which I think will be even more aggressive than the last.  But given the huge speculative bet against gold in the paper markets, and the lack of physical supply, I think the coming rally will be the biggest leg of the entire secular bull market that began when gold bottomed just above $250 per ounce back in 1999.

Gold-Eagle:  Based upon all the above, what is your forecast for the gold price and silver price out five years to 2020? And why do you believe precious metals will be the best performing assets WORLDWIDE?

Peter: I have gotten into trouble recently trying to put a calendar date on a future gold price, but suffice it to say that I expect the price of both metals to be significantly higher in five years than they are today.  And by significantly, I mean well above the 2011 high of just under $1,900.