Peter Schiff envisages recession worsening in his latest blog.
“It’s getting harder and harder for recession deniers to justify their optimism. And some people seem to be waking up to that reality,” he said.
Indeed, July US GDP data, scheduled to be released on July 28, is likely to confirm the second decline in US GDP, which is the technical definition of a recession.
Few people doubt that the US is in a recession and the latest shoe is to fall in real estate as demand for mortgages collapses, and the average mortgage payments have gone up by 400 US dollars due to Fed’s most aggressive rate hikes since 1994.
“It’s getting harder and harder for recession deniers to justify their optimism. And some people seem to be waking up to that reality”
Bond King Jeff Gundlach had the US economy on recession watch in January 2022
Frankly, if the Fed continues to ignore the recession, and collapses the economy into a great depression with more aggressive rate hikes, standby for unprecedented foreclosures, loan defaults, and massive layoffs, which would make the 2008 recession look like a picnic.
The debt burden has worsened since 2008. The US public deficit now exceeds 30 trillion US dollars. Moreover, a global US-denominated debt crisis of 303 trillion US dollars is looming, according to the Institute of International Finance, a global financial industry association.
The domestic and global economy is too fragile and highly leveraged to shoulder more aggressive Fed rate hikes.
Someone should tap Fed Chair Powell on the shoulder and tell him the reality. Cash-strapped Americans are too broke to pay their phone bills.
There is no case study where central banks in cahoots implement monetary contraction during a full-blown recession. The Fed and ECB are in contractionary mode during an economic downturn. In the latter case, the EU political instability and civil unrest are moving on the radar. It is intellectually dishonest to argue that raising the cost of serving debt, through rate hikes will solve the cost-push inflation problem, which adds to demand destruction, layoffs, and a depressionary cycle. Central banks are flirting with the Great Depression and all the civil political unrest associated with an economic collapse.
“Cash-strapped Americans are too broke to pay their phone bills”
WEALTH TRAINING COMPANY
Peter Schiff envisages a recession worsening is sound logic, bearing in mind the Fed’s rate hikes are likely to add to headwinds on the economy and worsen US GDP data in the coming quarters
Peter Schiff noted that Weekly first-time jobless claims rose for the third consecutive week, hitting 251,000. This was higher than projected, and it’s the highest level of jobless claims since last October.
Higher input costs combined with demand destruction leave corporations with few options other than cutting unnecessary expenses to retain profitability. Standby for unprecedented layoffs, and bank loan defaults if the Fed keeps hiking into a recession.
The Philadelphia Fed Manufacturing Index is the latest raft of negative economic data with a July consensus for 0.4, up from June’s -3.3 print. Instead, the number came in at -12.3. That was 50% below the low end of the consensus. “Meanwhile, the employment index declined 9 points to 19.4. That was its lowest reading since May 2021,” said Peter Schiff.
“When we end up with an even weaker number for the second quarter, that throws a bunch of cold water in the face of the idea that we have a strong economy” – Peter Schiff
The leading economic indicator index for June fell 0.8% in June off a May number revised lower to down 0.6%. It was the fourth straight monthly decline in that index.
A string of worsening economic data supports Peter Schiff’s envisages a recession worsening view
The composite PMI index fell to 47.5 in July from 52.3 in June, hitting a 26-month low. The PMI services index fell even lower to 47. Anything below 50 is supposed to indicate a recession. Peter said the big drop in the service sector was particularly troubling.
“When you have a 47 on the services index, you know the US economy is in recession because the service sector is what everybody looks to power the economy,” he said.
So Peter Schiff envisages a worsening recession and he believes it should surprise nobody.
“This should be obvious, but people have been in denial about the weakness in the economy. So, as all this weak economic data continues to come out, more and more of the recession deniers are going to have to throw in the towel and accept reality — including all of the recession deniers at the Federal Reserve,” said Peter Schiff.
The Atlanta Fed continues to project a second straight month of negative GDP growth in the second quarter. Currently, it projects a -1.6% decline. It will release one more projection before the actual numbers come out. Peter said he thinks it will be around -2. That would indicate the second quarter was weaker than Q1.
“When we end up with an even weaker number for the second quarter, that throws a bunch of cold water in the face of the idea that we have a strong economy. And given how weak the Q3 data already is…
We don’t have a lot of July data yet, but it’s starting to come in and what we’ve seen is pretty ugly. And it makes a lot of sense that the third quarter would be even weaker than the first two because interest rates are going to be a lot higher in the third quarter than they were back then. Next week, the Fed is set to raise interest rates 75 basis points. We’re going to be up to 2.25 to 2.5%. If we were in recession when interest rates were 0.5%, 1%, 1.5%, think about how much worse that recession is going to be when interest rates are higher,” he said
Peter Schiff also talks about the first ECB rate hike in 11 years, a possible top in the dollar, a possible bottom in gold, and the pain tech companies are feeling as advertisers evaporate.
Peter Schiff envisages a worsening recession, but what does it mean for investors?
From our study of cycles, we know that the investment psychology and central bank liquidity cycle determine entry and exit points. So buying low means entering a position where investors are depressed and central bank liquidity has reached a trough. Those conditions are nearing.