Peter Schiff‘s boom, bust view was put forward in a New Orleans Investment Conference where he participated in a panel discussion with Ben Hunt and Mike Larson.
There was a unanimous agreement amongst the money managers participating in the discussion that asset prices are in a bubble. “You cannot be richer than your economy” said Ben Hunt.
In other words, national wealth will ultimately be aligned with the productivity of the economy.
“You cannot be richer than your economy”
Peter Schiff’s boom, bust view argues that asset prices are in a central bank induced bubble
Peter Schiff, described as a permabear, was amongst a tiny few money managers who successfully called the 2008 financial crisis and moreover, where the crisis would emanate which was in in the sub-prime housing market.
Peter Schiff’s boom, bust view is the latest doubling down of his bearish call he made just before the previous financial crisis.
People are not bearish enough they don’t appreciate the severity of what is supposed to happen. They look at 2008 as some reference point, that is as bad as it is going to get. It is going to be a lot worse than 2008” said Peter Schiff.
Peter Schiff’s boom, bust view argues the pending bust is different from the previous one in that “the government now owns the subprime debt”.
“the government now owns the subprime debt”
“When you see rampant, wide-scale bad decisions, generally a central banker is behind it, and they have made a bad decision to create too much money and to artificially manipulate interest rates down” said Peter Schiff.
But what would have been the alternative for central bankers? To sit back and watch the financial system meltdown, bank runs, credit freezes and a mad max scenario? Central bankers, who have now become central planners, perhaps opted for the best of a worse situation.
Peter Schiff is an ardent critic of emergency monetary policy or monetary accommodation which entails unprecedented monetary easing of low-interest rates and massive liquidity injections.
So Peter Schiff’s boom, bust view is a continuation of his position that we’re in a Fed built house of cards. This creates distortions in the economy because interest rates are really nothing more than price signals. And like all prices, they need to be determined by the free market,” said Peter Schiff.
“We have had artificially low interest rates for an unprecedented number of years at an unprecedentedly low rate. So, the mistakes that have been made during this time period dwarf the mistakes that have ever been made in any bubble in the past because the bubble is so much bigger” added Peter Schiff.
“The problem now is that the boom is so big that the bust will be catastrophic” – Peter Schiff
Peter Schiff’s boom, bust view is a warning about a pending mega-bust
“The problem now is that the boom is so big that the bust will be catastrophic. And what’s going to make this bust different is that there is no bailout. There is no stimulus. It is impossible to reflate this bubble, because, as has been said, this is a bubble of everything. They can’t make a bubble go someplace else. It already is everyplace,” said Peter Schiff.
But for Ben Hunt inflation will be the pin to Peter Schiff’s boom, bust view. Ben Hunt argues that the “bubble of everything” will find its pin when something undermines the confidence in central bankers with their words and their money to prop up the prices. The “gravitational force” created by all of the assets central banks have purchased over the last year have changed the “bubble-popping process,” said Ben Hunt.
That makes it hard to predict when things will actually start to deflate. He said it will take something that undermines the market confidence that central banks can bail us out.
Hunt said inflation was possibly the pin that could prick the bubble.
“When a bubble finally bursts, it’s really just the free market trying to clean up the mess created by the intervention. The bigger the boom, the bigger the bust” – Peter Schiff
Peter Schiff’s boom, bust view argues that these multiple bubbles have multiple pins
As far as what pin will prick the bubble, Peter said there are all kinds of pins out there. “The problem is that when you’re in a bubble, you can’t see the pins,” said Peter Schiff’.
“People are so drunk on all this cheap money, they think nothing can go wrong” said Peter Schiff. “When a bubble finally bursts, it’s really just the free market trying to clean up the mess created by the intervention. The bigger the boom, the bigger the bust” he added.
Peter Schiff remains an ardent gold bull. “The only place there isn’t a bubble is in gold. That means there is also a bubble in complacency and optimism,” he said.
Peter Schiff reckons that 24 karat gold cufflinks will outperform the S&P 500 over the next five years. Gold performs well when risk asset pop. Peter Schiff pointed out that when the dot-com bubble popped, gold was under $300 and it rallied to $1,900 in 2011.
Peter Schiff’s boom, bust view still has time to play out
“This game is not over. The fat lady hasn’t sung yet. When this final bubble pops, gold is going through the roof –I do think that by the time this bubble has run its course, you’ll be able to buy the Dow Jones for an ounce of gold,” said Peter Schiff.
Others are arguing that Peter Schiff’s boom, bust view might already be in play
Some point to stress in the currency market, most of the major fiat currencies have fallen significantly against the USD. Other points to the credit market as the inverted yield curve being a reliable signal that the economic cycle is turning downwards. Stocks are like the tail on the dog and the last asset to respond to trouble ahead.