Friday, March 14, 2014

US Careens Toward Twin Crises

Investors should overweight foreign stocks and underweight U.S. stocks, because the U.S. economy and financial system are headed for crisis, says Peter Schiff, CEO of Euro Pacific Capital.

"People have to look beyond the U.S. to try to get out of what's going to be a much worse financial crisis than what happened in 2008," he told John Bachman on "America's Forum" on Newsmax TV.

It's going to be a dollar crisis, ultimately a Treasury bond crisis, and people need to look abroad and own real hard assets through stocks, but through international stocks with good dividend yields."

That's a much better strategy than "to be over-concentrated in overpriced, hyped-up U.S. stocks on the verge of what I see as a real economic collapse here," Schiff said.

As for emerging markets, they made a mistake in absorbing so many dollars created by the Federal Reserve's quantitative easing, Schiff says.

"We ran these huge trade deficits with the emerging markets. And then rather than allowing their currencies to rise, they fought this currency war where they tried to debase their own currencies," he said. "They imported our inflation and also mal-investments that temporarily screwed up their economies."

But here in the U.S., "we're going to be the submerging market, because when the dollar tanks, and it's very close to happening, Americans aren't going to be able to buy anything," Schiff said.

That's going to have a major impact on companies, he says. "Look at all of the companies that are reporting bad earnings here in the United States," such as McDonald's, Schiff said.

"It's America that's going to be the problem, because Americans are broke. We have no savings, we're leveraged up to the hilt, we're borrowing money just to keep our economic heads above water."

The rest of the world isn't doing too badly Schiff says. "They actually have savings. They are working. They are producing," he said.

"So they are going to be enjoying an appreciating currency market. They're going to be able to buy a lot of these products. It's America where the party is over. We're not going to be able to shop."

Meanwhile, Schiff says the 6.6 percent U.S. unemployment rate doesn't accurately reflect the sorry state of the American job market.

"So many people have just given up looking for work," he said. "They're so discouraged by the poor labor prospects that they're no longer being captured by the statistics or they're working part time but they really want full-time jobs."

Beyond unemployment, people are suffering from an escalating cost of living, Schiff says. "The government denies that there's inflation. But the real cost of living — food, energy, basic necessities — is rising rapidly as people's paychecks are diminishing in purchasing power."

- Source, Money News: