Peter Schiff is an economist, financial broker/dealer, author, frequent guest on national news, the host of the Peter Schiff Show Podcast, the CEO of Euro Pacific Capital and the
- Source
Monday, October 31, 2016
Economic Collapse Countdown with Peter Schiff and Stefan Molyneux
Peter Schiff is an economist, financial broker/dealer, author, frequent guest on national news, the host of the Peter Schiff Show Podcast, the CEO of Euro Pacific Capital and the
Putting The Trump Controversy Into Perspective
Peter Schiff discusses the 2016 presidential elections and how the media is piling on Donald Trump. He breaks down the latest news and explains how it all needs to be put in perspective. The time for emotional and irrational decisions is not now.
Monday, October 24, 2016
Just like Obamacare, the Fed's policies will fail
The recent troubles plaguing Obamacare are comparable to what will happen with Fed stimulus, according to economist Peter Schiff, who is predicting the downfall of both.
In his latest blog post, the frequent critic of the Federal Reserve seized on the negative Obamacare headlines — Aetna shuttering exchanges, surging costs, reported layoffs due to the national health plan. He said they're to be expected when the government ignores market realities and overreaches.
"After only four years of operation, there is now wholesale defection by insurance companies to abandon the Obamacare marketplace because they are hemorrhaging money faster than just about anyone predicted," said Schiff, who pointed to this post four years ago in which he said there would be trouble. "To believe that any other outcome was possible would have been the equivalent of believing in the Tooth Fairy."
The founder of Euro Pacific Capital has long been predicting doom for Fed stimulus as well. In seeking to pull the economy out of the 2008 financial crisis and accompanying recession, the central bank has kept interest rates anchored and instituted three rounds of quantitative easing, a monthly bond-buying program that ended in October 2014 but not before it expanded the Fed's balance sheet by about $3.7 trillion.
While the stock market is up about 225 percent since the March 2009 lows, the economy has struggled. Inflation has remained low and gross domestic product has never grown more than 2.5 percent for a full calendar year.
Throughout the recovery Schiff has been predicting it will end badly, and he has been a strong proponent of gold. He believes his warnings will prove prescient. Asset prices, he has said repeatedly, are in a bubble that soon will pop.
In his latest blog post, the frequent critic of the Federal Reserve seized on the negative Obamacare headlines — Aetna shuttering exchanges, surging costs, reported layoffs due to the national health plan. He said they're to be expected when the government ignores market realities and overreaches.
"After only four years of operation, there is now wholesale defection by insurance companies to abandon the Obamacare marketplace because they are hemorrhaging money faster than just about anyone predicted," said Schiff, who pointed to this post four years ago in which he said there would be trouble. "To believe that any other outcome was possible would have been the equivalent of believing in the Tooth Fairy."
The founder of Euro Pacific Capital has long been predicting doom for Fed stimulus as well. In seeking to pull the economy out of the 2008 financial crisis and accompanying recession, the central bank has kept interest rates anchored and instituted three rounds of quantitative easing, a monthly bond-buying program that ended in October 2014 but not before it expanded the Fed's balance sheet by about $3.7 trillion.
While the stock market is up about 225 percent since the March 2009 lows, the economy has struggled. Inflation has remained low and gross domestic product has never grown more than 2.5 percent for a full calendar year.
Throughout the recovery Schiff has been predicting it will end badly, and he has been a strong proponent of gold. He believes his warnings will prove prescient. Asset prices, he has said repeatedly, are in a bubble that soon will pop.
Thursday, October 20, 2016
Gold market overreacted to Yellen speech, Fed is pretending to be hawkish
Last week, the Federal Reserve held its annual summer retreat in Wyoming. During the visit to the Cowboy State, Fed Chair Janet Yellen stated that the case of a rate hike next month has “strengthened.” Meanwhile, Fed Vice Chair Stanley Fischer noted that a September rate hike will depend on August’s jobs numbers.
If everything is sound by September 20 then the Federal Open Market Committee (FOMC) will agree to a boost in interest rates, just the second time in the last decade.
One contrarian investor believes the gold market overreacted, while criticizing traders for not looking at the numbers.
Peter Schiff, president and CEO of Euro Pacific Capital, stated in a recent podcast that the United States central bank is just being hawkish in its talk. In fact, according to Schiff, the Fed is pretending to be hawkish in order to fool the markets.
He noted that whether the Fed goes through with a rate hike or delays action it will really have very little effect on the national economy.
“For a small person, Janet Yellen certainly casts a large shadow over the financial markets. Everybody was on pins and needles,” he said. “All the traders were there with their fingers on the buttons waiting to react to anything that Yellen said.”
Schiff said the stock market only cares about what the central bank will or will not do.
“Nobody cares what the numbers actually are. They only care about what the Fed is going to say about the numbers,” Schiff averred. “What they say, supposedly, indicates what they might eventually do. So, it all boils down to ‘what is the Fed going to do?’ Nothing is real. Nothing else matters.”
The bestselling author of “Crash Proof” and “How an Economy Grows” also provided an interesting point: a hawk is predatory, and in the central bank world, a hawk is a central banker with a strong view of sound money. The Fed clan can’t be described as those, Schiff said.
“When it comes to hawks with respect to the Federal Reserve, the bird is extinct,” Schiff stated. “They are all doves and the only difference is the degree of dovishness. The hawks are gone and are probably never coming back. Yellen was not a hawk, and neither was Stan Fischer.”
Markets are optimistic that a rate hike will happen within the next few months.
If everything is sound by September 20 then the Federal Open Market Committee (FOMC) will agree to a boost in interest rates, just the second time in the last decade.
One contrarian investor believes the gold market overreacted, while criticizing traders for not looking at the numbers.
Peter Schiff, president and CEO of Euro Pacific Capital, stated in a recent podcast that the United States central bank is just being hawkish in its talk. In fact, according to Schiff, the Fed is pretending to be hawkish in order to fool the markets.
He noted that whether the Fed goes through with a rate hike or delays action it will really have very little effect on the national economy.
“For a small person, Janet Yellen certainly casts a large shadow over the financial markets. Everybody was on pins and needles,” he said. “All the traders were there with their fingers on the buttons waiting to react to anything that Yellen said.”
Schiff said the stock market only cares about what the central bank will or will not do.
“Nobody cares what the numbers actually are. They only care about what the Fed is going to say about the numbers,” Schiff averred. “What they say, supposedly, indicates what they might eventually do. So, it all boils down to ‘what is the Fed going to do?’ Nothing is real. Nothing else matters.”
The bestselling author of “Crash Proof” and “How an Economy Grows” also provided an interesting point: a hawk is predatory, and in the central bank world, a hawk is a central banker with a strong view of sound money. The Fed clan can’t be described as those, Schiff said.
“When it comes to hawks with respect to the Federal Reserve, the bird is extinct,” Schiff stated. “They are all doves and the only difference is the degree of dovishness. The hawks are gone and are probably never coming back. Yellen was not a hawk, and neither was Stan Fischer.”
Markets are optimistic that a rate hike will happen within the next few months.
Sunday, October 16, 2016
Peter Schiff: Low Rates are the Cause of, Not Solution to, Economic Malaise
But it is becoming clearer that rates set by central banks that are far below the levels that free markets would have otherwise determined have dragged the world into the economic mud. The simple proof is currently arising in Europe where negative interest rates are now transforming companies from agents of growth, production, and employment into financial sloths that exist solely to borrow money.
In a September 7 front page article, the Wall Street Journal reported that as of September 5, €706 billion worth of investment-grade European corporate debt, or roughly 30% of the market, according to trading platform Tradeweb, was trading at negative yields, an increase from just 5% in January. These negative yields were the result of intense activism on the part of the European Central Bank (ECB).
Foryears the ECB had been trying to stimulate growth by buying trillions of euros’ worth of sovereign debt. But as these programs proved ineffective to wake up the EU economy from its long economic slumber, this year they began moving into the corporate market. Most of this buying has occurred on the secondary market, for bonds that had previously been issued at positive rates. The central bank buying raised prices of these bonds sufficiently to push yields into negative territory. It also has drawn in speculators who have bought low yielding bonds not because they are good investments but because they are convinced that the ECB will one day buy them out at a premium.
But the real news of that Journal article was that for the first time, major European firms like German manufacturer Henkel AG and French drugmaker Sanofi SA had issued corporate bonds at negative rates in the primary market. This means that if they are held to maturity, the bonds are guaranteed money losers…in essence, the companies are being paid to borrow. This is a stunning development that alters the fundamental principles of corporate strategy.
As this process of ECB corporate bond buying continues, more and more companies will follow suit and issue bonds at negative yields. Why wouldn’t they? It’s nice work if you can get it. To seek profits, why go through the laborious and uncertain process of developing new products and seeking new customers when all you have to do instead is simply borrow money from lenders and pay them back less? It’s fool proof, requires no messy union labor contracts, no R&D, and is infinitely scalable…as long as the central bank keeps buying. All indications are that they will. With such an easy path to profits, it should come as no surprise that this August was the busiest on record in terms of European corporate debt issuance, according to Dealogic.
But what are the companies doing with the newly raised cash? They aren’t using it to hire more workers. Another story in the same Journal edition detailed how European corporate investment spending stalled at 0% growth in the second quarter (Eurostat data). Rather than investing the money, companies are using the brisk bond issuance to retire older debt, pay dividends, or buyback shares on the open market. While these activities are great for shareholders, they provide very little benefit for workers and consumers. Welcome to the new economy.
Normally, if a company borrows cash at a positive rate of interest, it must put that money to some productive use in order to repay lenders both principal and interest, plus generate a profit for its efforts. But now that hurdle has been eliminated. Companies don’t need to create any value with the money they borrow. They just need to borrow. The loans themselves produce the profit. It’s not too difficult to see how the corporate sector will evolve if the “ECB buying at negative rates” trend continues, or picks up steam. Corporations will focus less on business operations and more on ways to increase debt issuance. Fewer engineers and more accountants is never a good recipe for economic growth.
Japan has been going down this road even longer than the Europeans, and the results are equally poor. Although it hasn’t been buying corporate debt, the Bank of Japan (BoJ) is on pace to buy more than $786 billion worth of Japanese Government bonds this year, more than double what the government will actually issue. Currently the BoJ owns more than a third of outstanding government bonds and, at the current pace, it could own 60% by the end of 2018. (WSJ, R.Rosenthal & S.Bhattacharya, 9/9/16)
But it doesn’t stop there. The BoJ has also become the principle buyer of the Japanese stock market and now owns more than 60% of Japanese ETFs. Clearly, those stock purchases are not motivated by the same market-focused rationale that would compel private investors. Such “investments” are not spurring the Japanese companies to make bolder investments into organic growth. Instead, they are more likely to sit back and let the money roll in. It’s corporate welfare at its worst, guaranteed to produce nothing but short-term profits.
But despite all of this, the politicians, central bankers, and economists insist that bolder and more creative techniques of money printing and financial stimulus will unlock the economic puzzle and return the global economy to 3% or 4% growth. I think there is little doubt that the Federal Reserve will ultimately follow the ECB and the BoJ into this bizarre world of negative yields and unlimited financial asset purchases.
But as we go down this road, no one in power seems to consider the possibility that “stimulus” does more harm than good. If central banks weren’t buying bonds, interest rates would surely rise, and risks for business and governments would return. But the real world can produce real results. It has worked that way for millennia. Without guaranteed government money, companies would need to attract real investors. To do that they would need to create real businesses, a process that takes investment, innovation, and efficiency. These are the essential elements that create productivity growth that is the single biggest factor in raising living standards. It’s no accident that productivity growth has all but disappeared in the current age of central bank activism.
So we have a choice, either we continue down the road of negative rates to Fantasy Land, where central banks own all the stocks and bonds and asset prices always rise, but real wages and average living standards always fall, or we take our chances on a different path that leads to reality, however unpleasant the transition may be. I for one would choose the latter, but it looks like I won’t have much company.
In a September 7 front page article, the Wall Street Journal reported that as of September 5, €706 billion worth of investment-grade European corporate debt, or roughly 30% of the market, according to trading platform Tradeweb, was trading at negative yields, an increase from just 5% in January. These negative yields were the result of intense activism on the part of the European Central Bank (ECB).
For
But the real news of that Journal article was that for the first time, major European firms like German manufacturer Henkel AG and French drugmaker Sanofi SA had issued corporate bonds at negative rates in the primary market. This means that if they are held to maturity, the bonds are guaranteed money losers…in essence, the companies are being paid to borrow. This is a stunning development that alters the fundamental principles of corporate strategy.
As this process of ECB corporate bond buying continues, more and more companies will follow suit and issue bonds at negative yields. Why wouldn’t they? It’s nice work if you can get it. To seek profits, why go through the laborious and uncertain process of developing new products and seeking new customers when all you have to do instead is simply borrow money from lenders and pay them back less? It’s fool proof, requires no messy union labor contracts, no R&D, and is infinitely scalable…as long as the central bank keeps buying. All indications are that they will. With such an easy path to profits, it should come as no surprise that this August was the busiest on record in terms of European corporate debt issuance, according to Dealogic.
But what are the companies doing with the newly raised cash? They aren’t using it to hire more workers. Another story in the same Journal edition detailed how European corporate investment spending stalled at 0% growth in the second quarter (Eurostat data). Rather than investing the money, companies are using the brisk bond issuance to retire older debt, pay dividends, or buyback shares on the open market. While these activities are great for shareholders, they provide very little benefit for workers and consumers. Welcome to the new economy.
Normally, if a company borrows cash at a positive rate of interest, it must put that money to some productive use in order to repay lenders both principal and interest, plus generate a profit for its efforts. But now that hurdle has been eliminated. Companies don’t need to create any value with the money they borrow. They just need to borrow. The loans themselves produce the profit. It’s not too difficult to see how the corporate sector will evolve if the “ECB buying at negative rates” trend continues, or picks up steam. Corporations will focus less on business operations and more on ways to increase debt issuance. Fewer engineers and more accountants is never a good recipe for economic growth.
Japan has been going down this road even longer than the Europeans, and the results are equally poor. Although it hasn’t been buying corporate debt, the Bank of Japan (BoJ) is on pace to buy more than $786 billion worth of Japanese Government bonds this year, more than double what the government will actually issue. Currently the BoJ owns more than a third of outstanding government bonds and, at the current pace, it could own 60% by the end of 2018. (WSJ, R.Rosenthal & S.Bhattacharya, 9/9/16)
But it doesn’t stop there. The BoJ has also become the principle buyer of the Japanese stock market and now owns more than 60% of Japanese ETFs. Clearly, those stock purchases are not motivated by the same market-focused rationale that would compel private investors. Such “investments” are not spurring the Japanese companies to make bolder investments into organic growth. Instead, they are more likely to sit back and let the money roll in. It’s corporate welfare at its worst, guaranteed to produce nothing but short-term profits.
But despite all of this, the politicians, central bankers, and economists insist that bolder and more creative techniques of money printing and financial stimulus will unlock the economic puzzle and return the global economy to 3% or 4% growth. I think there is little doubt that the Federal Reserve will ultimately follow the ECB and the BoJ into this bizarre world of negative yields and unlimited financial asset purchases.
But as we go down this road, no one in power seems to consider the possibility that “stimulus” does more harm than good. If central banks weren’t buying bonds, interest rates would surely rise, and risks for business and governments would return. But the real world can produce real results. It has worked that way for millennia. Without guaranteed government money, companies would need to attract real investors. To do that they would need to create real businesses, a process that takes investment, innovation, and efficiency. These are the essential elements that create productivity growth that is the single biggest factor in raising living standards. It’s no accident that productivity growth has all but disappeared in the current age of central bank activism.
So we have a choice, either we continue down the road of negative rates to Fantasy Land, where central banks own all the stocks and bonds and asset prices always rise, but real wages and average living standards always fall, or we take our chances on a different path that leads to reality, however unpleasant the transition may be. I for one would choose the latter, but it looks like I won’t have much company.
Wednesday, October 12, 2016
Peter Schiff - The Economic Collapse Countdown Has Begun
Peter Schiff is an economist, financial broker/dealer, author, frequent guest on national news, the host of the Peter Schiff Show Podcast, the CEO of Euro Pacific Capital and the Chairman of Schiff Gold.
- Source, Stefan Molyneux
Monday, October 10, 2016
Why Peter Schiff’s international fund is up over 35% year-to-date
If there's one piece of advice that Peter Schiff has for investors, it's stick to your plan.
After a terrible year in 2015, the president and CEO of Westport, Connecticut-based Euro Pacific Capital is now having a banner year. His EuroPac International Value Fund (EPIVX) is up just above 35 percent year-to-date, the second best performance out of any diversified international equity fund, according to Morningstar.
The gains have largely been driven by Schiff's bet on gold, which only started to pan out in 2016. The fund has about 28 percent of its assets in the yellow metal, up from 15 percent at the start of the year, while a number of his gold stocks — Yamana Gold, Barrick Gold and Newmont Mining — have seen 100 percent-plus returns. He expects even bigger gains in gold going forward, because he thinks people will soon realize that the Federal Reserve policy over the last few years hasn't worked.
While Schiff has owned gold stocks for decades, the yellow metal has only seen big gains over the last year. Since January, it's up 27 percent, in large part due to worries over world growth, overvalued stock markets, the possibility of rising U.S. interest rates and concerns that global monetary policy isn't working.
"The foundation has been built on stimulus, and the economy will eventually collapse under its own weight," he said. "There's more evidence saying that the economy isn't as strong as the Fed has been saying and that they can't deliver all of their rate hikes. I do believe it will be as every bit of a disaster as critics like me have been warning."
Gold may have been a big driver of returns, but it's not the only reason why the fund has done well. While Schiff and Jim Nelson, co-manager of the EuroPac International Value Fund, can invest anywhere in the world, they've been finding good opportunities in resource, telecom and infrastructure companies in places like New Zealand, Switzerland, Singapore and Australia.
A big reason why he's investing in these countries is that they have companies with little exposure to the United States. The U.S. consumer, he said, "is living on credit, has no savings, and the whole economy is headed for collapse, and I want protection against that. I'm trying to invest in markets and companies that are best positioned to do well in an environment where the U.S. economy is not doing well."
These countries also have overnight rates that are higher than the Fed Funds rate, which is now 0.5 percent. That makes them more attractive from a yield perspective, added Nelson.
When it comes to actually buying companies, Schiff and Nelson look at return on capital employed versus earnings yield, which they feel is the best way to measure the quality and value of the company. There isn't a specific number they look for — some companies may have a lower return on capital employed, but that is at times compensated by a higher earnings yield, said Nelson. This method allows them to eliminate any gains due to financial engineering, such as with share buybacks, as that can cloud returns, said Nelson. He tries to strip all of that away to see what kind of return a company can generate with the assets it owns.
With that in mind, here are three stocks that have driven the fund's performance since the beginning of the year.
After a terrible year in 2015, the president and CEO of Westport, Connecticut-based Euro Pacific Capital is now having a banner year. His EuroPac International Value Fund (EPIVX) is up just above 35 percent year-to-date, the second best performance out of any diversified international equity fund, according to Morningstar.
The gains have largely been driven by Schiff's bet on gold, which only started to pan out in 2016. The fund has about 28 percent of its assets in the yellow metal, up from 15 percent at the start of the year, while a number of his gold stocks — Yamana Gold, Barrick Gold and Newmont Mining — have seen 100 percent-plus returns. He expects even bigger gains in gold going forward, because he thinks people will soon realize that the Federal Reserve policy over the last few years hasn't worked.
While Schiff has owned gold stocks for decades, the yellow metal has only seen big gains over the last year. Since January, it's up 27 percent, in large part due to worries over world growth, overvalued stock markets, the possibility of rising U.S. interest rates and concerns that global monetary policy isn't working.
"The foundation has been built on stimulus, and the economy will eventually collapse under its own weight," he said. "There's more evidence saying that the economy isn't as strong as the Fed has been saying and that they can't deliver all of their rate hikes. I do believe it will be as every bit of a disaster as critics like me have been warning."
Gold may have been a big driver of returns, but it's not the only reason why the fund has done well. While Schiff and Jim Nelson, co-manager of the EuroPac International Value Fund, can invest anywhere in the world, they've been finding good opportunities in resource, telecom and infrastructure companies in places like New Zealand, Switzerland, Singapore and Australia.
A big reason why he's investing in these countries is that they have companies with little exposure to the United States. The U.S. consumer, he said, "is living on credit, has no savings, and the whole economy is headed for collapse, and I want protection against that. I'm trying to invest in markets and companies that are best positioned to do well in an environment where the U.S. economy is not doing well."
These countries also have overnight rates that are higher than the Fed Funds rate, which is now 0.5 percent. That makes them more attractive from a yield perspective, added Nelson.
When it comes to actually buying companies, Schiff and Nelson look at return on capital employed versus earnings yield, which they feel is the best way to measure the quality and value of the company. There isn't a specific number they look for — some companies may have a lower return on capital employed, but that is at times compensated by a higher earnings yield, said Nelson. This method allows them to eliminate any gains due to financial engineering, such as with share buybacks, as that can cloud returns, said Nelson. He tries to strip all of that away to see what kind of return a company can generate with the assets it owns.
With that in mind, here are three stocks that have driven the fund's performance since the beginning of the year.
Friday, October 7, 2016
Tuesday, October 4, 2016
Saturday, October 1, 2016
The Collapse of the U.S. Dollar
Peter Schiff is interviewed and gives his take on the US dollar and its future. Is a economic collapse in our future? Only time will tell.
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