The US stock market ended last week on an upswing and gold was down as optimism and risk-on sentiment returned. The optimism was due to a possible treatment for coronavirus along with some movement toward reopening the US economy. There seems to be some sentiment that the market has found its bottom.
Peter doesn't think so.
"I still am doubting this rally. I don't think the bear market is over. I don't think the bear market ends with stocks like Netflix and Amazon making new all-time record highs. I still think those stocks have to have some kind of comeuppance. I think they have to take those out and shoot them. So, I am looking for another sell-off in the broad markets."
Peter said there is one thing the market has going for it - the Federal Reserve. In fact, a lot of people seem to think that's all you need.
"As long as you've got the Fed on your side and they're going to keep on printing money, which they're going to do and they're going to print more and more of it, people are going to make a bet. And they're going to bet on the Fed by buying stocks. What they should be doing is buying gold."
Gold stocks have been strong in recent weeks, but some of the bigwigs on Wall Street are already talking like the gold rally is over. Peter said it's barely begun.
"For people to say, 'Hey, it's time to get out, the gold rally is over,' I mean, these are people who really have no clue what's going on in the gold market trying to convince people the gold rally is over when the fundamentals have never been better. I mean, it's not like the Fed is about to stop printing money. No! They're going to print more than ever before. In fact, because they have printed so much money so quickly, because the balance sheet has exploded, and because of all these new programs that are on the deck, not only the ones that have been enacted, but the programs that are on the deck, they're going to be printing money like crazy. So, you have the most bullish environment you can imagine for the mining sector yet they're saying we should sell these stocks."
The Federal Reserve balance sheet grew by another $284.7 billion. To put that into some perspective, during QE3, the balance sheet was growing by $80 per month. The balance sheet now stands at just under $6.4 trillion. That raises a question: how is the Fed ever going to shrink the balance sheet?
"Maybe people have decided they're never going to shrink it. But then what does that mean? Because, the Fed has to shrink the balance sheet at some point, which is going to be very, very disruptive to the economy, much more disruptive than when they tried to shrink the balance sheet before, which eventually blew up."
Remember, the Fed had to call off quantitative tightening long before coronavirus. The Fed cut interest rates three times last year.
"So, it's not like the Fed was able to keep shrinking the balance sheet and keep raising interest rates and it had to abort that process because of the coronavirus. They had to abort the process before anybody heard of the coronavirus. So, it was already imploding. The bubble was already deflating before this pin, this other pin came and put another hole in it. So, if we couldn't unwind the four-and-a-half trillion-dollar balance sheet, if we couldn't normalize the debt levels that existed before the coronavirus, think about how much more difficult, if not completely impossible that process is going to be after the coronavirus. So, nobody is asking: what is the implication of a balance sheet that is so enormous that it would be so disruptive to shrink, or because it's so enormous and can't be shrunk? What does that mean about future inflation and the value of the dollar?"
There is still this persistent myth that everything is going to be fine once we solve coronavirus. In the meantime, we're piling on trillions of dollars in new debt. That debt doesn't just go away after the coronavirus lockdown is over.
"We still have to deal with that problem long after the coronavirus problem is over. … It's not like all of a sudden we're going to go back to this booming economy. We're going to go back to a busted bubble."
As Peter has said before, all we can do is recover from a depression to a recession.
On top of all that, the government is going to end up killing more businesses than it saves with all of this "stimulus" and these loan programs.
- Source, Seeking Alpha
