Think about what has happened over the last year and ask yourself: does this make any sense?
Looking back at the end of 2019, people were optimistic. The stock market was booming. There was no sign of a recession in sight. But since then, the US economy has plunged into the worst recession since the Great Depression sparked by a global pandemic. Over 40 million people have filed for unemployment. The Federal Reserve is printing dollars at breakneck speed. The federal government has run up trillions of dollars in new debt through borrowing for stimulus and bailouts. And we've seen major civil unrest with looting and destruction in many major American cities.
If you were told all of this was going to happen back in January, would you have believed the S&P 500 would barely be down and that the Nasdaq would be up some 8%?
There is only one explanation.
"The only reason the market is rallying is because of the Fed. I mean, people can try to say, 'Well no, the market is anticipating a recovery.' This is a lot more than the anticipation of a recovery. This is the Fed driving the narrative, driving the market higher."
There was a bit of data that came out Wednesday that injected some optimism about a recovery into the markets and helped boost stocks. The ADP private payroll report came out. The expectation was for another 8.6 million jobs lost, but the number came in at just below 2.7 million jobs.
Peter said that number doesn't even look possible given that we've seen 2 to 3 million people file for unemployment every week. Nevertheless, as soon as the number came out, the market rallied and gold sold off. The sentiment seemed to be that the economy isn't as bad as we thought.
"The economy is as bad as they thought. In fact, it's probably worse. But when the number came out, the market rallied on it because of, I think, the momentum that has been created by the Fed."
Peter said stocks are way overpriced even if the economy was much better than people thought.
"Remember, the US stock market was overpriced at the end of 2019, before any of this bad stuff had happened. And now we have all this bad stuff, which is much worse than anybody could have possibly envisioned, and the market is barely down in the case of the S&P 500. And in the case of the Nasdaq, the market is actually higher. Even though it was already expensive and priced for perfection, we got the antithesis of perfection, yet the market went up anyway."
Meanwhile, the dollar is getting pounded and the bond market is also feeling the pressure. The yield on the 30-year appears to be pushing toward 2%. That is still low, but keep in mind, not too long ago that yield was below 1%.
Incidentally, this is a problem for the Federal Reserve. The central bank bought a lot of Treasuries when the yield was under 1%. One of the reasons the market went up was because of all the money the central bank printed to buy up those bonds. Now, as rates rise, the Fed is losing money because it has taken on a lot of interest rate risk. As interest rates rise, bond prices fall. That means the Fed's balance sheet is losing money.
Ultimately, we're seeing the market move away from safe havens and that includes gold and silver. This is due to unwarranted optimism about an economic rebound. But Peter said he thinks it's just the rise in the market itself that is creating the optimism.
"People are thinking that the market is rising because people are optimistic about the recovery. I think people are optimistic about the recovery because the market is rising. And the market is not rising because of the recovery. The market is rising because of the Fed - because of all the money the Fed is printing. And even though a lot of people think printing money doesn't matter, printing money matters a lot. And people are about to find out the hard way just how much it really matters."
This is why investors should buy gold. It's not primarily a hedge for your stock portfolio. It's to hedge for your currency.
"Whether they live in the US and have dollars, or they live in Europe and have euros, or they live in Japan and they have Japanese yen, central banks are creating tremendous inflation. And central banks have told everybody that we are intentionally destroying the value of our money. That is our goal. We want prices to go up more. We want more inflation. We want the dollars, or the euros, or the yen that you're keeping in the bank or in your mattress somewhere - we want them to lose value. The longer you hold on to them, the more value they are going to lose. This is on purpose. This is by design. So, once the central banks have told you that's the plan, you would be a fool to cooperate."
Gold is a hedge against central banks creating inflation. It's a hedge against debasing currency. Instead of selling gold because the stock market is going up, investors need to understand why the stock market is rising.
"It's rising because the Fed is printing all this money because the Fed is creating inflation and debasing the value of currency. That is going to drive the value of gold. Gold becomes more valuable because of what the government is doing to prop up the stock market and prop up the economy. So, a strong stock market is not a sell signal for gold."
- Source, Peter Schiff via Seeking Alpha
