Federal Reserve

Peter Schiff: ‘We Have An Entire Economy That Is Supported On A Foundation Of Bubbles’

Tonight I watched Peter Schiff’s presentation at the MoneyShow Las Vegas back on May 12, 2014. The CEO and Chief Global Strategist of Euro Pacific Capital shared his current assessment of the U.S. financial landscape in “Too Big to Bail: Why the Next Financial Crisis Will Be Worse Than the Last”- as well as where he thinks we’re heading. Schiff warned attendees:

There is no economic recovery in the United States at all. There is no evidence of an economic recovery. The U.S. economy is in far worse shape than it was on the eve of the 2008 financial crisis. We have never been in as worse shape as we are right now. But they say, “Whoa! But the stock market went up.” Yeah, of course the stock market went up. You print enough money, you can make the stock market go up. Yes, the Federal Reserve succeeded in reflating the stock market bubble. But that’s all that it did. That isn’t evidence of a strong economy. Stock prices went up from 2002 to 2007. Does that mean we had a sound economy? No. We were on the verge of a complete implosion. The main difference though between the stock market bubble that we have today and the one that blew up, let’s say, in 2000, is that fewer individuals are participating. This is the bubble for the 1 percent. This is for the hedge funds, the private equity guys… The overwhelming concentration of buyers are very wealthy people. The average American is not participating in the stock market to the extent that he was in the 1990s. And so the Fed is not getting the boost to consumption that you would normally have from the wealth effect because a lot of people aren’t feeling the effects of the wealth because they don’t own stocks.

The same thing is happening in the real estate bubble, which the Fed has managed to reflate. The difference again between the real estate bubble we have now and the real estate bubble that popped in 2007 is again- the average American isn’t participating. Home ownership rates are at 19-year lows. You have hedge funds and private equity companies that are buying up real estate. Last month, I think 43 percent of all the properties purchased in America were purchased for cash. These are not typical Americans buying houses to live in. These are investors buying houses to flip, buying houses to rent out. This is not a healthy market. It is an extremely speculative real estate market thanks to the Federal Reserve.

So the Federal Reserve has managed to reflate two bubbles simultaneously.

And of course, the biggest bubble of them all is the bubble in the bond market.

So we have an entire economy that is supported on a foundation of bubbles…


“Peter Schiff at Las Vegas Moneyshow 2014”
YouTube Video

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)

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Peter Schiff Warns Of Coming Inflation, Accompanying Propaganda

“Crash prophet” Peter Schiff sees inflation getting worse in America. And with it, Washington, the Fed, and the mainstream media spinning rising prices as something that’s beneficial for the general public. The Euro Pacific Capital CEO and Chief Global Strategist added a new entry Tuesday on his YouTube video blog The Schiff Report, and warned viewers of the following:

It’s going to get worse. And, what is the Fed going to do about it? Because the problem is, no matter how high that inflation number gets, they can never admit it’s a problem. Because if they admit that it’s a problem, they’ve got to do something about it. But they can’t do anything about it. Because if they want to fight inflation, what tools do they have? Just one. They’ve got to raise interest rates, which means they’ve got to end quantitative easing. And in order to raise interest rates, they’ve got to start selling their bonds and their mortgages back into the market. That will collapse the real estate market, collapse the stock market, send the economy into a sharp recession, and bring about a financial crisis worse than 2008. So because they can’t do that, they can’t do anything. So they’re going to have to tolerate inflation, no matter how high it gets. They’re going to have to convince us that it’s good for us, no matter how high it gets. They’re going to say, “Oh, well, maybe it’s transitory,” “It’s because of the weather,” “Oh, you know, we had such low inflation for so long, we need a few years of higher inflation to even it all out.” Who knows what kind of excuses Janet Yellen is going to come up with to rationalize why whatever the inflation number is- no matter how high it is- it’s always going to be a good thing?

But I wonder if the media- if the guys at Bloomberg or the guys at The New York Times or the AP or the Financial Times- will ever see through this charade. Will they ever see through this smokescreen and come out and call the Fed out on this? Will they ever say, “You know what, we’ve got too much inflation- this is not good. Do something about it.” And when the Fed doesn’t do something about it, that’s going to be a big problem for the dollar. Because that’s when people realize that this is QE Infinity, that inflation is never going to stop, that the dollar’s value is going to erode away in perpetuity. That’s when the bottom drops out of the market. That’s when the real crisis comes in. Because now the dollar really starts to cave, and puts more pressure on the bond market. That means the Fed has to print a lot more money. A lot more dollars that nobody wants to buy the Treasuries that nobody wants to keep the market from collapsing. That accelerates the inflationary spiral, and puts the Fed in a real box. Because then, it just can’t print the dollar into oblivion. It can’t turn it into monopoly money. Then it has to slam on the breaks. Then it has to really jack up interest rates. Not just a few hundred basis points- ten percent, fifteen percent, twenty percent. Paul Volcker style. Of course, the medicine won’t go down nearly as smoothly as it did back then. Not that it was so great tasting- we had a pretty bad recession in 1980. But that’s nothing compared to what we’re going to go through, because we have a lot more debt now than we had then- it’s not even close. We don’t have the viable economy. We don’t have the trade surpluses or the current accounts surpluses. And we don’t have a federal government that has a long-term financing on the national debt. It’s all financed with T-bills. And we have all these adjustable rate mortgages. We have all these corporations, individuals that are so levered-up. We’ve got all these student loans and credit card debt. We have all this stuff that we didn’t have back in the 1980s that we’re going to have to deal with- thanks to the Fed.


“Media Reports Rising Food Prices as Positive News”
YouTube Video

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Marc Faber: ‘Next Step’ Is For Stocks, Bonds To ‘Go Down At The Same Time’

Swiss-born investment advisor/fund manager Marc Faber, who became famous for advising clients to get out of the U.S. stock market one week before the October 1987 crash and for predicting the 2008 global financial crisis, was on the phone with CNBC’s Squawk Box yesterday morning. Dr. Faber warned viewers:

I don’t think that the economy is recovering at all. We have in emerging economies a slowdown, export growth is non-existent, and now- and I have been writing about this now for the last two years- we have geopolitical problems A, in Ukraine and B, in East China Sea…

(Editor’s note: Bold added for emphasis)

The publisher of the monthly investment newsletter The Gloom Boom & Doom Report added this about stocks and bonds:

Since the beginning of the year, the stock market has basically done nothing… but long-term bonds are up 12 percent in terms of total return. Now I believe the next step will be that both stocks and bonds will go down at the same time

(Editor’s note: Bold added for emphasis)


“Dr. Doom’s big bear parade”
CNBC Video

So what does “Doctor Doom” recommend then?:

I don’t see any assets that are terribly attractive. Now, the most under-appreciated asset is cash. Nobody likes cash. Now, on cash, for the next 10 years you will earn precisely zero. In fact, you will lose money, because Mrs. Yellen- she’s a money printer like all the others- and she will make sure that the dollar continues to depreciate in real terms. For the next 6 months, maybe cash is the most attractive… For the next 6 months, opportunities will come along all the time

(Editor’s note: Bold added for emphasis)


“Faber: Cash most underappreciated asset”
CNBC Video

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)

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31 Percent Of Chicago-Area Homeowners With Mortgages ‘Seriously Underwater’

Memorial Day Weekend 2007. I had just launched my first blog, Boom2Bust.com, “The Most Hated Blog On Wall Street,” from my apartment on Chicago’s Northwest Side. I remember thinking to myself, “Well, I don’t want to just focus on turmoil in the financial markets as part of a coming financial crash. I also need to talk about the housing bubble and when that monstrosity bursts as well.”

All of it happened (except Washington and the Fed managed to postpone the crash I was- and have been- warning about, leaving us with the “Panic of ’08″ and the Great Recession instead), providing me tons of material to blog about over the last seven years.

Now, my girlfriend and I were lucky enought to spot and sit out the housing bubble, eventually picking up a place last year for $117,000 less than it was at the height of the madness (according to one valuation). Regrettably, a number of friends and acquaintances in the Chicagoland area bought homes during the market’s craziest years, when price levels were incredibly high (in my neighborhood, some barely inhabitable “shacks” were on the market for half-a-million dollars back then). I really hope they aren’t “underwater”- owing more on their mortgages than their properties are worth- but I suspect a number of them are. Mary Ellen Podmolik reported on the Chicago Tribune website this morning:

Despite improving home prices, 31 percent of Chicago-area homeowners with a mortgage were seriously underwater in March, owing at least 25 percent more on their home loans than the property’s value, a new report shows…

(Editor’s note: Bold added for emphasis)

31 percent? That’s bad news for the Chicagoland residential real estate market. The last time I talked about the “underwater people” on this blog was last fall, when I blogged:

This past Sunday, I spotted the following about underwater mortgages in my Chicago Tribune. Mary Ellen Podmolik wrote:

A lack of inventory is frustrating potential Chicago-area homebuyers, and a report last week from Zillow explains why some homeowners might like to sell their properties but can’t. Despite improving home values, 35.4 percent of Chicago-area homeowners with a mortgage were underwater at the end of June, meaning they owed more on their loan than the home was worth, Zillow said. That means those homeowners would have to sell their properties through a bank-approved short sale.

(Editor’s note: Bold added for emphasis)

So will that 31 percent “seriously underwater” rate improve anytime soon? Here’s hoping. But considering the economic headwinds still working against housing- I’m not going to hold my breath (no pun intended).

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Source:

Podmolik, Mary Ellen. “Almost 1/3 of Chicago-area homeowners still significantly underwater.” Chicago Tribune. 18 Apr. 2014. (http://www.chicagotribune.com/business/breaking/chi-homeowners-underwater-20140417,0,7135589.story). 18 Apr. 2014.

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Peter Schiff Predicts Gold Going Higher Than $5,000 An Ounce

Peter Schiff, the CEO and Chief Strategist over at Euro Pacific Capital, appeared on the CNBC TV show Futures Now on April 15. Schiff, who correctly-called the U.S. housing bust and Great Recession, told viewers:

I’ve been buying gold for the same reason for the last decade, and it’s because central banks are creating too much money, there’s too much inflation, interest rates are too low, and so I want to store my purchasing power in something that central banks can’t print. Meanwhile, during that time period, gold has gone from under $300 an ounce to a high of $1,900. We’ve pulled back. I think we are headed much, much higher, because they are not going to stop these presses. They are going to run them in overdrive…

I don’t know the time period. They’re just going to trend higher. They’re going to go a lot higher. I’ve said $5,000. They’ll go higher than that.


“I’m Off Base, You’re Not Even in the Ballpark!”
YouTube Video

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)

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Peter Schiff Predicts Future Fed Moves

Peter Schiff of Euro Pacific Capital released a new entry Monday on The Schiff Report YouTube vlog. The “crash prophet” talked about a number of financial topics, including future activity by the U.S. central bank. Schiff predicted:

I think that with the weakening in the stock market, the softness we’re seeing now in the real estate market- with the fact that we’re going to be getting weaker jobs numbers in the spring that cannot be rationalized away based on the weather- the Fed is going to have come forward at some point and acknowledge which should have already been obvious. That they were mistaken. They were overly-optimistic on their assessment of the economy. That for whatever reason they’ll come up with an excuse to save face- they can blame it on some external factor- but the Fed is going to have to come out and they’re going to have to halt the tapering process, and ultimately reverse it.

How much time there will be between the pause and the reversal?

I don’t know. I don’t think it will be more than a couple of meetings, at best. But that’s what’s coming….

Schiff, who correctly-called the U.S. housing bubble and subsequent burst along with the 2008 global economic crisis, went on to speculate what all this might mean for gold and stocks.


“Warmer Weather’s Failure to Stoke Jobs Chills Stocks”
YouTube Video

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

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Peter Schiff: No Recovery, Just An Illusion Of Prosperity

I first started paying attention to Euro Pacific Capital’s Peter Schiff just prior to picking up his book Crash Proof: How to Profit From the Coming Economic Collapse (now Crash Proof 2.0, second edition) shortly after its early 2007 release. While some of the calls he made in that controversial text are still playing out, others have already come to fruition.

Subsequently, Schiff has been given credit for correctly-calling the U.S. housing bubble and its burst, and the 2008 global economic crisis.

Being one of Survival And Prosperity’s “crash prophets,” his latest investment recommendations are chronicled on this blog. As are his economic analyses and forecasts as well.

Here’s a recent breakdown of what Schiff sees going on with the U.S. economy and larger financial system, courtesy of a March 21 commentary entitled “Debt and Taxes” that’s posted on his Euro Pacific Capital website:

The last few years have proven that there is no line Washington will not cross in order to keep bubbles from popping. Just 10 years ago many of the analysts now crowing about the perfect conditions would have been appalled by policies that have been implemented to create them. The Fed has held interest rates at zero for five consecutive years, it has purchased trillions of dollars of Treasury and mortgage-backed securities, and the Federal government has stimulated the economy through four consecutive trillion-dollar annual deficits. While these moves may once have been looked on as something shocking…now anything goes.

But the new monetary morality has nothing to do with virtue, and everything to do with necessity. It is no accident that the concept of “inflation” has experienced a dramatic makeover during the past few years. Traditionally, mainstream discussion treated inflation as a pestilence best vanquished by a strong economy and prudent bankers. Now it is widely seen as a pre-condition to economic health. Economists are making this bizarre argument not because it makes any sense, but because they have no other choice.

America is trying to borrow its way out of recession. We are creating debt now in order to push up prices and create the illusion of prosperity. To do this you must convince people that inflation is a good thing…even while they instinctively prefer low prices to high. But rising asset prices do little to help the underlying economy. That is why we have been stuck in what some economists are calling a “jobless recovery.” The real reason it’s jobless is because it’s not a real recovery! So while the current booms in stocks and condominiums have been gifts to financial speculators and the corporate elite, average Americans can only watch from the sidewalks as the parade passes them by. That’s why sales of Mercedes and Maseratis are setting record highs while Fords and Chevrolets sit on showroom floors. Rising prices to do not create jobs, increase savings or expand production. Instead all we get is debt, which at some point in the future must be repaid

(Editor’s note: Bold added for emphasis)

“Which at some point in the future must be repaid”

Good luck trying to get your average American in 2014 to wrap their head around that crucial concept.

Once again, I agree with Schiff’s observation of what is going on all around us.

“Illusion of prosperity” is a fine choice of words here, and makes sense that I find a fine economic blog by the same name good reading.

As certain as the “Big One” will eventually hit California, so must our nation’s “financial reckoning day” arrive for all this debt we’ve accrued for some short-term “prosperity.”

You can read Schiff’s entire commentary on the Euro Pacific Capital website here.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Chicago Money Smart Week: Over 500 Free Financial Classes, Events

This morning, I opened up my Sunday paper to find a small booklet- a “special advertising section”- about something called Money Smart Week. From the inside page:

Are You Money Smart?

It’s too bad money doesn’t come with instructions because we all need to know how to spend it, save it and borrow it wisely. That’s why financial institutions, not-for-profits, schools, libraries and lots of others are joining together to help support financial education during Money Smart Week, April 5-12.

More than 500 free educational classes, seminars and activities will take place around Chicagoland and focus on financial topics for people of all walks of life

(Editor’s note: Bold added for emphasis)


“Money Smart Week – Public Service Announcement with Jeffrey Brown”
YouTube Video

According to the event website, the program was started by the Federal Reserve Bank of Chicago in 2002.

The hundreds of free offerings are broken down into 22 topics, including Investing & Wealth Building, Personal Finance 101/Budgeting, and Savvy Shopping & Bargain Hunting, to name a few.

Looking to further your financial education? Head over to the Money Smart Week website here to explore what’s available.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Milestone: Survival And Prosperity Reaches 2,000 Posts

Yesterday was a milestone for Survival And Prosperity:

2,000 posts have now been published on the blog

Not bad considering the weblog was started a little less than three-and-a-half years ago.

My previous flagship blog, Boom2Bust.com, “The Most Hated Blog On Wall Street,” only reached around 1,500 posts.

I think a little celebration is called for, don’t you?


“Clerks Dance”
YouTube Video

There’s lots more blogging to be done. Washington and the Fed has managed to “kick the can down the road” this far, and while the economic picture might look rosy to many for a bit longer, I’m still not deviating from that prediction I made back on Memorial Day Weekend 2007 about a U.S. financial crash.

In fact, I believe we’ve already started into the descent. And gradually, the U.S. economy and larger financial system that is weighed down by tremendous debt and steered by greed, arrogance, and incompetence will eventually crash hard.

That being said, America has been here before (Great Depression). And I do see the country getting back on firm economic ground again. But only after the excesses off a multi-decade debt binge are effectively purged.

No “doomsday,” but definitely a “financial reckoning day.”

In the meantime, it’s probably wise to take advantage of the present situation to prepare for what I see is in store for the country down the road. Whether that means finding a line of work that’s more stable or acquiring more income to preserve one’s standard of living in hard times, it’s something one may want to look into and take action on while it’s still possible to do so. Of course, individual circumstances vary. Still, improving one’s self-sufficiency- even incrementally- can make a big difference in an emergency or major crisis. It’s something our predecessors in this great nation of ours understood and practiced, but unfortunately has fallen by the wayside in modern times.

Survival and prosperity. That’s what this blog continues to be all about.

Christopher E. Hill
Editor

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Peter Schiff: Gold Fundamentals ‘Great Right Now’ As U.S. Recovery A ‘Myth’

Euro Pacific Capital’s Peter Schiff appeared on the CNBC show Futures Now on March 20. The financial commentator and author talked about a number of issues, including the Federal Reserve, gold, and inflation. On gold, Schiff told viewers:

The fundamentals have favored higher gold prices all along. The fundamentals for gold were great at the beginning of 2013. They were great at the end. They’re great right now. It’s just that most people don’t understand how great they are. They believe the myth of the U.S. recovery. They believe that the Fed can actually unwind its balance sheet, that it can end QE, that it can raise interest rates, and that the economy is going to keep on expanding. None of that is going to happen. It’s all fantasy.

We’re going to have QE Infinity. There is massive inflation. And it’s going to manifest itself in substantially higher gold prices.

The ensuing short debate between Schiff and economist/investor/hedge-fund manager Mark Dow about inflation was also interesting to watch. Perhaps those two can set up something “official” down the road.


“Mark Dow vs. Peter Schiff on Gold, Inflation, Fed”
YouTube Video

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)

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Record Net Worth Result Of Fed Blowing Bubbles In Housing, Stocks?

I was surfing the Internet last night when I read something about Americans’ net worth making a comeback. Neil Shah reported on The Wall Street Journal website Thursday:

Americans’ wealth hit the highest level ever last year, according to data released Thursday, reflecting a surge in the value of stocks and homes that has boosted the most affluent U.S. households.

The net worth of U.S. households and nonprofit organizations rose 14% last year, or almost $10 trillion, to $80.7 trillion, the highest on record, according to a Federal Reserve report released Thursday. Even adjusted for inflation using the Fed’s preferred gauge of prices, U.S. household net worth—the value of homes, stocks and other assets minus debts and other liabilities—hit a fresh record…

(Editor’s note: Italics added for emphasis)

I can’t say I’m surprised to hear of this rebound in net worth. After all, Euro Pacific Capital’s Peter Schiff has been warning for a couple of years now that the Federal Reserve is inflating new asset bubbles via tremendous amounts of stimulus (quantitative easing) to spark some sort of economic recovery in the wake of the bursting of the housing bubble and global financial crisis that reared its head in the fall of 2008. I blogged back on September 18, 2012:

In his September 14 entry on the The Schiff Report YouTube video blog, Schiff, who correctly-predicted the bursting of the U.S. housing bubble and 2008 global economic crisis, explained to viewers what QE3 was really about:

This is the plan that Ben Bernanke has. Ben Bernanke’s plan to revive the U.S. economy, and create jobs, is to inflate another housing bubble. That’s it. That’s what the Fed’s got. That’s what it came up with. As if the last housing bubble worked out so well for the economy, that the Fed wants an encore…

How is another housing bubble going to solve anything. Now one thing that Ben Bernanke hasn’t figured out yet- it ain’t gonna work. No matter how much he tries, no matter how much air he blows in to that housing market, he’s not going to reflate that bubble. There are simply too many holes in it, and there is no precedent for relating a busted bubble. More likely, all that cheap money is going to go someplace else…

Schiff asserted the Federal Reserve was trying to inflate another housing bubble.

Instead, there’s suggestions both housing and the stock market look “frothy” these days.

Suppose the Fed did in fact want to inflate new asset bubbles. If the central bank aimed to spread the wealth around in an attempt to jump-start the economy, it doesn’t seem to be happening. Shah noted in that WSJ article:

But the rebound, while powerful, has been tilted in a way that limits the upside for the broader U.S. economy and is increasingly leaving behind many middle- and lower-income Americans…

That means that even as wealth increases, it’s increasingly going to the affluent.

In addition to the affluent, much of the wealth surge is going to older Americans. Both groups are less likely to spend their gains and more likely to save, Mr. Emmons said. Meanwhile, sheer demographics—the retirement of the baby boomers and America’s aging population—are increasing the ranks of the nation’s savers.

The upshot: While American households overall are getting wealthier, the benefits for the economy may prove limited until such improvements reach more people.

(Editor’s note: Italics added for emphasis)

“The benefits for the economy may prove limited until such improvements reach more people.”

I fear another financial crisis will have paid us a visit before such prosperity is achieved.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Source:

Shah, Neil “U.S. Household Net Worth Hits Record High.” The Wall Street Journal. 6 Mar. 2014. (link). 7 Mar. 2014.

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Peter Schiff’s Investment Advice Before The Fed Reverses, Increases QE

While I’m jonesing for a new entry on The Schiff Report YouTube video blog, I did watch Euro Pacific Capital CEO and Chief Global Strategist Peter Schiff on CNBC’s Closing Bell on January 28. Schiff, who correctly-called the U.S. housing bust and 2008 global economic crisis, told viewers the U.S. economy is actually doing “lousy” and that he thinks the Federal Reserve will reverse course on quantitative easing this year, increasing the levels of “stimulus.” When asked what one should do with their money, Schiff advised:

You should be buying gold. You should be buying mining stocks. You should be investing abroad. You should be getting out of the U.S. dollar. Because ultimately, that’s going to be the big casualty here. When the Fed surprises everybody and does more QE, and people realize the box that we’re in- that it’s QE Infinity, that there is no exit strategy, that exit is impossible, that it’s ever larger doses of this monetary heroin- the bottom is going to drop out of the dollar. You know, an economy that lives by QE dies by QE. We better be prepared for that.


“Yellen Will Reverse Taper and Increase QE”
YouTube Video

By Christopher E. Hill
Survival And Prosperity (survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)

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Jeremy Grantham: Farmland And Forestry Favorite Long-Term Resources

One “crash prophet” post down, one more to go tonight (I’ll update the “Crash Prophets” page once I’m done with both). Next up is Jeremy Grantham. He’s out with a new quarterly investment letter? Nope. But I did manage to catch an interview with the British-born investment strategist that was published on The Globe and Mail (Canada) website on January 30. From their exchange with Grantham, co-founder and chief investment strategist of Grantham, Mayo, Van Otterloo & Co. (GMO):

How do you play this sort of environment?

There is no easy answer, and anyone who thinks there is one is either ignorant or a crook. If you get out too soon, you’ll be victimized as an old fuddy-duddy. If you stay in too long, you’ll be just another trend-follower. But we know what the Fed does, and we know what [incoming Fed chair] Janet Yellen thinks. She says the market is not badly overpriced, which means she’s not going to get disturbed if it were 20% or 30% higher. Consequently, I don’t think that is unlikely.

Is this bubble-and-bust cycle one that can and should be avoided?

Of course it can and should be avoided. But by appointing Janet Yellen, you know there is no inclination on the part of officialdom to change the game. Bernanke and Yellen are guaranteed extensions of what I think of as the Greenspan experiment in stimulus and relatively lax regulation. It is a totally failed experiment, with enormous pain. Will they never learn?

“It is a totally failed experiment, with enormous pain. Will they never learn?”

Back around Thanksgiving, I pointed out the following in Grantham’s last investment letter (covering Q3 2013):

In “Ignoble Prizes and Appointments,” Grantham predicted yet another market “bust” shortly. Grantham wrote:

But back to Yellen, who has happily gone along with the failed Fed policy of hoping madly for a different outcome despite repeating exactly the same thing. The past consequences of this strategy have been so dire on two occasions and threaten to be just as bad again sometime within two or three years.

(Editor’s note: Italics added for emphasis)

Getting back to that Globe and Mail piece, there was this investing nugget:

What’s your favourite long-term resource?

Forestry and farmland, if you can find those properties that have the least overpricing. They would tend to be overseas, in reasonably stable countries. Unless I could get a share in the Moroccan government’s phosphate enterprise, in which case I would do it with a quarter of my net worth and feed it to my grandchildren.

Grantham, whose individual clients have included Secretary of State John Kerry and former Vice President Dick Cheney, talked about his “feeling about the state of the world,” environmental issues related to investing, stock picking, and timber as well in the remainder of the discussion, which you can read in its entirety on The Globe and Mail’s website here.

By Christopher E. Hill
Survival And Prosperity (survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)

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Peter Schiff: ‘Bernanke Bubble’ Will Pop Early In Janet Yellen’s Term, Ringing In Dollar Collapse

Euro Pacific Capital CEO and Chief Global Strategist Peter Schiff added a new entry Friday on his YouTube video blog The Schiff Report. Schiff, who correctly-predicted the U.S. housing bubble’s pop and 2008 economic crisis, warned viewers of a collapse in the U.S. dollar instigated by another bubble deflating. From Friday:

What happened two years into the Bernanke term is Alan Greenspan’s bubble blew up. Now, of course, Ben Bernanke, he was part of it, because he was at the Fed for part of Alan Greenspan’s tenure, and so he went along with the bad policies. But the “Greenspan bubble” blew up on Ben Bernanke. The same thing is going to happen again because the “Bernanke bubble” is bigger than the “Greenspan bubble.” The monetary policies pursued by Bernanke were far more reckless than the ones pursued by Greenspan. And therefore the bubble is much bigger. And therefore the damage to the economy when it pops will be much bigger. So just like it hit the fan when Bernanke was at the Fed, it’s going to do the same thing on Janet Yellen’s watch. We’re going to have another crisis early in the Yellen term that will be bigger than the crisis that we had early in the Bernanke term, and Wall Street and the government are equally unprepared. They will be equally blindsided. In fact, I think they will be blind-sided even more. Because if you go back to the Greenspan period, there were more doubters, there were more people like me back in 2004, 5, 6, 7, who were critical of Alan Greenspan and who were expressing that criticism or that skepticism by buying gold and doing various things to hedge themselves against inflation. There’s not that many of us left. There were some critics of Ben Bernanke early on, and as gold up to 1,900. Yes, critics were buying gold and anticipating problems in inflation. No more. Most of those voices have been silenced. In the last year or so, the doubters have become believers. Everyone is cheerleading Bernanke and welcoming Janet Yellen into the Fed anticipating nothing but sunny skies ahead. Nobody really understands that all of the problems that they believed Ben Bernanke solved, he simply exacerbated. The U.S. economy is in worse shape than it was when the financial crisis started. We have bigger problems, and therefore the next financial crisis will be worse. The thing that is going to be different about the next crisis, is I believe it will be a currency crisis…

Instead of being the end of the dollar’s decline, the next crisis will be the beginning of the dollar’s collapse. And I will anticipate that the dollar will continue to weaken until that crisis starts. Because as 2014 unfolds, we’re going to get more data like the December jobs data that is going to disappoint and call into question the validity of this recovery, which I believe is an illusion, and not a reality.


“An Imaginary Recovery Does Not Create Real Jobs”
YouTube Video

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)

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Peter Schiff Bullish On Emerging Market Stocks, Gold

Peter Schiff appeared on the Fox Business Network show Markets Now on December 26. The CEO and Chief Global Strategist of Euro Pacific Capital discussed the Federal Reserve and its announced “tapering” of its $85 billion bond-buying program. Schiff, like fellow “crash prophets” Marc Faber and Jim Rogers, believes the U.S. central bank will eventually reverse course on cutting back stimulus. He told viewers:

The Fed, I don’t believe, is going to carry out the taper talk. Maybe it will begin it, but it’s certainly not going to follow through. And I think it will reverse course, and ultimately be buying a lot more mortgages and Treasuries each month than it’s doing right now. And that’s because without the support of the Fed, long-term interest rates are heading a lot higher, and our economy is too broke to afford it. The highest rate we can really afford is zero at this point. And the markets haven’t figured this out yet- that we have a phony recovery. It’s a bubble masquerading as a recovery.

When asked where people should be putting their money then, the CEO of Euro Pacific Precious Metals recommended:

I’m not bearish on stocks. I’m bearing on the U.S. dollar. I’m bearish on paper. People just assume I’m all gloom and doom. So, I think the stock market’s going down. If the Fed did the right thing for the economy, and let interest rates go up, the stock market would come crashing down. But, I don’t believe the Fed is going to do the right thing. They’re going to keep doing the wrong thing. This bubble is too big to pop. The Fed knows it. So they’re going to keep on supplying air. So yes, stocks are going to go up, but the dollar is going to go down a lot more in real terms. And yes, gold is going to go up. If you really want to invest in the stock market, look around the world. There are much better opportunities in foreign stocks, in the emerging markets, that hasn’t been the place to be in 2013, but it probably will be the place to be in 2014 and going forward.


“The Fed knows this bubble is too Big to Pop”
YouTube Video

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)

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