Thursday, January 29, 2015

Ep 49: A Dove in Hawk's Clothing

Peter Schiff: QE 4 will send gold toward new highs

Gold has had a solid January - up close to 10% as measured by the SPDR Gold Shares ETF (GLD). It’s not unlikely territory for the yellow metal. 2014 started out in much the same way, up more than six percent that month before closing the year a few percentage points lower than where it began.

Peter Schiff thinks while the start of 2015 is similar, the end will be quite different.

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“All the Wall Street strategists are all bearish on gold. They’re bearish on gold stocks and I think instead of giving up the early rallies that happened last year, I think we’re gonna build on the gains throughout the year.”

He notes that the price of gold in just about every currency but the dollar has shot up even faster this year, though he’s not completely ready to discount the precious metal’s standing here at home.

“I think gold is going to go up in all currencies - it is rising faster in euros and some other currencies than it is in dollars but it’s still rising in U.S. dollars...I think it’s breaking out - now is a good time to buy….In fact this year I believe gold prices are going to hit all time record highs in just about every major currency except the U.S. Dollar. We might have to wait until 2016 before gold prices hit a record high in dollars."

Schiff believes the strong dollar has no where to go but down, another catalyst for gold as the year plays out. Still, he says the biggest move in gold in dollars will come at the hands of the Fed.

Related: Schiff: QE won't work in Europe just like it didn't work here

“When the Fed announces QE 4, that’s gonna be a big game changer. It’s gonna catch everybody by surprise.” Schiff says such a move by the Fed would prompt China to follow in Switzerland's footsteps, depeg-ging the yuan from the dollar as the Swiss did from the euro two weeks ago.

He also notes that gold and the Swiss franc have a history of mutual benefits. He believes a strong Swiss franc, un-pegged from the euro, will also aid in gold’s ascent.


Friday, January 23, 2015

Schiff: QE won't work in Europe just like it didn't work here

Put away the party hats and the champagne. Mario Draghi’s version of quantitative easing is a “major mistake” says Peter Schiff, CEO of Euro Pacific Capital.

“The only thing they’re going to succeed in doing is lifting the inflation rate but it’s going to be a case of ‘be careful what you wish for.’”

Schiff argues the European Central Bank mandate is to keep inflation below 2%. While the environment there is currently one of deflation, he believes Euro QE will work quickly to bring inflation above 2%.

“I think this open-ended program might end a lot sooner than people think,” Schiff says. “Once they blow through that 2% level they have to cut back the quantitative easing.”

Schiff believes the real problems facing Europe’s economy have less to do directly with inflation versus deflation and more to do with employment.

“Higher inflation is not going to solve the labor problems in Europe,” Schiff contends. “The problem is that the governments have all of these onerous restrictions that punish employers. You have serious structural problems creating unemployment and detracting from economic growth. It has nothing to do with low inflation... all Mario Draghi is going to succeed in doing by raising the rate of inflation is slow down economic growth and make the unemployment problem worse.”

Here at home, he thinks all the “QE worked, the economy is saved” talk is no more than wishful thinking. While Europe may have used our success as an argument to institute their own version of the policy, Schiff notes that “We still have a QE high. But as the stimulus is wearing off, the hangover is setting in," he says. "The U.S. economy is rolling over and I think we’re going to head into recession in 2015 if we don’t get QE 4 and I think we might get it before the end of the year."

Schiff says in the second half of the year the U.S. will see unemployment tick up, the GDP tick down and pressure will grow on stock and housing markets. That, he says, will lead to a QE 4 here at home even bigger than the one Mario Draghi just announced.


Weakness Is Not Strength. European QE Will Impoverish the People

Follow along with this transcript:

Question: Most people say [quantitative easing] doesn’t work. So why [is the ECB] trying it?

Peter: I think they’re trying it, because they want to try to bail out European governments that have too much debt. What they’re doing is monetizing government debt. They’re printing euros and buying government bonds. What that really does is prevent European governments from actually cutting spending, which is one of the big problems in Europe. The problems there are too much government spending, too much debt, and too much unemployment. Quantitative easing not only doesn’t solve these problems, but actually prevents gets.

Question: Things were kind of improving in Europe, generally. Maybe not so much for Greece, not so much for Southern Europe. But generally, the rest of Europe was over the worst of it. Not true?

Peter: I think things are going to get worse because of this quantitative easing. What they are going to succeed in doing is lifting consumer prices throughout Europe. So Europeans who are struggling are going to have to struggle even harder, because the cost of living is going to go up. So compounding the unemployment problem with an inflation problem is not a solution that’s going to work.

Question: What about the currency wars that the chairman of Goldman Sachs is warning of today in Davos, where countries devalue their money… I kind of get it, but when everyone does it, then it doesn’t work.

Peter: It doesn’t work at all. A currency war is where a government tries to destroy its own people. You don’t make your country richer by making your citizens poorer. That’s all that happens when you devalue your money. It means that the prices of the things that you want to buy –

Question: Yes, but it’s about imports and exports, isn’t it?

Peter: Well, it just means that you export for less. It’s like putting your stuff on sale. Sure, if you reduce the price of your exports, you’re going to sell more. But why would you want to discount your exports? You want to get as much as you can for your exports, so you can import more. But what happens when your currency goes down, your standard of living goes down, because you’re poorer. You have to work harder to consume the things that you want and need.

Question: Back in 2013, the G7 leaders said they wouldn’t interfere with currency rates. They said the market should determine it. That seems to have gone out the bucket?

Peter: Yeah. And you know, the only way to win a currency war is not to fight. The winners don’t participate. The best thing for your country and your economy is a strong currency. A strong currency reduces the cost of living. It increases the standard of living, and people benefit through strength. Weakness is not strength.


Wednesday, January 14, 2015

December 2014 Unemployment Was Actually

In his latest podcast, Peter Schiff dissects the jobs numbers from December, Obama’s new community college plan, and Charles Evans’ call for more inflation. Peter continues to be one of the few reporting on the reality underlying the headline jobs numbers, though Paul Craig Roberts just published an enlightening article at Roberts looks at the Shadow Stats employment data for December and reveals that real unemployment is more like 23% – not 5.6% as reported by the government.

Highlights from Peter’s podcast:

“The headlines are ‘Jobs Up, Unemployment Down, Everything Is Great.’ Again, not so fast, because you can’t just look at the headlines when it comes to the jobs numbers. First, in the official numbers, there was one disappointing number, and that was average hourly earnings. Last month, they were up 0.4, which was a big jump. They were expected another 0.2 this month. Instead, December was minus 0.2. Minus. Not plus. That was the biggest drop in 8 years in average hourly earnings. And they went down to that plus 0.4 from November, and they revised that down. They cut it in half…

“The real bad news was the labor force participation rate that continues to sink, hitting a new low. We had been at 62.8, now we’re at 62.7. That’s the lowest in 38 years. You have to go back to 1977, when women were entering the labor force in droves to find a year where labor force participation was as low as it is right now. What’s really a problem with the labor force participation rate that no one talks about is that for older Americans, labor force participation is actually on the rise. [For] over 55, it’s not falling… The real collapse in the labor force participation is among younger people. That’s why when you have people, even Janet Yellen, dismissing this as, ‘Well, it’s demographics. It’s the baby boomers retiring.’ They’re not retiring! They want to, [but] that’s the problem. They can’t afford to. The young people… they can’t get jobs. So the number is actually worse than it seems…

“The household survey showed that 450,000 people left the labor force in December, while only 110,000 people actually got jobs… As far as that survey is concerned, for every one person who entered the labor force, four people left. Lousy, lousy number…

“In December, 43,600 people got jobs waiting table and tending bar. That’s the highest number added in that segment since 2012. Chances are a lot of these waiters and waitresses are working part-time. A lot of them could be in their 60s. And I bet most of them have college degrees…

“Gold continued to trade very well throughout the week. It finished on another positive note. I think we’re above $1220 in US dollars. Gold stocks very strong on the day, on the week, leading the markets thus far in 2015. In fact, one of the only sectors that’s actually positive on the year… Gold continued to rise against other currencies. Huge moves up… Gold continues to rise, and I think this will continue to generate interest in the precious metals around the world… The fact that gold was strong even in a rising dollar environment, to me indicates a lot of strength. To me, it indicates that when the dollar resumes its downward trend, gold’s upward trend is going to be supercharged, once it’s no longer swimming against the tide…”