Economic Collapse: ‘All Banks To Fail’, Fed’s Powell To Resign | Peter Schiff & David Hay

there's there's a huge run you know on these Banks so I don't you know they're all gonna fail I believe that that Jay pal is going to resign sometime between now and the end of next year you have a very special panel with two popular guests Peter Schiff Chief Market address to the euro Pacific Asset Management fund and David Haye who is his co-cio of Evergreen gav call and we'll be discussing their outlooks on the economy markets and risks to investors welcome both Peter and David pleasure to host you both thanks David for uh hosting us absolutely thank you David great to be back with you congratulations on the growth of your uh your show it's amazing thank you uh yeah pleasure to host you both uh Pete I'd like to start with you while we spoke a couple months ago and you're talking to us about um the rest of the economy uh since then the equity markets have uh continued to Rally despite what many economists see as warning signs of a coming downturn in economic growth what could be the Catalyst for a downturn in the stock markets well I think their main reason the stock market is rallying other than you know just all the the hype around AI uh some of which is probably not hype but um a lot of it is uh you know being uh excessively uh priced into the market but I think it's all the weak economic data uh that continues to come out particularly out of the manufacturing side but I think the investors are looking at all this data and concluding that the FED is done hiking and even if it's not done um there aren't many hikes left and the data is so weak that the markets are starting to price in cuts and it's the expectation of rate cuts that I think is responsible for for the market and I also think investors are concluding that even if the fed's rate hikes are not enough to reduce inflation that a recession will do the fed's job for it that if we finally get a big downturn in the economy particularly in the labor markets that that's going to bring the inflation rate down uh to two percent or lower and so the markets are you know excited about that and starting to price that in but I think they're completely wrong and I think they're correct in that the economy is weak but it's not going to reduce inflation I think if anything the next recession is a catalyst for a leg higher in inflation as you know much larger budget deficits result in even more money Printing and a real return in Earnest to quantitative easing in fact I think uh that just the widening budget deficits and the explosion in the net uh interest costs to the government is going to cause the FED to to to uh to step up the money printing so I think it's it's going to be stagflation it's going to be a weaker economy but much stronger inflation and that that is not a positive environment for the markets particularly a lot of the growth oriented type Tech names uh the types of stocks that investors should be buying uh that are really inflation sensitive are the ones that they're still ignoring uh David how would you respond do you share his views on the uh on the stock markets at least pretty much I mean obviously the stock market has had extremely bad breath you know Market halitosis in the first half of the year it has brought down a little bit lately with the average stock perking up but the median stock and the s p is only up about five and a half percent so still way way behind the s p we know it's a magnificent seven that's been leading the way but I think what Peter was saying there toward the end of his comments was really critical and something I totally agree with and I think the markets are greatly missing and that is what's going to happen when we do have a recession and I think where I would disagree a little bit just because I listened to the mainstream media on a regular basis uh you know at least of CNBC qualifies which I think it does their attitude is you know actually making fun of people who've been saying the economy is going to have a recession and you know what are these people talking about you know they keep saying all this bad stuff's happening and yet the economy is just fine thank you I don't think it's just fine I agree with what Peter was saying but I think that's where that's one of the disagreements I have with consensus right now because if you look at uh you know I think Peter touch on this we got an industrial recession we've got uh actually falling GDI gross domestic income which is arguably more accurate and if you put GDP along with GDI you get the GDP plus and that's clearly flashing recession if you've got a yield curve that is deeply inverted that's had a Flawless track record when it's been this inverted you've got the leading economic indicators falling for 14 straight months and they're called leis for a reason they do lead yeah the Market's really blowing that off and you know you could kind of look at even the transportation average which is up 16 this year and that's pretty remarkable if we really are on the customer recession he said well that's Airlines trucking's bad cardboard recession underway and there's lots of cross currents I think to be fair so I think if if a person wants to take an economically optimistic attitude Outlook they could but I think it's looking at generally lagging or at best coincident if you look at the leading stuff it's flashing orange if not red so I think that's what the Market's missing right now Pete Peter I want to come back to you in your economic Outlook last time we spoke a couple months ago you had called what's coming up what could be in your words a Great Depression worse than the 1930s so certainly contrasts with the fed's view which is that well their own staff projections show that we might get a remodel recession Jerome Powell thinks we'll get no recession at all where is a discrepancy between uh your view and perhaps The fed's View well first of all the FED is not honest Even If the Fed bought a severe recession was coming it it wouldn't admit that it would it would try to you know you know put a smiley face on it and hope that positive talk would would mitigate uh the severity of the downturn um but you know we're gonna have a major uh economic contraction because we have to work off really you know 20 years of excesses uh that were the consequence of artificially low interest rates I mean the the excess of debt and consumption and speculation has come at the expense of serious damage to the underlying structure of the economy and all this has to be worked out one way or the other uh and and so it's going to be a very painful a process that is going to be elongated by government's efforts to to mitigate it and get in a way because the recession is the Market's method of repairing the damage that was done as a result of all the Mal Investments and misallocations that were a consequence of the fed's manipulation of interest rates but when the government tries to push back against that correction it just uh elongates the process and makes it more painful which is you know what we've been doing every time uh we start to see a problem uh we slash rates and print money we just saw uh several large Banks fail and a lot more would have already failed had the FED not stepped up and backstopped everything uh but that doesn't mean we're out of the woods I mean all of the problems that that resulted in Silicon Valley Bank or Signature Bank or whatever going under those problems are there throughout the entire banking industry all you have to do is think about all of the mortgage refinancings that occurred over the last five or six years where you've got all these 30-year mortgages in the threes you know that's great for the the borrowers but what about the banks that are holding all that paper they're they're under water they're losing a ton of money on on these mortgages think about all the commercial mortgages that were extended uh where the collateral uh has collapsed where commercial real estate values have been halved or down even more than that uh so you have all this negative equity in all these loans that um you know the the banks are holding on to plus the banks also have large portfolios of government you know treasuries where they own 10 to 30-year maturities again where they're collecting one and two percent interest uh in a you know on a five percent environment so they're losing a lot of money on these loans meanwhile everybody is loaded up with debt student loans now are getting close to two trillion dollars just there credit card debt you know record territory uh everybody has debt corporations you know just went on a dead binge during the era of cheap money and their balance sheets are at risk dramatically as all this low yielding debt matures into a higher rate environment and look at the federal government I think I think interest on the national debt right now is six to seven hundred billion a year that's double where it was about a year ago by the end of this year it'll be about a trillion by the end of next year the US government will be paying two trillion dollars a year in interest on the national debt which will be about 35 trillion by the end of next year Headed for 40 trillion probably in another year or two from there and that's if interest rates don't even go up what if rates keep Rising what if they go to seven percent eight percent um I mean so this is a huge debt bomb that's going to explode uh David how let's respond to Peter's comments uh how how did Peter's comments fit into your thesis of bubble 3.0 well he was talking about the male Investments that occurred because of interest rates being artificially suppressed and as Stan druckenbiller said recently that when you have money too cheap people do stupid things and when you have money too cheap for 13 years people do really stupid things and we've seen a ton of that I mean I do think bubble 3.0 was the biggest of them all the first being the tech bubble late 90s then the housing bubble of the 2005 to 2007 period which almost brought down the Global Financial system and that's really one of the points of my book which one I wrote it had not morphed into a banking crisis this time as opposed to Bubble 2.0 which involved mortgages but what Peter's saying is I absolutely agree with and again I think the consensus is missing this I think that the majority of you right now is the banking crisis is over and I don't think it is in fact s p has said 576 banks are dangerously exposed to commercial real estate and as Peter already touched on to work for Real Estate is a disaster at least in certain parts of it clearly Office Buildings where you're seeing the commercial equivalent of jingle Mill where these guys are basically just turning their buildings back to the the lenders uh Chris Whalen who was way ahead of this you know a lot of a lot of people believe I think the consensus Viewpoint again was early in the year late last year that higher interest rates were good for the bank's banking system and he was saying whoa up to a point but it's gone way too far this is going to become a systemic problem he was right he thinks that all banks are suspect and I think what Peter was saying is true that this the first part of the crisis banking crisis was because of their safest Securities what I believe once again the Market's missing is the second part of the crisis is going to be the hits on their loan so I think that's a major problem and I think it ties in with corporations and the high levels of death that they have not only are the levels of high but a lot of it's floating rate debt so you're getting an immediate impact on companies cash flow so it's that's that's a big issue something else the banks are losing their deposits because absolutely they can't pay interest and so people are yanking the money out of Banks and buying money markets so they're they're lending them their money to the US government at five percent and so the banks are losing all their capital in addition to the value of their loans going down they're all I mean the whole banking sector is completely insolvent thanks to uh you know what we've done over the over the last decade or so by loading up these banks with all this long-term low-yielding debt and and we had all these deposit insurance so nobody really cared about what the banks were doing with their money because it was all insured by the government but now though that um people have seen these large Banks fail and the government has said look you know we're not necessarily going to cover your bank uh if you have more than the FDIC amount it's a case-by-case uh situation we're going to have to evaluate the systemic impact the message that that sends is if you're a customer of a small Bank a Regional Bank a Community Bank and you've got a large account you just better get your money out there's no reason to leave it there they can't pay you enough interest to compete with a money market and what if the bank fails you may be you know Sol and and so there's there's a huge run you know on these Banks so I don't you know they're all going to fail and the government obviously if it wants to bail out every one of these Banks the only way it can do it is by destroying the value of the deposits because of massive inflation because the money to bail out the banks has to be created by the FED it's the only way they're going to get it the FDIC doesn't have any money compared to the trillions of of of deposits and so it doesn't even matter if your bank fails you're going to lose money if you have a bank account because either the bank's gonna fail because the government doesn't bail it out and you're going to lose your deposits or the government bails out your bank and your deposits lose their value because inflation destroys the purchasing power so no matter what happens people are going to lose a tremendous amount as as this banking crisis uh unfolds uh David which of these assets that you refer to in your book are most likely in or most severely in a bubble territory right now well first of all there's been a lot of deflation that's occurred since I wrote that book that we published it in early 2022 when it was still you know almost at its maximum size but uh you know even with this what I'd call the echo bubble that we're getting right now uh there's still been a tremendous amount of damage done uh but I I think that you know what you've seen with the NASDAQ 100 which is a just like the overall Market incredibly concentrated rally and a few names that's probably a pretty good hedge for people that are looking to protect from the next down leg I would say you know puts on the NASDAQ 100 wouldn't be a bad call and I think Apple's a great company but it's 30 times earnings uh revenues have actually been negative and yet it's trading at a three trillion dollar market capitalization hard to make money on those kinds of stock I think over the next 10 years I think we're really going to make good money is in some of the bomb down commodity areas which has of course been helping the FED in its battle with inflation we've seen a big drop in things like Lumber and of course even oil but I think that's what is going to be the big shock in the second half so I think you get another Spike coming in oil prices we've talked about this before I think oil inventories are just dangerously low has been another government intervention with these all these spr Str strategic petroleum releases which have made it look like inventories are fine but they're not fine and that's going to hit the fan here I think very soon and that could be the next problem that the FED is facing is more energy inflation I would agree with uh with with Peter that the FED has just created a untenable situation I actually need to go on the limb I believe that that Jay pal is going to resign sometime between now and the end of next year because I don't think he wants to be around when the FED has to do what Peter was talking about earlier which is get back into debt monetization mode I think one of the words we're going to hear more and more as time goes by is physical dominance which is basically the idea that the FED has to finance the government because nobody else will and as you know one of my big fears for the second half of this year is what I call the 4f scenario the federal fiscal funding Fiasco I just don't see where the trillions of dollars are going to come from to finance the government at these kinds of interest rates I think ultimately it's going to have to be the FED that does it with their magical money machine and that will be not great for the stock market but it could be great for commodities uh Peter can you respond to that well will Jay Powell be in a position where he has to resign well I don't know I mean if he's gonna resign or not I mean who are they going to replace him with um but you know the thing I you know Jade Powell is that you know he refuses to criticize the government for the deficit spending which is absolutely his job that's exactly what he's supposed to do he claims that well it's you know it's we're independent um it's the government that's supposed to stay out of the FED not the other way around If the Fed is independent specifically so it can criticize the government when it does something wrong when the government is pursuing excessive uh fiscal policy it's up to the FED chairman to uh to call him out on it that's exactly what Paul volcker did I mean um Powell likes to talk about volcker volcker was a staunch critic of the deficit spending during the the 1970s and he called on Congress to not only just cut spending but he specifically said you got to cut defense spending you got to cut Social Security you got to cut Medicare you've got to reduce these deficits because they're they're they're creating inflation they're undermining economic growth but Powell uh refuses to criticize any of these deficits and just says that it's none of the fed's business and the FED is just going to take whatever fiscal policy is presented to it Well it can't do that I mean if it wants to fight inflation it can't do it unless it's willing to bankrupt the government and just say okay well you're going to run these deficits we're not going to finance them but of course he's not going to do that he's gonna he's gonna do whatever he has to do to finance those deficits he's not going to allow uh default uh yeah so I don't know if he ultimately has to resign so that he could get out of Dodge but you know the the the the markets are just completely uh oblivious to the reality of of what's going to happen they just think that we could go back to sub two percent inflation that it's impossible you know the only reason that we had it for as long as we did had to do with all the lags uh but we we created all this inflation and now the chickens are coming home to roost and they're just getting started and as we have to ramp up the printing presses again all they're doing is is throwing gasoline on the fire but the fire hasn't gone out it's still burning yeah Peter just follow up on that why do you think the markets are expecting lower inflation I'm looking at the to your expected inflation uh rate for example uh that's um that's a 1.5 percent the Market's actually expecting in two years time inflation to be sub two percent not even at two percent this is headline CPI uh what what assumptions do you think the markets are making right now they're just looking at the time period prior to covid you know and particularly from the 2008 financial crisis through covid and they're just assuming that that's normal and we're just going to go back to that and they're wrong I mean that wasn't normal at all that was an aberration uh and a lot of it was driven by Foreign Central Bank buying of dollars particularly early on 2011 2012 you had the currency War you had all kinds of Emerging Market banks that were buying up uh treasuries and U.S dollars the opposite is happening now there's a move to d dollarize a lot of the biggest buyers of dollars are are sellers they don't want you as Treasures anymore they don't want our mortgage-backed Securities uh so we don't have the ability to keep exporting our inflation the way we did it uh back at that time period plus we're just catching up to all that inflation because initially a lot of the inflation as it worked its way into the real economy went through financial assets it went into the stock market into the bond market uh and and and now that inflation is already migrated into the real economy it's in it's in consumer goods it's in services and it's it's there to stay it's just taking hold and it's gonna build on this momentum so we're going to have very very high inflation for many many years and you know the government can lie about it and try to hide it beneath these rigged CPI numbers but it's now so so bad it's just that the markets haven't come to terms with that yet just like they initially thought inflation was transitory then they thought okay it's not transitory but the FED can easily put this Genie back in the bottle they're going to find out that that expression is here for a reason you know they used they said don't let the inflation Genie out of the bottle why because it's very hard to put it back in and and and the FED made the mistake of letting it out of the bottle because they were too afraid of what might happen to the economy if they try to keep it contained in the bottle but now that it's on the loose it is there's no way and in fact even pal just last week in his speech acknowledged that inflation is probably not going to go back to two percent until sometime in 2025. but of course he's wrong again I mean it's not going to be anywhere near two percent in 2025. David let's respond to this uh if you take a look at core PC core PC has been sticky around 4.6 to 4.7 ever since the beginning of the year it's come down since last year but it hasn't fallen since February I would say the latest reading was 4.6 which is uh slightly lower than the previous month but not by much why do you think X energy and food inflation has been sticky David I think some of the reasons that Peter mentioned I think that is inflation has been non-transitory for as long as it has then you start to get labor militancy and you're seeing that with the UPS contract right now so you're getting wage pressure that you haven't had in many decades and and wages are inherently sticky right it's hard to cut people's paying you know the way to deal with that is to do layoffs and companies are starting to do that and I think that will continue and I don't think the jobs Market is nearly as robust as the official statistics a lot of that's due to the birth theft model World which is overstating business formations and understating uh employees uh you know basically being terminated so I think there's a it gets back to how confusing the situation is and I think that's typical at inflection points which I think we're in the midst of I think we're in the process of inflecting down and one thing that uh that I would bring up that kind of touches on what Peter was saying is that where I think Powell is really naive is this belief that inflation is going to get better over the next few years I think as it gets worse over the next few years I think we're going through a period caused largely by Falling commodity prices especially energy where inflation looks relatively calm right now again backing out wages but a lot of the forward-looking uh inflation statistics are actually looking relatively encouraging for now but I think we've got these underlying structural secular upward forces on inflation such as reshoring uh you know that's one thing that's happening because if you look at construction activity like for plants it's just absolute really going ballistic right now because we are trying to re-industrialize America that's got some very positive aspects but I think it's inherently inflationary you and I before have talked about what I call the great green energy transition or green inflation that's by definition inflationary we're replacing more efficient sources of energy with less efficient sources of energy so you've got these kind of underlying upward lifting forces on inflation but near term it looks okay and that happened in the 1970s if you went back to also you know we did have a pullback in commodity prices but what happens if prices are troughing and we're on the verge of another move up in commodity exactly that's what I was saying I think that's what's going to be the big surprise of the second half and I think particularly if you get oil in triple digits again which I think is highly likely and then the physical yeah I left I left Vienna this morning and uh in my hotel where all the OPEC ministers are having a meeting today and they're they're uh their headquarters is like a couple blocks away so they all stayed in the same hotel and I saw those guys they they seemed like they were serious when they were when they were meeting and getting you know they had they had security guards and police there with them um but yeah I I think that we're gonna see a move up in Commodities and especially if we get a leg down in the dollar the dollar has been kind of holding steady but if it breaks uh based on all the weak economic data and the anticipation of a of a softer fed and you know when you mention these job uh statistics one of the things about the jobs numbers nobody seems to really pay attention to is that one of the main reasons that so many jobs have been created over the past year is because so many people who already have jobs need second and third jobs to get by and so it's inflation that is driving these jobs but it's not because the the labor market is strong it's because the labor market is weak and somebody can no longer support themselves on one job and so they need multiple jobs and if you look at the statistics we have a record number of people working multiple jobs some of them are multiple full-time jobs uh but also what I think a lot of people are doing and it's getting into these numbers is there are people who are working from home and they're taking three or four or five jobs you know and they're not even doing them but it takes a long time for them to get fired before their their employers figure out that they're not working but there's a lot of these jobs that are being created uh because of of those Dynamics and and a lot of the jobs that are being created these part-time jobs second and third jobs they don't pay very much you know that's why people need three jobs they lose one good job and they replace it with three lousy jobs that's a win for the statistics because that's two more jobs you know you know what it is Peter you know what it is it's the uh it's the uh I blame the mouse shifting software you know the software you you put in and it makes your mouse move and your employer thinks you're working that's what that is you're very are very deceiving well speaking of deceiving numbers so something that I wanted to bring up and you were talking about the deficit spending that this used to be talking about I think Jeff gunlock brought this up a lot of times in the past but I haven't heard even him discuss it recently which is the idea that if you look at the nominal GDP growth which is about seven percent and if you look at deficit spending it's about seven to eight percent right are we looking at deficits in that area Peter for this year I mean roughly at 2 trillion maybe a little under that deficit so the deficitly getting closer to two trillion actually but yeah so you know seven eight percent of GD nominal GDP so if you back that out where's the growth so you would have zero nominal GDP growth if it wasn't for these massive deficits that were running at a time when inflate or sorry unemployment is sub four percent that's just unbelievable to the deficit when the employment rate goes up by 200 basis points yeah nobody is talking about where the next uh you know deficit is going to be because when we go to a you know a situation where we get 10 unemployment again and we get a big economic contraction you're talking about maybe four to five trillion dollar deficits I mean because every cycle the deficits get bigger and bigger and the QE required to finance them gets bigger and bigger and I don't think we can go for another cycle the numbers are now too big that there's no way we can Goose the economy with that much drugs and not overdose at this point uh you know to start having the the deficits grow at at that type of rate and then the markets would have to realize that wait a minute the balance sheet is going to grow forever it's all this talk about reducing the balance sheet and that you're not monetizing the debt and that America isn't a Banana Republic is just is just a fantasy because the debts can the deficits or the the balance sheet can never be contracted because they can never get far along in the process without another recession kicking in and now they have to ramp it up and it has to get much bigger than it was uh then the prior Peak and so it's just always going up it can never go down uh and uh you know eventually the the bottom has to drop out of the dollar and that's when we have a real crisis in the country because then once the dollar starts to spiral and it pushes up interest rates long-term interest rates and now the FED is forced to print more money to to stop rates from rising then it just accelerates the the the the process of getting rid of the dollar and then you get into it into a currency crisis which is much worse than just the financial crisis so what he just described David is why I don't think Powell's going to stick around he's not going to go for that he's not going to do qe6 or whatever number it is uh so that's why I think we're going to have a you know somebody that's more client Believe It or Not than he is at the head of the FED but I also think it's important for us to think about what should investors do instead of yeah we obviously both like Commodities and gold is a logical hedge and so forth and there's people that love crypto for that reason I think Peter and I are both crypto Skeptics but what I do think makes some sense because this is the time in a investment cycle where I would normally be extending duration for clients and buying long-term treasuries I don't want to do that for all the reasons that Peter and I have talked about but I think people need to be locking in yield at this point in the interest rate cycle and I think where there's really an opportunity is with Emerging Market debt certainly not all Emerging Market countries not turkey but you look at countries like Indonesia even Brazil where but Brazil's got interest rates of 14 with inflation down to the four to five percent Zone I mean that's like Paul volcker so what's I ironic is that many of these Emerging Markets have actually been following more responsible fiscal and monetary policies than the West has and certainly yeah go ahead well I should say there's a number of these closed down funds that are own Emerging Market death that are trading at double-digit discounts and double-digit yields sorry yeah I you know I don't I don't own a you know I don't manage a close day to fly but I'll call your attention maybe you should take a look at it but so could uh you know some of uh the viewers here but so I I managed an open-ended mutual fund the euro-pacific bond fund and um for the reasons that you're stating and so my bond fund is the number one Bond Fund in this category this year I think there's about 200 funds in our category uh we're up about maybe six or seven percent year-to-date whereas the category is up one percent I mean we're crushing it uh and the reason that the fund is doing so well and we're now we're also uh five stars now over the last uh three and five years we're not quite number one over three and five years yet but I think by the end of this year we'll be number one uh going back five years but this year we're just so far ahead of everybody because of the type of debt that we own car Emerging Market currencies and our short durations but yeah I mean if you're going to be in bonds I mean the Europe Pacific bond fund is is the place to be I mean we're still Pro uh pretty small I mean you know we're not on anybody's radar I'm surprised uh you know by because last year my dividend payer fund was the number one Fund in its category of 3 350 fonts just because of our sector allocation and stock picking but I mean it didn't you know necessarily result in that many flows I mean people don't even notice how far we're beating uh our benchmarks and our categories because they still don't get it but I think this is just an early indication of what's going to be happening because I was underperforming for many years until the last few years when I really caught up and then just you know took off based on uh you know the forward thinking we were looking forward to uh what's happening now years ago when it what other people weren't even considering the possibilities but it's going to get a lot worse which means I think these funds that I'm managing are going to do a lot better so you might want to take a look you can't get a discount because it's an open-ended fund um but that that you don't have to worry about the discount getting bigger you can always get out at nav so it's a good place to park money if you don't want Equity exposure if you just want to be in uh in in cash but but get yields is there a US dollar risk associated with em debt can you comment sure but I would argue it's more reward than risk at this point for all the reasons that Peter and I've been articulating I mean these Emerging Markets have much lower debt levels generally they run trade surpluses you know what's lost in the focus on the horrendous U.S fiscal deficit is our trade deficit I mean that's been running you know pretty close to a trillion dollars and just year in and year out and that's one of the biggest problems the U.S has is that we are a major debtor country and people will look at Japan and say oh I look at the deficits and and debt levels that Japan's been able to run up at least on the government side that's because they own it and Owen internally they have typically run major trade surpluses and they have enormous overseas assets or the inverse of that so I think we're exceptionally vulnerable and that's why I'd rather be have plays against the dollar yeah we are the world's biggest debtor Nation we're not a creditor Nation like Japan and in fact we owe more debt than all the other debtor nations of the world combine and you know the last time we had a big inflation problem during the 1970s and we kind of solved it during the 1980s we were the world's biggest creditor nation in the 1980s and we could afford to pay the high interest rates that were required to to bring down inflation but you know we have these twin deficits now no one even talks about it we were talking about a trillion dollar trade deficit and a two trillion dollar budget deficits that's three trillion dollars uh during Good Times supposedly uh uh wait wait till you see what happens during bad times and even Donald Trump who ran his main campaign platform was bringing down the trade deficits I mean one of his themes was we have to make America great Again by reversing these trade deficits by re-industrializing well when when Trump left office the trade deficits were at new all-time record highs and then Biden broke that record and we got even bigger deficits uh so those deficits are off the charts nobody talks about these twin deficits now uh I remember when they were a big problem in the 1980s people were worried about the trade deficit when it was a fraction of what it is right now uh and they were worried about the budget deficits when they were a fraction of what they are right now right now you have maximum complacency because we've gone so long and these deficits have grown so large without any apparent negative consequences so everybody has been lulled into this false sense of security that because we haven't had a major crisis that we never will but you know just when you you least expected it's it's gonna hit so I want to jump in here David because he said a critical word complacency and I think that that's really what could be the ultimate bubble right now is in complacency because all the stuff that we're talking about all these statistics that Peter and I are citing aren't made up I mean that's just reality and yet you don't hear that on bubblevision on CNBC we're among you know the market cheerleaders I mean you get a few you know truth tellers out there like Mike Wilson who's pointed out that the earnings quality is the worst of 25 years but for the most part there's this especially when the Market's going up it's just amazing it's kind of like they say in sports that that winning is the best deodorant and you know a bull market or at least a a big bear Market rally is the best deodorant for the the stock market and the economy but the reality is the underlying situation is extremely alarming well I have a question for both of you you mentioned one thing real quick you mentioned the leading economic indicators and how how bad they've been for the last like what 13 14 months the the only the only positive in the Lei is the stock market so the stock market keeps going up and I don't even think that should be a leading indicator anymore in fact I think it should be the reverse because the stock market only goes up when people are negative about the economy you know it should be it should be a falling stock market that should be assigned a leading positive indicator the market is only going up because people look at the other indicators and realize how weak the economy is and they think that means the FED is going to come to the rescue but the candle argument is why fight the trend I mean the underlying economic forces that you've described are are weak but if the consensus out there bubble Vision uh whatever you may want to call it is bullish why fight that why fight the bull well I mean obviously the same thing in 2007. look at 2007 the market was actually like everything was great made a new high in the fall of 2007. as things were falling apart around the press this is the worst recession since the Great Depression so the Market's not a great forward indicator frankly and I think what what Peter said is kind of interesting it's almost a contraindicator but and I'm not I'm not fighting it in that I have a lot of equity exposure I just have foreign stocks Emerging Markets Commodities energy in metals uh you know I'm looking for inflation Hedges I'm looking for assets that I can own in an inflationary environment I'm just not you know piling into the the s p or the NASDAQ names that I don't necessarily think are going to be that good ahead and especially if we end up with a dollar crisis and a real uh crisis in the United States where people are looking to flee U.S assets which is where I think this is ultimately headed uh that I don't want to be in in our markets I think that there'll you know there'll be much better real returns to be made abroad and we're seeing you know we're seeing a lot of my stocks that I own in the last week have hit 52-week highs they're doing well uh it my gold stocks are the ones that are lagging and those are the ones that I feel should be doing the best uh but they're not because again investors still don't understand uh what's happened and and where we're headed to David if you want to have people go with the momentum how about Japan Japan's the markets have broken out to multi-decade highs when I look at stocks making a multi-year housing surprisingly it's heavily populated by Japanese stocks Vienna is extremely undervalued on a purchasing power parity basis and I think that's an interesting play too is because I believe that the bank of Japan is going to have to give up on yield curve control here soon where they keep the interest rates at a half a percent on their 10-year jgbs their government bonds I just don't see how that continues and by the way that's been another kind of artificial liquidity injection that's been going on that is I think also buoyed U.S assets is what you know they're printing a lot of yen to keep those those interest rates down you've also had this ERC it's employee retention credit 20 billion a month that that's been pumping in to the US economy that's going to go away you've had still student loan forgiveness that's going to at least partially go away there's a number of headwinds that are going to kind of hit all at once that the complacent consensus is missing but it seems when the bank of Japan throws in that towel you know and and allows yields to rise that's could be a huge problem for the U.S because that's gonna that's gonna cause the yen to move up quite a bit it might but probably will cause a correction and I don't I own quite a few of these Japanese stocks and I see them almost every day some of these stocks making new highs and I think there will be a correction in the dollar price of those stocks I mean the end will rise so from an American perspective perspective you may not see it as much but and that's going to have to you know there's going to have to be some fiscal uh responsibility in Japan they're gonna have to do something uh because if the bank in Japan lets rates go up they're going to have to start cutting spending they're going to do something uh to rein in their their deficits and you know they'll have no choice but that is going to be a big problem for the us because a lot of that liquidity has been coming from Japan and when it dries up and the end starts to rise um you know that that that's going to be a major problem for the us and our ability to finance our deficits so again David I would just say for your viewers that's a great way to hedge because I do think that's inevitable and there are a number of ETFs out there that do give you can't give you long exposure to the end the currency so especially if you own Japanese stocks I think what Peter said is true that would you know your dollar price and and uh would actually go up in that situation at the ends rallying but on the other hand it's a negative for the fundamentals of the companies because Japan's still a huge export country so there are definitely I think the one message I want to convey is that rather than get into a foxhole I think there's ways for investors to take advantage of these bizarre trends that have been building for years and years and years and I think are coming to a culmination soon speaking of bizarre Trends I want to end on uh on crypto as a trend Peter I think you were recently invited to a crypto conference what were you doing there well I was at two so I was in I went to a blockchain conference in London a few weeks ago and I just left a few days ago I was at a blockchain conference in Hamburg so yeah you know I I'm conferences um mainly as a Counterpoint you know to try to uh represent the other side you know the one in Hamburg though it was disappointing in that when they first invited me and I agreed to do it Michael Saylor was going to be there he was one of the speakers and they were going to try to arrange a a Bitcoin gold debate between me and sailor and I've been trying to get that debate he's been ducking me for years people keep trying to arrange it go ahead you know David contact him he turns down every competition in every offer but once he found out I was going to be there not only did he refuse to debate me he just decided not even to go to the conference he just backed out of the entire event so I I you know I had to do a Bitcoin gold debate with with some lady I didn't know she wasn't nearly as big a name as sailor but it's too bad that he that he that he refuses to debate me in public about about Bitcoin because he says a lot of really crazy things about it and and nobody really wants to call him out on it you know so I I that's what I want to do but I I'd like to do it you know face to face you know he likes to criticize me when I'm not around to to fight back well I mean I don't know what happened but maybe maybe he had other plans but let's assume you're right and uh claims he was tired of flying because he he came he went he went to Prague like the month before for a conf conference so you know what's something he said let's suppose he were here let's suppose he were here today what's one of his core Theses that you would disagree with well you know his main thing is that Bitcoin is like the greatest property ever invented uh you know I'm like well how is it a great property when there's absolutely nothing that you could do with it I mean he he he he likes the fact that it's easy to transport it sure it's easy to transport nothing you know what's the big deal if you got nothing uh you know it's it's you know that you could easily you know send it around but he he talks about Bitcoin he says it's energy like it's it's it's energy Bitcoin is like energy and I I would just like to ask him how is it like energy it you need a lot of energy to make it but once you've made it you've You've Lost That energy it's not like it's a battery that stores the energy it's whatever energy has been used to create a Bitcoin is wasted it's gone once you have the Bitcoin you don't have anything except the bill for the energy that you use to create nothing but he just you know thinks that no other property has value he hates real estate he hates stock he hates gold he says the only the greatest asset ever invent did is Bitcoin which you can do absolutely nothing with so somehow this has all this value but but real property actual businesses a real commodity these things have very little value but this digital string of numbers somehow has all this value it's just it does it's Preposterous and why is Bitcoin better than the other 20 000 some odd tokens that exist you know or that that could be created uh that don't yet exist it's just the arguments are asinine I do want to get David to respond but up here just one more follow-up uh the the problems with our economy and particular money printing uh inflation which in your definition is the option definition is the uh is the increase in the money supply wouldn't those problems some of those problems at least be fixed by anchoring our monetary system to a form of money or an asset that has a fixed Supply like Bitcoin that's one argument for Bitcoin yeah except you know but Bitcoin doesn't have the underlying values so trying to Anchor a monetary system to something that's worthless doesn't make any sense uh you know gold is money I mean what we need is to go back to a monetary system that actually is built on money uh when we had paper the paper currency derived as value from the money that backed it up that's what gave uh the original you know paper money dollars you know Federal Reserve notes had value because they represented ownership of gold and they could circulate uh as a more convenient way of of transacting in Gold because you would transact in the bills rather than the bullion itself but the bills derive their value from the bullion so we have to go back to a real monetary system I think with today's technology with the internet whether we use blockchain or something else it's very easy to digitally represent gold so that we don't need paper we don't have to be constrained by a physical bill you can digitally replicate gold and you can transact in in digital gold uh that derives its value from the actual gold and it go it doesn't have to be a fixed Supply it's okay if the supply of gold Grows by one percent a year or so which is the historic average that kind of inflation is fine the population Grows by more than that uh and so that works I mean gold has worked as money for thousands of years we don't have to reinvent the wheel uh we could just find ways of making the wheel more efficient with the technology that we have and eventually that's where we're headed I mean there's no way the current monetary system will survive it is impossible because the governments will abuse it uh through inflation I mean inflation is just another form of Taxation and it's an easy way to extract taxes from the public because the public doesn't know they're being taxed the public thinks they're getting something for nothing when the government spends money without collecting in taxes but it pays for it by printing money and it destroys the value of everybody's savings and everybody's wages and then prices go up that increase in price is a tax but the public doesn't connect the taxation to government because everybody blames Rising prices on greedy corporations on on Putin on on OPEC you know on everything but the government and so the government likes that because it doesn't have to accept responsibility for the taxes that it lays on on on the public David I'll move on to you and I'll give you the last one on bitcoin week you and I don't think you and I have spoken about Bitcoin before um so let me throw this question out at you just giving Bitcoins price history some would argue that is the ultimate store of value just by looking at its price history it's upperformed everything in the last 13 years what's your response well that's because it started on a low point with very low exposure and ownership but the problem with it like all highly volatile assets is when do most people put in most money they do it at high points when it's really running and we see that even with our clients which tend to be you know fairly well disciplined you know sober people but they you know when Bitcoin gets going and all the Press is you know giving it the you know big highlight they just you know they can't resist and I know they've done some speculating it outside of us it's it's just one of The Facts of Life in the investment business is a highly volatile asset tends to destroy wealth because people buying and sell it at the wrong time and I don't think there's been anything more prone to that than Bitcoin but the other thing I would say that's just simple and Peter was kind of touching on this is that you I mean try to run the world without energy without oil and gas or uranium or without food commodities like wheat you can't run the world without those things you can run the world just fine with Bitcoin without Bitcoin I should say Bitcoin wasn't around the world was doing fun in fact I'd say that probably over the period of time bitcoin's done the best has been one of the world economies has been performing the worst and you know it's it's the best of a bad bunch in my view I do like you know the scarcity part of it versus something like Dogecoin which has absolutely no breaks on it but you know really to Peter's point I do think that we are going to have to replace the dollar with something else I think Americans would be well to study the history of Weimar Germany in the early 20s and how they got into the disaster that they did and I know they had reparations that they couldn't pay but we've got a Timeless and we can't pay I mean drunken Mill were saying that the president valued the entitlements is 20 trillion I'm sorry 200 trillion and that's not that's on top of the 32 or 33 trillion on on budget debt we can't pay that much less you know those entitlements so in a way it's kind of like the reparations for Weimer Germany and yeah we're actually more heavily indebted than the Germans were you know we you know we borrowed a lot more money uh than what they borrowed to pay that war and and we can't pay it either I mean so yeah I mean but you know the point of you're making about Bitcoin um because all these guys always try to tell me it's the greatest store of value because it's you know it's it's gone up so much because well that's not a store of value I mean the fact that it went up so much it's a speculative asset but the price got to almost 70 000. now it's thirty thousand the majority of the people who own Bitcoin are losing money in it they're not they're not making money but if you just want to go back and say it's the best performing asset over the the last 10 years if Bitcoin were to fall from thirty thousand to one thousand over the next year you could still make the argument that it's the best performing asset because it went from pennies to a thousand right so it still would have beaten everything else but you would you want Excel it's a store of value it's gone from 69 000 to 1 000 but just because it went from a penny to a thousand you're going to talk about what a great store of value it is you know it so they're just looking at this the fact that it went way up and claiming that represents the store value it just means that the people who got in early were able to cash out and and get a windfall but it has to support anything I mean you can't be a store of value when you don't have any underlying value that you could store there's no value in Bitcoin there is a price there is a market price for Bitcoin but you can't store a price prices are very volatile they depend on supply and demand you can have no value and you can have a high price if people are dumb enough to pay it right all right so final question both of you both talked about an alternative to the dollar uh what exactly is this alternative what should it be Dave I'll start with you well I think we're going to have to use hard assets to guarantee the dollar I think that we're in in such a difficult bind financially that to particularly with four investors and that maybe is a Nuance that I've just kind of stumbled on lately is that we could have a two-tier dollar kind of like they do in China where we have a dollar that's used for foreign trade that is backed by uh real assets whether it be gold or a basket of real assets and so U.S investors really don't get that benefit but for because that's the way it was with gold for a long time we talked about how Nixon took us off the gold standard in 1971 well really was only the it was illegal as a U.S investor at that point to own gold still it didn't change until Peter would know for sure I think maybe 1980 but if you were France you did theoretically have the right to ask for gold and uh once they asked for too much gold that's when Nixon you know took us off the gold standard once and for all so I think we could be going back to a two-tier dollar where uh we do have at least some of it backed by hard assets but maybe the situation gets dire enough that we have to have uh you know real backing for everything one of the nice things about the United States versus Germany in the late 20s they had very little I believe that the way they uh collateralized if you will the Deutsche marker I think the reichs Mark is what it was at that point is with the real estate of the of the country well we've got an enormous amount of real estate we've got an enormous amount of other physical assets we've got the means to do it whether we've got the political will to do it is another story but I think the situation is going to get dire enough where there's no choice at some point Peter what's your alternative well a lot of people think there's no alternative to the dollar uh you know they say oh well you know the world stuck with it because it's the cleanest uh dirty shirt in a hamper and I think they're mistaken and first of all I don't even think we're the cleanest dirty shirt I think there are other dirty shirts that actually are less dirty but I I would accept the fact that the Euro the Yen uh you know the Chinese r b um you know these these currencies are not suitable to replace the dollar either I think the the alternative to the dollar is gold I mean that is the obvious alternative I mean prior to the dollar it was gold I mean gold was the international uh reserve and even when Brent Woods and the world went to the US dollar it was predicated on the dollar being backed by gold I mean the dollar was convertible at a fixed exchange rate at the time it was 35 dollars got you an ounce of gold and the whole expression the dollar is as good as gold is because it was gold I mean legally the dollar was a weight of gold and and so everybody that owned uh Federal Reserve notes owned ious for for dollars for goals when when Nixon defaulted on that promise and we told the world you're not going to get real money for your notes you can't have the goal that we promised to pay uh it's basically it's like we wrote checks and we told the world you can't actually cash the checks but you can you're free to to use the checks and negotiate them among yourselves you just can't take them to the bank and get what we promised you could just you know circulate these bump these bump checks uh but I think the world is going to ultimately reject that dollar and then what's left you just go back to goals and so I think more and more these central banks are going to uh be um backing their currencies with gold and I think that's why central banks have been buying gold and why they will continue to buy gold because they're preparing for the day when they have to back their currencies with real money again they won't be able to back their currencies with dollars because the dollars won't have much value uh and and that means the United States we're gonna have to back our our currency with something again we have we still have a lot of gold uh unless we're lying about how much we have but we still have it and yes the US government has a lot of land uh that it could sell to try to Let's do an audit let's let's send Peter Schiff to uh Fort Knox we'll we'll make a petition okay do a little tour report back to us Peter all right well thank you both gentlemen for a very thorough discussion where can you follow your work Peter I'll start with you working where can we follow you've got a very active Twitter account where else but you can follow me on Twitter I'm getting close to a million followers now I got to get over the top there but I do my podcast the Peter shift show uh you can listen to that at shift radio you can also subscribe to my YouTube channel I've been doing them live recently so now they have video again uh on YouTube um got about I guess 550 000 YouTube subscribers so gotta get some more of those uh and of course if you want to work with me you know through my company I've got shift gold people want to buy physical gold and silver and if you'd like me to actively manage your portfolio for you you can contact me at my company europacific Asset Management it's europac.com is the website e-u-r-o-p-a-c.com and if you want to you know do it yourself my mutual funds are available no load on all of the major uh discount brokerage platforms and you can learn about those funds also on my website at europac.com excellent and David when can we see you with these boxing gloves that you guy behind you can you make her at sub stack that's where you can get our free newsletter by the way which we publish on Mondays and Fridays and we do have uh action Market action related recommendations as much as the SEC will let me get away with on during the Friday newsletter and then like Peter we're also money managers that's what the Evergreen Golf gal is so you can go to the Evergreen gov cow website uh we manage about four billion dollars there are separately managed accounts and so it's pretty easy to find me thank you both Peter and David look forward to speaking with you again next time take care all right take care everybody all right take care bye-bye thanks for watching [Applause] foreign

Channel: Peter Schiff

Views: 411,257

Keywords: jerome powell, fed, federal reserve, fomc, interest rates, economy, stock market, investing, inflation, dollar, gold, money, invest, biden, joe biden, economics, pacwest, pacwest bank, pacificwestern, pacific western, bank, banks, banking, finance, financial crisis, 2008, ordinal, bitcoin, crypto, nft, blockchain, usps, debt ceiling, french, france, price controls, trump, desantis, president, election

Id: So0yro6FtO0

Length: 58min 6sec (3486 seconds)

Published: Thu Jul 20 2023