Friday, November 6, 2015

Peter Schiff: It's Going to be a 'Horrible Christmas'

On CNBC's "Futures Now" Thursday, Peter Schiff said that while Americans are wrapping presents this holiday season, they should instead brace themselves for "a horrible Christmas" and possible recession.

"I expect [job] layoffs to start picking up by the end of the year," Schiff said, pointing to retailers as the first victim. "Retailers have overestimated the ability of their customers to buy their products. Americans are broke. They are loaded up with debt," he said. "We're teetering on the edge of an official recession," and "the labor market is softening."

"The Fed has to talk about raising rates to pretend the whole recovery is real, but they can't actually raise them,"he saidl. "[Fed Chair Janet Yellen] can't admit that she can't raise them because then she's admitting the whole recovery is a sham and that the policy was a failure."

WOW, my view is diametrically opposite from what Peter is saying here.

We are in the boom phase of the Fed created boom-bust cycle.  We are nowhere near a recession and it remains extremely likely that the Fed will raise rates by 25 basis points., most likely at the December FOMC meeting. The first of multiple rate hikes over coming years.



  1. I have to agree with you, Robert. All of the data that I've seen indicates that we are in the early to middle stages of the Fed induced boom. Can't imagine why Peter thinks that a recession is about to begin....and before Christmas!! When the Fed has raised rates 3 or 4 times and crude goes to $100, then we can start looking for the next slowdown. Peter says labor market weakness? Where is he getting that?

  2. Bob, get him to do a podcast with you. Talk about the principles and data that underly your predictions. Really dig into this. it would be a great learning experience. have some symbolic bet (the loser pays $100 to the winners favorite charity), just to keep it friendly. He's gotten some things right, you do too. Great discussion. I'll moderate if that would help.

    1. I agree with your point, well said. I'm interested in how often and what metric Peter uses to track money supply(if he does). RW should do a show with him.

      One poster here, I believe it was "sonepathworth" made the statement that no one can know what the money supply is...I really didn't probe that well because I was busy at the time- but after thinking about it, he's both right and wrong.

      He's right in that you can't know EXACTLY what the money supply is at any given moment, but you should be able to get close enough to at least see trends developing and make long term assessments. (yeah, I know...define "long term", but just sayin')

  3. What do the two of you agree on?

  4. IMO the fundamental difference is that Bob closely follows the money supply growth and Peter is not. From listening to Peter's podcast, he is more focused on pointing out various negative economic data points, and discounting the job growth for various reasons e.g. part time workers, etc.

    I think in the long run Bob and Peter mostly agree. The shorter term visibility provided by watching money supply growth is why they disagree in the shorter term prediction. Would love to hear a podcast/debate between Peter and Bob on why they have a different short term outlook.

  5. The bust phase never liquidated the debt.

    1. Debt is only a sideshow, You could have a boom-bust cycle with zero debt.

  6. Why does it have to be one or the other?
    It can and probably is, both depending on how far away from the money tap people are.

  7. Yes, this would be a great debate.

    I side with Schiff. I think inflation of the bubble is faltering. For two reasons. First, the Fed has stopped aggressively printing money just when malinvested capital projects with ~5-year horizons have begun to increasingly come online, counting on consumer savings and demand to be there that aren’t. Second, the Fed has funneled the printed money into the economy disproportionately through the investment side via lowered interest rates.

    Artificially lowered interest rates blow up the over-investment side of the bubble faster, larger, and earlier than the over-consumption side of the bubble. Over-consumption is capped by consumers’ income levels (which lag inflation by years which lags Fed printing by years). Over-consumption is also capped by consumer willingness and ability to take on more home/car/student debt at consumer rates of 5%. Even if a consumer takes out every loan he can and spends every dime he makes, he can only increase spending so much.

    By contrast, over-investment opportunities at Wall Street Banks / Fortune 50 Companies / Hedge Funds with borrowing rates of 1% face far fewer constraints. They can summon forth and deploy bottomless millions of Fed printed money inelasticly, at leverage ratios far beyond anything consumers are allowed, at the press of a button to capture just a few basis points. Over-consumption can’t keep up with this pace and magnitude of over-investment. The disparity between the early receivers and the late receivers is structurally problematic when all the early receivers are building things all the late receivers must have the money to buy, but by definition don’t. Such bubble inflation is too uneven to continue. Malinvestments coming due will begin to collapse for lack of demand, loans will default, the bubble will burst.

    However, I would side with RW if the Fed not only launched a large QE4+ but also injected it via helicopter drops, evenly distributing it to consumers. This would promptly supply consumers with the printed money they need to buy the goods produced by the printed money investments. Then the charade could continue longer.