Peter schiff on Gold, Bond Trader Regret and Bank Suing Insanity
Hi, everyone it is Peter Schiff, Friday September 2nd, 2011.
Well, today we got the highly anticipated jobs report for August or should I say lack of jobs which is more descriptive of what actually happened.
The government reported that zero job were created last month and I am sure by the time they revise the number down, which typically what we do.
In fact this month they also revised downward last month i am sure we are going to find out that we actually lost jobs during the month of august.
Now of course president Obama is getting ready to make or over next weekend I think a speech about how he is going to create jobs.
You know the old definition of insanity is doing the same thing over and over and expect a different result.
What Obama is likely to propose is more of the same failed policies, government stimulus, government spending, gimmick and credit designed to stimulate employment.
But the bottom-line is none of it works. If deficit spending created jobs, we would have full employment right now. It doesn’t work.
In fact unfortunately I think the argument between stimulus and deficit reduction is going to be one in favor of stimulus because rugby the oppression that there’s a tradeoff between deficit reduction and job creation as if they are mutually exclusive.
The problem is the one of the main reasons that we can’t create job is because of the deficits. The government is borrowing so much money that would have been otherwise available for the private sector to use to provide workers with the tools and equipment that they need.
Instead that money is financing government spending or financing the real estate market or student loans or whatever being directed by the government. But it is not going to job creation.
I think what’s gonna happen is we’re going to get bigger deficits in the name of job creation and we’re gonna destroy even more jobs but you know what president Obama should really be doing is instead of trying to focus on how to create jobs, how about not destroying the job the we already have.
The Obama administration has waged war on employers. In fact, I wrote a commentary today labeling Obama as the job destroyer in chief. I think if you want to have a perfect example of the war on employers, listen to the interview that I did on Schiff radio, it is up on my youtube channel – Schiffreport with the CEO of Gibson Guitar and how the government is trying to destroy the 1200 good quality manufacturing jobs at this icon American company.
So, number 1 stop destroying jobs and number 2 let the private sector create jobs but in order to do that we need the government to get out of the way. We need to reduce the government spending and we actually need a higher interest rate. We need to stop siphoning money away from main street to wall street. We have to replenish our savings so that we can make the investment necessary to create jobs because right now, at 0 interest rate, capital is fleeing the US.
Why would you want to invest here when your money is being debased and you can’t get a return. So we are chasing the capital away which is exactly opposite of what we want.
Now looking at how the market reacted. Dow Jones is down about 250 points on the weaker than expected job report numbers.
Bond of course went other way. Bond went up, the yield on the ten year I believe it actually close below 2%. That is the lowest yield yet and why anybody would want to loan money to the US government for ten years at 2% is beyond me.
But you know what apparently Bill Gross now wants to do it. And this may be is one of the biggest capitulation ever which could be a sign that bond bubble is about to burst.
Remember Bill Gross at PIMCO made the news about a year ago when he announced that the was going to stop buying Treasuries. In fact he has sold all of his Treasuries.
The reason that he did that and he admitted that he made a mistake is he believe that the US economy is going to recover and he thought the recovery would mean higher rates which is why he wanted out of treasuries.
Well now the reason why he wants back in despite the fact that the yields is even lower and the prices are higher than when he got out is because now he is convinced that there is no recovery so he wants to be in bonds.
He got to keep things wrong here you see, I have been advising people to stay away from bonds for a long time but not because I thought the economy is about to recover the way Bill Gross does but because I knew it would never recover.
And I know that a weak economy is alternately bad for bond because I know that a weak economy is ultimately bad for bonds because the economy is weaker, that means more stimulus, more quantitative easing, more money printing so since I know the FED is going to continuously tried to stimulate a weak economy and since I know the more they stimulate, the weaker it is gonna get.
Ultimately they are gonna destroy the value of the dollar which is all bonds are, the future promise to pay dollar. So everything that we are doing to stimulate the weak economy is gonna destroy the value of bonds and maybe this major capitulation by the biggest bonfire of them all outside of treasuries and maybe some foreign central banks but certainly in the private sector the biggest bond buyer, maybe this is the evidence that we are nearing the top if we are not there yet.
You know one market is not on the top in my opinion is the gold market.
Let’s talk about gold. Gold is up about fifty bucks today. It is not a record high, maybe about twenty or thirty bucks off the record but we recoup almost all of that big decline that we had, when gold went up about 1920 very quickly and droped down about 1650.
We are now back up there at 1870 or something like that. But gold is far from a bubble and now we have all sort of talk in the last couple of week about the bond bubble.
In fact it is Dennis Gartman called the top of the market, he actually said that biggest bubble of our lifetime has burst. The biggest bubble of our lifetime? Maybe it is for somebody who was just born but for someone who has been around for a least a decade, what about the NASDAQ bubble, the real estate bubble, those are much bigger than what we have gold. And as far as I am concerned, we don’t even have a gold bubble, at least not yet. Maybe one day, there may be a bubble in gold but clearly we don’t have one now.
But Dennis Gartman called the top which of course not the 1st time he has done that. He called the top before with the same – this trade is too crowded, there are too many balls. So he is out there on television call it top but one of the most ridiculous observation is that Dennis Gartman made as evidence of the top as he said that the value of the gold ETF GLD is larger than the value of the index that track the value of the S&P500 and this accorded that this represented some kind of insanity where gold is being valued higher than the stock market.
He compared it to the bubble in Japanese real estate were at one point the emperor palace is worth more than the entire state of California. But the problem with Dennis Gartman’s observation is that is completely meaningless.becuase he looks at one way to buy gold and one way to buy stocks.
The fact that this particular ETF has a larger market cap than that particular stock market ETF is mearningless because most people who owns don’t do it through the ETF.
If you look the value of the entire stock market, which is all the mutual funds that owns all the US individual stock. The size of the stock market dwarfs the size of the gold market. I mean it doesn’t even come close. So the whole observation is ridiculous.
You know rather than a blow off top which is what Dennis Gartman thinks he thinks he saw, I saw it as a break-out. I saw a upward moving channel in the gold market and we broke out of operand, far from being bearish the price action is very bullish.
In fact I think it is even more bullish, which is what I predict on my radio show all along but it is finally happened today, the gold and silver index broke out to a new all-time record high. What is unique about his is the 1st time in years that happens where after a correction in both metal on the stocks that the stocks made a new high before the metal. Now that shows me is that we are moving into the next leg of the gold bull market where people actually start to believe in it.
You see the fact that gold stocks underperformed the metal for the last 3 years or so reflect the fear in the market. The skepticism the fact that people didn’t believe the gold market rally was for real so they didn’t sign a higher PE to gold stocks because they expected the price to collapse.
The fact that now there’s some optimism returning to the gold market despite all those bubble talk shows me that fear is just beginning to give way to greed, not rapid greed, not speculation greed. Maybe we are going from fear to mild confidence but this is a big ship because I think it is the beginning of real money moving into the gold sector. So far it has been on the sideline. All this talk on the other financial networks about the gold bubble is on the fact that a lot of people are talking about gold.
Well 1st of all, a lot of people are talking about it, a lot of investors are talking about it but they are talking about it because they don’t own it. Most of people on TV don’t own any. So the key about a bubble is before you have a bubble in something, the people who is talking about it happen actually buy it.
And in fact it is not just investor who are gonna have to buy gold before it is a bubble, it is the average mam on the street and right now he is not even involved in the conversation, let alone buying it so I think it is a green light here.
So for the gold market I expect new highs for gold and silver ultimately, new highs in the stock market and I am sure one of these days Dennis Gartman will be back on the TV again acting as if he has been with us the whole time he has been long of gold but he often called the top and if anything, he is more of a contrarian indicator when it comes to gold. That’s a credible source on the direction of the market.
Anyway one more thing I want to talk about today, I don’t know how you want to called it – insane? But the government is now going to be chart filing charges against the banks for bad mortgages for loaning people money that they couldn’t pay back which is the ultimate in the arrogance hypocrisy mean.
First of all, the main reason that banks lower their lending standards is because the government pressured them to do it. Our politicians were upset that some people were being denied mortgages because they couldn’t come up with the down payment or because their credit score is too low or they didn’t have enough income.
So they put the pressure on the banks and Fannie and Freddie to lower their standards which is what happened and in fact one of the worst thing that Fannie and Freddie did was guarantee adjustable mortgage simple based on the ability of the borrower to afford the initial payment even if he couldn’t afford a higher payments that would ultimately come when mortgage interest rates rose so Fannie and Freddie were leading the charge for lowering lending standard egged on by the government, pressured by the government and other bank banks simple follow suit but you know even more than the hypocrisy of suing banks for doing exactly what the government wanted is that we were suing the very banks that we baited out.
We gave them a bunch of money. The banks did with what the government wanted and made stupid loan and when they went broke the government went to rescue and bail them out and now they are suing banks to get some of their money back. How crazy it is. How about not bailing them out in the 1st place.
And here is where it gets even funnier. What if they government wins, what if they get big judgement against these banks and now they are failing again and they need another round of bailouts.
Is the government going to give back the money that they just took? Does anyone notice the insane and hypocrisi of this? And the person who is going to get rich I think just the lawyers reading this money transferring back and forth from government to the banks and back to government back to the banks. Whole thing is crazy but of course one thing u don’t want to do is don’t by these stocks. Don’t get in bed with government. I think ultimately people who make a lot of money in the financial sector is the ones who work at the those company who get hugh bonuses.
Category: Peter Schiff
