The stock market is booming as everybody anticipates an end to the coronavirus pandemic with the rollout of a vaccine. But as Peter Schiff pointed out in this podcast, the rally isn’t really about a cure for COVID. It is being driven by government and central bank policies meant to shield us from the pain of the pandemic.
The problem is this government “help” really isn’t helping. In fact, it’s made a bad situation much worse.
The Dow Jones was up 11.8% last month. It was the best November for the Dow since 1928. It was also the single best month since 1987. The S&P500 and the NASDAQ had their best months since the big rebound in April off the COVID-19 March lows.
Peter said, “This is all bubble.”
While stocks were booming, we saw a mini-bust in gold. The yellow metal dropped about 5% on the month – this despite a weakening dollar. The dollar index slipped about 1% in November.
All of this market movement was triggered by a “risk-on” mentality sparked by optimism about a COVID vaccine. Investors fled safe havens and bought into riskier assets.
So, COVID will soon be a problem of the past, and so since the markets are forward-looking, the markets are now discounting all the great things that are going to flow from a COVID vaccine and we’re pricing them in right now, so we’re getting this huge rally. The problem is the market was already high before we got the news of these vaccines. It’s not like the market was still near the March lows and everybody had discounted all the problems of COVID and now we can start pricing that out of the market because we have a vaccine. The market had already fully recovered before anybody had even talked about a vaccine. So now we have a rally when the market was already near the highs before the rally. So the vaccines simply caused a very expensive market to get even more expensive.”
The markets are ignoring a fundamental question: is the US economy suddenly in great shape because of these vaccines?
Of course not. We have been chronicling the deep damage done to the economy by the government response to coronavirus. As just one example, 17 million households are behind on rent or mortgage payments, and nearly 6 million Americans say they are at risk of eviction in the next few months.
So, why do we have markets that are higher today than they were before the pandemic?
The markets are not lower because of COVID. In fact, they’re higher. And the reason the markets are higher, and the reason they’ve rallied since the vaccine, has got nothing to do with COVID. It’s all because of the Fed. It’s all because of other central banks, not just the Fed, but it’s the way central banks have responded to COVID.”
Their prescription to cure COVID is to print trillions of dollars out of thin air.
Inflation is the cure for whatever ails us. And that’s what we have. That’s the prescription – and massive money printing, massive government spending – that’s why the market was so strong. And that’s why it continues to go up because the market realizes that it doesn’t matter if COVID goes away. The monetary and fiscal policies that resulted from COVID are here to stay. In fact, they’re going to be expanded, especially here in the United States because we took on so much additional debt to fight COVID – now the problem is the debt, not the disease. The disease that we really have is excess debt and excess money printing. And the Fed’s cure for that is to print even more money so we can go even deeper into debt.”
As Peter pointed out, the problem is the government thinks it had to shield everybody from the negative effects of a COVID downturn. But that’s not the government’s job.
To the extent that the economy is going to have a recession and that recession causes people to have pain, the government needs to allow that pain to be felt. Because that pain is going to result in people changing their behavior, modifying the decisions that they make to reflect economic reality.”
The economy needs to adjust to the reality of COVID. If people are unemployed, the need to cut spending. If government revenue is down, the government needs to slash spending. But the Fed and the government didn’t want that to happen. So they printed trillions of dollars so people could keep spending even though they weren’t producing anything.
The problem is government doesn’t seem to understand the difference between money that is actually earned by being productive and money you get just because the Federal Reserve or some other central bank conjures out of thin air. When you’re productive, you’re helping to grow the economy. When the Fed prints money, all they’re doing is distorting the economy and increasing the cost of living.”
The reason we’re in so much trouble now is because the government has intervened so much in the economy and dumped in so much artificial stimulus.
What the Federal Reserve and other central banks and government are doing – they are numbing up all the consumers and businesses so they don’t feel the pain that they should be feeling, and they keep on spending and making decisions as if nothing bad had happened. And so at this point, the greater damage to the economy is not the damage from the virus itself, but the damage from the monetary and fiscal policy that was put in place to supposedly numb us from the pain of the virus. So, that doesn’t go away. The cure for COVID doesn’t do anything to cure that problem. In fact, that problem is now self-perpetuating and is going to get bigger and bigger and bigger. So, that’s why nobody should have been selling gold based on these COVID cures. The outlook for gold has never been more bullish than it is right now.”