The bears were running on Wall Street again Thursday, as the Dow Jones suffered another steep tumble. After a record drop of 1,175 points Tuesday and a rebound Wednesday, the Dow shed another 1,333 points.
The Dow Jones dropped 6.5% in four days. That's the steepest decline in any week since October 2008. The S&P 500 has shed 6.6% of its value this week, its second-worst drop since 2008. The Nasdaq has also tanked, giving up all of its 2018 gains.
As Peter Schiff put it in his most recent podcast, "This market is looking ugly."
Even with the market tanking, bond yields continue to flirt with multi-year highs. The 10-year Treasury closed at 2.851. At one point, the yield hit 2.884, just .001 below a 4-year high - even as the stock market dropped. As Peter noted, that big drop didn't make interest rates go down. It just kept them from going up even more.
Meanwhile, Congress passed a massive stop-gap budget deal after a brief government shutdown overnight. The 2-year plan hikes spending by nearly $300 billion and increases the debt ceiling. It offers no spending cuts to offset the new spending and includes no new revenue streams. In other words, the government will have to borrow the money to fund the additional outlays.
The plan authorizes $80 billion in disaster relief and about $160 billion for the Pentagon. It includes some $128 billion spending for non-defense programs, including $10 billion to invest in infrastructure.
CNN called the budget deal "a sharp change in tone for Republicans who under President Barack Obama railed strongly for fiscal austerity and warned about a ballooning national debt, and are now in effect removing barriers to spending previously put in place in part by leaders from their own party."
According to the Committee for a Responsible Federal Budget, $300 billion in additional spending will ensure the annual budget deficit will exceed $1 trillion in 2019.
Peter said you can directly connect the recent stock market woes with the increasing levels of debt coupled with rising interest rates. This is a theme we've been talking about over the last few weeks, even though the fake financial news reporters don't seem to have a clue.
If anybody thinks the Dow is dropping because people are afraid the government is going to shut down, they don't know what they're talking about. The reason the market is dropping is because the government's not going to shut down. It's the government spending and borrowing that is behind the carnage in the bond market, which is killing the stock market."
Most of the mainstream analysts continue to express optimism because the fundamentals haven't changed. That's actually true.
Yes. They haven't changed. They sucked before the market started to go down and they still suck. It's never been about the fundamentals. It's always been a bubble. It's mania. And what is the foundation of that mania? Cheap money - low interest rates. We've had record low interest rates that have been propping up asset prices. All of that is changing. Interest rates are rising."
As the stock market dropped on Thursday, New York Fed President William Dudley said, "So far, I'd say this is small potatoes," and he insisted that rate hikes need to continue. Peter called Dudley out.
Right now, we're down 1,000 small potatoes. Small potatoes? This is going to be mashed potatoes. You know, if Obama was still in office - you know every time the market really started to drop, a Fed guy would come out and say, "Uh, maybe we'll do some more QE." They knew they had to throw the market a bone. Well, Dudley has thrown the market an anchor."
The question is how much longer the Fed will be able to do that. If the Federal Reserve doesn't save the market, there is nobody to save it.
The bottom line is the stock market is falling because interest rates are rising. Until the Fed gives up the mantra that everything is great, the economy is great and we're going to keep hiking rates, the stock market is likely going to fall. Interest rates will keep on rising. There's nothing to stop it.
"And eventually, the economic data is going to follow suit. Because this whole recovery is based on an asset bubble and a wealth effect. Well, when all that wealth goes away, that has an effect too."