The Dow Jones fell 831 points Wednesday, a decline of more than 3%. Meanwhile, the S&P 500 charted its biggest daily decline since February, and the Nasdaq Composite dropped 4.08 percent. This follows on the heels of a 200-point drop in the Dow last week after the 10-year US Treasury yield hit the highest level since 2011.
In a podcast last week, Peter Schiff said rising interest rates could serve as the pin that pricks the stock market bubble. In his most recent podcast, Peter said the stock market rout seems to confirm his feeling and warned a recession will follow.
Peter noted that the biggest losers of the day were the tech stocks. These have been the companies driving the recent market boom. Nvidia (NASDAQ:NVDA) was down over 9%. Amazon (NASDAQ:AMZN) fell 7.3%. Netflix (NASDAQ:NFLX) plunged 10% on the day.
Despite the massive selloff, the mainstream still seems pretty complacent. A White House official said, "This is a bull market correction. It's probably healthy. This will pass and the US economy remains strong." Everybody is saying this is just a normal correction in a normal bull market. But as Peter said, this isn't a "normal" market.
This bull market is already the longest bull market ever. So, based on duration, it ain't normal. Also, based on all the stimulus that was required to create it - all the quantitative easing, the years of 0% interest rates - there is nothing normal about this bull market. If anything, it's a bubble."
And if it's not a normal bull market, why would it have a normal correction? On the contrary, it seems more logical to think that a massive selloff in an abnormal bull market might be the beginning of a bear market.
Since it's long overdue, why would you just assume that it's a correction when we're so overdue for a bear market?"
Peter conceded you could have said the same thing back in February when we saw a similar big market selloff. Everybody said that was a correction, and it appears they were correct. The market went on to make new highs. But as Peter noted, those highs were based on a small segment of stocks. Peter said as of now about 25% of the S&P 500 is in a bear market, defined as a 20% or more decline.
So even though we had a rally from that big drop in February, it was not really that broad. It was led by a small section of the market. It was not healthy. But beneath the surface, we were seeing a deterioration. And from my vantage point, what we're seeing now is a lot more ominous than what we saw in February. And to me, it looks a lot more like this is the beginning of the bear market that is so overdue. It is not simply a correction."
It's really impossible to know whether a given selloff is the beginning of a bear market or a mere correction. With all the euphoria that takes hold during a bull run, people are always optimistic. They always believe it's "just a correction."
Bull markets end. That means that sometimes corrections turn into bear markets. You don't know that a correction is a bear market until you're in the bear market."
In the last couple of bear markets, the Federal Reserve has been able to ride in and save the day. Peter said he doesn't think the central bank will be able to do it this time around.
He noted that despite the stock market selloff, the bond market was weak and the dollar was actually slightly down. Gold was up a bit, although not significantly. But Peter said a big move in gold is coming.
If you can't hide in bonds and you can't hide in the dollar, where are you going to hide? … Really, the only safe haven left standing is going to be gold. And that's the only asset nobody owns."
But at this point, people still aren't worried. They really haven't started buying gold. Complacency still rules the market. People still think the economy is strong.
The economy is not strong. It was never strong. It was just a bigger bubble... The recession is obviously coming. I mean, come on. We're long overdue for that as well. And now the rest of the market is rolling over... There is nothing beneath this market. This is a huge bubble. The air is coming out. Interest rates are going to keep going up. And if the Fed tries to save the market by altering its policy … I mean it could end up being like waving a flag at a bull, or in this case a bear."
Make sure you listen to the whole podcast. Peter breaks down what will happen if the Fed does lower rate. In a nutshell, it will crush the dollar.