A rally in the last two days of the month was the lone bright spot in an abysmal October. It was the worst month for global equities in more than six years. Globally, stock markets lost 7.5%, their worst month since May 2012. Even with the late rally, it was the biggest monthly decline in the Nasdaq since '08.
US stock markets closed up for the second straight day on the final day of the month. It was the first back-to-back days of gains in October. As Peter Schiff put it in his most recent podcast, it may have been Halloween, but the bulls had no fear.
All of the bulls were out in force on the financial networks claiming that the correction is over. Everybody was confident that the lows are in, that the big back-to-back rally is proof and you better buy now, otherwise you're going to miss the rally, and this is the typical correction and now it has run its course. And you know what? If this really was the end of the correction, most likely there wouldn't be so many people that were so confident that it's over. You'd have a lot more fear, especially on a Halloween. The fact that there is no fear, to me, shows that it's more likely that this is not the end of the correction, but the beginning of the bear market and that this rally is a correction."
Peter asks a pretty poignant question: what's more likely? That the longest bull market in history just had a correction or that it's finally come to its long overdue end?
Peter noted that it wasn't just the stock markets that took a beating in October. The junk bond market had its worst month since 2008. This indicates increased worry about defaults.
If the economy is booming, why would people think that the risk of a company defaulting is going up? Because when the economy is really good, that's when companies don't default. It's when the economy is bad, that's when companies might default."
But the bulls are oblivious.
All the bulls who are just so confident that this is a correction that's already over are ignoring all the signs that the economy is not nearly as strong as everybody wants to pretend it is."
Peter pointed out some other disturbing economic numbers, particularly in housing. Home sales in California are at the lowest level in 10 years. As Peter noted, interest rates are only at 2%. Mortgage rates have just gotten back to 5%. And yet we're already seeing the negative impact in housing. Keep in mind, the housing market is a leading indicator of the impact of rising interest rates.
If the US economy is really going to stay strong and if interest rates are going to keep rising, how is it possible that the economy can continue to stay strong with high interest rates when the economy, or the strength of the economy, is predicated on debt?"
Peter once again noted the skyrocketing levels of government debt. We shouldn't be seeing huge deficits like this during a booming economy. And yet, the US Treasury plans to borrow another $425 billion in the final quarter of 2018, bringing total borrowing for the year to $1.34 trillion. This level of borrowing looks more like we're in the midst of a deep recession.
The truth of the matter is, we don't have a booming economy. We have a bubble. And when you have a bubble economy, debts go up. Budget deficits go up. Trade deficits go up because you're not productive. You're just going into debt to consume."
The bulls say we shouldn't worry because nothing has changed. The economy wasn't fundamentally different in October than it was in September. Peter said they are actually right.
What they don't understand is nothing has changed, which is exactly why they should be worrying, because the economy was a bubble back then and it's still a bubble. The only difference is the bubble may have pricked. See, the fundamentals have not changed; that's true. They were lousy before October and they were lousy in October. That's what they don't get. The market never should have been going up."