The United States economy is in a quagmire at this point and time. The stock market is up, the consumer is consuming again and some statistics suggest things are getting better. However, there are other data points that highlight how the labor market is in a crisis, the overall cost of living is increasing and debt levels – both public and private – are enormous.
Despite the optimism over the U.S. financial market, one contrarian investor thinks those who want to park their money somewhere shouldn’t be doing so in the U.S. In fact, they should avoid the Land of the Free entirely.
Peter Schiff, president of Euro Pacific Capital and the bestselling author of “Crash Proof,” told the Wall Street Journal that the trend of the U.S. outperforming foreign markets for the past three years will not continue. Schiff argued that the only reason it happened was because it was based on “misguided sense.”
“The last couple of years are based on a very misguided sense of what’s going on. What has driven the strength of the U.S. market is the false belief that the Fed has saved the U.S. economy,” said Schiff. “We are on the verge of a much worse financial crisis than we had in 2008, because the Fed re-inflated all the busted bubbles, all the while the fundamentals have been eroding.”
Schiff essentially believes that the weak economy will prompt the Federal Reserve to reverse its tapering initiatives. One of the fundamental issues supporting his prognostication is the interest rates. If the Fed ceases quantitative easing then interest rates will rise and the federal government and the central bank will be unable to pay trillions of dollars per year in interest.
This has been a premise he has espoused for more than a year and despite the central bank postponing last summer, it has continued to decrease its monthly bond-buying program.
“The country is in really bad shape,” added Schiff. “People would be better off investing in countries with sound policies than investing in America.”
Earlier this month, he told Yahoo! Finance that U.S. stock market bubble is already beginning to collapse but the Fed is delaying the inevitable by reversing its QE tapering. Schiff’s investment choices include precious metals, commodities and foreign currencies, such as the Swiss franc, the New Zealand dollar and the Hong Kong dollar.
“If the Fed actually did what it’s threatening to do – which is to completely remove all the monetary props beneath the market, to wind down QE to zero and the eventually begin to increase increase interest rates, then I think the market will head substantially lower,” Schiff told the business news outlet. “But I don’t believe they’ll do that. I still think the Fed is going to end up aborting the taper which will support the market and prevent it from really collapsing.”
The Dow Jones is down 14 points, while the S&P 500 is up two points (at the time of this writing). Gold is is closing in on $1,300, while silver still remains below the $20 threshold.
