Market Overview

Economic Collapse Status Report: It's Still Not Time

A funny thing happens when a person makes a prediction.

Those who get it wrong are usually forgiven; because who can predict the future right?  At the same time,those who are right often are given undue credit. When it comes to stock market prediction machine Peter Schiff, publisher of the Schiff Report and self-proclaimed anti-Federal Reserve crusader, it is difficult to determine just how seriously to take his prognostications.

After having forecasted the bursting of the asset bubble in 2007-2009, and the successive run-up in the price of gold, Schiff and his ilk have seemed to run out of predicting power. Now, after the retirement of Schiff’s nemesis, former Fed Chairman Ben Bernanke, Schiff seems poised to see if he can regain his power of divination with the new head of the Fed, Chairwoman Janet Yellen.

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Schiff, the CEO of investment firm Euro-Pacific Capital, states very plainly it does not matter what Janet Yellen says, the Fed will not end its (formerly) controversial program of quantize easing. In Schiff’s eyes the U.S. economy is hopelessly doomed to undergo a crash which will be far more severe than the recent recession. He also sees fundamental problems in the very way the Federal Reserve interacts with the economy, and has publicly stated that stocks are doomed, whether or not the Fed acts.

This advice may prove to be true in the long run, but then again maybe it won’t. But one undeniable fact, however, is that the stock market underwent a tremendous rally last year; a rally which resulted in real people putting real money into real bank accounts. Those profits were used to buy food, housing, and consumable commodities.

Hence, those following Schiff’s lead over the past few years, and decided to invest in gold – which has been clobbered with respect to the major markets over the past couple of years – missed out on real gains. Schiff’s argument that the economy only appears healthy because the Federal Reserve is pumping cash into it misses a critical point: it doesn’t matter.

If Schiff is right, then the Fed is like an old wealthy man leaving his fortune to benefit the small town where he was raised. Would anyone argue that the “artificial” economy created by the endowment didn’t have real positive effects on people’s lives?

Schiff predicts the Fed will not end quantitative easing -- because, in his opinion, “they cannot raise rates without destroying the phony recovery that they helped create.” This amounts to another Schiff prediction, one that can be tested. If the Federal Reserve continues to accelerate the “tapering” of quantative easing, this will definitively prove Schiff wrong.

But if the Fed finds an excuse not to taper, or not to taper as aggressively as it seems to indicate it will, Schiff may be proven right. Regardless of which situation turns out to be the case, the question every investor should be asking is, “what is the proper investment strategy given each likelihood?”

Schiff would have investors wonder what the Fed should be doing. Though this is an interesting philosophical question, it is not a question which lends to making wise investment decisions. 

Posted-In: Ben BernankeNews Rumors Psychology Federal Reserve Markets Media General Best of Benzinga

 

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