Maria Irene
Peter Schiff, a well-known figure in the financial world, has been dropping some seriously bearish predictions about the U.S. financial market. The chief economist and global strategist at Europac and the founder of SchiffGold, Schiff is well-known for his doomsday-like outlook on the economic trends. His most recent comments point towards a bleak future for mortgage rates, bond yields, the dollar, and pretty much anything that has a dollar sign attached to it.
Schiff kicked off his gloom and doom forecast by expressing concerns about the 30-year fixed-rate mortgage, which currently sits at 7.9%. He didn’t hold back, predicting that the rate will not just touch the 8% mark but is also likely to hit 9% before the end of the year. According to him, this surge will trigger the Federal Reserve’s balance sheet to “explode” as banks scramble to offload their non-performing mortgage-backed securities to the Fed.
And that’s not the only explosion Schiff foresees. His comments on surging bond yields were no less grim. “Eventually higher bond yields will bankrupt the Federal Government, and many state and local governments, as well as almost every bank in the country, explode with federal budget deficits; causing a depression and a financial crisis,” he said. So, yes, according to Schiff, we’re not just talking about a recession but an actual depression.
Moving on to the stock market, Schiff didn’t exactly offer a morale booster for investors. He warned that if they think the market is in bad shape now, they better brace for what’s coming. Schiff emphasized that we are teetering on the edge of stagflation—a phenomenon characterized by stagnant economic growth, high unemployment, and high inflation. This, according to him, will hit unprepared investors like a freight train.
It appears that Schiff believes the U.S. economy is stuck between a rock and a hard place. While discussing the bond market, Schiff characterized it as “crashing in slow motion.” He pointed out that the current yield curve, which has been artificially low for the past fifteen years, will “finally normalize,” wreaking havoc on an economy that’s been surviving on cheap money.
But wait, there’s more. Schiff also offered a reality check for those who think parking their money in money markets will let them sleep easy. He warned that such “safe havens” are anything but safe. With inflation expected to erode 10%-20% of the dollar’s purchasing power annually for the foreseeable future, he sees no true refuge for investors.
Finally, Schiff broke down the current yield scenario. According to him, “Right now 6-month T-bills yield 5.5%. But a 10-year T-bond only yields 4.5%, and a 30-year T-bond yields just 4.6%.” He compared this to the yields prior to the Global Financial Crisis (GFC), cautioning that if the yield curve were to normalize, 10-year T-bonds would skyrocket to 6.5%-7% and 30-year bonds to 7%-7.5%.
So, are the bears out today? According to Peter Schiff, they’re not just out; they’re gearing up for a feast. Whether you take his predictions as gospel or grain of salt, one thing is for sure: Schiff has painted a picture that few would want to see come to life.
