Last year was a tough one for investors. In fact, it was the worst year for Wall Street since 2008. The Dow was down about 8.8%. The S&P 500 fell by 19.4%, dropping more than 20% from its high. The Nasdaq took the worst hit, tumbling by 33.1%. Meanwhile, the bond market tanked, bitcoin collapsed, and the air started coming out of the real estate bubble.
Peter Schiff recently did an interview with the Epoch Times. He predicted more pain in 2023, primarily driven by inflation and the Federal Reserve.
While price inflation has cooled a bit, it is still running far above the Fed’s 2% target. Nevertheless, there is talk about a Fed pivot to rate cuts in the year ahead. Peter pointed out that “the last couple of times the Fed was able to orchestrate a pivot, it did it when inflation was 2% or less.” If the central bank makes that move in the near future, it will “throw gasoline on the fire.”
High inflation gets even higher, and in that environment, I don’t see financial assets as a group doing well.”
Peter said bonds, in particular, will get killed.
That’s bad news for the US government as it continues to borrow and spend. A tanking bond market means higher interest rates – a big problem for a country trying to borrow more and more money.
Peter said that the year ahead could be particularly rocky for unprofitable tech companies that benefited from the Fed’s easy money policies in the past, and he sees a continued rotation into “value” stocks from companies with a proven track record of profitability.
If money is losing value much faster than 2% a year, you don’t want to wait 10–20 years to get your money. … It’s not companies that are promising earnings in the future. It’s companies that have earnings right now.”
More broadly speaking, Peter said inflation will continue to wear down consumers and make it more difficult for companies to maintain revenue streams.
If your customers are spending a lot more money on food, on energy, on insurance, on rent, on taxes, and they have nothing left over, then it doesn’t even matter if you cut your prices. You don’t have any customers.”
Peter said the Fed has turned the markets into “a casino” with artificially low interest rates and money printing. It has distorted markets and created all kinds of malinvestments.
It’s really helped undermine the productivity of the American economy, which is one of the reasons we have huge trade deficits.”
In fact, the central bank has become the dominant factor in investors’ decision-making.
The Fed should be irrelevant. Nobody should be making investment decisions based on the Fed. Right now, the Fed is the only thing anybody cares about. ‘Are they going to raise rates? By how much?’ Everything is riding on the decision of a few guys sitting in a room in Washington, DC That’s not how capitalism is supposed to work.”
Peter questioned why the Fed should have the power to decide the price of money.
That makes no more sense than putting together a bureau to decide the price of oil, or the price of milk, or the price of bread … That’s what the Soviet Union used to do, and it was a disaster.”