How to Profit from the Coming Trump Train Wreck - Peter Schiff

Photo: How to Profit from the Coming Trump Train Wreck - Peter Schiff

00:09 First of all, the most important part about not – profiting from the Trump train wreck, other than not being on that train, is filling out one of these index cards. Did we pass out those cards yet? Did you? Alright. So, if you don’t know, my Canadian broker dealer used to be called Euro Pacific Canada. And I think, about a year ago, we rebranded the company and the new name in Echelon Wealth Partners. But I do have an office here in Vancouver.


00:40 And, what Euro Pacific Capital does, or Euro Pacific Asset Management, I manage portfolios for clients of Echelon Wealth Partners and I manage them in diversified portfolios of global stocks. So, make sure to fill out one of these cards so one of my representatives can be in touch with you. Also, they’ll be able to put you onto my newsletter. You’ll be able to get the updates that I send out weekly digests, my newsletters, and things like that. So, make sure to fill them out. And then, you can either hand them back to one of the representatives or you can stop by the GoldMoney booth and you can give me your card there.

01:15 You know, I’ve been in the gold business, I’d say, I started Schiff Gold in 2010. And, last quarter was really the weakest quarter we’ve had since then, as far as Americans buying gold. And it’s not just my company that has experienced this. Pretty much industry wide, Americans have stopped buying gold. You can also look at that if you look at the statistics coming out of the US Mint. As far as US minted coins, the sales have collapsed. Why is that? Why all of the sudden are Americans not buying gold? Because the rest of the world is still buying gold. In fact, year to date, the price of gold is up more than the S&P 500.

02:05 Americans are buying plenty of stocks. They’re excited about the stock market, but they have no interest in gold. And I think the reason for that is the election of Donald Trump. Because, the typical gold buyer in the Unites States voted for Trump. That’s who buys gold in America. People who are worried about big government. They had a lot to worry about for eight years of Barack Obama. So, Barack Obama did a lot to generate gold sales.

02:35 But, now that people have elected Donald Trump, they’re very optimistic. Optimistic people don’t buy gold. They’re buying the Dow Jones. Why are they so optimistic? Because they believe that Trump is going to make America great again. That, somehow, he’s going to drain the swamp and he is going to fix all the problems that Obama created.

02:56 Well, the problem is the problems that Obama created precede Obama. These problems have been building up for a long time and there’s absolutely nothing that Donald Trump is going to do that’s going to change that. In fact, it’s far more likely that the problems that were exacerbated under the Obama administration are going to blow up under the Trump administration.

03:22 And even if you look at what’s happened thus far with Trump, nothing has changed. The most recent budget, even though Trump has proposing some significant cuts to discretionary spending, there are no cuts at all to entitlements that continue to grow. There are no cuts to the military. There’s obviously no cuts to interest on the debt.

03:44 So, interest on the debt is going up, military spending is going up, Social Security, Medicare, and Obamacare isn’t even going away. You know, part of the enthusiasm for Trump was that he was going to get rid of a lot of the regulations that have been undermining US economic growth. They can’t even get rid of Obamacare. The Republicans were promising for years to repeal Obamacare, when Obama was president. And they knew that is was impossible for him to sign the repeal.

04:12 It was very easy for the Republicans to pass Obamacare repeal and send it up to the President when they knew that he would veto it. But the minute they had the White House, the Republicans lost the courage to tell somebody there’s no such thing as a free lunch. So, unfortunately, Obamacare isn’t going anywhere unless they can replace with something that’s almost as bad, or maybe even worse.

04:35 But they’re not going to replace it with the free market, because the free market doesn’t win you votes. What gets politicians votes is promising somebody something for nothing and what loses them votes is taking away the something that they think they’re getting for nothing. So we’re going to continue off the edge of this cliff.

04:52 If you want to look at comparisons to what might Trump be, one is I hear a lot of people are saying that Donald Trump is going to be the next Ronald Reagan. People remember Ronald Reagan came in, cut taxes, we had this huge Reagan revolution. People are thinking that we’re going to have another revolution under Donald Trump. There is no similarity, other than the fact that they’re both Republicans.

05:20 But the country today is in much worse shape. We had a 30% debt-to-GDP when Reagan was elected, and we still had tremendous amount of savings on this country. We were still the world’s largest creditor nation. We had large trade surpluses. And we had the ability to pay high interest rates. We were able to borrow money because we had the ability to do it. Today, America is broke. We have this enormous national debt. We’re the world’s biggest debtor nation. We have the largest trade deficits in the world. Where Trump is more likely to have something in common with is not Ronald Reagan, but the president who preceded him, Jimmy Carter.

06:04 And I think a lot of the optimism that investors feel right now over the election of Donald Trump, they better be very careful. Because, Trump is likely to be laying a foundation for a big switch or a big swing left. So, what happened when the nation elected Jimmy Carter? We had a lot of problems in the 1970s that happened under the eight years of Richard Nixon and then Gerald Ford.

06:29 But those problems started in 1960s with the Great Society. The war on poverty. Going to the moon. It was Lyndon Johnson. It was guns and butter. It was all the money that we printed in the 1960s that gave us the inflation of the 1970s. But, instead of dealing with the problems that his predecessors created, what did Nixon do? We went off the gold standard. We put in wage and price controls. We did the wrong thing.

06:55 And of course, Nixon was a very liberal Republican. He was Keynesian. He was a Rockefeller republican. When the public wanted to change, they wanted to do something different, they elected a peanut farmer. Jimmy Carter was a governor for four years. That was it. Other than that, I think he was in the Navy. He wasn’t a politician, but he was something different. And of course, then everything hit the fan while he was president. And that laid the foundation for Reagan. I think that the same thing could happen to Trump, as happened to Carter. We’re going to see this whole bubble implode while he is President.

07:39 And also, if you want to go back to the election of George Bush, because that was the last time we had a Republican president that was elected following a two-term Democrat. Bill Clinton was president for eight years. When George Bush was elected, there was a lot of enthusiasm among Republicans for having a Republican president. He was going to cut taxes, he was going to reduce regulation, he was, you know, a lot of things that Trump is talking about. And of course, when Bush was elected, we had just had a stock market bubble. A huge stock market bubble, mainly in technology/internet-type stocks. We had this huge bubble. At the same time, we had a bubble of the US dollar. If you remember, the dollar index was up around 120 when Bush was elected.

08:31 Gold. Gold was -- nobody wanted gold. Gold was under $300 an ounce. You couldn’t give gold away. Remember? I think the Bank of England blew out of most of their gold down there. I mean, it was like, it was a relic from the past. What could be more “old economy” than gold? Everybody was New Economy, dot com. So you had a dollar bubble. You had a US stock market bubble. There were a lot of problems around the world.

08:53 Everybody was worried about Asia, because we had that Asian economic crisis. People were worried about Latin America. They were worried about Europe. Remember, the Euro had just been enacted. People were very worried. The Euro got down to like $0.80. Everybody was piling into the dollar, and they thought the good times would continue to roll. Because, if things were good under a Democrat, imagine how much better they would be under a Republican. So, everybody believed that that was going to continue. And, it completely reversed.

09:21 What happened during the eight years of Bush? Even before? Even the first seven years? Forget about the financial crisis of 2008. What happened when Bush came into office? The stock market bubble popped. The market collapsed. The S&P got cut in half. The NASDAQ, ultimately, went down 80%. From 5,000 to about 1,100. Commodity prices boomed. The opposite of what everybody thought.

09:47 Remember oil prices? Oil prices were around $20 a barrel right when Bush was elected. They went up to $150. What happened to gold? Gold went up to $1,000 an ounce before the 2008 financial crisis, from under $300. What happened to gold stocks? Gold stocks took off. Emerging markets took off.

10:08 All of these markets suffered in the second term of Bill Clinton, where we had that dollar bubble. What was the source of it? It was the Fed. It was Allen Greenspan. Allen Greenspan kept the US markets propped up with what, by those standards, was cheap money. Every time there was a problem in the world, there was Greenspan to cut rates, to try to backstop the market. The Greenspan Put, and everybody called him The Maestro because he was able to orchestrate this dollar rally. We had all kinds of confidence in central bankers.

10:39 But, that bubble popped, early in the Bush term. Now, when the dot com bubble popped, what was the response by Greenspan and the Fed? They repeated the mistakes. They slashed interest rates down to 1%, and created the housing bubble. And, that bubble didn’t pop until 2007. The crisis that ensued was in 2008. That still popped on Bush’s watch.

11:13 And, as a result of that, he was able to get a second term, because the Fed was able to buy Bush a second term with a phony recovery. Instead of dealing with the problems, just like Richard Nixon didn’t want to deal with the problems that he inherited from Johnson, Bush didn’t want to deal with the problems that he inherited from Clinton.

11:32 So, we had more phony stimulus, more money printing. And, we created a bubble. But, it bought Bush a second term, but it wasn’t able to buy John McCain a first term. Because, when that bubble popped in the Bush second term, the public wanted something different. They all blamed it on Bush. They blamed it on capitalism, because people associated him with capitalism. Even though he wasn’t a capitalist. He wasn’t a free market guy. That paved the way for Barack Obama.

12:04 Now, Barack Obama was able to get a second term because the Fed was able to inflate an even bigger bubble than the one that they inflated under Bush. What Yellen & Bernanke have done dwarfs what Greenspan did. I mean, if you think about all of the problems globally, not just in America, that were the byproduct of artificially low interest rates, when the lowest they got was 1%, and they were only there for about a year. Then the Fed raised them back up to over 5% within a couple of years.

12:39 But, during that period of time of artificially low interest rates, we created a housing bubble so big that, when it popped, the whole global economy almost ground to a halt. We almost have a repeat of the Great Depression. And we probably would have had it not been for the actions of the Fed. Not that I’m saying that those actions were good. All they did was postpone the pain, by making the problems bigger.

13:02 And now, that bubble is going to pop. But, it didn’t pop under Obama. Obama managed to get out of Dodge. Because, even though the Fed started to withdraw some of these stimulus, there’s still so much left. Even with all of the rate hikes that they’ve had, three rate hikes, they’re still not really at 1%. They’re still not at the low level that the Fed slashed them to the last time around.

13:28 And of course, we had interest rates at zero for about eight years. We had all three rounds of quantitative easing so far, to inflate this phony economy. In fact, the reason that Donald Trump is president today and not Hilary Clinton, and it’s not just because Hilary Clinton was a lousy candidate, the reason that Trump is president is because the recovery is not real.

13:57 Yes, I mean, Obama was trying to take credit for this recovery. And he said, “Anybody who said it wasn’t a real recovery was peddling fiction.” Well, the fiction peddlers were in the Trump administration. They’re at the Federal Reserve. They’re on Wall Street. Because, what put Trump into the White House were the blue-collar voters who used to have full-time jobs and now have part-time jobs.

14:22 The so-called recovery that we had under Obama was the first recovery in history that was weaker than the recession that we supposedly recovered from. The average American is worse off at the end of the recovery than he was at the beginning, and that was expressed in the polls. But, just because the economy was in bad enough shape to elect Donald Trump, it doesn’t mean that electing Donald Trump is a panacea for these problems, or some kind of get-out-of-jail-free card. I think that this bubble’s going to pop, and it’s probably going to pop early in the Trump administration. Maybe, in the first year or two. I don’t think the Fed has another bubble up its sleeve to buy him a second term. I think that when this bubble pops, that’s it.

15:13 And in fact, if you go back and look at the first book that I wrote called Crash Proof: How to Profit from the Coming Economic Collapse, which I wrote in 2005, finished it by mid-06. It was published in early ‘07. When I wrote that book, I described the housing bubble that we have and how it was created and what was going to happen when it popped. That we would have the worst recession since the Great Depression. That we would have double digit unemployment. That we would have trillion-dollar-a-year deficits. That we would have a banking crisis. That Fannie Mae and Freddie Mac would go bankrupt.

15:53 All these things happened. And then I wrote that, as a result of this, the Federal Reserve would repeat all the mistakes that lit the fire that they’re trying to put out. That they were going to try to re-inflate the bubbles in the stock market, in the real estate market. That they would lower rates. That they would print all kinds of money. They did all that. I didn’t call it quantitative easing, because I hadn’t heard those words.

16:20 I just knew what they were going to do. I didn’t know what they were going to call it, but they called it quantitative easing. But what I wrote back then, was as a result of this monetary policy, there would be a dollar crisis. The dollar would collapse. And, ultimately, that would collapse the bond market. Those things haven’t happened yet.

16:38 And what I didn’t realize when I wrote that book, although I didn’t put any kind of date on it, was how much time was going to take place, how much time would transpire between the bursting of the housing bubble, the monetary mistakes that I knew would follow, and the ultimate crash that was going to be the end game.

16:57 That is where we're headed. So I think when the Fed has to go back to the same well, when they have to abort this tightening cycle, when they have to go back to zero, and who knows, zero might not be low enough, they may even go negative. And, when they have to go back to quantitative easing, which is what they’re going to have to do.

17:15 And, you know, there’s been a lot of optimism, too, around Donald Trump. He’s going to stimulate the economy with cutting taxes. All that’s going to do is increase the deficits. Donald Trump has said he wants to borrow a page from FDR, although he thinks he wrote the page himself. He wants to prime the pump, Keynesian-style. He wants to substitute inflation for taxation. He thinks we can just cut taxes, but allow government spending to grow and we could just make up the difference by going into debt.

17:47 But, it’s not about going in to debt. Nobody’s going to lend us money. It’s about the Federal Reserve printing the money. In fact, the Federal Reserve is still pretending that they’re getting ready to shrink their balance sheet, when shrinking the balance sheet would be an impossibility. Especially, when the government is going to be borrowing more money than ever before, if we go into another recession, which we may already be in. But, we go back in another recession from this low level of interest rates, I think when they get back to this policy, it’s game over for the Fed.

18:18 Because, what caused to dollar to rally from 2012 through the end of 2015 was the false optimism that exists surrounding the efficacy of Fed policy, and confidence that it worked. Ben Bernanke wrote a book. He went around the world promoting his book about how great everything worked. In fact, when the price of gold started to fall, remember the price of gold went up to $1900 when a lot of people were worried that the policy wasn’t going to work. Well, it’s not going to work.

18:51 But, all of a sudden, people became confident that it was, that the Fed was going to be able to unwind its balance sheet, normalize interest rates, and everything was fine. That’s when the dollar rose. That’s when gold came down. But, what’s going to reverse all that is when the market finds out that they were right the first time. That it is a disaster. That what they’ve done is impossible to undo. That once we went down this road, there was no turning back.

19:16 That’s why, at the beginning, I said that if you live by Q.E., you die by Q.E. We’d have more Q.E.s than Rocky movies. That is was like a monetary roach motel. I knew that once we made this mistake, there was no turning back. You can’t create an economy that’s completely dependent on cheap money and then take that cheap money away and think that phony economy that you’ve created is going to exist absent that cheap money.

19:45 I’ve got to wind this up, but I have 30 more minutes that I’m going to talk, later on today. I’ll be able to talk a little bit more.

19:53 But just quickly, the investments that are going to work -- in the 2008 financial crisis, the dollar collapsed and gold went down. Why did that happen? Because, leading into that crisis, the dollar was at an all-time record low, and gold was at an all-time record high. People had been buying gold, and been selling the dollar. And, when they were surprised by what happened, they reversed those trades.

20:20 That is the opposite situation today. The world is long the dollar, they’re short the Euro. They’re short the end. They’re now short the R&B. Major players are short gold, they’re short silver. They’re in the opposite position that they were in leading into the 2008 financial crisis. If anything, they’re in the similar position that they were in 1999, 2000, 2001 during the dot com bubble, when they were short dollars, short gold.

20:48 What’s going to work when the markets get surprised? Already, Donald Trump is elected, the US dollar is near a six-month low. The Fed has been raising rates. What has the dollar done? It’s gone down. Everybody says, “Oh. The Fed’s raising rates, so the dollar’s going to go up.” The dollar already discounted those rate hikes, years ago. In fact, there’s an old saying, “Buy the rumor, sell the fact.” In this case, the fact is not going to live up to the rumor. Because, we’re not going to get as many rate hikes as the market discounted. Meanwhile, inflation is rising.

21:19 So, if inflation is accelerating faster than the Fed is raising rates, real rates are falling. It doesn’t matter what the Fed is doing with nominal rates. Ultimately, the markets are not even pricing in the fact that the rate hikes are almost over, and now they have to start cutting again. And again, they’re cutting from a level that’s very low, so the main policy instrument is going to be Q.E. It’s going to be printing up lots of money to buy US treasuries, to buy more mortgages, to buy maybe even municipal bonds. Who knows what the Federal Reserve’s going to be buying.

21:47 But what you need to be buying before that, is you need to be buying gold. You need to be getting into the foreign markets. Look at the types of markets that did well in 2002, 2003, 2004. Emerging markets did really well. There were certain developed, overseas markets that were perceived as safe havens from the dollar. Right now, people still think the dollar’s a safe haven. But, where do they go when they realize it’s not? That the dollar is the problem, and you need to get out of that. We’re building portfolios that consist of assets in countries that will be the real safe havens, that money will flow to when it’s leaving US dollars and US assets.

22:25 But also, you’ve got global bond bubbles. It’s not just treasuries that are in a bubble. Interest rates have been too high all over the world. You’ve got to understand what the implications are for the world for falling bond prices and rising interest rates and rising inflation. Inflation has already been created. The inflation is the increase in the money supply. The result of increased inflation is rising prices.

22:49 Now, governments have succeeded in masking the impact of rising prices with the way they measure them. They have these flawed consumer price indexes that really don’t capture the extent to which prices are rising. But, one of the things that inflation prevented was prices from falling, and that’s still inflation.

23:06 We should have benefitted from the lower costs associated with technology, but governments robbed us of those benefits by debasing the currency. And so, by preventing prices from falling you were also creating inflation. You have to understand how the investment climate is going to change when we’re in an inflationary environment, where people understand that it’s inflation and they fear inflation. Not going to be talking about deflation anymore or falling prices. It’s going to be rising prices and an inflationary environment where you have falling global bond prices. We’ve been in a global bond bull market since 1980.

23:40 So, all of this is about to change. And I think the most money that’s going to be made is going to be early in this change. Because, you have everybody that needs to move from one side of the boat to the other. Everybody is completely positioned for the opposite of what is going to happen.

23:55 It very much reminds me of the subprime short. And why we were able to make a lot of money shorting subprime mortgages, is because nobody wanted to short them. Everybody wanted to buy them. Everybody was convinced that real estate prices could only go up. What made that trade so profitable is so few people were on the right side of it.

24:12 Well, I think the same things exist today. I think we have a bigger bubble. I think the bubble that Donald Trump has inherited from Barack Obama dwarfs any bubble inherited by any previous president. I think the monetary policy errors of Bernanke and Yellen are greater than those of Greenspan.

24:30 And, in fact, I’m not the only one saying that. Greenspan is talking like me now. Greenspan, now, understands the problem. He’s out there telling people that we’re going to have stagflation, that you have to buy gold. He doesn’t want to come out and criticize the Fed, because when you live in a glass house you can’t throw stones. But, he’s saying pretty much the same thing.

24:49 I think he ought to know. He basically wrote this playbook that they’re all following. He probably had no idea that it would be taken to this extreme level. And now, he’s at least trying to put a little bit of distance between himself and his policy, and trying to be out there and saying, “I told you so.”

25:06 But, this crisis is going to happen. It’s going to happen quickly. I’ll pick it back up. What time am I speaking? 4:30? Yeah, 4:30. So, don’t forget- fill out your cards. And, if you have any questions, I’ll be over at the GoldMoney booth. If you don’t know about GoldMoney, come over there, talk to us. Everybody here should have a GoldMoney account. By the end of the day, you should open one up. You can do it on your cell phone. Thanks.