A “put” is an option that gives the owner the right, but not the obligation, to sell a specific amount of an asset such as a stock at a set price within the specified time. During a recent interview on The Street, Peter Shchiff used the “put” to describe Federal Reserve chair Janet Yellen’s control over the US stock market.The host opened the show talking about how the stock market recovered after the recent sell-off, but Peter didn’t share his optimism, saying he wouldn’t buy US stocks even if everybody thinks they’re going up. He said, “there’s certainly not enough upside potential to justify the downside risk” thanks to the Federal Reserve and the likely expiration of the “Yellen put.”The real risk here is this market could go down a lot. We could have a bear market. We haven’t had
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A “put” is an option that gives the owner the right, but not the obligation, to sell a specific amount of an asset such as a stock at a set price within the specified time. During a recent interview on The Street, Peter Shchiff used the “put” to describe Federal Reserve chair Janet Yellen’s control over the US stock market.
The host opened the show talking about how the stock market recovered after the recent sell-off, but Peter didn’t share his optimism, saying he wouldn’t buy US stocks even if everybody thinks they’re going up. He said, “there’s certainly not enough upside potential to justify the downside risk” thanks to the Federal Reserve and the likely expiration of the “Yellen put.”
The real risk here is this market could go down a lot. We could have a bear market. We haven’t had one in a long time. That’s a 20% decline. Because we’ve had this ‘Yellen put,’ the Fed wouldn’t let the market go down when Obama was president. They certainly didn’t want it to go down before the election because they wanted to put Hillary Clinton into the Oval Office after Obama. So, they had the market’s back. There was this ‘put.’ But what if the put expired with Donald Trump? I don’t know if the Fed has much love for Trump. And now that Trump has put his brand on this stock market and this economy, maybe the Fed is happy to allow a bear market that can be blamed on Trump.”
Peter emphasized a point that he’s made in other interviews. President Trump has made a big mistake claiming the surging stock market and the current economy as his own. Peter said Trump has set himself up as the fall-guy when the bottom falls out.
I have no doubt that they [the Fed] will come back with the same stimulus once this recession is fully underway and blamed on President Trump, even thought it’s not his fault. It’s simply the mess he inherited from Obama. But the Fed did not have to do that type of economic stimulus that it did in 2009, 2010. That’s why the economy never healed. That’s why we’re in worse trouble today than we were back then. And remember, the Federal Reserve created the housing bubble. They’re the reason we had a financial crisis. It was their economic policy that began early in the Bush era. You know, when we burst the dot-com bubble, they deliberately inflated the housing bubble. They kicked the can down the road, and we caught up to the can in 2008 – and then they kicked it again. And we’re going to catch up to it now under Trump. But unfortunately, I think the powers that be, including the Fed, are already ready to blame this disaster on Donald Trump. He’s the fall-guy, and he has taken their bait by talking about how great the stock market is.”
The host asked Peter what kind of “black swan” might be on the horizon, and speculated a government shutdown could be the event that precipitates the next crash. Peter said a shutdown wouldn’t really be a problem, pointing out a it would “liberate the economy.”
So, my fear is that the government won’t shut down. It will just get bigger and bigger and bigger.”
Peter said he thinks the biggest problem looming on the horizon is unwarranted enthusiasm, saying the stock market has built in events that aren’t going to happen.
The markets rallied because of the idea that we were going to get all this deregulation, these significant tax reforms, all this stimulus. Well, if people start to realize that’s not going to happen, that the market built in events that are not going to transpire… We didn’t get rid of Obamacare. That was supposed to happen. We’re not going to get substantive tax reform. We’ll be lucky if we even get tax cuts by the end of the year. We’re not going to get the massive regulatory relief. So, what if we price that all back out of the market and what if there’s no Yellen put?”
Peter bristled at the notion that the Fed is actually going to shrink its balance sheet significantly in the near future. He said they can’t do it because a recession is coming.
What are they going to do in the next recession? They’re going to do QE4. Even if they manage to slightly shrink the balance sheet, they’re going to blow it up again in the next recession. Then where’s it going to go? $10 trillion? Then they’re going to have to shrink that balance sheet. Good luck!”
Peter also talked about Bitcoin and cryptocurrency. It’s no secret that Peter isn’t as high on cryptocurrency as a lot of people are. He advises a different strategy. Buy gold.
What people should be buying if they don’t like fiat money, if they don’t like the central banks, they should be buying gold. Gold is money that will work. Not all this nonsense, all this, you know, digital gold is fool’s gold. Gold is real money … Ultimately what’s going to win out is going to be gold. So, the smart people if they were lucky enough, or dumb enough, or whatever, to buy cryptos early enough, they need to sell now. At least take your profits out of the market and buy some real money. Buy gold.”
Even if cryptocurrency continues to increase in value, it’s always wise to diversify. As the saying goes, you don’t want all of your eggs in one basket. We can help you convert some of your Bitcoin into gold.