PETER SCHIFF (FEB 3,2018) - Will Black Monday Come Early This Time
Guest: Peter SCHIFF
Report Date: February 2018
666 Point Drop
Today the Dow finished off its worse week in 2 years with a 666 point drop. That is the third largest point drop in the history of the Dow. The last big drop that was larger happened during the 2008 financial crisis. Percentage-wise, though the 666-point drop today is only 2.5% so it’s really not that big, as a historic decline.
3% Drop from All-Time Record High
It’s large in a sense that we haven’t had a one-day 2.5% decline in the Dow in quite some time. In fact, I’m not even sure when we last had a 3% correction. Now, that’s what we had. the dow is now 3% below the all-time record high that it hit last week. Now, a 3% correction is pretty normal, except we haven’t had one in a long time.
Is this Ominous?
The question is: is this the something of something more ominous or is this just a small correction? I think there’s a lot of evidence that this is the start of something much bigger. Part of the evidence is that nobody is concerned! There’s maximum complacency. Even the superstitious aren’t concerned that the Dow fell exactly 666 points. People are so complacent that they’re not even being superstitious.
1987 All Over Again
Casting that aside, think about this: 1987 was the year that we had a stock market crash. January was the best month for the U.S. stock market since 1987. The dollar just had its weakest January since 1987. So far, this year seems to have a lot in common with 1987. We know what happened in 1987: Black Monday. That didn’t happen until October, but maybe this year it will come early. Maybe, next Monday. Now, obviously, the probability is not that we will have a crash on Monday, but it is a possibility. I would say the possibility is much higher than it has ever been, because of where we are, and what’s going on.
Rates are Going Up
Also, the NASDAQ and the S&P were not down quite as much as the Dow, but they were both down about 2%. The catalyst for the sell-off was the continuation of the increase in long-term interest rates. The yield on the 10-year bond rose to 2.854%. That is the highest yield of the day, so bonds closed on the low of the day. On the 30-year bond, we closed at 30.97. There, the high of the day was 30.99 – almost 3.1%. I have been talking about this on this podcast – rates are going up, and they are going much, much higher. If you look at these charts, we’ve got a lot of air between where we are right now and the normal resistance.
Budget Deficits Going Up and Trade Deficits Going Up
Therein lies the complacency. Nobody is worried about the rise in interest rates. Nobody is thinking about 1987. It was rising interest rates that ultimately pricked that bubble. But why did rates rise? Because the budget deficits were going up and the trade deficits were going up. That’s exactly what is happening now! Except they are bigger budget deficits and bigger trade deficits. And this is happening at a time when the United States is broke. Our massive debt is far greater than the one we had in 1987.
According to Fasanara Capital, which has long argued that the market's systemic fragility is approaching its breaking point, markets stand at a critical juncture, ready to snap, as the following note from Fasanara's Francesco Filia lays out....