Schiff on MoneyMasters: Silver Catches Up, Tariffs, Bonds, and Stagflation Risk

Last week, Peter appeared on the Money Masters podcast to map out the next moves in precious metals, the dollar, and markets more broadly. He lays out a thesis of de-dollarization, warns that tariffs and weak growth will stress the bond market, and argues that the Fed’s choices are likely to entrench a stagflationary outcome. 

He starts by explaining where he sees capital flows going and why silver may finally play catch-up to gold:

I think that we’re going to see silver playing catch up to gold. It started to move recently. I think it’s going to continue that momentum. And I also think you’re going to see a global shift out of US stocks into foreign stocks. I think that’s part of the whole de-dollarization trade is selling overvalued US stocks and bonds and bringing money home and investing it in better valuations domestically and escaping the currency risk of the dollar.

Next he warns about tariffs and how higher import costs act like a regressive tax that hurts competitiveness and households alike:

Well, the tariffs will make the US economy even less competitive than it is now because it’s going to raise production costs, particularly for US companies that rely on imported components or other materials in the production process. It’s just a giant tax increase that is not going to be a good thing. I’d rather see significant cuts to government spending than increases in taxation. But I also think by pricing Americans out of some of these imports, Americans are going to have to spend less because everything they want to buy is going to cost more. That’s going to also have other repercussions in the economy, higher unemployment, larger budget deficits.

He turns to the bond market and explains both why longer-term yields are the Fed’s blind spot  and why that matters for policy:

Well, I think the bond market is in a lot of trouble. I think that may be one of the reasons that the Fed has been reluctant to cut rates. I think they may have learned a lesson from the last rate cut, which resulted in a big increase in long-term rates. I think if the Fed cut again, the bond markets would have the same reaction. That is, I think, a reason that they’re not cutting is because a lot of people still harbor the delusion that the Fed has control over the long end and it does not.

He anticipates the narrative policymakers will use to justify cuts even as price pressures persist, and he flags the common mistake of calling tariff-driven inflation “transitory”:

They’re going to say the rate cuts are justified. We get more inflation data, CPI, PPI data this week. I don’t think you’re going to be seeing benign numbers there. I think the numbers are going to go up, but I think a lot of people are going to blame the increases on the tariffs and therefore claim that we should look through those increases, that they’re transitory and that the Fed should ignore that and cut rates anyway. I think that would be a mistake.

Peter is also skeptical of headline employment and growth figures, noting routine downward revisions by the Bureau of Labor Statistics (BLS) and his distrust of rosy GDP prints:

Yeah, well, I was expecting those revisions. I had been warning about them for months as everybody was celebrating the better than expected jobs numbers. I told people to hold the champagne because I was confident that those numbers would get revised down. They actually got revised down even more than I had estimated, but I knew that those revisions were coming and I didn’t believe the rosy numbers that were being put out by the Bureau of Labor Statistics. I’m similarly skeptical of the GDP numbers.

Finally, he outlines the worst-case scenario if the Fed opts for more cuts and a return to quantitative easing (QE — asset purchases to inject liquidity): 

Well, as I said, I think when the Fed starts cutting rates, which I do expect that to happen just because of the weakness in the economy, and when they go back to QE, which they’ll also do because they won’t get the reaction that they need in the long end of the bond market, I think that will really expose the predicament that the country is in and that the Fed is in. I mean, stagflation will be entrenched into the US economy, and I think our creditors are going to run, and you’re going to see a run on the bond market and on the dollar. We haven’t seen anything like this, I don’t think, since the early to mid-1970s.