Reporter 0:00
Let’s get some expert analysis from Peter Schiff CEO of Euro Pacific capital and boom bust co host Christy I. Peter, I actually wanted to start with you here. Now the US National Economic Council director Larry Kudlow is saying that China will be held accountable for it now. It being the Coronavirus pandemic, how do you hold a country responsible for a pandemic? Isn’t that like trying to hold the country responsible for an earthquake or any other type of natural disaster?
Peter Schiff 0:30
Yeah, it’s certainly very difficult to to put the blame on China or to try to assess financial responsibility or liability but you know, the mere threat of potentially not paying the Chinese on their bonds to default or selectively cancel out obligations that the Chinese own is very dangerous road to go down. Because not only could that scare the Chinese into selling, but it might scare other creditors into thinking that we may do the same thing down the line to them.
But you know, when Trump says that he can he’s going to punish the Chinese with tariffs and get the money that way. Look, the Chinese don’t pay the terrorists, any terrorists put on Chinese imports are paid by American consumers. So if that’s Trump’s plan, it’s the Americans who are gonna pay not the Chinese.
Reporter 1:15
Absolutely no Christie, that there is actually a shifting focus from the virus back to a breakdown in relationship with the two world’s largest economies here. What is at risk here when we talk of new tariffs? And as Peter said, Now, I know the President kind of downplayed the idea of not paying off that debt but what are the risks that we have here?
Christy Ai 1:34
Well, there’s definitely material risk here because we saw that already in 2019 that no one wins in a trade war. it harms sentiment damages business productivity, especially in an environment that is already so fragile, wrecked and weakened in the wake of the Coronavirus. So has the potential to completely flattened any hope of a U shaped recovery. So we all remember the volatility we had in 2019 and the algos going into overdrive every single morning on Trump’s tweets. Well, the same thing will happen again.
And a big risk off move will send the treasuries back down to zero to back down to distress levels. So even without the Coronavirus us today, the trade war between US and China lowered global GDP by almost a point. So coupled that now with the pandemic, and the result is going to be devastating. And I think that the path that we’re on At this rate, there is an inevitable kind of decoupling between US and China.
We saw what it looked like in 2019, as supply chains that took decades to build up were strained and kind of rooted. Well, the US doesn’t want to be dependent on China for manufacturing capabilities. Well, that’s fine. But that just means that we will see the price of goods soar in the features as companies tried to scale up domestically and plus the tariff. So we’ll see price increases among consumer goods price drastically.
Reporter 2:43
And now Peter to Christy’s points right there where she talked about volatility are we in in store for another cycle of volatility that that we might start dropping down back to those re and maybe retest those lows that we saw in March, as so many analysts have actually called for already.
Peter Schiff 3:00
Well, we could actually take out those lows. I mean, first of all, the rally was simply a function of the Fed, the Fed bought this rally. with inflation, they printed a lot of money, and they’re buying up a lot of debt. And that’s what’s pushing up the market. But also the market began to anticipate a rebound in the economy, when we turn the light switch back on and everybody goes back to work.
And I think the markets have overestimated what we’re going to recover to, because I think we’re just going to recover from a depression to a severe recession. And I think the market is going to sell off as investors really start to realize just how bad the economy is going to be, even after everybody gets the green light to go back to work.
Reporter 3:40
Well, exactly. Peter, and I’ve been saying this for weeks on this show, is that look, I mean, when you see what’s happening here, when that light switch is flipped, everybody is unfortunately not going to go back to work. It’s just you know, we’ve already had people have been hurt enough and a lot of these payments and things have been deferred.
Now Christy, I want to go back to you it’s hard to know what the economy will look like. Once it reopens analysts are trying to price in the recovery and the magnitude of the bounce. But we can look at China to see how they are actually recovering What’s going on there?
Christy Ai 4:11
Oh, yeah, not not. I agree with Peter completely on that, that this entire balance has been way too optimistic on a reopening. We can look at China because China is about a full three months ahead of the US on the Coronavirus curve. And what they found is that simply reopening is not enough. And that has not resulted in the return of consumer buying. Now, that is particularly important when we’re talking about the US because the consumption accounts for about two thirds of economic activity.
And I think the market is starting to realize that now that we’ve priced in way too much. We have all this data now coming from the big earnings call. And it’s been shown that we got too optimistic in the past few weeks just floating off on hope and optimism and the Fed and the possibility of a reopening. So today we’re definitely getting a big sell off in the market.
We’re down about two and a half percent, certainly not as violent as a capitulations that we’ve seen in March but you’re seeing capital pull back and the spark was, of course, the past. More terrorists. But also now that we’ve seen this morning’s national manufacturing surveys and everything’s coming in below expectations once again.
Reporter 5:07
And now Peter, I wanted to hit this quick before we wrap up here treasuries are getting a bid up today on the China tariff threats. It’s like 2019 all over again. But But here’s the red meat. What about gold? Is this rise sustainable? Or is this just another bubble waiting to be popped in? I have about 45 seconds for you.
Peter Schiff 5:24
Well, look, nobody should be buying treasuries. I mean, we basically warning people against the added dangers of holding treasuries people should be buying gold. Gold was up today too, but it should be up a lot more and it’s going a lot higher, as people start to really appreciate the risk in US Treasuries and the US dollar,
Reporter 5:42
and Peter Schiff of Euro, Pacific capital and Christie. I
