It Was A Black-And-Blue Friday
The comments below are an edited and abridged synopsis of an article by SchiffGold
November 26 was a black Friday for investors. Almost everything was down and markets panicked over a new Covid variant. Peter Schiff talked about the market reaction in his podcast. Did the markets overreact? And what will happen if we do go into another global lockdown?
The Dow suffered its worst day since April 2020, the height of Covid lockdowns. European stocks got hit hardest. Stay-at-home stocks, including Netflix and Peloton, helped the US mitigate some of the pain.
US dollar weakness was one of the more interesting aspects of what happened last Friday. There was not a flight of safety into the greenback. The safe-haven money flowed into the Swiss franc, the yen, and to a lesser degree, the euro. The dollar dropped about 1.7% against the yen and 1.4% against the Swiss franc.
Peter sees this as a market overreaction. But if the worst-case scenario were to happen—a return to global lockdowns—the Fed would almost certainly cancel the taper and return to quantitative easing. In fact, it would probably have to ramp up QE even more. It said it won’t initiate the first rate hike until the taper is complete.
Dollar weakness may not be a function of its diminishing role as a safe haven, but may be due to investors beginning to price out the taper or liftoff in interest rates. The markets still don’t get it, Peter said.
Some people think another Covid lockdown would defuse the inflation bomb. Just look at the big drop in the price of oil; it could be a get-out-of-jail-free card for the Fed. Peter said that’s not going to happen.
When we went into lockdown the first time, CPI was low and there was still plenty of inventory to absorb the big drop in production. We’re not in that situation now. We don’t have the ample supply chain we had previously.
Of course, some prices would drop. But generally, Peter thinks they would continue to rise. This scenario, he said, is very bullish for gold.