Fed must ca­pit­u­late or the bear will be bru­tal: Peter Schiff

The Pak Banker - - COMPANIES/BOSS -

LON­DON: With the S&P 500 near 52-week lows this year, in­vestors are search­ing for clues on where eq­ui­ties could head. And while many as­sign blame on the col­lapse in oil and eco­nomic un­cer­tainty in China, one of the Fed­eral Re­serve ' s fiercest crit­ics is point­ing the fin­ger at one per­son: Janet Yellen. "Un­less the Fed to­tally ca­pit­u­lates, this bear mar­ket is go­ing to be bru­tal," Peter Schiff , head of Euro Pa­cific Cap­i­tal, told CNBC's " Fu­tures Now" to­day. A bear mar­ket is loosely de­fined by a 20 per­cent drop from a re­cent high.

The S&P 500 is down 13 per­cent from its May high. "What we need to stop this bear mar­ket, is full-on quan­ti­ta­tive eas­ing from the Fed. Ev­ery time the mar­ket has cor­rected, since 2008, it's al­ways been the Fed that's made the bot­tom," said Schiff. "The Fed has al­ways saved the mar­ket ei­ther by cut­ting rates, launch­ing QE or threat­en­ing to launch an­other round of QE. So, they're go­ing to have to give the drug ad­dicts on Wall Street what they want."

Schiff ve­he­mently main­tains that cen­tral bank pol­icy has served as the most de­struc­tive force in the U.S. econ­omy. The S&P 500 has fallen 9 per­cent since the Fed raised in­ter­est rates in De­cem­ber for the first time in nearly a decade. For Schiff, the U.S. will stay in a re­ces­sion and stocks will con­tinue to fall un­less there's a re­ver­sal in pol­icy. "I think the bub­ble has al­ready burst. The ques­tion is if the Fed is go­ing to fill it back up with air be­fore too much comes out," he said. "This is an elec­tion year and Janet Yellen is play­ing a game of chicken with the mar­kets."

The Fed critic has long voiced his op­po­si­tion to mon­e­tary pol­icy , but given the re­cent volatil­ity, he is more con­vinced than ever that the Fed will have to re­verse its course. "The only ques­tion now is how much longer the Fed will wait be­fore it in­di­cates rates are not go­ing up, then cuts them to zero, launches QE4 and then low­ers rates to neg­a­tive," he said.

As far as his other bold pre­dic­tions, Schiff main­tains that gold will even­tu­ally hit $5,000 an ounce . "Gold is up $150 since the day af­ter the Fed hiked rates," he noted. Gold has been the best per­form­ing as­set in 2016. "Gold now has to re­verse the last three years of loses be­cause they were all based on a fan­tasy of a le­git­i­mate U.S. re­cov­ery. I think we're head­ing a lot higher." Ul­ti­mately, Schiff be­lieves gold will hit $1,300 per ounce in 2016 with po­ten­tial to reach $5,000 in the com­ing years pro­vided that the Fed cuts rates and re­launches QE.

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