This Week’s Episode Of Peter Schiff’s ‘Wall Street Unspun’ – 01-07-2009

Every Wednesday at 8:00pm Eastern (5:00pm Pacific), Peter Schiff broadcasts Wall Street Unspun, which is his mid-week run-down on the market dealing with any issues making the headlines at the time. This week’s episode is one of the best I’ve heard yet, in fact, I think this episode may actually be one of the best talks on the current economic crisis that I’ve ever heard, period. Highly, highly recommended.

Initially, Peter Schiff talks about Barack Obama’s newly unveiled stimulus package. He highlights some obvious holes in that package and uses that as his launching off point. He compares the stimulus package to an individual home owner: Say you’re deep in debt, you’ve lost your job, and you’re generally in the midst of a severe financial crisis, would the solution be to remodel your house? Of course not. Obviously it would be nice to have an updated infrastructure with new roads and bridges, but this is the worst possible time to undertake that kind of activity, since we don’t have the money to do it. Read on for the rest of the episode split into 6 parts:

Schiff asks a rhetorical question that really highlights the flaw in Obama’s plan: “Why don’t governments in poor countries make their countries rich by building roads and bridges?”, Because it doesn’t work that way, obviously. The money has to come from somewhere, and that somewhere is from an already bankrupt nation. But Schiff isn’t just finding fault, he’s offering a solution. Instead of taking money and filtering it through the inefficiencies of government so we can build infrastructure, why not leave the money in the hands of the private sector so they can use it to build factories or other things that will increase our productive capacity and allow us to pay back the trillions we’ve already borrowed from foreign countries so we can actually get out of this financial mess.

Schiff uses Obama’s plan to point out the flaws of Keynesianism (aka Keynesian economics), and how we’re now moving away from a more market based economy to a centrally planned one, which could have horrifying consequences for not only the economy, but for our social freedoms as well.

In the second half of the episode, Schiff begins moving from general to specific, and starts giving advice and predictions for the next few months and years. First off, he says the bond market is going to tank on a grand scale, as in, worse than the housing bubble. The scary part is that a bond bubble bursting means the government is going bankrupt, and the only way the government has to prevent a catastrophic drop in the bond market is the rev-up production of money to buy back bonds. But here comes the really scary part: if the government turns on the printing press and prints out money, that means inflation, and inflation has the direct result of undermining the bond market and making bonds a worse investment. That cycle will cause an out of control event called hyperinflation.
The takeaway for Common Sense Investors: GET OUT OF THE BOND MARKET!

He also talks about real estate and buying a home in this market. His advice is to rent for now, since there really is no reason to buy a home. One caller near the end of the episode points out that nominal house prices will go up in a hyper-inflationary environment, or even in one with just really high inflation… but Schiff points out that real house prices will not; that means a house may go from costing $500,000 to costing $3 million in a year, but that same $3 million won’t buy as much food or gold or anything else that the $500,000 did just 2 years before.

The main takeaway for Common Sense Investors here: unless you can find a no money down deal, avoid buying a house in this economy, rent for now. If you’re looking for investments, go with commodities, go with gold, go with foreign equities, follow Schiff’s advice and you’ll make it out of this mess a wealthier person.

It’s just Common Sense.

Part 2

Part 3

Part 4

Part 5

Part 6