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This Rally Has Been Based on a “Fantasy,” Says Peter Schiff

Lauren Lystrer
Yahoo Finance
June 6, 2013

Markets are slightly higher in the U.S., the day after the second-largest point decline of 2013 for the Dow Jones Industrial Average (^DJI), according to the Wall Street Journal. The Dow dropped 216.95 points or 1.4% to below 15,000, while the S&P 500 (^GSPC) fell 1.4% and the Nasdaq (^IXIC) composite fell 1.3%.

So what happened?

Some reports blame it on concern over wild swings in Japanese stocks and rising expectations that the Federal Reserve may be moving closer to scaling back its easy money bond buying policies.

But if the stocks had closed in the green yesterday, it’s easy to picture the explanations about how a weak ADP Private Payroll report made investors more confident that Fed “Taper Talk” has come too early and is on hold for now, thus restoring confidence easy money will continue to flow. Also, late last month U.S. investors shrugged off a 7 percent sell off in Japanese stocks, as USA Today notes.

As opposed to trying to figure out why the market fell, “maybe the better question is why has it been rallying all these days or weeks or months,” Peter Schiff tells The Daily Ticker in the accompanying interview. He’s CEO and chief global strategist of Euro Pacific Capital and chairman of Euro Pacific Precious Metals.“

I think Wall Street has been trying to convince itself that despite the data, the U.S. economy is actually recovering,” says Schiff. “And I think over the last several weeks so many data points have come in to disappoint this fantasy of an economic recovery, that I think maybe it’s finally starting to set in.”

Schiff points to weaker than expected ISM manufacturing data showing the largest contraction in four years as an example.

Schiff also points to the fear of rising interest rates in a weakening environment and concern that even if the Fed is printing money it’s not going to overcome that.