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Euro Pacific Capital’s Peter Schiff on the economy’s outlook and its impact on corporate earnings.
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We'll news from the economy as I said.
After ten straight quarters -- profit growth it looks some of our largest companies are finally feeling the pain from the global economic slowdown.
Third quarter earnings are expected to shrink.
For the first time since just after the recession ended and as you heard Humana has the latest company to lower their third quarter outlook and every.
-- this year Euro Pacific Capital and author of the new book.
The real crash for more on this Peter thanks from back to the show.
-- -- -- -- -- So this is the thing -- the balls will really clinging to everybody was trying to be optimistic was talking about.
This tremendous earnings growth that was continuing on Wall Street is the steam finally coming out of that.
Well I got I think to reason that we're not getting the growth that people anticipate.
Is that the economy is -- really recovery if you look at that fourth quarter GDP number that we got on Friday or the second quarter rather.
It showed one point 5% growth which is pretty anemic.
But if you actually look beneath the surface in order to get that robust a growth number of big government assume that inflation.
Was analyzing at seven tenths of 1%.
Now I don't believe that for a minute.
-- talk about prices are rising look at food prices.
-- there is no way that inflation is out low and so by underreporting inflation.
The governor makes it appears that the economy was growing.
It the real rate of inflation is over 3% a year instead of the point 7% the government claims were in contraction right now.
-- that would explain the weakness in corporate earnings.
Why why did back back couple about why do you think their inflation numbers wrong to think they're doing got a purpose have been looking at the right things what is it about.
Yeah well I think that methodology that they used to calculate the deflator is wrong I think it understates.
Inflation and remember what GDP does is they take the nominal number.
And -- deflated to take inflation out of the picture but they're not deflating it enough.
I that you're not really getting a real number it's it's it's just nominal growth but -- nominal GDP growth is it gonna -- jobs.
And that's what makes more sense to me.
But -- you think it's bad now wait to see what happens when interest rates rise because the only thing that hole in the -- up right now are these artificially low rates.
But you know the longer they stay low -- are higher -- ultimately gonna go -- once you bring interest rates up to market levels I think it's like you know.
Pulling the rug out from under whatever is left of the economy I think we're headed for a much.
Bigger decline but he.
-- weak for a long time and corporations have still managed.
To have all kinds of profits that's the reason why Wall Street has been rallying.
-- -- that's one of the reasons why everybody wants to tax corporations more they say they're sitting on the all this money they're still doing well.
So what they've finally you know start to Peter out that's bad news for the economy bad is for the stock market rate.
There will be the reason though that it's been bad for so long is because we have -- -- -- These structural economic imbalances.
To be corrected instead of allowing the necessary short term pain.
We keep artificially stimulating the economy -- cheap money more credit.
And we're just try to perpetuate a bubble economy.
Instead of allowing a genuine economy.
I had to be built -- so we're never going to have a real recovery we're never gonna -- productive jobs until we understand the source of the problem.
And that is too much government too much regulation too much money printing.
Interest rates -- Definitely I -- -- doesn't -- -- -- with the perhaps agree totally -- alcohol and just stabbed endowment nothing but that's -- and -- has done and that's what Ben Bernanke and his dog when it comes that failed a lot of the thousands -- in a -- -- -- the right now would that be worse.
I mean I agree with you we don't want as much taxation -- regulation without question but -- the Fed comes in and starts to tighten up.
That's not going to be good for things right now.
Well in the short run it will be painful just like medicine doesn't taste good sometimes but -- it's gonna cure you you don't not -- yet because you don't like the way it tastes and yes when interest rates go off.
That's painful.
For a lot of borrowers but it's relief for the savers nobody.
Bothers to look at the interest rates from the perspective of the lender there is no return on lending.
Saving interest rates are at zero so we're not gonna have savings and -- we're not gonna have savings we're not gonna have real capital investment.
We're not gonna grow an economy we have to let interest rates go up.
And the only reason that the financial institutions are afloat right now is because the Fed is providing money for virtually nothing.
And so they can survive.
Making loans mortgages that three and a half corporate thank you -- gonna be getting money -- gotten from the Fed -- -- that is forced to raise rates that stop the dollar from imploding.
-- they'll they'll all these financial institutions are insolvent appeal with we're creating a much bigger problem by numbing the pain so that we don't have the deal -- that but look.
Look what's happening in Europe they're finally how you're not just aren't here -- secretly these -- around us I think out.
I think you can't be Peter thank you so much for coming on tonight we appreciate your time and you -- a lot of great points pure apple.
