Peter Schiff, senior economist and chief market strategist of Euro Pacific Capital recently gave his thoughts on the upcoming election. He also shared his opinions on government spending and why a worsening economy is good news for the stock market.
He was asked about his thoughts on who will win the upcoming election. To this, Schiff said he thinks Biden will win and says he doesn’t feel good about it.
“I don’t feel good about the election at all. I think the outcome is going to be a Biden win, and I also think it’s more likely than not that the Democrats will take the Senate as well giving them control of both houses of Congress and the White House. And as reckless as the Republicans have been with borrowing and spending, I expect the Democrats to be even worse.”
Real pushback from fiscally conservative Republicans, Schiff said, doesn't exist anymore. And without it, he expects deficit spending and money printing, which means inflation.
“Unfortunately, unlike when Obama was president and you had some pushback by the Tea Party in the Republicans to kind of rein-in Obama, and keep him from borrowing and spending as much as he would have liked, that opposition is not going to exist anymore. There are no fiscally responsible Republicans, so it’s just going to be massive deficit spending, which means massive money printing to finance it, which is inflation.”
He said this is going to lead to higher prices at the grocery store.
“When it comes to consumer prices, which have somewhat been under control recently,” Schiff mentioned. “But I think they are going to run out of control after Biden comes to the White House.”
A Biden Win Means Higher Taxes
Schiff said an almost certain outcome of a Biden victory is higher taxes. This, he said, will have a dramatic impact on the value of companies, and therefore stock prices.
“There’s no question that a Biden win, particularly with Democrats controlling both houses of Congress, taxes are headed up dramatically on corporations. Not just the tax at the corporate level, the official corporate tax, but the tax that the owners of corporations have to pay on their dividends or capital gains is also going up sharply. So you’re talking about a dramatic, maybe even unprecedented, increase in the taxation of corporate earnings. Which is going to have a dramatic impact on the value of companies. Because a corporation is simply the present value of its future after-tax earnings. And if those after-tax earnings are diminished dramatically, by well over 50%, by the increase in the double taxation on corporations, then stocks, all else being equal, have to fall precipitously in value.”
He says that there’s one factor that could prevent a massive reduction in the value of companies. That’s an increase in money printing by the Fed.
“The only factor that will prevent that will be that the economy is also so much weaker under Biden than it would be under Trump, and I think it would be weak either way but I think it would be weaker under Biden, that will mean that the stimulus we get under Biden will be even greater. So the Fed’s going to print even more money, we’re going to borrow even more money, and so the stock market is looking positively at that.”
Come back tomorrow for the second part of the Schiff interview. There, he covers even more topics, including why the stock market now thinks bad news is good news.