 Peter Schiff, CEO of Euro Pacific Capital joins me now to discuss the stock market, the economy, and Bitcoin. All right, Peter. Thanks for coming back with us. Good to see you. Oh, thanks for having me on. So Peter, I want to start off by getting your view of the markets. You are not a fan of US stocks when we spoke in August, but the S&P 500 is up 5% since our conversation. So what is your view of US stocks right now? Well, US stocks are up, foreign stocks are up even more, which is what I own. But the Federal Reserve has successfully inflated two massive stock market bubbles this century. One of them popped in 2001, the other popped in 2008, and in each circumstance, the market was down by about 50%. And the reason that the Fed was able to reflate a bubble was because it was able to repeat the mistakes that caused the prior one only on a bigger scale. So the bubble of the 2000s was because the Fed had monetary policy too easy. And then when that bubble burst, they had even easier policy. They put interest rates down to 1%. They left them there for a year and a half, and then they were slowed and normalized rates back up to 5%. That inflated another stock market bubble and a housing bubble. When that popped, we had the 2008 financial crisis, then the Federal Reserve was able to come back with even more monetary stimulus, 0% for eight years, three rounds of quantitative easing. They were successful in reflating yet another bubble, but I think this bubble will meet a similar fate as the prior two. And the difference is going to be the third time is not going to be the charm. It's going to be three strikes you're out. I do not believe the Fed is going to be able to rescue investors for a third time by inflating a larger bubble because I think the bubble we have now is the biggest one that ever going to inflate and that the bubble blowing days are over. So I would not be very complacent if I was in the stock market, even if the US stock market continues to rise. Let's say the Dow goes to 30,000. If it gets cut in half, that's 15,000. That's still a lot lower than it is right now. Meanwhile, I think the greater risk is the Fed determines that this bubble is too big to pop and instead it sacrifices the dollar, which means the real losses for US investors will be even larger. So Peter, let me ask you, what specifically could derail this record run? Is it the Fed unwinding its balance sheet, which they are going to start doing in October? Because to your point, if the Fed sort of inflated asset prices with all the stimulus, if they depart from the economy and pull back this stimulus, couldn't it have sort of the opposite effect? Well it would have the opposite effect and I think that's why they've resisted doing it for so long. I do not believe the Fed is going to unwind its balance sheet. Even though they told us it's going to start in October. Well they've been telling us this stuff for years and here we are. I mean, they started telling us from day one. In fact, when Ben Bernanke first testified in Congress when they did QE1 and he was accused of monetizing the debt, Ben Bernanke said that the Fed would sell the debt, that they weren't going to be holding it to maturity, that this was a short-term emergency, this was not a permanent source of government funding, and that the Fed was going to turn around and sell all the treasures that they bought. Well that was a lie. They haven't sold any. So the Fed has been bluffing and I think they're continuing to bluff even if they managed to have a few of these ceremonial taperings where they led a tiny amount of their balance sheet roll off just to kind of create the illusion that it's something they can actually continue. They're not going to see it through to the end. In fact, I think before they get too far into the process, they're going to have to announce QE4, which is going to more than offset any minor tapering they've managed to do for window dressing. So we're at four and a half trillion dollars in the balance sheet right now. Where do you see the balance sheet going in a few years? Many analysts are thinking three trillion. Perhaps you think something higher. I think it's going to be much higher. I don't know. I mean we could go through 10 trillion. The question is going to be when are the markets going to have enough of it? When are the markets going to realize what they've been blinded to for so long that there is no end game to this policy, that it really is QE infinity, that the Fed has no ability to normalize rates or reduce its balance sheet without completely deflating the bubble that it has been inflating all of these years. I mean the U.S. economy is in much worse shape today than it was in 2008 thanks to the policies that the Fed has pursued since the beginning of the financial crisis. The economy is worse now than in 2008? Yeah, I mean certainly worse than before the bubble pop. The bubble popping was simply the market's way of trying to correct the mistakes that had been made as a result of the Fed's policy. And the Fed's policy mistake was keeping interest rates too low for too long. Well they've kept them much lower for longer this time. The mistakes that have been made as a result of the Fed's easy money policies are much greater now than the ones that gave us the 2008 financial crisis. But Peter, now the Fed's going the other way. I mean they've raised rates four times since the 2008 financial crisis and they're expecting to raise rates again in December and perhaps three more times next year. Yeah, remember they rose rates going into the 2008 financial crisis. That's what happened. They slashed interest rates in 2001, 2002. They raised them back up in 2005 and 2006. And that's why things started to fall apart in 2007. And then the market collapsed in 2008. And so we're already long into the process where the Fed has put a hole in its own bubble. And so we're not too far off from the bubble really deflating in a big way. So just because the Fed was able to succeed in inflating this bubble doesn't mean they're going to be able to succeed in letting the air come out. It's business going to be harder to do than 08. And they weren't able to get out of that problem. They were not able to normalize rates following cutting them to 1%. How are they going to do it now? It is impossible because the problems are so much bigger this time around. Peter, you're in foreign stocks. Don't global central banks have a similar issue to the Federal Reserve? I mean we know the European central bank, Mario Draghi. His balance sheet is even bigger than the Fed. So don't these problems apply to overseas as well? Yeah, well remember the ECB is a larger economy in total than the United States. And they're also a creditor. So the world owes Europe money, not the other way around. So America is the world's largest debtor. So I do believe that our problems are larger than the problems in Europe. But that being said, I am not oblivious to the European problems, which is why I have underweighted European markets as well. So I am not investing in markets that are being propped up by quantitative easing. The world does not simply come down to Europe, Japan and the United States. So do you like emerging markets? Yeah, I do have quite a bit of exposure right now to emerging markets. And the European exposure I have is generally in places like Switzerland that are not inside the European Union or Scandinavia. But I do see again that there are problems around the world that have resulted from interest rates being too low. This is not simply an American phenomenon. But we, I think, are the ones that are the major driving force behind these low rates. I think the Fed was leading the charge to slashing interest rates. And other central banks may have followed us. But I think they followed us down a primrose path. But I do believe that you're going to see a tightening in Europe. I think you're going to see Europe trying to wind down their QE program just as the Fed is launching a brand new one. And so that's kind of the opposite of what the markets have been expecting. They've been expecting Europe to continue to ease while America tightens. What ultimately is going to happen is that Europe is going to be tightening as the United States launches a whole new round of easing. Well, when do you think the Fed would launch new easing as they're trying to close the book on the rounds that they launched since the crisis? Well, that's the trillion-dollar question. It's hard to say. I mean, when they're going to admit that that's what they're going to do. But obviously, this recovery, if you even want to call it a recovery, given how weak it's been. But this is one of the longest recoveries we've ever had, despite the fact that it being the weakest and it having required the most amount of artificial stimulus to produce. So we're not far off from the next recession. And how is the Fed going to respond to the next recession? Well, exactly the way it's responded to the previous recessions, except there's not a lot of room to cut rates because they never raise them very much. So once they get back down to zero, which they'll be very quickly, the only thing that they can do is an even bigger round of quantitative easing. And of course, that's going to do even more damage than the last three rounds. But then the markets are going to get the message. They're going to realize that there's no way out and the dollar is going to drop like a stone. And that is going to usher in a whole new set of problems that will make the 2008 financial crisis look like a Sunday school picnic. Peter, I want to move away from the Fed for a moment. But one more question. I mean, do you think Trump will renominate Janet Yellen as Fed share when her term ends? No, probably not. I wouldn't say that it's 100 percent that he won't. I mean, it depends on what's happening at the time. I think Trump would prefer to have his own guy in there or Gal, as the case may be. I think he wants to nominate somebody that he thinks will be a loyal member of team Trump. And if he doesn't sense that from Janet Yellen, then he'll he'll he'll look elsewhere. But, you know, it's unfortunate that these Fed Governors always, you know, try to look at themselves as members of the team of the administration. That's what Ben Bernanke said. I remember listening to an interview of him when he was being questioned on radio about a lot of the crazy comments he said in 2005 and 2006 about how great everything was and how there was nothing to worry about. And when he was asked, you know, how what he thought about those comments now, hearing them knowing what happened, his response was not to admit that he was wrong, but to simply deny that he was being honest. He said, well, you know, I couldn't actually speak my mind back then because I was a member of the administration and supposed to be independent. They're supposed to be, but they're in practicality. They're not. They act as if they're part of the government. They're supposed to be an independent central bank and in theory they are. But in practice, they're not. And so I think Trump will try to have somebody in there that will help keep air in the bubble, that will keep printing money and kicking the can down the road because Trump's main purpose, I believe in his nomination, is which Fed Chairman is likely to help me get reelected to serve a second term. Yeah. And we know criteria, but it will be. And we know Trump loves to tweet about the record breaking stock market. So we'll watch how that plays out. Peter, you talk about these looming crashes. What about the Black Monday crash from 1987 as we have the 30th anniversary? What were your memories from that day? Well, I remember that day. I mean, I had I had just recently graduated from college and I was starting my first job. I was going to be trading futures, commodity options and futures. And I remember Alan Greenspan had not been the Fed Chairman that long. And this crisis happened relatively early in his tenure at the Fed. And I was a big Alan Greenspan fan back then. I had read Greenspan's work. I was familiar with him from Ayn Rand and the essay he wrote on gold and capitalism. And I was very surprised by what Greenspan did in reaction to the crisis. So much so that I actually wrote him a letter that he replied to. And then I wrote him another letter as a result of that. Well, you know, I have it. You actually want to read the letters that he sent me. You know, I can't find the letters that I sent him because I didn't keep a copy, but I did keep the letters that he sent me. And I posted both of those letters on my website at shiftradio.com. So if you go to shiftradio.com, you can read the letters that Alan Greenspan wrote to a 22 year old Peter Schiff or 23, whatever I was, 24 at the time, I forget. But I was critical of what he was doing because it didn't seem to jive with what he stood for as far as free markets and the gold standard and all that. And basically what he said to me, and if you read the articles, he basically said, look, you know, yes, in theory, it would be great to allow the markets to function, but practically the Fed can't sit idly by. We need to do this. But he also said that the important thing was that we get control of the deficits that Congress get control of the national debt that we rein all this in. This was 1987. And my point to Greenspan was if you pursue this policy, that's never going to happen, that if you want to get control of the titlements and the debt, then you need to be independent. You can't keep slashing interest rates whenever there's a problem to bail these politicians out. I said, because if you do that, the debt is going to explode. Obviously here we are. We have a $20 trillion national debt. When he sent me that email, it was, you know, 10% of that. Obviously I was right as a 24 year old kid and Greenspan was wrong as the Fed chairman. If he was worried about the debt being too big, his problems perpetuated that. And I wish he would have followed my advice because we'd be in much better shape right now. And Peter, the Dow is up something like 1200% since Black Monday in 1987. Doesn't this just prove that stocks are a good investment over, you know, many decades? Well, as long as the Fed has your back and the Fed can successfully keep the air in the bubble. But, you know, as I said earlier in the interview, the market was cut in half in 2001. It was cut in half in 2008. So if it gets cut in half again, a lot of people are going to lose a lot of money. And of course, you know, with the benefit of hindsight, you can look back and say, well, if you just wrote it out, you're fine. But a lot of people didn't write it out. They sold. And so they lost money. And just because the Fed was able to rescue the market twice before doesn't mean it's going to rescue it for the third time. As I said, the third time may not be the charm. It may be three strikes. You're out. The next time the market goes down, it may not go down 50%. It may go down 90%. And so, you know, who knows? But meanwhile, the Fed has done a lot of damage to the real economy as a result of this stock market bubble. The average American is worse off today. Our standard of living has been falling because of what the Fed has done to prop up the markets. But still, the stock market, you know, boom, is not all just the Fed. I mean, companies are doing better. They're earning more money. Technology has helped boost their profitability. You do acknowledge some of those trends as well, right? Well, yes. I mean, that is going to happen. In fact, we would have more of that absent the Fed. We would have more real growth in the value of our corporations. Had the Fed stayed out of it. But instead, we have so much of the gains that are all phony. They're all an illusion based on money creation. And that is why this stock market wealth has not translated into real wealth. And that's why when Donald Trump was a candidate, he got so many votes by talking about the stock market bubble, pointing out that it was a bubble and that the real economy was suffering, you know, beneath this illusion that was being created by the Fed. It's unfortunate that now that he is the president, he is adopting the illusion himself. He is now a cheerleader for the stock market. Every time it makes a new high, now as he pointed out, he claims credit for it. So he has now become exactly what he has criticized. And that type of hypocrisy is something that does not sit well with me. All right, Peter, I also want to talk about what could be another bubble, Bitcoin. We had JPMorgan CEO Jamie Dimon come out and say, Bitcoin is a fraud. Do you agree? Well, I mean, fraud is a difficult word. I mean, obviously, a lot of people could be mistaken in their illusions or delusions with respect to Bitcoin and ultimately what it will accomplish as money. I think that it's more of fool's gold than real gold. I think a lot of people, unfortunately, have attributed properties to Bitcoin and other cryptocurrencies that do not exist. I think that people who are rightfully skeptical of the dollar, the euro, the yen are taking refuge in Bitcoin or other cryptocurrencies. And they've jumped from the frying pan into the fire. They should be buying gold. I mean, that's what a lot of people should be doing, but they're not doing that. And I think ultimately they will do that. And I do believe that a lot of the utility that Bitcoin fans believe exists in Bitcoin with respect to the ability to use it as money where they think it's easier to use than gold. I think all of that is being solved. I think you have companies like Gold Money, which I would suggest people check out at goldmoney.com and open up accounts. Companies like Gold Money are making gold money again by enabling people to save, earn and spend gold as easy as they can. Bitcoin or any of these other currencies, in fact, easier. So is Bitcoin a bubble? Is it going to crash? I mean, this incredible run it's had this year. Yeah, look, I do believe it is because I do believe it's not going to succeed in delivering the monetary utility that people believe. I do not think it's going to be the money of the future. I think it's a bubble of the present. I think there'll be a lot of people who will be disillusioned and disappointed. That does not mean the price can't go higher from here. Of course it can. I mean, it shouldn't be at 5,000 or 4,000, wherever it is. And so if you can get here, it can get to 10,000, it can get to 20,000. But however high it goes, it's just going to collapse in the end. And when you say, when you say, Peter, that people should buy gold instead, you know, we're now back below 1,300 an ounce in gold. Where do you see prices going by year end? Well, I think they're going higher. How much higher? It's hard to say. Gold prices bottomed out in December of 2015, when the Fed first began raising rates, they've been rising ever since. But they've been rising slowly. Certainly, when you compare it to the meteoric rise of the crypto currencies. But we have been rising and I think the pace of that increase is going to accelerate. Maybe it will do so before the end of the year. Maybe it won't do so until next year. It's always hard to tell. But I do think we're headed a lot higher. I do think we're going to take out the 2011 highs, which were around 1900 or so. And I think we're going to take them out with a vengeance. I think gold prices are going much, much higher. And that happens in the next six months. Well, I think gold prices will be higher six months from now than they are today. I just don't know exactly how much higher they'll be. But I think they will be higher. Bitcoin, it's a coin toss that could be higher. They could be lower. Just depends on how much bigger the bubble gets and how quickly it pops. But I do hope that the people who are gambling on Bitcoin come home to gold and realize that gold is actually the solution to the problems that they see. And they've just been, I think, maybe blinded by the greed of the crypto currencies. But ultimately, they'll come back to gold. And I think that the fact that so many people maybe transitioned out of fiat into crypto, maybe it'll make it easier for them to go back to gold as opposed to back to fiat currencies. All right, Peter Schiff, a lot to digest there. Thank you so much for joining us. We'll leave it there for right now. All right, I'm Scott Gamm and you're watching The Street.