'It will be worse than in 2008': Wall Street expert predicts US financial crisis due to coronavirus

Peter Schiff, the Wall Street forecaster who predicted the 2008 financial crisis, says the coronavirus outbreak could lead to a "carnage" in the stock market, writes MarketWatch.

Photo: Shutterstock

According to Schiff, the Federal Reserve's latest move - an emergency interest rate cut of half a percentage point to the 1-1,25% range for fed funds - could be the pin that ultimately punctures the "massive bubble" in the stock market.

“The problem is not the pin, it’s the bubble, and once the bubble is punctured, the air comes out,” he told the publication.

“If it weren’t coronavirus, it would be something else,” Schiff added.

On March 3, the Fed made a decision related to growing markets for the economy tied to the spread of COVID-19, an infectious disease that arose in December 2019 in Wuhan, China. More than 94 thousand people are already infected with coronavirus in the world, more than 3200 have died. Now this situation threatens the global economic situation.

Schiff, executive director of Euro Pacific Capital, is a longtime market expert and controversial figure, as his insistent crisis forecasts have often failed to materialize. Once he predicted that gold would cost up to $ 5000 per ounce, although he did not designate a specific time period.

However, he believes that this time, the likelihood of a stock market crash, bond market and the US dollar is higher than ever.

“We will have a bond market crash, and the financial crisis that comes will be much worse than the one we had in 2008,” he said.

On the subject: The US has taken emergency economic measures because of the coronavirus: this has not happened since the 2008 crisis

The bond market wasn't close to crashing on March 3, but the 10-year Treasury note set a new all-time low for the yield below 1%, while the US dollar fell 1% this week and gold - Schiff's favorite asset - over the same time added 4,4% in price.

It's hard to be too dismissive of Schiff's predictions, however, since one of his predictions—that the housing market crash of 2008 would lead to a global crisis of historic proportions—has come true. This may have cemented his status as an investor and commentator that demands some attention on Wall Street.

US stock markets seem to agree with Schiff's skepticism about the recent Fed action.

The Dow Jones Industrial Average lost nearly 800 points, or 2,9%, to 25, while the S&P 917 lost 500 points, or 89%, to 2,8. The Nasdaq Composite was down 3 % to 003, while losses to equity markets increased after a press conference held by the head of the US central bank to explain the emergency measures.

Photo: video frame YouTube / Peter Schiff

The Fed's actions have been criticized by those who believe the Fed has limited ability to stimulate an economy "infected" by the new coronavirus, as well as those who believe the Fed should wait for further economic data before deciding to inject a dose of confidence into markets that have been prone to strong fluctuations over the past two weeks.

The Fed said the U.S. economy remains strong, an admission that has puzzled those wondering why the Fed is cutting benchmark interest rates as the U.S. unemployment rate approaches a 50-year low of 3,5%.

Schiff says the interest rate reduction movement in a strong economy supports his theory that the Fed cannot escape historically low interest rates after trying to do so at the end of December 2015. Last year, the Fed cut rates three times in a row due to increasing pressure from the US-China trade war.

On the subject: Threat to the global economy: how coronavirus brought down financial markets

The head of Euro Pacific Capital says this is a new standard for the markets and it is not suitable for the average investor.

“The Fed never allowed the economy to heal,” he said of monetary policy after the 2008 financial crisis.

What does Schiff say to those who compare it with a broken watch that accurately displays time twice a day?

“They bet on the losing deck, and I bet on the winning one. And I want to take all the chips home,” he said.

Experts in the stock market should hope that this time he is wrong.

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