Schiff incredibly agrees with what has become a mainstream opinion: the Fed is behind this rally, both in stocks and bonds, and even in real estate markets. Yet Schiff differs in that, while most believe the Fed-induced rally has “training wheels” that can later come off, the Fed’s support “are the only wheels” keeping the market going, and removing them will spark a crash.
Pointing to housing markets, Schiff notes that “we are building more homes than we can afford,” as hedge funds and speculators gobble up hundreds of thousands of properties being cranked out by the homebuilders. Indeed, hedge fund manager Deepak Narula of Metacapital made $125 million last year buying up mortgages, delivering net returns north of 40% while the S&P 500 squeaked out about 14%; several hedge funds followed suit. The foreclosure process is stalled in several “judicial” states while banks are still sitting on massive inventories of housing. Major banks and mortgage originators haven’t gotten out of the mess they caused in the financial crisis: Bank of America, Wells Fargo, JPMorgan Chase, and Citigroup are still in the process of settling a nearly $20 billion tab with homeowners across 49 states.
