Euro Pacific Capital CEO Peter Schiff: Bubbles Abound in Stock, Real Estate Markets

Wednesday, 19 Mar 2014 11:33 AM

By Dan Weil

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Stocks and real estate have entered serious bubble territory, thanks to the Federal Reserve's massive easing program, says Peter Schiff, CEO of Euro Pacific Capital.

"The Fed has managed to re-create a bigger stock market bubble than the one we had in the 1990s and a bigger real-estate bubble than the one that burst in 2008," he told Yahoo. "Imagine how bad it's going to be when these twin bubbles burst simultaneously."

The Standard & Poor's 500 Index stands less than 1 percent from its record high, and the S&P/Case-Shiller index of home prices for 20 cities jumped 13.4 percent last year.

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"I think the bubble is too big to burst," Schiff said. "That's why the Fed will do everything it can to keep blowing air into these bubbles.

The difference between the stock bubble now and that of the 1990s is that back then market participation was widespread, Schiff said.

"That was the bubble for the 99 percent," he said. "This is the bubble for the 1 percent. Fewer people are participating. It's the same in the real estate market. Homeownership rates are plunging. It's private equity funds buying houses now."

Other experts share Schiff's bleak outlook.

New York University economist Nouriel Roubini recently warned that the economy isn't strong enough to stand on its own two feet. He also agreed that the assistance provided by the Fed is beginning to create bubbles.

Roubini cited "frothiness" in housing, junk bonds and potentially bitcoins, according to Fortune. The situation could play out into a financial crisis in the next two to three years, Roubini said.

He sees economic growth accelerating this year, but not enough to boost the wages of average Americans. That, in turn, will starve the economy of the consumer spending and debt reduction it needs to thrive, Roubini explained.

"The question is whether we have gotten to sustainable growth that is not based on bubbles," Roubini said. "Not yet."

Meanwhile, stocks rose Monday and Tuesday, despite the turmoil in Ukraine. But some experts were dubious about the gains.

"This is the triumph of hope over experience," Brad McMillan, chief investment officer of Commonwealth Financial, told Reuters. "I would say investors should be very cautious. This doesn't seem to be a market that is trading on longer-term expectations or possibilities."

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