Fannie Mae Just Crashed 23% in Three Days... Home Prices Are Next

Schiff links rising deficits to a self-reinforcing inflation and interest-rate cycle that could weaken the economy and widen deficits further, and he characterizes the Fed’s report of moderate growth alongside accelerating prices as stagflation. He also argues that the reported growth may not last because it is not real growth.

Schiff says September core CPI came in at 0.3% month over month and 2.6% year over year, both above expectations, as the odds of an October rate hike rose from about 15% to over 40%. He also reports that the 10-year yield briefly exceeded 5.3%, the 30-year yield ended at 5.52%, and the 30-year mortgage rate topped 7.5%; he argues that Warsh’s record of just one 25-basis-point hike in about five months, while the money supply and Fed balance sheet grew, was dovish.

Schiff argues that gold can serve as an inflation hedge and an alternative safe haven when rising yields push bond prices down; he says that if inflation reaches 5% or 6% or higher over the next 12 months, a 5% fed funds rate would still be negative in real terms and bullish for gold. He also predicts that rate cuts and quantitative easing will eventually follow higher rates, and cites gold’s rise from $1,900 to $4,100 over four years against HEX’s 99% collapse as support for his preference for gold and silver over crypto.

Schiff argues that buyers constrained by mortgage approval limits cannot meet current asking prices, while sellers holding out for past valuations are adding to unsold inventory; he expects sellers to lower prices and warns that declines could erase homeowner equity. He also cites a mortgage rate above 7.5% and sharp recent drops in Fannie Mae and Freddie Mac shares—23% and 21% in three days, respectively—as signs of pressure and a warning for housing.

Schiff argues that inflation can reduce the real value of corporate debt, transferring value from bondholders to equity holders, but cautions that an expensive stock bought in a bubble could still leave an investor worse off. He separately argues that rising yields make bonds an unreliable inflation safe haven because bond prices fall as yields rise.

Schiff challenges the idea that the stock market is broadly booming: he cites 479 stocks making new 52-week lows versus 60 making new highs and argues that the S&P 500 and Dow can rise while the wider market remains weak because a handful of stocks lift the indexes. He connects that broader weakness to what he describes as a weak economy.