Defending wealth against stock market bubble bursting

With expectations of the stock market's bubble bursting, Peter Schiff recently provided his thoughts on how to protect our wealth during that period of time.

First, he said it has to be understood that there has already been three stock market bubbles since the turn of the century that were inflated by the Federal Reserve. This one is by far the most dangerous to the market.

Schiff doesn't believe there will be a fourth market the Fed can successfully inflate. He may be right. My view is this is why the Fed is entering into a period of quantitative tightening, so it can clear the way for another round of quantitative easing when the next bubble hits.

The problem is there is a very good chance the bubble will burst before it is able to clear the way for another round of inflating the money supply. Under that scenario, there is little it can do without having an enormous impact on the value of the dollar.

The answer to Schiff is to invest in physical gold and gold stocks in order to preserve buying power. He believes the gold market doesn't “really reflect all the potential for inflation, the potential for dollar debasement."

Schiff believes investors in general are overly optimistic about the future, and have entered into a state of complacency concerning their stock positions. He thinks that's why the market continues to soar to record levels.

He also cites the relatively low price of gold as another example of the market being overly exuberant about the future.

That said, he does admit investors will have to be able and willing to take on some risk, and not make rash decisions to sell when the current volatile market takes significant swings.

He sees investors doing well if they have a long-term investing horizon. If they do, he sees a lot of opportunity in the sector. Schiff thinks that opportunity isn't far away.