Rank #1: Swamp 2, People 0 – Ep. 310
Everybody Joins the Party All 3 of the major U.S stock indexes closed out the week at new record highs as it became apparent that the new tax cut deal was pretty much done. Marco Rubio, who had been a hold-out, caved and even Corker, the one Republican who was going to vote against the bill becase it was going to increase the deficit, decided to join the party as well. He's now a yes, so the bill is going to pass. Plan Riddled with Loopholes We didn't get the compromise details until later Friday afternoon so I am recording this podcast Saturday morning. The new top rate: 37%, bottom rate: 10%. But of course, that 37% rate is probably not going to be paid by nearly as many people as the government thinks, because this plan is riddled with loopholes. In fact, I believe, if this plan passes, we will have a tax code that is more game-able where more people are doing more things to rig the system or exploit the loopholes - not that there's anything wrong with that - that's every American is going to do. No American is under obligation to pay more taxes than what is owed. And to the extent that you can re-arrange your affairs, such that you pay the lowest possible tax, that's what everybody is going to do. Reduced Deficit Projections is Nonsense And that is why the Republican projections that this is going to add just $1.5 trillion to the deficit over next 10 years are a bunch of nonsense. I'm sure that it will add more than twice as much over the next 10 years above how much the deficit is going to grow anyway during those 10 years. Now, the Republicans try to claim that even though on paper this bill will add $1.5 trillion to the deficit, it won't really be that big, because these tax cuts are going to create all this extra economic growth, which will result in additional tax revenue. So if you factor in that additional revenue, some kind of dynamic scoring, then the impact will not be as large. That is all a bunch of nonsense.
Rank #2: Possible Top in Stocks and Breakdown in Bitcoin – Ep. 318
January 16, 2018 Buying Stocks with Both Hands When I recorded my podcast on Friday, just looking at the technical action in the dollar and I was getting nervous that maybe we could have been setting ourselves up for some kind of holiday surprise; a big drop over the 3-day weekend that could have led to some real fireworks on Tuesday; and when the market started, everybody ignored the new low in the dollar and they were buying stocks with both hands, out of the gate. The Market Could Not Hold the Gain The Dow gapped up, and it kept going up; I think it opened up almost 200 points and the was up almost 280 points in the first half hour of trading. We went above 26,000. It was just 12 days ago we were at 25,000. That was the fastest 1,000 point move in the history of the Dow. Of course, 1,000 points doesn't mean as much when you're going from 25,000 to 26,000 as when we went from 1,000 to 2,000. Or even from 10,000 to 11,000, but still, it was very quick. In fact, if you look at the trading days, it was just 6 days, because one of those days was Martin Luther King Day, and we didn't trade. So in 6 trading days, the Dow rallied 1,000 points. Well you know what? It couldn't hold the gain. Almost a 400-Point Swing The Dow actually sold off, and at the low of the day it was down 100 pts, so almost a 400-point swing. We closed negative on the day. The Dow was actually the best-performing index. It was only down about 10 points; percentage-wise it was barely down. But the NASDAQ was down .5% and the S&P 500 was down .25%. So we'll see if we get some followthrough tomorrow, to this potential reversal. It wasn't a massive reversal (we didn't close way down, but we did close down). Technicals are Looking Worse and Worse Meanwhile, the dollar did close out on another new low. We didn't take out the overnight lows of Martin Luther King Day, when we were closed, but we closed very near the lows. The dollar index went off at 90.45; I think the low over the holiday weekend was 90.28. The dollar then started to gain back some of it losses early this morning and it surrendered them by the end of the day. But the technicals are just looking worse and worse for the dollar Fed Box: Interest Rates, Inflation, Consumer Prices This so far has not bothered the stock market crowd, because all they can see are positives. But if everything were positive, the dollar would be going up. People still don't understand what this is going to do to interest rates, inflation, consumer prices, and the box this puts the Fed in. How the Fed is damned if it does and damned if it doesn't. If it raises rates to put a floor under the dollar and a lid on inflation, then everything collapsed - we have a worse financial crisis than 2008 and the market implodes - or, the Fed doesn't do that because it's afraid of that and we get something worse. We get a currency crisis. We get a complete dollar implosion. We get hyperinflation. A Goldilocks Moment So we have probably never been this close to something this bad. Remember, think back to the days leading up to the 2008 Financial Crisis. Other than me, was anybody warning about anything? No, it was Goldilocks! Everything was perfect. It's even better now. Back then, they at least let me on television to give the other side. Now, they think, what's the point? Everything is so great, we don't even want anybody to be warning about the possibility of a problem because - "There is no possibility!". Running Up the Deficits What has happened since Trump has been elected. The market's up 40% since we elected Donald Trump. What has he done? Nothing. Has government been reduced? No! We haven't gotten rid of any agencies, we haven't gotten rid of any departments. All we did is cut taxes and the tax cuts have barely gone into effect yet. How did we finance the tax cuts? Running up
Rank #3: Pros and Cons of the Trump Tax Plan – Ep. 287
Estate Tax is Out Today President Trump announced some of the details of his highly-anticipated tax reform, which is really not tax reform, it's more of a tax cut masquerading as a reform. I would say the best part about it is the elimination of the estate tax. That, in and of itself is a very substantial improvement. That tax should not be there; it raises very little revenue but does tremendous damage to businesses. It impedes the ability of a family business to be passed down from generation. It leads to the destruction and dismantling of businesses, the loss of know-how, ingenuity and jobs. Fewer Tax Brackets As far as the rest of the plan, I like lower taxes, I like fewer brackets (I'd like to have just one bracket - I'd like to flatten it all the way down to zero). Under the President's plan, the brackets are 12, 25 and 35%. I'd just as soon it would be one bracket of 25%. If we are going to have an income tax let's let everybody pay the same rate. The new plan is an improvement over the number of brackets we have now. But again, remember, some future President can just expand on these brackets. In fact they're already talking about a fourth bracket because the highest bracket, 35% represents a reduction of the current top rate of 39.6%. Of course you have to add the 39% Obamacare tax and, of course a lot of people have to add the state income taxes. State and Local Taxes No Longer Deductible By the way, if this version of the bill passes, state taxes will no longer be deductible. That was the one deduction that they were willing to give up, state and local taxes, but they preserved the home mortgage deduction. Personally, I'd rather see it the other way around: get rid of the home mortgage deduction and allow people to deduct their state and local income taxes. I have a problem on taxing people on money they never got. If the state taxes you, you never get that money. Why should the Federal government tax you on the money the state took from you before you had a chance to get it? I did a podcast on that idea. I think you can't take income that was taken from the citizens by the state. In fact it may even be unconstitutional. Home Mortgage Deduction is All Politics Why keep the home mortgage deduction? It's all politics. That deduction is bad economics. If we're going to have an income tax, you don't have a choice about whether or not to pay state and local taxes, but you have a choice about whether or not to buy a house. You shouldn't get a deduction on your income tax based on the way you choose to spend your money. That's the government trying to micro-manage buying decisions, trying to distort and influence the economy. But the housing industry is a strong lobby and they influence the tax code. It's because of the swamp creatures that the mortgage deduction is there. Standard Deduction is Doubled Now the standard deduction is doubled. What this means is more people utilize this standard deduction, fewer people will itemize. Itemizing is less advantageous because you can't include your state and local taxes. Now if you own real estate, right now you deduct not only your mortgage but your property taxes. If you can no longer deduct your property taxes, obviously that will reduce the value of real estate because it increases the after tax cost of owning it.
Rank #4: Fed Gives Stocks a Q1 Lyft – Ep. 455
VISIT PETER AT THE LAS VEGAS MONEY SHOW May 13 - 15, 2019 https://conferences.moneyshow.com/moneyshow-las-vegas/speakers/4532d84bf93311d3a5dd00104b96e7b5/peter-schiff/ A Gift from the Federal Reserve The Dow Jones closed out its best quarter since 1998 with a 211 point gain: 25,928.68 was the close. The Dow, on the quarter up 10.3% - the broader averages doing even better. The S&P 500 rose 12.3% on the quarter. The Russell 2000 - 13.8%, and the NASDAQ 15.6% gain on the quarter. of course, the entire rally was a gift from the Federal Reserve. Had the Federal Reserve stayed on its course, indicating that more rate hikes were coming; 3 or 4 this year; had the Fed continued with its planned auto-pilot reduction in the size of its enormous balance sheet, the stock market would be considerably lower. In fact, we probably would have added to the losses experienced in the 4th quarter of last year with additional losses this year. But the Fed, as I had been predicting for many years, reacted to the weakness in the stock market and the weakness in the economy by reversing course. Bigger Cuts Ahead then the Market is Currently Pricing In Now the Fed hasn't actually cut rates yet, although the markets are already anticipating rate cuts and not additional rate hikes. Where the markets got it wrong is that there will be much bigger cuts than what the market is currently pricing in. I think the market is looking at maybe 25 or 50 basis points of cuts. In fact, we're going all the way back to zero. A reduction in interest rates of 25 basis points or 50 basis points would do absolutely nothing. Quackery: Substituting a Bubble for the Illusion of Economic Growth I think the Fed, again, is going to have to go all the way down to zero once it decides that's what it's going to do. But had the Fed not changed course, the markets and the economy would be quite a bit weaker. Although not weaker - more air would have come out of the bubble. That's all the Fed has been doing with its monetary policy is sustaining a bubble. Allowing the bubble to get bigger and bigger, while preventing the underlying structural problems from being solved. Even though those solutions involve some short-term pain, as a trade-off for long-term gain, it is a very healthy process that would be good for the economy in the long run. But, instead, the Fed has interfered with the market's medicine and substituted its own quackery - substituting a bubble to create the illusion of economic growth as the economy is actually worsening.
Rank #5: Will Black Monday Come Early This Time? Ep. 325
666 Point Drop Today the Dow finished off its worse week in 2 years with a 666 point drop. That is the third largest point drop in the history of the Dow. The last big drop that was larger happened during the 2008 financial crisis. Percentage-wise, though the 666-point drop today is only 2.5% so it's really not that big, as a historic decline. 3% Drop from All-Time Record High It's large in a sense that we haven't had a one-day 2.5% decline in the Dow in quite some time. In fact, I'm not even sure when we last had a 3% correction. Now, that's what we had. the dow is now 3% below the all-time record high that it hit last week. Now, a 3% correction is pretty normal, except we haven't had one in a long time. Is this Ominous? The question is: is this the something of something more ominous or is this just a small correction? I think there's a lot of evidence that this is the start of something much bigger. Part of the evidence is that nobody is concerned! There's maximum complacency. Even the superstitious aren't concerned that the Dow fell exactly 666 points. People are so complacent that they're not even being superstitious. 1987 All Over Again Casting that aside, think about this: 1987 was the year that we had a stock market crash. January was the best month for the U.S. stock market since 1987. The dollar just had its weakest January since 1987. So far, this year seems to have a lot in common with 1987. We know what happened in 1987: Black Monday. That didn't happen until October, but maybe this year it will come early. Maybe, next Monday. Now, obviously, the probability is not that we will have a crash on Monday, but it is a possibility. I would say the possibility is much higher than it has ever been, because of where we are, and what's going on. Rates are Going Up Also, the NASDAQ and the S&P were not down quite as much as the Dow, but they were both down about 2%. The catalyst for the sell-off was the continuation of the increase in long-term interest rates. The yield on the 10-year bond rose to 2.854%. That is the highest yield of the day, so bonds closed on the low of the day. On the 30-year bond, we closed at 30.97. There, the high of the day was 30.99 - almost 3.1%. I have been talking about this on this podcast - rates are going up, and they are going much, much higher. If you look at these charts, we've got a lot of air between where we are right now and the normal resistance. Budget Deficits Going Up and Trade Deficits Going Up Therein lies the complacency. Nobody is worried about the rise in interest rates. Nobody is thinking about 1987. It was rising interest rates that ultimately pricked that bubble. But why did rates rise? Because the budget deficits were going up and the trade deficits were going up. That's exactly what is happening now! Except they are bigger budget deficits and bigger trade deficits. And this is happening at a time when the United States is broke. Our massive debt is far greater than the one we had in 1987.
Rank #6: Dollar Falls as Balance Sheet Shrinkage Doubts Rise – Ep. 270
Summary: The Dow and the NASDAQ set new record highs today as the dollar sold off near the end of the day to close at yet another low for the year. Remember, the dollar index rallied 6% between the election and the Trump inauguration. It has now fallen more than 10% since inauguration. Many currencies are at two-year highs. The Australian dollar is at a 2-year high, certain commodities are at a 2-year high, copper broke to a 2-year high; oil prices have been strong. Oil was up about $.80 today after being up about $2 yesterday. We're now above $48.50. Getting close to $50/barrel again. Federal Reserve: "No Hike" One of the reasons for the strength in commodities is the weakness in the U.S. dollar. The catalyst for the weakness in the dollar today is the Federal Reserve, the FOMC, concluded their 2-day meeting today; their press release came out at 2.30pm ET and they announced that they did not decide to raise interest rates during this meeting. Nobody expected the Fed to raise interest rates, which is one of the reasons why they didn't. Balance Sheet Normalization? There was some anticipation that the Federal Reserve may be more specific concerning when it might start quantitative tightening or 'balance sheet normalization' as they call it. So people wanted to know when that would start, and by how much are they going to let their balance sheet to run down but the Fed did not allude to any specifics. All they said is that the process will begin relatively soon. Now the last time they put out a statement, they said it would begin this year. Now they are saying it will begin 'Relatively soon'. Why didn't they leave it at "this year"? Because "this year" would be within the next six months. "Relatively Soon" leaves the statement comfortably vague enough to fit within the Fed's slippery parameters. Gold Hanging In There The markets didn't know what to do for the first half hour, but eventually the dollar broke, and gold finally popped up; it was up around $11-12. It was about unchanged going into the announcement and the knee-jerk reaction was a $2-3 selloff, then it came back to unchanged and then we had the rally. Gold stocks had a pretty good day today; the GDX up about 2.5%; the junior minors doing a little bit better. Yet these stocks have barely moved this year, but this is just getting started.
Rank #7: Fear Is Not a Factor – Ep. 454
VISIT PETER AT THE LAS VEGAS MONEY SHOW May 13 – 15, 2019 https://conferences.moneyshow.com/moneyshow-las-vegas/speakers/4532d84bf93311d3a5dd00104b96e7b5/peter-schiff/ Recorded March 26, 2019 Feigned Attempt to Shrink the Balance Sheet I am finally back on land, having spent 9 days at sea, at the Investors Summit at Sea. I've been doing this annually now, this is my 7th time doing that. I am now back, technically one calendar year older. I want to catch up a little bit on what happened in the market later last week. I did do that one podcast from the ship following the complete capitulation on the part of the Federal Reserve, basically calling off all of the rate hikes that anybody thought may have been coming for the remainder of the year. Also calling off their feigned attempt to shrink the balance sheet - quantitative tightening. The balance sheet will barely shrink between now and the end of the summer, when it will stop shrinking altogether; if they can even keep up the pretense for that long. Nobody Appreciates What the Fed Has Done If you remember, when I was forecasting that this was going to happen, at the very beginning, in fact even before the Fed began to shrink its balance sheet, before the Fed raised rates for the first time, I said that if they ever tried to normalize interest rates, if they ever tried to shrink the balance sheet, they would ultimately abort the process - that they would fail in their mission. They could not complete the journey. It would create a huge problem for the Fed, which up until this point, it hasn't happened yet. Nobody really appreciates what the Fed has done. There Will Be an Excuse A lot of the people in the investment community are still buying at face value what the Fed is saying. But remember, when I said the Fed was going to announce that it was going to stop the rate hikes or call off quantitative tightening, I said at the time, that they were going to come up with an excuse. That the Fed was not going to tell the markets the truth about why it had aborted this mission - it was just going to make up an excuse. The Fed had to pretend that they could actually do this - that they were going to normalize interest rates, that they were going to shrink their balance sheet but something prevented them from doing it.
Rank #8: Twin Deficits May Doom Stock Market Boom
Schiffreport: January 5, 2018 Trump: We Will Win on Trade Earlier this morning the government released the December Nonfarm payrolls report, AKA the Jobs Number. But rather than start with that, I want to talk about another number that was released at the exact same time. It unfortunately gets very little attention in the media, in fact nobody has really paid attention to this number since the late 1980's - early 1990's. Of course, I am talking about the trade deficit. In fact when Donald Trump ran for office, he actually made the trade deficit an issue in his campaign, which was quite rare. In fact, Donald Trump said that we were losing on trade and he was correct. He promised that if he was elected, we would be winning on trade. Biggest Trade Deficit in almost Six Years Well we just got the number for November, and it was the biggest trade deficit in almost 6 years. $50.5 billion. What's more important than that number, look beneath the surface of the number that's bad and it gets a lot worse. If you take out oil, and America is still a net importer of oil - but if you just focus on the rest of the trade deficit, it was an all time high. Oil Headed Higher The biggest monthly trade deficit ever. We finally broke the record that I believe was set when Bush was President. But think about this: oil prices were pretty low in 2017. We just started to rise, in fact we closed the year above $60/barrel for the first time in 4 years. So imagine how much higher these trade deficits are going to be if the price of oil returns to $80-$100, which it was earlier in the year when it dropped below $60/barrel. In fact, I think that's exactly where it's headed. All-Time Record Low against the Yuan Also, look at what's happening with the dollar. The dollar fell last year for the first time in 5 years. It was he largest annual decline in 14 years, measured against the dollar index. But look at the Chinese yuan. the dollar fell by the most against the yuan in 9 years. In fact, I think we're going to hit an all-time record low for the dollar against that currency next year. Upward Pressure on an Already Rising U.S. Trade Deficit If you remember, when the year began, all of the strategists on Wall Street were universally bullish on the dollar and bearish on everything including the Renminbi. A lot of people were shorting the Chinese currency. In fact, they were as bullish on the dollar back then as they are on the U.S. stock market right now. Of course, the markets did the opposite of what they expected. If oil prices keep rising, and the dollar keeps falling, that is going to put even more upward pressure on an already rising U.S. Trade Deficit.
Rank #9: Trump’s “Surprise” Win One Year Later – Ep. 299
Conventional Media Was Surprised It's hard to believe has been a year since Donald Trump shocked everybody, at least everybody in the conventional media, Wall Street, all the pundits, professional politicians, anybody who has anything to do with Saturday Night Live... Nobody believed that Trump a snowball's chance in Hell of winning the White House. Hillary Clinton had already picked out her china patterns, she had this big glass ceiling that she was going to shatter in her victory party. So everybody believed that Trump was going to lose and Hillary was going to win even after the polls closed. It took about an hour or two for reality to set in. Conventional Media Was Surprised So now it has been a year. Of course the stock market has gone up a lot during that year, in fact, the market was up just under 21% in Trump's first year. Of course, Trump never lets you forget this because he constantly talks about it, but he says this stock market rise is unprecedented - and that is a lie! Why do you have to go out of your way to lie when 21% is still a big move. In fact if you go back to Eisenhower, which is almost 70 years, this is the fifth biggest rally for a President's first year. That's still not bad, it's fifth place. The guy in last place is George W. Bush. Not Unprecedented Unfortunately, Bush was elected in 2000 and the market tanked that year, it was down 20.4%. That is the worst performance of any President. Trump is #5, but let's look at #1; Number one was Bill Clinton - Democrat, 1996, his second term, the market was up 31.7%. So that's a 50% greater rise than Trump's first year, yet Trump is claiming that this is unprecedented. Kennedy, first term, 1960, the market was up 28.4%. In third place, Barack Obama's second term the market rallied 23.9%. Then George Bush (41), in 1988, the stock market rallied 21.7%. So Trump is certainly in the top third, but his first year is not unprecedented.
Rank #10: Income Not Received Should Not be Taxed – Ep. 274
Elimination of Deductions for State and Local Tax - "SALT" Tax reform is the one remaining 2018 Republican campaign issue, and the argument over "SALT", or the elimination of deductions for state and local taxes. In general that would be state income tax or state property tax. In some states that do not have income tax, you are allowed to deduct your sales tax, although that is a more complicated deduction. In the wealthier states on both coasts, tax payers rely on those deductions. The Mortgage Tax Deduction Restricts the Free Market No one wants to get rid of the home mortgage deduction, but that is a much better deduction to eliminate, as it does more damage to the economy. The politically popular mortgage interest deduction is aimed at altering behavior, rather than to let the free market work independently. The real beneficiary of the mortgage tax deduction is not the home buyer but the house seller. There are many predominately Democratic states with high taxes but I don't buy argument in favor of eliminating that deduction. Why Should the Federal Government Subsidize the State Government? The argument is, why should the Federal government subsidize state government? If a state wants to have a high income tax, then, its citizens get to deduct that income tax from their Federal taxes and therefore, they don't feel the full burden of the tax, because some of it is absorbed by the Federal government. As a result of this, tax payers in high tax states are more receptive to those high taxes because they get a tax break on their Federal tax returns. If they could not deduct these taxes, there would be a bigger pushback on the state level. Federal Government Taxing Unearned Income If we are going to have an income tax, we have to tax the actual income. For example, if you earn $100,000, and let's say you live in a state with a flat 10% income tax, then they pay $10,000 in taxes. Did they earn $100,000 for $90,000? I would say they earned $90,000. Now if the Federal government does not want to give a deduction on the state income tax, they should not tax you on income you never earned. I don't think that's Constitutional. You can't be taxed on money that didn't come to you. The money paid to the state in taxes is not a voluntary donation. It is taken by force. No Double Tax If you go back to the origins of the first Federal income taxes exempted tax paid to the states, it was because the Federal government respected the sovereignty of the states to tax the people first. If you allow the Federal government to ignore state taxes, theoretically they could place an income tax so high that you would have nothing left between the state and Federal tax burden. I would not allow the government to double tax anything, because it is diminishing the power of the state. Defer Income Tax to Employers Here's another thing that no one in Congress is addressing: the states can get around this. Let's say they pass a law that says you can't deduct your state income taxes from your Federal income tax. In the previous example, the taxpayer pays taxes on $10,000 he never earned. What if the state then repeals the state income tax on wages and salaries and in its place, imposes a payroll tax on employers? So that, instead of an employee getting paid $100,000 and paying $10,000 in taxes, the payroll tax causes the employer to pay a state tax that would then reduce the salary of the employee by that much. That payroll tax would be deductible for the employer as an expense. So all the states would have to do is change the way they tax wages and salaries and the net effect would be no change for the individual worker. This would deprive the Federal government of all the extra money they think they are going to get by removing the state income tax deduction.
Rank #11: Lessons From Vegas Don’t Stay in Vegas – Ep. 269
Summary: My recent trip to Las Vegas for The Freedom Fest provided some interesting lessons. My observations that we are paying more for less were illustrated by the theft of my luggage, as there are no more luggage security checkers in baggage claim exits. Also, for the first time, major Las Vegas hotels are charging from $15 - $18 for parking. This is causing hotel valet workers to lose money, as customers are less likely to leave a generous tip (or any tip) if they are already paying quite a bit to park. So the Las Vegas experience is changing; we're getting less for more money. Prices are going up and wages are going down. Taking Credit for Phony Statistics This is the real U.S. economy. Forget about all these phony U.S. statistics. The real world reflects the truth about the economy and why Donald Trump is President. I wish candidate Trump would come back; I would rather see the President questioning phony government statistics instead of embracing them. I'd like to see the President talking about the stock market being a bubble rather than a bull market and claiming credit for the increase. Weakness in U.S. Dollar The big story is the continued weakness in the U.S. dollar, in fact this morning the dollar index hit a new low for the year. It's now back in positive territory as I am recording this podcast, but the low this morning was 93.64 on the dollar index. Remember, the dollar index rose about 6% between the election of Donald Trump and the Inauguration, and the reason for the rally was the optimism for economic growth as a result of tax cuts, de-regulation, fiscal stimulus and a tighter Fed. Senate Backing Away From Repeal At the time, I argued that that was nonsense, and so far I am being vindicated. We're six months into the Trump Presidency and nothing has happened. They haven't even been able to repeal Obamacare, nor are they going to. The Senate already backed away from the version that I said would not work. Trump did a press conference yesterday talking about Obamacare, assuring everybody that pre-existing ban is going to stay. The very essence of Obamacare is that insurance companies can't charge sick people more for insurance than they charge healthy people. That's the essence of Obamacare that doesn't work and that's what Donald Trump and many Republicans want to preserve. Preserving the Essence of Obamacare Of course, in order to achieve that goal, they had to have employer mandates and penalties. These are the only things the Republicans want to get rid of. But they want to preserve the very essence of Obamacare and that's the mandates and penalties were designed to deliver. So now they have to come up with another way to deliver the promise of Obamacare. Currency Markets Get the Message The point is, the currency markets have figured this out. The dollar has dumped better than 10% since the Inauguration, but the stock market has made new highs. The Dow Jones is at a new high today; the NASDAQ hit a new high yesterday, so it's a disconnect. The initial rally in the stock market happened for the same reason the dollar rallied. The currency traders have connected the dots. What's the problem with the stock traders? Why are they oblivious? Dollar Weakness Spark Commodities The weakness in the dollar is also sparking a rally in multinationals, in commodities. Look at the move today in Freeport-McMoRan a major copper producer; that stock is up better than 13%. Oil prices are coming back up; oil is up better than a dollar today. Emerging markets are strong. Bullish Conditions for Emerging Markets I have been saying that a weak dollar is extremely bullish for commodities. Why?
Rank #12: Tax Deal With Dems Won’t Stimulate Growth – Ep. 284
President Trump Courts Dems on Tax Reform I think the catalyst for the rise in the stock market today is enthusiasm over President Trump's announcement that he is working with the Democrats and is close to a deal on tax cuts. So that if he can't get something done with the Republicans, he will get it done with the Democrats and, one way or another, he's going to accomplish this major tax reform. Major Shift to Make Economy More Productive But of course, it's not going to be tax reform; it's going to be tax cuts. Based on what the President is saying, we're not going to reform the tax code, we're not going to have a major shift that will make the economy more productive. The President has already said that the "rich", however he is going to end up defining rich, and I have feeling that "rich" might be a lot less income than people might believe, but he is saying that the rich are not getting a tax cut at all. They may even have a tax hike! Growth Comes When You Lower Marginal Tax Rate If you're not going to lower the top rate, if you're not going to reduce the marginal rate of tax, you're really not going to get any economic stimulus, because that's where the growth comes from. Growth comes when you lower the marginal rate and people have the incentive to work harder and product more taxable income, so that maybe the government can actually collect more taxes at a lower rate because there will be more income subject to tax. The reason is, the higher income workers need an incentive to continue to work harder in order to promote savings and investment. if the cost of working harder exceeds the cost of not working, people will choose leisure over productivity. More Government Spending, Less Revenue Now if the middle class tax bracket gets reduced a little bit, they probably will not have the incentive to work harder or generate more income or productivity. They will just pay a little less tax. I'm all for lower taxes, but only if we shrink government; only if we cut government spending. Nowhere is the President talking about that. In fact, what he is talking about is more government spending. I'm sure that any deal with the Democrats is going to involve increasing government spending on infrastructure, on hurricane disaster relief, on border security - whatever it is, it is going to be a giant bill that will result in more government spending and less revenue to pay for that spending
Rank #13: Those Expecting Low Inflation Are in for a Surprise – Ep. 314
Market Ignoring Economic Realities All three of three of the U.S. stock market indexes are ringing in the New Year with new record highs. The market was up on the first trading day of the year; up again today. NASDAQ composite is the star, 7065 today up another .84% - a new record high. The same thing with the S&P and the Dow. The Dow is now almost at 25,000; it closed at 24,922. Of course, everybody is ignoring, though, the economic reality. What Do Oil Price Increases Imply for the Economy? Look at the price of oil, up again today - 61.77 is the close, up 1.40 - we were up yesterday. This is the highest oil has closed in over 2 years. If we get above 62.75 that would be the highest close since December of 2014. It was all between July and December of 2014 that oil prices collapsed from above $100/barrel to below $40. I think this year we have clear sailing to $80 - $100 oil this year. Nobody is talking about what this implies for the U.S economy. This is a gigantic tax hike for consumers. Doubling the price of oil over a 2-year period is going to have a major impact on the cost of everything. Watch Commodities Prices It's not just energy costs. Commodities in general are strong. Gold was up $15 on the first trading day of the year; we were down about $4-5 today, getting back some of the gains, so gold is off to a good start. Some of the gold stocks were very strong yesterday. Across the board, the resource sector is going up. In fact the ironic thing is that we got the release of the FOMC minutes today and as soon as the minutes came out, gold actually sold off, and clawed its way back to down a little bit on the day. Fed Expectations of Low Inflation If you look at those minutes, the only concerns that the FOMC minutes expressed about inflation was that it was still too low. They are worried that inflation expectations are still too low, that the public, or investors still don't expect enough inflation, which shows you how clueless the public is. If they don't think there is going to be inflation, they're wrong. Those expectations are totally wrong. Hitting 2% Inflation Out of the Park People are ignoring what is going on in the currency markets, the commodities markets, the bond markets. All of these markets are flashing inflation, according to the way you measure it: Consumer prices producer prices, they're all going to be going up, and the Fed, is still worried that they are not going to be going up fast enough, that they're not going to hit their 2% goal. They are going to hit that out of the park. They are going to be looking at 2% in the distant rear view mirror.
Rank #14: Skinny Repeal was a Fat Lie – Ep. 271
Obamacare Repeal Charade Over The whole charade surrounding the repeal of Obamacare is finally over. The most recent attempt, labeled "Skinny Repeal" was a big fat lie. They weren't really repealing anything, leaving the essence of Obamacare and accelerating Obamacare's death spiral. If Congress had repealed the employer mandates and the individual penalties but left everything else the same, then the number of healthy people making the irrational decision not to buy insurance would skyrocket and the sick people who would still be buying, would be facing higher and higher premiums and costing insurance companies bigger and bigger losses to be subsidized by the taxpayer. Let the Democrats Own the Disaster Many Republicans are upset with John McCain, for being one of the 3 Republicans to join all the Democrats in opposing the bill. I think McCain did the GOP a favor. This bill, if passed, would have let the Democrats off the hook. They would have not owned Obamacare, and they would be responsible for its failure. Now we all know Obamacare is still there, it is exactly the way it was passed, the bill President Obama championed and signed, the one that Nancy Pelosi said, "We have to pass it to see what is in it." We passed it, we know what is in it (although most people do not understand what is in it) and it is a disaster. Late last year most people thought the Republicans were going to repeal it - everybody but me. I didn't think that they had the guts to do it. I had this interview on Russia Today in mid-January, it's up on my YouTube Channel; the title is, "Peter Schiff Very Skeptical of Obamacare Repeal". If you watch that video you will see that I say, "I don't think they're going to repeal it." No Guts to Repeal Of course, everybody thought, "of course they are going to repeal it. They've been campaigning on it for years!" The President promised it. Everybody who has run for office as a Republican says, "Elect me and I am going to get rid of Obamacare!". They voted to repeal it many times when Obama was still President. And, of course, every time they voted to repeal it, Obama vetoed it, which of course, the Republicans knew was going to happen. As it turns out, that was the only reason they had the guts to repeal it because they knew it wouldn't actually happen. I knew that the Republicans would have a tough time taking away the free lunch. I knew that a lot of them were promising to repeal but keep the ban on pre-existing conditions and I knew that was impossible. Pre-existing conditions is the very essence of Obamacare. You can't repeal it and preserve it at the same time. The Stock Market Has Not Gotten the Message The stock market, however, still doesn't understand the significance. It hit another record high again today. The Dow was up, it closed at a new high today. The NASDAQ and the S&P were down. The transports managed a slight bounce from yesterday's drubbing. Transports were down around 300 points yesterday. Again, more cracks in the armor for the stock market. Look at what happened to Starbucks today. The latest victim of declining retail sales; it was down around 9% today. They reduced their guidance based on a drop in sales, now I don't know if you can blame this on people buying their coffee on Amazon.
Rank #15: Trump Is No Reagan & Powell Is No Volcker – Ep. 331
Dow Down Over 250 Points Today the Dow Jones was down just over 250 points; we're back below 25,000. I think we were down better than 300 on the lows of the day, but we went out pretty low. The dollar was actually quite strong today; the dollar index had one of its better days of the year - +.61. We're back at 89.71. We had gotten back below 89, with an 88 handle. Gold had a bad day today after having had some pretty good days last week. The price of gold down almost $18 now; just below $1330. We got above $1350 last week, but we couldn't hold it. I think we really need to go above $1400 to clear away this overhead resistance. Bond Market Continues Decline The only trend that really continued was the bond market, continuing to go down. It's pretty much a daily affair. Yields rising off the highs of the day - we're back below 2.9. We got to 2.915 on the 10-year. We closed at 2.893. But I think it is the back-up in yields that continues to put downward pressure on gold and some upward pressure on the dollar. Now, in the scheme of things, it does not matter because the dollar has been falling all year, despite the fact that rates have been rising all year. False Narrative That High Rates Are Good for the Dollar But the narrative that higher rates is good for the dollar still permeates the markets. Traders still have not figured out that they've got this one wrong. Likewise, they still haven't figured out that rising inflation is good for gold, not bad for gold. In fact, I think the catalyst for today's rally in the dollar and the sell off in gold is the news that came out on inflation on Friday. Bad News about Inflation We got some really bad news that inflation is picking up. We got the data for import prices and export prices. Export prices were up by .8% but import prices, which were clearly more important, because we have to pay for our imports - our import prices shot up 1%. They were expecting a gain of .6%, so 80% higher than what was expected. Year over year, you're talking about a 3.6% increase in the price of our imports. Import Prices Rising Faster Than Export Prices Now this is bad for a couple of reasons: 1) If our import prices are rising faster than our export prices, what does that mean about our trade deficit? That means its going higher. But 2) It's inflation, or the cost of living, because we have to pay for these imports. If imports are 1% more expensive, month over month, that means it costs Americans more money to buy whatever is imported.
Rank #16: Blowing the Roof Off the Debt Ceiling
Trump said Government was Too Stupid When Donald Trump was originally elected President, I was out there warning, that budget deficits under the Trump Presidency are going to be huge. Donald Trump never ran as a fiscal conservative or a Libertarian. He didn't say government was too big, he just said it was too stupid. He promised just to be smarter. He didn't say he would make government smaller, only that he would make it more efficient. He would do a better job of using big government than politicians who have held the office before him. Trump Promised More Spending So it was my feeling that a Trump Presidency was going to result in increasing the budget deficits that would be necessary to finance a bigger government. Also, Donald Trump never promised to cut government spending; cut entitlements. In fact, he promised the opposite. He promised not to touch entitlements, to allow them to continue to expand. He promised to spend more money on the military, more money on our vets, more money on infrastructure, more money to build a wall. So I knew all of this would result in bigger deficits. "Gentlemen's Agreement" to Raise the Debt Ceiling But now, my suspicions have been confirmed. Now we have news that Donald Trump has basically made a "gentlemen's agreement" with Chuck Schumer to repeal the debt ceiling completely. There has been some debate again about raising the debt ceiling, we have this charade every year or so, where everybody pretends that they might not raise the ceiling and they raise it anyway. We had a similar political theater going on until Donald Trump cut a deal with the Democrats to extend the last suspension of the debt ceiling for another 90 days. That's when we found out that they had also been working on this deal to eliminate the ceiling altogether. Never Really Paying Off Bills In recent years, the political spin has always been that lifting the debt ceiling is the politically, fiscally responsible thing to do. That America always pays her bills, and because we always pay our bills, we have to raise the debt ceiling. Ironically, they have it backwards. The reason they have to raise the debt ceiling is because America never pays her bills. If we paid our bills, we wouldn't have any debt. Debt Ceiling was a Brake on Government Spending What government wants to do is to continue to not pay the bills; to continue to borrow the money so that we can pretend to pay the bills. And the obstacle to increase debt is the debt ceiling. Of course, we always raise that ceiling every time we approach it, but the fact that the ceiling is there, must provide some type of brake on government spending.
Rank #17: Good Earnings Can’t Support an Over-Priced Stock Market – Ep. 348
The Correction is Over and the Bear Market is Resuming As I have been speaking about in my last couple of podcasts, it looks like the period of relative calm in the markets is over and the next leg down has begun. So the correction is also over - not the downward move - that is not the correction - this is the bear market. The upward move was the correction. It was the first correction in this young bear market. Technically it is not a bear market yet because we're not down 20% but that is only a matter of time. So I think the correction is over and the bear market is resuming, the primary trend being down. Dow Transports Big Losers In fact, the U.S. stock market was down for its fifth consecutive day, although today was the biggest decline. The Dow ended down 424 points. We managed to close just above 24,000 at 24,024. But we were well below. At the lows of the day we were down about 600 points. Percentage wise we were down 1.74%. The NASDAQ, about the same, down 1.7%. At the lows it was down close to 150 points on the NASDAQ. Percentage wise, the Dow transports were the big losers, down 221 points - 2.08%. Earnings Don't Matter Now, one of the things that investors have been counting on to support stock prices and, in fact, drive them higher, were earnings. Everybody's been saying, "Earnings are going to be higher!" Now what have I been saying on my podcasts, over the last several months? I've been saying that it doesn't matter, because all these great earnings, if they materialize, are already baked into the cake. They are already discounted into the price of the stocks. So in other words, they don't matter. It's "buy the rumor, sell the fact". Double Whammy of Faster Growth and Lower Taxes If everybody knows that earnings are going to be good, well, they've priced in those expectations into the market. Why do you think the market has gone up so much since Trump was elected President? It was on the anticipation of all these earnings that were going to come from a combination of faster growth and lower taxes. In fact, the lower taxes are why we were going to get the growth, so it was going to be a double whammy. Well, all that was priced into the market.
Rank #18: U.S. Inflation Is Bullish for Gold and Bearish for the Dollar – Ep. 293
Inflation Higher Than Expected Today we got the hotter than expected news on prices - on inflation. We got the import/export prices. Import prices were supposed to be up 0.5%, which in and of itself is a pretty big jump, but they were up 0.7. Export were also up; (we would want export prices to go up, because that means we are getting more for what we export) they were expected to rise 0,4%, and instead they rose by 0.8. Double the expectation. Import/Export Index Methodology More Accurate Year over year, import prices are up 2.7%. As of last month, the year over rise was just 2.1%, so that's a pretty big jump in the year over year gain. Export prices were up 2.9% year over year. Averaging these out, you get 2.8% as the average increase in 1 year of the price of the stuff we import and export. That's a broad based increase - well above the supposed 2% level the Fed is looking for. They are looking for consumer prices, measured by the CPI, but the Import/Export index represents things the consumers consume, and I would think these numbers are going to be more accurate than the CPI because there is less subjectivity in there. I think the methodology is more accurate than the methodology on the CPI. I think soon we're going to see year-over-year increases import and export prices with a 3 handle. Markets Working Counter-Intuitively When this news came out, the immediate reaction was to buy the dollar and sell gold. Why? Why is higher inflation bad for gold? The main reason to buy gold is as an inflation hedge. If you think there is going to be more inflation, then you buy gold. Perversely, the way the markets work now, you sell gold if you think there's going to be more inflation, in fact, you buy the currency of the country that is experiencing more inflation, which is counter-intuitive. Inflation by definition, is the currency losing value. If the currency is losing its purchasing power, why would you want to buy more of it? You would want to get rid of it to avoid that loss. Will Higher Inflation Produce a Tighter Fed? But the thinking is, if there is more inflation, as measured by these price indexes, that the Federal Reserve is now going to have to fight the inflation, that they are going to be more likely to raise interest rates, to raise them sooner, to raise them more, in the face of higher inflation. So it is the expectation that these higher numbers will produce a tighter Fed - that is what rallies the dollar, That is what hurts gold - the anticipation of higher rates to fight off the inflation. Fighting Inflation vs. The Bubbles Reality is that the Fed will ignore the higher inflation numbers and do nothing. Whatever it is going to do with rates, it will do it regardless of these numbers. Ultimately, if the Fed has to make a choice between fighting inflation and unemployment (because the Fed believes in the Phillips Curve trade-off between employment and inflation), the Fed will always choose to fight unemployment. It will prop up the labor market and sacrifice its inflation goal. It is more concerned with maintaining asset bubbles, propping up the U.S. government so it does not have to default on its debt. Letting Inflation Burn The reality is, higher inflation is not going to produce a tighter monetary policy. The Fed is going to have to ignore higher inflation, which means the inflation is going to get even worse. It is almost like the Fed has to ignore a fire, and because it ignores the fire, it is just going to get bigger, it's not going going to try to put it out because it is afraid that putting it out is actually worse than letting it burn. If traders understood this, then they would be dumping the dollar and buying gold. Real Inflation vs. Nominal Inflation Even if the Fed ultimately raises rates, they're not going to get out in front of the inflation
Rank #19: Frankenfed Finally Fears Its Own Monster – Ep. 303
Fed Fears Inflation Is Not High Enough Fed statements drove the markets today; particularly the foreign exchange markets and the precious metals markets. First we got a quote from Janet Yellen early this morning in which she was talking about inflation. Her concern is that inflation isn't high enough. Here's and exact quote from Janet Yellen: “It can be quite dangerous to allow inflation to drift down and not to achieve over time a central bank’s inflation target,” Dangerous? Dangerous to whom? She also says that one reason it is dangerous is because inflation expectations are likely to drift down, too. So she's not only worried that inflation isn't high enough, but she is worried that people won't be worried about inflation. Why is low inflation dangerous? What's so Bad About Low Inflation? First of all, it's not even negative. She's not saying we are going to have deflation, which I don't think is bad anyway. She is just saying it is dangerous if we don't have enough inflation, meaning that if we have 2-2.5% inflation, we're out of the danger zone, but if we have 1.5% inflation, we're in this danger zone? What is so dangerous about prices not going up? This is all a bunch of nonsense that the media just accepts. Now, I'll tell you why it is dangerous and for whom it is dangerous: The reason the Fed wants high inflation is so the next time they cut interest rates, they can create a negative rate. They know that the bubble is so big that just low interest rates are not going to do anything. This addict is so hyped up on this "sauce" that we have to get rates negative. Low interest rates are not enough. They've got to be negative. Major Ramifications for the Reserve Currency So the Fed has got to be able to get the Fed Funds Rate below the inflation rate, and they need it to be way below, because, let's say inflation is only 1% and they go to zero interest rates, well they have -1%! That's not enough! They might think we need -3% or -4%. Well, if zero is the lower bound, and you want rates to be -3% then you need to have inflation at 3% in order to get a negative 3% yield. Unless you want to go from the absurd to the ridiculous, and actually take rates negative, which would have major ramifications for the reserve currency, I think the Fed is still reluctant to try that, but if they have to, they'll certainly give it a shot. They'll use that as the Hail Mary, but they'd rather keep that one in their back pocket. So they need room to be able to get interest rates to zero but have a high enough negative rate to try to provide the stimulus that they think helps the economy. Collateral Damage in the Fed's Manipulation and Experimentation But it doesn't help the economy. This is all their nonsense but they are willing to sacrifice American families. They are just casualties of war, collateral damage in the Fed's manipulation and experimentation. They are saying that we need to have higher inflation so that we can fight the next recession. Well, the next recession is going to be a lot worse, if in addition to unemployment, people are dealing with a rising cost of living. But as far as the Fed is concerned, that's OK, because the only way we can stimulate the economy is to make sure we sedate it by causing the cost of living in the U.S. to go up and the standard of living to go down. Concerns About a Potential Buildup of Financial Imbalances The other danger of inflation not being high enough is probably the stock market. Interestingly enough, later on in the day, the FOMC minutes were released, and in addition to expressing their concern about low inflation, they are also worried about the stock market. It's about time, but listen to this, I am reading a quote from the minutes: "In light of elevated asset valuations and low financial market volatility, several participa
Rank #20: Hurricanes Rain On Market’s Parade – Ep. 282
Threats from Hurricane Irma and North Korea After a long holiday weekend the DJIA fell 234 points this Tuesday. Finally we have some kind of negative reaction in the stock market to the bad news. Over the weekend we got news that North Korea had successfully tested a hydrogen bomb, and now we know that Hurricane Irma, which is now listed as a category 5 hurricane, is one of the biggest, if not the biggest hurricane ever in the Caribbean. Anything Can Happen It looks like it is going to go right by Puerto Rico; for those who may be concerned about me, I am Connecticut now, so my family and I are not on the island, but we certainly have property there and we are also very concerned about our neighbors and the people of Puerto Rico. It is not likely to be a direct hit, but anything can happen. It is projected to pass Puerto Rico Wednesday afternoon. Irma Threatens Caribbean Islands on Heels of Hurricane Harvey The people of the Virgin Islands are going to suffer a similar fate. There are other Caribbean islands that will not be as fortunate; the hurricane is going to go right over them. Who knows where it is going to go after that? There is a state of emergency in Miami, in the keys, from Key West all the way to Key Largo. It is a massive hurricane with lots of potential damage on the heels of Hurricane Harvey. We're Broke And you know what? We're broke. Harvey is almost a $200 billion price tag, and I don't know what Irma will be, because the government will have to bail out Puerto Rico and the U.S. Virgin Islands. There is no way the government can deny them relief - they are American citizens. There was a lot of opposition to a Puerto Rican debt bailout but no one will be against giving money to Puerto Rico as a result of the hurricane. Hurricane Aid for Puerto Rico instead of a Bailout In fact, this could end up being a bonanza for Puerto Rico. They could end up getting a massive amount of aid all disguised as hurricane aid. They are talking now about power being out for 4-6 months in parts of the island because the government has so under-invested in the infrastructure - the government-owned power company. Maybe Puerto Rico will get a bunch of money in order to re-build that infrastructure as part of the hurricane bail-out money. So money they could not get from Congress because of fiscal troubles may come through another channel.