FOMC Minutes Confirm Fed Rate Hike Rocket Not Ready for September Liftoff – Ep. 103

Summary: Trump fantasy persists in the face of weakening economic data, health care and tax reform uncertainty. The reality is that the damage done to the economy will not right itself just because Trump has been elected and we are in for a wild ride whether or not President Trump decides to do the right thing for the American economy. * It didn't take long for the Atlanta Fed to already reduce its inflated Q2 GDP forecast * Remember, they initially came out with their first estimate of 4.3% growth in the second quarter * Following the dismal .7% that was initially released for Q1 * My guess is, still,  that they will continue lowering that estimate as more economic data comes in * Nonetheless, the Atlanta Fed boldly came out with 4.3% for Q2 * Already, earlier this week, they have reduced that estimate to 3.6% * That was their first downward revision; I think it is going to be the first of many * We did this exact same dance last quarter * Where the Atlanta Fed starts high and as more and more weaker data comes in they keep notching down the estimate * It's like a GDP forecasting limbo * The question is:"How low can the bar go?" * Remember, I mentioned on my last video blog that the New York Fed is already down to 1.8% for Q2, so the Atlanta Fed has a long way to go to catch up to the New York Fed's estimate * Friday will bring the next update to the GDP estimate * And that's when we will get the retail sales numbers * My guess is that we will continue the trend and those sales will be less than expected * We already got some news today that should weigh on Q2 GDP and that is Import/Export Prices for the month  of April * This is important because obviously what we pay for our imports and what we get for our exports will be a big determinate of the trade deficit Our Sponsors: * Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD * Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.com Privacy & Opt-Out: https://redcircle.com/privacy

11 Touko 201742min

SchiffReport recorded Saturday, May 6 * On Wednesday of this week, the Federal Reserve against a rate hike in May * But based on their official statement, the market assigned a much higher probability * To a rate hike coming in June * In fact, following Friday's slightly better-than-expected Non-Farm Payroll report, the probability of a June rate hike is not near 100% * In other words, the markets are certain that a quart-point hike is coming next month * If the Federal Reserve does raise its rates by a quarter point, that will bring the floor of the official rate finally up to 1% * The ceiling being 1.25%, so presumably the Fed will target a Fed funds rate somewhere between 1 - 1.25% * This is still an exceptionally low interest rate indicating extreme monetary accommodation * Remember, 1% is the absolute low that Alan Greenspan lowered interest rates to in the aftermath of the 2001 recession and the 9/11 terrorist attack * That artificially low interest rate really provided the air for the housing bubble that resulted in the 2008 Financial Crisis * So despite these rate hikes, the Fed monetary policy remains extremely accommodative, * Just not as accommodative as they were before * If you recall, the main reason I was certain that the Fed was not like to deliver these rate hikes * Is because I took the Fed at its word that it was data dependent * And I believed that the Fed would use weak data as an  opportunity or an excuse to not raise interest rates * I was wrong about that, because the Federal Reserve has ignored all of the weakening economic data and has raised rates anyway * It has raised them very slowly, but nonetheless, it has raised interest rates despite the fact that all the data they claim to depend on would not support that decision * I thought for 2 reasons the Fed would not want to hike rates * The first be to delay the onset of the next recession * After all, raising rates into a weakening economy it would accelerate the onset of that recession * I thought the Fed would always err on a delay * But apparently, that is not a concern for the Fed * One of the reasons this might be the case is because the Fed is concerned about having some ammunition to fight the next recession, rather than to postpone the onset * Meaning that they want to get interest rates further above zero before the recession officially begins so that once it is here, they have more room to cut rates * Another reason that the Fed has been more willing to raise rates has to do with the action in the U.S. stock market * I thought the Fed would be reluctant to raise rates for fear of how higher rates might impact the stock market * But it seems the stock market has found another prop * It is no longer relying on cheap money; it now also relying on hope and optimism surrounding the election of Donald Trump * And the idea that he is somehow going to "Make America Great Again" * With deregulation, tax cuts and all sorts of economic stimulus Our Sponsors: * Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD * Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.com Privacy & Opt-Out: https://redcircle.com/privacy

7 Touko 201735min

Summary:  Last quarter the Atlanta Fed's Q1 GDP  forecast was 3.4% in February. The most recent number was actually .7%.  After all the negative economic data that came out today suggesting that Q1 could be revised lower, the Atlanta Fed came out with their forecast for Q2 GDP at 4.3%.  How is this possible, with no economic data to support this projection? Either they believe their policies are still valid in the face of data on a downward trajectory, or they are simply acting as salesmen, promoting economic health regardless of the actual data. *  Today was Donald Trump's 100th day as President of the United States * The media is covering this event and looking back over the last 100 days * Trying to assess the effectiveness of Trump's presidency thus far * What has he accomplished, how much progress has he made; * I think the origin of assessing the first 100 days of a presidency goes back to Franklin Delano Roosevelt * Who of course became president during the Great Depression * I think the President accomplished a lot during his first 100 days * That's been the benchmark for which future presidents have been judged * It's not about which President did the most good for the country during the first 100 days * It's just, "Who did the most?" * Because, FDR did a lot, all of it harmed the economy * Not only did FDR's exacerbate and expand the depression, * His actions had repercussions for decades * We are suffering today from the mistakes that FDR made in his first 100 days * He accomplished a lot, but he accomplished a lot of mistakes * I would rather have a president do nothing for his first 100 days * If a President just played golf for 100 days and did nothing * Chances are he might be the best president we've ever had * Most Presidents do damage to the economy during their first 100 days * To the extent that they pass a law, chances are, the law just limited our freedom and reduced our standard of living * That's true for most politicians: doing nothing is better than doing something * Because doing something normally means doing harm * I wish politicians would take the Hippocratic Oath, "First do not harm" * If politicians took that oath, they could not do anything * To the extent that a President can undo the damage done by a previous President * Then, he would be doing a good thing * I recognize that some of the things that Trump is trying to do is to undo Obama's mistakes Our Sponsors: * Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD * Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.com Privacy & Opt-Out: https://redcircle.com/privacy

2 Touko 201733min

Summary: The Europeans released their inflation numbers today.  Year over year, inflation in the Eurozone are increasing at an average of 1.9%, which is Mario Draghi's objective.  This is a 4-year high in CPI increase.  How does Draghi justify more stimulus? In the U.S. growth is lower than forecast, while inflation is higher than forecast. That trend should be disturbing and it will continue. * Today we got the government's first estimate of GDP growth for the first quarter of 2017 * If you remember, the Atlanta Fed has been steadily reducing its estimate for first quarter growth since February 1 of this year when it was estimating 3.4% GDP growth * The last downward revision happened yesterday as a result of more weak economic data that came out yesterday * Particularly on inventories * The Atlanta Fed made its final revision to the estimate for Q1, at least the estimate that we got today * And they were down to .2%! * The consensus for Q1 had also come down; but not nearly as much as the Atlanta Fed * Going into this morning, the consensus estimate was 1.1% GDP growth which would be a sharp reduction from the 2.1% GDP growth that the government claims we had last year * And the range of forecasts went from a high of 1.7% to a low of .7% * Nobody was quite as low as the Atlanta Fed * We got the actual number this morning and it was .7% * This is just the first estimate * If you look at the economic data that has been coming out this year, the later the data comes, the worse it is * So if that trend continues over the next month, as the government continues to get additional data from which to determine GDP * There's a very good chance that they will revise this number down * And maybe the Atlanta Fed's .2% will end up being correct or too optimistic * I think there is still a good chance that by the time they get the final revision, which will not happen for a couple of months * We could end up with a negative number for Q1 very easily * I think the second quarter will be even weaker than the first quarter * If we end up with a negative number for the first quarter there's a good chance we'll get a negative number in the second quarter * Which means that by the time we get the negative number, if the second quarter is pretty much over, and it was also negative * Then we will actually be in a recession Our Sponsors: * Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD * Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.com Privacy & Opt-Out: https://redcircle.com/privacy

29 Huhti 201738min

Summary: President Trump actually delivered on his promise of the largest tax cut in American history, and he delivered it on time.  Trump may have presented a plan with built-in bargaining positions, or he might even intend to pass a tax bill that will "starve the beast". The interesting thing is that the President is applying this 15% tax rate to pass-through entities, such as LLC's, which will encourage most businesses to shift into a different business model to take advantage of the low tax rate. In other words, people currently at a 43.4% rate will pay 15%. This is going to cause two things to happen that will hurt the economy and a lot of people in the middle class: a big increase in consumer prices and inflation. Will Republicans vote against the biggest tax cut ever based on the fact that it adds to the debt? Ultimately, a resulting fiscal crisis might force Republicans to vote to cut spending. * Donald Trump was right. He actually lived up to expectations, in fact, he might have exceeded them * When it comes to the magnitude of the tax cut that he proposed - on schedule * On Wednesday, today, Donald Trump unveiled his idea for what could well be the biggest tax cut in American history * Ordinarily, I would be all in favor of the biggest tax cut in American history, if it were accompanied by the biggest spending cuts in American history * Government costs what it spends - you have to pay for government, one way or another * So if you're going to have big government and you're going to spend all kinds of money, the most efficient way to raise the money is through taxation * And of course the most efficient form of taxation would be a consumption tax, sales tax, tariffs * Not an income tax * An income tax is the worst way to raise revenue * An even worse way to raise revenue is by going into debt * Borrowing money and then printing money will cause prices to rise, eventually interest rates to rise * And ultimately will result in enormous tax hikes * To repay all the money that you borrowed * What Donald Trump is doing, is he is offering an enormous tax cut, but no spending cuts * And what they are saying is that the tax cuts will pay for themselves because there will be so much extra growth * That the government will make up for the difference based on more people working and more people having higher incomes and even though the tax rates are lower, the net payments will be higher * None of this is true * These tax cuts are so enormous that there is no way that the economic growth can make up the difference * Even if we get the higher economic growth * One of the bigger issues that people are not talking about is the impact of higher interest rates * Which will certainly be a result of much larger deficits and even faster economic growth Our Sponsors: * Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD * Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.com Privacy & Opt-Out: https://redcircle.com/privacy

27 Huhti 201734min

Summary: Government spending creates the greatest drag on the U.S. economy.  Cutting taxes, even the "biggest tax cut ever" cannot stimulate the economy alone.  So if you're fed up with paying taxes, if you think you are over-taxed,  and you are, it's because the government is spending too much money. The only real way to get relief is to dramatically cut government spending.  No one want's to do that, however, because the people who benefit from government spending, vote, and none of the politicians are willing to lose their votes to ease the burden of everybody else. * On Friday, President Donald Trump said that he would be unveiling on Wednesday of next week, a massive tax cut * In fact, he actually went out on a limb and stated that it is going to be the biggest tax cut ever * Now, I'm really not sure why Donald Trump feels he has to keep promising something and then failing to deliver; that's been a problem * You don't want to over-promise and under-deliver * I understand as a candidate you want to do that; you want to promise anything to get elected * But somebody ought to tell Donald Trump that the election is over and he won * He's President, and he doesn't have to come out and just say things * What I think is that he should say nothing about tax reform until he actually releases a plan * That way he can over-deliver * Don't promise anything - "I'm working on it." - and don't put up a deadline for Wednesday * What if it doesn't happen? * What if there is no tax cut on Wednesday * What if it's not the biggest the biggest tax cut ever * Why make those promises? * Maybe his is going to release a massive tax cut on Wednesday and maybe it will be the biggest ever * I'm not going to take credit away from the President; I'm just saying, "Why not just wait until Wednesday?" * Just in case something goes wrong * Maybe this time there actually is a vote * But the problem, is if you cry wolf to often, then eventually no one's going to believe you * There's really no reason to go out and make the promise; just deliver the massive tax cut on Wednesday and everything will be fine * But I guess he can't resist jumping the gun * But the crazy part about this, first of all, how is it going to be the biggest tax cut ever? * It's hard to believe that, when we have the most debt ever * An enormous 20 trillion National Debt, that the President understands, * He pointed out how big the debt was when he campaigned * How can we afford the biggest tax cut ever unless we're also going to talk about the biggest government spending cut ever? Our Sponsors: * Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD * Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.com Privacy & Opt-Out: https://redcircle.com/privacy

22 Huhti 201741min

Summary: Goldman Sachs is no longer recommending a long trade on the dollar. The dollar was previously regarded as a conviction trade, first over speculation over Fed rate hikes and then over Trump exuberance with the expectation of tax cuts, infrastructure spending and other moves that would continue to inflate the dollar bubble.  The dollar was the most crowded trade out there.  I believe, however that as we get close enough to the next recession, that we are going to get another big Keynesian stimulus of increased government spending and tax cuts, which will send the budget deficit through the roof and that will send the dollar through the floor. * We've been having quite a bit of volatility in the U.S. stock market, with back-to-back triple-digit moves in opposite directions * Yesterday, the Dow was up well over 100 points, closer to 200 * But today the Dow Jones was down better than 100 points * Between the 2 days it was still positive, but we'll see what happens tomorrow * We did get some worse than expected new after the bell on IBM; I'm seeing the stock down close to 5% in after hours trading * That could set the tone for some weakness tomorrow * Goldman Sachs helped set a weak tone today; they came out with earnings earlier in the day and their stock was down close to 5% * What was more interesting about Goldman Sachs was not their missed earnings, * But the fact that they are now throwing in the towel on their long-term recommendations to buy the dollar * Of course, the dollar has been strong over the past few years * Although really since March of last year the dollar has gone sideways * It did make a marginal new high during the Trump mania, after the election * But only against a few currencies, not against all currencies * The dollar index today was down sharply; it closed at about 99.50 * The strongest currency today was the pound sterling; it was actually up about 3 full cents; a 2.25% move * The dollar was also down today against the euro, against the yen * It was up against some of the commodity currencies, which had been stronger during the year * It looks to me that the dollar has topped out, and it looks that way to Goldman Sachs * They are saying, "This is no longer our top recommendation, like a conviction trade" * Why? because everybody assumed that the dollar was going to go up * Because the Fed is hiking rates; we're getting all this economic stimulus, tax cuts, we're going to get infrastructure stimulus * Whatever the reason, everybody was certain the dollar was going to go up * Remember, I said it was the most crowded trade out there Our Sponsors: * Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD * Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.com Privacy & Opt-Out: https://redcircle.com/privacy

19 Huhti 201732min

Summary: Donald Trump's promises on healthcare and smaller government appear to be fading behind news of increased military spending, infrastructure spending and compromises on health care and tax reform.  This scenario looks far more like Jimmy Carter than Ronald Regan. We continue to get bad economic data, telegraphing that the air is already leaking out of the economic bubbles created over the last 8 years. This bad news may encourage the Fed to walk back their current interest rate hike schedule, which would, if implemented, put a match to growing recessionary trends. *  It is Good Friday today and most of the world's markets are closed, including the U.S. stock market * I want to wish all my listeners happy Good Friday and Easter and to my Jewish listeners happy Passover *  But let me get to the economic data that came out this morning because some of the government offices are open today * I am starting with the Consumer Price Index, which is not bad from my perspective, but will be bad from Wall Street's perspective or the Fed's perspective * Although bad is good, in that it will give the Fed cover to not raise rates * Because the CPI actually dropped in March my 3 tenths of a percent * It was unexpected; it was supposed to be flat * And the Core number was supposed to be up .2 and it was down .1 * I think this is the weakest inflation number in a couple of years * Of course, year over year, we're still above the Fed's 2% target * Year over year, CPI headline up 2.4% and the core is up 2.0 * But the most recent number being down, may in fact give the Fed cover to walk back the market's expectations for 2 or 3 rate hikes coming later this year * But I think the more relevant information is the extremely weak number we got on retail sales * I was expecting a weak number * I mentioned that in my last podcast, and we got a weak number * But not only was it weak, but they revised the February number that was originally weak, much weaker * The expectation was for a flat month of March for retail sales * Versus the .1% gain that we eked out in February * Now, the government came back and said, "No, the February number was actually a drop of .3% * So instead of +.1% we dropped .3% * And in March, instead of being flat, we were down another .2% * So that means for the two months combined, we have a decline of .5% instead of an increase of .1% Our Sponsors: * Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD * Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.com Privacy & Opt-Out: https://redcircle.com/privacy

14 Huhti 201740min