The Fed Is Far More Dovish Than It Admits – Ep. 463

*  On Friday we got the Non-Farm Payroll report and, of course, this jobs report is the most important ever * Because it was going to determine whether the Federal Reserve would raise interest rates at its September meeting * Of course, I didn't think the Fed would raise interest rates in September regardless of what this jobs number was * It's just that so many people were convinced that it was going to happen just because several Fed officials said it was possible Our Sponsors: * Check out Aeropress and use my code GOLD for a great deal: https://aeropress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * 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

3 Syys 201631min

* The price of gold continues to retreat * Gold was down about $12 today; it closed around $1310 * The dollar index up again as more and more people begin to contemplate the possibility of a rate hike in either September or December * Or maybe even both, because the odds of a rate hike, either in September or December have now increased to about even money * If you go back to June, the odds were practically zero * What has changed in the last couple of months? * The only thing that has really happened is that you've had various Fed officials going out of their way to mention that a rate hike is still possible * Why would they do that? * Obviously, a rate hike is possible * Usually they are asked the question and they mention the possibility * If the Fed had no intention of raising interest rates, I doubt they would admit it at this juncture * They want people to believe that a rate hike is possible because if you admit that it's not possible, * That opens a can of worms that the Fed isn't interested in opening just yet Our Sponsors: * Check out Aeropress and use my code GOLD for a great deal: https://aeropress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * 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

31 Elo 201644min

* Earlier today Janet Yellen delivered her much-anticipated and way over-hyped speech at the annual Jackson Hole Symposium * It wasn't as irrelevant as I thought it was going to be, but the actual relevant part of the speech was lost on just about everybody * Instead they keep focusing on whether or not the Fed is going to raise rates by another .25 in September or December or maybe both * In reality, whether they do or do not is irrelevant, given the nature of where we are and where the U.S. economy actually is * For a small person, Janet Yellen certainly casts a large shadow over the financial markets * Everybody was on pins and needles, all the traders were there with their fingers on the buttons waiting to react to anything that Yellen said * I mentioned on an earlier podcast that there had already been a sell-off  on gold stocks a couple of days ago on the anticipation of Yellen's hawkish comments * The rest of the market seemed to ignore the possibility that Yellen would be a hawk * Before I discuss what she said, I want to examine whether anyone on the committee could be considered a hawk * A hawk is predatory; is to be feared, reflecting a tough central banker who believes in sound money * On the other hand, a dove is cute and fluff; doesn't really hurt anybody * A dove wants cheap money - keep interests low so as not to harm anybody - nothing to fear * When it comes to hawks with respect to the Federal Reserve, the bird is extinct * They are all doves and the only difference is the degree of dovishness * The hawks are gone and are probably never coming back * Yellen was not a hawk, and neither was Stan Fischer Our Sponsors: * Check out Aeropress and use my code GOLD for a great deal: https://aeropress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * 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 Elo 201634min

* The price of gold fell about $12/oz today; silver prices were down another .28 * Both metals have been falling since recent new yearly highs * Gold, though is not very much below the highs * The real carnage has been in the mining stocks, particularly today; today was one of the biggest down days I've seen all year * The GDX index was down just over 7% * Some of the mining stocks were down 10% or more on a very small move in the price of gold and silver * In fact, we've wiped out the last 2 months of gains in the mining stocks * What is the catalyst for this? * Early this morning, around 8:30 - 9:00 New York time before the U.S. Stock Market opened * No news - gold was up 1 or 2 bucks... * All of a sudden a huge sell order hits and gold drops about 7 or 8 bucks on no news * Somebody decided to dump a lot of gold on the market, at one time and didn't really care what the execution price was * Considering how large the sell order was, it didn't really knock the market down very much * But the gold stock market was a different story * It kind of made me think that the rationale for getting gold to drop was the impact it might have on the gold stocks themselves * My guess is that a lot of people who were running with stops, that's when you have an order to sell below the market to try to protect your profits * My guess is that they hit a lot of stops today in a lot of these mining stocks and maybe, some of the bigger players were able to buy more gold stocks based on the shake-out that was created * By a relatively modest drop in the price of gold * Meanwhile, the dollar didn't rise very much today; the downtrend still seems to be firmly in place * What everybody seems to be focusing on is the Fed * People are worried about what Janet Yellen might say on Friday * The Fed's Jackson Hole Conference gets underway tomorrow and Janet Yellen speaks on Friday * I guess the thoughts are: "Maybe she will say something hawkish." * Maybe she'll say the U.S economy is strengthening and the Fed is getting closer to meeting its objectives * And that a rate hike is possible in the near future * So what? That's what she always says. * Now she's not going to come out and say, "We're raising rates for sure. We're moving rates in September." * The only thing she could say is that a rate hike is still possible * That is no different than anything that she has said in the past * So people being nervous about a possible unprecedented hawkish statement makes no sense * Even in Janet were to say she is raising rates in September and she followed through a rate hike * So what? * It's not going to hurt gold and it's not going to help the dollar * Expected rate hikes were already baked into the dramatic rise of the dollar in 2014-2015 * Gold declined from a high of almost $1900 to a low of $1050 because it was discounting all the rate hikes that are never going to materialize * Even if we get one or two more, that is nothing compared to market expectations * Even if we get a couple of small rate hikes, even if we get to .75 or even 1% * That is still not enough to hurt gold or help the dollar * When are people going to figure out it doesn't matter what the Fed does Our Sponsors: * Check out Aeropress and use my code GOLD for a great deal: https://aeropress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * 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

25 Elo 201629min

* The dollar was broadly weaker today with the dollar index closing down .85 to 94.78 * At that time gold was up about $18; sliver up about .25 * Then all of a sudden New York Fed Chairman William Dudley in an interview on Fox Business basically said that a September rate hike was still possible * Look, a September alien invasion is still possible, but I'm not going to waste my time preparing for it * What's amazing to me is how all of the villagers still come running every time a Fed official cries "Wolf!" * Haven't they noticed that they've cried, "Wolf!" over and over again and there's never a wolf? * I think that Dudley purposely came out and mentioned a September rate increase just to keep the markets in check; to preserve the false narrative that there is actually a recovery, instead of a bubble * All of a sudden, gold sold off, it went from +$18 to +$2 or $3 * Silver went negative; it lost its entire rally in a matter of minutes * I think Dudley was trying to undo the damage done overnight by Dudley's counterpart at the San Francisco Fed, John Williams' well-thought out paper * Williams wrote in his piece that he believes we're in a "new era".  He doesn't understand that the new era that we're in is collateral damage from central bank monetary policy * They think this is a random occurrence that needs a new government prescription * John Williams is proposing, based on this "new normal" the neutral interest rate is so low, it's almost impossible for the central banks to get there, absent negative interest rates * What Williams is proposing, is more inflation * What he is arguing is that we should scrap this 2% inflation target and that we need a higher number *  I've been saying for years that this is going to happen * It's just like the unemployment rate, where they said, "We'll raise interest rates if it gets below 6.5% and then we let it go below 5% * We kept moving that goal post * I said the same thing was going to happen to inflation * In fact it is happening.  If you look at the CPI numbers that just came out today, we continue to be above the 2% level on the core; we've been there for many months in a row * Now they're already starting to say, "Hey wait a minute, 2% isn't high enough * We need more inflation because we need lower rates, and the only way to get there is to have higher inflation * This is what I have been expecting * If you read William's piece, he says one of the ways we should get there is for the Fed to target nominal GDP * In other words, not GDP after you adjust for inflation * I've argued that the deflator is under the actual inflation number, therefore overestimating GDP growth * The Fed is saying, "Who cares about the GDP deflator? * All we care about is the nominal number * We don't care if the growth is real or inflationary, we just want nominal GDP numbers to go up" * What good is that? * No one benefits from phony GDP growth that is simply a by-product of inflation * The whole point is that we want the economy to actually, grow, not for just prices to go up * But what the Williams is saying is no, all we care about is prices going up * It's all about style over substance * That's why we're stuck in this malaise * Additionally, what Williams was also arguing for was more fiscal stimulus * He was saying that we're at the end of our rope with interest rates at practically at zero * We need the government to provide more stimulus in the form of deficit spending * We've already got about a $20 trillion national debt * If deficit spending were stimulative, why haven't we gotten a huge stimulus from that $20 trillion of debt? Our Sponsors: * Check out Aeropress and use my code GOLD for a great deal: https://aeropress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * 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

17 Elo 201634min

* Today we got the official numbers for Q2 Non-Farm Productivity and the consensus was that it would increase for the first time in 3 quarters; the prior 2 quarters we saw a decline in productivity * So analysts were looking for a .5 increase in the second quarter * Instead, we got a decline of .5 * More importantly, this is the first 3-quarter consecutive decline in productivity since 1979 * That was the Carter years - stagflation, the misery index, sky-high inflation, sky-high interest rates * That was the last time we had a 3-quarter drop in productivity and President Obama is bragging about how great the recovery is and Hillary Clinton promises more of this * If you look at the actual size of the decline over those 3 quarters, it's the biggest drop in productivity since 1993 * If you look at the year-over-year decline, this is the biggest decline in productivity in 3 years * Productivity is extremely important * Politicians are all talking about higher wages - "We need higher wages!" * You can't get higher wages without higher productivity. * That is where higher wages come from * Now, a lot of politicians want to substitute government decrees - they want to mandate higher wages * Like minimum wage - we're going to force employers to pay this minimum wage * All that does, is raise the bar; it makes it harder for unskilled workers to get a job in the first place * Now employers are forced to pay a wage that may be well above the productivity that they can deliver * In that case, they can't get the job * Mimimum Wage doesn't just raise wages, it raises the bar * Another popular way that politicians try to mandate higher compensation is by mandating benefits such as health care, sick leave, paid vacation days, or overtime * The idea is that you're getting something for nothing - I voted for this guy and he delivered * That's not how it works * When an employer hires somebody, they look at the overall cost of employing that person, relative to the productivity required for the job * If I am mandated to provide certain benefits, the costs associated with them are also mandated * If you force the employer to provide benefits at a certain cost, how is he going to pay for it? * What happens is, the compensation becomes a mix of wages and benefits * Maybe the worker doesn't perfer that, maybe the worker just wants the higher wage * The worker can't have it because the government took that decision away by mandating that a portion of the pay include benefits, whether the worker wants them or not * The politicians hope the voters fall for the idea that they got something for nothing * That's government for you.  They always want you to think you're getting something for nothing * But the something for nothing costs a lot more than you think because the nothing is not nothing * In this case, wages go down so the benefits can go up * Everybody would be better off if the government stayed out and let each worker negotiate independently with the employer for a compensation package that is most valuable to that worker * But productivity is really the holy grail of higher wages * If we really want higher wages we need to raise productivity and that's not happening * If productivity is going down, wages are going down * If you want wages to go up, you have to have higher productivity * How do you get that?  Less government, lower taxes, higher interest rates so we get more savings and more investment and less of all this speculation and paper-shuffling that we have in this bubble economy * I want to talk also on this podcast about Donald Trump's economic speech yesterday Our Sponsors: * Check out Aeropress and use my code GOLD for a great deal: https://aeropress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * 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

10 Elo 201628min

* What a difference a week makes, or maybe and economic report * The two big reports that everybody seems to focus on are the GDP numbers and the jobs numbers * It seems that the weaker the economy is, as measured by GDP, the more jobs, somehow, the economy seems to create * We got the jobs report for July and just a week earlier we got Q2 GDP * As I spoke about on the last podcast, that number was basically half of what Wall Street had been anticipating - less than half * They were looking for 2.4 or 2.6 and we got 1.2 * Even worse, we went back and revised down the prior 2 quarters to below 1% * That very weak number caused people to talk about the fact that the Fed can't raise rates, the economy is weaker than we thought, are we slipping back into recession?... * Now fast forward a week, and we get a Non-Farm Payroll report that is higher than anticipated and now all of a sudden people are starting to talk about September rate hikes again * Obviously, withe the stock market on Friday rising to a new record high, I doubt the equity traders actually believe that Friday's jobs report is going to produce a rate hike * Yet it doesn't stop all the financial journalists writing about how this confirms that the recovery is on track, and the Fed can raise rates * This jobs report doesn't confirm anything Our Sponsors: * Check out Aeropress and use my code GOLD for a great deal: https://aeropress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * 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

6 Elo 201637min

* The carnage in global stock and bond markets continues; it really got started last night in Japan * The JGB (Japanese Government Bonds) dropped for the 3rd consecutive day * The biggest 3-day drop in bond prices in Japan in over 3 years, so yields surging, along with the Japanese yen * Of course, this is not supposed to be happening because they're doing more stimulus and they've got negative interest rates, yet the Japanese yen is appreciating anyway * The Reserve Bank of Australia also came out last night and cut interest rates to 1.5% * That is an all-time record low * Why did they do that? Is it because there's not enough economic growth in Australia? * Are they trying to revive a slumping property market * They've got a bubble in the real estate market - there's no valid reason for cutting interest rates from already low levels * The actual reason that the Reserve Bank of Australia gave for the rate cut was that inflation was not high enough * It's about 1%, the way they measure it, and their goal is to have it between 2 and 3% * In other words, the cost of living is going up by 1% a year and the Reserve Bank of Australia says, "That's horrible! We need to make sure that things get at least 2-3% more expensive this year and we're going to slash interest rates to make sure that happens." * Of course, when you do that, you have all sorts of risks, and what is the payoff? * Why is the cost of living going up 2-3% better than it going up 1%? * What's wrong with the cost of living not going up at all? * How about if it actually went down?  What if people could actually buy the things they need for less money? * What's horrible about the standard of living actually going up? * Of course, the real risk is, what if inflation goes from 1% (at least the way they measure it) to 4 or 5%? * Was it worth it? Now you have an inflation problem on your hands * If you've got 1% and you want 2% - You're close enough! * Obviously this has got nothing to do with inflation, they're simply trying to stop the rise in the Australian dollar * But the Australian dollar went up anyway! * They're trying to keep it down because they have this Keynesian world view that a weak currency is good and a strong currency is bad * But we've got to an inflection point where the central banks are losing this battle * The yen is rising despite the efforts to suppress it * The Aussie dollar went up, despite efforts to suppress it * The problem is, the U.S. economy is a disaster * We got the terrible GDP numbers, and we got a lot of other bad economic news today * We've got a lot more bad news coming out later in the week * We might get a horrific report on non-farm payrolls * We got that surprise good number last month, but who knows? We might revise that down and come up with another disappointing number on Friday * But the Fed, instead of acknowledging this, are still talking about rate hikes * In fact a Fed official just yesterday said the market should not rule out the possibility of a rate hike in September * First of all, if the economy comes roaring back (no chance that's going to happen) * Even if it comes back, they didn't say they WOULD raise interest rates, they said they might * Which also means they might not * It doesn't matter what happens to the economy, they can't raise rates * The economy is not getting better * We are either in recession or on the cusp of one * And the data continues to prove that, but the Fed continues to talk as if they're thinking about raising rates * That is part of the problem, because if the market doesn't believe that the Fed is coming to the rescue... Our Sponsors: * Check out Aeropress and use my code GOLD for a great deal: https://aeropress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * 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

3 Elo 201632min