Fed's Tough Inflation Talk Sparks Gold Correction - Ep 895

* S&P responds to bad news with new high; DJ just barely off record high * Dollar continues to fall * The currency traders still have not accepted the significance of bad news * Lower dollar will be the trend * Friday got a trifecta of bad economic news * Thursday Weekly Jobless Claims number declined to 264,000 - lowest weekly jobless claims in 42 years * Why are there so few job losses? Because so few people are getting hired * Government numbers come from the Birth/Death Model, which assumes a certain number of businesses created each month * What if these businesses are not actually created? * This would explain lower number of unemployment claims * There's no way we can say that the economy is the best it has been in 42 years * Empire State Manufacturing Index, which was weak last month, expected to be +5, came in at 3.09; below estimate for the 4th month in a row * Both Business Expectations and Hiring declined from April to May * Industrial Production Capacity Utilization was expected to be flat; down again .3% * This is not the 5th consecutive monthly decline in Industrial Production; longest losing streak since 2009 * Consumer Sentiment Number 95.9 in April - expected to hold steady - came in at 88.6; biggest drop since December 2012, and biggest miss ever * If the job market is so strong, why is confidence plunging? * The percentage of employees who fear losing their jobs is at highest level since March of 2009 * The bubble is rapidly deflating * Unofficially, I think we have been in recession for the entire "recovery" * The government is not accurately measuring inflation in the GDP deflator * The Fed has not forecast a single recession * Recessions always happen contrary to forecasts * If we are in a recession there can not be a rate hike * At some point they are going to have to acknowledge that the numbers are not accurate * The unemployment rate is going to have to tick up at soe point this year * At some point after the end of the quarter it will become obvious that there is no rate hike coming * The only question is, What is the Fed going to do? * The Fed has not managed to shrink the balance sheet, and further QE will take the deficit to a whole new level * This will put massive downward pressure on the dollar * Oil prices will spike * Cheap gas prices did not create a bounce in Q1 * Consumer Confidence will plunge * Reality is finally going to set in on the failure of the Fed monetary policy Our Sponsors: * Check out Avocado Green Mattress: https://avocadogreenmattress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.com Privacy & Opt-Out: https://redcircle.com/privacy

17 Touko 201520min

* Another week and another round of bad economic news * Wall Street may be finally paying attention * JOLT Report projected at 5.158 million; came in at 4.994 million * April Retail Sales expected to rise .2%; came in flat * X Automobiles expected an increase of .5, actual number was .1 * Beneath the surface there was a collapse in retail sales in all areas except groceries * Weakest year over year increase in retail sales since 2009 * Department Store Sales experienced the biggest drop since January 2014 * A look beneath the headlines of the jobs numbers reveals that the jobs are not good jobs * The Birth/Death Model assumption added 175,000 jobs to the last jobs report * These numbers came from a biased source * The fact that there is no spending is evidence that the job market is not as robust as the numbers claim * Jobs numbers can be made up but retail sales can't * Wall Street is surprised that we have weak data because they believe we are experiencing job growth * March Business Inventories up .1% versus expectation of .2% * February Business Inventories was revised down from .3% to .2% * I estimate that Q1 GDP will contract by greater than 1% * The Atlanta Fed just revised down their Q2 GDP estimate to .7, which would indicate the U.S. economy contracted for the first half of the year * The Fed is still looking for 3% rise in GDP for 2015, which would mean we would need growth of 6% for the last half of the year * It is more likely that we will get a negative number again for Q2 * Two consecutive contracting quarters will indicate an official recession * If we are in a recession, the Fed will not raise rates and is more likely to respond with stimulus * I predicted that a pause in QE3 would trigger another recession * When the Fed is unable to raise rates to stimulate the economy, the only trick they will have up their sleeve will be QE4 * When that happens, the moves we saw today in the FOREX and Precious Metals markets will look tame by comparison * The dollar has already broken its uptrend * Europe, with the exception of Greece is experiencing growth in GDP, and Great Britain is doing better than Europe, because they shrunk their government instead of applying stimulus * What we are going to get next is old-fashioned Keynesian, pump-priming stimulus * Will that give us economic growth? Not a chance. * The last three rounds of QE didn't give us economic growth and neither will the next one * It may blow more air into the stock market bubble, but the air is going to come out of the dollar bubble even faster * Where is the Fed's balance sheet going to be at the end of QE4? It is 4.5 trillion right now. * How can anyone possibly believe Janet Yellen when she says she is going to shrink the balance sheet? * Are creditors are going to get wise and there is going to be a run on the dollar * You can see the beginnings of it today * The dollar was down across the board * Gold was back to about $1,250; every time it gets to this level it gets knocked down by short-sellers, but eventually they are going to have to give up * All this bad economic data is going to sink in * It is not the weather * The market still has to adjust for the reality that the economy is really weak * The Fed will not admit that QE didn't work, so in the face of recession they will have to do it again Our Sponsors: * Check out Avocado Green Mattress: https://avocadogreenmattress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.com Privacy & Opt-Out: https://redcircle.com/privacy

14 Touko 201519min

* First official jobs report of Q2 * Wednesday's ADP private payrolls were below expectations * March was revised down, indicating a softer labor market * Challenger job cuts numbers well above previous month, biggest year over year increase in 10 years * The jobs number came in at 222,000 jobs with unemployment down to 5.4% * The media is spinning the headline number * The picture underneath the jobs report is not as nice * The March downward revision by 41,000 jobs causes one to question whether today's job number will be revised downward given all the negative underlying data * The stock market recognized this; sensing the Fed will remain on pause * Average Hourly Earnings increased only .1%, half expectations * Numbers of Americans who have left the labor force is now at a record high * When employers are changing the nature of the workforce replacing full time workers with part time workers it distorts the net number of jobs * The Household Survey indicates the breakdown of full time vs. part time * The government makes no such distinction * In April we created 437,000 part time jobs - biggest gain in part time employment since last June * The number of full time jobs declined by 252,000 - the biggest drop of the year * The bad news of full time job loss is buried beneath the superficial layer of part time jobs * The demographic breakdown indicates workers 55 and older gained 266,000 jobs in April * Workers 25 - 54 lost 19,000 jobs * This blows a hole in the notion that labor force participation is going down because of retiring baby boomers * Other bad news to hit this quarter's GDP: * Wholesale Trade numbers: inventories expected to rise by .3% but rose by .1% - smallest gain since March of 2013 * Wholesale Sales expected to break 3-month losing streak; instead increasing streak to biggest year over year decline since November of 2008 * Earlier in the week, Q1 Productivity down 1.9% following 2.1% decline last quarter * Unit Labor Costs rose more than expected +5% * Challenger numbers show a big explosion in layoffs * The reality is that the economy is weakening rapidly * The Fed and the media don't want to acknowledge this because they are afraid of how the market will react * Recent encounter with Former Fed Chairman Ben Bernanke * Ben Bernanke was a speaker at the SALT conference * I introduced myself to him after his presentation, told him "I am probably your biggest critic." * He responded, "You have a lot of competition." * Later that evening at a cocktail party I approached him and he offered to pose for a photo. * Photo got more views and likes that most other photos on Facebook * I tried to give him a cliff's notes version of my take on the Fed's part in the housing bubble * Bernanke blamed regulations, Fannie & Freddie and the sub-prime mortgages * I said the Fed created the conditions for Sub-Prime mortgages because low interest rates made them affordable * I asked why he did not warn us in advance of the regulations, Fannie & Freddie and the Sub-Prime Mortgage business? * Bernanke originally denied the housing bubble existed * Ben Bernanke had no clue that the Fed's policies created the bubble even after it burst * In hindsight, he lays blame on aspects of the market that he should have identified in advance * I asked him, "how can can you be sure you were right, when interest rates are still at zero and the Fed's balance sheet still hasn't shrunk? * Is there anything that might change your opinion that your decisions were right? * He evaded the answer, but I believe he was sincere about his opinions * Later that evening, Our Sponsors: * Check out Avocado Green Mattress: https://avocadogreenmattress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.com Privacy & Opt-Out: https://redcircle.com/privacy

8 Touko 201530min

* Upcoming Appearances * Thursday morning panel at the SkyBridge Capital SALT Conference in Las Vegas * Liberty Forum - Salt Lake City * MoneyShow - Las Vegas * Economic News for the Week: March Factory Orders met expectations, but downwardly revised February number for 5th straight year-over-year monthly drop * March Trade Deficit: $51.4 billion, a miss greater than $10 billion and the single worst trade deficit since October 2008 and largest monthly gain in nearly 20 years * If the economy is so good, why do we have such a large trade deficit? * Rising oil prices, along with other rising prices are putting additional pressure on consumers * April U.S. Auto Sales fell, missing expectations for the 5th month in a row - sales at lowest year-over-year start since 2009 * The auto bubble has burst * The United States has been spared the discipline of the market by virtue of the dollar being the reserve currency * Gold is still just below $1,200/ounce - we will eventually run out of sellers who are keeping prices down, and when it goes up it will go up in a spectacular way * Aussie dollar is up a percent and a quarter * Canadian dollar up half a percent * Euro up a third of a percent * Swiss Franc up almost a full percent * There was some good news: April ISM Service Non-Manufacturing Index rose, to 57.8, beating estimates * New orders plunged into negative territory * April PMI dropped from 59.2 in March to 57.4, a bigger drop than expected * No one is looking for the April jobs number to be lower * The consensus is also for unemployment to keep falling from 5.5% to 5.4% * If we have all these jobs, why isn't the consumer spending? * The answer is the jobs don't pay very much or the hours are reduced * Meanwhile, as much as the Fed wants to pretend there is low inflation, the cost of living is rising * The one safety net for the consumer was oil prices, and now that is gone Our Sponsors: * Check out Avocado Green Mattress: https://avocadogreenmattress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.com Privacy & Opt-Out: https://redcircle.com/privacy

5 Touko 201520min

* Markets on roller coaster ride final two trading days of this week * Bad news parade marches on in April * The players are still clinging to fantasy of U.S. economic recovery * Dollar finished down substantially on the week - April was the first down month in 10 months * Dollar has seen its highs and is heading lower * Gold back below 1200 * Oil prices added to gains closed above $59 - moving opposite to the dollar * Friday - March Personal Income & Spending flat below expectations * Personal Spending also lower than expected; .4% gain * Savings dropped from 5.7 to 5.3 - the lowest savings rate of the year * April PMI Manufacturing Index - dropped more than expected to 54.1 even as weather warms * ISM Manufacturing expected to rise to 52 - remained flat * Employment Index dropped two points - the first drop in 2 years * March Construction Spending fell by .6 missing expectations * Atlanta Fed correctly forecasted Q1 GDP at .2, forecasting Q2 at .8 * Article on Zero Hedge: Goldman Sachs warning Europe about severe "Lowflation" * Article in Bloomberg: Chinese can't "kick" savings habit * Blames problem on "not enough government" * The reason America is in so much trouble is that we don't save * Once the Chinese have built up a cushion, then they will spend * When our phony economy bursts, it will be apparent that we did not save enough and had too much debt * America gives capitalism a bad name - we preach it but do not practice it * We rely on a giant government-run ponzi scheme of socialized savings * We are telling the Chinese they have too much free market capitalism * We have been indulging our present and sacrificing our future * The Chinese will be rewarded for their prudence * The most ironic thing about the Bloomberg article is that they suggest Chinese would be better off under Communism Our Sponsors: * Check out Avocado Green Mattress: https://avocadogreenmattress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.com Privacy & Opt-Out: https://redcircle.com/privacy

2 Touko 201529min

* Government's first look at Q1 GDP * There was a lot of optimism around Q1 with expectations above 3% * Actual GDP was 1/5 of expectations at.2% * The rest of the story of Q1 GDP: * The deflator this time was negative - meaning that prices dropped by .1% * The last time the deflator was negative was 2009 Q2; still in the Great Recession * The previous occurrence of a negative deflator was in 1949 * I believe the true rate of inflation is higher than -.1% * Inventory build continued into Q1 - businesses continue to believe the myth of the recovery * Inventory to sales ratio are the highest they have been since the Great Recession * They are still blaming poor economic performance on the weather. It is always cold in the winter; why is bad weather always a surprise? * The Fed just released their official statement on interest rate policy * They removed language from statement indicating it is unlikely that rates will rise * Continuing give the illusion that they are progressing toward a point when they will raise interest rates * The Fed went out of its way to dismiss all the bad economic news we got in Q1 * The dollar just had its biggest 2-day decline in 6 years * The Fed came out and put a smiley face on the whole thing and the dollar recovered somewhat * The Fed is never going to confess that they are worried; that's not their job * What evidence is there that things will improve in Q2? * Cheap gas windfall is over; oil prices have risen every week in the past month * Early April economic data is negative * An economy based on spending is a bubble; production grows an economy * Consumers have lots of debt, but they don't have good jobs * Decline in the dollar signals that the markets are already sensing this * The Fed feels that economic growth will recover in Q2 & Q3 * They also said they need to see additional strength in the labor market * Business are making foolish decisions because they believe the Fed * As the economy disappoints, the labor market will continue to deteriorate * The Fed can't raise interest rates and they are headed ror QE4 * We need more and more stimulus because we've built up a resistance * The real crisis will be a dollar crisis * When the economy heads south and the Fed has to do QE 4, the Fed will lose a lot of credibility * Janet Yellen will not be able to deliver on her promise to shrink the balance sheet by the end of the decade Our Sponsors: * Check out Avocado Green Mattress: https://avocadogreenmattress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.com Privacy & Opt-Out: https://redcircle.com/privacy

2 Touko 201523min

* The Keynesian myth of mandating prosperity actually hurts the lower middle class and the working poor * Something for nothing is appealing to voters, so politicians make empty promises that are good politics but bad economics * A Seattle-based company called Gravity Payments has instituted a minimum salary of $70,000/yr * This has given him great publicity, but how will this work in his company? * Lower paying jobs will have to be eliminated, because they don't represent enough productivity to justify a raise that doubles the employee's cost * Higher salaried workers are not hurt because they keep their job and perhaps get a raise for picking up the extra duties formerly handled by lower-salaried workers * The most recent political gimmick in the State of Connecticut is a tax masquerading as a minimum wage law * The Democratic State Legislature have proposed a law that will fine companies of 500 or more employees $1/hr for any worker who is paid under $15/hr * How will this work in the State of Connecticut? * Right away, business just over 500 employees will pare down to fall under the new regulation, so jobs will be lost * In reality, this is just a tax increase on the people who can least afford it * For employees who are currently working at the minimum wage, a $1 fine is cheaper than a raise from the current $9.15 rate to $15/hr, if they do not eliminate that person's job * This is essentially another employment tax that will result in higher prices across the board * Neither the employee nor the employer benefits * For employees who are working above the current minimum of $9.15/hr a raise would cost the employer more than the $1 fine * According to minimum wage law, it is illegal to cut the worker's pay - the only option is to cut the worker * The penalty does not apply to higher paid workers; it only applies to jobs between the current minimum wage and the new minimum wage * It will be cheaper to pay the tax than to raise wages, but there will be less money to to toward employees because a large percentage of the workers' wages are going toward a tax * The reality of this new law, championed for the "little guy" is that the working poor will pay a higher marginal state income tax than the richest hedge fund managers in the state * Will the voters be able to figure it out elected officials are going after the working poor? * This tax will also raise the cost of living, wich also affects the poor more directly * Packaging a tax to pass off as minimm wage is fraud * Our Sponsors: * Check out Avocado Green Mattress: https://avocadogreenmattress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.com Privacy & Opt-Out: https://redcircle.com/privacy

28 Huhti 201524min

* S&P and the NASDAQ made new record highs * Stock market continues to ignore all the bad news about the economy * Bad news is not being ignored in the foreign exchange markets * Negative economic news is buoying the stock market because it removes fear of interest rate hikes * Weak economy means more cheap money which means higher stock prices * Oil prices hitting highest prices of the year * Gold is back above the 1200 level * April PMI Manufacturing Flash Index at 54.2 biggest miss ever * New Home Sales tumbled by 11.1% - biggest drop since July of 2013 * March Durable Goods slight bump based on military aircraft, but less transportation, the index unexpectedly declined .2% * Durable good orders, less defense and transportation dropped for the 7th consecutive month * April Service Sector PMI missed lowest expectations at 57.8 - the biggest miss ever * Dallas Fed Manufacturing Survey - recorded significant drop at -16; biggest losing streak ever * There will be a delayed reaction from the market to first quarter's bad economic news on top of this quarter's economic news * A Boston Fed official is considering retaining "balance sheet tools", i.e. QE * In other words, the Fed is considering not having an exit strategy - because it can't exit * We have done all sorts of crazy things that we never would have done but for zero percent interest rates and QE * A market that was built for 0% interest rates can't handle 2% interest rates * The product of all this stimulus will be big increases in prices, and the Central Banks are setting the stage for higher inflation * Declining Swiss consumer prices are described as "dangerous" * Currently, the Swiss consumers are enjoying lower prices and do not need a government "cure" * The law of supply and demand is so simple that only an economist would fail to understand it * Keynesians will spin ever-conflicting news to support their theory * Fitch has downgraded Japanese government debt to A- because or the Japan's deteriorating fiscal condition * Based on that logic, why is the U.S. AAA? * There is a general fear of downgrading U.S. debt, based on fines levied against the S&P * The real problem will be the collapse of the dollar, which means the debt will be repaid in dollars without purchasing power Our Sponsors: * Check out Avocado Green Mattress: https://avocadogreenmattress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.com Privacy & Opt-Out: https://redcircle.com/privacy

27 Huhti 201520min