Instead of Treasuries, Investors Are Buying Foreign Stocks - Ep 1017

Presidential Tweets Express Anger at the Fed The catalyst today was more tweets from President Trump where he is expressing anger, not only at the Federal Reserve, and at the ECB and at the Bank of China, because he is accusing both Europe and China of being currency manipulators; taking advantage of us by weakening their currencies. He's saying that a weak currency gives you an advantage.  It doesn't. Strong Currency Provides Trade Advantage When it comes to trade, it is a strong currency that gives you the advantage because trade is all about imports.  How do you get more stuff for your own citizens, and the way you pay for that stuff is by exporting. But the goal is to export as little as possible and to import as much as possible.  If you're a buyer, you always want to pay the least and get the most. So you pay for stuff when you export because you're using resources to produce stuff for other people. But you're not producing stuff for other people because you're charitable, you're trying to earn the money to buy stuff for yourselves that other people made. Is Trump Firing Back? Having a strong currency is a huge advantage because it means you can claim a greater portion of the global output. Because the dollar has been so over-valued thanks to the generosity or the stupidity of our trading partners, Americans enjoy greater consumption than what would otherwise be available to them if we were limited by our own collective production. So we actually have the advantage. But by calling out China and the ECB for deliberately weakening their currency, you would think that Trump may want to fire back. Weakening the Dollar Donald Trump doesn't control the Fed, but the Treasury Department can intervene in the foreign exchange markets. Maybe, if Donald Trump really believes that these other countries are deliberately weakening their currency and if he has no control over the Fed but he does have control over the U.S. Treasury, he can have the Secretary of the Treasury intervene, go into the Foreign Exchange Market and start dumping dollars, trying to drive the dollar down so that we can reclaim the advantage.  At least the way he looks at it. Privacy & Opt-Out: https://redcircle.com/privacy

21 Jul 201841min

Trump Driver is Suing the Trump Organization On thing I talked about on the Joe Rogan podcast was a story that broke the same day of my last podcast, which I thought was very interesting.  It was about Donald Trump being sued by his former personal driver, who still works for the Trump organization, by the way, he's worked there for over 25 years until Trump became President and got a tax-payer provided driver, he had to pay his own driver.  I think the guy was getting a $70K/year salary, which to me seems about right. Diver Claims He is Due Overtime The driver sued the Trump organization because he claims that he was due overtime, and he didn't get paid overtime. Now he's worked for the Trump organization for 25 years.  He has known his pay all these years and never once complained and now after 25 years he wants to use the labor laws to retroactively force the Trump organization to give him a pay hike. Terms and Conditions of Employment First of all, he is not an hourly employee.  It's not like he is punching a clock and the organization asks him to work overtime. According to the article I read, the driver needed to be on call for Trump something like 10-11 hours a day. Maybe 55 hours a week he was on call in case Trump needed him. That does not mean he was driving all that time; he just had to be accessible to Trump. He couldn't go on a vacation or leave town, but he could watch a movie, he could read a book, he could trade stocks on the internet, he could do whatever he wanted.  He had plenty of free time between times he drove for Trump. He knew exactly what the deal was and he chose to work under these conditions. What happens in America is that employees like to go back in time and re-write the deal more favorably to them. If this driver did not like the terms of his employment, he had two options: * He could have gone to Donald Trump and said, "I'm working on call 10 hours a day - that's more than a normal 8-hour job, you're paying me $70K/year, If you want me to be on call that many hours, you need to pay me more money. Then Trump would have had two options - pay more money or find another driver. * If the driver did not like his employment conditions of that job, the compensation package, the amount of hours he had to be available, he was free to drive for somebody else. Privacy & Opt-Out: https://redcircle.com/privacy

17 Jul 201847min

Misguided Tweet About Pfizer Another misguided tweet that came out today from the President had to do with drugs: Pfizer & others should be ashamed that they have raised drug prices for no reason. They are merely taking advantage of the poor & others unable to defend themselves, while at the same time giving bargain basement prices to other countries in Europe & elsewhere. We will respond! So here's the President, threatening businesses for raising prices; for making a profit.   If Obama were calling out big business like this, the Republicans would be all over him, or if Hillary Clinton were saying this:"You don't understand capitalism! This is an assault on private enterprise!" Trump's Protectionism Tolerated by Republicans But Trump says it and it's no big deal.  Can you imagine if Hillary Clinton had launched these recent tariffs? Can you imagine the backlash by the Republicans? "This is terrible, the President doesn't understand capitalism; the President doesn't understand free trade; this is going to backfire; this is going to lower our standard of living; this is going to raise prices!"  The Republicans would be all over Hillary Clinton.  They would have been all over President Obama. Republicans have generally been known to be in favor of free trade.  It's the Democrats who wanted some protectionism because they wanted to protect workers.  They think free trade will lower wages, hurting the blue collar worker. So you would generally associate Democrats with protectionism. The Republicans wanted to be Free-Traders. Get Rid of FDA Red Tape Now, of course, since President Trump is advocating protectionism, the Republicans don't want to attack him because they are blindly loyal to the party. So now he's bashing Pfizer and other private companies for "gouging" the consumer, just raising prices for no reason.  This is all misplaced. I agree that drug prices are too high; they should be a lot lower. It is not that Pfizer is rising prices for no reason. One of the reasons drugs are so expensive is the FDA. This is something President Trump can do something about.  He is the President.  The FDA is a Federal agency. Why not get rid of all that red tape?  It takes an average of 10 years and $2.6 billion for a drug company to develop a drug and get it to market. The drug has to recoup those costs when they finally get a drug to market. Privacy & Opt-Out: https://redcircle.com/privacy

10 Jul 201846min

"Bring on the Trade War!" Today is Jobs Friday, but before I get to the jobs report, I want to talk a little bit about the escalation of the trade war,  In fact, some stories I'm reading are that the trade war began today, or last night.  A lot of the tariffs are finally being imposed.  The market reacted positively; the Dow was up 100 points today.  The NASDAQ was up 100 points as well, which is percentage-wise a much bigger increase - 1.34% move - so who cares about a trade war?  "Bring it on! America is going to win the trade war because we've got the least to lose because we've got the biggest deficits. Dollar Sold Off Despite Trade War and Jobs Number The dollar, meanwhile, sold off today. The dollar index closed at 94, barely held the 94 handle.  It traded below briefly, despite what many people consider a stronger Nonfarm Payroll report. So, the dollar went down despite the beginning of the trade war and despite the supposed strong jobs number. To me, the dollar topped out at 95; I expect us to crack below 94 next week, and if we break below 93, if we get into the 92's I am pretty sure the rally is over, technically speaking and we're heading for new lows relatively quickly. Who is the Industrial Powerhouse? Let me get back to the trade war that we are supposedly going to win.  One of the most interesting things about it, is when you look at the goods each side is imposing tariffs on.  When you look at that, you can see which country is the industrial powerhouse and which country is a third world country masquerading as an economic power. Here are the goods made in China that Trump wants to tax the American citizens on: Aircraft tires Scales Nuclear reactors Cranes Boat motors Bulldozers Aircraft engines Boring machines Aircraft engine parts Construction vehicles Air & gas compressors Oil & gas drilling platforms Combine harvesters Plows Industrial heating equipment Chicken Incubators Dairy milkers Plows Livestock equipment Machinery for processing meats Paper making machinery Machinery for molds, cements Printer & copy machine parts Machinery for glass products Printer & machinery for making rubber Industrial ovens Industrial magnets AC & DC generators Lithium batteries Electric transformers Radar & radio equipment Equipment for circuit breakers Television parts & video recorders LED's Electronic traffic signs Trains & rail parts Large vehicles Diesel cars & trucks Motorcycles Helicopters Microscopes Airplanes Privacy & Opt-Out: https://redcircle.com/privacy

7 Jul 201849min

Market Closed Early for July 4th Holiday The U.S. stock market closed early today, ahead of tomorrow's Fourth of July holiday when the markets are of course closed and Americans are out celebrating Independence Day, the birth of the nation, July 4, 1776.  I love the Fourth of July as a holiday; it is purely American. Framers of the Constitution Risked it All One of the problems I have with the Fourth of July is that it makes me feel both good and bad about what happened on July 4, 1776.  I am honored to have been born in a nation that was conceived in liberty and I think about the sacrifices made by the people who signed their names beneath John Hancock's name to that document. These men risked it all to put their names on the Declaration of Independence, committing treason against the British government.  If we had lost that war, the King would have killed our founding fathers, as traitors. The American Experience is Unique and Privileged So you think back on the accomplishments and the sacrifices that were made and the incredible republic that our founders created.  I'm proud that, but at the same time, I'm sad that it has all been lost.  We no longer have the nation that our founders created for us. We have lost all that it means to be an American. It used to be so special to be American, based on the type of nation that we were, and the type of individuals that Americans were; what it meant to be an American, how unique and privileged it was. The Role of Government in America And today, even though the American economy is regarded as at the top, a lot of that is a function of debt and it's all an illusion. The difference  between an American and any European these days is not nearly as great as it was. If you have never read the Declaration of Independence, and I am sure most of you probably had at some point, you might want to take another look at it, and give the entire document a read.  I am going to read just a part of the second paragraph, because this is the most important aspect to understand the essence of what America is supposed to be, and what the American government is supposed to do.  This is important because there are all these Socialists out there who want to re-define America - Democratic Socialism.  This paragraph helps you understand the role of government in America. We Hold These Truths to Be Self-Evident Governments can have different roles in different countries, but in America, there is a certain role that government is supposed to have. It had it for a long time, but it no longer fills that role: We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — Privacy & Opt-Out: https://redcircle.com/privacy

3 Jul 201849min

Dow Ending a Down Week on a Positive Note The Dow managed to finish a down week on a positive note; the Dow Jones was up about 55 points - 24,270-ish is where we closed.  Although intra-day, we were up better than 250 points, so most fo the losses came toward the end of the day, as the Dow was not able to hold on to all those gains.  It held on to some of the gains, but Russell 2000, not as lucky. That index ended up finishing a down week down on the day. Probably the difference is the oil stocks, which are really helping out the Dow, to a lesser extent maybe the S&P 500 and that also closed positive on the day, but just barely, and well off the intra-day highs. I Predicted Oil Would Be Heading Toward $80/Barrel While we're talking about crude oil, we were up again today, in fact, we haven't even finished trading as I'm recording this, but as I am looking at it, it is at 74.40, up .$.95 - right near the high of the day. I think so far that was $74.46, so, almost 74.50.  Oil is just a powerhouse.  For those of you who say, "Hey Peter Schiff, you haven't gotten anything right since 2008!", I beg to differ.  I've gotten some things right; I've gotten some things wrong, but one of the things I nailed this year is the oil market. I was very bullish on oil early in the year.  I was saying that oil prices were headed up to $80-$100/barrel at the beginning of the year.  When the year started, we were barely above $60, so $80 still looked like it was far away, but I was pretty sure we were going there. And, obviously, we're not there yet, but the year is only half over, and we're a lot closer to $80 than half way. I don't think we're going to stop at $80.  I think it will be somewhere between $80 and $100/barrel. What is Driving Crude Oil Right Now? The question is, what is driving crude oil right now, because the dollar is rising. Today, it did not rise.  Today the dollar index got smoked.   Some of that had to do with political news announced last night in the Eurozone regarding immigration, but the dollar wasn't just weak against the euro today, it was across the board.  All the currencies scored big gains.  The dollar index is back down below 95 - 94.63.  Remember I said on my last podcast I did not think there was much room above 95 for the dollar index to rise. So far I'm right about that. Privacy & Opt-Out: https://redcircle.com/privacy

30 Jun 201836min

Election Results in N.Y.C. Indicate Political Backlash Trump has already said that he's "Made America Great Again", so whatever problems he inherited, he's already claimed to have solved, which means any problems that arise now are brand new, under Trump's watch, and he and the Republicans are going to take the blame. An early warning sign of just how big a disaster this can be arrived yesterday in a N.Y.C. Congressional primary. You had a 10-term incumbent Democrat - the guy's been in Congress for 20 years. These guys are impossible to get rid of - trying to get rid of them is like trying to get rid of herpes. Joseph Crowley had been unopposed for 14 years.  28-year old Alexandria Ocasio-Cortez is going to be, if she wins, will be the youngest woman ever elected to the House of Representatives.  She is a former bartender with no real political experience other than being a member of the Democratic Socialists of America. They believe in the abolition of capitalism in favor of an economy run by either the workers or the government. Oil Prices Prop up DJIA, but not Broader Markets Even the surge in oil stocks was not enough to keep the U.S. stock market in the black today. The Dow Jones finished in the red by 165 points. That is a drop of .68 percent, but the broader markets which don't have the exposure to the energy sector faired much worse.  You had the composite down 116 points - 1.5% - and the Russell 2000 down almost 1.7%.  Oil prices had a huge day today.  They closed off the highs, but still up $1.80. $72.33 per barrel for the price of oil. We did get as high as $73.06 on West Texas earlier today, so this is a new high for the year. Remember, this is what helped the market avoid an 8-day losing streak when we got that 9th day rally, thanks to oil stocks; and I said at that time that I didn't think that was good news for the markets because higher oil prices may be good for companies, but they're not good for the overall economy. They're even higher now and it will be an even bigger drag on the economy. Trade Wars and Deficits Bearish for the Dollar More importantly than the oil price in dollars is the oil price in euros, which continue to weaken against the dollar and other currencies,  The dollar index had another strong day.  We're back above the 95 handle: 95.26. I think this is where the resistance is for the dollar, so I don't expect much headway above 95 on the dollar index.  I still think that the markets have this all wrong; a trade war is not a positive for the dollar.  So everybody who is betting that all of these trade tensions escalating is somehow dollar positive, they're wrong. Just as the people who are betting larger budget deficits are dollar bullish. Both of these events are dollar bearish, as the dollar bulls are soon going to find out. Oil Prices Threaten Inflation in the Eurozone In the meantime, the increasing price of oil is going to send Eurozone inflation blowing through the 2% ceiling.  I talked about that in this podcast. They don't have a 2% target in the Eurozone, like we supposedly have in the U.S. Here, the Fed is targeting 2%. They've even said they're targeting higher than 2% to be symmetrical around 2%. But in the Eurozone, 2% is the ceiling. That's why Draghi keeps saying we want to get close to, but below 2%, because it's a hard ceiling. Why they're trying to get close to it is beyond me because if you get too close to it you're in danger of going above it. Privacy & Opt-Out: https://redcircle.com/privacy

28 Jun 201841min

Stagflation Nobody realized just how bad the economy is, but they're about to find out.  All of the economic data that came out this week points to stagflation, if you look at the data.  Look at the Philly Fed - dropped down to 19.  It is the biggest drop in 4 years; the lowest since the election. Look at the manufacturing PMI - those numbers came out yesterday - dropped to a 7-month low, the lowest since November 2017.  If you look at the actual numbers - new orders fell sharply but input cost rose to their highest since September 2013.  So you have rising input costs, yo have falling orders; to me this is all stagflation. The Fed's Stress Test was too Easy As I pointed out, even Alan Greenspan, not too long ago on CNBC talking about stagflation. He can see it.  But you know who can't see stagflation?  anyone at the Federal Reserve.  The Federal Reserve announced the results of their stress tests, and surprise, surprise! Everybody passed. So the Federal Reserve designed tests to measure the banks that they regulate would perform under adverse economic scenarios. First of all, if a teacher gives a test, and everybody gets an A, then the test was too easy.  Clearly the Federal Reserve designed this test so that everybody would pass, which of course, is why the test means nothing. Obviously they don't want to announce that the banking system is not sound, so they want to run these bogus stress tests to create a false sense of confidence in the banking system. Look at the Fed's Assumptions I want to actually look at the stress test.  You really can't tell anything unless you look at the assumptions.  What type of stress is the Federal Reserve assuming the economy might encounter? First of all, you have the most likely scenario they assume - their base case.  Their base case scenario, which is their forecast is that everything is great. The economy continues to grow 2 - 2.5%/year - a little bit more this year but then it slows down.  Inflation stays right at 2%, interest rates stay about where they are, unemployment goes a little bit lower - everything is great, right? Now, their adverse scenario goes as follows:  the U.S. has a mild recession, and during that mild recession the Federal Reserve is able to lower interest rates down to about zero again.  The yield on the 10-year falls to about .75%, so 10-year yields fall below 1%; Inflation falls; they don't say how low but it falls below 2%, unemployment rises and peaks at 7%. This is their adverse scenario.  Interest rates go back down to zero. That doesn't sound that horrible. Inflation goes down - what is so horrible about lower inflation? This is not that bad. The Elephant in the Room is Stagflation But then, you've got to look at their extreme.  In that scenario, we have a bigger recession, and according to the Federal Reserve, there is a global aversion to buying government debt, like bonds.  So because of that aversion, the yield on the 10-year doesn't fall to .75% the way it does under the adverse scenario, it stays where it is - right around 3%. So because interest rates do not fall, there is a bigger decline in asset prices - I think they have a 65% decline  in stock prices, a 30% decline in real estate prices, unemployment rises to 10%, and inflation falls to 1%. I can't help but laugh at this severely adverse scenario, where inflation is only 1% and the Fed is able, again to lower interest rates down to zero. What is the Fed missing? The elephant in the room: stagflation. The 2008 Financial Crisis Was Not Even Close to the Worst Case Scenario There's an old saying that generals always prepare to fight the last war, and the same is true with central bankers.  What was the last war? It was the 2008 Financial Crisis. What happened during that crisis? Interest rates went down, inflation went down,  the dollar went up (by the way, the adverse scenario also assumes appreciation of the dollar, Privacy & Opt-Out: https://redcircle.com/privacy

23 Jun 201851min