Markets, Rate Hikes, and Student Loans – Ep. 60

* Janet Yellen spoke yesterday and this was the first time she spoke following the release of the much weaker than expected Non-Farm Payroll report that we got on Friday * Not only was the month of May much weaker than expected but they revised down the prior month which was already weaker than expected and now it is even more weak * This is the first time the Fed had a chance to react, remember Janet Yellen and all her cohorts at the Fed had been talking about how the economy is getting better and how we're getting ready for a summer rate hike * Everybody was thinking, "Will they move in June or will they wait until July? * Of course, I was saying all along that I doubted that they would move in either month * They did make it clear, if you read the FOMC minutes that it was contingent on the labor market improving * I had already pointed out that based on the most recent jobs report the labor market was already not improving, it was getting worse, and now we know it is even worse than the Fed would have understood * By the time the minutes were released we had had all this bad news * While people were jumping to the conclusion that the Fed was about to hike rates, even though the labor market had weakened since they expressed those sentiments and the Fed specifically said that the rate hike was contingent on improvements in the labor market, and we were getting the reverse * I never understood why so many people were so convinced that a rate hike this summer was a fait accomplit * But now all the people who were so convinced have caved in and no longer expect a rate hike in June or July, but they're talking September!  Why? * Well Janet Yellen spoke yesterday and she's still talking about rate hikes * She still said she thinks the economy is improving and at some point rate hikes will be appropriate * Well of course!  That qualifies as a "Duh!" Obviously if the economy was improving, rate hikes would be appropriate, in fact they're appropriate right now * They're appropriate even if the economy is not improving, because interest rates are much too low * I believe one of the reasons the economy is so weak is because interest rates are so low * Now I understand that if we raise interest rates we're going to burst this bubble * If we raise interest rates, the stock market will come down, the real estate market will come down and that's going to be a big problem for a lot of people, in particular the banks * And I know that when interest rates go up, all the people who borrowed so much money when they were so low, including the U.S. government, will be in a lot of trouble * The Federal Reserve itself is going to be in a lot of trouble because it has an enormous portfolio, a balance sheet of long term bonds that will collapse in value when it raises rates * I am not a Pollyanna, thinking if we raise interest rates everything is great - no, it is a disaster * But it is a bigger disaster if we don't raise interest rates and keep waiting because we don't want to deal with the consequences 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

8 Juni 201639min

* It was a few weeks ago, following the release of the FOMC meetings, in which the various governors appeared quite hawkish in their tone * They were talking about the resurgent U.S. economy, the strengthening labor market and that they thought it would be appropriate to raise interest rates in June * As a result of that, the markets reacted, the dollar had a big rise, gold dropped * Gold had risen to almost $1300 when everybody thought the Fed wasn't going to raise rates * Now as soon as the Fed changed the conversation, and they put rate hikes back on the table, gold touched below $1200 * The dollar index got as high as 96 earlier this week * But the catalyst for the rally of the dollar and the decline in gold was the Fed, and the anticipation of rate hikes coming this month * In fact, in the days and weeks that followed the release of the unexpectedly hawkish FOMC minutes various Fed officials were out giving speeches * Every one of them talked about how it was going to be appropriate to raise rates, how we are bouncing back from the unexpected Q1 weakness, and that now the Fed is finally going to resume normalizing rates * The first time they raised rates was December last year; of course they talked about it all year before they finally went up by a quarter point * If they went up by another quarter point in June of this year, it's still, it's still a pace much slower than Greenspan used * He was moving up a quarter every time they met * This would be a quarter every 6 months * Even if the Fed were going to raise rates in June, that would have been the only hike of the year * I didn't even believe that they were going to do it in Juneof * If you listen to one of my recent podcasts at the beginning of the June rate hike talk, I was saying, * "How can they talk about a June rate hike? They haven't seen the May jobs report, which will come out in the first week of June, and if that jobs report is weak, they're not going to raise rates * And even if they did raise rates, it's too little too late * It's not going to be good for the dollar, it's not going to hurt gold because the FOREX markets and the metal exchange markets have priced in far more rate hikes than the Fed could possibly deliver * In fact if they did raise rates, that would be the end of the cycle and by the end of the year they would be cutting rates * The market is anticipating a normalization * And if you remember, too, it wasn't just that the Fed was going to raise rates, they were going to shrink the balance sheet * Janet Yellen was saying she was going to get the balance sheet back down to where it started * I was saying she was lying back then * The balance sheet has not shrunk at all * That is because the proceeds of every maturing bond have been reinvested * Every nickel earned in interest has been reinvested also * So the Fed hasn't even started to unwind the balance sheet, and they've barely raised interest rates * But I did say that if we got a weak jobs report, that would clearly take rate hikes off the table * I believe they were never on the table and that's exactly what we got June 3 * The Labor Department dropped a bombshell on the markets * A relative weak report of 170,000 was expected due to the Verizon strike * The actual number of jobs created in May was 38,000 * That is the lowest number in 6 years * But it gets worse: they revised last month's number, which was also weaker than expected, from 200,000 to 123,000 * The expectation was that this number would be revised up * They even revised down the month before by another 10,000 * You've got 123,000 jobs in April and just 38,000 jobs in May 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

4 Juni 201628min

* Well the tone and tenor of the discourse of the various market pundits and Wall Street economists seems to be that this recovery is on track * I guess there were some doubts about the recovery until the Federal Reserve laid all those doubts to rest based on the confidence with which they discussed the likelihood that the Fed would raise interest rates in June or July * The confidence persists despite the drumbeat of consistently weaker than expected numbers * Once in a while, we're getting better than expected numbers, but the beats are in the minority * Sometimes we get a number that superficially appears better than the forecast, but as soon as you actually delve beneath a very thin surface, you see a lot of negative details that don't make the headlines * People overlook a lot of information beneath the surface that is actually quite bad * But before I get into the economic data, I want to talk a little about Janet Yellen * On Friday she gave a monetary policy speech at the Radcliffe Institute for Advanced Studies at Harvard * Yellen studied economics at prestigious institutions, herself * Economics is Janet Yellen's passion; she's dedicated to economics * For someone who has dedicated herself to one subject, it's amazing how little she actually knows, despite going to our nation's best universities * It might be that the upper echelon universities are so deeply wedded to Keynesianism that a student might get a better economics education at a community college * One of the things that Janet Yellen said during her speech was that she she believes in capitalism, but that the government needs to protect the economy because capital is prone to "breakdowns" that cause mass unemployment and that we need government, or central banks to save capitalism from itself * Capitalism is not prone to breakdowns, nor is it prone to mass unemployment - in fact it's just the opposite * Capitalism is stable; it has a cyclical nature much less pronounced absent the Fed * Huge breakdowns and mass unemployment are always the result of government interference 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

1 Juni 201624min

* It really is amazing how short memories are on Wall Street * This seems exactly like December when everybody was convinced that a rate hike wouldn't matter because the economy was improving and the market can handle higher rates * And the stock market rallied right up until the Fed actually raised rates, and then it rallied a little bit, and then it rolled over and we had the worst decline to begin a year in the history of the stock market * Well flash forward to the Fed now saying that they are going to raise rates in June - or at least everybody believing that the Fed is going to raise rates in June and all of a sudden we are having this huge stock market * We had a huge up day yesterday on the idea that the economy is improving and the Fed is going to raise rates * The market is going up on the assumption that the economy can handle higher rates based on the economic data, which is another reason why the Fed might feel comfortable raising rates because the market is not selling off * So the market is giving the Fed the go-ahead to notch rates up another .25 * That was exactly the attitude prior to the last rate hike * The Fed make the mistake of raising rates in spite of weak data * As a matter of fact, if you go back to the minutes of the FOMC meeting, which is what ignited this whole Fed rate hike narrative, the Fed said it all depends on the data * If the economy continues to improve, if the labor market continues to improve, then we'll hike rates * But the reality is that the data tells the opposite story * Ever since the last Fed meeting, the economic data, on balance, has been weaker than expected - not stronger than expected * Including all the data that has come out this week * But,  hey - nobody cares - because the Fed says everything is great, so we can ignore the data because if they think the economy is great, it must be great * Forget about the fact that they have a horrible track record - the economy must be great! 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

25 Maj 201628min

* I wanted to record a short podcast today just to discuss the FOMC (Federal Open Market Committee) minutes that were released at 2:00pm this afternoon ET, which reflect the views of the Fed when they had their April meeting, some 6 weeks ago, when the Fed decided not to raise rates * As a result of the release of these minutes, everybody has now jumped to the conclusion that a June rate hike is not only on the table, but basically a done deal * I heard people talking about it on CNBC, "The Fed had to do this to show they are on a path to normalization - they said they would have a gradual pace, so they had no excuse but to do this." * Do what?  They haven't actually raised rates, they've just talked about it * Let me read you the statement they made about rates: Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee's 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June. * They didn't say they would do it, they said it would LIKELY be appropriate * Likely doesn't mean definitely, and appropriate doesn't mean they're going to do it * Because even if they determine that it is appropriate it doesn't mean they will do it * Before you even get to the likely and appropriate part of the statement, 2 things have to happen, or 3 things if you want to count inflation, but inflation has already happened * The economy has to pick up in Q2 - It doesn't look likely that that's going to happen - it is possible that we could get a second quarter stronger than the horrible Q1 but is 1 - 1.5% economic growth in Q2 picking up? It will still average out to a weak first half of the year * But the Fed also wants to see that labor conditions continue to strengthen 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

18 Maj 201620min

* Another volatile day in the stock market sees the major averages deep in the red * The Dow was down just over 1%; down 180 points, 17,529 * The NASDAQ actually got walloped a little more; down just shy of 60 points, 1.25% * I think the catalyst for today's declines was a couple of Fed officials talking about how June is a live meeting - live from the perspective of, "We might raise interest rates" * I don't think it's live at all, I think it's dead, and if it were alive, the stock market decline would kill it * If Wall Street actually believes that the Fed is serious about raising rates in June, the market would be tanking * In fact, if more people believed it, the market would be down more than 180 points today * As we got closer and closer to the date that the Fed was theoretically going to raise rates, the market would be so low, that any talk of a rate hike would be dead, because the Fed would be dealing with tighter financial conditions * The Fed doesn't want to tighten monetary policy with financial conditions are tightening on their own * It's interesting, too, that you hear people asking, "Why does the Fed have a June rate hike on the table"? I keep hearing about the economy strengthening * The economy is not strengthening! That's just the point, the economy is weakening * Yes we did get a little data in the last few days that was better than expected, buy we also got data that was worse than expected * Most of the financial data that has come out since the last time the Fed hiked rates has been bad * If the Fed is talking about raising rates, it's not because the economy is getting stronger, it is despite the fact that the economy is getting weaker * What is getting stronger is inflation * The problem is, even though inflation is above the Fed's so-called 2% target, I don't think this raises the probability of a rate hike * If anything, the increase in prices will slow down the economy even more * We actually got some official inflation data today, we got the April CPI * The consensus was for a move +.3, following the prior month's +.1 * We got a bigger jump than was expected - we got +.4 * The year-over-year headline number - not the core number - is now 1.1 * So the year-over-year is below 2% but if you annualize that .4 for the next 11 months that would be a 6% annualized rate of CPI-based inflation * I read articles about the jump in the CPI and the jist was that this is good news, because the Fed is making progress on its policy goal of price stability - * If you think about how ridiculous that comment is: * We had a big spike in consumer prices, which if you annualize the rate of increase that's 6% increase in prices and that's progress on price stability? * If anything, the Fed is moving away from price stability *  If you're going for price stability, the less prices go up the more stable it is * I don't know how much more "stability" people can stand - * If prices get any more "stable" than this, we're going to have runaway inflation * This is not about price stability - this is about generating inflation on purpose because there is no alternative for the Fed * In recent times, a hotter than expected inflation number, causes the currency goes up * And when inflation is lower than expected, the currency goes down * Now, you might think that's counter-intuitive, and actually it is * Why would higher inflation be good for a currency?  After all, inflation measures how quickly a currency loses purchasing power * So why would a currency that is losing purchasing power more quickly be more valuable? * In today's world, low inflation is bad for your currency and high inflation is good for your currency 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

17 Maj 201629min

* The markets continue, really, to ignore all of the overwhelming bad news * Bad news on the economy, bad news on the corporate earnings front, retail sales - you name it, the news is bad * But the markets seem to shrug it off * All the markets - the equity markets, the foreign exchange markets, bond markets, the gold and silver markets * Sure, there is usually a knee-jerk reaction - you get some bad news, the gold spikes up, the dollar dumps, but then it recovers what it lost and gold surrenders its gains and we continue to stay the course, because to me the bad news isn't sinking in * Yes, the stock market has been trending down, particularly the NASDAQ * But it really hasn't rolled over * Yes we had the big drop yesterday, the Dow was down about 200 points, but it was up 200 points the day before * So over two days, we didn't go anywhere, despite the fact that we continue to get bad news * I'll start with some of the bad news that came out today and then work back * I think the worse news of the day was the weekly unemployment claims which is now finally started to move higher 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

13 Maj 201626min

* Today I really want to talk more about Donald Trump, in particular, the firestorm that I think I lit with respect to Trump comments with respect to defaulting on the National Debt * Now I really believe that I am the first guy to have picked up on that because, when he originally talked about that on CNBC, and Becky Quick said, "Wait a minute, are you talking about compromising  our credit rating?" * That's when Donald Trump said, "No, no, no, I'm not talking about defaulting I'm talking about refinancing and Becky Quick let it go, she accepted the explanation, and nobody else on CNBC at the time said anything * Later that day, I was contacted by CNBC - I had already agreed to do Futures Now on CNBC.com in reaction to the article I had written at the end of last week on Donald Trump and I said, "Hey, wait a minute, why don't we also talk about his comments today about defaulting on the debt * And the producer said, "What are you talking about?" * I described his comments and said, go get the clip and we'll talk about it on the program * She had no idea that Trump had said anything like that and nobody was talking about it, but I had tweeted about it in real time as soon as I heard Trump say that, as he was still in the studio talking * I heard nothing about it until after my CNBC interview took place and then there were articles about it - even the New York Times wrote a big article about it * In fact, so much was written about it that Donald Trump had to officially respond to the idea that he said he wanted to default on the debt * Which of course he never actually did - he never actually said it, but it's clear to me that that is exactly what he meant - he wasn't just implying it, that's what he was thinking * But Donald Trump is not a career politician, so he's not always thinking about the political ramifications of just speaking off the cuff, and talking honestly, which is what he was doing * All of a sudden, when he put his presidential candidate hat back on, when Becky Quick called him out and all of a sudden he had to process what he let slip, then he back tracked * I think he would have died right there, had it not been for me * Of course Donald Trump doesn't want to be the candidate advocating default * Even though we can't possibly repay this debt, I guess there are some truths that even Donald Trump is afraid to utter when you're running for President, so he immediately started to back track * But I wanted to talk about why his explanation makes no sense at all and it shows that I was 100% right about what he was thinking, and all he's doing now is spin, he doesn't want to deal with the genie that he just let out of the bottle * I think the press, in general will probably accept his explanation, because they don't really know very much, but let's go into it * First of all, he said, "Of course we're not going to default on the debt - why would we default? We print the money! * Now, when he was talking about the debt, he wasn't talking about printing money, not at all * In fact, if anything, he acknowledged that printing money would be a problem, because he said, "We have to keep interest rates low but if inflation picks up we have a real problem * 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

10 Maj 201626min