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

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, 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

23 Juni 201851min

Upping the Ante The shot heard around the world in the ever-escalating trade war was fired last night by Donald Trump, threatening to impose another $200 billion of tariffs on American consumers wishing to buy Chinese goods. This followed the $50 billion in tariffs.  And, remember, when Trump announced the first $50 billion tax on Chinese goods, he threatened that if China retaliated by taxing its own citizens, that Trump would up the ante with even more taxes on American citizens, although he did not use those terms. He's acting as if the guns are pointed in the other direction. But, the Chinese, of course, not to lose face, immediately went tit for tat with Trump and now Trump had no choice but to follow through with $200 billion more in taxes.  Now, I guess the ball is in China's court. We'll see where they take it. Dow Closed Down for Sixth Consecutive Day The markets obviously didn't take it very well.  They sold off.  In fact, the decline in the U.S., as seems to be typical, was much more muted than the reaction was around the world. The Dow was down, it closed down for the 6th consecutive day. This was the longest losing streak for the Dow since March of 2017; down 287.  The lows were down about 415-430 or so, but not that big a decline. And the Russell 2000 was up again. Another all time high.  I think on the 6 days that the Dow has been down, the Russell 2000 has only been down 2 of those days. So it keeps going up, and this shows you that traders have convinced themselves that America is going to win the trade war - or at least, take the fewest casualties. Because the reason that the Russell 2000 is doing better than the Dow or the S&P is that you don't have the multi-nationals. Trump: Greatest Economy in the History of the World The theory is that the domestic economy can easily weather the trade war.  That it is no big deal, that trade is a small part of the U.S. economy, and so we have nothing to worry about! But if you are worried, well maybe worry about the multinationals that stand to lose, so just focus on all these small companies that are benefitting and basking in the glow of the greatest economy in the history of the world, and if you don't believe it, just ask President Trump. 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

20 Juni 201838min

ECB Announces Dovish Tightening The big market-moving central bank announcement this week was not the Fed.  They came out with their so-called "hawkish hike", but yesterday, the ECB came out and they were supposed to announce the end of their Quantitative Easing program, their own version of the taper, which they did.  But they surprised the market by indicating that they would not raise rates above zero, where they are stuck, until the summer of 2019. The markets had not expected such a delay in rate hikes, so it was a dovish tightening announced by the ECB. The ECB Effectively Eased When the Fed raised rates, the reaction was pretty much what I expected.  The dollar did not strengthen. Gold did not go down. All of that had been priced into the market.  What caused the dollar to rally and gold to sell off was the ECB and their unexpected ease, which put a bid into the dollar.  We got a huge rise in the dollar yesterday.  We got a 2 percent or so drop in the value of the euro against the dollar.  And the weakness in the euro, along with the strength in the dollar caused a lot of the emerging market currencies to sell off, so it was a huge dollar rally, not because the Fed hiked, but because the ECB effectively eased. Initially, yesterday, gold jumped 2% in terms of the euro. In fact it jumped up the the high end of the range that had been trading against the euro and it was very close to a breakout against the euro. It was only up a couple of bucks against the dollar, so all of the rise was in terms of euros, and of course, other currencies also fell against the dollar. Unexpected ECB Move Caused Gold Sell-off This morning, the traders came out huge. When we couldn't get above that key level in terms of the euro, there was massive selling of gold this morning right out of the gate, and gold finally dropped about $20. Remember on Wednesday I talked about the fact that gold had been in a $12 range all month, and I knew that that wasn't going to persist.  Gold was going to have to break out one way or the other.  I anticipated gold to break to the upside because I expected gold to rise after the Fed hiked rates, which is what has been happening.  What I did not expect was for the ECB to come out with an effective ease, and that's what caused gold to break out of that range.  So I was right about the breakout but I was wrong about the direction due to the unexpected ECB move. 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

16 Juni 201836min

Fed Raises Rates for the 7th Time The Federal Reserve raised interest rates today.  I think this is the 7th rate hike. Six of these rate hikes have now taken place since Donald Trump was elected; five of them since he was inaugurated. The official rate now is 1.75% to 2%.  The Federal Reserve targets the midpoint of that range.  But the Fed has been tightening a lot longer than those 7 rate hikes, because, remember, before they hiked rates, they talked about it and they were tapering.  And the tapering was a De Facto tightening, because interest rates were effectively negative while the fed was doing QE. So, as it was tapering those purchases, it was reducing how much rates were actually negative, and that was, in fact tightening. Press Conference After Every Meeting? So the Fed has been tightening for a lot longer than the markets believe, which is why the recession is probably going to come a lot sooner and be a lot deeper than what anyone believes. There were rumors that came out earlier in the week that Powell thinks there should be a press conference after every single meeting. Right now, they just do it quarterly, and when they initially announced that, the reaction in the markets was, "Oh, maybe that means more rate hikes." because every time the Fed hikes rates, they have a press conference. So the thinking was, if they have more press conferences, they would have more rate hikes. Powell's Bullish Comments Contrarian Indicator I don't think it means that at all, in fact, there is no rule that says that the Fed needs a press conference to hike rates. They can hike rates at any meeting; in fact, they don't even need a meeting! They can hike rates between meetings.  They just haven't been doing it, but there's nothing that says they can't. So, I don't think having more press conferences means anything, but people are always looking for an excuse to do something, so that might have been an excuse.  But if you listen to what Powell said at this press conference, he sounded bullish on the economy.  Listen to the words he chose.  Given the fact that he is so bullish and the fact that the Fed is a pretty good contrarian indicator, if Powell is extremely bullish, it likely means that the best days of our so-called growth are behind us, and it is all down hill from here. 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 Juni 201851min

Market Movers: Singapore Summit We've got a lot of potentially market-moving events going on this week; we've got the Summit which I think is getting underway this evening with North Korea's President Kim Jong Un and President Trump meeting in  Singapore. No Market Move Expected on Rate Hike We've got the Federal Open Market Committee Meeting beginning tomorrow, it's a 2-day meeting ending on Wednesday.  The odds of a rate hike are 100%! So in all probability there will be a rate hike.  Eventually the Fed is going to reverse course and that will come as a surprise; odds are the surprise won't happen on Wednesday. Right now we are at one and a half to one and three quarters, so  the next hike will be one and three quarters to two. I think what might surprise the markets, is if the Fed dials back expectations for later hikes. A lot of people are still looking for 2 more hikes this year in addition to the one we will get on Wednesday.  They may indicate that they are closer to the end of their rate-hiking cycle.  Maybe they will dial back their anticipated "Quantitative Tightening". I don't think the Fed is going to deliver much at all in the way of Quantitative Tightening but they may indicate to the markets that they're not going to do as much as what the the markets believe.  But in any event, given a 100% probability of a hike this time, the hike itself will not move markets at all. What If They Don't Hike? If the Fed does not hike, that would provide a big boost to gold and a big drop in the dollar. If they do not hike, that would be an indication that there may not be as many future hikes.  But, again, if you look at how gold has traded in the past, if you look at how gold has traded in this cycle, it has generally been bullish for gold, if not the very day, then within the next few days. 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

12 Juni 201846min

Focusing on Emerging Markets I'm going to spend most of today's podcast talking about what is going on in the emerging markets, in the currency market and in the stock markets; what the speculators are doing, why they are doing it and why I think they are wrong and why I think it creates an excellent opportunity for investors to fade this trade and prepare for the ultimate reversal of these moves. Freedom Fest in Las Vegas But before I get into that, I want to talk about a few other topics of interest that happened after my last podcast.  I also want to talk about Freedom Fest in July.  I am going to Freedom Fest again, as I do every year in July. Not the greatest time of the year in Las Vegas - not that there's really a bad time to be in Las Vegas, you're going to have fun in Las Vegas whenever you go - but it is quite hot in July.  Of course I spend almost all my time indoors, so the heat really does not affect me.  And when I do go out, it is at night, and it is not so hot. The event is July 12-14 and if you have not already registered you can do it now.  It will be at the Paris Hotel & Casino; I will be there with my entire family - my wife and 3 kids.  We'll be at our booth, you can come by and have a chance to meet my wife and kids and say hello. Presentation on Tax Incentives of Working and Moving to Puerto Rico I am going to be participating in several events; I am going to be doing a talk on Puerto Rico and the tax incentives of working from and moving to Puerto Rico. Most of you should know by now, I am Puerto Rican. Puerto Rico is my main residence; I summer in Connecticut, but I am a resident of Puerto Rico. Euro Pacific Asset Management and Euro Pacific Bank are both  based in Puerto Rico. Bitcoin Debate Moderated by Naomi Brockwell Also I am going to be doing a Bitcoin debate against Jeffrey Tucker and Gary Smith - is it real, or is it Tulipmania? All of you realize what side I am on.  The debate will be moderated by Naomi Brockwell, who is known as "The Bitcoin Girl" in fact she appeared on my old radio show, the Peter Schiff Show, and I sure wish I'd listened to her and bought a bunch of bitcoin - obviously I would have a lot more money today. 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

9 Juni 201837min

Current Events Not much has been going on in the economy or the financial markets the last couple of days.  Its been  pretty quiet, so I'm going to take an opportunity to record a podcast more on current events and politics, so if you're not interested in those topics, then maybe just wait for my next podcast, although, when I did the Peter Schiff Radio Show 5 days a week, there were people who complained when I did not talk about the markets, or even the economy.  But I always enjoyed talking more about politics and current events, and I think the feedback I got was more engaging, so the show was more interesting. Supreme Court Wedding Cake Case So, I am going to talk about a couple of topics today; one has to do about that ruling that came out of the Supreme Court yesterday on the baker in Colorado who had refused to bake a cake for a gay wedding.  I know I have talked about this topic in the past; it is not the first time it has come up, but it has come up again in the wake of this ruling so I want to revisit that topic. No More Swimsuit Competition for Miss America Before I get to that topic, I would like to address a lighter topic, but nonetheless just as interesting.  The Miss America Pageant is no longer going to consider beauty as the criteria for the pageant.  In other words, it is a beauty pageant, but beauty doesn't count.  It's not outer beauty, it's just going to be, I guess inner beauty. They are going to get rid of the swimsuit competition, they are going to get rid of the evening gown competition and they will select a winner based on other characteristics.  I'm really not sure what.  I know they've got the talent competition; no one really paid too much attention to talent. Some of the women actually had some talent. Usually the most humorous part of the Miss America Pageant was the Q&A where there were often political questions asked and the contestants would try to give the most politically correct answer they could come up with. 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

6 Juni 201849min

Jobs Friday Today is the first day of June and it's also jobs Friday. But before we get to the always highly-anticipated nonfarm payroll number, I want to talk about some of the economic data that came out yesterday, on Thursday. Personal Income and Spending I think the most significant release was the Personal Income and Spending number for the month of April. The spending numbers were so strong that it prompted the Atlanta Fed to adjust its estimate for Q2 GDP all the way up to 4.6% and I think they notched it up another tenth today to 4.7%, so this is the highest estimate they've had since they had that 5.4% estimate for Q1.  Of course we now know that we got 2.2%, so they were much too optimistic on Q1 and my gut is they're equally overly optimistic on Q2. Spending Went Up as Income Went Down Let's talk about this Personal Income and Spending data.  The surprise was not on the income, but on the spending. In fact, the revisions, when they went back to March. the original report was for a .3% gain in income and a .4% gain in spending. They ended up revising the income number down, so income rose only by .2%, but they revised spending up. Spending went up by .5%. What does that mean? That means savings went down quite a bit, because, where did the money come from to finance the extra spending?  It didn't come from income, so it came from savings, or it came from debt. Either people depleted their existing savings, or they went deeper into debt by putting their purchases on the credit card. Spending Money Twice as Fast as They Are Earning It But then, for the month of April, we got a .3% increase in income, which was anticipated, but spending, instead of rising by .4%, rose by .6%. So consumers are spending money twice as fast as they are earning it for the month of April: .6 up on spending, .3 up on earnings . So, again, what does this tell you? People are tapping into an already shallow savings pool or they are running up m0re credit card debt to buy stuff. 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 Juni 201838min