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

666 Point Drop Today the Dow finished off its worse week in 2 years with a 666 point drop.  That is the third largest point drop in the history of the Dow.  The last big drop that was larger happened during the 2008 financial crisis.  Percentage-wise, though the 666-point drop today is only 2.5% so it's really not that big, as a historic decline. 3% Drop from All-Time Record High It's large in a sense that we haven't had a one-day 2.5% decline in the Dow in quite some time.  In fact, I'm not even sure when we last had a 3% correction. Now, that's what we had. the dow is now 3% below the all-time record high that it hit last week.  Now, a 3% correction is pretty normal, except we haven't had one in a long time. Is this Ominous? The question is:  is this the something of something more ominous or is this just a small correction? I think there's a lot of evidence that this is the start of something much bigger.  Part of the evidence is that nobody is concerned!  There's maximum complacency.  Even the superstitious aren't concerned that the Dow fell exactly 666 points.  People are so complacent that they're not even being superstitious. 1987 All Over Again Casting that aside, think about this: 1987 was the year that we had a stock market crash. January was the best month for the U.S. stock market since 1987.  The dollar just had its weakest January since 1987.  So far, this year seems to have a lot in common with 1987.  We know what happened in 1987: Black Monday.  That didn't happen until October, but maybe this year it will come early.  Maybe, next Monday. Now, obviously, the probability is not that we will have a crash on Monday, but it is a possibility.  I would say the possibility is much higher than it has ever been, because of where we are, and what's going on. Rates are Going Up Also, the NASDAQ and the S&P were not down quite as much as the Dow, but they were both down about 2%.  The catalyst for the sell-off was the continuation of the increase in long-term interest rates.  The yield on the 10-year bond rose to 2.854%.  That is the highest yield of the day, so bonds closed on the low of the day.  On the 30-year bond, we closed at 30.97. There, the high of the day was 30.99 - almost 3.1%.  I have been talking about this on this podcast - rates are going up, and they are going much, much higher.  If you look at these charts, we've got a lot of air between where we are right now and the normal resistance. Budget Deficits Going Up and Trade Deficits Going Up Therein lies the complacency.  Nobody is worried about the rise in interest rates.  Nobody is thinking about 1987.  It was rising interest rates that ultimately pricked that bubble. But why did rates rise? Because the budget deficits were going up and the trade deficits were going up.  That's exactly what is happening now!  Except they are bigger budget deficits and bigger trade deficits.  And this is happening at a time when the United States is broke.  Our massive debt is far greater than the one we had in 1987. 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

3 Feb 201840min

Janet Yellen Got Out of Dodge As expected, earlier today, the Federal Reserve decided not to raise interest rates; they left them unchanged.  The next rate hike is likely to come when Powell takes the reins at the Fed.  Janet Yellen got out of Dodge! This is the second Fed chairman to be able to pull this off. Bernanke inherited a disaster, and he got out of Dodge, and so did Janet Yellen. Greenspan as Dr. Frankenstein, Fed Policy as Monster I don't think Powell is going to be as fortunate as his two predecessors.  In fact Alan Greenspan was on CNBC today talking about the bubble in the bond market, the bubble in the stock market, how we're coming to stagflation, how we don't have any productivity growth. I believe that Alan Greenspan knows exactly how bad this is.  He is like the Dr. Frankenstein who created a monster, except neither Yellen nor Bernanke nor Powell even realize that it is a monster.  I don't think any of them know enough about economics. Passing the Baton Full of Dynamite Alan Greenspan is an Austrian-schooled, Ayn Rand guy. He's a smart guy; he certainly knows more about economics than I do.  Obviously he can see this.  He created this thing, yet the Fed Chairs who succeeded him do not understand it.  Greenspan understood all the chemicals and he made this bomb that he handed off and it's been moving like a baton (or maybe like a stick of dynamite!) from one Fed Chair to another.  Yet only Alan Greenspan realizes that the baton is made of dynamite. Keynesians are Blind Greenspan's successors kept expanding the policy, putting more explosives in the baton because they believe in this Keynesian nonsense. Greenspan doesn't believe any of that! So they had no idea what they were dealing with.  Like in the original Frankenstein movie - you got that blind man who could not see that Dr. Frankenstein's monster is actually a monster.  Yellen, or Powell are blind to how the economics are working and can't see the policy for what it is. Not Going to End Well Greenspan sees it, but he can't just come right out say it; you have to read between the lines because he is still protecting himself and the credibility of the Federal Reserve so he is not going to start trashing the people who are running it.  You can tell, though that he knows this is not going to end well. 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 Feb 201835min

A Rare Down Day The U.S. stock market finally had a rare down day today.  The Dow Jones was down almost 180 points.  We did have a little bit of a rally off the lows. NASDAQ closed down 39 points.  But still, it's rare to see the U.S. stock market going down.  Supposedly, the catalyst for the sell-off today was the increase in long-term interest rates.  Long-term interest rates have been rising steadily all year, so the market hasn't cared about rising interest rates at all this year, so I don't know why today is any different.  The yield on the 10-year bond moved above 2.7%  This is not quite a 4-year high in yields; the high was 2.725%. Why Buy Treasuries at All? That's the 10-year.  The yield on the 30-year is at 2.943.  Why would anybody buy a 30-year treasury for 2.93%.  You could just buy a 10-year for 2.7. Twenty extra years of interest rate and inflation risk? Why would somebody assume that for a 20 basis point in yield? To me, it doesn't make sense that anyone would buy any Treasury, regardless of the duration. Why Hasn't the Yield Curve Already Blown Out? But if you are going to buy a long-term Treasury, why on earth would you go for 30 years?  Just buy a 10-year.  The yield is almost the same.  But if we get a big increase in interest rates, the collapse in the value of the 30-year is going to be much bigger than the 1o-year.  In fact, that seems to be a pretty good trade for a spread trader.  Buy the 1o-year and short the 30-year.  That spread has got to widen. That extra 20 years of inflation risk and interest rate risk is going to come back to bite anybody who is buying a 30-year treasury.  So it doesn't even make any sense to me why the yield curve hasn't already blown out. It's going to happen.  It's only a matter of time. If Anyone Cared, The Drop Would Have Bigger I don't think the markets are worried about higher interest rates.  The Dow is down 170 points.  That's nothing. If anyone was actually worried about higher interest rates, we would have had a much bigger drop.  Who knows why the market was down - that's the excuse, but it can't be rates, because this has been happening consistently and nobody has cared.  If anybody cared, we would have had a much bigger drop in the stock market. 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

30 Jan 201834min

Alice in Wonderland I spent a lot of time today watching CNBC's coverage of the World Economic Forum in Davos.  I feel like I'm in the Twilight Zone, or Alice in Wonderland or something like that. Everybody is so optimistic.  At least all the Americans who are interviewed.  I put up on my Facebook an analyst from Morgan Stanley Asset Management.  She's unquestionably bullish on every front. Everything is bullish - there's nothing at all to worry about.  In fact, the only thing that she said that everybody says there's nothing to worry about. Things are so good, they're wondering, "What are we missing? Maybe we should be a little worried that nobody is worried. There Are So Many Things to Worry About The reality is that there are so many things to worry about. They're not worried about any of these things.  I watched an interview - Donald Trump did an interview with Joe Kernen on CNBC.  Joe Kernen is like a schoolgirl with a crush. He seems so enamored by Donald Trump.  He's basically kissing his ass on anything he has to say. Everybody has gone insane.  I talked about this on Alex Jones.  Alex Jones is saying, "Everything is great under Trump! Obama never had an economy that was going at 3%". Evidence of "Roaring Economy" Obama never managed to achieve 3% growth - as if Donald Trump has! But everybody believes that the economy is growing rapidly. In Donald Trump's speech today - I'm not making this stuff up - this is what he said: "We're experiencing a roaring economy.  After years of stagnation, we finally have strong GDP growth.  Finally, after waiting all these years, the economy is booming, thanks to Trump. 2017 GDP not Roaring Everybody is eating this nonsense up.  Everybody believes it, except none of it is true. We actually got the GDP numbers out today - not that I believe all the numbers we get from the government -  they are overstating the real GDP growth because they are understating how much inflation really is - but the media generally accepts these  numbers.  Early this morning we got the actually GDP numbers.  The economy in Q4 grew at 2.6%! Then, if you average the entire year, because President Trump has been president for pretty much all of 2017 - the economy grew at 2.3%.  That's it!  My bet is they're going to revise Q4 lower, so it will probably be lower than 2.3%. 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

26 Jan 201830min

Dollar Getting Hammered Gold and oil are breaking out, the dollar is breaking down, bonds continue to break down, and no one cares! Nobody is worried.  The Dow was up today, although it finished up closer to the lows it was up a lot more earlier in the day although the dollar was getting hammered before the stock market opened and they still bid it up, but the S&P, the NASDAQ and the Russel 2000 all finished in the red, but the losses weren't that big. It's based on the fact that nobody even understands what's going on - what it means. Bass Ackwards In fact, they actually got it bass ackwards. You actually have people who think that a weak dollar is good and that rising inflation is a sign of economic growth.  So, there's nothing to worry about! First, let's look at what happened.  Dollar index; that was, I'd say the star of the day - or not the star because it did horrible, do you wouldn't give the dollar a star.  But it was down about 1 full percent. It closed at 89.25 on the dollar index. We cut through 90 like a hot knife through butter.  I think the next stop is a moving average at around 85, and we could be there pretty quickly.  We are headed lower quickly on the dollar. Mnuchin: "A Weak Dollar is Good for America!" In fact, one of the things that helped the dollar fall today (I think it would have fallen anyway) was Treasury Secretary Mnuchin's comments that he made to day over at Davos; he's trying to encourage foreigners to invest in America.  So he said, "A weak dollar is good for America, it's good for business, we're open for business, so he said he welcomes the weak dollar. This is supposed to make foreign investors feel better about investing in America? You're telling foreign investors that if you invest in America, you're going to lose, because you're going to lose on the foreign exchange. Anybody Who Invests in the U.S. Today Will See Losses My clients know what that feels, because we were investing in foreign stocks during years when foreign currencies were falling against the dollar. So, on paper our accounts were going down.  Anybody who invests in the U.S. today will see losses.  The dollar is going to fall even more.  So right now, the dollar is weak; the last thing you want to do is invest in the United States.  You want to invest in markets where the currencies are strong. 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 Jan 201830min

The Government is Back in Business The government is officially re-opened!  Apparently, the government shut down, maybe it was on Friday.  Earlier today Congress voted to re-open it! The good news that the government is back in business sent the stock market to record highs.  The Dow, the NASDAQ, the S&P all rallied on the good news. When the Government Shuts Down, it gets Bigger Of course, the good news was the government shutdown.  Except, it's not really shut down.  If they actually shut the government down, that would be great news. The bad news is that it's not shut down.  It's open for business.  If they really shut down government, people would like it.  At least a lot of people. The problem is, in the past, when the government shuts down, normally government gets bigger during the shutdown. The Problem is not Government Shutdown; It is Government Regulations Let's say they close a National park. They have more government workers making sure nobody uses the National park because it's closed than they had when the park was open. So the whole thing is a farce. I remember reading an article one year, during the government shutdown, that there were businesses that needed permits, but the permit office was closed, so they couldn't get the permits they needed.  The media covered the situation as, "See how bad it is when government is shut down, when people can't get their permits." Well, if government is shut down, you shouldn't need the permit.  If government shut down, you can do what you want.  You don't need a government permit. The problem was not the government shutdown, it was the government regulations. All Federal Taxes Don't Count during the Shutdown Let's say during government shutdown, "No one has to pay any taxes."  All Federal taxed don't count during the shutdown.  How many people would be anxious for the government to be open? So, a real government shutdown, where all taxes and regulations are suspended during the time of the shutdown would be great. Government Business is Destructive Because Government Means Power Government is no longer shut down; it is open for business and that means it is destructive business because government is power.  I thought it was typical or funny - the minute the news came out that they had the votes to open the government, the dollar rallied and gold sold off.  They weren't big moves. The way the lemmings react to this news is that they thought that the dollar was falling because of the government shutdown.  The dollar going down had nothing to do with the government shutdown. 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 Jan 201832min

January 19, 2018 Traders Still Ignoring Ominous Warning Signs We closed the week with more gains on Wall Street as stock traders continue to ignore all the ominous warning signs that have been flashing.  The S&P Composite  and the NASDAQ both hitting new record highs today.  The Dow, not a record high, but positive on the day, closing above 26,000 for the week for the first time ever. Important Warning Signs in the Bond Market But most importantly, what the market is ignoring is what is happening in the bond market. The bond market fell again; the yield on the 10-year rose. The high yield was 2.46, we closed at 2.639. These are the highest yields that we've had on the 10-year since July of 2014. The stock market has gone up a lot since then, I think about a 45% increase in the S&P 500.  Earnings are only up around 6%. So you had a massive increase in the stock market.  And a lot of the justification for that valuation, because obviously, valuations have risen sharply, have been based on lower interest rates.   Well, they're not lower anymore, they're back exactly were they were in July of 2014. Take a Look at the 10-Year Treasury But what's more ominous is not where they are, but where they are headed.  That's the thing.  These rates are still very low;  2.639.  We're very close to breaking a key number.  I think the bond market looks like it's going a lot lower.  To me, this looks like it's it.  So I think we're going to break through 3% on the 10-year relatively soon, maybe by next month.  I think if we take out 3.75%, it's a quick move up to 4%.  Now the last time we had a 4% yield on the 10-year was before the 2008 financial crisis.  Basically, that was the yield that broke the camel's back. Interest Rates vs Treasury Yields Remember, the financial crisis was triggered by rising interest rates on the debt that had been accumulated in the prior years as a result of Alan Greenspan keeping interest rates at 1% for a year and a half.  And then, slowly raising them back up over the course of another year and a half.  So as the Fed was moving interest rates up at a measured pace, by the time they got rates back up to 5%, the yield on the 10-year was about 4%. That's about as high as it was able to go. Bubble Precariously Balanced on Interest Rates Now, you have to figure that today, given that we have so much more debt now than we had in 2008 that the breaking point for the markets is actually far below 4%.  If 4% was enough to prick the bubble in '08, a much smaller pin would prick this more enormous bubble.  If we could not withstand a 4% 10-year in 2008,  what was the high in the stock market in 2008? we were the highs of today. The Dow was around 12,000.  So if interest rates get back to where they were, how do you justify it at 25,000? 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 Jan 201835min

January 16, 2018 Buying Stocks with Both Hands When I recorded my podcast on Friday, just looking at the technical action in the dollar and I was getting nervous that maybe we could have been setting ourselves up for some kind of holiday surprise; a big drop over the 3-day weekend that could have led to some real fireworks on Tuesday; and when the market started, everybody ignored the new low in the dollar and they were buying stocks with both hands, out of the gate. The Market Could Not Hold the Gain The Dow gapped up, and it kept going up; I think it opened up almost 200 points and the was up almost 280 points in the first half hour of trading.  We went above 26,000. It was just 12 days ago we were at 25,000. That was the fastest 1,000 point move in the history of the Dow.  Of course, 1,000 points doesn't mean as much when you're going from 25,000 to 26,000 as when we went from 1,000 to 2,000. Or even from 10,000 to 11,000, but still, it was very quick.  In fact, if you look at the trading days, it was just 6 days, because one of those days was Martin Luther King Day, and we didn't trade.  So in 6 trading days, the Dow rallied 1,000 points. Well you know what?  It couldn't hold the gain. Almost a 400-Point Swing The Dow actually sold off, and at the low of the day it was down 100 pts, so almost a 400-point swing.  We closed negative on the day. The Dow was actually the best-performing index.  It was only down about 10 points; percentage-wise it was barely down.  But the NASDAQ was down .5% and the S&P 500 was down .25%. So we'll see if we get some followthrough tomorrow, to this potential reversal. It wasn't a massive reversal (we didn't close way down, but we did close down). Technicals are Looking Worse and Worse Meanwhile, the dollar did close out on another new low.  We didn't take out the overnight lows of Martin Luther King Day, when we were closed, but we closed very near the lows. The dollar index went off at 90.45; I think the low over the holiday weekend was 90.28.  The dollar then started to gain back some of it losses early this morning and it surrendered them by the end of the day. But the technicals are just looking worse and worse for the dollar Fed Box: Interest Rates, Inflation, Consumer Prices This so far has not bothered the stock market crowd, because all they can see are positives.  But if everything were positive, the dollar would be going up.  People still don't understand what this is going to do to interest rates, inflation, consumer prices, and the box this puts the Fed in.  How the Fed is damned if it does and damned if it doesn't. If it raises rates to put a floor under the dollar and a lid on inflation, then everything collapsed - we have a worse financial crisis than 2008 and the market implodes - or, the Fed doesn't do that because it's afraid of that and we get something worse.  We get a currency crisis. We get a complete dollar implosion. We get hyperinflation. A Goldilocks Moment So we have probably never been this close to something this bad. Remember, think back to the days leading up to the 2008 Financial Crisis.  Other than me, was anybody warning about anything? No, it was Goldilocks! Everything was perfect. It's even better now.  Back then, they at least let me on television to give the other side. Now, they think, what's the point? Everything is so great, we don't even want anybody to be warning about the possibility of a problem because - "There is no possibility!". Running Up the Deficits What has happened since Trump has been elected.  The market's up 40% since we elected Donald Trump. What has he done? Nothing.  Has government been reduced? No!  We haven't gotten rid of any agencies, we haven't gotten rid of any departments.  All we did is cut taxes and the tax cuts have barely gone into effect yet.  How did we finance the tax cuts?  Running up the deficit. 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 Jan 201828min