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

Yellen Putting On an Optimistic Front Everybody is watching Janet Yellen this week; the Federal Reserve met and did not raise interest rates - no one expected them to raise interest rates.  But Yellen did offer a more optimistic assessment on the economy than most people were expecting. In fact, she shrugged off all these hurricanes and did not mentioned all the money that will have to be borrowed to repair all the destroyed infrastructure. No Rate Hike She's not worried at all about the impact of the hurricanes on the economy, and based on how upbeat she is, the markets are convinced that we are going to get another rate hike between now and the end of the year.  Most likely December - and I think the markets had already started to price out a December rate hike and now they are pricing it back in. Shrinking The Balance Sheet But what everybody was waiting for was the plan on quantitative tightening.  They are afraid to use that language, but they're just talking about winding down their balance sheet. Janet Yellen did say that they would begin in October or November.  They will not roll over $10 billion per month.  Now, if they earn $15 billion in interest, they are still going to re-invest $5 billion. So it is possible that even though they are doing this "taper", that the balance sheet could still be getting bigger. $10 Billion a Month Forever If they stay at $10 billion a month it will take forever to actually shrink the balance sheet - which they won't do, because long before we get to forever, we're going to get to the next recession and then they will have to crank up the balance sheet. Fed is in a Box The Fed is in this box, they've boxed themselves in.  They have kept rates so  low for so long, they've allowed so much debt to accumulate it is impossible to allow interest rates to rise, but they can't admit that.  So they have to pretend, they have to talk as if everything is going to be fine, they will be able to normalize rates, they will be able to shrink the balance sheet. None of this is possible, and it's only a matter of time before the market figures it out.  Bankrupt! Just like Toys R Us - bankrupt overnight.  It was just a matter of time before Toys R Us creditors realized they are insolvent.  Then, Boom! Puerto Rico, already bankrupt, can't do anything to help itself now.  It it were not for money coming to Puerto Rico from the United States, what would they do? They didn't save, they squandered their money, they ran up big debts - America has done the same thing and there is no bailout for America. 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

22 Sep 201736min

Market Anticipates Quantitative Tightening The market continues to rise; people are excited about the Fed meeting that start tomorrow and concludes on Wednesday.  Nobody expects a rate hike and there's not going to be a rate hike, but what everybody is looking forward to is the Fed outlining its strategy for quantitative tightening. Shrinking the Balance Sheet The Fed hasn't actually used those words yet; I use that term because what they are going to do is they are going to shrink their balance sheet.  Right now, it's pretty much as large as it's ever been ever since it has done QE: just over $4.5 trillion.  The idea is that the Fed is going to lay out a timetable or a roadmap for shrinking this balance sheet. Upward Pressure on Interest Rates I don't know why the markets are so excited about the prospect of a plan to shrink the Fed's balance sheet; if the Fed actually shrunk the balance sheet the markets would not like it. This would put dramatic upward pressure on interest rates, which is not good for stocks. GDP Estimates Down Also, GDP forecasts are coming down, we had big reductions late last week. Much of the reductions came from bad economic data we received before the hurricanes. Now, in the aftermath of hurricanes, that bad economic data is going to get even worse.  They are already tallying up the damage from Irma and Harvey and it is enormous. Real Estate Under Water Speaking about real estate, there are many people who did not have flood insurance.  The question is: What are they going to do with their houses? Are they going to borrow more money with low interest rate government loans and be deeper under water? Or are they going to walk away from their homes and just give these underwater housed back to the bank? Also, if Maria hits Puerto Rico and does a lot of damage, the U.S. government will have to pay for some of that. Government Spending Increase With all this bad news about the economy, why is the Fed going to try to make it worse by shrinking its balance sheet? The budget deficit is already going to explode; all the hurricane relief money needs to be borrowed.  Trump is promising to roll out the Republican tax cut plan by the end of the month and it may be a joint efforts with the Democrats.  They've already said it will increase the deficit.  If the deal is with the Democrats, it will no only mean less tax revenue, it will also mean big increases in government spending. Money for Hurricane Damage - Money for Everybody! So not only will we be paying for hurricane damage, there will be new infrastructure spending, new money for the military - who knows if we get money for the wall? Maybe it's going to be money for everybody, the Democrats and Republicans coming together to fill everybody's Christmas stocking with goodies for the voters.  How is the Federal Reserve going to add to the pressure? Who Will Buy Government Bonds? Remember: if the Treasury is going to borrow more money, that's more bonds being offered for sale. If the Federal Reserve is not only not a buyer for those bonds (which it normally would do), if it is shrinking its balance sheets it cannot buy any of them. So now the Federal government, the Treasury, is going to have to go into the private market to sell well over a trillion dollars worth of treasuries to finance next year's budget deficit without any help from the Fed. Repay Fed Plus Finance New Borrowing But not only is the Fed not going to help, the Treasury will be in competition with the Fed.  They will both be trying to unload treasuries at the same time. In other words, if the Federal Reserve refuses to roll over the maturing bonds, or refuses to reinvest the interest payments they earn, then the Treasury will have to sell those bonds, too. They have to sell enough bonds to repay the Fed in addition to finance all the new borrowing. 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 Sep 201738min

President Trump Courts Dems on Tax Reform I think the catalyst for the rise in the stock market today is enthusiasm over President Trump's announcement that he is working with the Democrats and is close to a deal on tax cuts. So that if he can't get something done with the Republicans, he will get it done with the Democrats and, one way or another, he's going to accomplish this major tax reform. Major Shift to Make Economy More Productive But of course, it's not going to be tax reform; it's going to be tax cuts. Based on what the President is saying, we're not going to reform the tax code, we're not going to have a major shift that will make the economy more productive. The President has already said that the "rich", however he is going to end up defining rich, and I have  feeling that "rich" might be a lot less income than people might believe, but he is saying that the rich are not getting a tax cut at all. They may even have a tax hike! Growth Comes When You Lower Marginal Tax Rate If you're not going to lower the top rate, if you're not going to reduce the marginal rate of tax, you're really not going to get any economic stimulus, because that's where the growth comes from.  Growth comes when you lower the marginal rate and people have the incentive to work harder and product more taxable income, so that maybe the government can actually collect more taxes at a lower rate because there will be more income subject to tax. The reason is, the higher income workers need an incentive to continue to work harder in order to promote savings and investment. if the cost of working harder exceeds the cost of not working, people will choose leisure over productivity. More Government Spending, Less Revenue Now if the middle class tax bracket gets reduced a little bit, they probably will not have the incentive to work harder or generate more income or productivity.  They will just pay a little less tax.  I'm all for lower taxes, but only if we shrink government; only if we cut government spending. Nowhere is the President talking about that.  In fact, what he is talking about is more government spending. I'm sure that any deal with the Democrats is going to involve increasing government spending on infrastructure, on hurricane disaster relief, on border security - whatever it is, it is going to be a giant bill that will result in more government spending and less revenue to pay for that spending 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

15 Sep 201742min

A Huge Risk-On Day The markets rallied all over the world.  Everything was up. All the foreign markets - European markets, Asian markets, rallied.  It was a huge risk-on day. Stocks went up and bonds got clobbered. Yields rose on government bonds, the 10-yr. out to the 30-yr. Insurance Rates Going Up There will be a lot of pressure on insurance companies to pay claims for both recent hurricanes and where's that money coming from? It's got to come from the markets.  It is just not sitting there in a piggy bank. It is invested in stocks and bonds, so if they are going to pay claims, you would think that is a negative for the financial market as the insurance companies have to liquidate some of their portfolios, but not today! Big Move Down for Gold Risk-on, so you get rid of your safe assets, although I don't know why anyone would consider Treasuries safe, but everybody sold treasuries and bought U.S. stocks. They sold gold.  Gold was down $19 today. This is the biggest one day move I've seen in a while.  In fact, this $19 down move - gold has been moving up steadily to $1350 last week. I don't think I have ever seen a $19 up day. Gold's Steady Climb Gold's been going up slowly.  $5, $7, $3; maybe there was one $10 day, I think, but it has been a very slow, steady climb on a wall of worry.  And now, all of a sudden, we have a day where everybody is excited because the hurricane didn't do as much damage as it could have, and they all buy stocks. They dump gold and it goes down $19 in one day. Gold had been climbing before the hurricanes came around. and I don't think any of that gain was necessarily the result of the hurricanes.  Had none of these hurricanes happened, gold could have been exactly where it was before today.  Gold was rallying anyway. 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 Sep 201740min

Trump said Government was Too Stupid When Donald Trump was originally elected President, I was out there warning, that budget deficits under the Trump Presidency are going to be huge.  Donald Trump never ran as a fiscal conservative or a Libertarian.  He didn't say government was too big, he just said it was too stupid. He promised just to be smarter. He didn't say he would make government smaller, only that he would make it more efficient. He would do a better job of using big government than politicians who have held the office before him. Trump Promised More Spending So it was my feeling that a Trump Presidency was going to result in increasing the budget deficits that would be necessary to finance a bigger government.  Also, Donald Trump never promised to cut government spending; cut entitlements.  In fact, he promised the opposite.  He promised not to touch entitlements, to allow them to continue to expand. He promised to spend more money on the military, more money on our vets, more money on infrastructure, more money to build a wall.  So I knew all of this would result in bigger deficits. "Gentlemen's Agreement" to Raise the Debt Ceiling But now, my suspicions have been confirmed. Now we have news that Donald Trump has basically made a "gentlemen's agreement" with Chuck Schumer to repeal the debt ceiling completely. There has been some debate again about raising the debt ceiling, we have this charade every year or so, where everybody pretends that they might not raise the ceiling and they raise it anyway.  We had a similar political theater going on until Donald Trump cut a deal with the Democrats to extend the last suspension of the debt ceiling for another 90 days. That's when we found out that they had also been working on this deal to eliminate the ceiling altogether. Never Really Paying Off Bills In recent years, the political spin has always been that lifting the debt ceiling is the politically, fiscally responsible thing to do.  That America always pays her bills, and because we always pay our bills, we have to raise the debt ceiling. Ironically, they have it backwards.  The reason they have to raise the debt ceiling is because America never pays her bills. If we paid our bills, we wouldn't have any debt. Debt Ceiling was a Brake on Government Spending What government wants to do is to continue to not pay the bills; to continue to borrow the money so that we can pretend to pay the bills.  And the obstacle to increase debt is the debt ceiling. Of course, we always raise that ceiling every time we approach it, but the fact that the ceiling is there, must provide some type of brake on government spending. 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 Sep 201729min

Threats from Hurricane Irma and North Korea After a long holiday weekend the DJIA fell 234 points this Tuesday.  Finally we have some kind of negative reaction in the stock market to the bad news.  Over the weekend we got news that North Korea had successfully tested a hydrogen bomb, and now we know that Hurricane Irma, which is now listed as a category 5 hurricane, is one of the biggest, if not the biggest hurricane ever in the Caribbean. Anything Can Happen It looks like it is going to go right by Puerto Rico; for those who may be concerned about me, I am Connecticut now, so my family and I are not on the island, but we certainly have property there and we are also very concerned about our neighbors and the people of Puerto Rico. It is not likely to be a direct hit, but anything can happen.  It is projected to pass Puerto Rico Wednesday afternoon. Irma Threatens Caribbean Islands on Heels of Hurricane Harvey The people of the Virgin Islands are going to suffer a similar fate.  There are other Caribbean islands that will not be as fortunate; the hurricane is going to go right over them.  Who knows where it is going to go after that? There is a state of emergency in Miami, in the keys, from Key West all the way to Key Largo. It is a massive hurricane with lots of potential damage on the heels of Hurricane Harvey. We're Broke And you know what? We're broke. Harvey is almost a $200 billion price tag, and I don't know what Irma will be, because the government will have to bail out Puerto Rico and the U.S. Virgin Islands. There is no way the government can deny them relief - they are American citizens.  There was a lot of opposition to a Puerto Rican debt bailout but no one will be against giving money to Puerto Rico as a result of the hurricane. Hurricane Aid for Puerto Rico instead of a Bailout In fact, this could end up being a bonanza for Puerto Rico. They could end up getting a massive amount of aid all disguised as hurricane aid. They are talking now about power being out for 4-6 months in parts of the island because the government has so under-invested in the infrastructure - the government-owned power company.  Maybe Puerto Rico will get a bunch of money in order to re-build that infrastructure as part of the hurricane bail-out money. So money they could not get from Congress because of fiscal troubles may come through another channel. 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 Sep 201738min

Nonfarm Payroll Report Fails to Impress Today is the first Day of September; and since it is the first day of a new month, and it is a Friday, we got the nonfarm payroll report. The consensus forecast was about 180,000 jobs.  The number came in at 156,000, well below the consensus. To make it worse, they revised down the prior 2 months by about 20,000 jobs each. The unemployment rate notched up from its 16-year low.  When Donald Trump, the candidate called 5% unemployment the greatest hoax on the American people, well, it's got to be an even greater hoax, now that it is 4.4%. Donald Trump's Huge Reversal I just put up a video on my YouTube channel, Donald Trump's Huge Reversal. I juxtaposed a lot of clips of Candidate Trump with President Trump. Candidate Trump talked about how terrible the economy and how the numbers are so phony and now he is embracing those same numbers, and of course it is the same with the stock market, calling it a big, fat ugly bubble. The stock market today continued to strengthen throughout the week, including in the aftermath of this weaker than expected nonfarm payroll number. Some Silver Linings Labor force participation held steady at 62.9, still very low. Average hourly earnings, which happened to be up .3% last month, the biggest gain we've seen in a while, in August it was up ,1% ; vert meager increases in average hourly earnings.  A lot of that may have to do with the higher minimum wages - just talking about minimal amounts of money here.  The average work week actually ticked down from 34.5 hours  to 34.4 hours, so Americans working slightly more hours and getting barely more money. Is This The Beginning of a New Trend? This was a relatively weak report; there were 2 bright spots; there was that there was a decline in government workers and a better than expected increase in manufacturing. We did see an increase of 36,000 manufacturing jobs; a lot more than the expected 9,000. We do have a 2-month jump in manufacturing jobs. The question is, "Is this the beginning of a new trend?" 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 Sep 201736min

$1,300 Was a Coiled Spring Beneath the Market We've been flirting with that $1300 level all year; I've been talking about all the resistance that was up there and every time the price of gold got near $1300 it was met with a tremendous amounts of selling, there was a lot of supply.  But as I have been saying on this podcast, the demand was building. It was a coiled spring beneath the market. The channel was narrowing.  The distance between the $1300 resistance and the support kept getting narrower and narrower.  I thought it was only a matter of time before we exhausted that supply and broke through that psychological $1300 level. The Rally Held Firm All Day Gold is up about $18-19 on the day; we closed at about $1310.  Finally, I think, there were people who were worried it wouldn't hold that level, people were thinking that we would sell off so we wouldn't quite get a close above $1300, we'd just get a trade above $1300. But the rally held firm all day long.  We actually closed on the highs of the day. In fact, as I am recording this, the price of gold is taking another jump.  Maybe it is the missile North Korea fired that went through Japanese airspace.  We're tacking on another  $10-11; we're now trading above $13.20. The Dollar Is Now a Risk Asset The dollar continued its weakness.  It is one of the reasons that gold continues to be strong. The dollar index made new lows today, down around 92.20, and looking at the action so far in the early evening. The dollar is not benefitting at all from this flight to quality. We're seeing a big rise in the Japanese Yen, a big rise in the Swiss franc.  Those are the go-to currencies.  The dollar is now a risk asset. People don't buy the dollar when they're worried, they sell the dollar when they're worried. Even the Chinese Yuan - new high for the year. Gold Now Going Up in Terms of Everything Of course gold, now, is not only rising in terms of dollars, but finally rising in terms of everything. Gold is going up in yen terms, it's going up in Swiss franc terms, even though those currencies are rising as well.  This is a key factor, and I think now that we have cleared out that resistance, there are a lot of people who thought there is no upside in gold.  Well they're about to find out just how much upside there is. 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

29 Aug 201724min