The Fed’s Medicine Makes the Economy Sicker – Ep 556

Summary: Amazon Buys Whole Foods The Dow was up today; mainly on the surprise announcement that Amazon, the king of on-line retailing, is buying Whole Foods.  In a labor market significantly altered by ObamaCare-style government intervention, this news could signal further changes to the labor market.  Retail has experienced a steady decline, and this move could usher in a new wave of Amazon Go-style services. Economic Surprise Index Headed For  2009 Territory According to an article in Zero Hedge: For the 13th straight week, US economic data disappointed (already downgraded) expectations, sending Citi's US Macro Surprise Index to its weakest since August 2011 (crashing at a pace only beaten by the periods surrounding Lehman and the US ratings downgrade). The last time, Us economic data disappointed this much, Ben Bernanke immediately unleashed Operation Twist... but this time Janet Yellen is hiking rates and unwinding the balance sheet. "Unexpected" Bad News in Housing Starts and Building Permits Another "unexpected" big drop in housing starts; the third month in a row is accompanied by a drop in building permits, so that means that this trend is likely to continue. The last time we had 3 consecutive monthly declines it was 2009. * We got some more bad economic news coming out today, and it capped a week of generally worse than expected news * I was looking at a chart of the Economic Surprise Index on an article on Zero Hedge and it was a new low for this cycle * They went back to find the last time the Economic Surprise Index was this low * It was right about the time the Federal Reserve launched "Operation Twist" * Remember that? I was calling it "Operation Screw" * When the Fed was lengthening the maturity of its balance sheet * It was selling some of its short term bonds and buying longer term bonds * To have a better impact on pushing down long-term interest rates * Yet today, when the market is being surprised by the same amount of negative economic data * "Unexpected negative news" * Again, every time you read a negative news story it is always prefaced with "Unexpected" * I always put that in quotes because, why don't they expect it by now? * You get enough bad news, you should expect it * At some point, they will, and that's when the index starts to go the other way * When things are bad long enough, people start expecting bad things to happen * And then the next thing you know, good things happen * So the Economic Surprise Index goes the other way * People are still optimistic, yet they keep being disappointed * Despite this, the Fed is not only not doing "Operation Twist", it is tightening * It's putting the screws on big time in that it has just announced quantitative tightening * Not only did they just raise interest rates on Wednesday but they indicated they are getting ready to do quantitative tightening for the first time ever * This has never been tried before by the Federal Reserve * It's amazing, too that the Federal Reserve is always out there talking about quantitative easing helped the economy * It pushed up asset prices, it pushed up the stock market, pushed up the real estate market * O.K., if that is what they think, Our Sponsors: * Check out Aeropress and use my code GOLD for a great deal: https://aeropress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * 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 Juni 201733min

Summary Quantitative Tightening Ahead: The Federal Reserve came out with a surprisingly hawkish rate hike today, announcing plans to  shrink the balance sheet by $50 billion per month.  This would mean an annualized rate of $600 billion per year in new treasuries to hit the market. This does not take into consideration existing budget deficits or future spending. The Fed's policy reversal, in the face of no corroborating positive economic data, is still "data dependent". No Good News: Meanwhile, the "recovery" was the weakest recovery in history, with a doubling of the national debt, we have bubbles in the stock market, the real estate market, in the bond market market, the automobile market, student loans.  We have eviscerated our labor market with people having multiple part time jobs and this is the Fed's definition of success! Perfect Storm Now you've got a perfect storm for stocks: falling earnings, weak economic data, rising interest rates and the Fed flooding the market with treasuries.  Now maybe the stock market will take a second look at this hawkish hike and the implications of the Fed's rate hike plans in conjunction with quantitative tightening later this year in the face of a weakening economy. * A lot of people, myself included, were looking for a dovish rate hike today coming from the Federal Reserve * What I mean by a dovish hike was that the Fed would hike rates, because after all, everybody expected them to hike rates and they don't want to disappoint market expectations * They don't want to raise any cautionary flags that they know something that they have not been forthright about * I was expecting the Fed to acknowledge somewhat the weakening economic data to the point that itis now waiting for some confirmation that Q1 weakness was transitory * And since such confirmation has not been forthcoming they may have acknowledged it * But that's not what happened * We actually got a hawkish hike * Not only did the Fed raise rates but they did nothing to dampen expectations for future hikes * In fact, Janet Yellen in her prepared remarks and in the press conference that followed was very upbeat, very optimistic on the economy * Not worried about anything, no longer talking about the need for confirmation that prior weakness was transitory * She seems to just believe that it was * She thinks it is clear skies as far as the eye can see * Looking for economic growth of just under 2% a year * Not as optimistic as Donald Trump, looking for 3 or 4% growth * But she doesn't see a recession coming * She sees the economy continuing to perform at this 1.8 - 1.9% annual GDP * She continues to see improvement in the labor market * She's not worried about the decline in labor force participation * She says it's holding steady and again she dismisses the low participation rate due to the ageing of the population, so she's very optimistic * And something else she said that I think surprised the markets and made this more of a hawkish hike * Was she actually talked about starting the shrinking of the balance sheet this year * most people thought that maybe it would start next year, at least the rhetoric would say it would start next year * Whether it actually starts or not remains to be seen * But now Janet Yellen seems to suggest the Fed is ready to get started very soon with its normalization process * In fact, she didn't use these words * But it's really a reverse quantitative easing or quantitative tightening * What Yellen basically said is that they are going to start off by tapering down their balance sheet by about $10 billion a month * She actually specified, I think, $6 billion in treasuries and $4 billion in mortgage b... Our Sponsors: * Check out Aeropress and use my code GOLD for a great deal: https://aeropress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * 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 Juni 201724min

Summary: In Puerto Rico's  recently held non-binding referendum on statehood, just 23% of the eligible voters who actually voted overwhelmingly chose statehood.  This would mean that Puerto Rico would keep its current debt and take on the $20 trillion U.S. national debt. This would offer the moral hazard of offering Puerto Ricans additional welfare benefits. The last thing Puerto Ricans need is to be in a situation where it is more attractive not to work. * A lot of people are asking me abo0ut the recent non-binding referendum in Puerto Rico on statehood * 97% of the people who bothered to vote voted for statehood over independence or maintaining the status quo * Only about 23% of the eligible voters actually voted * So most people who objected to statehood boycotted the election * So most of the people who voted were predisposed to vote for statehood * The last statehood referendum held in 2012 was even more in favor of statehood * Nevertheless, the governor of Puerto Rico, Ricardo Rosselló is going to go to Washington demanding that the will of the Puerto Rican people be addressed * If you do not know by now, I am Puerto Rican * I am an American citizen residing in Puerto Rico so I vote in Puerto Rican elections I do not vote in U.S. National elections, but I am away from Puerto Rico at present * Had I voted, I would have voted to maintain the status quo * I don't want Puerto Rico to become an independent country, but the last thing I would want is for Puerto Rico to become a state * That's why I am doing this podcast * Most of the articles I'm reading on this issue address the idea that state will somehow benefit Puerto Rico, because they have been in a recession for 10 years, they have high unemployment * They have a lot of debt and somehow they see statehood as a solution to this problem * Statehood for Puerto Rico is like throwing a drowning man an anchor *  The worst thing that could happen to Puerto Rico is for it to become a state * If Puerto Rico becomes a state, every person who lives in Puerto Rico, who is currently exempt from paying Federal income tax will now have to pay it * The IRS doesn't exist in Puerto Rico * Puerto Ricans also do not have to deal with Obamacare - it doesn't exist there * Each Puerto Rican currently owes about $20,000 in debt * American citizens per capita owe $61,000 in debt * That's just the $20 trillion national debt * That doesn't include all the other unfunded liabilities * Right now, Puerto Ricans do not share in the U.S. national debt * If Puerto Rico becomes a state, the per capita debt goes from $20,000 to $80,000 * Because they inherit a share of the U.S. national debt * Why would they want to sign up for that? Our Sponsors: * Check out Aeropress and use my code GOLD for a great deal: https://aeropress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * 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 201727min

Summary: Friday's Tech Wreck continued today, some stocks making key technical reversals. The crypto currencies, also experienced volatility as Bitcoin seems to be losing some of its market share to other competing crypto currencies, but volatility remains a key component of the market. Volatility may be exacerbated by Wednesday's anticipated Federal Reserve rate hike. * Friday's Tech Wreck continued today; the NASDAQ composite led lower by the same momentum stocks that got clobbered on Friday * Some of them making key technical reversals where they made new all-time highs in the morning and yet got clobbered and closed below the lows of prior trading days *  Some of them went below the lows of the prior week * So a lot of these stocks looking very weak coming in to today's trading and continued although some of the losers did manage to eke out a gain * Novita was one of the earliest stocks to reverse on Friday, which had a big technical reversal took out a low and managed to eke out a gain * Tesla also was positive * Google, Apple getting clobbered again, Netflix, Facebook, a lot of these big stocks continue to decline * And this time the overall market did not escape the carnage because the Dow and also the S&P were also down on the day * There was still some strength; the energy stocks were up again today building on the rotational strength that they enjoyed on Friday * But it wasn't just the stock market that had big reversals * It was the cryptocurrencies as well, particularly Bitcoin * I mentioned the last couple of podcasts that when I was talking about Bitcoin and the cryptos * Bitcoin's shrinking market share in the crypto world, and that continues * Right now, the market cap of Bitcoin is now down to about 40% of the total market cap of all cryptocurrencies * Ethereum, Bitcoin's biggest competitor right now, if you look at its market cap, it's actually not that much lower now * Total market cap as I'm looking right now, of course it changes very quickly * But about a $43 billion market cap for Bitcoin and about a $34 billion market cap for Ethereum * This is the closest I've seen the two * In fact, Ethereum is actually up today, even though Bitcoin is down quite a bit * Bitcoin had a big reversal last night, I think it traded above $3000 I think for the first time, not on every exchange * And then by late morning, it was trading below $2500 Our Sponsors: * Check out Aeropress and use my code GOLD for a great deal: https://aeropress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * 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 201730min

Summary:  As an unexpected pro-labor vote in the U.K. weakened the pound and strengthened the dollar, the market reacted more to political news, abroad and at home.  The uncertain results of Comey's testimony dampened concerns about the Trump Presidency. Prior to Comey's testimony someone sold a huge amount of gold, causing gold to drop, although it finally closed only down about $7, with another selloff this morning. Gold stocks, though continue to trade much better. NASDAQ got clobbered,   Meanwhile, economic data continues to bring bad news: Consumer Credit numbers was a big miss with $8.2 billion instead the expected $17 billion. * Yesterday we had the trifecta of potentially market moving events * In hindsight, what looks like the most significant was the elections in the U.K. * With the surprise strength coming from the Labor Party to deny the Conservative Party a majority * It looks like May will remain Prime Minister even though the Conservatives do not have a majority in Parliament, because they can form a coalition, a minority government with another party * But May's position is weakened and she did not get the results she gambled on when she called the election * The reason the Labor party did so well was because of the young vote who overwhelmingly voted for Labor * Which shouldn't be much of a surprise, after they're the ones who are promising the most free stuff, and it's younger people who are the most susceptible to that message * Particularly people with little work or life experience * That's one of the reasons the voting age should be higher * In the U.S. the voting age is 18 and it was changed by Constitutional amendment * It used to be 21, and it was the Vietnam war that caused the voting age to be lowered from 21 to 18 * The cry was, if you're old enough to fight, you're old enough to vote * That's another example of how we lose every war * I would prefer the voting age stay at 21, in fact I think it should be 25 * "Old enough to fight old enough to vote" makes as much sense as, "If you're too old to fight, you're too old to vote * The one has nothing to do with the other * The weakening of the Conservative government in the U.K. brought the pound down * The pound was down about 1.6% today * And the weakness in the pound spilled over into strength for the dollar against other currencies * All the dollar's gains happened last night * During the session today, the dollar gave back some of its gains * It re-took the 97 handle, after making a new 6-month low earlier in the week, we got down about 96.50 * We closed out the week at 97.28 Our Sponsors: * Check out Aeropress and use my code GOLD for a great deal: https://aeropress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * 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 Juni 201731min

Summary: Gold and gold stocks are moving to new highs as the dollar index continues its slide. Although some connect this move to market jitters over the outcome of the upcoming James Comey testimony, economic factors are a more likely the force behind the move.  Moves in gold stocks have been telegraphing gold prices more often than not, and gold stocks have a plenty of room to move to even reach its highs of earlier this year. * Many of you probably expected me to do a podcast yesterday as a result of gold's move to new highs for the year * And the dollar's move to new lows * I happened to be traveling to Toronto, so I decided to wait until I got back to Connecticut where I can do the podcast from my studio * So we had the price of gold up about $15.00 yesterday, and of course the price of gold has been creeping higher and higher ever since its correction * And by the way, I think I did a pretty good job of nailing the correction itself * I said it would be a very shallow correction * I'm pretty sure I nailed the bottom * I did a podcast when it looked to me that the gold stocks were confirming and end of the correction in gold * Gold did rally, and initially gold stocks rallied, too, but then gold stocks came back down and almost re-tested their lows, didn't quite do it * But the price of gold never came back down * And yesterday, the price of gold hit a new high for the year * It reversed all of the correction and then went on to higher highs * Yet gold stocks are not even close to where they were a few months back * In fact, the smaller gold miners, if you look at the GDXJ, I think this think could move up 35% or so * But what we did get yesterday was finally a big move up in gold stocks * Most gold stocks were up 4-5% * I did notice some of the stocks I own up 8-10% * So this was one of the biggest up days that gold stocks have had in a while * In fact, we got a little bit of a warning about that the day before * I've been watching these stocks very closely * What I had noticed is that gold stocks were selling off every day into the close * After bitcoin initially got its high, like $2900 * Within a couple of days it was back at $1900 * It dropped $1000 in a day or so * How much volume did it actually take to do that? I don't think very much * So, if I'm right, if all of a sudden gold and sudden gold and silver break out * And now there is more enthusiasm * - I've heard people say gold and silver are manipulated so I'm buying cryptos because there is no manipulation there, and you can really get appreciation * Because the central banks are not letting gold and silver go up * Once they see it go up, that attitude could change Our Sponsors: * Check out Aeropress and use my code GOLD for a great deal: https://aeropress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * 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

7 Juni 201720min

Summary:  Today's big miss in the Nonfarm Payroll report indicates further proof for the Fed that the Q1 weak economic data was not transitory.  Coupled with disappointing Labor Force Participation declines and increasing Trade Deficit numbers, the Fed will have no good news to justify a rate hike. All this news does not bode well for the U.S. dollar index, which closed at a new low for the year today. The next crisis is the dollar. * Following yesterday's much stronger than expected May ADP Jobs report, the consensus was for 170,000 jobs and the actual number was 253,000 * The stage was set for another strong number for today's employment report * But we didn't get it * We got the official number from the U.S. government earlier this morning * The consensus was for 185,000 jobs created * We actually created, according to the government, just 138,00 jobs - a big miss * In addition to that, they took last month's initial 211,000 report and they lowered that down to just 174,000 * In fact they made revisions to the prior month as well * The official unemployment rate actually went down to 4.3% * I think that is a new low * Why did the unemployment rate drop? * For the same reason it has been dropping; lots of people left the labor force * Labor Force Participation once again dropped .02 to 62.7% * That matches the all time record low * We actually had more than 600,000 people leave the labor force in the month of May * A new all-time record high * In fact, breaking it down by part-time and full-time, all of the net new jobs added were part time jobs * We actually lost 367,000 full-time jobs during the month of May * That is the biggest decline in full-time employment in 3 years * Of course, as usual, the jobs that we do create were in leisure and hospitality, education healthcare, temporary services * We actually lost some information technology jobs, we lost jobs in the retail trade; small gains in the wholesale trade, a little better than normal in manufacturing and logging * But a still a tiny portion of the overall jobs in goods-producing segments of the economy * So we continue to create non-productive jobs which is another reason that the trade deficit continues to rise, and we'll get to that in a minute * Weekly hourly earnings up just .02%, matching expectations on the lower end * But they went back to last month's, originally reported as +.03% and they moved that down to +.2% * So earnings are not growing, full-time jobs are disappearing, and this economy is weakening * In fact, also yesterday, Challenger job cuts report announced layoffs surged in the month of May from 36,602 in April to 51,692 in May * This is the highest number of announced layoffs of any month of the year * That doesn't bode well for future job creation if all of a sudden we're getting a spike in layoffs * In addition to the bad jobs report, which of course is going to weigh on GDP in Q2 * We got the trade deficit for April, which is the first month of the second quarter * They were looking for a deficit of $46.1 billion * Instead, the deficit ballooned all the way up to $47.6 billion * From what was originally reported at $43.7 billion in March, revised that up to $45.3 billion * So this is going to take away not only from Q2 GDP but it's going to go back and take away from Q1 GDP * Remember, in my last podcast, I pointed out that the Federal Reserve, specifically, in their minutes said that before they raise rates again they want confirmation that the Q1 weak economic data was transitory * Meanwhile all of the data that has come out since those minutes were released actually proves the opposite Our Sponsors: * Check out Aeropress and use my code GOLD for a great deal: https://aeropress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * 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 Juni 201730min

Summary: Box office revenues for this holiday weekend were the weakest since 1999.  Why is that? Some say the movies were not very good, but I think it's more likely that this is just another piece of evidence that supports the fact that the consumer is in much worse shape than is generally perceived. * Hopefully everybody had a happy Memorial Day weekend; I spent my holiday weekend up in Vancouver at the International Metal Writers Conference * And when I came home, I came back to my home in Connecticut * This was the first year I spent the winter in Puerto Rico, from January 1 until just a few days ago * I bought a condo in Puerto Rico a few years ago, I moved my Euro Pacific Asset Management Company there from California at about that time, but I'd never moved there myself until this year * I like snow, it's pretty, but the next time I see snow it's because I'm skiing on it * I'm a snowbird now * But this time I'm not only flying out of bad weather, I'm flying out of high taxes * It's not just the high taxes in Connecticut; it's the high taxes in the U.S. * By the way, Connecticut is basically broke, if you read a lot of the articles now * The tax revenue is collapsing * I'm moving from a bankrupt state to a  bankrupt territory * Puerto Rico has already declared bankruptcy; Connecticut hasn't actually done that * Connecticut is admitting that they can't raise taxes on the rich anymore, because the rich are leaving * I moved down to Puerto Rico with my wife and two young children, and I love it * I live in a nice community, Dorado Beach; great neighborhood, many in the same situation as me * I read this article about box office - holiday weekends are usually a good time for Hollywood * Memorial weekend is a big weekend to kick off the summer movie season * The article I read stated that box office revenues for this holiday weekend were the weakest since 1999 * Why is that? Our Sponsors: * Check out Aeropress and use my code GOLD for a great deal: https://aeropress.com * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * Check out Boll & Branch: https://boilandbranch.com/SCHIFF * 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 201723min