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

* I'm going to use today's podcast to offer my take on last night's Presidential Debates * Which certainly did not live up to all of the hype and expectation * But the airwaves today are filled with opinion makers proclaiming that Trump won or Hillary won * And of course, all of the people who think Trump won, these are the Trump supporters, Republicans - their guy won * And Hillary supporters are proclaiming that Hillary won * I'm going to give you a different take because, clearly, (and if you don't know this by now, if the choice is between Hillary Clinton or Donald Trump, I would choose Trump) * Yet despite the fact that I support Trump over Hillary, I think Trump really blew an opportunity with this debate * I know in some cases there were some low expectations with respect to Trump, and did he exceed those low expectations, I don't know * I expected more from Donald Trump; I was disappointed * I think he should have mopped the floor with Hillary Clinton * She gave him many opportunities, she teed it up for him over and over again * And he didn't even take a swing * In many cases, not only did he not try to hit the ball, he whiffed * I wish he had paid me to help him with debate prep because I would have told him exactly how to handle Hillary Clinton * I'll start off by giving one simple example, where he could have made lemonade out of lemons, but chose to hand Hillary and issue which I'm sure she will use against him * This had to do with his comment in an interview over 10 years ago that pregnancy is inconvenient for employers - which of course, it is * And Hillary Clinton said: "Donald Trump, you said that pregnancy was an inconvenience for employers" * Instead of owning and embracing that comment, he backed away from it and denied having said it * One of the big issues is that Hillary is a liar * If Hillary is a liar, don't tell lies, yourself * Trump has to be honest to exploit Hillary's lack of honesty * And of course, Hillary can easily make a commercials - she's got tons of money to produce commercials and run them - * Saying that he never said that pregnancy was inconvenient for employers and juxtapose that with a clip showing him saying that pregnancy is inconvenient for employers * This didn't have to happen * Trump should have owned this * First of all, one of the things that people liked about Trump is that he is not politically correct - he speaks his mind * Why not continue to speak your mind?  Why pretend that pregnancy is not inconvenient for employers * Just because some woman might be offended * I give women more credit than that * I think most women realize that pregnancy is inconvenient for employers * Even female employers! This is not a male/female thing * If you are a woman employer with female employees and one of them gets pregnant, it is inconvenient for you, too * For big business, major corporations, maybe you have plenty of other people to pick up the slack * But where pregnancy is really inconvenient for employers is with small business * Now Hillary claims she cares about small business * OK, if you care about small business, can't you admit when things are inconvenient? * 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

27 Sep 201634min

* Aliens didn't invade the Earth, and the Federal Reserve didn't raise interest rates * If you remember, I was pegging the probability of each at roughly the same * True to form, the Federal Reserve did pretty much exactly what I thought they were going to do and not raise interest rates * Now I thought they might have tried to lower expectations for the probability in the markets of a December rate hike * Even though they didn't say that, that was the effect of their announcement * If you look at the dot plots, for example, the FOMC members were looking for rates to be lower for longer * Surely, if you look at the reaction to the market, the market does not appear to be worried about a rate hike coming in either November or December, even though the Fed still maintains the narrative that the possibility still exists * The Fed reiterated that the case for a rate hike had increased * But, they chose not to raise rates despite their narrative * Their reason was that they wanted to see more data * This is exactly what I said after Yellen's statement at Jackson Hole * The media interpreted her statement as a signal that a September rate hike was likely * What did I say? * I said the Fed didn't say anything about hiking * They were speaking about the case for a hike * I described it as a scale from, say 0 - 10 * If the case were a 3 and then it became a 4, the case had strengthened * But if the Fed needs 10, and we're only at 4, they're not going to hike * They never came clean about their scale, they simply said that the case for a hike had increased * That doesn't mean they were going to raise rates, and that's exactly what happened * It's interesting that in all of the prepared remarks and in the following press conference * Janet Yellen never once admitted that the economy is weakening * In fact, she continues to pretend that everything is great * Ironically, one of the questions in the Q&A had to do with Donald Trump's position that the Fed is not raising interest rates for political reasons * Which, of course is exactly why they're not raising them * If they raise interest rates, everything would collapse, and so would Hillary Clinton's election prospects 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

21 Sep 201627min

* This morning the Federal Open Market Committee began its 2-day meeting, where they're supposedly going to discuss raising interest rates for the second time * We're going to get the official announcement of their decision on Wednesday * Most likely there will be no surprise, that they won't raise interest rates * But it will be the statement at the press conference that follows; that's typically where you can get more market-moving insights * I said they're supposedly going to be discussing whether or not they are going to raise rates, but you would think that if they were going to raise rates, they'd know it before the meeting started * But I don't think they're going to discuss whether or not they're going to raise rates; I think they know they're not going to raise rates * What they're going to discuss is the bind they're in * It's like they're damned if they do and they're damned if they don't * On the one hand, market expectations went way up for a while, on a September rate hike * Based on Janet Yellen's Jackson Hole speech, where she said, "The case for a rate hike had strengthened." * Then later that day, another Fed official reiterated that there was nothing in Janet Yellen's speech that would rule out a rate hike in either September or December or both! * Based on that, market expectations ramped up * Of course, the Fed also claims to be data dependent, and the data over the past month has been lousy * Even though the Fed has not gone out of its way to recognize the bad data, probably for political reasons * The data has been bad, so the case for a rate hike has weakened, although Janet Yellen herself has not uttered those words * You've had some other Fed officials come out and pay lip service to that effect more recently because the market started to fall so the doves came flying to the rescue to save the market * But here's the conundrum: if they don't raise rates, which I think is the more likely option, then the Fed will have cried wolf again * If they do raise rates, it belies Janet Yellen's "Data Dependent" credo * In reality, they should be raising rates regardless of the data, because rates are too low * These low rate are creating a problem * It doesn't matter whether the economy is weak or strong, rates need to go up * In fact, I would argue that the economy is weak because rates are so low * Rates have to go up before we can have a real recovery * Of course, before we can have a real recovery, we have to prick this bubble and end the phony recovery * To have real economic growth, we're going to have to have a crash first * If we want the gain, we have to endure the pain * But nobody wants the pain so we never get any gain * If the Fed were to raise rates despite the data, it looks like they're not data dependent * If they don't raise rates without acknowledging that the data is weak * If they continue to pretend that the economy is fine, and continue to hint at future rate hikes * The Fed loses more credibility * That is what they are more likely to do: why would they take a chance on raising rates on Wednesday * Knowing A) How weak the data is, and  B) knowing that it is possible that the markets could tank as a result of that hike * That's the last thing they want, because, then what are they going to do? * How are they going to reverse the decline? Cut rates? * Clearly the Fed wants to punt again and delay the decision to December * This will mean that they barked again but they didn't bite * That's what they're talking about: "How do we thread this needle? How to we make the perfect statement that will still pretend the recovery is on track and still justify n... 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

21 Sep 201638min

* We got a lot of economic data released today, most of it bad, and most of it worse than expected * What I did not expect was that the market shrugged it off * Initially, there was a little reaction; gold jumped $3 but it never gained momentum and it rolled over to -$10 at the time of this recording * The dollar index, which had moved into negative territory immediately following the release, quickly recovered back to positive territory * It's still early in the day, as I'm recording, so this could change as some of this economic data has a chance to sink in * I noticed that the Atlanta Fed just reduced its Q3 GDP estimate from 3.3 to 3% * That' the second reduction in a row * This is the lowest estimate the Atlanta Fed has had in about 2 months, although it is still pretty high * Let's go over the data we got today: * Retail Sales was one of the more significant numbers; everybody looks to retail sales to judge the health of the consumer * Last month's number, relatively weak, it was flat, and they were looking for another flat month, but we were -.3% for August * It gets worse from there - less autos, they revised the prior month from -.3 to -.4 and in August they were looking for +.3, they got -.1 * Less autos and gasoline, we were down last month .1%; they were looking for +.4% and we're down another .1% 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 Sep 201627min

* Today was a day of damage control for the Federal Reserve * It almost seems like whenever they discuss the possibility of a rate hike, they're really launching a trial balloon * They want to gauge the possibility of a rate hike and then if the market kind of shrugs it off, or blesses the rate hike the way it did last year nearing December, if the market seems it's OK with a rate hike, then maybe they'd consider actually implementing one * But before they do it, they want to test the waters, they want to see how the market reacts to that possibility * Clearly, the near 400-point decline in the Dow on Friday showed that the market really wasn't very friendly to the possibility of a rate hike * Let alone the certainty of one * Just the mere possibility, however remote, really spooked the market * Today the Federal Reserve had a chance to dial it back * They had 3 Fed presidents speaking today, and not one of them talked about the possibility of a rate hike * Starting with an 8am talk this morning by Atlanta Fed President and CEO Dennis Lockhart * Now Dennis was specifically asked about a rate hike, and whether he thought the Fed would move in September or December * He specifically refused to comment * He said, "Financial markets seem to be very sensitive to the remarks of Fed speakers at the moment" * And so in light of market sensitivity, he refused to answer the question * Why not answer it? Don't you want to prepare the markets for a possible rate hike? * Well they don't want to say what they want to do, because they don't like the way the market is reacting * You'd better believe that if the markets reacted favorably to a rate hike, they would have stayed on script * Because of the the sell-off on Friday, and where futures opened before Lockhart's speech, the Dow was set to open up down 100 points or more * But once he spoke, all of a sudden, people were thinking, "Hey wait a minute, he didn't say anything about a possibility of a rate hike and he's worried about the markets' sensitivity * The only thing he said that could have been interpreted as a rate hike comment was when he mentioned the data over the past few weeks "warrants serious discussion of a policy rate increase" * The data over the past few weeks has all been bad * All he said is, it warrants discussion of a policy rate increase, but he didn't say that we should be in favor of an increase, or against an increase * He just said the data over the past few weeks warrants discussion * To me, what that means is, we should discuss not raising rates because all the data we've gotten recently is weak * It was the data we got a couple of months ago that supposedly let Janet Yellen conclude that the case for rate hike had strengthened * But really, what Lockhart is saying is, "We need to have a serious discussion about a rate increase." * Not that we have to discuss raising interest rates, but maybe we should discuss not raising interest rates because based on the data from just the past few weeks, one would argue against an increase * If he had said, "We need to discuss an increase", he wouldn't have predicated it with, "the data over the last few weeks" * That data, in and of itself, is not friendly to an increase * If he was in favor of a rate increase, he would not qualify it the data over the past few weeks * Also, just suggesting a discussion about a policy rate increase is not the same as actually increasing the interest rate * A discussion to increase rates could lead to no rate hike * Well, I assume they've been having discussions about raising rates for the last several years * What else do they discuss over there? 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

13 Sep 201626min

* We had widespread selling in the markets today; it was real carnage across the board * Everything went down except the U.S. dollar * The Dow Jones was down 394  points - about 2% * That wasn't bad compared to what happened in other indices and other sectors * In fact, when it comes to the Dow Jones averages, the utilities were the weakest, they were down 3.7% * The NASDAQ was down 2-1/2%; the composite down 133 points * Various sectors were hit very hard; particularly the interest rate sensitive sectors; * Home builders got crushed * Emerging markets got obliterated * Gold stocks were down big - almost 6% on the day * That's on basically a .6% decline in the price of gold; gold was down only about $10 * Silver dropped about 50 cents * What's going on? It has just been 2 days when I did the last podcast * Gold was soaring, the dollar was tanking, the markets were going up * Why? * The economic data we got for August confirms that we have the weakest economy, maybe in 6 years * If you remember, what caused the markets to be concerned was the Janet Yellen/Jackson Hole statement that the case for a rate hike had strengthened based on the economic data that came out in June and July * Based on the data released since she made that speech, this is data about August, that case has now weakened considerably * The August data shows that the data that we got in June or July that might have been positive was a one-off event * Now we're back in weakening mode, and so, if the Fed really were really data dependent, according to Janet Yellen * Now the data is awful * So why would they hike rates? That's exactly what happened * The markets started to take those rate hikes off the table * I never thought they were on the table, but there were many people who bought into it * When they saw this horrible data, and they knew the Fed was data dependent, the markets reacted * Now, in the last couple of days, particularly today, people are now questioning whether or not the Fed is actually data dependent, and they're thinking they're going to raise interest rates, even if the data is bad * Now what would make them jump to such a conclusion? * We had several Fed officials, both yesterday and today, who continued to talk about the possibility of rate hikes and nobody has acknowledged the recently-released weakening economic data * I have said many times they don't want to acknowledged that data * That plays into Donald Trump's campaign * They'd be peddling fiction! * They don't want to talk about a weakening economy, so they have to ignore the data * But the fact that they are ignoring the data while continuing to talk about the possibility of rate hikes * That's got everybody scared * All these guys say is that there is a possibility of a rate hike * A possibility is not a probability * It's certainly not a certainty * But the markets are acting as if the Fed is about to raise rates, and that's why everybody is so scared * It's not just the Fed; yesterday in Draghi's press conference was asked about his plans when the QE program ends (it is scheduled to end Q1 of 2017) * He basically said he doesn't have any plans to do more QE 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 Sep 201633min

* Last week on Thursday we got that much weaker than expected ISM Manufacturing number, which didn't get a lot of attention because it came out a day before the jobs number which cast a pretty big shadow on all the economic data * The number came in very weak, as I pointed out, it was 49.4, which is contraction mode * Anything below 50 in the ISM numbers indicates a contraction and a recession * But of course, no one cares about manufacturing because it is such a small part of the U.S. economy, which in and of itself, is a major problem * The fact that it is such a small part of the economy should be very concerning, because without manufacturing you really can't have a service sector * The way the U.S. gets away with it is to just import with everyone else manufactures and we run enormous trade deficits, which is an unsustainable model * It's a great gravy train while the ride lasts, but when the rest of the world figures out that we can never pay our debts, then the gravy train comes to an end * The trade deficit represents an artificially high standard of living, but in the long run it's unsustainable because our creditors will not let us get away with this forever * I want to get to the ISM Non-Manufacturing number which came out yesterday; this represents the service sector of the economy * They were looking for 55, which was not a great number; last month we got 55.5, so there was some optimism around that number * They were looking for 55 even and, instead, the number came in at 51.4 * The lowest number in better than 6 years * And if you look beneath the surface and all the various components; new orders, back logs, hiring - horrible numbers consistent with recession * The complete opposite of what everybody was looking for, and when you combine this with the 49.4 we got from manufacturing that is a very bleak picture * The fact that we are at 6+ lows in the service sector does not bode well for the future * The trajectory is down, and how much longer is it going to be before the ISM Non-Manufacturing breaches the 50 mark? * Just when they start talking about these rate hikes - everything before this number came out questioned a September or a December rate hike - foregone conclusion * We had the same discussion in September a year ago * They punted and raised rates in December - will they do it again? * Given the bad news to date, there is really no way the Fed is going to raise rates in September * But just when the Fed officials are talking up a rate hike, everything changes with some bad news * The Fed never admits the data is bad they just don't raise rates and you've got to figure it out for yourself * When the ISM Non-Manufacturing number came out, gold took off * It continued to rise throughout the day and closed up better than $20 * Gold got back above $1350 after having just tested the $1300 level * Silver had a big up day; it went back above the $20 mark * We had a strong move up in the gold stocks again following Thursday and Friday's strong move in gold stocks * The markets were very surprised, and when this number came out, all of a sudden all the bets were changing * The odds for a September rate hike were way down * But not that much for December, because people are just assuming they can't go in September because we got this bad news, but, of course, by December, we may get some good news * The reality is that by then, there will be even more bad news * The Fed is not going to be raising rates; they are just talking about it, politically * In fact, John C. Williams, President and CEO, Federal Reserve Bank of San Francisco late last night ignored the bad financial news entirely in his statement, 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 Sep 201638min

*  On Friday we got the Non-Farm Payroll report and, of course, this jobs report is the most important ever * Because it was going to determine whether the Federal Reserve would raise interest rates at its September meeting * Of course, I didn't think the Fed would raise interest rates in September regardless of what this jobs number was * It's just that so many people were convinced that it was going to happen just because several Fed officials said it was possible 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 Sep 201631min