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

Schiffreport: January 5, 2018 Trump: We Will Win on Trade Earlier this morning the government released the December Nonfarm payrolls report, AKA the Jobs Number.  But rather than start with that, I want to talk about another number that was released at the exact same time. It unfortunately gets very little attention in the media, in fact nobody has really paid attention to this number since the late 1980's - early 1990's.  Of course, I am talking about the trade deficit.  In fact when Donald Trump ran for office, he actually made the trade deficit an issue in his campaign, which was quite rare.  In fact, Donald Trump said that we were losing on trade and he was correct.  He promised that if he was elected, we would be winning on trade. Biggest Trade Deficit in almost Six Years Well we just got the number for November, and it was the biggest trade deficit in almost 6 years.  $50.5 billion. What's more important than that number, look beneath the surface of the number that's bad and it gets a lot worse.  If you take out oil, and America is still a net importer of oil - but if you just focus on the rest of the trade deficit, it was an all time high. Oil Headed Higher The biggest monthly trade deficit ever.  We finally broke the record that I believe was set when Bush was President. But think about this: oil prices were pretty low in 2017.  We just started to rise, in fact we closed the year above $60/barrel for the first time in 4 years. So imagine how much higher these trade deficits are going to be if the price of oil returns to $80-$100, which it was earlier in the year when it dropped below $60/barrel. In fact, I think that's exactly where it's headed. All-Time Record Low against the Yuan Also, look at what's happening with the dollar. The dollar fell last year for the first time in 5 years. It was he largest annual decline in 14 years, measured against the dollar index.  But look at the Chinese yuan.  the dollar fell by the most against the yuan in 9 years. In fact, I think we're going to hit an all-time record low for the dollar against that currency next year. Upward Pressure on an Already Rising U.S. Trade Deficit If you remember, when the year began, all of the strategists on Wall Street were universally bullish on the dollar and bearish on everything including the Renminbi. A lot of people were shorting the Chinese currency. In fact, they were as bullish on the dollar back then as they are on the U.S. stock market right now. Of course, the markets did the opposite of what they expected. If oil prices keep rising, and the dollar keeps falling, that is going to put even more upward pressure on an already rising U.S. Trade Deficit. 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

6 Jan 201825min

Market Ignoring Economic Realities All three of three of the U.S. stock market indexes are ringing in the New Year with new record highs.  The market was up on the first trading day of the year; up again today.  NASDAQ composite is the star, 7065 today up another .84% - a new record high. The same thing with the S&P and the Dow.  The Dow is now almost at 25,000; it closed at 24,922.  Of course, everybody is ignoring, though, the economic reality. What Do Oil Price Increases Imply for the Economy? Look at the price of oil, up again today - 61.77 is the close, up 1.40 - we were up yesterday. This is the highest oil has closed in over 2 years.  If we get above 62.75 that would be the highest close since December of 2014. It was all between July and December of 2014 that oil prices collapsed from above $100/barrel to below $40. I think this year we have clear sailing to $80 - $100 oil this year.  Nobody is talking about what this implies for the U.S economy. This is a gigantic tax hike for consumers. Doubling the price of oil over a 2-year period is going to have a major impact on the cost of everything. Watch Commodities Prices It's not just energy costs.  Commodities in general are strong. Gold was up $15 on the first trading day of the year; we were down about $4-5 today, getting back some of the gains, so gold is off to a good start. Some of the gold stocks were very strong yesterday.  Across the board, the resource sector is going up.  In fact the ironic thing is that we got the release of the FOMC minutes today and as soon as the minutes came out, gold actually sold off, and clawed its way back to down a little bit on the day. Fed Expectations of Low Inflation If you look at those minutes, the only concerns that the FOMC minutes expressed about inflation was that it was still too low.  They are worried that inflation expectations are still too low, that the public, or investors still don't expect enough inflation, which shows you how clueless the public is.  If they don't think there is going to be inflation, they're wrong.  Those expectations are totally wrong. Hitting 2% Inflation Out of the Park People are ignoring what is going on in the currency markets, the commodities markets, the bond markets.  All of these markets are flashing inflation, according to the way you measure it: Consumer prices producer prices, they're all going to be going up, and the Fed, is still worried that they are not going to be going up fast enough, that they're not going to hit their 2% goal. They are going to hit that out of the park.  They are going to be looking at 2% in the distant rear view mirror. 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

4 Jan 201834min

2017 Optimism This is my final podcast for 2017.  I just watched the U.S. Stock Market ring the closing bell for the final time in 2017. Everybody is excited; everybody is optimistic.  I spent most of the day watching the financial coverage, mostly on CNBC to see the attitude and the types of coverage the market has received. The Dow Gained 5,000 Points in a Single Year Of course this is a record year in the stock market; an all-time record high in the Dow.  I think this is the first year that the Dow has ever gained 5,000 points in a single year, in fact the Dow was up every month of 2017 - that's never happened before in history.  I think we've gone 14 consecutive months without a decline.  Not only were we up every month, but 2017 represented the year ever of the lowest stock market volatility. So as the market was going up, it barely ever went down. So no one was nervous. Unprecedented Rise Occurs at the End To me, this type of unprecedented rise does not happen at the beginning of something. It happens at the end. Anybody who believes that 2018 is going to be more of the same is in for a rude awakening. I think the final minutes of the trading day set the tone for next year. Even though the markets were up every month of this year, they were not up in the final week. The Dow and the S&P were both down this week. The entire decline for the week happened today, actually in the last 10 or 15 minutes. The Dow was down about 30 going into the last 15 minutes and it ended up -118. The Dow was never really positive today, same with the S&P. Last Year Optimism was all about the Dollar The NASDAQ was the biggest gainer of the year with well over a 30% gain. The Dow up about 25%, the S&P up about 19%, so certainly a big year, but to me, this is the end of this big bull market. The action in the final minutes may be an indication of what is to come. I have not seen this much universal optimism on an asset since last year at this time with respect to the U.S. dollar. Everybody was bullish on the dollar. In fact, the big short was the Chinese Yuan.  All these big hedge funds were shorting the yuan - it's going to collapse. What was I saying a year ago?  I said these trades were going to blow up. anybody shorting the yuan was going to lose money. Dollar Index Down Almost 10% this Year What has happened to the dollar this year? The dollar index is down almost 10% for the year.  This is the first annual decline for the dollar since 2012, so it is the first drop in 5 years, but it is the biggest drop in 13 years. The last time the dollar was down more than this was 2003.  What happened in 2003? The dollar fell in 2003-4-5-6-7 and 2008. It didn't stop falling until August of 2008 and the only reason it stopped falling is because it was saved by the financial crisis. 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

30 Dec 201734min

Trump's Economy Today President Trump signed into law the Tax Cuts and Jobs Act.  The biggest problem that the President will have with these tax cuts is that he now owns the economy.  That is going to be a big problem, because this is now Trump's economy. This is now the Republican economy. It's All Bullish Now, Trump now already owns the stock market, and that has served him well so far this year. But you know what?  The stock market could be getting ready to enter a big bear market. I've never seen so much bullishness, so much unfettered optimism on the market in my life.  Not only on the market, on the economy - it's a no-brainer! Guest after guest on CNBC, "There's no way the market is not going to continue to go up!"  "The only question is, how much higher is it going to go?" One bull after another - nobody is bearish.  The networks are not even willing to allow my point of view to  be expressed on the air, in spite of the fact that I was good for their ratings.  I don't think CNBC wants an investment professional to come on and be bearish. To talk about the problems that underlie the economy, to talk about problems with the stock market, it's all bullish. Trump Will Own the Bear Market, Too This crazy optimism; everything is great, nothing can go wrong, oh yeah?  How about inflation pushes up bond yields.  How about corporations end up having to spend more on debt service payments, some of which is no longer deductible.  How about inflation causing an increase in raw material costs? How about the consumer being so strapped with rising prices, no savings and record debt, that earnings go down?  There are so many things that can go wrong when you have an overpriced stock market where everybody is in, and there is no money on the sidelines. So if we go into a bear market, Trump owns it. 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

23 Dec 201737min

Calling Tax Cuts Reform is Fake News Earlier today the House of Representatives passed the Tax Cut Bill.  Of course, the Media keeps referring to it as "Tax Reform".  That's fake news, for you, calling these tax cuts reform is a perfect example of fake news.  Donald Trump is not going to complain about this fake news.  When the fake news works in his favor, when he prefers the fake news to the real news, he's going to be quiet about it. It's only when he doesn't like the fake news that he calls the media out. Loopholes will Reduce Taxes from 39.6% to 29.6% This has nothing to do with reform.  There are definitely tax cuts in this bill.  In fact, there are substantial tax cuts. The tax cuts are a lot deeper than what people are saying, because the real reduction in the top rate is not from 39.6% to 37%, it's from 39.6% to 29.6%. It's a much bigger reduction because of the ability of so many people who are now paying 39.6% to use the loopholes to reduce their tax to 29.6%.  Now, of course, the top rates are actually higher than that, because no one talks about the 3.8% Medicare and Obamacare taxes that are not repealed. The mandate, the penalty for not buying insurance is repealed, but the taxes to fund Medicare and Obamacare, they're still there.  So the marginal rates are higher than the media is talking about. The reductions, however are actually much bigger for the top end. No One Gets Government Relief Normally, I'm all in favor of lowering the top end. I would just like to do it in a fair and honest way, not through gimmicks and loopholes. But yes, I want to lower the top rate of tax, but I also want to make government smaller.  I want to reduce government spending so we no longer need all that tax revenue. I have said over and over again, that this bill will provide some people with tax relief, but no people with government relief. 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

20 Dec 201729min

Everybody Joins the Party All 3 of the major U.S stock indexes closed out the week at new record highs as it became apparent that the new tax cut deal was pretty much done. Marco Rubio, who had been a hold-out, caved and even Corker, the one Republican who was going to vote against the bill becase it was going to increase the deficit, decided to join the party as well.  He's now a yes, so the bill is going to pass. Plan Riddled with Loopholes We didn't get the compromise details until later Friday afternoon so I am recording this podcast Saturday morning.  The new top rate: 37%, bottom rate: 10%.  But of course, that 37% rate is probably not going to be paid by nearly as many people as the government thinks, because this plan is riddled with loopholes.  In fact, I believe, if this plan passes, we will have a tax code that is more game-able where more people are doing more things to rig the system or exploit the loopholes  - not that there's anything wrong with  that - that's every American is going to do. No American is under obligation to pay more taxes than what is owed. And to the extent that you can re-arrange your affairs, such that you pay the lowest possible tax, that's what everybody is going to do. Reduced Deficit Projections is Nonsense And that is why the Republican projections that this is going to add just $1.5 trillion to the deficit over next 10 years are a bunch of nonsense.  I'm sure that it will add more than twice as much over the next 10 years above how much the deficit is going to grow anyway during those 10 years.  Now, the Republicans try to claim that even though on paper this bill will add $1.5 trillion to the deficit, it won't really be that big, because these tax cuts are going to create all this extra economic growth, which will result in additional tax revenue.  So if you factor in that additional revenue, some kind of dynamic scoring, then the impact will not be as large. That is all a bunch of nonsense. 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

16 Dec 201735min

Expected Rate Hike Today the Federal Reserve did exactly what everybody expected them to do, they once again raised interest rates by just one quarter of one percent.  This is the third rate hike of the year; this is the fourth rate hike since Donald Trump was elected President and the fifth time the Fed has raised rates since the 2008 financial crisis. The Fed raised rates only once from Obama's election to Trump's election eight years later. Extraordinary Amount of Excess Stimulus We now are at 1.25% on the low end to 1.5%. So if you take the midpoint there, 1.35%; we're barely above 1%.  Despite five rate hikes over the course of more than 2 years.  Remember the first rate hike was in December 2015, so it has been exactly two years. It has taken the Federal Reserve two years to move the rate from zero to 1.35%. This is an extraordinary amount of excess stimulus.  To say that the Fed has been successful in normalizing rates is complete nonsense.  Two years ago, when the Fed raised rates for the first time, nobody in the mainstream believed that two years later, we would still be this low. FOMC Press Conference The most interesting part of the Fed's announcement is always the press conference that follows. The most interesting thing about is, whenever Yellen was asked about inflation; whenever she opined about inflation and what the Fed's concerns might be, the only concern that she ever expresses is that inflation may stay too low.  In fact, that's the only question she gets about inflation.  Nobody asks her, "What if inflation is higher than you think?"  It's always, "What if it doesn't get to 2%?" Even though, of course it's already well above 2%, but everybody wants to pretend it's not, the questions are;"What if it takes longer to get to 2%?  Are you concerned it might not get to 2%> What Happens if Interest Rates go Too High? And the answers are, "Well, we think it will get back there, but yes, we recognize it's a risk that maybe it won't."  It never dawns on anybody to actually consider the real risk.  The real risk is not that inflation stays below 2% (that's the ideal situation for the Fed).  The real risk for the Fed is that inflation goes to 3% or 4%, but that possibility isn't even discussed.  I know why, because they can't deal with that.  I wish somebody would ask Yellen, "What is your plan, if inflation surprises you by spiking up? what if it jumps up to 3 or 4%?" What is she going to say?  We're going to slam on the brakes?  We're going to jack interest rates way up? What's going to happen to the stock market? What's going to happen to the bond market?  What's going to happen to the economy? Does Elevated Asset Prices Concern the Fed? In fact Steve Liesman asked her a question about the stock market; about how the stock market is going up every day and he asked her: "Are you worried about this?  Does these elevated asset prices concern the Fed?" She told him, no, the Fed's not worried at all.  Not only do we not see any flashing red lights, we don't even see any flashing orange lights.  There's nothing to worry about.  She specifically said that, this is very different than it was last time. Yellen: Nothing to Worry About the Debt Yellen said that last time when we had an elevated stock market or real estate market, it was because we had too much credit, we had too much debt, but that we don't have that today. Is she kidding me? We actually have more debt! This is a bigger bubble that has been fueled by even more cheep money.  The Fed is force-feeding cheap money into the economy; interest rates now are 1.3%; we've been going on a borrowing binge - corporations are levered up, they've been buying back stock, consumer debt is at all time high, auto debt, student debt, government debt is exploding, the national debt is twice as big as it was when we had the 2008 financial crisis, and Yellen is saying that there is nothing to worry... 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 Dec 201736min

Bitcoin Week I'm going to devote today's podcast to bitcoin; I might as well just talk about bitcoin because that's all anybody else is talking about.  On CNBC that's pretty much all they are talking about; they said it is "BitCoin Week".  It sure sounds like it.  I think they should just rename the network: Crypto News BitCoin Network.  I would be a good guest on that network because I know either side. Swallowing Hype Hook, Line and Sinker But just like in the dot com bubble in the 1990's and the housing bubble in 2007, they are swallowing the hype hook line and sinker. they drank all the Kool Aid. When they look back at those manias, they like to laugh, but they did not laugh at them back then - not at all. The only people they laughed at were people like David Tice, he would come on and they would laugh at him just like they laughed at me when I talked about the bubble leading up to the Financial Crisis. Nobody at CNBC had any idea that there was a dot com bubble.  All they did was laugh at people who pointed it out. Even Less Legitimacy Same thing is going on now, although they do refer to the bubble.  But to me, this bubble is the most irrational of any of the bubbles I've seen.  I there is a less legitimate case for BitCoin than any of the dot com stocks that went to zero, or buying sub-prime mortgages. Total Market Cap: $460,355,182,968 But let me talk a little bit about the whole origin of this thing, in case you don't know. When Bitcoin first came about, it was the only crypto currency out there. Now there are over 1300 crypto currencies.  The market cap is over $450 trillion.  Bitcoin is trading today at over 17,000. That's a new record high on bitstamp.net.  That did not take out the $19,000 record set on coinbase.com last week.  We're up about 15-20% today. Futures trading debuted on Sunday night and Saturday, in advance of that, we had a pretty decent sell-off.  Bitcoin sold off to about $13,000 and then it skyrocketed, it turned around on Sunday night and continued going up on Monday. Speculative Asset But in the beginning, the whole idea behind Bitcoin was that it was going to be money - a digital currency whose advantage was that it could be used anywhere in the world, anonymously, inexpensively and quickly.  I loved that aspect of Bitcoin. But what I did not like is that it had no backing. It has no real value, so it never could actually be money.  Now, as the value has skyrocketed, it is impractical to actually spend, and people are using it as a "store of value".  But it has no intrinsic value.  It is just a speculative asset. 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 Dec 201733min