The Peter Schiff Show Podcast

Markets Rallied on Fed Minutes Interpreted as Dovish Earlier today we got the release of the latest Federal Open Market Committee minutes and before the minutes came out (they come out at 2pm Eastern Time). Prior to the release, all the stock markets were down; the Dow was down maybe about 150 points or so, and when the minutes came out, we got a rally, and the Dow closed up about 50 points.  So, a 200-point rally on the minutes, and the reason the minutes acted as a catalyst for the rally is that they were interpreted to be a bit more dovish than expected. The Fed's Symmetrical Inflation Target To me, the minutes were as expected; I had already been talking about the Fed's view that inflation can go above 2%. That they were willing to allow for some kind of "symmetrical" inflation.  The symmetry in this case meaning, we were below 2% for a long time and so now we can be above 2%. I guess for some reason the markets focused in on that. Specifically, the minutes read that "A temporary period of inflation modestly above 2 percent would be consistent with the Committee's symmetric inflation objective and could be helpful in anchoring longer-run inflation expectations at a level consistent with that objective." What does "Modest" Mean? Now, I don't know why allowing inflation to be higher than 2% is somehow helpful toward achieving their 2% objective. To me, It would be more helpful if they just kept it at 2%, if indeed that was their real objective.  But, even if you look at the language that they use, they don't really define what symmetrical could mean.  They talk about inflation being "modestly" above 2%: What is "modestly"? Is is 2.1%? What about 2.5%? Is .5% "modest"? They don't really define what "modest" is.  I have a feeling, again, that there's never going to be a definition, that it is going to be an ever-moving goal post.  Even 3% could be "modest".  "Hey, it's only 1%, right that's "modest", right? Fed Is Impotent When It Comes to Inflation But on a percentage basis, you wouldn't consider 3% modest.  You're above 2% by 50%.  50% is not a modest percentage, but they could say 1% is a modest percentage. Who knows?  I think the Fed is going to be looking for every excuse not to raise interest rates aggressively, no matter how high inflation gets.  Of course, they're not going to be that transparent. The last thing they would want to do is to let the markets know that they are that impotent when it comes to inflation.Our Sponsors:* Check out FRE and use my code LISTEN20 for a great deal: https://frepouch.com* Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD* Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.comPrivacy & Opt-Out: https://redcircle.com/privacy

Solid Gains Today in the Major Stock Market Averages We had solid gains today in the major stock market averages; the DJIA putting in the largest percentage gain, just over 1.2% or 298 points.  I think at the highs, the Dow was up 370 and change, so a strong day, S&P, NASDAQ also up not quite as much calculated as percentages. The Russell 2000 was not up as much as the other averages but it is at a record high again today.  I think it's the Russell 2000 that ultimately could make the biggest percentage drop once stock market traders start to figure out what's actually going to happen. A Lot of Saber Rattling and Not a Lot of Fencing But in the meantime, today, they were celebrating the cease fire in the trade war.  Although, I don't think I should call it a cease fire because nobody actually fired a shot.  It has been more of a war of words than a real conventional battle, I mean there was basically a lot of saber rattling and not a lot of fencing.  But I think what happened today is that we callee a truce.  Both sides sheathed their sabers and agreed that there is not going to be a war. The Markets Have Not Adequately Priced in the Cost of a Trade War And I think the markets were relieved, and so we got a relief rally based on that good news.  Although I don't think the markets sufficiently priced in the cost of a hot trade war.  I know Donald Trump said, "Oh, trade wars are easy to win." Believe me, if they were easy to win, we would have waged one.  They're not easy to win.  I don't think the markets really discounted how bad it would have been had the cold war turned hot. Peace Dividend Nonetheless, the fact that it wasn't going to happen - I think most people would agree that a trade war would be bad, and if now there is going to be trade peace, well there is a peace dividend and so we got that today.Our Sponsors:* Check out FRE and use my code LISTEN20 for a great deal: https://frepouch.com* Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD* Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.comPrivacy & Opt-Out: https://redcircle.com/privacy

Las Vegas to Vancouver to Las Vegas I'm recording today's podcast from my hotel room in Vancouver, Canada.  I'm up here for a couple of days at the 2018 Vancouver Resource Investment Conference and actually I left Las Vegas to come here; I am at the Las Vegas Money Show, I was there yesterday and I will be back again tomorrow for another talk, and on Thursday I am flying to Puerto Rico for another conference before heading back to Weston, Connecticut for the summer. Debating Bonds with Gary Shilling I was on a panel yesterday in Las Vegas at the Money Show and it was moderated by Mark Skousen, and one of the guys on the panel with me was Gary Shilling. And I've been arguing with Gary Shilling for a long time; there are plenty of YouTube videos of Shilling and myself over the years, arguing. He is basically a perma-bull when it comes to U.S. Treasuries. He is always bearish on the stock market and he's always bullish on the bond market.  For a while, he was right to be bullish on the bond market, because we had a huge bull market in bonds. But the bull market appears to be over, yet Gary Shilling is as bullish as I have ever seen him on the U.S. bond market. He is also bullish on the dollar; I guess if you are always bullish on the bond market you are also bullish in the dollar because bonds are dollar I.O.U.'s. Shilling: China Would Never Sell U.S. Bonds Now I think this is one of the times when Gary Shilling is dead wrong.  One if the points that he made that I challenged him on was when he started talking about China.  He said the Chinese would never sell their U.S. Treasuries because if they sold them, the prices would collapse, and they would be destroying their own portfolio; therefore they are not going to sell because they do not want to destroy the value of the assets they might want to sell. China Can Just Let Their T-Bills Mature I pointed out to Gary that the Chinese don't have to sell any Treasuries to get out of them.  They simply have to let them mature. Then it is not China who has to sell the Treasuries, but the U.S. Treasury who has to find a new buyer to replace China.  If China were dumb enough to own a lot of 30-year government bonds, then they would have to put those bonds on the market.  That would affect the price.  In fact, if you were China, and you owned a trillion dollars worth of 30-year bonds, and you did try to sell, the price would collapse.  China may be dumb, but they are not that dumb. They own a lot of T-bills, so they will mature in 30 days, 60 days, 90 days; they don't have to sell anything.  Our Sponsors:* Check out FRE and use my code LISTEN20 for a great deal: https://frepouch.com* Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD* Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.comPrivacy & Opt-Out: https://redcircle.com/privacy

[button link="https://www.youtube.com/watch?v=mANOqcnLtqA" color="lightgray" size="medium" stretch="" type="" shape="" target="_self" title="" gradient_colors="|" gradient_hover_colors="|" accent_color="" accent_hover_color="" bevel_color="" border_width="1px" icon="" icon_divider="yes" icon_position="left" modal="" animation_type="0" animation_direction="down" animation_speed="0.1" animation_offset="" alignment="left" class="" id=""]Mr. Schiff Goes to Washington[/button] [button link="https://www.youtube.com/watch?v=mANOqcnLtqA" color="lightgray" size="medium" stretch="" type="" shape="" target="_self" title="" gradient_colors="|" gradient_hover_colors="|" accent_color="" accent_hover_color="" bevel_color="" border_width="1px" icon="" icon_divider="yes" icon_position="left" modal="" animation_type="0" animation_direction="down" animation_speed="0.1" animation_offset="" alignment="right" class="" id=""]Mr. Schiff Returns to Washington[/button]  The Bear Market Rally The big story continues to be the bear market rally that has been going on in the U.S. dollar. The dollar index  closed above 93.  The low this year was just above 88, so we've risen above 5% so far in the U.S. dollar index.  Year to date we're up on the dollar a little over 1%.  We're still down about 6% from where the dollar ended 2016, but we've had this considerable rally in a relatively short period of time.  To me, it has the makings of a bear market rally, a short-covering rally.  There hasn't been any good economic news that would explain the strength of the dollar.  In fact, I talked about Fed comments from last week which to me, are quite dovish when you have the Federal Reserve indicating a tolerance toward inflation above 2% talking about "symmetrical inflation" rather than keeping it below 2%, So to me, those are statements that would normally be negative for the dollar. Technical Rally for Short-Covering The economic data, the jobs numbers that came out last week - much weaker than expected, so all the information would actually argue against a more aggressive Fed, in favor of a more dovish Fed, yet the dollar is rising anyway.  I think it's technical, I think it's short-covering and I think it is short-sighted. Dollar Strong against Emerging Market Currencies One of the areas where the dollar is the strongest is actually against the emerging market currencies.  Not the currencies that are in the U.S. dollar index - that's dominated by the euro, the pound, the yen - but the emerging market currencies, they're the ones that are bearing the brunt of  this sell-off, and it's a self-perpetuating problem, because as these emerging currencies go down, it puts upward pressure on their already increasing inflation rate. I think inflation is picking up all around the world, but if your currency is going down, that puts even more pressure on consumer prices, and the politicians of these emerging economies are resisting higher interest rates, both to combat increasing inflation and to support a weakening currency which is only adding fuel to the fire. Currency Traders Have It Backwards What's so ironic about all this is that traders are missing the bigger point. The United States is in the exact same predicament (only worse) than the emerging economies. We are going to be faced with the same set of dynamics, in that we are going to have risingOur Sponsors:* Check out FRE and use my code LISTEN20 for a great deal: https://frepouch.com* Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD* Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.comPrivacy & Opt-Out: https://redcircle.com/privacy

Fed is Willing to Tolerate Higher Inflation Today is the first Friday in May and that means we got the April Jobs Report released today, and before I actually get into the details of the jobs report, I want to talk about what happened with the Fed this week. I think that is the most significant news of the week.  The Fed's statement on Wednesday and the comments from today are the real reasons we had the 300+ point rally in the Dow today, that's why we had the 400+point turnaround in the Dow on Thursday.  It's all about the Fed and its willingness to tolerate higher inflation. Fed Inserted the word "Symmetrical" So we got the FOMC announcement on Wednesday after their 2-day meeting, and as expected, they left interest rates unchanged. The most significant part of the statement that accompanied the Fed's decision not to raise rates was inserting the word, "symmetrical" in their description of inflation.  Up until Wednesday, the Fed was always worried that we didn't have enough inflation. The inflation rate was too low, and their goal was to get it up to their 2% level. We Can Go Above 2% to the Same Extent We Were Below 2% Now the Fed is saying that they are at 2% and they expect the rate to actually go above 2%, and they're OK with it. What they mean by symmetrical is that inflation was below 2%, at least the way they measure it. It's probably always been well above it, but let's just look at the government statistics.  Based on the government statistics we had inflation of 1.4, 1.5, 1.6; it was always below 2.  So now what they're saying is we can have some symmetry on the upside, meaning, all right, we can have 2.5, because 2.5 and 1.5. the average is 2. The Fed is Actually Lifting Their Inflation Target So what the Fed is really saying is their goal is not to have 2% inflation, their goal is to have inflation that averages 2%.  So if we've had inflation of under 2% for all these years, we can have inflation of over2% by the same proportion for the same number of years and they we would have averaged 2% inflation for the entire time.  So, in reality, what the Fed is really doing, and I have been saying this all along - for years and years - they are actually lifting their inflation target.    Our Sponsors:* Check out FRE and use my code LISTEN20 for a great deal: https://frepouch.com* Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD* Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.comPrivacy & Opt-Out: https://redcircle.com/privacy

Market Tends to Produce Better Returns in the First 4 Months of the Year There is an old Wall Street adage: "Sell in May and Go Away". The reason for that saying is that seasonally, the market tends to produce better returns in the first 4 months of the year, January through April, and then, historically, beginning in May and throughout the summer, the market can generally go down, and I think the time to buy back in is typically September/October.  There are a lot of big down days, down months, crashes, so get out of the market in May, go away and then come back later in the year and buy back what you sold. Selling Started Right out of the Gate Today was May 1 and it looked like a lot of people were not going to wait to sell; they were selling right on the open.  The Dow was down all day.  At the worst, it was down better than 300 points but it pared its losses significantly, down just 64.  But the NASDAQ, which was never actually down that much (when the Dow was down 300 the NASDAQ was down only about 25) the NASDAQ ended up positive 64.  The S&P was up just under 7 points. Facebook Getting into the Dating Business Stocks were under pressure all day. I think the turnaround in Facebook - Facebook ended up a couple of percent.  Mark Zuckerberg announced plans to try to clamp down - I think he said he would have 20,000 people working in compliance.  They also announced that they are going into the dating business.  I'm surprised it has taken Facebook so long to get into that space.  It seems such an obvious fit. They already have everybody's profile. I think some of the other online sites, Match Group which owns Plenty of Fish are falling.  It's like Amazon stepping into your market. Heading toward 20,000 The market turned around and maybe that news lifted the NASDAQ, but to me, it was a weak day, the market was generally under pressure.  The Dow did manage to hold onto the 20,000 mark.  We were well below it - we were close to 23800.  It is really going to get interesting is when the Dow gets down to 20,000.  I think that's where we're headed.  Our Sponsors:* Check out FRE and use my code LISTEN20 for a great deal: https://frepouch.com* Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD* Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.comPrivacy & Opt-Out: https://redcircle.com/privacy

Markets Down But Not by as Much as Expected All the major U.S. stock markets were down on the week, but not by as much as I thought. We got that big drop on Monday, where we got the very bad reaction to even better than expected earnings.  Plus, with interest rates rising, I thought we would have had more selling, but we didn't we actually rallied back most of the week from the big Monday decline, not enough to recover all of the losses, but the total losses on the week were not that bad.  The Dow was down today, actually, by about 11 points. The NASDAQ eked out a small gain as did the S&P 500. Yield on the 10-Year Highest Since Financial Crisis Interest rates were moving up.  In fact, the yield on the 10-year on Wednesday hit 3.035%. This is the highest it has been since before the Financial Crisis and I think one of the reasons that the stock market recovered a bit this week was because investors breathed a sigh of relief that the yield didn't stay above 3%.  We closed above 3% on that Monday, I think it was 3.024%, but then we dropped on Thursday and dropped again on Friday; we went out at 2.957%, and that's only a slight increase from the 2.951% that yields closed at the prior week. Existing Rates High Enough for Significant Damage I think the markets are lulling in a false sense of security if they think that it's just one and done. "We finally took out 3%, maybe we cleared out some stops, and that's it. Yields have peaked, so there's nothing to worry about." As I said on my last podcast, even if this is the peak, I think it is already high enough to do significant damage to the economy, to the financial markets, to U.S. government finances.  But - it's not the peak. Rising Bond Yields Are Not Bullish for the Dollar Rates have barely begun to rise and I think they are going a lot higher.  Higher rates did continue to support the dollar.  The dollar actually had a strong week; the dollar index closed up just over 1% on the week.  It was down slightly today, so we surrendered some gains earlier this morning, but it was still an up week for the dollar.  Again, I think those people who are buying the dollar are going to lose a lot of money if they don't turn around and sell. I think this is a sucker rally.  As I said in my last podcast: Rising bond yields are not bullish for the dollar.Our Sponsors:* Check out FRE and use my code LISTEN20 for a great deal: https://frepouch.com* Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD* Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.comPrivacy & Opt-Out: https://redcircle.com/privacy

The Correction is Over and the Bear Market is Resuming As I have been speaking about in my last couple of podcasts, it looks like the period of relative calm in the markets is over and the next leg down has begun.  So the correction is also over - not the downward move - that is not the correction - this is the bear market.  The upward move was the correction. It was the first correction in this young bear market.  Technically it is not a bear market yet because we're not down 20% but that is only a matter of time. So I think the correction is over and the bear market is resuming, the primary trend being down. Dow Transports Big Losers In fact, the U.S. stock market was down for its fifth consecutive day, although today was the biggest decline.  The Dow ended down 424 points.  We managed to close just above 24,000 at 24,024. But we were well below.  At the lows of the day we were down about 600 points.  Percentage wise we were down 1.74%. The NASDAQ, about the same, down 1.7%.  At the lows it was down close to 150 points on the NASDAQ.  Percentage wise, the Dow transports were the big losers, down 221 points - 2.08%. Earnings Don't Matter Now, one of the things that investors have been counting on to support stock prices and, in fact, drive them higher, were earnings.  Everybody's been saying, "Earnings are going to be higher!" Now what have I been saying on my podcasts, over the last several months?  I've been saying that it doesn't matter, because all these great earnings, if they materialize, are already baked into the cake. They are already discounted into the price of the stocks. So in other words, they don't matter. It's "buy the rumor, sell the fact". Double Whammy of Faster Growth and Lower Taxes If everybody knows that earnings are going to be good, well, they've priced in those expectations into the market.  Why do you think the market has gone up so much since Trump was elected President? It was on the anticipation of all these earnings that were going to come from a combination of faster growth and lower taxes. In fact, the lower taxes are why we were going to get the growth, so it was going to be a double whammy.  Well, all that was priced into the market.  Our Sponsors:* Check out FRE and use my code LISTEN20 for a great deal: https://frepouch.com* Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD* Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.comPrivacy & Opt-Out: https://redcircle.com/privacy

Another Friday Down Day It looks like the period of calm may be coming to an end and the storm may be looming just over the horizon. The Dow Jones finished down today, just over 200 points off the day's low.  I think I saw us down about 280.  This was the 4th consecutive Friday where the markets were lower - there was a holiday in there (Good Friday) - it has been 5 Fridays.  This seems to be a trend.  The markets still managed to eke out a gain on the week.  All 3 of the major indexes managed gains despite the losses on Friday.   Investors Should Really Worry about the Bond Market What should really be worrying investors are the losses this week in the bond market. Yields continue to ratchet up almost every day, and in fact we closed at the high point all across the curve, from the 2-year all the way up to the 30-year.  The 1--year yield, which is the one everybody seems to be talking about closed at 2.96%.  So this is a new high for the year.  You've got to go back to pre-2008 financial crisis to get a yield up that high.  But the yield is still very very low. Who Believes that 3% Yields are Here to Stay? The amazing thing is to look at the 30-year. The 30-year is 3.15.  It's actually just under 20 basis points - 19 basis points is all you get for taking 20 additional years of interest rate and inflation risk.  Think about that! Think about how crazy that is. Interest rates right now on the 10-year are just under 3%; on the 30-year they are slightly above 3%.  Why would anybody believe that 3% yields are here to stay? Low Rates Are an Aberration Obviously, if you go back to the post-war period and look at what rates have averaged on the 10-year, these low rates are an aberration.  They've been going on now, for a while, but they can't go on forever, Yet the market thinks it's going to go on for another 30 years.  If you think about a 30-year bond, that's like buying a 10-year bond today, holding it for 10 years, letting it mature, then buying another 10-year bond, holding that one for 10 years, letting it mature and buying another one! So you do that 3 times over 30 years, in theory it should give us the same rate as buying one 30-year bond right now.Our Sponsors:* Check out FRE and use my code LISTEN20 for a great deal: https://frepouch.com* Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD* Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.comPrivacy & Opt-Out: https://redcircle.com/privacy

Podcast Break: Investor Summit at Sea I apologize to everybody who has been waiting patiently for my next podcast.  Las week I went the entire week without doing a podcast, which is unusual. If you are a regular listener to this podcast you'll know that I was on a cruise ship all last week; I was on the Real Estate Guys' cruise.  The internet connections on a ship are very slow; particularly the upload speeds - plus I was very busy, so I really decided to take a week off from podcasting. Markets  Were Overall Quiet You know, there really wasn't that much that happened last week.  the markets were overall quiet, although the U.S  stock market rallied, gold didn't do much, the dollar didn't do much; no real earth-shattering news, so I didn't see any reason why I couldn't wait until I was back onshore, which is what I'm doing, and in fact, I was so  busy today that it is very late on a Monday night and I'm just trying to get this podcast recorded today. FOMC Minutes Released First of all, I'll talk about some if the stuff that happened last week.  We did get the release of the FOMC minutes, in fact, after the minutes came out we had a pretty big drop in the price of gold.  Gold did manage to get all the way up to about 1365 during the week before selling off and I think the Fed minutes were a catalyst to get gold to sell off.  Of course, it really can't get much below 1330; there is a lot of buying that comes in down there. Fed Half Right The read on the minutes was that they were hawkish in that the Fed was signaling that the economy is going to keep strengthening and inflation is going to keep rising.  Well, at least they're half right.  The economy isn't going to keep strengthening, but inflation will keep rising, PPI Close to a Breakout In fact, they're not even half right: They're right that inflation is going to go up, but it is going to go up by a lot more than they think, so even the part they got right they really got wrong.  We did get some inflation numbers - official measures of inflation that the government released last week.  If you look particularly at the Producer Price Index, core producer prices rose at the fastest pace in 7 years.  And if you look at a chart, we're very close to a breakout of resistance on core PPI.  Core CPI also up a little better than expected, but this is just the beginning of a trend.  During the week oil prices made new highs.  We got above $67 a barrel, so we're continuing to get closer and closer to 70 and eventually and 100.  It's not just oil prices that are rising, it's pretty much  commodities prices across the board. Fed Will not Deliver Rate Hikes But the Fed is not going to be able to deliver the rate hikes that the market is expecting and, again, it is the expectation of more rate hikes that is keeping a lid on the price of gold, but it's only a matter of time before the market blows the lid off and the price of gold goes up.Our Sponsors:* Check out FRE and use my code LISTEN20 for a great deal: https://frepouch.com* Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD* Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.comPrivacy & Opt-Out: https://redcircle.com/privacy