The Peter Schiff Show Podcast

Optimism Rules the Day Friday the 13th was not an unlucky day for the U.S. stock market; all three of the major stock market averages closing at all time record highs. Optimism is ruling the day. In fact, there was a consumer confidence number that came out today revealing confidence in the economy - the University of Michigan Consumer Confidence - and this is a measure of the belief that the U.S stock market will be higher 12 months from now than it is today.  By that measure, consumers have more confidence in the U.S. stock market than they have ever had in the past. That would include where we were just before the '08 Financial Crisis and where the market was at the peak of the dot com bubble. Complacent Investors In fact, there are other measures of investor sentiment that have never been this high.  Look at the VIX, for example, which is really a measure of risk, of investors' need to hedge their portfolios.  If you look at that, the VIX is at all time record lows.  Investors have never been this complacent about the U.S. stock market - ever! And all of those measures of fear, confidence, are at the lowest and highest readings, respectively, that they've ever been, even though the U.S. stock market is extremely expensive. Not a Bubble? The U.S. stock market has only been this expensive near the peaks of previous bubbles.  But what's different about this bubble is a) it's bigger, and b) people are even more confident now that it is not a bubble.  You have less fear, less anxiety and investors are more convinced that they can't lose than at any prior time, despite the fact that we actually probably have more risk now than during any of the previous bubbles. Of course, it's not just the investors who are confident.  Consumer confidence is high, in fact the consumer confidence number came out much higher than expected today. Government Inflation Numbers Real?  Not. The dollar rallied on that today. Initially, down because of the lower than expected CPI, which is seen, paradoxically as good for the dollar if there is less inflation.  Somehow, the way the markets react, if there is not enough inflation, they reduce the probability of a rate hike, so the dollar sold off.  The PPI that came out yesterday was a little higher than expected, so people were worried: "Oh, well, maybe there's more inflation, then the CPI comes out and it's lower than expected. Of course none of these numbers are actually real, because we all know consumer prices are rising a lot faster than these indexes purport to show. Fed Confusing Inflation with Employment Of course, then the Fed complains that we don't have enough inflation.  In fact the Fed actually claims they don't even understand why inflation is so low; they expect it to be higher.  Ironically, not because of all the money they printed, they think inflation should be higher based on how low the unemployment is.  They are looking at the Phillips curve and they don't understand why we don't have more inflation when the unemployment rate is so low.  They don't understand that there's no real relationship between employment and inflation. If there was, it's the opposite of what they think.  When people are productively employed, and making more things, that tends to keep prices down. When people are unemployed, governments have to subsidize them by printing a lot of money and making a lot of unemployment benefits or welfare benefits, that will generally lead to higher consumer prices. If anything, they will be correlated together, not opposite.      Our Sponsors:* Check out Avocado Green Mattress: https://avocadogreenmattress.com* Check out Boll & Branch: https://boilandbranch.com/SCHIFF* Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.comPrivacy & Opt-Out: https://redcircle.com/privacy

Congress May Not Deliver Promised Economic Growth I think part of the renewed weakness in the dollar may be due to the feeling that all the tax cuts are not going to pass.  The Trump/Republican plan outlined some days ago will be difficult to to get through Congress. Even if it does get through Congress it is not going to deliver the economic growth that is being advertised. Tax Cuts Masquerading as Reform Go back to the origins to the Republican dialogue about tax reform.  They actually wanted to do reform. All the reform is out the window now. All we have is tax cuts masquerading as reform.  But the initial concept that the Republicans had was to try to move toward a consumption-based tax system. They tried to do that through the back door with the BAT (Border Adjusted Tax), which is the opposite of what the Republicans are now promising, which was tax relief for the middle class. That's not what they are delivering. Getting Around Elimination of State & Local Tax Deductions A lot of people are going to get tax increases.  Part of the problem, though is the elimination of the deductibility of state and local taxes. I mentioned on an earlier podcast that the states can get around this by shifting the tax to a payroll tax that will be fully deductible for the employers.  Any resulting reduction in salary would be offset by the elimination of state and local taxes.  If the states react the way I think they will to the loss of the deduction, the governments will not reap the tax windfall that they expect, causing much bigger deficits. Big Deficits Ahead At the end of the day the bill may not pass because Congress may not be willing to sign on to anything that raises taxes.  They want everybody to get at tax cut.  How are you going to do that? How are you going to cut income taxes and not cut spending on anything without having a huge increase in the deficit - which of course is what is going to happen. Recession Ahead You can try to assume that some of that increase is not there because of dynamic scoring, you can assume that tax cuts are going to lead to economic growth.  Maybe they will, but I think regardless we're going to have a recession.  There is no recession in any of the forecasts. Nobody thinks a recession is coming at any point during the next 10 years, whether we cut taxes or not. I think, whether we cut taxes or not we're going to have a recession, and if there is a recession, you can throw all this dynamic scoring out the window! Production Equals Stimulus Even if the recession is not as severe as a result of the tax cuts, the results will still be huge increases  in the budget deficit. They are losing some Republican support and they are going to have to reach across the aisle, and there is no way the Democrats will sign on to any tax cuts for the "rich".  If they take away tax cuts on corporations, they take away the reduction in the marginal tax rate, then you lose any hope of economic stimulus. That is where the stimulus comes from.  Real economic stimulus comes from more capital investment, more job creation, less consumption. That is what you get when you reduce marginal taxes on people with the highest propensity to save and invest. Inflation Ahead The Keynesians have it backwards.  They think stimulus comes from consumption - it doesn't.  Consumption doesn't stimulate anything.  Consumption without production just leads to higher prices which is what is going to happen.  We are going to get more inflation.Our Sponsors:* Check out Avocado Green Mattress: https://avocadogreenmattress.com* Check out Boll & Branch: https://boilandbranch.com/SCHIFF* Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.comPrivacy & Opt-Out: https://redcircle.com/privacy

Government Is Not Measured by What It Taxes, It Is Measured by What It Spends Democrats promise free stuff; Republicans promise free tax cuts.  What's a free tax cut?  That's a tax cut that happens even though you don't reduce government spending. In a recent panel discussion with Steve Forbes, I made the point that government is not measured by what it taxes, it is measured by what it spends. So, if the government is spending money, there is a cost associated with that, whether or not we pay for it through taxation, we're still going to pay for it. Cutting Taxes, but Borrowing and Printing the Difference Is Worse We're going to pay for it through more debt, higher inflation, and ultimately higher taxes in the future to not only repay the debt, but to pay the interest on the money we borrowed to finance the tax cuts.  So cutting taxes, but borrowing and printing the difference is worse.  I would rather pay for government with taxes than debt and inflation and higher taxes in the future. That is the argument I made with Steve Forbes is: If the Republicans are going to tell their constituents that they can get tax cuts even though the government continues to grow, they how do they have the political ability to generate the swell of public opinion to shrink government? You Can't Have Big Government and Low Taxes What I want the Republicans to do is make it all about less government.  I want the Republicans to say, "You've got a choice. You can have big government and high taxes, or you can have small government and low taxes."  That's it.  You can't have big government and low taxes. That's what the Republicans want to sell and that's what Steve Forbes was advocating, but if people think they can have their cake and eat it too, they they will vote for that.  But if you put it in those terms: "You want lower taxes, you need less government. If you want to pay less for government, then government has to cost less. Yes you can have a big tax cut, more take home pay, but these are the government programs you have to eliminate in order to make that possible." You Can't Tell the Voters They Can Have Tax Cuts First and Cut Spending Later You might be able to generate support for cutting government spending if people realize there is a reward for that. You cut government spending and then you get the tax cuts.  Steve Forbes was arguing to give the tax cuts first. If we get the tax cuts first, you will never get the cuts in spending.  It's like young kids who want dessert first, but if they want dessert, they have to eat their dinner. If I give my kids dessert first, they'll never eat their dinner! So you can't tell the voters they can have their tax cuts first and then we'll cut spending later because we we'll never get smaller government.  The tax cuts must be contingent on the spending cuts.Our Sponsors:* Check out Avocado Green Mattress: https://avocadogreenmattress.com* Check out Boll & Branch: https://boilandbranch.com/SCHIFF* Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.comPrivacy & Opt-Out: https://redcircle.com/privacy

Gun Laws Do Not Prevent Crime The answer to preventing mass killings is not more gun control; Stephen Paddock would have been able to get those guns regardless of whether or not owning them was illegal. He would have found a way to get those guns. Heroine is illegal, cocaine is illegal - there are all kinds of things that are illegal - it doesn't stop people from getting them. Criminals Will Break Any Law If you are a criminal, you are going to break the law, and clearly, if you're willing to murder, you're willing to break the law about gun ownership. Had the police not found him when he did, who knows how many people he would have indiscriminately murdered?  He still had a hundreds of unused bullets that he was intending to fire at the crowd. He didn't even know who he was shooting; he did not care who he hit. So clearly, someone who is willing to commit that kind of murder is willing to break the gun laws. Another Person With A Gun Could Prevent the Murder So gun control would not have prevented him from committing this crime.  Maybe if someone with a gun in the hotel had found him earlier they could have shot that guy in the back of the head before he had the chance to shoot as many people as he did. Beware of Overreaction What really scares me, though, too, is what kind of backlash we might have, what kind of overreaction for additional security at hotels. Will it be confined to just Las Vegas hotels, or hotels all over the country? I get visions of checking into a hotel being just like the TSA lines at the airports. There is no way to be sure that a hotel can keep guns out of a hotel room.  They don't have cameras inside hotel rooms.  Is it possible that if they had had extra security at check-in Stephen Paddock would not have been able to get his guns up to his room? He might not have, but this was obviously a premeditated act that took days of preparation, and he could have found a way around the safeguards, or devised another way of killing.Our Sponsors:* Check out Avocado Green Mattress: https://avocadogreenmattress.com* Check out Boll & Branch: https://boilandbranch.com/SCHIFF* Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.comPrivacy & Opt-Out: https://redcircle.com/privacy

Record Highs in the Markets This is the last day of the third quarter; S&P 500 and NASDAQ ended at record highs.  I am not sure what made the Dow miss an all-time record - it was close but no cigar.  Other broader measures did hit record highs to close out the quarter, in fact, Donald Trump was tweeting about the record highs in the stock market earlier this morning.  Of course, when we were having record highs under Obama, it was a bubble and it didn't matter, but now that it is his bubble, it's now a bull market and it simply shows what a great job he is doing as President. Weak Dollar Boosts International Markets Of course, U.S stock markets were overshadowed by international markets, thanks in large part to the weakness in the U.S. dollar. The dollar did recover some of its losses in this closing week of the quarter (I believe, again, a bit of a dead cat bounce).  I think the dollar is going to have its weakest quarter of the year in the fourth quarter, so we'll see if I'm right on that. But even with a little bit of a bounce, the dollar index back up to 93.o7. Despite that, foreign markets still well out-performed the U.S. stock markets in Q3 as did gold stocks.  If you bought gold stocks, they did better than the S&P in Q3. Gold Seeking Key Level I think the divergence between the gold stocks and the S&P is going to accelerate in Q4.  Obviously 1300 was not really the breakout; gold got all the way up to $1350 before turning back, and it's now back below $1300; it was off another few bucks today. So I think maybe $1300 wasn't the key level.  It's probably $1350 or higher before we get the breakout.  I think we're at $1280 right now. Personal Income and Spending Weak More bad economic news: the big number was personal income and spending.  It met expectations, relatively, except they did revise July down.  It was originally reported at +1.4% and they revised it to +1.3%, so, weaker than they had originally reported.  For August it was up .2% and consumer spending was up .1%.  Last month's +.3 was unrevised but this month met expectations of +.1% and these are low numbers  Our Sponsors:* Check out Avocado Green Mattress: https://avocadogreenmattress.com* Check out Boll & Branch: https://boilandbranch.com/SCHIFF* Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.comPrivacy & Opt-Out: https://redcircle.com/privacy

Estate Tax is Out Today President Trump announced some of the details of his highly-anticipated tax reform, which is really not tax reform, it's more of a tax cut masquerading as a reform. I would say the best part about it is the elimination of the estate tax.  That, in and of itself is a very substantial improvement. That tax should not be there;  it raises very little revenue but does tremendous damage to businesses.  It impedes the ability of a family business to be passed down from generation. It leads to the destruction and dismantling of businesses, the loss of know-how, ingenuity and jobs. Fewer Tax Brackets As far as the rest of the plan, I like lower taxes, I like fewer brackets (I'd like to have just one bracket - I'd like to flatten it all the way down to zero). Under the President's plan, the brackets are 12, 25 and 35%.  I'd just as soon it would be one bracket of 25%.  If we are going to have an income tax let's let everybody pay the same rate. The new plan is an improvement over the number of brackets we have now. But again, remember, some future President can just expand on these brackets. In fact they're already talking about a fourth bracket because the highest bracket, 35% represents a reduction of the current top rate of 39.6%.  Of course you have to add the 39% Obamacare tax and, of course a lot of people have to add the state income taxes. State and Local Taxes No Longer Deductible By the way, if this version of the bill passes, state taxes will no longer be deductible. That was the one deduction that they were willing to give up, state and local taxes, but they preserved the home mortgage deduction. Personally, I'd rather see it the other way around: get rid of the home mortgage deduction and allow people to deduct their state and local income taxes.  I have a problem on taxing people on money they never got.  If the state taxes you, you never get that money.  Why should the Federal government tax you on the money the state took from you before you had a chance to get it?  I did a podcast on that idea. I think you can't take income that was taken from the citizens by the state.  In fact it may even be unconstitutional. Home Mortgage Deduction is All Politics Why keep the home mortgage deduction? It's all politics.  That deduction is bad economics. If we're going to have an income tax, you don't have a choice about whether or not to pay state and local taxes, but you have a choice about whether or not to buy a house. You shouldn't get a deduction on your income tax based on the way you choose to spend your money. That's the government trying to micro-manage buying decisions, trying to distort and influence the economy. But the housing industry is a strong lobby and they influence the tax code. It's because of the swamp creatures that the mortgage deduction is there. Standard Deduction is Doubled Now the standard deduction is doubled. What this means is more people utilize this standard deduction, fewer people will itemize.  Itemizing is less advantageous because you can't include your state and local taxes. Now if you own real estate, right now you deduct not only your mortgage but your property taxes. If you can no longer deduct your property taxes, obviously that will reduce the value of real estate because it increases the after tax cost of owning it.  Our Sponsors:* Check out Avocado Green Mattress: https://avocadogreenmattress.com* Check out Boll & Branch: https://boilandbranch.com/SCHIFF* Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.comPrivacy & Opt-Out: https://redcircle.com/privacy

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

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

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

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