The Peter Schiff Show Podcast

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Very Negative Technical Action

We had another roller coaster ride in the stock market today, with the Dow Jones ending down about 200 points, but that was well off the lows of the day. I think we were down about 350 points, or close to it, at the lows. But, more interesting, we were up over 200 points earlier this morning. So this is very negative technical action, when you have these rallies and then close negative.  In fact, we were down another 100 points yesterday on the Dow, and today, we came to within, I think 10 points of taking out yesterday's high - and then we not only crashed below yesterday's low, but we closed below yesterday's low.  So another very weak day.

A Change in Name Only

I think one of the catalysts for the late afternoon rally, before the selloff, was all of the headlines coming out of Europe - the UK, regarding a Brexit deal, and I think that caused some people to buy stocks.  The dollar actually sold off.  It was down already; it sold off some more on that news coming out of Europe. But I don't know if this deal is going to fly . we'll see.  I read through some parts of the deal, and to me, it looks like Theresa May is trying to borrow a page from President Donald Trump. Basically, what she is doing, is she is trying to rename the union that the UK has with Europe . If you read what they are going to sign on to, it is going to be some kind of trade pact that really kind of subjects the UK to all the rules and regulations that prompted them to want to get out of the European Union in the first place.  So they're going to Brexit, but they're not actually going anywhere. Kind of like renaming NAFTA the USMCA . Basically, you're re-branding what you had before and claiming a victory. Maybe, politically speaking, May wants to try to honor the will of the voters by saying we accomplished Brexit, but basically not change anything.  It's just a change in name only.

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Very Negative Technical Action

We had another roller coaster ride in the stock market today, with the Dow Jones ending down about 200 points, but that was well off the lows of the day. I think we were down about 350 points, or close to it, at the lows. But, more interesting, we were up over 200 points earlier this morning. So this is very negative technical action, when you have these rallies and then close negative.  In fact, we were down another 100 points yesterday on the Dow, and today, we came to within, I think 10 points of taking out yesterday's high - and then we not only crashed below yesterday's low, but we closed below yesterday's low.  So another very weak day.

A Change in Name Only

I think one of the catalysts for the late afternoon rally, before the selloff, was all of the headlines coming out of Europe - the UK, regarding a Brexit deal, and I think that caused some people to buy stocks.  The dollar actually sold off.  It was down already; it sold off some more on that news coming out of Europe. But I don't know if this deal is going to fly . we'll see.  I read through some parts of the deal, and to me, it looks like Theresa May is trying to borrow a page from President Donald Trump. Basically, what she is doing, is she is trying to rename the union that the UK has with Europe . If you read what they are going to sign on to, it is going to be some kind of trade pact that really kind of subjects the UK to all the rules and regulations that prompted them to want to get out of the European Union in the first place.  So they're going to Brexit, but they're not actually going anywhere. Kind of like renaming NAFTA the USMCA . Basically, you're re-branding what you had before and claiming a victory. Maybe, politically speaking, May wants to try to honor the will of the voters by saying we accomplished Brexit, but basically not change anything.  It's just a change in name only.

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Surrendered Rest of Post-Election Gains in One Day

As I thought, it didn't take long for the markets to surrender all of the post-election gains.  The Dow Jones today was down 602 points, so we've already lost it. It took one day.  On my podcast on Friday I said that we would surrender the remainder of the gains this week and we did it in the first day of the week.  The NASDAQ actually had an even bigger decline; down over 200 points - 206.03 to be exact -down 2.78%. The Russell 2000 was also down 1.98% - just over 30 points - just shy of 2%. The S&P 500 was almost down 2% - 1.97% - 54.79 points .

NASDAQ: Usual Suspects

The usual suspects, of course, having some of the big declines.  Apple computer came out with worse than expected earnings last week- down another 5.45% today - down 194.  It is now below 250 - This is a new low for Apple.  A lot of the other computer stocks got beat up today: NVIDIA down 7.7%, Broadcom down 6.5&, so the entire tech sector really got beaten up. Of course, Swiss National Bank was a big loser; they are one of the largest investors in U.S. Technology stocks.  I did read an article, though, that said that they trimmed their portfolios rather significantly before the October decline, so the Swiss National Bank did not quite take it on the chin as badly as might otherwise have been the case. But, potentially, the news that the Swiss Central Bank was paring back its portfolio could be part of the negative news that is currently weighing down the market.

$15 Billion of G.E. Shareholder Wealth up in Smoke

Looking at stocks like G.E. - have been talking about G.E. on this podcast for quite some time. It is down again another 7% today, closing below $8 - $7.99 - the low price on the day was $7.72.  This is a perfect example of what happens when the buyback chickens come home to roost.  General Electric was buying back a lot of stock when money was cheap.  The company is loaded up with debt - $45 - 50 billion of debt.  They also have $20 billion + of underfunded pension liabilities which I think are going to be more under funded when the market goes down.  When money was cheap, yes, it was easy to borrow money and buy back stock; the price of the stock was going up. Look at 2016 alone. I think that was the biggest year of buy backs, although they have been buying back every year, but in 2016, G.E. bought back about $20 billion worth of stock, and the stock was around $30. It is now under $8.  The stock is down 75%. That means if they bought $20 billion worth of stock, that stock now has a market value of just $5 billion. $15 billion of shareholder wealth up in smoke!

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Surrendered Rest of Post-Election Gains in One Day

As I thought, it didn't take long for the markets to surrender all of the post-election gains.  The Dow Jones today was down 602 points, so we've already lost it. It took one day.  On my podcast on Friday I said that we would surrender the remainder of the gains this week and we did it in the first day of the week.  The NASDAQ actually had an even bigger decline; down over 200 points - 206.03 to be exact -down 2.78%. The Russell 2000 was also down 1.98% - just over 30 points - just shy of 2%. The S&P 500 was almost down 2% - 1.97% - 54.79 points .

NASDAQ: Usual Suspects

The usual suspects, of course, having some of the big declines.  Apple computer came out with worse than expected earnings last week- down another 5.45% today - down 194.  It is now below 250 - This is a new low for Apple.  A lot of the other computer stocks got beat up today: NVIDIA down 7.7%, Broadcom down 6.5&, so the entire tech sector really got beaten up. Of course, Swiss National Bank was a big loser; they are one of the largest investors in U.S. Technology stocks.  I did read an article, though, that said that they trimmed their portfolios rather significantly before the October decline, so the Swiss National Bank did not quite take it on the chin as badly as might otherwise have been the case. But, potentially, the news that the Swiss Central Bank was paring back its portfolio could be part of the negative news that is currently weighing down the market.

$15 Billion of G.E. Shareholder Wealth up in Smoke

Looking at stocks like G.E. - have been talking about G.E. on this podcast for quite some time. It is down again another 7% today, closing below $8 - $7.99 - the low price on the day was $7.72.  This is a perfect example of what happens when the buyback chickens come home to roost.  General Electric was buying back a lot of stock when money was cheap.  The company is loaded up with debt - $45 - 50 billion of debt.  They also have $20 billion + of underfunded pension liabilities which I think are going to be more under funded when the market goes down.  When money was cheap, yes, it was easy to borrow money and buy back stock; the price of the stock was going up. Look at 2016 alone. I think that was the biggest year of buy backs, although they have been buying back every year, but in 2016, G.E. bought back about $20 billion worth of stock, and the stock was around $30. It is now under $8.  The stock is down 75%. That means if they bought $20 billion worth of stock, that stock now has a market value of just $5 billion. $15 billion of shareholder wealth up in smoke!

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Dead Cat Bounce Flattens Out

The Dow Jones was down a little over 200 today, closing back below 26,000. NASDAQ composite down 124 - that's a bigger percentage decline, 1.7%, approximately.  The Composite is being led lower by the tech stocks, particularly the FANG stocks once again taking a bite out of the market.  The markets, though, were positive on the week, thanks to that huge relief rally that took place on Wednesday following the results of the midterm elections on Tuesday. But as I said on my Wednesday podcast, I thought that relief rally was  just another dead cat bounce, that the fundamentals and the technicals still looked horrible for the U.S. stock market. I expected that rally to reverse, and of course that process had already begun Thursday and Friday.  I think it will continue next week and I think the rest of those gains will be surrendered.

Higher than Expected PPI Sparked Sell-Off

The catalyst for today's selloff was a much hotter than expected Producer Price Index number. The PPI was up .6% in 1 month, which is a big gain.  In fact this is the biggest jump in the PPI in 6 years. On a year-over-year basis, producer prices are up 2.8%.  The market was looking for an increase half that size: .3%, Even year-over-year, when you strip out food and energy we were still up 2.6%, which is considerably above the 2% level that the Fed is looking at. Of course, the Fed is looking at consumer prices, not producer prices, but of course, nobody can consume what is not produced.  These are really wholesale prices and of course they are going to get passed on to the consumer, so consumer prices are headed higher.

The Markets Don't Get It

But, again, the markets don't get it.  Gold dropped the minute this number came out, gold dumped about $10. It was already down on the day, and then it sold off and never recovered. On the other hand, bonds were relatively stable when the number came out. Maybe rates ticked up just a smidgen, but actually bonds rallied on the day.  Now maybe the weak stock market had a little bit to do with it, but the irony of it is that you get these numbers that show much more than expected inflation, and what do investors do?  They sell gold and they buy U.S. treasuries. Now, that is the worse thing to do if there's more inflation. Gold is an inflation hedge. So, if inflation is picking up, you would want to own gold to protect yourself from inflation.  On the other hand, the one asset that suffers the most, where the most value is eroded away because of inflation is a bond. A bond is specifically payments of cash in the future, and the more inflation we have, the less that future cash is worth.

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Dead Cat Bounce Flattens Out

The Dow Jones was down a little over 200 today, closing back below 26,000. NASDAQ composite down 124 - that's a bigger percentage decline, 1.7%, approximately.  The Composite is being led lower by the tech stocks, particularly the FANG stocks once again taking a bite out of the market.  The markets, though, were positive on the week, thanks to that huge relief rally that took place on Wednesday following the results of the midterm elections on Tuesday. But as I said on my Wednesday podcast, I thought that relief rally was  just another dead cat bounce, that the fundamentals and the technicals still looked horrible for the U.S. stock market. I expected that rally to reverse, and of course that process had already begun Thursday and Friday.  I think it will continue next week and I think the rest of those gains will be surrendered.

Higher than Expected PPI Sparked Sell-Off

The catalyst for today's selloff was a much hotter than expected Producer Price Index number. The PPI was up .6% in 1 month, which is a big gain.  In fact this is the biggest jump in the PPI in 6 years. On a year-over-year basis, producer prices are up 2.8%.  The market was looking for an increase half that size: .3%, Even year-over-year, when you strip out food and energy we were still up 2.6%, which is considerably above the 2% level that the Fed is looking at. Of course, the Fed is looking at consumer prices, not producer prices, but of course, nobody can consume what is not produced.  These are really wholesale prices and of course they are going to get passed on to the consumer, so consumer prices are headed higher.

The Markets Don't Get It

But, again, the markets don't get it.  Gold dropped the minute this number came out, gold dumped about $10. It was already down on the day, and then it sold off and never recovered. On the other hand, bonds were relatively stable when the number came out. Maybe rates ticked up just a smidgen, but actually bonds rallied on the day.  Now maybe the weak stock market had a little bit to do with it, but the irony of it is that you get these numbers that show much more than expected inflation, and what do investors do?  They sell gold and they buy U.S. treasuries. Now, that is the worse thing to do if there's more inflation. Gold is an inflation hedge. So, if inflation is picking up, you would want to own gold to protect yourself from inflation.  On the other hand, the one asset that suffers the most, where the most value is eroded away because of inflation is a bond. A bond is specifically payments of cash in the future, and the more inflation we have, the less that future cash is worth.

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Relief Rally Post-Midterms

The elections are over and the Blue Wave was averted and the Dow Jones rose 545 points today to celebrate that fact and the NASDAQ was up 194 points, 2.64%; Russell 2000 up 26 points, about 1.67% .  Now you may be wondering why there was such a big rise in the stock market based on an outcome that was pretty much expected.  The Republicans lost the House of Representatives, and that was something that was widely anticipated by the markets.  But the loss wasn't that big; they lost 26 seats.  I think 23 was the number that the Democrats had to pick up.  But I think there was some concern that the Republicans may have lost the Senate - instead they actually picked up, I think 3 seats as of now, in the Senate - increasing their margin. This is only the third time in 100 years where that's happened, where you've had the incumbent party lose House seats but gain Senate seats.

Obama's Midterm House Loss: 63 Seats

But it is amazing that the press was trying to hold this out as some kind of repudiation of his policies: "You lost the House of Representatives".  Big deal!  Obama lost the house of Representatives during his first midterms in 2010.  That was one of the biggest disasters for an incumbent since Roosevelt. Obama lost 63 house seats. Not 26 - remember the Tea Party?  That was all 2010.  Trump did so much better than Obama.  In fact, the average loss for a midterm in the House is 37 seats.  Trump's loss of 26 was much better than average, but you wouldn't know that from listening to the Media.  But most impressive was the 3 seats gained in the Senate.  Barack Obama lost 6 seats during his first midterm elections. That's a 9-seat difference between what Trump was able to accomplish and Obama's accomplishment.

Economy-Stimulating Tax Cuts Less Likely

I think the reason that the dollar was weaker is the narrative is that since the Republicans no longer have control of the House of Representatives that it is less likely that we will get more tax cuts - at least the tax cuts that would be stimulative to the economy.

 

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Relief Rally Post-Midterms

The elections are over and the Blue Wave was averted and the Dow Jones rose 545 points today to celebrate that fact and the NASDAQ was up 194 points, 2.64%; Russell 2000 up 26 points, about 1.67% .  Now you may be wondering why there was such a big rise in the stock market based on an outcome that was pretty much expected.  The Republicans lost the House of Representatives, and that was something that was widely anticipated by the markets.  But the loss wasn't that big; they lost 26 seats.  I think 23 was the number that the Democrats had to pick up.  But I think there was some concern that the Republicans may have lost the Senate - instead they actually picked up, I think 3 seats as of now, in the Senate - increasing their margin. This is only the third time in 100 years where that's happened, where you've had the incumbent party lose House seats but gain Senate seats.

Obama's Midterm House Loss: 63 Seats

But it is amazing that the press was trying to hold this out as some kind of repudiation of his policies: "You lost the House of Representatives".  Big deal!  Obama lost the house of Representatives during his first midterms in 2010.  That was one of the biggest disasters for an incumbent since Roosevelt. Obama lost 63 house seats. Not 26 - remember the Tea Party?  That was all 2010.  Trump did so much better than Obama.  In fact, the average loss for a midterm in the House is 37 seats.  Trump's loss of 26 was much better than average, but you wouldn't know that from listening to the Media.  But most impressive was the 3 seats gained in the Senate.  Barack Obama lost 6 seats during his first midterm elections. That's a 9-seat difference between what Trump was able to accomplish and Obama's accomplishment.

Economy-Stimulating Tax Cuts Less Likely

I think the reason that the dollar was weaker is the narrative is that since the Republicans no longer have control of the House of Representatives that it is less likely that we will get more tax cuts - at least the tax cuts that would be stimulative to the economy.

 

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An Advanced Auction on the Sale of Stolen Goods

Tomorrow is Election Day, or as H.L. Mencken once described the process, "An advanced auction on the sale of stolen goods".  My wife has been bugging me for some time to urge people who listen to my podcast to go out and vote on Election Day. I think she's prepared to blame me if there are any close races, either for the House, Senate or even for Governor that end up going to the Democrats - if I do not urge my listeners to vote against that wave, somehow it will be my fault. So I urge all of the people who listen to my podcasts to actually go out and vote this Tuesday on Election Day.

Lesser of Two Evils

In most cases, our votes are not even going to matter. In fact in most cases it is a matter of voting between the lesser of two evils. Even though the lesser of two evils is still evil, it is "lesser", and when it comes to evil, I guess lesser is better. In some cases there are actually some good candidates who are running. Sometimes, however, when good candidates actually get elected and get into the cesspool that is Washington, D.C., a lot of the values that led them into politics go out the window if they want to stay there. You  can have good intentions when you get to Washington, you can be principled, and you can say, "I'm going there to make the country a better place" but ultimately once you get there, everything changes.

Politics Ahead of Principle

In fact, when it comes to elections, and politics, the worst candidate usually wins.  If you are a candidate or an elected official, and you are making decisions that are economically sound, and that are in the best interest of the nation or your constituency, and if your opponent is making decisions based on politics, which are likely to result in a larger number of votes, Which decisions are likely to land me money from special interests?  If you're campaigning on principle, and your opponent is a practical politician, who's going to win? Even if you win a few elections, you're eventually going to lose. And the politicians who are i office the longest, are most successful at putting politics ahead of principle.

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An Advanced Auction on the Sale of Stolen Goods

Tomorrow is Election Day, or as H.L. Mencken once described the process, "An advanced auction on the sale of stolen goods".  My wife has been bugging me for some time to urge people who listen to my podcast to go out and vote on Election Day. I think she's prepared to blame me if there are any close races, either for the House, Senate or even for Governor that end up going to the Democrats - if I do not urge my listeners to vote against that wave, somehow it will be my fault. So I urge all of the people who listen to my podcasts to actually go out and vote this Tuesday on Election Day.

Lesser of Two Evils

In most cases, our votes are not even going to matter. In fact in most cases it is a matter of voting between the lesser of two evils. Even though the lesser of two evils is still evil, it is "lesser", and when it comes to evil, I guess lesser is better. In some cases there are actually some good candidates who are running. Sometimes, however, when good candidates actually get elected and get into the cesspool that is Washington, D.C., a lot of the values that led them into politics go out the window if they want to stay there. You  can have good intentions when you get to Washington, you can be principled, and you can say, "I'm going there to make the country a better place" but ultimately once you get there, everything changes.

Politics Ahead of Principle

In fact, when it comes to elections, and politics, the worst candidate usually wins.  If you are a candidate or an elected official, and you are making decisions that are economically sound, and that are in the best interest of the nation or your constituency, and if your opponent is making decisions based on politics, which are likely to result in a larger number of votes, Which decisions are likely to land me money from special interests?  If you're campaigning on principle, and your opponent is a practical politician, who's going to win? Even if you win a few elections, you're eventually going to lose. And the politicians who are i office the longest, are most successful at putting politics ahead of principle.