The Peter Schiff Show Podcast

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Futures Rallied after Drop on Apple News

I want to get to the nonfarm payroll number. This is the big number, and, maybe, because the initial number was good, the market rallied. Although, I think the real reason that the market rallied in the morning is because we had a big rally in Asia last night. There were some rumors that there would be some type of trade deal between China and the United States, and when that rumor came out, everybody bid up these Asian stocks.  So the U.S. stock market, U.S. futures got bid up.  So initially U.S. futures were way down on the Apple news, but then, when this rumors came out about a trade deal, then the markets rallied.

Hopes for Trade Deal with China

Part of the reason that people wanted to believe that there might be a trade deal is because everybody knows the election is coming up on Tuesday, and maybe the President is looking to do something between now and then in order to: a) make the market rally, but b) be able to claim victory.  Like" aha! another deal like the USMCA - I got rid of NAFTA, and we have this new deal which is basically the same deal we had before, just with a different name, but he's able to pretend that he kept some kind of promise and now we've got a great deal,  Whereas the old NAFTA was the worse deal in the history of deals, the one that he's got, which is virtually identical, is the best deal in the history of deals.

No Deal

I thought maybe he would do something similar to that with China.  Come up with some ridiculous agreement that basically does nothing, then talk about how great it is… but apparently, not. Maybe they can still do that on Monday if they really want to wait to the last minute and come up with some kind of bogus deal… But people believe the rumors, but then this morning Larry Kudlow was on CNBC early in the morning before the open basically shooting that rumor down, saying there was no deal.

 

 

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Futures Rallied after Drop on Apple News

I want to get to the nonfarm payroll number. This is the big number, and, maybe, because the initial number was good, the market rallied. Although, I think the real reason that the market rallied in the morning is because we had a big rally in Asia last night. There were some rumors that there would be some type of trade deal between China and the United States, and when that rumor came out, everybody bid up these Asian stocks.  So the U.S. stock market, U.S. futures got bid up.  So initially U.S. futures were way down on the Apple news, but then, when this rumors came out about a trade deal, then the markets rallied.

Hopes for Trade Deal with China

Part of the reason that people wanted to believe that there might be a trade deal is because everybody knows the election is coming up on Tuesday, and maybe the President is looking to do something between now and then in order to: a) make the market rally, but b) be able to claim victory.  Like" aha! another deal like the USMCA - I got rid of NAFTA, and we have this new deal which is basically the same deal we had before, just with a different name, but he's able to pretend that he kept some kind of promise and now we've got a great deal,  Whereas the old NAFTA was the worse deal in the history of deals, the one that he's got, which is virtually identical, is the best deal in the history of deals.

No Deal

I thought maybe he would do something similar to that with China.  Come up with some ridiculous agreement that basically does nothing, then talk about how great it is… but apparently, not. Maybe they can still do that on Monday if they really want to wait to the last minute and come up with some kind of bogus deal… But people believe the rumors, but then this morning Larry Kudlow was on CNBC early in the morning before the open basically shooting that rumor down, saying there was no deal.

 

 

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The Bulls Had No Fear

Today may be Halloween, but the Bulls had no fear. The U.S. stock markets closed higher today for the second consecutive day - the first time for the month of October. A lot of traders are probably happy that the month of October is over.  Despite the back to back rally, this is still the biggest decline in a month for NASDAQ since 2008.

The Market Gave Back Gains Before Close

In fact, the rally off of yesterday's lows, I think was better than 1100 points. We had this huge gain, and even though today, the Dow was up better than 200 points (241 points), it was up about 450 points going into the last hours. So we did give back a couple of hundred points of that gain, which, to me, looked pretty weak. The NASDAQ had a 2% higher close; it was up 144 points.  But you look at the Russell 2000 - much smaller gain there. That index up just a third of 1%. The Dow transports, they were barely positive. Not even 2 tenths of 1 percent - a 15 point rise in the Dow Transports.

Bear Market Correction

Nonetheless, all the Bulls were out in force on the financial networks claiming that the correction is over.  Everybody was confident that the lows are in; that this big back to back rally is proof that you'd better buy now, otherwise you're going to miss the rally, and this is a typical correction, and now it has run its course. You know what?  If this really was the "end of the correction", most likely, there wouldn't be so many people so confident that it was over.  You'd have a lot more fear, especially on a Halloween.  The fact that there is no fear, to me, shows that it is more likely that this is not the end of the correction but the beginning of the bear market.  And that this rally is the correction. In bull markets, the market going down is a correction, because the trend is still positive. In a bear market, it's the opposite: the rallies are the correction.

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The Bulls Had No Fear

Today may be Halloween, but the Bulls had no fear. The U.S. stock markets closed higher today for the second consecutive day - the first time for the month of October. A lot of traders are probably happy that the month of October is over.  Despite the back to back rally, this is still the biggest decline in a month for NASDAQ since 2008.

The Market Gave Back Gains Before Close

In fact, the rally off of yesterday's lows, I think was better than 1100 points. We had this huge gain, and even though today, the Dow was up better than 200 points (241 points), it was up about 450 points going into the last hours. So we did give back a couple of hundred points of that gain, which, to me, looked pretty weak. The NASDAQ had a 2% higher close; it was up 144 points.  But you look at the Russell 2000 - much smaller gain there. That index up just a third of 1%. The Dow transports, they were barely positive. Not even 2 tenths of 1 percent - a 15 point rise in the Dow Transports.

Bear Market Correction

Nonetheless, all the Bulls were out in force on the financial networks claiming that the correction is over.  Everybody was confident that the lows are in; that this big back to back rally is proof that you'd better buy now, otherwise you're going to miss the rally, and this is a typical correction, and now it has run its course. You know what?  If this really was the "end of the correction", most likely, there wouldn't be so many people so confident that it was over.  You'd have a lot more fear, especially on a Halloween.  The fact that there is no fear, to me, shows that it is more likely that this is not the end of the correction but the beginning of the bear market.  And that this rally is the correction. In bull markets, the market going down is a correction, because the trend is still positive. In a bear market, it's the opposite: the rallies are the correction.

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Dow Swings More Than 900 Points

Well we didn't have a Black Monday today, but we did have a pretty big selloff, especially if you measure the decline from the early morning pop to the late afternoon drop.  I think it was better than a 900 point selloff.  Earlier this morning the Dow Jones was up about 350 points, and I think halfway through the final hour, we were down as much as 560 points.  Now, we managed to recoup a good chunk of those late day losses in the final half hour, with the Dow down just 245 points. Just over 1%. The NASDAQ trimmed its loss to 116 points - 1.63%.  Of course, all the analysts are focusing on the fact that we didn't close on the lows!  "Hey, it's strong; look, we had a huge rally, impressive rally off the lows!"

A Downside Reversal

There was nothing impressive about that rally. This actually was a downside reversal. Remember we were all talking last week about the upside reversal that wasn't?  When the market was way down, and then it only closed a little bit down? That's not a reversal. Today was a reversal.  We were way up, and we closed way down. That is a real downside reversal, and that's far more significant than the meaningless, fictitious reversal that we had last week.

Warning Signs Ignored

Look at some of these individual stocks: Boeing, last week, which was one of the only Dow stocks that actually had a good day - remember it had better than expected earnings, and Boeing went up?  It was down almost over 7% today - Boeing getting killed.  IBM, though, a much bigger deal: down 4%.  A new 52-week low - multi-year low. This should have been a warning sign right out of the gate. It's kind of amazing that people ignored the news that came out over the weekend on IBM and they bought the market anyway.

Red Hat Hail Mary

IBM announced that it was buying a company called, Red Hat, and it's an all cash deal.  They are way over-paying for this company. Now IBM is the poster child for stock buybacks. And the fact that they are throwing this Hail Mary by over-paying for this company really shows you that time is running out.

 

 

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Dow Swings More Than 900 Points

Well we didn't have a Black Monday today, but we did have a pretty big selloff, especially if you measure the decline from the early morning pop to the late afternoon drop.  I think it was better than a 900 point selloff.  Earlier this morning the Dow Jones was up about 350 points, and I think halfway through the final hour, we were down as much as 560 points.  Now, we managed to recoup a good chunk of those late day losses in the final half hour, with the Dow down just 245 points. Just over 1%. The NASDAQ trimmed its loss to 116 points - 1.63%.  Of course, all the analysts are focusing on the fact that we didn't close on the lows!  "Hey, it's strong; look, we had a huge rally, impressive rally off the lows!"

A Downside Reversal

There was nothing impressive about that rally. This actually was a downside reversal. Remember we were all talking last week about the upside reversal that wasn't?  When the market was way down, and then it only closed a little bit down? That's not a reversal. Today was a reversal.  We were way up, and we closed way down. That is a real downside reversal, and that's far more significant than the meaningless, fictitious reversal that we had last week.

Warning Signs Ignored

Look at some of these individual stocks: Boeing, last week, which was one of the only Dow stocks that actually had a good day - remember it had better than expected earnings, and Boeing went up?  It was down almost over 7% today - Boeing getting killed.  IBM, though, a much bigger deal: down 4%.  A new 52-week low - multi-year low. This should have been a warning sign right out of the gate. It's kind of amazing that people ignored the news that came out over the weekend on IBM and they bought the market anyway.

Red Hat Hail Mary

IBM announced that it was buying a company called, Red Hat, and it's an all cash deal.  They are way over-paying for this company. Now IBM is the poster child for stock buybacks. And the fact that they are throwing this Hail Mary by over-paying for this company really shows you that time is running out.

 

 

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Look Carefully at the Price Index

The GDP number came out yesterday; 3/5% did slightly beat the consensus of 3.3%, but remember, for a while the Atlanta Fed was looking for a print in the 4's.  But the New York Fed was at 2.2%, so the print was much higher than what the  New York Fed was looking for.  But if you look at the internals, the biggest reason that we got 3.5% was because of the price index - the "deflator". Last quarter, when we had 4.2%, the government said that prices rose at an annualized rate of 3%. But in Q3, they said that prices only rose at an annualized rate of 1.7%.

Calling B.S. on that Number

Now I call B.S. on that number. I don't think we had that significant a slowdown in the annualized rate of inflation between the second quarter of the year and the third quarter of the year. If the 3% inflation rate had held steady, then Q2 GDP would have been just 2.2%. So, obviously not nearly as good a headline as 3.5%.  We'll see if they revise this thing down after the election.  Obviously the Republicans can still campaign on 3.5% even if it turns out that 3.5% was an over-estimate.

Largest Trade Deficit in History

I think new data is going to come out - particularly on trade.  Donald Trump is out there again bragging about how we're winning the trade war.  I talked about that.  That was the topic of my last podcast because we just printed the worse Merchandise Trade Deficit on a monthly basis in U.S. history.

Trade Deficit Amounted to the Largest Subtraction from GDP in 33 Years

The trade deficit was so large in the third quarter that it subtracted 1.78 percentage points from the GDP number. That is the largest subtraction from GDP that we have had from trade during a quarter in 33 years.  What happens, when you calculate GDP, you take government spending, you take consumer spending and business spending and then you add in your trade surplus or you subtract out your trade deficit. Now, since we never have a trade surplus, trade is always a net subtraction from the GDP.

 

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Look Carefully at the Price Index

The GDP number came out yesterday; 3/5% did slightly beat the consensus of 3.3%, but remember, for a while the Atlanta Fed was looking for a print in the 4's.  But the New York Fed was at 2.2%, so the print was much higher than what the  New York Fed was looking for.  But if you look at the internals, the biggest reason that we got 3.5% was because of the price index - the "deflator". Last quarter, when we had 4.2%, the government said that prices rose at an annualized rate of 3%. But in Q3, they said that prices only rose at an annualized rate of 1.7%.

Calling B.S. on that Number

Now I call B.S. on that number. I don't think we had that significant a slowdown in the annualized rate of inflation between the second quarter of the year and the third quarter of the year. If the 3% inflation rate had held steady, then Q2 GDP would have been just 2.2%. So, obviously not nearly as good a headline as 3.5%.  We'll see if they revise this thing down after the election.  Obviously the Republicans can still campaign on 3.5% even if it turns out that 3.5% was an over-estimate.

Largest Trade Deficit in History

I think new data is going to come out - particularly on trade.  Donald Trump is out there again bragging about how we're winning the trade war.  I talked about that.  That was the topic of my last podcast because we just printed the worse Merchandise Trade Deficit on a monthly basis in U.S. history.

Trade Deficit Amounted to the Largest Subtraction from GDP in 33 Years

The trade deficit was so large in the third quarter that it subtracted 1.78 percentage points from the GDP number. That is the largest subtraction from GDP that we have had from trade during a quarter in 33 years.  What happens, when you calculate GDP, you take government spending, you take consumer spending and business spending and then you add in your trade surplus or you subtract out your trade deficit. Now, since we never have a trade surplus, trade is always a net subtraction from the GDP.

 

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Merchandise Trade Deficit Largest Trade Deficit on Record

Today's rally had to overlook the bad news that came out today. I was watching CNBC this morning just before the news was announced and the anchor said, "We've got a lot of news coming out at 8:30 and I am going to go over the news items in order of importance. The first news item was the Durable Goods numbers (+0.8%), and then they went over the weekly jobless claims (202,000) and wholesale inventories (+1%). That was it. That was all they reported.  They left out the most important number that came out at 8:30, which was the Merchandise Trade Deficit ($26 billion - largest trade deficit on record). But as far as CNBC is concerned, the trade deficit is immaterial. It doesn't even matter what the trade deficit is. In a way, they are right. because the markets couldn't give a damn.

People Don't Recognize that the Trade Deficit is a Bad Thing

At one point in time, the trade deficit was the most important number that came out every month.  It was more important than the Non-Farm Payroll number. That's when people were smart enough to recognize that a trade deficit is actually a bad thing. But Donald Trump has made the trade deficit a big part of his Presidency. It was a big part of his campaign. You would think that maybe CNBC would consider the trade deficit important enough to even mention. If they were presenting the numbers in order of importance, at least mention it 4th, but they don't even mention it at all.  That's how unimportant the trade deficit is.

Durable Goods Up Only Because of Defense Spending

But the Durable Goods number that came out (+0.8%) was reported as a good number because it was a beat.  They were looking for -.5%. But the main reason that the headline beat was because of military orders - defense spending: aircraft.  But if you take all that stuff out and you just looked at core capital goods, they were looking at an increase of .5% and we got a decrease of .1%. So the only reason the number went up is because the U.S. government took on more debt to buy more military equipment.

 

 

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Merchandise Trade Deficit Largest Trade Deficit on Record

Today's rally had to overlook the bad news that came out today. I was watching CNBC this morning just before the news was announced and the anchor said, "We've got a lot of news coming out at 8:30 and I am going to go over the news items in order of importance. The first news item was the Durable Goods numbers (+0.8%), and then they went over the weekly jobless claims (202,000) and wholesale inventories (+1%). That was it. That was all they reported.  They left out the most important number that came out at 8:30, which was the Merchandise Trade Deficit ($26 billion - largest trade deficit on record). But as far as CNBC is concerned, the trade deficit is immaterial. It doesn't even matter what the trade deficit is. In a way, they are right. because the markets couldn't give a damn.

People Don't Recognize that the Trade Deficit is a Bad Thing

At one point in time, the trade deficit was the most important number that came out every month.  It was more important than the Non-Farm Payroll number. That's when people were smart enough to recognize that a trade deficit is actually a bad thing. But Donald Trump has made the trade deficit a big part of his Presidency. It was a big part of his campaign. You would think that maybe CNBC would consider the trade deficit important enough to even mention. If they were presenting the numbers in order of importance, at least mention it 4th, but they don't even mention it at all.  That's how unimportant the trade deficit is.

Durable Goods Up Only Because of Defense Spending

But the Durable Goods number that came out (+0.8%) was reported as a good number because it was a beat.  They were looking for -.5%. But the main reason that the headline beat was because of military orders - defense spending: aircraft.  But if you take all that stuff out and you just looked at core capital goods, they were looking at an increase of .5% and we got a decrease of .1%. So the only reason the number went up is because the U.S. government took on more debt to buy more military equipment.