The Peter Schiff Show Podcast

Eighth Interest Rate Hike

As expected, the Federal Reserve raised interest rates for the eighth time, today. The rate is now 2 to 2.25 percent, so I guess the midpoint is 2.125%.  The move was highly anticipated, of course, even I expected the Fed to raise rates.  At this point I had been expecting that for some time ever since the Fed first began raising interest rates it became apparent that they would continue to move rates higher.

"Accommodative" is Out

The only thing that was potentially significant about this rate hike was the removal of the word "accommodative" by the Fed in their official statement to describe the current state of monetary policy.  I initially thought that that was a significant removal of the word.  Obviously, the Federal Reserve thinks very carefully about the written statements, so if they chose to remove a word, that was there, and they know that people parse through these words with a microscope.  The fact that the word was missing, obviously by intention - it wasn't just an accident - that they're trying to send a message.

Maybe Neutral?

What I first thought the message was, and I still believe that was in fact the message (even if the Fed is trying to backpedal), but that the Federal Reserve views a 2% as neither accommodative nor restrictive.  Maybe neutral. The Fed now believes that rates are high enough that they would no longer be described as accommodative.

Interest Still Below Inflation: Negative Rates

Meanwhile, rates are at 2%. Two percent in my mind is still a highly accommodative monetary policy, especially when the annual rate of inflation, even the way the government measures it, is above 2%. That means you still have negative rates of interest. How can you describe negative real rates as anything but accommodative?

Powell:  "Don't Read Anything Into The Omission of Accommodative"

Powell was specifically asked about the removal of the word accommodative from the statement during the Q&A period that followed the official announcement.  Basically, what Powell said was, "Don't read anything into the removal of that word".

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Eighth Interest Rate Hike

As expected, the Federal Reserve raised interest rates for the eighth time, today. The rate is now 2 to 2.25 percent, so I guess the midpoint is 2.125%.  The move was highly anticipated, of course, even I expected the Fed to raise rates.  At this point I had been expecting that for some time ever since the Fed first began raising interest rates it became apparent that they would continue to move rates higher.

"Accommodative" is Out

The only thing that was potentially significant about this rate hike was the removal of the word "accommodative" by the Fed in their official statement to describe the current state of monetary policy.  I initially thought that that was a significant removal of the word.  Obviously, the Federal Reserve thinks very carefully about the written statements, so if they chose to remove a word, that was there, and they know that people parse through these words with a microscope.  The fact that the word was missing, obviously by intention - it wasn't just an accident - that they're trying to send a message.

Maybe Neutral?

What I first thought the message was, and I still believe that was in fact the message (even if the Fed is trying to backpedal), but that the Federal Reserve views a 2% as neither accommodative nor restrictive.  Maybe neutral. The Fed now believes that rates are high enough that they would no longer be described as accommodative.

Interest Still Below Inflation: Negative Rates

Meanwhile, rates are at 2%. Two percent in my mind is still a highly accommodative monetary policy, especially when the annual rate of inflation, even the way the government measures it, is above 2%. That means you still have negative rates of interest. How can you describe negative real rates as anything but accommodative?

Powell:  "Don't Read Anything Into The Omission of Accommodative"

Powell was specifically asked about the removal of the word accommodative from the statement during the Q&A period that followed the official announcement.  Basically, what Powell said was, "Don't read anything into the removal of that word".

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Divided Government is Good?

If the Democrats get control of Congress, which is a likely occurrence, what I'm hearing now is that this is bullish for the stock market! The stock market bulls are saying that if we have divided government that this is historically positive for the markets.  So even if the Republicans lose control of the House, and maybe even the Senate, it's OK, because it's divided government and that is good.

Hoping for More Deregulation

This is a bunch of nonsense. Has divided government historically been a positive? I think so, in that when you have a divided government you are less likely to make progress in legislation and since most legislation is harmful, the less legislation you get is better. But in the situation we have now, the hope is that we will have deregulation. That the progress that Trump will make will be in removing regulation.  Obviously if the Democrats take control of Congress, if you were hoping for more deregulation then your divided government will put a stop to that. So if divided government keeps government from getting smaller then it is not a good thing. If divided government stops the government from getting bigger, then maybe you could say it is positive.

Building an Entire Stock Market Rally on Trump's Agenda

But if you have built an entire stock market rally off of the supposed success of Donald Trump and his agenda, and his ability to get his agenda through Congress, that ability is going to be substantially curtailed, if not completely eliminated if the Democrats control Congress. Nothing that Trump wants to do will get through Congress so if you've been betting that it would, then the Republicans losing control of Congress is definitely a bad thing.

Not The Contract with America

This is not Newt Gingrich and The Contract with America, when Republican control of Congress forced Bill Clinton to move to the right and maybe stopped some of his big government agenda that would have gotten through a Democratic Congress.  When you had the Republican Congress putting a brake on Clinton's agenda, moving the nation more to the center, yes, that was a positive for the markets.

We Don't Want to Even Fathom a Negative Influence on the Stock Market

But why would losing a business-friendly Republican Congress to the Democrats, to Socialist Democrats, why is that bullish for stocks? How could you possibly think that is bullish for stocks if you think what we have now is bullish, and we lose a chunk of that, that just shows you that it doesn't matter what happens, these analysts are always going to say it's bullish. No matter what happens, it's bullish for stocks, because stocks are going up.  We don't want to even fathom the possibility that anything happening would be negative for stocks.

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Divided Government is Good?

If the Democrats get control of Congress, which is a likely occurrence, what I'm hearing now is that this is bullish for the stock market! The stock market bulls are saying that if we have divided government that this is historically positive for the markets.  So even if the Republicans lose control of the House, and maybe even the Senate, it's OK, because it's divided government and that is good.

Hoping for More Deregulation

This is a bunch of nonsense. Has divided government historically been a positive? I think so, in that when you have a divided government you are less likely to make progress in legislation and since most legislation is harmful, the less legislation you get is better. But in the situation we have now, the hope is that we will have deregulation. That the progress that Trump will make will be in removing regulation.  Obviously if the Democrats take control of Congress, if you were hoping for more deregulation then your divided government will put a stop to that. So if divided government keeps government from getting smaller then it is not a good thing. If divided government stops the government from getting bigger, then maybe you could say it is positive.

Building an Entire Stock Market Rally on Trump's Agenda

But if you have built an entire stock market rally off of the supposed success of Donald Trump and his agenda, and his ability to get his agenda through Congress, that ability is going to be substantially curtailed, if not completely eliminated if the Democrats control Congress. Nothing that Trump wants to do will get through Congress so if you've been betting that it would, then the Republicans losing control of Congress is definitely a bad thing.

Not The Contract with America

This is not Newt Gingrich and The Contract with America, when Republican control of Congress forced Bill Clinton to move to the right and maybe stopped some of his big government agenda that would have gotten through a Democratic Congress.  When you had the Republican Congress putting a brake on Clinton's agenda, moving the nation more to the center, yes, that was a positive for the markets.

We Don't Want to Even Fathom a Negative Influence on the Stock Market

But why would losing a business-friendly Republican Congress to the Democrats, to Socialist Democrats, why is that bullish for stocks? How could you possibly think that is bullish for stocks if you think what we have now is bullish, and we lose a chunk of that, that just shows you that it doesn't matter what happens, these analysts are always going to say it's bullish. No matter what happens, it's bullish for stocks, because stocks are going up.  We don't want to even fathom the possibility that anything happening would be negative for stocks.

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Illusion will be Replaced with Harsh Reality

This is dangerous stuff.  This is the same thing thing that was being said when George Bush was President. Just because you're a Republican you don't have to claim that anything that was done by another Republican is great, in order to make the Democrats look bad. Ultimately that comes back and bites you because you loose credibility when the economy turns down. When it turns out that it was just a bubble, it was just an illusion, and when the illusion is replaced with harsh reality, you've got nothing and it makes it easier for the other side to scapegoat Capitalism for the problems and to hold out more government as the solution.

The Trump Tariff Put

One of the more ridiculous ideas that are floating around now is the existence of the so-called "Trump Tariff Put". I've heard a lot of talk about that and basically, it goes like this: Trump is very concerned about the stock market; yes, he is threatening these tariffs - we have additional tariffs.  If the tariffs actually prove to be harmful to the economy or to the stock market or to both, Trump can simply soften his stance, or maybe just surrender in the trade war. Just give up on the tariffs and the stock market will come roaring back. If the stock market is falling because of the tariffs and then we take the tariffs away, there's no reason the stock market won't just rally back up. So in other words, there's this put. It' s heads, the market wins, tails nobody loses.

Even If the Market Goes Down, You're Going to Get Bailed Out

As long as the tariffs aren't doing any damage, the markets keep going up, but if it turns out that the tariffs do damage, then they get rid of them, and the market resumes, even if it temporarily went down. So that is the Trump put, just like the Greenspan put, which became the Bernanke put, the Yellen put (whether or not there's a Powell put...).  The idea was, "Hey, if the market ever falls, the Federal Reserve will slash rates to make it go back up again. So you can't lose, even if the market goes down, you're going to get bailed out - whether by the Federal Reserve or by Donald Trump.

If You're Looking to Invent Another Reason to Be Bullish and Not to Be Worried…

I think this type of attitude is more just wishful thinking.  It's the kind of attitude that permeates a mania, a bubble. It's the fearless, "Hey if you're looking to invent another reason to be bullish and not to be worried…" If this stock market really starts to fall, it's not going to matter if we call off the tariffs. If the market is falling, chances are it is falling not simply because of the tariffs. The tariffs might be one element that is a problem for the markets, but it may simply be one of a number, and just getting rid of the tariffs will not be enough to turn around a bear market in stocks, which is long overdue.

 

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Sacrificed on the Altar of Political Correctness

I want to spend the rest of this podcast talking about politics; in particular, what's going on with Brett Kavanaugh and his fading chances of sitting on the Supreme Court.  It appears that he may be sacrificed on the altar of political correctness. I also blame the Republicans for allowing this to happen - to have fallen into this trap; not just with Kavanaugh.

No Sense of Proportion

This has been slowly building, the camel's nose under the tent, and once the Democrats play this card - and this is not the racist card this is the rape card, the violence against women card. there's a zero tolerance now.  You can't even create the appearance that one is somehow tolerant of any kind of sexual abuse against women. There is no sense of proportion.

Allegation About a 35-Year Old Event

There was an allegation that became more significant 2 days ago when a previously unnamed woman who claimed that BrettKavanaugh assaulted her when they were in high school.  Now, of course, Kavanaugh is 53 years old now, so this is over 35 years ago.

There Was a Lot of Alcohol at This Party

Kavanaugh denied the initial allegation. Initially, the identity of the woman was unknown, as was the nature of the "sexual assault".  So Kavanaugh denied it. Now we actually have a name: Christine Blasey Ford, 51, a professor of Psychology, a registered Democrat. She has come forward now with the details of the encounter and the lack of details, because much of it she does not recall. After all, it happened 35 years ago, and according to the accuser, there was a lot of alcohol at this party.  She says that Kavanaugh was drunk, so she was probably drunk herself. I don't know if she has admitted to being drunk - there was alcohol at the party and the boys were drinking it.  It stands to reason that she probably had some alcohol herself.

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Sacrificed on the Altar of Political Correctness

I want to spend the rest of this podcast talking about politics; in particular, what's going on with Brett Kavanaugh and his fading chances of sitting on the Supreme Court.  It appears that he may be sacrificed on the altar of political correctness. I also blame the Republicans for allowing this to happen - to have fallen into this trap; not just with Kavanaugh.

No Sense of Proportion

This has been slowly building, the camel's nose under the tent, and once the Democrats play this card - and this is not the racist card this is the rape card, the violence against women card. there's a zero tolerance now.  You can't even create the appearance that one is somehow tolerant of any kind of sexual abuse against women. There is no sense of proportion.

Allegation About a 35-Year Old Event

There was an allegation that became more significant 2 days ago when a previously unnamed woman who claimed that BrettKavanaugh assaulted her when they were in high school.  Now, of course, Kavanaugh is 53 years old now, so this is over 35 years ago.

There Was a Lot of Alcohol at This Party

Kavanaugh denied the initial allegation. Initially, the identity of the woman was unknown, as was the nature of the "sexual assault".  So Kavanaugh denied it. Now we actually have a name: Christine Blasey Ford, 51, a professor of Psychology, a registered Democrat. She has come forward now with the details of the encounter and the lack of details, because much of it she does not recall. After all, it happened 35 years ago, and according to the accuser, there was a lot of alcohol at this party.  She says that Kavanaugh was drunk, so she was probably drunk herself. I don't know if she has admitted to being drunk - there was alcohol at the party and the boys were drinking it.  It stands to reason that she probably had some alcohol herself.

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Making the Rich Pay

Julia Salazar, another Democratic Socialist defeated Martin Dilan in the NY Senate primary.  The only reference to taxes on her website was to "make the rich pay their fair share".  That's it.  Nothing about what specifically she wants to raise, by how much she wants to raise it and how much money is going to come it.  This is going to be provided, that is going to be provided, and the people vote for her! This is how dumb the electorate has become.

Shift to Democratic Socialism

This is what I have been warning about on this podcast.  This shift in the political spectrum. The Democrats are moving to the left.  Democratic incumbents are going to be replaced by Socialists or will have to openly embrace Socialism themselves in order to maintain their seats. This is very dangerous, because when it does hit the fan, and it should hit the fan before the next elections a Democrat is going to be the next President, and the Democrats are going to control Congress. It's not going to be the Democratic party of Bill Clinton or even Barack Obama. It will be the Democratic party of Bernie Sanders.

Sovereign Debt Crisis and Dollar Crisis

We're going back to the anniversary of the Financial Crisis and the collapse of Lehman Brothers, and the next crisis, which will be a sovereign debt crisis and a dollar crisis.  It's going to be much much worse.  Bailouts are not going to work; stimulus is not going to work.

Injecting Stimulus Directly into the Rears of the Democratic Voters

But they're not going to try the same type of stimulus. They're not going to talk about injecting monetary heroin into the banking system to create a wealth effect. They're going to inject the stimulus right into the rear ends of the Democratic voters. They're going to want to give the money directly to the people, whether it is through some kind of basic income program or government make-work or forgiving student loans.  Whatever they do, it will be about showering money that the Fed creates out of thin air and putting it directly in the pockets of the voters. That is just pure unadulterated inflation.

 

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Making the Rich Pay

Julia Salazar, another Democratic Socialist defeated Martin Dilan in the NY Senate primary.  The only reference to taxes on her website was to "make the rich pay their fair share".  That's it.  Nothing about what specifically she wants to raise, by how much she wants to raise it and how much money is going to come it.  This is going to be provided, that is going to be provided, and the people vote for her! This is how dumb the electorate has become.

Shift to Democratic Socialism

This is what I have been warning about on this podcast.  This shift in the political spectrum. The Democrats are moving to the left.  Democratic incumbents are going to be replaced by Socialists or will have to openly embrace Socialism themselves in order to maintain their seats. This is very dangerous, because when it does hit the fan, and it should hit the fan before the next elections a Democrat is going to be the next President, and the Democrats are going to control Congress. It's not going to be the Democratic party of Bill Clinton or even Barack Obama. It will be the Democratic party of Bernie Sanders.

Sovereign Debt Crisis and Dollar Crisis

We're going back to the anniversary of the Financial Crisis and the collapse of Lehman Brothers, and the next crisis, which will be a sovereign debt crisis and a dollar crisis.  It's going to be much much worse.  Bailouts are not going to work; stimulus is not going to work.

Injecting Stimulus Directly into the Rears of the Democratic Voters

But they're not going to try the same type of stimulus. They're not going to talk about injecting monetary heroin into the banking system to create a wealth effect. They're going to inject the stimulus right into the rear ends of the Democratic voters. They're going to want to give the money directly to the people, whether it is through some kind of basic income program or government make-work or forgiving student loans.  Whatever they do, it will be about showering money that the Fed creates out of thin air and putting it directly in the pockets of the voters. That is just pure unadulterated inflation.

 

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Another Round of Tax Cuts

Now the Republicans are talking about another round of tax cuts. Just in time for the November election. Whether or not these tax cuts actually get passed is anyone's guess, but it will be an issue on the campaign trail, either because they delivered the tax cut or because the only thing standing in the way of a tax cut is the Democrats. Remember the individual tax cuts were passed the last time are temporary - they phase out. The corporate rates do not phase out. Of course, all tax cuts are temporary because any Congress can raise taxes any time it wants, so it's just semantics.

Temporary Tax Cuts Were a Lie

The reason they had to make the individual tax cuts temporary was so that they can pretend that the increase in the budget deficits was not going to be as high as everybody knew that it was. The presumption was that Congress would vote to extend them.  Here we are, not even a year has gone by and the Republicans already want to come back and make them permanent, which shows that the temporary tax cuts were a lie.

Government Revenues up 1% - Government Spending Up 7%

The August budget deficit was $211 billion - nearly double the deficit that we had in the same month last year. In the first 8 months of the year, the deficit is $895 billion. This is a trillion dollar deficit during a supposedly booming economy. If we can't generate surpluses in a booming economy, imagine the enormity of the deficits when the economy is not booming,. Imagine how bad the deficits will be when the economy is actually in a recession. In this most recent year, the deficit is $222 billion higher than the previous year and government spending is up 7%, yet revenues only rose 1%. So it is not closing the gap, not by a long shot.

Too Big to Bail

The U.S. government is too big to bail - not too big to fail - too big to bail. Of course the government technically does not need a bailout; it just prints more money. Of course, that's the problem. They will print money that nobody wants and the currency is going to collapse.

Saying Yes to Socialism Says No to Prosperity

Recently on the Bill Maher show Jim Carrey said, "Socialism is great, so why don't the Democrats just embrace it?  Say yes to Socialism, already. Now they can come out and openly declare that they are Socialists now because everybody likes it.  When you say yes to Socialism, you're saying no to some very important things, like individual liberty, freedom, prosperity. Voters don't know that.  They just think Socialism is a bunch of free stuff, and they get more free stuff under Socialism than under Capitalism. People want stuff.

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