The Peter Schiff Show Podcast

[button link="https://www.youtube.com/watch?v=mANOqcnLtqA" color="lightgray" size="medium" stretch="" type="" shape="" target="_self" title="" gradient_colors="|" gradient_hover_colors="|" accent_color="" accent_hover_color="" bevel_color="" border_width="1px" icon="" icon_divider="yes" icon_position="left" modal="" animation_type="0" animation_direction="down" animation_speed="0.1" animation_offset="" alignment="left" class="" id=""]Mr. Schiff Goes to Washington[/button]

[button link="https://www.youtube.com/watch?v=mANOqcnLtqA" color="lightgray" size="medium" stretch="" type="" shape="" target="_self" title="" gradient_colors="|" gradient_hover_colors="|" accent_color="" accent_hover_color="" bevel_color="" border_width="1px" icon="" icon_divider="yes" icon_position="left" modal="" animation_type="0" animation_direction="down" animation_speed="0.1" animation_offset="" alignment="right" class="" id=""]Mr. Schiff Returns to Washington[/button]

 The Bear Market Rally

The big story continues to be the bear market rally that has been going on in the U.S. dollar. The dollar index  closed above 93.  The low this year was just above 88, so we've risen above 5% so far in the U.S. dollar index.  Year to date we're up on the dollar a little over 1%.  We're still down about 6% from where the dollar ended 2016, but we've had this considerable rally in a relatively short period of time.  To me, it has the makings of a bear market rally, a short-covering rally.  There hasn't been any good economic news that would explain the strength of the dollar.  In fact, I talked about Fed comments from last week which to me, are quite dovish when you have the Federal Reserve indicating a tolerance toward inflation above 2% talking about "symmetrical inflation" rather than keeping it below 2%, So to me, those are statements that would normally be negative for the dollar.

Technical Rally for Short-Covering

The economic data, the jobs numbers that came out last week - much weaker than expected, so all the information would actually argue against a more aggressive Fed, in favor of a more dovish Fed, yet the dollar is rising anyway.  I think it's technical, I think it's short-covering and I think it is short-sighted.

Dollar Strong against Emerging Market Currencies

One of the areas where the dollar is the strongest is actually against the emerging market currencies.  Not the currencies that are in the U.S. dollar index - that's dominated by the euro, the pound, the yen - but the emerging market currencies, they're the ones that are bearing the brunt of  this sell-off, and it's a self-perpetuating problem, because as these emerging currencies go down, it puts upward pressure on their already increasing inflation rate. I think inflation is picking up all around the world, but if your currency is going down, that puts even more pressure on consumer prices, and the politicians of these emerging economies are resisting higher interest rates, both to combat increasing inflation and to support a weakening currency which is only adding fuel to the fire.

Currency Traders Have It Backwards

What's so ironic about all this is that traders are missing the bigger point. The United States is in the exact same predicament (only worse) than the emerging economies. We are going to be faced with the same set of dynamics, in that we are going to have rising

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 The Bear Market Rally

The big story continues to be the bear market rally that has been going on in the U.S. dollar. The dollar index  closed above 93.  The low this year was just above 88, so we've risen above 5% so far in the U.S. dollar index.  Year to date we're up on the dollar a little over 1%.  We're still down about 6% from where the dollar ended 2016, but we've had this considerable rally in a relatively short period of time.  To me, it has the makings of a bear market rally, a short-covering rally.  There hasn't been any good economic news that would explain the strength of the dollar.  In fact, I talked about Fed comments from last week which to me, are quite dovish when you have the Federal Reserve indicating a tolerance toward inflation above 2% talking about "symmetrical inflation" rather than keeping it below 2%, So to me, those are statements that would normally be negative for the dollar.

Technical Rally for Short-Covering

The economic data, the jobs numbers that came out last week - much weaker than expected, so all the information would actually argue against a more aggressive Fed, in favor of a more dovish Fed, yet the dollar is rising anyway.  I think it's technical, I think it's short-covering and I think it is short-sighted.

Dollar Strong against Emerging Market Currencies

One of the areas where the dollar is the strongest is actually against the emerging market currencies.  Not the currencies that are in the U.S. dollar index - that's dominated by the euro, the pound, the yen - but the emerging market currencies, they're the ones that are bearing the brunt of  this sell-off, and it's a self-perpetuating problem, because as these emerging currencies go down, it puts upward pressure on their already increasing inflation rate. I think inflation is picking up all around the world, but if your currency is going down, that puts even more pressure on consumer prices, and the politicians of these emerging economies are resisting higher interest rates, both to combat increasing inflation and to support a weakening currency which is only adding fuel to the fire.

Currency Traders Have It Backwards

What's so ironic about all this is that traders are missing the bigger point. The United States is in the exact same predicament (only worse) than the emerging economies. We are going to be faced with the same set of dynamics, in that we are going to have rising

Fed is Willing to Tolerate Higher Inflation

Today is the first Friday in May and that means we got the April Jobs Report released today, and before I actually get into the details of the jobs report, I want to talk about what happened with the Fed this week. I think that is the most significant news of the week.  The Fed's statement on Wednesday and the comments from today are the real reasons we had the 300+ point rally in the Dow today, that's why we had the 400+point turnaround in the Dow on Thursday.  It's all about the Fed and its willingness to tolerate higher inflation.

Fed Inserted the word "Symmetrical"

So we got the FOMC announcement on Wednesday after their 2-day meeting, and as expected, they left interest rates unchanged. The most significant part of the statement that accompanied the Fed's decision not to raise rates was inserting the word, "symmetrical" in their description of inflation.  Up until Wednesday, the Fed was always worried that we didn't have enough inflation. The inflation rate was too low, and their goal was to get it up to their 2% level.

We Can Go Above 2% to the Same Extent We Were Below 2%

Now the Fed is saying that they are at 2% and they expect the rate to actually go above 2%, and they're OK with it. What they mean by symmetrical is that inflation was below 2%, at least the way they measure it. It's probably always been well above it, but let's just look at the government statistics.  Based on the government statistics we had inflation of 1.4, 1.5, 1.6; it was always below 2.  So now what they're saying is we can have some symmetry on the upside, meaning, all right, we can have 2.5, because 2.5 and 1.5. the average is 2.

The Fed is Actually Lifting Their Inflation Target

So what the Fed is really saying is their goal is not to have 2% inflation, their goal is to have inflation that averages 2%.  So if we've had inflation of under 2% for all these years, we can have inflation of over2% by the same proportion for the same number of years and they we would have averaged 2% inflation for the entire time.  So, in reality, what the Fed is really doing, and I have been saying this all along - for years and years - they are actually lifting their inflation target.

 

 

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Fed is Willing to Tolerate Higher Inflation

Today is the first Friday in May and that means we got the April Jobs Report released today, and before I actually get into the details of the jobs report, I want to talk about what happened with the Fed this week. I think that is the most significant news of the week.  The Fed's statement on Wednesday and the comments from today are the real reasons we had the 300+ point rally in the Dow today, that's why we had the 400+point turnaround in the Dow on Thursday.  It's all about the Fed and its willingness to tolerate higher inflation.

Fed Inserted the word "Symmetrical"

So we got the FOMC announcement on Wednesday after their 2-day meeting, and as expected, they left interest rates unchanged. The most significant part of the statement that accompanied the Fed's decision not to raise rates was inserting the word, "symmetrical" in their description of inflation.  Up until Wednesday, the Fed was always worried that we didn't have enough inflation. The inflation rate was too low, and their goal was to get it up to their 2% level.

We Can Go Above 2% to the Same Extent We Were Below 2%

Now the Fed is saying that they are at 2% and they expect the rate to actually go above 2%, and they're OK with it. What they mean by symmetrical is that inflation was below 2%, at least the way they measure it. It's probably always been well above it, but let's just look at the government statistics.  Based on the government statistics we had inflation of 1.4, 1.5, 1.6; it was always below 2.  So now what they're saying is we can have some symmetry on the upside, meaning, all right, we can have 2.5, because 2.5 and 1.5. the average is 2.

The Fed is Actually Lifting Their Inflation Target

So what the Fed is really saying is their goal is not to have 2% inflation, their goal is to have inflation that averages 2%.  So if we've had inflation of under 2% for all these years, we can have inflation of over2% by the same proportion for the same number of years and they we would have averaged 2% inflation for the entire time.  So, in reality, what the Fed is really doing, and I have been saying this all along - for years and years - they are actually lifting their inflation target.

 

 

Market Tends to Produce Better Returns in the First 4 Months of the Year

There is an old Wall Street adage: "Sell in May and Go Away". The reason for that saying is that seasonally, the market tends to produce better returns in the first 4 months of the year, January through April, and then, historically, beginning in May and throughout the summer, the market can generally go down, and I think the time to buy back in is typically September/October.  There are a lot of big down days, down months, crashes, so get out of the market in May, go away and then come back later in the year and buy back what you sold.

Selling Started Right out of the Gate

Today was May 1 and it looked like a lot of people were not going to wait to sell; they were selling right on the open.  The Dow was down all day.  At the worst, it was down better than 300 points but it pared its losses significantly, down just 64.  But the NASDAQ, which was never actually down that much (when the Dow was down 300 the NASDAQ was down only about 25) the NASDAQ ended up positive 64.  The S&P was up just under 7 points.

Facebook Getting into the Dating Business

Stocks were under pressure all day. I think the turnaround in Facebook - Facebook ended up a couple of percent.  Mark Zuckerberg announced plans to try to clamp down - I think he said he would have 20,000 people working in compliance.  They also announced that they are going into the dating business.  I'm surprised it has taken Facebook so long to get into that space.  It seems such an obvious fit. They already have everybody's profile. I think some of the other online sites, Match Group which owns Plenty of Fish are falling.  It's like Amazon stepping into your market.

Heading toward 20,000

The market turned around and maybe that news lifted the NASDAQ, but to me, it was a weak day, the market was generally under pressure.  The Dow did manage to hold onto the 20,000 mark.  We were well below it - we were close to 23800.  It is really going to get interesting is when the Dow gets down to 20,000.  I think that's where we're headed.

 

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Market Tends to Produce Better Returns in the First 4 Months of the Year

There is an old Wall Street adage: "Sell in May and Go Away". The reason for that saying is that seasonally, the market tends to produce better returns in the first 4 months of the year, January through April, and then, historically, beginning in May and throughout the summer, the market can generally go down, and I think the time to buy back in is typically September/October.  There are a lot of big down days, down months, crashes, so get out of the market in May, go away and then come back later in the year and buy back what you sold.

Selling Started Right out of the Gate

Today was May 1 and it looked like a lot of people were not going to wait to sell; they were selling right on the open.  The Dow was down all day.  At the worst, it was down better than 300 points but it pared its losses significantly, down just 64.  But the NASDAQ, which was never actually down that much (when the Dow was down 300 the NASDAQ was down only about 25) the NASDAQ ended up positive 64.  The S&P was up just under 7 points.

Facebook Getting into the Dating Business

Stocks were under pressure all day. I think the turnaround in Facebook - Facebook ended up a couple of percent.  Mark Zuckerberg announced plans to try to clamp down - I think he said he would have 20,000 people working in compliance.  They also announced that they are going into the dating business.  I'm surprised it has taken Facebook so long to get into that space.  It seems such an obvious fit. They already have everybody's profile. I think some of the other online sites, Match Group which owns Plenty of Fish are falling.  It's like Amazon stepping into your market.

Heading toward 20,000

The market turned around and maybe that news lifted the NASDAQ, but to me, it was a weak day, the market was generally under pressure.  The Dow did manage to hold onto the 20,000 mark.  We were well below it - we were close to 23800.  It is really going to get interesting is when the Dow gets down to 20,000.  I think that's where we're headed.

 

Markets Down But Not by as Much as Expected

All the major U.S. stock markets were down on the week, but not by as much as I thought. We got that big drop on Monday, where we got the very bad reaction to even better than expected earnings.  Plus, with interest rates rising, I thought we would have had more selling, but we didn't we actually rallied back most of the week from the big Monday decline, not enough to recover all of the losses, but the total losses on the week were not that bad.  The Dow was down today, actually, by about 11 points. The NASDAQ eked out a small gain as did the S&P 500.

Yield on the 10-Year Highest Since Financial Crisis

Interest rates were moving up.  In fact, the yield on the 10-year on Wednesday hit 3.035%. This is the highest it has been since before the Financial Crisis and I think one of the reasons that the stock market recovered a bit this week was because investors breathed a sigh of relief that the yield didn't stay above 3%.  We closed above 3% on that Monday, I think it was 3.024%, but then we dropped on Thursday and dropped again on Friday; we went out at 2.957%, and that's only a slight increase from the 2.951% that yields closed at the prior week.

Existing Rates High Enough for Significant Damage

I think the markets are lulling in a false sense of security if they think that it's just one and done. "We finally took out 3%, maybe we cleared out some stops, and that's it. Yields have peaked, so there's nothing to worry about." As I said on my last podcast, even if this is the peak, I think it is already high enough to do significant damage to the economy, to the financial markets, to U.S. government finances.  But - it's not the peak.

Rising Bond Yields Are Not Bullish for the Dollar

Rates have barely begun to rise and I think they are going a lot higher.  Higher rates did continue to support the dollar.  The dollar actually had a strong week; the dollar index closed up just over 1% on the week.  It was down slightly today, so we surrendered some gains earlier this morning, but it was still an up week for the dollar.  Again, I think those people who are buying the dollar are going to lose a lot of money if they don't turn around and sell. I think this is a sucker rally.  As I said in my last podcast: Rising bond yields are not bullish for the dollar.

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Markets Down But Not by as Much as Expected

All the major U.S. stock markets were down on the week, but not by as much as I thought. We got that big drop on Monday, where we got the very bad reaction to even better than expected earnings.  Plus, with interest rates rising, I thought we would have had more selling, but we didn't we actually rallied back most of the week from the big Monday decline, not enough to recover all of the losses, but the total losses on the week were not that bad.  The Dow was down today, actually, by about 11 points. The NASDAQ eked out a small gain as did the S&P 500.

Yield on the 10-Year Highest Since Financial Crisis

Interest rates were moving up.  In fact, the yield on the 10-year on Wednesday hit 3.035%. This is the highest it has been since before the Financial Crisis and I think one of the reasons that the stock market recovered a bit this week was because investors breathed a sigh of relief that the yield didn't stay above 3%.  We closed above 3% on that Monday, I think it was 3.024%, but then we dropped on Thursday and dropped again on Friday; we went out at 2.957%, and that's only a slight increase from the 2.951% that yields closed at the prior week.

Existing Rates High Enough for Significant Damage

I think the markets are lulling in a false sense of security if they think that it's just one and done. "We finally took out 3%, maybe we cleared out some stops, and that's it. Yields have peaked, so there's nothing to worry about." As I said on my last podcast, even if this is the peak, I think it is already high enough to do significant damage to the economy, to the financial markets, to U.S. government finances.  But - it's not the peak.

Rising Bond Yields Are Not Bullish for the Dollar

Rates have barely begun to rise and I think they are going a lot higher.  Higher rates did continue to support the dollar.  The dollar actually had a strong week; the dollar index closed up just over 1% on the week.  It was down slightly today, so we surrendered some gains earlier this morning, but it was still an up week for the dollar.  Again, I think those people who are buying the dollar are going to lose a lot of money if they don't turn around and sell. I think this is a sucker rally.  As I said in my last podcast: Rising bond yields are not bullish for the dollar.

The Correction is Over and the Bear Market is Resuming

As I have been speaking about in my last couple of podcasts, it looks like the period of relative calm in the markets is over and the next leg down has begun.  So the correction is also over - not the downward move - that is not the correction - this is the bear market.  The upward move was the correction. It was the first correction in this young bear market.  Technically it is not a bear market yet because we're not down 20% but that is only a matter of time. So I think the correction is over and the bear market is resuming, the primary trend being down.

Dow Transports Big Losers

In fact, the U.S. stock market was down for its fifth consecutive day, although today was the biggest decline.  The Dow ended down 424 points.  We managed to close just above 24,000 at 24,024. But we were well below.  At the lows of the day we were down about 600 points.  Percentage wise we were down 1.74%. The NASDAQ, about the same, down 1.7%.  At the lows it was down close to 150 points on the NASDAQ.  Percentage wise, the Dow transports were the big losers, down 221 points - 2.08%.

Earnings Don't Matter

Now, one of the things that investors have been counting on to support stock prices and, in fact, drive them higher, were earnings.  Everybody's been saying, "Earnings are going to be higher!" Now what have I been saying on my podcasts, over the last several months?  I've been saying that it doesn't matter, because all these great earnings, if they materialize, are already baked into the cake. They are already discounted into the price of the stocks. So in other words, they don't matter. It's "buy the rumor, sell the fact".

Double Whammy of Faster Growth and Lower Taxes

If everybody knows that earnings are going to be good, well, they've priced in those expectations into the market.  Why do you think the market has gone up so much since Trump was elected President? It was on the anticipation of all these earnings that were going to come from a combination of faster growth and lower taxes. In fact, the lower taxes are why we were going to get the growth, so it was going to be a double whammy.  Well, all that was priced into the market.

 

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The Correction is Over and the Bear Market is Resuming

As I have been speaking about in my last couple of podcasts, it looks like the period of relative calm in the markets is over and the next leg down has begun.  So the correction is also over - not the downward move - that is not the correction - this is the bear market.  The upward move was the correction. It was the first correction in this young bear market.  Technically it is not a bear market yet because we're not down 20% but that is only a matter of time. So I think the correction is over and the bear market is resuming, the primary trend being down.

Dow Transports Big Losers

In fact, the U.S. stock market was down for its fifth consecutive day, although today was the biggest decline.  The Dow ended down 424 points.  We managed to close just above 24,000 at 24,024. But we were well below.  At the lows of the day we were down about 600 points.  Percentage wise we were down 1.74%. The NASDAQ, about the same, down 1.7%.  At the lows it was down close to 150 points on the NASDAQ.  Percentage wise, the Dow transports were the big losers, down 221 points - 2.08%.

Earnings Don't Matter

Now, one of the things that investors have been counting on to support stock prices and, in fact, drive them higher, were earnings.  Everybody's been saying, "Earnings are going to be higher!" Now what have I been saying on my podcasts, over the last several months?  I've been saying that it doesn't matter, because all these great earnings, if they materialize, are already baked into the cake. They are already discounted into the price of the stocks. So in other words, they don't matter. It's "buy the rumor, sell the fact".

Double Whammy of Faster Growth and Lower Taxes

If everybody knows that earnings are going to be good, well, they've priced in those expectations into the market.  Why do you think the market has gone up so much since Trump was elected President? It was on the anticipation of all these earnings that were going to come from a combination of faster growth and lower taxes. In fact, the lower taxes are why we were going to get the growth, so it was going to be a double whammy.  Well, all that was priced into the market.