The Peter Schiff Show Podcast

Another Friday Down Day

It looks like the period of calm may be coming to an end and the storm may be looming just over the horizon. The Dow Jones finished down today, just over 200 points off the day's low.  I think I saw us down about 280.  This was the 4th consecutive Friday where the markets were lower - there was a holiday in there (Good Friday) - it has been 5 Fridays.  This seems to be a trend.  The markets still managed to eke out a gain on the week.  All 3 of the major indexes managed gains despite the losses on Friday.

 

Investors Should Really Worry about the Bond Market

What should really be worrying investors are the losses this week in the bond market. Yields continue to ratchet up almost every day, and in fact we closed at the high point all across the curve, from the 2-year all the way up to the 30-year.  The 1--year yield, which is the one everybody seems to be talking about closed at 2.96%.  So this is a new high for the year.  You've got to go back to pre-2008 financial crisis to get a yield up that high.  But the yield is still very very low.

Who Believes that 3% Yields are Here to Stay?

The amazing thing is to look at the 30-year. The 30-year is 3.15.  It's actually just under 20 basis points - 19 basis points is all you get for taking 20 additional years of interest rate and inflation risk.  Think about that! Think about how crazy that is. Interest rates right now on the 10-year are just under 3%; on the 30-year they are slightly above 3%.  Why would anybody believe that 3% yields are here to stay?

Low Rates Are an Aberration

Obviously, if you go back to the post-war period and look at what rates have averaged on the 10-year, these low rates are an aberration.  They've been going on now, for a while, but they can't go on forever, Yet the market thinks it's going to go on for another 30 years.  If you think about a 30-year bond, that's like buying a 10-year bond today, holding it for 10 years, letting it mature, then buying another 10-year bond, holding that one for 10 years, letting it mature and buying another one! So you do that 3 times over 30 years, in theory it should give us the same rate as buying one 30-year bond right now.

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Another Friday Down Day

It looks like the period of calm may be coming to an end and the storm may be looming just over the horizon. The Dow Jones finished down today, just over 200 points off the day's low.  I think I saw us down about 280.  This was the 4th consecutive Friday where the markets were lower - there was a holiday in there (Good Friday) - it has been 5 Fridays.  This seems to be a trend.  The markets still managed to eke out a gain on the week.  All 3 of the major indexes managed gains despite the losses on Friday.

 

Investors Should Really Worry about the Bond Market

What should really be worrying investors are the losses this week in the bond market. Yields continue to ratchet up almost every day, and in fact we closed at the high point all across the curve, from the 2-year all the way up to the 30-year.  The 1--year yield, which is the one everybody seems to be talking about closed at 2.96%.  So this is a new high for the year.  You've got to go back to pre-2008 financial crisis to get a yield up that high.  But the yield is still very very low.

Who Believes that 3% Yields are Here to Stay?

The amazing thing is to look at the 30-year. The 30-year is 3.15.  It's actually just under 20 basis points - 19 basis points is all you get for taking 20 additional years of interest rate and inflation risk.  Think about that! Think about how crazy that is. Interest rates right now on the 10-year are just under 3%; on the 30-year they are slightly above 3%.  Why would anybody believe that 3% yields are here to stay?

Low Rates Are an Aberration

Obviously, if you go back to the post-war period and look at what rates have averaged on the 10-year, these low rates are an aberration.  They've been going on now, for a while, but they can't go on forever, Yet the market thinks it's going to go on for another 30 years.  If you think about a 30-year bond, that's like buying a 10-year bond today, holding it for 10 years, letting it mature, then buying another 10-year bond, holding that one for 10 years, letting it mature and buying another one! So you do that 3 times over 30 years, in theory it should give us the same rate as buying one 30-year bond right now.

Podcast Break: Investor Summit at Sea

I apologize to everybody who has been waiting patiently for my next podcast.  Las week I went the entire week without doing a podcast, which is unusual. If you are a regular listener to this podcast you'll know that I was on a cruise ship all last week; I was on the Real Estate Guys' cruise.  The internet connections on a ship are very slow; particularly the upload speeds - plus I was very busy, so I really decided to take a week off from podcasting.

Markets  Were Overall Quiet

You know, there really wasn't that much that happened last week.  the markets were overall quiet, although the U.S  stock market rallied, gold didn't do much, the dollar didn't do much; no real earth-shattering news, so I didn't see any reason why I couldn't wait until I was back onshore, which is what I'm doing, and in fact, I was so  busy today that it is very late on a Monday night and I'm just trying to get this podcast recorded today.

FOMC Minutes Released

First of all, I'll talk about some if the stuff that happened last week.  We did get the release of the FOMC minutes, in fact, after the minutes came out we had a pretty big drop in the price of gold.  Gold did manage to get all the way up to about 1365 during the week before selling off and I think the Fed minutes were a catalyst to get gold to sell off.  Of course, it really can't get much below 1330; there is a lot of buying that comes in down there.

Fed Half Right

The read on the minutes was that they were hawkish in that the Fed was signaling that the economy is going to keep strengthening and inflation is going to keep rising.  Well, at least they're half right.  The economy isn't going to keep strengthening, but inflation will keep rising,

PPI Close to a Breakout

In fact, they're not even half right: They're right that inflation is going to go up, but it is going to go up by a lot more than they think, so even the part they got right they really got wrong.  We did get some inflation numbers - official measures of inflation that the government released last week.  If you look particularly at the Producer Price Index, core producer prices rose at the fastest pace in 7 years.  And if you look at a chart, we're very close to a breakout of resistance on core PPI.  Core CPI also up a little better than expected, but this is just the beginning of a trend.  During the week oil prices made new highs.  We got above $67 a barrel, so we're continuing to get closer and closer to 70 and eventually and 100.  It's not just oil prices that are rising, it's pretty much  commodities prices across the board.

Fed Will not Deliver Rate Hikes

But the Fed is not going to be able to deliver the rate hikes that the market is expecting and, again, it is the expectation of more rate hikes that is keeping a lid on the price of gold, but it's only a matter of time before the market blows the lid off and the price of gold goes up.

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Podcast Break: Investor Summit at Sea

I apologize to everybody who has been waiting patiently for my next podcast.  Las week I went the entire week without doing a podcast, which is unusual. If you are a regular listener to this podcast you'll know that I was on a cruise ship all last week; I was on the Real Estate Guys' cruise.  The internet connections on a ship are very slow; particularly the upload speeds - plus I was very busy, so I really decided to take a week off from podcasting.

Markets  Were Overall Quiet

You know, there really wasn't that much that happened last week.  the markets were overall quiet, although the U.S  stock market rallied, gold didn't do much, the dollar didn't do much; no real earth-shattering news, so I didn't see any reason why I couldn't wait until I was back onshore, which is what I'm doing, and in fact, I was so  busy today that it is very late on a Monday night and I'm just trying to get this podcast recorded today.

FOMC Minutes Released

First of all, I'll talk about some if the stuff that happened last week.  We did get the release of the FOMC minutes, in fact, after the minutes came out we had a pretty big drop in the price of gold.  Gold did manage to get all the way up to about 1365 during the week before selling off and I think the Fed minutes were a catalyst to get gold to sell off.  Of course, it really can't get much below 1330; there is a lot of buying that comes in down there.

Fed Half Right

The read on the minutes was that they were hawkish in that the Fed was signaling that the economy is going to keep strengthening and inflation is going to keep rising.  Well, at least they're half right.  The economy isn't going to keep strengthening, but inflation will keep rising,

PPI Close to a Breakout

In fact, they're not even half right: They're right that inflation is going to go up, but it is going to go up by a lot more than they think, so even the part they got right they really got wrong.  We did get some inflation numbers - official measures of inflation that the government released last week.  If you look particularly at the Producer Price Index, core producer prices rose at the fastest pace in 7 years.  And if you look at a chart, we're very close to a breakout of resistance on core PPI.  Core CPI also up a little better than expected, but this is just the beginning of a trend.  During the week oil prices made new highs.  We got above $67 a barrel, so we're continuing to get closer and closer to 70 and eventually and 100.  It's not just oil prices that are rising, it's pretty much  commodities prices across the board.

Fed Will not Deliver Rate Hikes

But the Fed is not going to be able to deliver the rate hikes that the market is expecting and, again, it is the expectation of more rate hikes that is keeping a lid on the price of gold, but it's only a matter of time before the market blows the lid off and the price of gold goes up.

Wednesday Reversal Day

On my Wednesday podcast, I talked about Wednesday reversal day, where we gapped way down and then rallied and closed up.  It was a strong outside reversal day. I thought this could be the beginning of a correction.  The correction meaning a rise in a bear market.  Everybody thinks we're in a correction now of a bull market, but I think the bull market is over and a rise is the correction.

Three Consecutive Up Days

So I thought maybe we'll get one based on that reversal day, and we did.  For one day. The market was up on Thursday; I think the Dow was up better than 200 points, so we did have some follow through to Tuesday and Wednesday's gains.  We had 3 consecutive up days.  Remember we had a big down day on Monday, but then we had those 3 up days.

End of Bear Market Correction

Well the whole correction came to an end today.  The Dow at one point again was down better than 700 points; we didn't close that badly - we were down 572 points.  Still, below 24,000; 23,932.  This is only the second close below 24,000 this year, on a weekly basis.  The last time was 2 weeks ago.  The NASDAQ was down 161 points back below 7000 - 6915.

Dangerous Territory in Dow Transports

Dow Transports were also down big.  They were down 307 points, just barely avoiding the Dow Theory sell signal.  So we're not quite there.  We can easily be there on Monday.  If we have another down day on Monday, it seems that we're going to have a sell signal for the Dow Theory.

Pattern Developing

That seems to be the pattern: big down day Friday followed by a big down day Monday.  Believe me the technicals on this market look awful.  So there is certainly another chance that we have another big sell off on Monday. This entire bear market so far, we've had a pattern of a big sell off on Fridays and Mondays and sometimes we get a big down day, we don't get the follow through on Monday, but to me, this looks like it's all clear on the way down.

 

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Wednesday Reversal Day

On my Wednesday podcast, I talked about Wednesday reversal day, where we gapped way down and then rallied and closed up.  It was a strong outside reversal day. I thought this could be the beginning of a correction.  The correction meaning a rise in a bear market.  Everybody thinks we're in a correction now of a bull market, but I think the bull market is over and a rise is the correction.

Three Consecutive Up Days

So I thought maybe we'll get one based on that reversal day, and we did.  For one day. The market was up on Thursday; I think the Dow was up better than 200 points, so we did have some follow through to Tuesday and Wednesday's gains.  We had 3 consecutive up days.  Remember we had a big down day on Monday, but then we had those 3 up days.

End of Bear Market Correction

Well the whole correction came to an end today.  The Dow at one point again was down better than 700 points; we didn't close that badly - we were down 572 points.  Still, below 24,000; 23,932.  This is only the second close below 24,000 this year, on a weekly basis.  The last time was 2 weeks ago.  The NASDAQ was down 161 points back below 7000 - 6915.

Dangerous Territory in Dow Transports

Dow Transports were also down big.  They were down 307 points, just barely avoiding the Dow Theory sell signal.  So we're not quite there.  We can easily be there on Monday.  If we have another down day on Monday, it seems that we're going to have a sell signal for the Dow Theory.

Pattern Developing

That seems to be the pattern: big down day Friday followed by a big down day Monday.  Believe me the technicals on this market look awful.  So there is certainly another chance that we have another big sell off on Monday. This entire bear market so far, we've had a pattern of a big sell off on Fridays and Mondays and sometimes we get a big down day, we don't get the follow through on Monday, but to me, this looks like it's all clear on the way down.

 

Extreme Volatility

It was another extremely volatile day in the U.S. stock market. When I finished my podcast on Monday and we had that big drop, I suspected that Tuesday might be a reversal Tuesday.  So I thought we'd get a bounce on Tuesday and, in fact we did.  We had a big rally; the Dow was up 400 points or so. Then this morning the Dow opened up down 500 points.  In fact when I woke up this morning, a couple of hours before the market opened, the Dow was down closer to 600.

Reversing Up

Typically when we get these huge sell offs right on the open because overnight weakness, what generally happens is that we end up reversing up - getting some buying after we open the markets down, and that's exactly what happened. The markets ended up recovering the entire loss.  We closed around the highs of the day: the Dow up 230 points and the NASDAQ up just over 100 points. This is a reversal.  Checking the numbers, the Dow did not take out yesterday's low but the NASDAQ and the S&P did.  All the markets closed above the previous day's high.

Bear Market: Primary Trend is Down

I'm sure some people will look at these numbers and say, "Hey, this is a technical reversal, we took out the lows we closed above the highs,  it's an outside day and this is maybe the end of the correction.  I do think potentially we could have more to the rally.  But I think the rally is the correction.  I still think this is a bear market.  We narrowly avoided the Dow Theory sell. The Dow Theory is still on a buy, and now we have a bit of a reversal, so maybe this correction has a little more legs. The correction being the move up.  I think the primary trend is down.  I don't think today's reversal is big enough to have put in the low of this correction if it is a correction. So I still think that we are in a bear market.

 

 

 

 

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Extreme Volatility

It was another extremely volatile day in the U.S. stock market. When I finished my podcast on Monday and we had that big drop, I suspected that Tuesday might be a reversal Tuesday.  So I thought we'd get a bounce on Tuesday and, in fact we did.  We had a big rally; the Dow was up 400 points or so. Then this morning the Dow opened up down 500 points.  In fact when I woke up this morning, a couple of hours before the market opened, the Dow was down closer to 600.

Reversing Up

Typically when we get these huge sell offs right on the open because overnight weakness, what generally happens is that we end up reversing up - getting some buying after we open the markets down, and that's exactly what happened. The markets ended up recovering the entire loss.  We closed around the highs of the day: the Dow up 230 points and the NASDAQ up just over 100 points. This is a reversal.  Checking the numbers, the Dow did not take out yesterday's low but the NASDAQ and the S&P did.  All the markets closed above the previous day's high.

Bear Market: Primary Trend is Down

I'm sure some people will look at these numbers and say, "Hey, this is a technical reversal, we took out the lows we closed above the highs,  it's an outside day and this is maybe the end of the correction.  I do think potentially we could have more to the rally.  But I think the rally is the correction.  I still think this is a bear market.  We narrowly avoided the Dow Theory sell. The Dow Theory is still on a buy, and now we have a bit of a reversal, so maybe this correction has a little more legs. The correction being the move up.  I think the primary trend is down.  I don't think today's reversal is big enough to have put in the low of this correction if it is a correction. So I still think that we are in a bear market.

 

 

 

 

Really a Head Fake

As I suspected and as I stated in my last podcast at the end of the first quarter, I speculated that the rally that closed out the quarter was really a head fake. When the quarter started, I said you would see a resumption of the downtrend of the evolving bear market, which I believe we are already in.

Bear Market

Even though technically we're not there yet because we're not down 20%, but you can't get to 20% without first hitting 10%. Although not officially acknowledged, we are in a bear market. Just as often a recession is not acknowledged until after 2 quarters of negative GDP growth, but clearly you're in the recession for a long time before it's officially acknowledged.  That doesn't mean you weren't in a recession before they admitted it, albeit not officially.  Similarly, they haven't proclaimed this bear market.

The Fed Could Change the Game

There's one caveat:  if the Federal Reserve comes in and changes the game by taking away the rate hikes or launching QE4, then we may never make it to a bear market.  But if the Fed continues on its current path and maintains the current pretense, then we are in a bear market and it's only a question of time before it is officially acknowledged.

No Real News to Blame for Sell Off

As I expected, traders came back from the Passover/Easter break and started to sell.  They came in almost out of the bell; no real news to blame the selloff on.  Now they tried to blame it on Trump and the tariffs, and while I agree that tariffs are a problem, there was nothing new over the weekend.  Yes, China came out and announced a couple of billion dollars worth of tariffs on some agricultural products, etc, but this was not unanticipated.  Anybody who did not think this was coming - c'mon - China could have could have done a lot worse than this.

Any News is an Excuse to Sell

In fact, the market could have just as easily rallied on the fact that this is such a small response and they could have said, "Oh, this is nothing, it could have been a lot worse!" So the markets could have bought, if they were in a buying mood. But this is a bear market, and so all news is bad news.  So, whatever the news is, that's an excuse to sell.

Chinese Tariffs on Agricultural Products

But what it does, is it lulls investors into a false sense of security: "Well, the market's not going down for any reason", "It's not because we're in a bear market, it's because of the reaction to the news that the Chinese are going to have tariffs on agricultural products.

 

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Really a Head Fake

As I suspected and as I stated in my last podcast at the end of the first quarter, I speculated that the rally that closed out the quarter was really a head fake. When the quarter started, I said you would see a resumption of the downtrend of the evolving bear market, which I believe we are already in.

Bear Market

Even though technically we're not there yet because we're not down 20%, but you can't get to 20% without first hitting 10%. Although not officially acknowledged, we are in a bear market. Just as often a recession is not acknowledged until after 2 quarters of negative GDP growth, but clearly you're in the recession for a long time before it's officially acknowledged.  That doesn't mean you weren't in a recession before they admitted it, albeit not officially.  Similarly, they haven't proclaimed this bear market.

The Fed Could Change the Game

There's one caveat:  if the Federal Reserve comes in and changes the game by taking away the rate hikes or launching QE4, then we may never make it to a bear market.  But if the Fed continues on its current path and maintains the current pretense, then we are in a bear market and it's only a question of time before it is officially acknowledged.

No Real News to Blame for Sell Off

As I expected, traders came back from the Passover/Easter break and started to sell.  They came in almost out of the bell; no real news to blame the selloff on.  Now they tried to blame it on Trump and the tariffs, and while I agree that tariffs are a problem, there was nothing new over the weekend.  Yes, China came out and announced a couple of billion dollars worth of tariffs on some agricultural products, etc, but this was not unanticipated.  Anybody who did not think this was coming - c'mon - China could have could have done a lot worse than this.

Any News is an Excuse to Sell

In fact, the market could have just as easily rallied on the fact that this is such a small response and they could have said, "Oh, this is nothing, it could have been a lot worse!" So the markets could have bought, if they were in a buying mood. But this is a bear market, and so all news is bad news.  So, whatever the news is, that's an excuse to sell.

Chinese Tariffs on Agricultural Products

But what it does, is it lulls investors into a false sense of security: "Well, the market's not going down for any reason", "It's not because we're in a bear market, it's because of the reaction to the news that the Chinese are going to have tariffs on agricultural products.