The Peter Schiff Show Podcast

2017 Optimism

This is my final podcast for 2017.  I just watched the U.S. Stock Market ring the closing bell for the final time in 2017. Everybody is excited; everybody is optimistic.  I spent most of the day watching the financial coverage, mostly on CNBC to see the attitude and the types of coverage the market has received.

The Dow Gained 5,000 Points in a Single Year

Of course this is a record year in the stock market; an all-time record high in the Dow.  I think this is the first year that the Dow has ever gained 5,000 points in a single year, in fact the Dow was up every month of 2017 - that's never happened before in history.  I think we've gone 14 consecutive months without a decline.  Not only were we up every month, but 2017 represented the year ever of the lowest stock market volatility. So as the market was going up, it barely ever went down. So no one was nervous.

Unprecedented Rise Occurs at the End

To me, this type of unprecedented rise does not happen at the beginning of something. It happens at the end. Anybody who believes that 2018 is going to be more of the same is in for a rude awakening. I think the final minutes of the trading day set the tone for next year. Even though the markets were up every month of this year, they were not up in the final week. The Dow and the S&P were both down this week. The entire decline for the week happened today, actually in the last 10 or 15 minutes. The Dow was down about 30 going into the last 15 minutes and it ended up -118. The Dow was never really positive today, same with the S&P.

Last Year Optimism was all about the Dollar

The NASDAQ was the biggest gainer of the year with well over a 30% gain. The Dow up about 25%, the S&P up about 19%, so certainly a big year, but to me, this is the end of this big bull market. The action in the final minutes may be an indication of what is to come. I have not seen this much universal optimism on an asset since last year at this time with respect to the U.S. dollar. Everybody was bullish on the dollar. In fact, the big short was the Chinese Yuan.  All these big hedge funds were shorting the yuan - it's going to collapse. What was I saying a year ago?  I said these trades were going to blow up. anybody shorting the yuan was going to lose money.

Dollar Index Down Almost 10% this Year

What has happened to the dollar this year? The dollar index is down almost 10% for the year.  This is the first annual decline for the dollar since 2012, so it is the first drop in 5 years, but it is the biggest drop in 13 years. The last time the dollar was down more than this was 2003.  What happened in 2003? The dollar fell in 2003-4-5-6-7 and 2008. It didn't stop falling until August of 2008 and the only reason it stopped falling is because it was saved by the financial crisis.

 

Trump's Economy

Today President Trump signed into law the Tax Cuts and Jobs Act.  The biggest problem that the President will have with these tax cuts is that he now owns the economy.  That is going to be a big problem, because this is now Trump's economy. This is now the Republican economy.

It's All Bullish

Now, Trump now already owns the stock market, and that has served him well so far this year. But you know what?  The stock market could be getting ready to enter a big bear market. I've never seen so much bullishness, so much unfettered optimism on the market in my life.  Not only on the market, on the economy - it's a no-brainer! Guest after guest on CNBC, "There's no way the market is not going to continue to go up!"  "The only question is, how much higher is it going to go?" One bull after another - nobody is bearish.  The networks are not even willing to allow my point of view to  be expressed on the air, in spite of the fact that I was good for their ratings.  I don't think CNBC wants an investment professional to come on and be bearish. To talk about the problems that underlie the economy, to talk about problems with the stock market, it's all bullish.

Trump Will Own the Bear Market, Too

This crazy optimism; everything is great, nothing can go wrong, oh yeah?  How about inflation pushes up bond yields.  How about corporations end up having to spend more on debt service payments, some of which is no longer deductible.  How about inflation causing an increase in raw material costs? How about the consumer being so strapped with rising prices, no savings and record debt, that earnings go down?  There are so many things that can go wrong when you have an overpriced stock market where everybody is in, and there is no money on the sidelines. So if we go into a bear market, Trump owns it.

 

 

 

 

 

 

 

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Trump's Economy

Today President Trump signed into law the Tax Cuts and Jobs Act.  The biggest problem that the President will have with these tax cuts is that he now owns the economy.  That is going to be a big problem, because this is now Trump's economy. This is now the Republican economy.

It's All Bullish

Now, Trump now already owns the stock market, and that has served him well so far this year. But you know what?  The stock market could be getting ready to enter a big bear market. I've never seen so much bullishness, so much unfettered optimism on the market in my life.  Not only on the market, on the economy - it's a no-brainer! Guest after guest on CNBC, "There's no way the market is not going to continue to go up!"  "The only question is, how much higher is it going to go?" One bull after another - nobody is bearish.  The networks are not even willing to allow my point of view to  be expressed on the air, in spite of the fact that I was good for their ratings.  I don't think CNBC wants an investment professional to come on and be bearish. To talk about the problems that underlie the economy, to talk about problems with the stock market, it's all bullish.

Trump Will Own the Bear Market, Too

This crazy optimism; everything is great, nothing can go wrong, oh yeah?  How about inflation pushes up bond yields.  How about corporations end up having to spend more on debt service payments, some of which is no longer deductible.  How about inflation causing an increase in raw material costs? How about the consumer being so strapped with rising prices, no savings and record debt, that earnings go down?  There are so many things that can go wrong when you have an overpriced stock market where everybody is in, and there is no money on the sidelines. So if we go into a bear market, Trump owns it.

 

 

 

 

 

 

 

Calling Tax Cuts Reform is Fake News

Earlier today the House of Representatives passed the Tax Cut Bill.  Of course, the Media keeps referring to it as "Tax Reform".  That's fake news, for you, calling these tax cuts reform is a perfect example of fake news.  Donald Trump is not going to complain about this fake news.  When the fake news works in his favor, when he prefers the fake news to the real news, he's going to be quiet about it. It's only when he doesn't like the fake news that he calls the media out.

Loopholes will Reduce Taxes from 39.6% to 29.6%

This has nothing to do with reform.  There are definitely tax cuts in this bill.  In fact, there are substantial tax cuts. The tax cuts are a lot deeper than what people are saying, because the real reduction in the top rate is not from 39.6% to 37%, it's from 39.6% to 29.6%. It's a much bigger reduction because of the ability of so many people who are now paying 39.6% to use the loopholes to reduce their tax to 29.6%.  Now, of course, the top rates are actually higher than that, because no one talks about the 3.8% Medicare and Obamacare taxes that are not repealed. The mandate, the penalty for not buying insurance is repealed, but the taxes to fund Medicare and Obamacare, they're still there.  So the marginal rates are higher than the media is talking about. The reductions, however are actually much bigger for the top end.

No One Gets Government Relief

Normally, I'm all in favor of lowering the top end. I would just like to do it in a fair and honest way, not through gimmicks and loopholes. But yes, I want to lower the top rate of tax, but I also want to make government smaller.  I want to reduce government spending so we no longer need all that tax revenue. I have said over and over again, that this bill will provide some people with tax relief, but no people with government relief.

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Calling Tax Cuts Reform is Fake News

Earlier today the House of Representatives passed the Tax Cut Bill.  Of course, the Media keeps referring to it as "Tax Reform".  That's fake news, for you, calling these tax cuts reform is a perfect example of fake news.  Donald Trump is not going to complain about this fake news.  When the fake news works in his favor, when he prefers the fake news to the real news, he's going to be quiet about it. It's only when he doesn't like the fake news that he calls the media out.

Loopholes will Reduce Taxes from 39.6% to 29.6%

This has nothing to do with reform.  There are definitely tax cuts in this bill.  In fact, there are substantial tax cuts. The tax cuts are a lot deeper than what people are saying, because the real reduction in the top rate is not from 39.6% to 37%, it's from 39.6% to 29.6%. It's a much bigger reduction because of the ability of so many people who are now paying 39.6% to use the loopholes to reduce their tax to 29.6%.  Now, of course, the top rates are actually higher than that, because no one talks about the 3.8% Medicare and Obamacare taxes that are not repealed. The mandate, the penalty for not buying insurance is repealed, but the taxes to fund Medicare and Obamacare, they're still there.  So the marginal rates are higher than the media is talking about. The reductions, however are actually much bigger for the top end.

No One Gets Government Relief

Normally, I'm all in favor of lowering the top end. I would just like to do it in a fair and honest way, not through gimmicks and loopholes. But yes, I want to lower the top rate of tax, but I also want to make government smaller.  I want to reduce government spending so we no longer need all that tax revenue. I have said over and over again, that this bill will provide some people with tax relief, but no people with government relief.

Everybody Joins the Party

All 3 of the major U.S stock indexes closed out the week at new record highs as it became apparent that the new tax cut deal was pretty much done. Marco Rubio, who had been a hold-out, caved and even Corker, the one Republican who was going to vote against the bill becase it was going to increase the deficit, decided to join the party as well.  He's now a yes, so the bill is going to pass.

Plan Riddled with Loopholes

We didn't get the compromise details until later Friday afternoon so I am recording this podcast Saturday morning.  The new top rate: 37%, bottom rate: 10%.  But of course, that 37% rate is probably not going to be paid by nearly as many people as the government thinks, because this plan is riddled with loopholes.  In fact, I believe, if this plan passes, we will have a tax code that is more game-able where more people are doing more things to rig the system or exploit the loopholes  - not that there's anything wrong with  that - that's every American is going to do. No American is under obligation to pay more taxes than what is owed. And to the extent that you can re-arrange your affairs, such that you pay the lowest possible tax, that's what everybody is going to do.

Reduced Deficit Projections is Nonsense

And that is why the Republican projections that this is going to add just $1.5 trillion to the deficit over next 10 years are a bunch of nonsense.  I'm sure that it will add more than twice as much over the next 10 years above how much the deficit is going to grow anyway during those 10 years.  Now, the Republicans try to claim that even though on paper this bill will add $1.5 trillion to the deficit, it won't really be that big, because these tax cuts are going to create all this extra economic growth, which will result in additional tax revenue.  So if you factor in that additional revenue, some kind of dynamic scoring, then the impact will not be as large. That is all a bunch of nonsense.

 

 

 

 

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Everybody Joins the Party

All 3 of the major U.S stock indexes closed out the week at new record highs as it became apparent that the new tax cut deal was pretty much done. Marco Rubio, who had been a hold-out, caved and even Corker, the one Republican who was going to vote against the bill becase it was going to increase the deficit, decided to join the party as well.  He's now a yes, so the bill is going to pass.

Plan Riddled with Loopholes

We didn't get the compromise details until later Friday afternoon so I am recording this podcast Saturday morning.  The new top rate: 37%, bottom rate: 10%.  But of course, that 37% rate is probably not going to be paid by nearly as many people as the government thinks, because this plan is riddled with loopholes.  In fact, I believe, if this plan passes, we will have a tax code that is more game-able where more people are doing more things to rig the system or exploit the loopholes  - not that there's anything wrong with  that - that's every American is going to do. No American is under obligation to pay more taxes than what is owed. And to the extent that you can re-arrange your affairs, such that you pay the lowest possible tax, that's what everybody is going to do.

Reduced Deficit Projections is Nonsense

And that is why the Republican projections that this is going to add just $1.5 trillion to the deficit over next 10 years are a bunch of nonsense.  I'm sure that it will add more than twice as much over the next 10 years above how much the deficit is going to grow anyway during those 10 years.  Now, the Republicans try to claim that even though on paper this bill will add $1.5 trillion to the deficit, it won't really be that big, because these tax cuts are going to create all this extra economic growth, which will result in additional tax revenue.  So if you factor in that additional revenue, some kind of dynamic scoring, then the impact will not be as large. That is all a bunch of nonsense.

 

 

 

 

Expected Rate Hike

Today the Federal Reserve did exactly what everybody expected them to do, they once again raised interest rates by just one quarter of one percent.  This is the third rate hike of the year; this is the fourth rate hike since Donald Trump was elected President and the fifth time the Fed has raised rates since the 2008 financial crisis. The Fed raised rates only once from Obama's election to Trump's election eight years later.

Extraordinary Amount of Excess Stimulus

We now are at 1.25% on the low end to 1.5%. So if you take the midpoint there, 1.35%; we're barely above 1%.  Despite five rate hikes over the course of more than 2 years.  Remember the first rate hike was in December 2015, so it has been exactly two years. It has taken the Federal Reserve two years to move the rate from zero to 1.35%. This is an extraordinary amount of excess stimulus.  To say that the Fed has been successful in normalizing rates is complete nonsense.  Two years ago, when the Fed raised rates for the first time, nobody in the mainstream believed that two years later, we would still be this low.

FOMC Press Conference

The most interesting part of the Fed's announcement is always the press conference that follows. The most interesting thing about is, whenever Yellen was asked about inflation; whenever she opined about inflation and what the Fed's concerns might be, the only concern that she ever expresses is that inflation may stay too low.  In fact, that's the only question she gets about inflation.  Nobody asks her, "What if inflation is higher than you think?"  It's always, "What if it doesn't get to 2%?" Even though, of course it's already well above 2%, but everybody wants to pretend it's not, the questions are;"What if it takes longer to get to 2%?  Are you concerned it might not get to 2%>

What Happens if Interest Rates go Too High?

And the answers are, "Well, we think it will get back there, but yes, we recognize it's a risk that maybe it won't."  It never dawns on anybody to actually consider the real risk.  The real risk is not that inflation stays below 2% (that's the ideal situation for the Fed).  The real risk for the Fed is that inflation goes to 3% or 4%, but that possibility isn't even discussed.  I know why, because they can't deal with that.  I wish somebody would ask Yellen, "What is your plan, if inflation surprises you by spiking up? what if it jumps up to 3 or 4%?" What is she going to say?  We're going to slam on the brakes?  We're going to jack interest rates way up? What's going to happen to the stock market? What's going to happen to the bond market?  What's going to happen to the economy?

Does Elevated Asset Prices Concern the Fed?

In fact Steve Liesman asked her a question about the stock market; about how the stock market is going up every day and he asked her: "Are you worried about this?  Does these elevated asset prices concern the Fed?" She told him, no, the Fed's not worried at all.  Not only do we not see any flashing red lights, we don't even see any flashing orange lights.  There's nothing to worry about.  She specifically said that, this is very different than it was last time.

Yellen: Nothing to Worry About the Debt

Yellen said that last time when we had an elevated stock market or real estate market, it was because we had too much credit, we had too much debt, but that we don't have that today. Is she kidding me? We actually have more debt! This is a bigger bubble that has been fueled by even more cheep money.  The Fed is force-feeding cheap money into the economy; interest rates now are 1.3%; we've been going on a borrowing binge - corporations are levered up, they've been buying back stock, consumer debt is at all time high, auto debt, student debt, government debt is exploding, the national debt is twice as big as it was when we had the 2008 financial crisis, and Yellen is saying that there is nothing to worry...

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Expected Rate Hike

Today the Federal Reserve did exactly what everybody expected them to do, they once again raised interest rates by just one quarter of one percent.  This is the third rate hike of the year; this is the fourth rate hike since Donald Trump was elected President and the fifth time the Fed has raised rates since the 2008 financial crisis. The Fed raised rates only once from Obama's election to Trump's election eight years later.

Extraordinary Amount of Excess Stimulus

We now are at 1.25% on the low end to 1.5%. So if you take the midpoint there, 1.35%; we're barely above 1%.  Despite five rate hikes over the course of more than 2 years.  Remember the first rate hike was in December 2015, so it has been exactly two years. It has taken the Federal Reserve two years to move the rate from zero to 1.35%. This is an extraordinary amount of excess stimulus.  To say that the Fed has been successful in normalizing rates is complete nonsense.  Two years ago, when the Fed raised rates for the first time, nobody in the mainstream believed that two years later, we would still be this low.

FOMC Press Conference

The most interesting part of the Fed's announcement is always the press conference that follows. The most interesting thing about is, whenever Yellen was asked about inflation; whenever she opined about inflation and what the Fed's concerns might be, the only concern that she ever expresses is that inflation may stay too low.  In fact, that's the only question she gets about inflation.  Nobody asks her, "What if inflation is higher than you think?"  It's always, "What if it doesn't get to 2%?" Even though, of course it's already well above 2%, but everybody wants to pretend it's not, the questions are;"What if it takes longer to get to 2%?  Are you concerned it might not get to 2%>

What Happens if Interest Rates go Too High?

And the answers are, "Well, we think it will get back there, but yes, we recognize it's a risk that maybe it won't."  It never dawns on anybody to actually consider the real risk.  The real risk is not that inflation stays below 2% (that's the ideal situation for the Fed).  The real risk for the Fed is that inflation goes to 3% or 4%, but that possibility isn't even discussed.  I know why, because they can't deal with that.  I wish somebody would ask Yellen, "What is your plan, if inflation surprises you by spiking up? what if it jumps up to 3 or 4%?" What is she going to say?  We're going to slam on the brakes?  We're going to jack interest rates way up? What's going to happen to the stock market? What's going to happen to the bond market?  What's going to happen to the economy?

Does Elevated Asset Prices Concern the Fed?

In fact Steve Liesman asked her a question about the stock market; about how the stock market is going up every day and he asked her: "Are you worried about this?  Does these elevated asset prices concern the Fed?" She told him, no, the Fed's not worried at all.  Not only do we not see any flashing red lights, we don't even see any flashing orange lights.  There's nothing to worry about.  She specifically said that, this is very different than it was last time.

Yellen: Nothing to Worry About the Debt

Yellen said that last time when we had an elevated stock market or real estate market, it was because we had too much credit, we had too much debt, but that we don't have that today. Is she kidding me? We actually have more debt! This is a bigger bubble that has been fueled by even more cheep money.  The Fed is force-feeding cheap money into the economy; interest rates now are 1.3%; we've been going on a borrowing binge - corporations are levered up, they've been buying back stock, consumer debt is at all time high, auto debt, student debt, government debt is exploding, the national debt is twice as big as it was when we had the 2008 financial crisis, and Yellen is saying that there is nothing to worry...

Bitcoin Week

I'm going to devote today's podcast to bitcoin; I might as well just talk about bitcoin because that's all anybody else is talking about.  On CNBC that's pretty much all they are talking about; they said it is "BitCoin Week".  It sure sounds like it.  I think they should just rename the network: Crypto News BitCoin Network.  I would be a good guest on that network because I know either side.

Swallowing Hype Hook, Line and Sinker

But just like in the dot com bubble in the 1990's and the housing bubble in 2007, they are swallowing the hype hook line and sinker. they drank all the Kool Aid. When they look back at those manias, they like to laugh, but they did not laugh at them back then - not at all. The only people they laughed at were people like David Tice, he would come on and they would laugh at him just like they laughed at me when I talked about the bubble leading up to the Financial Crisis. Nobody at CNBC had any idea that there was a dot com bubble.  All they did was laugh at people who pointed it out.

Even Less Legitimacy

Same thing is going on now, although they do refer to the bubble.  But to me, this bubble is the most irrational of any of the bubbles I've seen.  I there is a less legitimate case for BitCoin than any of the dot com stocks that went to zero, or buying sub-prime mortgages.

Total Market Cap: $460,355,182,968

But let me talk a little bit about the whole origin of this thing, in case you don't know. When Bitcoin first came about, it was the only crypto currency out there. Now there are over 1300 crypto currencies.  The market cap is over $450 trillion.  Bitcoin is trading today at over 17,000. That's a new record high on bitstamp.net.  That did not take out the $19,000 record set on coinbase.com last week.  We're up about 15-20% today. Futures trading debuted on Sunday night and Saturday, in advance of that, we had a pretty decent sell-off.  Bitcoin sold off to about $13,000 and then it skyrocketed, it turned around on Sunday night and continued going up on Monday.

Speculative Asset

But in the beginning, the whole idea behind Bitcoin was that it was going to be money - a digital currency whose advantage was that it could be used anywhere in the world, anonymously, inexpensively and quickly.  I loved that aspect of Bitcoin. But what I did not like is that it had no backing. It has no real value, so it never could actually be money.  Now, as the value has skyrocketed, it is impractical to actually spend, and people are using it as a "store of value".  But it has no intrinsic value.  It is just a speculative asset.

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