* Today we got the official numbers for Q2 Non-Farm Productivity and the consensus was that it would increase for the first time in 3 quarters; the prior 2 quarters we saw a decline in productivity

* So analysts were looking for a .5 increase in the second quarter

* Instead, we got a decline of .5

* More importantly, this is the first 3-quarter consecutive decline in productivity since 1979

* That was the Carter years - stagflation, the misery index, sky-high inflation, sky-high interest rates

* That was the last time we had a 3-quarter drop in productivity and President Obama is bragging about how great the recovery is and Hillary Clinton promises more of this

* If you look at the actual size of the decline over those 3 quarters, it's the biggest drop in productivity since 1993

* If you look at the year-over-year decline, this is the biggest decline in productivity in 3 years

* Productivity is extremely important

* Politicians are all talking about higher wages - "We need higher wages!"

* You can't get higher wages without higher productivity.

* That is where higher wages come from

* Now, a lot of politicians want to substitute government decrees - they want to mandate higher wages

* Like minimum wage - we're going to force employers to pay this minimum wage

* All that does, is raise the bar; it makes it harder for unskilled workers to get a job in the first place

* Now employers are forced to pay a wage that may be well above the productivity that they can deliver

* In that case, they can't get the job

* Mimimum Wage doesn't just raise wages, it raises the bar

* Another popular way that politicians try to mandate higher compensation is by mandating benefits such as health care, sick leave, paid vacation days, or overtime

* The idea is that you're getting something for nothing - I voted for this guy and he delivered

* That's not how it works

* When an employer hires somebody, they look at the overall cost of employing that person, relative to the productivity required for the job

* If I am mandated to provide certain benefits, the costs associated with them are also mandated

* If you force the employer to provide benefits at a certain cost, how is he going to pay for it?

* What happens is, the compensation becomes a mix of wages and benefits

* Maybe the worker doesn't perfer that, maybe the worker just wants the higher wage

* The worker can't have it because the government took that decision away by mandating that a portion of the pay include benefits, whether the worker wants them or not

* The politicians hope the voters fall for the idea that they got something for nothing

* That's government for you.  They always want you to think you're getting something for nothing

* But the something for nothing costs a lot more than you think because the nothing is not nothing

* In this case, wages go down so the benefits can go up

* Everybody would be better off if the government stayed out and let each worker negotiate independently with the employer for a compensation package that is most valuable to that worker

* But productivity is really the holy grail of higher wages

* If we really want higher wages we need to raise productivity and that's not happening

* If productivity is going down, wages are going down

* If you want wages to go up, you have to have higher productivity

* How do you get that?  Less government, lower taxes, higher interest rates so we get more savings and more investment and less of all this speculation and paper-shuffling that we have in this bubble economy

* I want to talk also on this podcast about Donald Trump's economic speech yesterday

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Today we got the official numbers for Q2 Non-Farm Productivity and the consensus was that it would increase for the first time in 3 quarters; the prior 2 quarters we saw a decline in productivity

So analysts were looking for a .5 increase in the second quarter

Instead, we got a decline of .5

More importantly, this is the first 3-quarter consecutive decline in productivity since 1979

That was the Carter years - stagflation, the misery index, sky-high inflation, sky-high interest rates

That was the last time we had a 3-quarter drop in productivity and President Obama is bragging about how great the recovery is and Hillary Clinton promises more of this

If you look at the actual size of the decline over those 3 quarters, it's the biggest drop in productivity since 1993

If you look at the year-over-year decline, this is the biggest decline in productivity in 3 years

Productivity is extremely important

Politicians are all talking about higher wages - "We need higher wages!"

You can't get higher wages without higher productivity.

That is where higher wages come from

Now, a lot of politicians want to substitute government decrees - they want to mandate higher wages

Like minimum wage - we're going to force employers to pay this minimum wage

All that does, is raise the bar; it makes it harder for unskilled workers to get a job in the first place

Now employers are forced to pay a wage that may be well above the productivity that they can deliver

In that case, they can't get the job

Mimimum Wage doesn't just raise wages, it raises the bar

Another popular way that politicians try to mandate higher compensation is by mandating benefits such as health care, sick leave, paid vacation days, or overtime

The idea is that you're getting something for nothing - I voted for this guy and he delivered

That's not how it works

When an employer hires somebody, they look at the overall cost of employing that person, relative to the productivity required for the job

If I am mandated to provide certain benefits, the costs associated with them are also mandated

If you force the employer to provide benefits at a certain cost, how is he going to pay for it?

What happens is, the compensation becomes a mix of wages and benefits

Maybe the worker doesn't perfer that, maybe the worker just wants the higher wage

The worker can't have it because the government took that decision away by mandating that a portion of the pay include benefits, whether the worker wants them or not

The politicians hope the voters fall for the idea that they got something for nothing

That's government for you.  They always want you to think you're getting something for nothing

But the something for nothing costs a lot more than you think because the nothing is not nothing

In this case, wages go down so the benefits can go up

Everybody would be better off if the government stayed out and let each worker negotiate independently with the employer for a compensation package that is most valuable to that worker

But productivity is really the holy grail of higher wages

If we really want higher wages we need to raise productivity and that's not happening

If productivity is going down, wages are going down

If you want wages to go up, you have to have higher productivity

How do you get that?  Less government, lower taxes, higher interest rates so we get more savings and more investment and less of all this speculation and paper-shuffling that we have in this bubble economy

I want to talk also on this podcast about Donald Trump's economic speech yesterday

I just want to focus on one aspect of it that has been getting a lot of press: the estate tax

After you die, the government comes in, and if you have a sufficient amount of money, they take half of it

Donald Trump is promising to repeal the tax, which is a great idea

The inheritance tax is probably the single worst tax we ha...

* What a difference a week makes, or maybe and economic report

* The two big reports that everybody seems to focus on are the GDP numbers and the jobs numbers

* It seems that the weaker the economy is, as measured by GDP, the more jobs, somehow, the economy seems to create

* We got the jobs report for July and just a week earlier we got Q2 GDP

* As I spoke about on the last podcast, that number was basically half of what Wall Street had been anticipating - less than half

* They were looking for 2.4 or 2.6 and we got 1.2

* Even worse, we went back and revised down the prior 2 quarters to below 1%

* That very weak number caused people to talk about the fact that the Fed can't raise rates, the economy is weaker than we thought, are we slipping back into recession?...

* Now fast forward a week, and we get a Non-Farm Payroll report that is higher than anticipated and now all of a sudden people are starting to talk about September rate hikes again

* Obviously, withe the stock market on Friday rising to a new record high, I doubt the equity traders actually believe that Friday's jobs report is going to produce a rate hike

* Yet it doesn't stop all the financial journalists writing about how this confirms that the recovery is on track, and the Fed can raise rates

* This jobs report doesn't confirm anything


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What a difference a week makes, or maybe and economic report

The two big reports that everybody seems to focus on are the GDP numbers and the jobs numbers

It seems that the weaker the economy is, as measured by GDP, the more jobs, somehow, the economy seems to create

We got the jobs report for July and just a week earlier we got Q2 GDP

As I spoke about on the last podcast, that number was basically half of what Wall Street had been anticipating - less than half

They were looking for 2.4 or 2.6 and we got 1.2

Even worse, we went back and revised down the prior 2 quarters to below 1%

That very weak number caused people to talk about the fact that the Fed can't raise rates, the economy is weaker than we thought, are we slipping back into recession?...

Now fast forward a week, and we get a Non-Farm Payroll report that is higher than anticipated and now all of a sudden people are starting to talk about September rate hikes again

Obviously, withe the stock market on Friday rising to a new record high, I doubt the equity traders actually believe that Friday's jobs report is going to produce a rate hike

Yet it doesn't stop all the financial journalists writing about how this confirms that the recovery is on track, and the Fed can raise rates

This jobs report doesn't confirm anything

* The carnage in global stock and bond markets continues; it really got started last night in Japan

* The JGB (Japanese Government Bonds) dropped for the 3rd consecutive day

* The biggest 3-day drop in bond prices in Japan in over 3 years, so yields surging, along with the Japanese yen

* Of course, this is not supposed to be happening because they're doing more stimulus and they've got negative interest rates, yet the Japanese yen is appreciating anyway

* The Reserve Bank of Australia also came out last night and cut interest rates to 1.5%

* That is an all-time record low

* Why did they do that? Is it because there's not enough economic growth in Australia?

* Are they trying to revive a slumping property market

* They've got a bubble in the real estate market - there's no valid reason for cutting interest rates from already low levels

* The actual reason that the Reserve Bank of Australia gave for the rate cut was that inflation was not high enough

* It's about 1%, the way they measure it, and their goal is to have it between 2 and 3%

* In other words, the cost of living is going up by 1% a year and the Reserve Bank of Australia says, "That's horrible! We need to make sure that things get at least 2-3% more expensive this year and we're going to slash interest rates to make sure that happens."

* Of course, when you do that, you have all sorts of risks, and what is the payoff?

* Why is the cost of living going up 2-3% better than it going up 1%?

* What's wrong with the cost of living not going up at all?

* How about if it actually went down?  What if people could actually buy the things they need for less money?

* What's horrible about the standard of living actually going up?

* Of course, the real risk is, what if inflation goes from 1% (at least the way they measure it) to 4 or 5%?

* Was it worth it? Now you have an inflation problem on your hands

* If you've got 1% and you want 2% - You're close enough!

* Obviously this has got nothing to do with inflation, they're simply trying to stop the rise in the Australian dollar

* But the Australian dollar went up anyway!

* They're trying to keep it down because they have this Keynesian world view that a weak currency is good and a strong currency is bad

* But we've got to an inflection point where the central banks are losing this battle

* The yen is rising despite the efforts to suppress it

* The Aussie dollar went up, despite efforts to suppress it

* The problem is, the U.S. economy is a disaster

* We got the terrible GDP numbers, and we got a lot of other bad economic news today

* We've got a lot more bad news coming out later in the week

* We might get a horrific report on non-farm payrolls

* We got that surprise good number last month, but who knows? We might revise that down and come up with another disappointing number on Friday

* But the Fed, instead of acknowledging this, are still talking about rate hikes

* In fact a Fed official just yesterday said the market should not rule out the possibility of a rate hike in September

* First of all, if the economy comes roaring back (no chance that's going to happen)

* Even if it comes back, they didn't say they WOULD raise interest rates, they said they might

* Which also means they might not

* It doesn't matter what happens to the economy, they can't raise rates

* The economy is not getting better

* We are either in recession or on the cusp of one

* And the data continues to prove that, but the Fed continues to talk as if they're thinking about raising rates

* That is part of the problem, because if the market doesn't believe that the Fed is coming to the rescue...

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The carnage in global stock and bond markets continues; it really got started last night in Japan

The JGB (Japanese Government Bonds) dropped for the 3rd consecutive day

The biggest 3-day drop in bond prices in Japan in over 3 years, so yields surging, along with the Japanese yen

Of course, this is not supposed to be happening because they're doing more stimulus and they've got negative interest rates, yet the Japanese yen is appreciating anyway

The Reserve Bank of Australia also came out last night and cut interest rates to 1.5%

That is an all-time record low

Why did they do that? Is it because there's not enough economic growth in Australia?

Are they trying to revive a slumping property market

They've got a bubble in the real estate market - there's no valid reason for cutting interest rates from already low levels

The actual reason that the Reserve Bank of Australia gave for the rate cut was that inflation was not high enough

It's about 1%, the way they measure it, and their goal is to have it between 2 and 3%

In other words, the cost of living is going up by 1% a year and the Reserve Bank of Australia says, "That's horrible! We need to make sure that things get at least 2-3% more expensive this year and we're going to slash interest rates to make sure that happens."

Of course, when you do that, you have all sorts of risks, and what is the payoff?

Why is the cost of living going up 2-3% better than it going up 1%?

What's wrong with the cost of living not going up at all?

How about if it actually went down?  What if people could actually buy the things they need for less money?

What's horrible about the standard of living actually going up?

Of course, the real risk is, what if inflation goes from 1% (at least the way they measure it) to 4 or 5%?

Was it worth it? Now you have an inflation problem on your hands

If you've got 1% and you want 2% - You're close enough!

Obviously this has got nothing to do with inflation, they're simply trying to stop the rise in the Australian dollar

But the Australian dollar went up anyway!

They're trying to keep it down because they have this Keynesian world view that a weak currency is good and a strong currency is bad

But we've got to an inflection point where the central banks are losing this battle

The yen is rising despite the efforts to suppress it

The Aussie dollar went up, despite efforts to suppress it

The problem is, the U.S. economy is a disaster

We got the terrible GDP numbers, and we got a lot of other bad economic news today

We've got a lot more bad news coming out later in the week

We might get a horrific report on non-farm payrolls

We got that surprise good number last month, but who knows? We might revise that down and come up with another disappointing number on Friday

But the Fed, instead of acknowledging this, are still talking about rate hikes

In fact a Fed official just yesterday said the market should not rule out the possibility of a rate hike in September

First of all, if the economy comes roaring back (no chance that's going to happen)

Even if it comes back, they didn't say they WOULD raise interest rates, they said they might

Which also means they might not

It doesn't matter what happens to the economy, they can't raise rates

The economy is not getting better

We are either in recession or on the cusp of one

And the data continues to prove that, but the Fed continues to talk as if they're thinking about raising rates

That is part of the problem, because if the market doesn't believe that the Fed is coming to the rescue...

I said a long time ago that we could get rallies in the markets, but they are not going to be sustainable

The Fed is going to have to join the party

It will have to come to the aid of the markets with new stimulus

Just delaying rate hikes will not do it

The Fed has to join the other central banks in providing fresh ...

* Yesterday we got the government's first estimate of Q2 GDP

* Of course all of the pundits were looking for a big rebound from the very week 1.1% growth that the government claimed was reported in Q1

* In fact, the consensus range went from a low of 2.2% to as high as 3.4%, so a lot of optimism, going into Friday's release

* When we got the number, everybody was surprised that the number was only 1.2% - substantially below even the lowest estimate

* In fact, adding insult to injury, they made a lot of revisions to prior numbers; some up, some down going back a couple of years

* Most significantly, they revised the last 2 quarters down

* Q1, which had been reported as +1.1%, still very weak, was revised down to just =.8%

* And 2015 Q4, which was reported at 1.4% was revised down to .9%

* Remember, that's the quarter when the Fed decided to raise interest rates for the first time in about 9 years

* The Fed said that they were data dependent and that the data was finally good enough, that the economy finally looks strong enough for the Fed to raise rates, when in fact, the economy was slipping toward recession

* If you look at the last 3 quarters of economic growth, the average is slightly below 1%

* That's assuming that the 1.2% number reported for Q2 actually holds up to scrutiny

* My guess is that, just as the last 2 quarters were revised down...

* And of course this assumes we buy the government's definition of inflation

* Remember, the nominal GDP numbers are always deflated

* The government has to subtract out inflation and the inflation rate that they claim is so ridiculously low it is hard to believe

* If we had a more realistic inflation measure, I think that, not only would the second quarter come in negative, but the 2 prior quarters, as well

* And we would already be in recession

* But who knows? At some point in the future the government may revise all its numbers much lower and they will be able to officially concede that this greater recession, that I believe we're already in, actually started in Q4 2015 - the very quarter that the Fed waved the "all clear" on the economy and decided to raise interest rates

* Of course, as soon as this weak number came out, all of the pundits were trying to rationalize why the number didn't matter

* One of the things they pointed to was the strong consumer - consumer spending was the lone bright spot in this report; it jumped up by 4.2%

* That is a big number.  There have only been 2 other quarters where the number was that high since this supposed recovery began in 2009, but both of those numbers came in the 4th quarter

* And we all know that the 4th quarter is when consumer spending really picks up because that's when everybody does their holiday shopping

* If you want to find a quarter when consumers increased their spending by this much, when it was not a 4th quarter, you have to go back 10 years

* To me, that suggests that this number is probably now accurate

* I don't see anything in the economic data that would suggest that consumer spending is that robust, so I think they will revise that part down, in particular, in future months

*

*  Today the Federal Reserve concluded its 2-day FOMC meeting and it announced - surprise, surprise - that interest rates are not going up

* But of course the statement was much more important than their actions because these days, it doesn't matter what the Fed does; all that matters is what they say they're going to do, or more accurately, what they will pretend to do

* It really doesn't matter what they say, they're not going to do anything

* I explained that on my last podcast; I explained it again on CNBC Futures Now

* People obviously still don't get it and I continue to use the analogy of Teddy Roosevelt's "Speak softly and carry a big stick." but if you have no stick, which is the situation with the Fed, then you have to speak loudly, and if you speak loudly enough, nobody will notice that you have no stick at all

* That's what the Fed did today when they did not raise rates, but released their somewhat hawkish statement, saying that the near-term risks to the economic outlook have diminished

* What does that mean?

* We think the economy looks better, and therefore a rate hike might be appropriate

* The Fed said that the job market had strengthened, which it did for one month - we had one strong month, but it is a low bar

* But that is only superficial - when you look beneath the surface, it is worse

* According to the Fed, the job market strengthened and the economy is expanding at a moderate rate

* If we have an strengthening job market and the economy is expanding moderately, why are interest rates still practically zero?

* The Fed mentioned that household spending is growing, but again the bar is set pretty low

* The continued to say that they believe the economy is evolving in a way that will warrant gradual rate hikes

* By gradual they mean, "No more rate hikes."

* They raised rates once in January and they haven't raised them since

* I think the tightening cycle ended when they raised rates, and began when they started to talk about tapering

* We are now in an easing cycle

* Despite some general better-than-expected economic data, we got some very weak news this morning

* We got the number for June Durable Goods and they were looking for a decline of 1.3%

* We got triple that decline: 4% decline and in fact they took the may number down from -2.2% to -2.8%

* Year over year we're down 6.4% - that's a huge decline

* The biggest decline in 2 years

* If you look at the core capital goods, down again 3.7%

* This is a massive streak - we've now seen the year-over-year core number down 18 months in a row

* The longest losing streak in history when the U.S. economy was not in recession

* I believe that this streak will continue and ultimately it will be longest losing streak ever - including recessions

* Which would mean that year-over-year core durable goods would have been weaker during this "recovery" than in any prior recession on record

* What does that tell you about the character about the so-called recovery, if is produces data that is even worse than during an official recession?


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Today the Federal Reserve concluded its 2-day FOMC meeting and it announced - surprise, surprise - that interest rates are not going up

But of course the statement was much more important than their actions because these days, it doesn't matter what the Fed does; all that matters is what they say they're going to do, or more accurately, what they will pretend to do

It really doesn't matter what they say, they're not going to do anything

I explained that on my last podcast; I explained it again on CNBC Futures Now

People obviously still don't get it and I continue to use the analogy of Teddy Roosevelt's "Speak softly and carry a big stick." but if you have no stick, which is the situation with the Fed, then you have to speak loudly, and if you speak loudly enough, nobody will notice that you have no stick at all

That's what the Fed did today when they did not raise rates, but released their somewhat hawkish statement, saying that the near-term risks to the economic outlook have diminished

What does that mean?

We think the economy looks better, and therefore a rate hike might be appropriate

The Fed said that the job market had strengthened, which it did for one month - we had one strong month, but it is a low bar

But that is only superficial - when you look beneath the surface, it is worse

According to the Fed, the job market strengthened and the economy is expanding at a moderate rate

If we have an strengthening job market and the economy is expanding moderately, why are interest rates still practically zero?

The Fed mentioned that household spending is growing, but again the bar is set pretty low

The continued to say that they believe the economy is evolving in a way that will warrant gradual rate hikes

By gradual they mean, "No more rate hikes."

They raised rates once in January and they haven't raised them since

I think the tightening cycle ended when they raised rates, and began when they started to talk about tapering

We are now in an easing cycle

Despite some general better-than-expected economic data, we got some very weak news this morning

We got the number for June Durable Goods and they were looking for a decline of 1.3%

We got triple that decline: 4% decline and in fact they took the may number down from -2.2% to -2.8%

Year over year we're down 6.4% - that's a huge decline

The biggest decline in 2 years

If you look at the core capital goods, down again 3.7%

This is a massive streak - we've now seen the year-over-year core number down 18 months in a row

The longest losing streak in history when the U.S. economy was not in recession

I believe that this streak will continue and ultimately it will be longest losing streak ever - including recessions

Which would mean that year-over-year core durable goods would have been weaker during this "recovery" than in any prior recession on record

What does that tell you about the character about the so-called recovery, if is produces data that is even worse than during an official recession?

* It's official. The unthinkable, according to the status quo earlier in the campaign, Donald Trump is the Republican Nominee

* Although many wrote him off as a candidate, I never did; I always said he was being underestimated

* I believed his message would resonate given how horrible the economy actually is and what is really happening beneath the headlines

* Everybody was proclaiming recovery and that we're on the right track and I knew that that wasn't the case

* I knew there would be a lot of dissatisfaction among the electorate on both sides of the aisle

* Even after Donald Trump locked up the Republican nomination, everybody was still writing him off

* The idea was, "He's going to lose in a landslide"

* Republican establishment said, "Abandon ship!", distancing themselves from Trump to maintain the House and the Senate, writing off the White House

* Maybe run against Hillary in 4 years

* That was the general consensus

* Again, I kept saying the the media and the political establishment on both sides were underestimating Donald Trump and the potential appeal of a Trump presidency

* I think that the speech he gave at the convention really proves that point

* I thought his speech was brilliant.

* When I say brilliant, I don't necessarily agree with everything he said; I clearly don't

* I'm talking about the political perspective

* Was this an effective speech to set the tone of the campaign?

* In that respect, I think he hit the ball out of the park

* The most clever thing about his speech is he didn't go after the Republicans

* He went after the Democrats

* He went after their base; their core constituency

* He is bringing the fight to their turf

* He went for the women, he went for the minorities

* Not just African Americans and Latinos, but the LGBTQ and the blue collar workers

* Donald Trump did not go after the entrepreneur

* He didn't promise to get government off your back and free up the businessman from red tape

* That's a typical Republican acceptance speech

* He said, "I'm going to be the champion of the little guy."

* The downtrodden, the forgotten voter

* "I'm your guy! The system has been rigged against you and because I have been part of the problem, I'm the only one who can deliver the solution"

* I think this is a very powerful strategy

* Because the Democrats have been taking their constituency for granted

* What Donald Trump says is, "Why are you blindly supporting the Democratic nominee?"

* What have they done for you? Nothing.

* He will bring up the shocking statistics that have been getting worse under 7 years of Barack Obama

* The horrible unemployment in the African American community

* The inner city crime

* The government dependency.  The despair.

* Why are African Americans handing their votes to a Democrat?

* The Democrats have let them down and failed them

* Donald Trump will say, "I won't do that.  Trust me."

* "I will deliver on the broken promises of generations of Democrats."

* What about women?

* Instead of denying the gender gap, he just accepted it.


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