The Peter Schiff Show Podcast

* Aliens didn't invade the Earth, and the Federal Reserve didn't raise interest rates

* If you remember, I was pegging the probability of each at roughly the same

* True to form, the Federal Reserve did pretty much exactly what I thought they were going to do and not raise interest rates

* Now I thought they might have tried to lower expectations for the probability in the markets of a December rate hike

* Even though they didn't say that, that was the effect of their announcement

* If you look at the dot plots, for example, the FOMC members were looking for rates to be lower for longer

* Surely, if you look at the reaction to the market, the market does not appear to be worried about a rate hike coming in either November or December, even though the Fed still maintains the narrative that the possibility still exists

* The Fed reiterated that the case for a rate hike had increased

* But, they chose not to raise rates despite their narrative

* Their reason was that they wanted to see more data

* This is exactly what I said after Yellen's statement at Jackson Hole

* The media interpreted her statement as a signal that a September rate hike was likely

* What did I say?

* I said the Fed didn't say anything about hiking

* They were speaking about the case for a hike

* I described it as a scale from, say 0 - 10

* If the case were a 3 and then it became a 4, the case had strengthened

* But if the Fed needs 10, and we're only at 4, they're not going to hike

* They never came clean about their scale, they simply said that the case for a hike had increased

* That doesn't mean they were going to raise rates, and that's exactly what happened

* It's interesting that in all of the prepared remarks and in the following press conference

* Janet Yellen never once admitted that the economy is weakening

* In fact, she continues to pretend that everything is great

* Ironically, one of the questions in the Q&A had to do with Donald Trump's position that the Fed is not raising interest rates for political reasons

* Which, of course is exactly why they're not raising them

* If they raise interest rates, everything would collapse, and so would Hillary Clinton's election prospects


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* This morning the Federal Open Market Committee began its 2-day meeting, where they're supposedly going to discuss raising interest rates for the second time

* We're going to get the official announcement of their decision on Wednesday

* Most likely there will be no surprise, that they won't raise interest rates

* But it will be the statement at the press conference that follows; that's typically where you can get more market-moving insights

* I said they're supposedly going to be discussing whether or not they are going to raise rates, but you would think that if they were going to raise rates, they'd know it before the meeting started

* But I don't think they're going to discuss whether or not they're going to raise rates; I think they know they're not going to raise rates

* What they're going to discuss is the bind they're in

* It's like they're damned if they do and they're damned if they don't

* On the one hand, market expectations went way up for a while, on a September rate hike

* Based on Janet Yellen's Jackson Hole speech, where she said, "The case for a rate hike had strengthened."

* Then later that day, another Fed official reiterated that there was nothing in Janet Yellen's speech that would rule out a rate hike in either September or December or both!

* Based on that, market expectations ramped up

* Of course, the Fed also claims to be data dependent, and the data over the past month has been lousy

* Even though the Fed has not gone out of its way to recognize the bad data, probably for political reasons

* The data has been bad, so the case for a rate hike has weakened, although Janet Yellen herself has not uttered those words

* You've had some other Fed officials come out and pay lip service to that effect more recently because the market started to fall so the doves came flying to the rescue to save the market

* But here's the conundrum: if they don't raise rates, which I think is the more likely option, then the Fed will have cried wolf again

* If they do raise rates, it belies Janet Yellen's "Data Dependent" credo

* In reality, they should be raising rates regardless of the data, because rates are too low

* These low rate are creating a problem

* It doesn't matter whether the economy is weak or strong, rates need to go up

* In fact, I would argue that the economy is weak because rates are so low

* Rates have to go up before we can have a real recovery

* Of course, before we can have a real recovery, we have to prick this bubble and end the phony recovery

* To have real economic growth, we're going to have to have a crash first

* If we want the gain, we have to endure the pain

* But nobody wants the pain so we never get any gain

* If the Fed were to raise rates despite the data, it looks like they're not data dependent

* If they don't raise rates without acknowledging that the data is weak

* If they continue to pretend that the economy is fine, and continue to hint at future rate hikes

* The Fed loses more credibility

* That is what they are more likely to do: why would they take a chance on raising rates on Wednesday

* Knowing A) How weak the data is, and  B) knowing that it is possible that the markets could tank as a result of that hike

* That's the last thing they want, because, then what are they going to do?

* How are they going to reverse the decline? Cut rates?

* Clearly the Fed wants to punt again and delay the decision to December

* This will mean that they barked again but they didn't bite

* That's what they're talking about: "How do we thread this needle? How to we make the perfect statement that will still pretend the recovery is on track and still justify n...

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* This morning the Federal Open Market Committee began its 2-day meeting, where they're supposedly going to discuss raising interest rates for the second time

* We're going to get the official announcement of their decision on Wednesday

* Most likely there will be no surprise, that they won't raise interest rates

* But it will be the statement at the press conference that follows; that's typically where you can get more market-moving insights

* I said they're supposedly going to be discussing whether or not they are going to raise rates, but you would think that if they were going to raise rates, they'd know it before the meeting started

* But I don't think they're going to discuss whether or not they're going to raise rates; I think they know they're not going to raise rates

* What they're going to discuss is the bind they're in

* It's like they're damned if they do and they're damned if they don't

* On the one hand, market expectations went way up for a while, on a September rate hike

* Based on Janet Yellen's Jackson Hole speech, where she said, "The case for a rate hike had strengthened."

* Then later that day, another Fed official reiterated that there was nothing in Janet Yellen's speech that would rule out a rate hike in either September or December or both!

* Based on that, market expectations ramped up

* Of course, the Fed also claims to be data dependent, and the data over the past month has been lousy

* Even though the Fed has not gone out of its way to recognize the bad data, probably for political reasons

* The data has been bad, so the case for a rate hike has weakened, although Janet Yellen herself has not uttered those words

* You've had some other Fed officials come out and pay lip service to that effect more recently because the market started to fall so the doves came flying to the rescue to save the market

* But here's the conundrum: if they don't raise rates, which I think is the more likely option, then the Fed will have cried wolf again

* If they do raise rates, it belies Janet Yellen's "Data Dependent" credo

* In reality, they should be raising rates regardless of the data, because rates are too low

* These low rate are creating a problem

* It doesn't matter whether the economy is weak or strong, rates need to go up

* In fact, I would argue that the economy is weak because rates are so low

* Rates have to go up before we can have a real recovery

* Of course, before we can have a real recovery, we have to prick this bubble and end the phony recovery

* To have real economic growth, we're going to have to have a crash first

* If we want the gain, we have to endure the pain

* But nobody wants the pain so we never get any gain

* If the Fed were to raise rates despite the data, it looks like they're not data dependent

* If they don't raise rates without acknowledging that the data is weak

* If they continue to pretend that the economy is fine, and continue to hint at future rate hikes

* The Fed loses more credibility

* That is what they are more likely to do: why would they take a chance on raising rates on Wednesday

* Knowing A) How weak the data is, and  B) knowing that it is possible that the markets could tank as a result of that hike

* That's the last thing they want, because, then what are they going to do?

* How are they going to reverse the decline? Cut rates?

* Clearly the Fed wants to punt again and delay the decision to December

* This will mean that they barked again but they didn't bite

* That's what they're talking about: "How do we thread this needle? How to we make the perfect statement that will still pretend the recovery is on track and still justify n...

* Aliens didn't invade the Earth, and the Federal Reserve didn't raise interest rates

* If you remember, I was pegging the probability of each at roughly the same

* True to form, the Federal Reserve did pretty much exactly what I thought they were going to do and not raise interest rates

* Now I thought they might have tried to lower expectations for the probability in the markets of a December rate hike

* Even though they didn't say that, that was the effect of their announcement

* If you look at the dot plots, for example, the FOMC members were looking for rates to be lower for longer

* Surely, if you look at the reaction to the market, the market does not appear to be worried about a rate hike coming in either November or December, even though the Fed still maintains the narrative that the possibility still exists

* The Fed reiterated that the case for a rate hike had increased

* But, they chose not to raise rates despite their narrative

* Their reason was that they wanted to see more data

* This is exactly what I said after Yellen's statement at Jackson Hole

* The media interpreted her statement as a signal that a September rate hike was likely

* What did I say?

* I said the Fed didn't say anything about hiking

* They were speaking about the case for a hike

* I described it as a scale from, say 0 - 10

* If the case were a 3 and then it became a 4, the case had strengthened

* But if the Fed needs 10, and we're only at 4, they're not going to hike

* They never came clean about their scale, they simply said that the case for a hike had increased

* That doesn't mean they were going to raise rates, and that's exactly what happened

* It's interesting that in all of the prepared remarks and in the following press conference

* Janet Yellen never once admitted that the economy is weakening

* In fact, she continues to pretend that everything is great

* Ironically, one of the questions in the Q&A had to do with Donald Trump's position that the Fed is not raising interest rates for political reasons

* Which, of course is exactly why they're not raising them

* If they raise interest rates, everything would collapse, and so would Hillary Clinton's election prospects

* We got a lot of economic data released today, most of it bad, and most of it worse than expected

* What I did not expect was that the market shrugged it off

* Initially, there was a little reaction; gold jumped $3 but it never gained momentum and it rolled over to -$10 at the time of this recording

* The dollar index, which had moved into negative territory immediately following the release, quickly recovered back to positive territory

* It's still early in the day, as I'm recording, so this could change as some of this economic data has a chance to sink in

* I noticed that the Atlanta Fed just reduced its Q3 GDP estimate from 3.3 to 3%

* That' the second reduction in a row

* This is the lowest estimate the Atlanta Fed has had in about 2 months, although it is still pretty high

* Let's go over the data we got today:

* Retail Sales was one of the more significant numbers; everybody looks to retail sales to judge the health of the consumer

* Last month's number, relatively weak, it was flat, and they were looking for another flat month, but we were -.3% for August

* It gets worse from there - less autos, they revised the prior month from -.3 to -.4 and in August they were looking for +.3, they got -.1

* Less autos and gasoline, we were down last month .1%; they were looking for +.4% and we're down another .1%


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* We got a lot of economic data released today, most of it bad, and most of it worse than expected

* What I did not expect was that the market shrugged it off

* Initially, there was a little reaction; gold jumped $3 but it never gained momentum and it rolled over to -$10 at the time of this recording

* The dollar index, which had moved into negative territory immediately following the release, quickly recovered back to positive territory

* It's still early in the day, as I'm recording, so this could change as some of this economic data has a chance to sink in

* I noticed that the Atlanta Fed just reduced its Q3 GDP estimate from 3.3 to 3%

* That' the second reduction in a row

* This is the lowest estimate the Atlanta Fed has had in about 2 months, although it is still pretty high

* Let's go over the data we got today:

* Retail Sales was one of the more significant numbers; everybody looks to retail sales to judge the health of the consumer

* Last month's number, relatively weak, it was flat, and they were looking for another flat month, but we were -.3% for August

* It gets worse from there - less autos, they revised the prior month from -.3 to -.4 and in August they were looking for +.3, they got -.1

* Less autos and gasoline, we were down last month .1%; they were looking for +.4% and we're down another .1%

* Today was a day of damage control for the Federal Reserve

* It almost seems like whenever they discuss the possibility of a rate hike, they're really launching a trial balloon

* They want to gauge the possibility of a rate hike and then if the market kind of shrugs it off, or blesses the rate hike the way it did last year nearing December, if the market seems it's OK with a rate hike, then maybe they'd consider actually implementing one

* But before they do it, they want to test the waters, they want to see how the market reacts to that possibility

* Clearly, the near 400-point decline in the Dow on Friday showed that the market really wasn't very friendly to the possibility of a rate hike

* Let alone the certainty of one

* Just the mere possibility, however remote, really spooked the market

* Today the Federal Reserve had a chance to dial it back

* They had 3 Fed presidents speaking today, and not one of them talked about the possibility of a rate hike

* Starting with an 8am talk this morning by Atlanta Fed President and CEO Dennis Lockhart

* Now Dennis was specifically asked about a rate hike, and whether he thought the Fed would move in September or December

* He specifically refused to comment

* He said, "Financial markets seem to be very sensitive to the remarks of Fed speakers at the moment"

* And so in light of market sensitivity, he refused to answer the question

* Why not answer it? Don't you want to prepare the markets for a possible rate hike?

* Well they don't want to say what they want to do, because they don't like the way the market is reacting

* You'd better believe that if the markets reacted favorably to a rate hike, they would have stayed on script

* Because of the the sell-off on Friday, and where futures opened before Lockhart's speech, the Dow was set to open up down 100 points or more

* But once he spoke, all of a sudden, people were thinking, "Hey wait a minute, he didn't say anything about a possibility of a rate hike and he's worried about the markets' sensitivity

* The only thing he said that could have been interpreted as a rate hike comment was when he mentioned the data over the past few weeks "warrants serious discussion of a policy rate increase"

* The data over the past few weeks has all been bad

* All he said is, it warrants discussion of a policy rate increase, but he didn't say that we should be in favor of an increase, or against an increase

* He just said the data over the past few weeks warrants discussion

* To me, what that means is, we should discuss not raising rates because all the data we've gotten recently is weak

* It was the data we got a couple of months ago that supposedly let Janet Yellen conclude that the case for rate hike had strengthened

* But really, what Lockhart is saying is, "We need to have a serious discussion about a rate increase."

* Not that we have to discuss raising interest rates, but maybe we should discuss not raising interest rates because based on the data from just the past few weeks, one would argue against an increase

* If he had said, "We need to discuss an increase", he wouldn't have predicated it with, "the data over the last few weeks"

* That data, in and of itself, is not friendly to an increase

* If he was in favor of a rate increase, he would not qualify it the data over the past few weeks

* Also, just suggesting a discussion about a policy rate increase is not the same as actually increasing the interest rate

* A discussion to increase rates could lead to no rate hike

* Well, I assume they've been having discussions about raising rates for the last several years

* What else do they discuss over there?

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* Today was a day of damage control for the Federal Reserve

* It almost seems like whenever they discuss the possibility of a rate hike, they're really launching a trial balloon

* They want to gauge the possibility of a rate hike and then if the market kind of shrugs it off, or blesses the rate hike the way it did last year nearing December, if the market seems it's OK with a rate hike, then maybe they'd consider actually implementing one

* But before they do it, they want to test the waters, they want to see how the market reacts to that possibility

* Clearly, the near 400-point decline in the Dow on Friday showed that the market really wasn't very friendly to the possibility of a rate hike

* Let alone the certainty of one

* Just the mere possibility, however remote, really spooked the market

* Today the Federal Reserve had a chance to dial it back

* They had 3 Fed presidents speaking today, and not one of them talked about the possibility of a rate hike

* Starting with an 8am talk this morning by Atlanta Fed President and CEO Dennis Lockhart

* Now Dennis was specifically asked about a rate hike, and whether he thought the Fed would move in September or December

* He specifically refused to comment

* He said, "Financial markets seem to be very sensitive to the remarks of Fed speakers at the moment"

* And so in light of market sensitivity, he refused to answer the question

* Why not answer it? Don't you want to prepare the markets for a possible rate hike?

* Well they don't want to say what they want to do, because they don't like the way the market is reacting

* You'd better believe that if the markets reacted favorably to a rate hike, they would have stayed on script

* Because of the the sell-off on Friday, and where futures opened before Lockhart's speech, the Dow was set to open up down 100 points or more

* But once he spoke, all of a sudden, people were thinking, "Hey wait a minute, he didn't say anything about a possibility of a rate hike and he's worried about the markets' sensitivity

* The only thing he said that could have been interpreted as a rate hike comment was when he mentioned the data over the past few weeks "warrants serious discussion of a policy rate increase"

* The data over the past few weeks has all been bad

* All he said is, it warrants discussion of a policy rate increase, but he didn't say that we should be in favor of an increase, or against an increase

* He just said the data over the past few weeks warrants discussion

* To me, what that means is, we should discuss not raising rates because all the data we've gotten recently is weak

* It was the data we got a couple of months ago that supposedly let Janet Yellen conclude that the case for rate hike had strengthened

* But really, what Lockhart is saying is, "We need to have a serious discussion about a rate increase."

* Not that we have to discuss raising interest rates, but maybe we should discuss not raising interest rates because based on the data from just the past few weeks, one would argue against an increase

* If he had said, "We need to discuss an increase", he wouldn't have predicated it with, "the data over the last few weeks"

* That data, in and of itself, is not friendly to an increase

* If he was in favor of a rate increase, he would not qualify it the data over the past few weeks

* Also, just suggesting a discussion about a policy rate increase is not the same as actually increasing the interest rate

* A discussion to increase rates could lead to no rate hike

* Well, I assume they've been having discussions about raising rates for the last several years

* What else do they discuss over there?

* We had widespread selling in the markets today; it was real carnage across the board

* Everything went down except the U.S. dollar

* The Dow Jones was down 394  points - about 2%

* That wasn't bad compared to what happened in other indices and other sectors

* In fact, when it comes to the Dow Jones averages, the utilities were the weakest, they were down 3.7%

* The NASDAQ was down 2-1/2%; the composite down 133 points

* Various sectors were hit very hard; particularly the interest rate sensitive sectors;

* Home builders got crushed

* Emerging markets got obliterated

* Gold stocks were down big - almost 6% on the day

* That's on basically a .6% decline in the price of gold; gold was down only about $10

* Silver dropped about 50 cents

* What's going on? It has just been 2 days when I did the last podcast

* Gold was soaring, the dollar was tanking, the markets were going up

* Why?

* The economic data we got for August confirms that we have the weakest economy, maybe in 6 years

* If you remember, what caused the markets to be concerned was the Janet Yellen/Jackson Hole statement that the case for a rate hike had strengthened based on the economic data that came out in June and July

* Based on the data released since she made that speech, this is data about August, that case has now weakened considerably

* The August data shows that the data that we got in June or July that might have been positive was a one-off event

* Now we're back in weakening mode, and so, if the Fed really were really data dependent, according to Janet Yellen

* Now the data is awful

* So why would they hike rates? That's exactly what happened

* The markets started to take those rate hikes off the table

* I never thought they were on the table, but there were many people who bought into it

* When they saw this horrible data, and they knew the Fed was data dependent, the markets reacted

* Now, in the last couple of days, particularly today, people are now questioning whether or not the Fed is actually data dependent, and they're thinking they're going to raise interest rates, even if the data is bad

* Now what would make them jump to such a conclusion?

* We had several Fed officials, both yesterday and today, who continued to talk about the possibility of rate hikes and nobody has acknowledged the recently-released weakening economic data

* I have said many times they don't want to acknowledged that data

* That plays into Donald Trump's campaign

* They'd be peddling fiction!

* They don't want to talk about a weakening economy, so they have to ignore the data

* But the fact that they are ignoring the data while continuing to talk about the possibility of rate hikes

* That's got everybody scared

* All these guys say is that there is a possibility of a rate hike

* A possibility is not a probability

* It's certainly not a certainty

* But the markets are acting as if the Fed is about to raise rates, and that's why everybody is so scared

* It's not just the Fed; yesterday in Draghi's press conference was asked about his plans when the QE program ends (it is scheduled to end Q1 of 2017)

* He basically said he doesn't have any plans to do more QE


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* We had widespread selling in the markets today; it was real carnage across the board

* Everything went down except the U.S. dollar

* The Dow Jones was down 394  points - about 2%

* That wasn't bad compared to what happened in other indices and other sectors

* In fact, when it comes to the Dow Jones averages, the utilities were the weakest, they were down 3.7%

* The NASDAQ was down 2-1/2%; the composite down 133 points

* Various sectors were hit very hard; particularly the interest rate sensitive sectors;

* Home builders got crushed

* Emerging markets got obliterated

* Gold stocks were down big - almost 6% on the day

* That's on basically a .6% decline in the price of gold; gold was down only about $10

* Silver dropped about 50 cents

* What's going on? It has just been 2 days when I did the last podcast

* Gold was soaring, the dollar was tanking, the markets were going up

* Why?

* The economic data we got for August confirms that we have the weakest economy, maybe in 6 years

* If you remember, what caused the markets to be concerned was the Janet Yellen/Jackson Hole statement that the case for a rate hike had strengthened based on the economic data that came out in June and July

* Based on the data released since she made that speech, this is data about August, that case has now weakened considerably

* The August data shows that the data that we got in June or July that might have been positive was a one-off event

* Now we're back in weakening mode, and so, if the Fed really were really data dependent, according to Janet Yellen

* Now the data is awful

* So why would they hike rates? That's exactly what happened

* The markets started to take those rate hikes off the table

* I never thought they were on the table, but there were many people who bought into it

* When they saw this horrible data, and they knew the Fed was data dependent, the markets reacted

* Now, in the last couple of days, particularly today, people are now questioning whether or not the Fed is actually data dependent, and they're thinking they're going to raise interest rates, even if the data is bad

* Now what would make them jump to such a conclusion?

* We had several Fed officials, both yesterday and today, who continued to talk about the possibility of rate hikes and nobody has acknowledged the recently-released weakening economic data

* I have said many times they don't want to acknowledged that data

* That plays into Donald Trump's campaign

* They'd be peddling fiction!

* They don't want to talk about a weakening economy, so they have to ignore the data

* But the fact that they are ignoring the data while continuing to talk about the possibility of rate hikes

* That's got everybody scared

* All these guys say is that there is a possibility of a rate hike

* A possibility is not a probability

* It's certainly not a certainty

* But the markets are acting as if the Fed is about to raise rates, and that's why everybody is so scared

* It's not just the Fed; yesterday in Draghi's press conference was asked about his plans when the QE program ends (it is scheduled to end Q1 of 2017)

* He basically said he doesn't have any plans to do more QE