The Peter Schiff Show Podcast

* Last week on Thursday we got that much weaker than expected ISM Manufacturing number, which didn't get a lot of attention because it came out a day before the jobs number which cast a pretty big shadow on all the economic data

* The number came in very weak, as I pointed out, it was 49.4, which is contraction mode

* Anything below 50 in the ISM numbers indicates a contraction and a recession

* But of course, no one cares about manufacturing because it is such a small part of the U.S. economy, which in and of itself, is a major problem

* The fact that it is such a small part of the economy should be very concerning, because without manufacturing you really can't have a service sector

* The way the U.S. gets away with it is to just import with everyone else manufactures and we run enormous trade deficits, which is an unsustainable model

* It's a great gravy train while the ride lasts, but when the rest of the world figures out that we can never pay our debts, then the gravy train comes to an end

* The trade deficit represents an artificially high standard of living, but in the long run it's unsustainable because our creditors will not let us get away with this forever

* I want to get to the ISM Non-Manufacturing number which came out yesterday; this represents the service sector of the economy

* They were looking for 55, which was not a great number; last month we got 55.5, so there was some optimism around that number

* They were looking for 55 even and, instead, the number came in at 51.4

* The lowest number in better than 6 years

* And if you look beneath the surface and all the various components; new orders, back logs, hiring - horrible numbers consistent with recession

* The complete opposite of what everybody was looking for, and when you combine this with the 49.4 we got from manufacturing that is a very bleak picture

* The fact that we are at 6+ lows in the service sector does not bode well for the future

* The trajectory is down, and how much longer is it going to be before the ISM Non-Manufacturing breaches the 50 mark?

* Just when they start talking about these rate hikes - everything before this number came out questioned a September or a December rate hike - foregone conclusion

* We had the same discussion in September a year ago

* They punted and raised rates in December - will they do it again?

* Given the bad news to date, there is really no way the Fed is going to raise rates in September

* But just when the Fed officials are talking up a rate hike, everything changes with some bad news

* The Fed never admits the data is bad they just don't raise rates and you've got to figure it out for yourself

* When the ISM Non-Manufacturing number came out, gold took off

* It continued to rise throughout the day and closed up better than $20

* Gold got back above $1350 after having just tested the $1300 level

* Silver had a big up day; it went back above the $20 mark

* We had a strong move up in the gold stocks again following Thursday and Friday's strong move in gold stocks

* The markets were very surprised, and when this number came out, all of a sudden all the bets were changing

* The odds for a September rate hike were way down

* But not that much for December, because people are just assuming they can't go in September because we got this bad news, but, of course, by December, we may get some good news

* The reality is that by then, there will be even more bad news

* The Fed is not going to be raising rates; they are just talking about it, politically

* In fact, John C. Williams, President and CEO, Federal Reserve Bank of San Francisco late last night ignored the bad financial news entirely in his statement,

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* Last week on Thursday we got that much weaker than expected ISM Manufacturing number, which didn't get a lot of attention because it came out a day before the jobs number which cast a pretty big shadow on all the economic data

* The number came in very weak, as I pointed out, it was 49.4, which is contraction mode

* Anything below 50 in the ISM numbers indicates a contraction and a recession

* But of course, no one cares about manufacturing because it is such a small part of the U.S. economy, which in and of itself, is a major problem

* The fact that it is such a small part of the economy should be very concerning, because without manufacturing you really can't have a service sector

* The way the U.S. gets away with it is to just import with everyone else manufactures and we run enormous trade deficits, which is an unsustainable model

* It's a great gravy train while the ride lasts, but when the rest of the world figures out that we can never pay our debts, then the gravy train comes to an end

* The trade deficit represents an artificially high standard of living, but in the long run it's unsustainable because our creditors will not let us get away with this forever

* I want to get to the ISM Non-Manufacturing number which came out yesterday; this represents the service sector of the economy

* They were looking for 55, which was not a great number; last month we got 55.5, so there was some optimism around that number

* They were looking for 55 even and, instead, the number came in at 51.4

* The lowest number in better than 6 years

* And if you look beneath the surface and all the various components; new orders, back logs, hiring - horrible numbers consistent with recession

* The complete opposite of what everybody was looking for, and when you combine this with the 49.4 we got from manufacturing that is a very bleak picture

* The fact that we are at 6+ lows in the service sector does not bode well for the future

* The trajectory is down, and how much longer is it going to be before the ISM Non-Manufacturing breaches the 50 mark?

* Just when they start talking about these rate hikes - everything before this number came out questioned a September or a December rate hike - foregone conclusion

* We had the same discussion in September a year ago

* They punted and raised rates in December - will they do it again?

* Given the bad news to date, there is really no way the Fed is going to raise rates in September

* But just when the Fed officials are talking up a rate hike, everything changes with some bad news

* The Fed never admits the data is bad they just don't raise rates and you've got to figure it out for yourself

* When the ISM Non-Manufacturing number came out, gold took off

* It continued to rise throughout the day and closed up better than $20

* Gold got back above $1350 after having just tested the $1300 level

* Silver had a big up day; it went back above the $20 mark

* We had a strong move up in the gold stocks again following Thursday and Friday's strong move in gold stocks

* The markets were very surprised, and when this number came out, all of a sudden all the bets were changing

* The odds for a September rate hike were way down

* But not that much for December, because people are just assuming they can't go in September because we got this bad news, but, of course, by December, we may get some good news

* The reality is that by then, there will be even more bad news

* The Fed is not going to be raising rates; they are just talking about it, politically

* In fact, John C. Williams, President and CEO, Federal Reserve Bank of San Francisco late last night ignored the bad financial news entirely in his statement,

*  On Friday we got the Non-Farm Payroll report and, of course, this jobs report is the most important ever

* Because it was going to determine whether the Federal Reserve would raise interest rates at its September meeting

* Of course, I didn't think the Fed would raise interest rates in September regardless of what this jobs number was

* It's just that so many people were convinced that it was going to happen just because several Fed officials said it was possible


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*  On Friday we got the Non-Farm Payroll report and, of course, this jobs report is the most important ever

* Because it was going to determine whether the Federal Reserve would raise interest rates at its September meeting

* Of course, I didn't think the Fed would raise interest rates in September regardless of what this jobs number was

* It's just that so many people were convinced that it was going to happen just because several Fed officials said it was possible


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*  On Friday we got the Non-Farm Payroll report and, of course, this jobs report is the most important ever

* Because it was going to determine whether the Federal Reserve would raise interest rates at its September meeting

* Of course, I didn't think the Fed would raise interest rates in September regardless of what this jobs number was

* It's just that so many people were convinced that it was going to happen just because several Fed officials said it was possible

* The price of gold continues to retreat

* Gold was down about $12 today; it closed around $1310

* The dollar index up again as more and more people begin to contemplate the possibility of a rate hike in either September or December

* Or maybe even both, because the odds of a rate hike, either in September or December have now increased to about even money

* If you go back to June, the odds were practically zero

* What has changed in the last couple of months?

* The only thing that has really happened is that you've had various Fed officials going out of their way to mention that a rate hike is still possible

* Why would they do that?

* Obviously, a rate hike is possible

* Usually they are asked the question and they mention the possibility

* If the Fed had no intention of raising interest rates, I doubt they would admit it at this juncture

* They want people to believe that a rate hike is possible because if you admit that it's not possible,

* That opens a can of worms that the Fed isn't interested in opening just yet

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* The price of gold continues to retreat

* Gold was down about $12 today; it closed around $1310

* The dollar index up again as more and more people begin to contemplate the possibility of a rate hike in either September or December

* Or maybe even both, because the odds of a rate hike, either in September or December have now increased to about even money

* If you go back to June, the odds were practically zero

* What has changed in the last couple of months?

* The only thing that has really happened is that you've had various Fed officials going out of their way to mention that a rate hike is still possible

* Why would they do that?

* Obviously, a rate hike is possible

* Usually they are asked the question and they mention the possibility

* If the Fed had no intention of raising interest rates, I doubt they would admit it at this juncture

* They want people to believe that a rate hike is possible because if you admit that it's not possible,

* That opens a can of worms that the Fed isn't interested in opening just yet

* Earlier today Janet Yellen delivered her much-anticipated and way over-hyped speech at the annual Jackson Hole Symposium

* It wasn't as irrelevant as I thought it was going to be, but the actual relevant part of the speech was lost on just about everybody

* Instead they keep focusing on whether or not the Fed is going to raise rates by another .25 in September or December or maybe both

* In reality, whether they do or do not is irrelevant, given the nature of where we are and where the U.S. economy actually is

* For a small person, Janet Yellen certainly casts a large shadow over the financial markets

* Everybody was on pins and needles, all the traders were there with their fingers on the buttons waiting to react to anything that Yellen said

* I mentioned on an earlier podcast that there had already been a sell-off  on gold stocks a couple of days ago on the anticipation of Yellen's hawkish comments

* The rest of the market seemed to ignore the possibility that Yellen would be a hawk

* Before I discuss what she said, I want to examine whether anyone on the committee could be considered a hawk

* A hawk is predatory; is to be feared, reflecting a tough central banker who believes in sound money

* On the other hand, a dove is cute and fluff; doesn't really hurt anybody

* A dove wants cheap money - keep interests low so as not to harm anybody - nothing to fear

* When it comes to hawks with respect to the Federal Reserve, the bird is extinct

* They are all doves and the only difference is the degree of dovishness

* The hawks are gone and are probably never coming back

* Yellen was not a hawk, and neither was Stan Fischer


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* Earlier today Janet Yellen delivered her much-anticipated and way over-hyped speech at the annual Jackson Hole Symposium

* It wasn't as irrelevant as I thought it was going to be, but the actual relevant part of the speech was lost on just about everybody

* Instead they keep focusing on whether or not the Fed is going to raise rates by another .25 in September or December or maybe both

* In reality, whether they do or do not is irrelevant, given the nature of where we are and where the U.S. economy actually is

* For a small person, Janet Yellen certainly casts a large shadow over the financial markets

* Everybody was on pins and needles, all the traders were there with their fingers on the buttons waiting to react to anything that Yellen said

* I mentioned on an earlier podcast that there had already been a sell-off  on gold stocks a couple of days ago on the anticipation of Yellen's hawkish comments

* The rest of the market seemed to ignore the possibility that Yellen would be a hawk

* Before I discuss what she said, I want to examine whether anyone on the committee could be considered a hawk

* A hawk is predatory; is to be feared, reflecting a tough central banker who believes in sound money

* On the other hand, a dove is cute and fluff; doesn't really hurt anybody

* A dove wants cheap money - keep interests low so as not to harm anybody - nothing to fear

* When it comes to hawks with respect to the Federal Reserve, the bird is extinct

* They are all doves and the only difference is the degree of dovishness

* The hawks are gone and are probably never coming back

* Yellen was not a hawk, and neither was Stan Fischer

* The price of gold fell about $12/oz today; silver prices were down another .28

* Both metals have been falling since recent new yearly highs

* Gold, though is not very much below the highs

* The real carnage has been in the mining stocks, particularly today; today was one of the biggest down days I've seen all year

* The GDX index was down just over 7%

* Some of the mining stocks were down 10% or more on a very small move in the price of gold and silver

* In fact, we've wiped out the last 2 months of gains in the mining stocks

* What is the catalyst for this?

* Early this morning, around 8:30 - 9:00 New York time before the U.S. Stock Market opened

* No news - gold was up 1 or 2 bucks...

* All of a sudden a huge sell order hits and gold drops about 7 or 8 bucks on no news

* Somebody decided to dump a lot of gold on the market, at one time and didn't really care what the execution price was

* Considering how large the sell order was, it didn't really knock the market down very much

* But the gold stock market was a different story

* It kind of made me think that the rationale for getting gold to drop was the impact it might have on the gold stocks themselves

* My guess is that a lot of people who were running with stops, that's when you have an order to sell below the market to try to protect your profits

* My guess is that they hit a lot of stops today in a lot of these mining stocks and maybe, some of the bigger players were able to buy more gold stocks based on the shake-out that was created

* By a relatively modest drop in the price of gold

* Meanwhile, the dollar didn't rise very much today; the downtrend still seems to be firmly in place

* What everybody seems to be focusing on is the Fed

* People are worried about what Janet Yellen might say on Friday

* The Fed's Jackson Hole Conference gets underway tomorrow and Janet Yellen speaks on Friday

* I guess the thoughts are: "Maybe she will say something hawkish."

* Maybe she'll say the U.S economy is strengthening and the Fed is getting closer to meeting its objectives

* And that a rate hike is possible in the near future

* So what? That's what she always says.

* Now she's not going to come out and say, "We're raising rates for sure. We're moving rates in September."

* The only thing she could say is that a rate hike is still possible

* That is no different than anything that she has said in the past

* So people being nervous about a possible unprecedented hawkish statement makes no sense

* Even in Janet were to say she is raising rates in September and she followed through a rate hike

* So what?

* It's not going to hurt gold and it's not going to help the dollar

* Expected rate hikes were already baked into the dramatic rise of the dollar in 2014-2015

* Gold declined from a high of almost $1900 to a low of $1050 because it was discounting all the rate hikes that are never going to materialize

* Even if we get one or two more, that is nothing compared to market expectations

* Even if we get a couple of small rate hikes, even if we get to .75 or even 1%

* That is still not enough to hurt gold or help the dollar

* When are people going to figure out it doesn't matter what the Fed does


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