The Peter Schiff Show Podcast

* 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

* The dollar was broadly weaker today with the dollar index closing down .85 to 94.78

* At that time gold was up about $18; sliver up about .25

* Then all of a sudden New York Fed Chairman William Dudley in an interview on Fox Business basically said that a September rate hike was still possible

* Look, a September alien invasion is still possible, but I'm not going to waste my time preparing for it

* What's amazing to me is how all of the villagers still come running every time a Fed official cries "Wolf!"

* Haven't they noticed that they've cried, "Wolf!" over and over again and there's never a wolf?

* I think that Dudley purposely came out and mentioned a September rate increase just to keep the markets in check; to preserve the false narrative that there is actually a recovery, instead of a bubble

* All of a sudden, gold sold off, it went from +$18 to +$2 or $3

* Silver went negative; it lost its entire rally in a matter of minutes

* I think Dudley was trying to undo the damage done overnight by Dudley's counterpart at the San Francisco Fed, John Williams' well-thought out paper

* Williams wrote in his piece that he believes we're in a "new era".  He doesn't understand that the new era that we're in is collateral damage from central bank monetary policy

* They think this is a random occurrence that needs a new government prescription

* John Williams is proposing, based on this "new normal" the neutral interest rate is so low, it's almost impossible for the central banks to get there, absent negative interest rates

* What Williams is proposing, is more inflation

* What he is arguing is that we should scrap this 2% inflation target and that we need a higher number

*  I've been saying for years that this is going to happen

* It's just like the unemployment rate, where they said, "We'll raise interest rates if it gets below 6.5% and then we let it go below 5%

* We kept moving that goal post

* I said the same thing was going to happen to inflation

* In fact it is happening.  If you look at the CPI numbers that just came out today, we continue to be above the 2% level on the core; we've been there for many months in a row

* Now they're already starting to say, "Hey wait a minute, 2% isn't high enough

* We need more inflation because we need lower rates, and the only way to get there is to have higher inflation

* This is what I have been expecting

* If you read William's piece, he says one of the ways we should get there is for the Fed to target nominal GDP

* In other words, not GDP after you adjust for inflation

* I've argued that the deflator is under the actual inflation number, therefore overestimating GDP growth

* The Fed is saying, "Who cares about the GDP deflator?

* All we care about is the nominal number

* We don't care if the growth is real or inflationary, we just want nominal GDP numbers to go up"

* What good is that?

* No one benefits from phony GDP growth that is simply a by-product of inflation

* The whole point is that we want the economy to actually, grow, not for just prices to go up

* But what the Williams is saying is no, all we care about is prices going up

* It's all about style over substance

* That's why we're stuck in this malaise

* Additionally, what Williams was also arguing for was more fiscal stimulus

* He was saying that we're at the end of our rope with interest rates at practically at zero

* We need the government to provide more stimulus in the form of deficit spending

* We've already got about a $20 trillion national debt

* If deficit spending were stimulative, why haven't we gotten a huge stimulus from that $20 trillion of debt?

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* The dollar was broadly weaker today with the dollar index closing down .85 to 94.78

* At that time gold was up about $18; sliver up about .25

* Then all of a sudden New York Fed Chairman William Dudley in an interview on Fox Business basically said that a September rate hike was still possible

* Look, a September alien invasion is still possible, but I'm not going to waste my time preparing for it

* What's amazing to me is how all of the villagers still come running every time a Fed official cries "Wolf!"

* Haven't they noticed that they've cried, "Wolf!" over and over again and there's never a wolf?

* I think that Dudley purposely came out and mentioned a September rate increase just to keep the markets in check; to preserve the false narrative that there is actually a recovery, instead of a bubble

* All of a sudden, gold sold off, it went from +$18 to +$2 or $3

* Silver went negative; it lost its entire rally in a matter of minutes

* I think Dudley was trying to undo the damage done overnight by Dudley's counterpart at the San Francisco Fed, John Williams' well-thought out paper

* Williams wrote in his piece that he believes we're in a "new era".  He doesn't understand that the new era that we're in is collateral damage from central bank monetary policy

* They think this is a random occurrence that needs a new government prescription

* John Williams is proposing, based on this "new normal" the neutral interest rate is so low, it's almost impossible for the central banks to get there, absent negative interest rates

* What Williams is proposing, is more inflation

* What he is arguing is that we should scrap this 2% inflation target and that we need a higher number

*  I've been saying for years that this is going to happen

* It's just like the unemployment rate, where they said, "We'll raise interest rates if it gets below 6.5% and then we let it go below 5%

* We kept moving that goal post

* I said the same thing was going to happen to inflation

* In fact it is happening.  If you look at the CPI numbers that just came out today, we continue to be above the 2% level on the core; we've been there for many months in a row

* Now they're already starting to say, "Hey wait a minute, 2% isn't high enough

* We need more inflation because we need lower rates, and the only way to get there is to have higher inflation

* This is what I have been expecting

* If you read William's piece, he says one of the ways we should get there is for the Fed to target nominal GDP

* In other words, not GDP after you adjust for inflation

* I've argued that the deflator is under the actual inflation number, therefore overestimating GDP growth

* The Fed is saying, "Who cares about the GDP deflator?

* All we care about is the nominal number

* We don't care if the growth is real or inflationary, we just want nominal GDP numbers to go up"

* What good is that?

* No one benefits from phony GDP growth that is simply a by-product of inflation

* The whole point is that we want the economy to actually, grow, not for just prices to go up

* But what the Williams is saying is no, all we care about is prices going up

* It's all about style over substance

* That's why we're stuck in this malaise

* Additionally, what Williams was also arguing for was more fiscal stimulus

* He was saying that we're at the end of our rope with interest rates at practically at zero

* We need the government to provide more stimulus in the form of deficit spending

* We've already got about a $20 trillion national debt

* If deficit spending were stimulative, why haven't we gotten a huge stimulus from that $20 trillion of debt?

* 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

*