The Peter Schiff Show Podcast

Gold closed the week at the highest weekly close since January of 2015

Not quite above the $1300 benchmark - I think we closed about $1298 - up about $20 on the day

Intra-day yesterday, gold was well above $1300

Until there was news that a British Member of Parliament was shot and that somehow revised hope for the "stay" vote in the Brexit referendum

As if the price of gold is going up based on the outcome of that vote

As far as I'm concerned next week's vote is a non-event for the gold market

The conventional wisdom seems to believe that if Britain leaves, all hell is going to break loose in Europe

I guess all this chaos is supposed to be bullish for gold

If Britain votes to stay, the euro will go up and that might be bullish for gold, because a weak dollar is generally bullish for gold

I think gold will go up regardless of the British vote

The price of gold is not going up because of what's happening in Europe

It's going up because of what's happening in the United States

 More specifically at the Federal Reserve

The Federal Reserve concluded its June meeting on Wednesday and Janet Yellen - surprise! did not raise interest rates

If you remember, a few months ago, some minutes leaked to the public caused the public to think the Fed would raise rates in June for sure - maybe July, but probably June

And gold tanked and the dollar rallied and I said, "I don't think so."

There's nothing in these minutes that say the Fed is going to do anything

It's the same old Open Mouth Operation

If you read between the lines, they didn't commit to anything

But she cried wolf and everybody came running, and

Not only did the Fed not raise in June but they backtracked on their intentions to raise rates in the future

They toned down their so-called dot plots for this year and next year

Now, instead of announcing the first rate hike of the year, they actually pushed back expectations

There were a lot of articles about the Fed losing credibility, the Fed surrendering

This is what I have been forecasting

None of this is a surprise to faithful listeners to this podcast

Those who have been listening to the talking heads on the major media outlets expect the Fed to raise rates because they actually believe that the Fed's policies have worked and that we have a recovery

They have not figured out that this is a bubble

They never figure it out until after the bubble has burst

If you go back and read the transcript of Janet Yellen's press conference, she's still talking about  a July rate hike

If she had been honest, she would have said,"Why would we raise rates in July? We didn't raise them in June, what is going to change in a month?

But she is still on script:  she said, "I guess it's not impossible that we could raise rates in July"

So that's what it's come to:

It's come to, "We're probably going to raise rates in June or July" and now we're at, "I guess it's not impossible"

There a lot of things that are not impossible. It's not impossible that aliens are going to invade the Earth in July

* This is the week of the June FOMC meeting, although it's really going to be a dud

* For a while there was speculation that the Fed was going to pull the trigger and increase interest rates for the second in almost 10 years - for the first time this year

* I don't know if anybody expects the Fed to raise rates on Wednesday - it's a 2 day meeting, it gets started tomorrow and we get the announcement on Wednesday afternoon

* Brexit was one of the things they were concerned about

* Now the polls are showing that a British exit of the EU is becoming more and more likely and that was one of the things supposedly the Fed was concerned about

* I think all that is an excuse - they're really concerned about the U.S. bubble economy and domestic problems

* But they don't want to acknowledge that so they want to rationalize their decisions with problems abroad

* That vote is looking like it may go the wrong way as far as the powers that be are concerned

* I've already mentioned on this podcast that if I were in Britain, I would vote to go

* It's not because I'm anti free trade, I'm for free trade - it's just that the EU is no longer about free trade

* That was its initial pretext and it might have been a good idea, but no idea that involves more government can ever be good

* The problem with government is that it grows and grows and grows

* Like the camel getting its nose under the tent

* That's what happening in the EU and the British are finally saying we've had enough

* It's too bad the British don't have enough with their own big government, but they don't want big government imposed from Brussels

* Whatever benefits member nations got in the beginning from freer trade, they've lost from regulations, taxation and micro-management coming out of the EU

* As I said before, the only reason there was a need for the EU is because governments impose too many tariffs and regulation and theoretically the solution was to let some other entity circumvent all the other government regulation

* And they made the deal with the devil and it didn't work out

* But the same thing is true in the United States

* The original American colonies all made a deal - we came together, abandoned the Articles of Confederation we went for a less weak central government and we passed the Constitution of the United States

* But the problem is, the Federal government is not abiding by its constitutional restraints on its powers

* The Federal government is not acting the way the framers envisioned, it has usurped powers that were not granted to it in the Constitution, so the Federal government is no longer a benefit to the United States, just like the EU is not longer a benefit to Europe

* The difference is, the EU disintegrated a lot quicker

* The U.S. government lasted for a much longer period of time, and was a positive factor for the colonies

* But the EU quickly degenerated

* Every time you can remove a layer of government, you restore more freedom and prosperity

* So I wish the British luck with their revolution

* So this is just one more cloud on the horizon providing a reason for the Fed not to raise rates this week

* A more important reason is the stock market

* Once again on the decline, the NASDAQ is down a little over 2% over the last 2 days

* The Dow Jones is down about 1.5% - down a little more than 130 points today

* Meanwhile gold continues to rise

* The last 2 days it was up about $15 - nothing huge, but it is making progress toward the $1300 level

* It was up about $10 today - we closed around $1284

* I don't know if the Orlando terrorist event had anything to do with the weakness in the market today - probably not

* But psychologically,

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This is the week of the June FOMC meeting, although it's really going to be a dud

For a while there was speculation that the Fed was going to pull the trigger and increase interest rates for the second in almost 10 years - for the first time this year

I don't know if anybody expects the Fed to raise rates on Wednesday - it's a 2 day meeting, it gets started tomorrow and we get the announcement on Wednesday afternoon

Brexit was one of the things they were concerned about

Now the polls are showing that a British exit of the EU is becoming more and more likely and that was one of the things supposedly the Fed was concerned about

I think all that is an excuse - they're really concerned about the U.S. bubble economy and domestic problems

But they don't want to acknowledge that so they want to rationalize their decisions with problems abroad

That vote is looking like it may go the wrong way as far as the powers that be are concerned

I've already mentioned on this podcast that if I were in Britain, I would vote to go

It's not because I'm anti free trade, I'm for free trade - it's just that the EU is no longer about free trade

That was its initial pretext and it might have been a good idea, but no idea that involves more government can ever be good

The problem with government is that it grows and grows and grows

Like the camel getting its nose under the tent

That's what happening in the EU and the British are finally saying we've had enough

It's too bad the British don't have enough with their own big government, but they don't want big government imposed from Brussels

Whatever benefits member nations got in the beginning from freer trade, they've lost from regulations, taxation and micro-management coming out of the EU

As I said before, the only reason there was a need for the EU is because governments impose too many tariffs and regulation and theoretically the solution was to let some other entity circumvent all the other government regulation

And they made the deal with the devil and it didn't work out

But the same thing is true in the United States

The original American colonies all made a deal - we came together, abandoned the Articles of Confederation we went for a less weak central government and we passed the Constitution of the United States

But the problem is, the Federal government is not abiding by its constitutional restraints on its powers

The Federal government is not acting the way the framers envisioned, it has usurped powers that were not granted to it in the Constitution, so the Federal government is no longer a benefit to the United States, just like the EU is not longer a benefit to Europe

The difference is, the EU disintegrated a lot quicker

The U.S. government lasted for a much longer period of time, and was a positive factor for the colonies

But the EU quickly degenerated

Every time you can remove a layer of government, you restore more freedom and prosperity

So I wish the British luck with their revolution

So this is just one more cloud on the horizon providing a reason for the Fed not to raise rates this week

A more important reason is the stock market

Once again on the decline, the NASDAQ is down a little over 2% over the last 2 days

The Dow Jones is down about 1.5% - down a little more than 130 points today

Meanwhile gold continues to rise

The last 2 days it was up about $15 - nothing huge, but it is making progress toward the $1300 level

It was up about $10 today - we closed around $1284

I don't know if the Orlando terrorist event had anything to do with the weakness in the market today - probably not

But psychologically, events like that probably take some kind of a toll

And it may take a toll later in consumer confidence numbers, which by the way, are already on the decline

I read that the terrorist who attacked the Orlando night club was originally looking at Disney World

It could have been a lot worse

* Janet Yellen spoke yesterday and this was the first time she spoke following the release of the much weaker than expected Non-Farm Payroll report that we got on Friday

* Not only was the month of May much weaker than expected but they revised down the prior month which was already weaker than expected and now it is even more weak

* This is the first time the Fed had a chance to react, remember Janet Yellen and all her cohorts at the Fed had been talking about how the economy is getting better and how we're getting ready for a summer rate hike

* Everybody was thinking, "Will they move in June or will they wait until July?

* Of course, I was saying all along that I doubted that they would move in either month

* They did make it clear, if you read the FOMC minutes that it was contingent on the labor market improving

* I had already pointed out that based on the most recent jobs report the labor market was already not improving, it was getting worse, and now we know it is even worse than the Fed would have understood

* By the time the minutes were released we had had all this bad news

* While people were jumping to the conclusion that the Fed was about to hike rates, even though the labor market had weakened since they expressed those sentiments and the Fed specifically said that the rate hike was contingent on improvements in the labor market, and we were getting the reverse

* I never understood why so many people were so convinced that a rate hike this summer was a fait accomplit

* But now all the people who were so convinced have caved in and no longer expect a rate hike in June or July, but they're talking September!  Why?

* Well Janet Yellen spoke yesterday and she's still talking about rate hikes

* She still said she thinks the economy is improving and at some point rate hikes will be appropriate

* Well of course!  That qualifies as a "Duh!" Obviously if the economy was improving, rate hikes would be appropriate, in fact they're appropriate right now

* They're appropriate even if the economy is not improving, because interest rates are much too low

* I believe one of the reasons the economy is so weak is because interest rates are so low

* Now I understand that if we raise interest rates we're going to burst this bubble

* If we raise interest rates, the stock market will come down, the real estate market will come down and that's going to be a big problem for a lot of people, in particular the banks

* And I know that when interest rates go up, all the people who borrowed so much money when they were so low, including the U.S. government, will be in a lot of trouble

* The Federal Reserve itself is going to be in a lot of trouble because it has an enormous portfolio, a balance sheet of long term bonds that will collapse in value when it raises rates

* I am not a Pollyanna, thinking if we raise interest rates everything is great - no, it is a disaster

* But it is a bigger disaster if we don't raise interest rates and keep waiting because we don't want to deal with the consequences


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Janet Yellen spoke yesterday and this was the first time she spoke following the release of the much weaker than expected Non-Farm Payroll report that we got on Friday

Not only was the month of May much weaker than expected but they revised down the prior month which was already weaker than expected and now it is even more weak

This is the first time the Fed had a chance to react, remember Janet Yellen and all her cohorts at the Fed had been talking about how the economy is getting better and how we're getting ready for a summer rate hike

Everybody was thinking, "Will they move in June or will they wait until July?

Of course, I was saying all along that I doubted that they would move in either month

They did make it clear, if you read the FOMC minutes that it was contingent on the labor market improving

I had already pointed out that based on the most recent jobs report the labor market was already not improving, it was getting worse, and now we know it is even worse than the Fed would have understood

By the time the minutes were released we had had all this bad news

While people were jumping to the conclusion that the Fed was about to hike rates, even though the labor market had weakened since they expressed those sentiments and the Fed specifically said that the rate hike was contingent on improvements in the labor market, and we were getting the reverse

I never understood why so many people were so convinced that a rate hike this summer was a fait accomplit

But now all the people who were so convinced have caved in and no longer expect a rate hike in June or July, but they're talking September!  Why?

Well Janet Yellen spoke yesterday and she's still talking about rate hikes

She still said she thinks the economy is improving and at some point rate hikes will be appropriate

Well of course!  That qualifies as a "Duh!" Obviously if the economy was improving, rate hikes would be appropriate, in fact they're appropriate right now

They're appropriate even if the economy is not improving, because interest rates are much too low

I believe one of the reasons the economy is so weak is because interest rates are so low

Now I understand that if we raise interest rates we're going to burst this bubble

If we raise interest rates, the stock market will come down, the real estate market will come down and that's going to be a big problem for a lot of people, in particular the banks

And I know that when interest rates go up, all the people who borrowed so much money when they were so low, including the U.S. government, will be in a lot of trouble

The Federal Reserve itself is going to be in a lot of trouble because it has an enormous portfolio, a balance sheet of long term bonds that will collapse in value when it raises rates

I am not a Pollyanna, thinking if we raise interest rates everything is great - no, it is a disaster

But it is a bigger disaster if we don't raise interest rates and keep waiting because we don't want to deal with the consequences

* It was a few weeks ago, following the release of the FOMC meetings, in which the various governors appeared quite hawkish in their tone

* They were talking about the resurgent U.S. economy, the strengthening labor market and that they thought it would be appropriate to raise interest rates in June

* As a result of that, the markets reacted, the dollar had a big rise, gold dropped

* Gold had risen to almost $1300 when everybody thought the Fed wasn't going to raise rates

* Now as soon as the Fed changed the conversation, and they put rate hikes back on the table, gold touched below $1200

* The dollar index got as high as 96 earlier this week

* But the catalyst for the rally of the dollar and the decline in gold was the Fed, and the anticipation of rate hikes coming this month

* In fact, in the days and weeks that followed the release of the unexpectedly hawkish FOMC minutes various Fed officials were out giving speeches

* Every one of them talked about how it was going to be appropriate to raise rates, how we are bouncing back from the unexpected Q1 weakness, and that now the Fed is finally going to resume normalizing rates

* The first time they raised rates was December last year; of course they talked about it all year before they finally went up by a quarter point

* If they went up by another quarter point in June of this year, it's still, it's still a pace much slower than Greenspan used

* He was moving up a quarter every time they met

* This would be a quarter every 6 months

* Even if the Fed were going to raise rates in June, that would have been the only hike of the year

* I didn't even believe that they were going to do it in Juneof

* If you listen to one of my recent podcasts at the beginning of the June rate hike talk, I was saying,

* "How can they talk about a June rate hike? They haven't seen the May jobs report, which will come out in the first week of June, and if that jobs report is weak, they're not going to raise rates

* And even if they did raise rates, it's too little too late

* It's not going to be good for the dollar, it's not going to hurt gold because the FOREX markets and the metal exchange markets have priced in far more rate hikes than the Fed could possibly deliver

* In fact if they did raise rates, that would be the end of the cycle and by the end of the year they would be cutting rates

* The market is anticipating a normalization

* And if you remember, too, it wasn't just that the Fed was going to raise rates, they were going to shrink the balance sheet

* Janet Yellen was saying she was going to get the balance sheet back down to where it started

* I was saying she was lying back then

* The balance sheet has not shrunk at all

* That is because the proceeds of every maturing bond have been reinvested

* Every nickel earned in interest has been reinvested also

* So the Fed hasn't even started to unwind the balance sheet, and they've barely raised interest rates

* But I did say that if we got a weak jobs report, that would clearly take rate hikes off the table

* I believe they were never on the table and that's exactly what we got June 3

* The Labor Department dropped a bombshell on the markets

* A relative weak report of 170,000 was expected due to the Verizon strike

* The actual number of jobs created in May was 38,000

* That is the lowest number in 6 years

* But it gets worse: they revised last month's number, which was also weaker than expected, from 200,000 to 123,000

* The expectation was that this number would be revised up

* They even revised down the month before by another 10,000

* You've got 123,000 jobs in April and just 38,000 jobs in May

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It was a few weeks ago, following the release of the FOMC meetings, in which the various governors appeared quite hawkish in their tone

They were talking about the resurgent U.S. economy, the strengthening labor market and that they thought it would be appropriate to raise interest rates in June

As a result of that, the markets reacted, the dollar had a big rise, gold dropped

Gold had risen to almost $1300 when everybody thought the Fed wasn't going to raise rates

Now as soon as the Fed changed the conversation, and they put rate hikes back on the table, gold touched below $1200

The dollar index got as high as 96 earlier this week

But the catalyst for the rally of the dollar and the decline in gold was the Fed, and the anticipation of rate hikes coming this month

In fact, in the days and weeks that followed the release of the unexpectedly hawkish FOMC minutes various Fed officials were out giving speeches

Every one of them talked about how it was going to be appropriate to raise rates, how we are bouncing back from the unexpected Q1 weakness, and that now the Fed is finally going to resume normalizing rates

The first time they raised rates was December last year; of course they talked about it all year before they finally went up by a quarter point

If they went up by another quarter point in June of this year, it's still, it's still a pace much slower than Greenspan used

He was moving up a quarter every time they met

This would be a quarter every 6 months

Even if the Fed were going to raise rates in June, that would have been the only hike of the year

I didn't even believe that they were going to do it in Juneof

If you listen to one of my recent podcasts at the beginning of the June rate hike talk, I was saying,

"How can they talk about a June rate hike? They haven't seen the May jobs report, which will come out in the first week of June, and if that jobs report is weak, they're not going to raise rates

And even if they did raise rates, it's too little too late

It's not going to be good for the dollar, it's not going to hurt gold because the FOREX markets and the metal exchange markets have priced in far more rate hikes than the Fed could possibly deliver

In fact if they did raise rates, that would be the end of the cycle and by the end of the year they would be cutting rates

The market is anticipating a normalization

And if you remember, too, it wasn't just that the Fed was going to raise rates, they were going to shrink the balance sheet

Janet Yellen was saying she was going to get the balance sheet back down to where it started

I was saying she was lying back then

The balance sheet has not shrunk at all

That is because the proceeds of every maturing bond have been reinvested

Every nickel earned in interest has been reinvested also

So the Fed hasn't even started to unwind the balance sheet, and they've barely raised interest rates

But I did say that if we got a weak jobs report, that would clearly take rate hikes off the table

I believe they were never on the table and that's exactly what we got June 3

The Labor Department dropped a bombshell on the markets

A relative weak report of 170,000 was expected due to the Verizon strike

The actual number of jobs created in May was 38,000

That is the lowest number in 6 years

But it gets worse: they revised last month's number, which was also weaker than expected, from 200,000 to 123,000

The expectation was that this number would be revised up

They even revised down the month before by another 10,000

You've got 123,000 jobs in April and just 38,000 jobs in May

It gets worse: the labor force participation rate dropped all the way down to 62.6 from 62.8

About 660,000 Americans threw in the towel

That is why the unemployment rate dropped to 4.7%

It didn't drop because unemployed workers got jobs, it dropped because unemployed workers stopped looking for jobs

And when they stop looking for jobs,

* Well the tone and tenor of the discourse of the various market pundits and Wall Street economists seems to be that this recovery is on track

* I guess there were some doubts about the recovery until the Federal Reserve laid all those doubts to rest based on the confidence with which they discussed the likelihood that the Fed would raise interest rates in June or July

* The confidence persists despite the drumbeat of consistently weaker than expected numbers

* Once in a while, we're getting better than expected numbers, but the beats are in the minority

* Sometimes we get a number that superficially appears better than the forecast, but as soon as you actually delve beneath a very thin surface, you see a lot of negative details that don't make the headlines

* People overlook a lot of information beneath the surface that is actually quite bad

* But before I get into the economic data, I want to talk a little about Janet Yellen

* On Friday she gave a monetary policy speech at the Radcliffe Institute for Advanced Studies at Harvard

* Yellen studied economics at prestigious institutions, herself

* Economics is Janet Yellen's passion; she's dedicated to economics

* For someone who has dedicated herself to one subject, it's amazing how little she actually knows, despite going to our nation's best universities

* It might be that the upper echelon universities are so deeply wedded to Keynesianism that a student might get a better economics education at a community college

* One of the things that Janet Yellen said during her speech was that she she believes in capitalism, but that the government needs to protect the economy because capital is prone to "breakdowns" that cause mass unemployment and that we need government, or central banks to save capitalism from itself

* Capitalism is not prone to breakdowns, nor is it prone to mass unemployment - in fact it's just the opposite

* Capitalism is stable; it has a cyclical nature much less pronounced absent the Fed

* Huge breakdowns and mass unemployment are always the result of government interference


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Well the tone and tenor of the discourse of the various market pundits and Wall Street economists seems to be that this recovery is on track

I guess there were some doubts about the recovery until the Federal Reserve laid all those doubts to rest based on the confidence with which they discussed the likelihood that the Fed would raise interest rates in June or July

The confidence persists despite the drumbeat of consistently weaker than expected numbers

Once in a while, we're getting better than expected numbers, but the beats are in the minority

Sometimes we get a number that superficially appears better than the forecast, but as soon as you actually delve beneath a very thin surface, you see a lot of negative details that don't make the headlines

People overlook a lot of information beneath the surface that is actually quite bad

But before I get into the economic data, I want to talk a little about Janet Yellen

On Friday she gave a monetary policy speech at the Radcliffe Institute for Advanced Studies at Harvard

Yellen studied economics at prestigious institutions, herself

Economics is Janet Yellen's passion; she's dedicated to economics

For someone who has dedicated herself to one subject, it's amazing how little she actually knows, despite going to our nation's best universities

It might be that the upper echelon universities are so deeply wedded to Keynesianism that a student might get a better economics education at a community college

One of the things that Janet Yellen said during her speech was that she she believes in capitalism, but that the government needs to protect the economy because capital is prone to "breakdowns" that cause mass unemployment and that we need government, or central banks to save capitalism from itself

Capitalism is not prone to breakdowns, nor is it prone to mass unemployment - in fact it's just the opposite

Capitalism is stable; it has a cyclical nature much less pronounced absent the Fed

Huge breakdowns and mass unemployment are always the result of government interference

* It really is amazing how short memories are on Wall Street

* This seems exactly like December when everybody was convinced that a rate hike wouldn't matter because the economy was improving and the market can handle higher rates

* And the stock market rallied right up until the Fed actually raised rates, and then it rallied a little bit, and then it rolled over and we had the worst decline to begin a year in the history of the stock market

* Well flash forward to the Fed now saying that they are going to raise rates in June - or at least everybody believing that the Fed is going to raise rates in June and all of a sudden we are having this huge stock market

* We had a huge up day yesterday on the idea that the economy is improving and the Fed is going to raise rates

* The market is going up on the assumption that the economy can handle higher rates based on the economic data, which is another reason why the Fed might feel comfortable raising rates because the market is not selling off

* So the market is giving the Fed the go-ahead to notch rates up another .25

* That was exactly the attitude prior to the last rate hike

* The Fed make the mistake of raising rates in spite of weak data

* As a matter of fact, if you go back to the minutes of the FOMC meeting, which is what ignited this whole Fed rate hike narrative, the Fed said it all depends on the data

* If the economy continues to improve, if the labor market continues to improve, then we'll hike rates

* But the reality is that the data tells the opposite story

* Ever since the last Fed meeting, the economic data, on balance, has been weaker than expected - not stronger than expected

* Including all the data that has come out this week

* But,  hey - nobody cares - because the Fed says everything is great, so we can ignore the data because if they think the economy is great, it must be great

* Forget about the fact that they have a horrible track record - the economy must be great!

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