The Peter Schiff Show Podcast

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NASDAQ Now in Bear Territory

It was a big down day, in fact there was even more carnage in the NASDAQ.  Today is the day that NASDAQ finally slipped into bear market territory. So, Wall Street's been calling this a correction the whole way, well now the NASDAQ is down 22%, joining the Russell 2000, down 26% and the Transports down 24%.  Those 3 indexes are now officially in bear markets.

It's All a Matter of Time

But what does that mean? That means when the NASDAQ was only down 5%, it was in a bear market. That's exactly what I was saying. They don't acknowledge the bear market until it's down 20%, but that doesn't mean it's not in a bear market. It just means nobody wants to admit that it's a bear market.   Now we still have 2 indexes that are not in bear markets, the S&P 500 is now down almost 18% and the Dow Jones is down just under 17%.  So Wall Street maybe can cling to the notion that these indexes are not in bear markets because they're not down 20%.  Look, it's all a matter of time.  As I said on the last podcast, I thought that the NASDAQ would be in a bear market by the end of the week and that's exactly what happened, and I'm pretty sure that the S&P 500 and the Dow are going to join this party before the end of the year.

Huge Bear Market in FAANG Stocks

Today's decline started off as a rally.  The Dow was up about 400 points this morning, before it collapsed.  So we basically reversed yesterday's decline and then we got clobbered and took out new lows. The NASDAQ was down 3%.  That was the weakest index, and it was led down by the FAANG stocks, which are now down collectively, on average, 35%. This is just generally in the last few months. So this is a huge bear market in the FAANG stocks. The worst of the FAANG's is Facebook, which was down big again today, like 5 of 6%.  Facebook is now down 43%.  Second place, is Netflix, down 42%, then Amazon down 33%, and lastly, Google, which is down only 23%. Google just finally went into a bear market this week. If you look at the charts, there is nothing but air - there is a long way down between where we are now and where any kind of trend lines or support lines could be drawn.

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Seventh Rate Hike since Trump's Election

As expected, earlier today, the Federal Reserve nudged up the Fed Funds rate by another quarter point.  The Fed is now targeting their rate at 2.25 - 2.5%.  So the range is somewhere in the middle, there. This marks the sixth time the Federal Reserve has hiked interest rates since Donald Trump has been President, and the seventh time that the Fed has hiked rates since Trump was elected. Remember, during the entirety of Obama's 8-year Presidency, the Fed raised interest rates only once.

A 900-point Selloff

What the markets did not expect was the dovish hike to be so hawkish. In fact, the minute I heard the language, I was surprised that the Dow didn't immediately sell off, more than it did. It had a bit of a bounce before it sold off, the Dow Jones ended up down just over 350 points.  The selloff from the high to the low was just under 900 points. Earlier in the day the Dow had rallied up about 300 points because there was a lot of anticipation that even though the Fed was going to hike rates today, that it would indicate it would pause.  That was on neutral - that it wasn't really planning any more rate hikes for 2019, and would just play it by ear. It was going to be data dependent.

Dow's Worst December since 1932

But what the Federal Reserve said in their official statement that accompanied the news was that they had reduced their expectation for rate hikes for next year from 3 to just 2 anticipated rate hikes.  Now, that may be considered dovish, but it did not nearly meet the expectations of the market.  It was expecting something much more than that. When I heard that, I thought, "The market's going to get killed." And it did go down but I think a lot more of the carnage is going to happen probably later in the week and next week.  In fact, the market is now down so much that the Dow is having its worst December since 1932.  Of course, that was the beginning of the Great Depression.

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Seventh Rate Hike since Trump's Election

As expected, earlier today, the Federal Reserve nudged up the Fed Funds rate by another quarter point.  The Fed is now targeting their rate at 2.25 - 2.5%.  So the range is somewhere in the middle, there. This marks the sixth time the Federal Reserve has hiked interest rates since Donald Trump has been President, and the seventh time that the Fed has hiked rates since Trump was elected. Remember, during the entirety of Obama's 8-year Presidency, the Fed raised interest rates only once.

A 900-point Selloff

What the markets did not expect was the dovish hike to be so hawkish. In fact, the minute I heard the language, I was surprised that the Dow didn't immediately sell off, more than it did. It had a bit of a bounce before it sold off, the Dow Jones ended up down just over 350 points.  The selloff from the high to the low was just under 900 points. Earlier in the day the Dow had rallied up about 300 points because there was a lot of anticipation that even though the Fed was going to hike rates today, that it would indicate it would pause.  That was on neutral - that it wasn't really planning any more rate hikes for 2019, and would just play it by ear. It was going to be data dependent.

Dow's Worst December since 1932

But what the Federal Reserve said in their official statement that accompanied the news was that they had reduced their expectation for rate hikes for next year from 3 to just 2 anticipated rate hikes.  Now, that may be considered dovish, but it did not nearly meet the expectations of the market.  It was expecting something much more than that. When I heard that, I thought, "The market's going to get killed." And it did go down but I think a lot more of the carnage is going to happen probably later in the week and next week.  In fact, the market is now down so much that the Dow is having its worst December since 1932.  Of course, that was the beginning of the Great Depression.

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Two Podcasts in One Day!

For those of you who were worried that I wasn't going to be able to do a podcast today to talk about the stock market or the economy because I already did a podcast earlier this morning, well, you're wrong! Here I am, doing my second podcast of the day.  This may be an unprecedented event. I don't know if I've ever recorded 2 podcasts in the same day.

Don't Miss This Morning's Podcast on the Unconstitutionality of Obamacare

The reason I did the earlier podcast was because I wanted to address the topic of the Federal court in Texas striking down the ACA individual mandate and rendering the entire Affordable Care Act unconstitutional. I would encourage you to listen to that podcast if you are interested in this topic or the Constitution to listen to it in its entirety.

Not a Crash, but Regular Volatility

But let's talk about another big down Monday.  As I suggested when I did my podcast on Friday, I'm still thinking that there is a possibility of a Black Monday type event this year.  I said we were running out of Mondays because we only had 3 left, and now one down.  This, again was not a crash, but the Dow did close down better than 500 points.  At one point, we were down over 600.  You know, these big drops are not becoming a recurring event - they add up, right?

Worst December Start Since 1980

If you look at the charts, we look extremely vulnerable to a big drop. I read that already, we're off to the worse start for a December since 1980. That was really the end of the last bear market. We had a bear market that went from 1966 to 1982, so the last time we had a December this week was at the tail end of that long-term secular bear market.

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Two Podcasts in One Day!

For those of you who were worried that I wasn't going to be able to do a podcast today to talk about the stock market or the economy because I already did a podcast earlier this morning, well, you're wrong! Here I am, doing my second podcast of the day.  This may be an unprecedented event. I don't know if I've ever recorded 2 podcasts in the same day.

Don't Miss This Morning's Podcast on the Unconstitutionality of Obamacare

The reason I did the earlier podcast was because I wanted to address the topic of the Federal court in Texas striking down the ACA individual mandate and rendering the entire Affordable Care Act unconstitutional. I would encourage you to listen to that podcast if you are interested in this topic or the Constitution to listen to it in its entirety.

Not a Crash, but Regular Volatility

But let's talk about another big down Monday.  As I suggested when I did my podcast on Friday, I'm still thinking that there is a possibility of a Black Monday type event this year.  I said we were running out of Mondays because we only had 3 left, and now one down.  This, again was not a crash, but the Dow did close down better than 500 points.  At one point, we were down over 600.  You know, these big drops are not becoming a recurring event - they add up, right?

Worst December Start Since 1980

If you look at the charts, we look extremely vulnerable to a big drop. I read that already, we're off to the worse start for a December since 1980. That was really the end of the last bear market. We had a bear market that went from 1966 to 1982, so the last time we had a December this week was at the tail end of that long-term secular bear market.

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Decision May Well Stand up under Appeal

A Federal Judge in the state of Texas, U.S. District Judge Reed O’Connor, has ruled that the Affordable Care Act, otherwise known as Obamacare, is unconstitutional, and therefore the law would be null and void, that it would be struck down.  Of course this will be the subject of appeal, so whether or not this decision is going to hold is still an open question. But if you listen to the way it is being reported in the media, the reaction from a lot of the people, particularly the Democrats, is that they are accusing this judge of being partisan, being a judicial activist, that this is a ridiculous crazy decision and that it will clearly be overturned.  All this is a bunch of nonsense. The judge in this case is completely correct. Obamacare was unconstitutional before this decision.

The Rationale Behind Judge's Ruling

This particular judge focused on one aspect of the law, but there are so many reasons this law is unconstitutional. But for the purpose of this podcast is to focus on the rationale behind the judge's ruling and why I believe the decision is valid and may, in fact stand up under appeal.   Under the new makeup of the Supreme Court, some of the new justices could easily side with the original dissent to form a new majority now that the law itself has been changed based on the Tax Cuts and Jobs Act, which is the basis of this particular decision.

Read Article 1, Section 8, Clause 3 of the U.S. Constitution

I did an earlier podcast on whether or not the U.S. government could require American citizens to purchase health insurance. Now the theory was that they had the right to do this under what is now known as the Commerce Clause (Article 1, Section 8, Clause 3 of the U.S. Constitution), one of the single most understood Constitutional clauses which has enabled the government to get away with all sorts of things that the Constitution does not authorize. This is where all the powers to the Federal government are delegated. One of the powers is to regulate commerce with foreign nations and among the several states and with the Indian tribes. That's it.

Constitution Allows Federal Government to Regulate Commerce, not Companies

Now based on that clause, you have had Supreme Courts validate government regulation of companies because the government claims that since those companies engage in interstate commerce, that it falls within that power, that Congress can regulate these companies because the company is engaged in commerce. Of course, that's not what it says.  The Constitution doesn't say the Federal government has the right to regulate companies that engage in interstate commerce, it just says it can regulate the commerce, itself. The commerce has to do with the flow of goods and services over state borders. So this is an unconstitutional expansion of Federal power. The Federal government does not have the constitutional authority to regulate businesses simply because these businesses happen to engage in interstate commerce.

Federal Regulation of Business Outside of Constitutional Authority

But that was even the camel's nose under the tent, because then it got worse.  Then what happened is companies that were regulated that did no interstate commerce were saying, "this law does not apply to me because I don't engage in interstate commerce." But the Supreme Court said that the Federal government under the Commerce Clause can regulate companies that do not even engage in interstate commerce if they can show that those companies somehow effect interstate commerce, even though they themselves do not participate in it. So now,

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Decision May Well Stand up under Appeal

A Federal Judge in the state of Texas, U.S. District Judge Reed O’Connor, has ruled that the Affordable Care Act, otherwise known as Obamacare, is unconstitutional, and therefore the law would be null and void, that it would be struck down.  Of course this will be the subject of appeal, so whether or not this decision is going to hold is still an open question. But if you listen to the way it is being reported in the media, the reaction from a lot of the people, particularly the Democrats, is that they are accusing this judge of being partisan, being a judicial activist, that this is a ridiculous crazy decision and that it will clearly be overturned.  All this is a bunch of nonsense. The judge in this case is completely correct. Obamacare was unconstitutional before this decision.

The Rationale Behind Judge's Ruling

This particular judge focused on one aspect of the law, but there are so many reasons this law is unconstitutional. But for the purpose of this podcast is to focus on the rationale behind the judge's ruling and why I believe the decision is valid and may, in fact stand up under appeal.   Under the new makeup of the Supreme Court, some of the new justices could easily side with the original dissent to form a new majority now that the law itself has been changed based on the Tax Cuts and Jobs Act, which is the basis of this particular decision.

Read Article 1, Section 8, Clause 3 of the U.S. Constitution

I did an earlier podcast on whether or not the U.S. government could require American citizens to purchase health insurance. Now the theory was that they had the right to do this under what is now known as the Commerce Clause (Article 1, Section 8, Clause 3 of the U.S. Constitution), one of the single most understood Constitutional clauses which has enabled the government to get away with all sorts of things that the Constitution does not authorize. This is where all the powers to the Federal government are delegated. One of the powers is to regulate commerce with foreign nations and among the several states and with the Indian tribes. That's it.

Constitution Allows Federal Government to Regulate Commerce, not Companies

Now based on that clause, you have had Supreme Courts validate government regulation of companies because the government claims that since those companies engage in interstate commerce, that it falls within that power, that Congress can regulate these companies because the company is engaged in commerce. Of course, that's not what it says.  The Constitution doesn't say the Federal government has the right to regulate companies that engage in interstate commerce, it just says it can regulate the commerce, itself. The commerce has to do with the flow of goods and services over state borders. So this is an unconstitutional expansion of Federal power. The Federal government does not have the constitutional authority to regulate businesses simply because these businesses happen to engage in interstate commerce.

Federal Regulation of Business Outside of Constitutional Authority

But that was even the camel's nose under the tent, because then it got worse.  Then what happened is companies that were regulated that did no interstate commerce were saying, "this law does not apply to me because I don't engage in interstate commerce." But the Supreme Court said that the Federal government under the Commerce Clause can regulate companies that do not even engage in interstate commerce if they can show that those companies somehow effect interstate commerce, even though they themselves do not participate in it. So now,

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Technicals Portend Bear Market in Small Caps and Transports

The Dow managed to finish off this Friday with a loss of less than 500 points.  The Dow Jones Industrial Average finished down just 496.87 points. So I guess the headline can be: "We Avoided a 500 Point Decline!".  At one point, the Dow was better than 550 points in the red.  But, when you close that close to your low of the day, within 10 percentage points of the low, that is a very weak close. The Dow finished the day weak, the week weak, and it is a very weak month.  In fact, the weakest indexes continue to be the Russell 2000 - I've been talking about the weakness in the small caps.  That index is now down better than 19% from its peak just about 4 months ago. So we're almost officially in bear market territory.  We'll probably be there by Monday, judging by the technicals.

Possible Black Monday?

The other index that is leading the way down is the Dow Jones Transports. This index is now down better than 18% from its peak.  Both the Transports and the Russell 2000 are at the lowest levels of the year. They took out the lows from the earlier decline that happened at the beginning of the year, so the Dow and the NASDAQ have yet to take out those lows set earlier in the year, but I believe they will.  In fact, they may even take them out before the end of the year. Monday, again, is looking extremely weak. I've been talking about this all quarter, where I think there is a potential for a Black Monday type of event. Obviously, we're running out of Mondays this year.  Both Christmas Eve and New Year's Eve fall on a Monday and there will probably be very light trading going on, so potentially the markets could see a lot of selling if there are not enough people there to buy.

Appearance on Countdown to the Closing Bell this Monday

I will be on Fox Business News, The Countdown to the Closing Bell this Monday, with Liz Claman.  Maybe if I get lucky we'll have a Black Monday on a day that I happen to be on television.  I will be there for the final hour of the day and often times, the biggest part of the sell-off on big down days happens at the very last hour, so I'll be live on Fox Business for that potential big drop. Make sure to tune in live.

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Technicals Portend Bear Market in Small Caps and Transports

The Dow managed to finish off this Friday with a loss of less than 500 points.  The Dow Jones Industrial Average finished down just 496.87 points. So I guess the headline can be: "We Avoided a 500 Point Decline!".  At one point, the Dow was better than 550 points in the red.  But, when you close that close to your low of the day, within 10 percentage points of the low, that is a very weak close. The Dow finished the day weak, the week weak, and it is a very weak month.  In fact, the weakest indexes continue to be the Russell 2000 - I've been talking about the weakness in the small caps.  That index is now down better than 19% from its peak just about 4 months ago. So we're almost officially in bear market territory.  We'll probably be there by Monday, judging by the technicals.

Possible Black Monday?

The other index that is leading the way down is the Dow Jones Transports. This index is now down better than 18% from its peak.  Both the Transports and the Russell 2000 are at the lowest levels of the year. They took out the lows from the earlier decline that happened at the beginning of the year, so the Dow and the NASDAQ have yet to take out those lows set earlier in the year, but I believe they will.  In fact, they may even take them out before the end of the year. Monday, again, is looking extremely weak. I've been talking about this all quarter, where I think there is a potential for a Black Monday type of event. Obviously, we're running out of Mondays this year.  Both Christmas Eve and New Year's Eve fall on a Monday and there will probably be very light trading going on, so potentially the markets could see a lot of selling if there are not enough people there to buy.

Appearance on Countdown to the Closing Bell this Monday

I will be on Fox Business News, The Countdown to the Closing Bell this Monday, with Liz Claman.  Maybe if I get lucky we'll have a Black Monday on a day that I happen to be on television.  I will be there for the final hour of the day and often times, the biggest part of the sell-off on big down days happens at the very last hour, so I'll be live on Fox Business for that potential big drop. Make sure to tune in live.

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Mainstream Forecasts Incorporating Recession

We are in the early stages of this bubble popping.  That's why, if you look now at a lot of the mainstream forecasts, all of a sudden, they're all incorporating recession. The probability of recession is now very high over the next couple of years.  I read J.P. Morgan now is saying that there is a 70% probability that the U.S. is in recession by the end of 2020. In fact, most of the forecasts I'm looking at now predict that the U.S. will either enter recession next year or in the following year. This is a huge change from where people were just a few months ago, where there were no recessions as far as the eye can see. Now we're staring them in the face.

Third Consecutive Drop in Small Business Confidence

One thing that really hasn't changed so much is that you have all this optimism that still abounds. It doesn't make sense to me that people could be so optimistic about an economy that they concede is so close to recession. Now, I think on Tuesday we did get a drop in small business confidence, it's the third consecutive monthly drop, and three months ago, small business confidence hit an all-time record high. But if you have more of these small business owners thinking that we are a year away from recession, in fact less than a year if you think recession is going to start in 2019 - we're going to be in 2019 in a few weeks. So, if you think recession is so close, how much longer can you remain so confident?

The Fed Doesn't Have Recession in its Forecast

Now, of course, the Fed doesn't have recession in its forecast; not even close.  The National debt is careening toward $22 trillion and these guys are putting out their rosy estimates for economic growth.  They're not starting to factor in these recession forecasts that are becoming more and more mainstream.

Fed Funds Rate in Negative Territory in Real Terms

The problem for the Federal Reserve is that they are trying to keep this bubble from imploding, but the task is impossible because enough air has already come out of it. Interest rates have already risen to the point where the camel's back has been broken. The Fed has now backtracked into admitting that we're just slightly below "neutral". We're one more rate hike away from "neutral" even though one more rate hike will still leave the Fed Funds Rate in negative territory in real terms, not in nominal terms. If you accept the government's inflation numbers and we got CPI and PPI numbers that came out yesterday and today - if you look at the core, we've got the hottest core in 7 years.


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