Fed is Willing to Tolerate Higher Inflation Today is the first Friday in May and that means we got the April Jobs Report released today, and before I actually get into the details of the jobs report, I want to talk about what happened with the Fed this week. I think that is the most significant news of the week.  The Fed's statement on Wednesday and the comments from today are the real reasons we had the 300+ point rally in the Dow today, that's why we had the 400+point turnaround in the Dow on Thursday.  It's all about the Fed and its willingness to tolerate higher inflation. Fed Inserted the word "Symmetrical" So we got the FOMC announcement on Wednesday after their 2-day meeting, and as expected, they left interest rates unchanged. The most significant part of the statement that accompanied the Fed's decision not to raise rates was inserting the word, "symmetrical" in their description of inflation.  Up until Wednesday, the Fed was always worried that we didn't have enough inflation. The inflation rate was too low, and their goal was to get it up to their 2% level. We Can Go Above 2% to the Same Extent We Were Below 2% Now the Fed is saying that they are at 2% and they expect the rate to actually go above 2%, and they're OK with it. What they mean by symmetrical is that inflation was below 2%, at least the way they measure it. It's probably always been well above it, but let's just look at the government statistics.  Based on the government statistics we had inflation of 1.4, 1.5, 1.6; it was always below 2.  So now what they're saying is we can have some symmetry on the upside, meaning, all right, we can have 2.5, because 2.5 and 1.5. the average is 2. The Fed is Actually Lifting Their Inflation Target So what the Fed is really saying is their goal is not to have 2% inflation, their goal is to have inflation that averages 2%.  So if we've had inflation of under 2% for all these years, we can have inflation of over2% by the same proportion for the same number of years and they we would have averaged 2% inflation for the entire time.  So, in reality, what the Fed is really doing, and I have been saying this all along - for years and years - they are actually lifting their inflation target.    Privacy & Opt-Out: https://redcircle.com/privacy

Market Tends to Produce Better Returns in the First 4 Months of the Year There is an old Wall Street adage: "Sell in May and Go Away". The reason for that saying is that seasonally, the market tends to produce better returns in the first 4 months of the year, January through April, and then, historically, beginning in May and throughout the summer, the market can generally go down, and I think the time to buy back in is typically September/October.  There are a lot of big down days, down months, crashes, so get out of the market in May, go away and then come back later in the year and buy back what you sold. Selling Started Right out of the Gate Today was May 1 and it looked like a lot of people were not going to wait to sell; they were selling right on the open.  The Dow was down all day.  At the worst, it was down better than 300 points but it pared its losses significantly, down just 64.  But the NASDAQ, which was never actually down that much (when the Dow was down 300 the NASDAQ was down only about 25) the NASDAQ ended up positive 64.  The S&P was up just under 7 points. Facebook Getting into the Dating Business Stocks were under pressure all day. I think the turnaround in Facebook - Facebook ended up a couple of percent.  Mark Zuckerberg announced plans to try to clamp down - I think he said he would have 20,000 people working in compliance.  They also announced that they are going into the dating business.  I'm surprised it has taken Facebook so long to get into that space.  It seems such an obvious fit. They already have everybody's profile. I think some of the other online sites, Match Group which owns Plenty of Fish are falling.  It's like Amazon stepping into your market. Heading toward 20,000 The market turned around and maybe that news lifted the NASDAQ, but to me, it was a weak day, the market was generally under pressure.  The Dow did manage to hold onto the 20,000 mark.  We were well below it - we were close to 23800.  It is really going to get interesting is when the Dow gets down to 20,000.  I think that's where we're headed.  Privacy & Opt-Out: https://redcircle.com/privacy

Markets Down But Not by as Much as Expected All the major U.S. stock markets were down on the week, but not by as much as I thought. We got that big drop on Monday, where we got the very bad reaction to even better than expected earnings.  Plus, with interest rates rising, I thought we would have had more selling, but we didn't we actually rallied back most of the week from the big Monday decline, not enough to recover all of the losses, but the total losses on the week were not that bad.  The Dow was down today, actually, by about 11 points. The NASDAQ eked out a small gain as did the S&P 500. Yield on the 10-Year Highest Since Financial Crisis Interest rates were moving up.  In fact, the yield on the 10-year on Wednesday hit 3.035%. This is the highest it has been since before the Financial Crisis and I think one of the reasons that the stock market recovered a bit this week was because investors breathed a sigh of relief that the yield didn't stay above 3%.  We closed above 3% on that Monday, I think it was 3.024%, but then we dropped on Thursday and dropped again on Friday; we went out at 2.957%, and that's only a slight increase from the 2.951% that yields closed at the prior week. Existing Rates High Enough for Significant Damage I think the markets are lulling in a false sense of security if they think that it's just one and done. "We finally took out 3%, maybe we cleared out some stops, and that's it. Yields have peaked, so there's nothing to worry about." As I said on my last podcast, even if this is the peak, I think it is already high enough to do significant damage to the economy, to the financial markets, to U.S. government finances.  But - it's not the peak. Rising Bond Yields Are Not Bullish for the Dollar Rates have barely begun to rise and I think they are going a lot higher.  Higher rates did continue to support the dollar.  The dollar actually had a strong week; the dollar index closed up just over 1% on the week.  It was down slightly today, so we surrendered some gains earlier this morning, but it was still an up week for the dollar.  Again, I think those people who are buying the dollar are going to lose a lot of money if they don't turn around and sell. I think this is a sucker rally.  As I said in my last podcast: Rising bond yields are not bullish for the dollar.Privacy & Opt-Out: https://redcircle.com/privacy

The Correction is Over and the Bear Market is Resuming As I have been speaking about in my last couple of podcasts, it looks like the period of relative calm in the markets is over and the next leg down has begun.  So the correction is also over - not the downward move - that is not the correction - this is the bear market.  The upward move was the correction. It was the first correction in this young bear market.  Technically it is not a bear market yet because we're not down 20% but that is only a matter of time. So I think the correction is over and the bear market is resuming, the primary trend being down. Dow Transports Big Losers In fact, the U.S. stock market was down for its fifth consecutive day, although today was the biggest decline.  The Dow ended down 424 points.  We managed to close just above 24,000 at 24,024. But we were well below.  At the lows of the day we were down about 600 points.  Percentage wise we were down 1.74%. The NASDAQ, about the same, down 1.7%.  At the lows it was down close to 150 points on the NASDAQ.  Percentage wise, the Dow transports were the big losers, down 221 points - 2.08%. Earnings Don't Matter Now, one of the things that investors have been counting on to support stock prices and, in fact, drive them higher, were earnings.  Everybody's been saying, "Earnings are going to be higher!" Now what have I been saying on my podcasts, over the last several months?  I've been saying that it doesn't matter, because all these great earnings, if they materialize, are already baked into the cake. They are already discounted into the price of the stocks. So in other words, they don't matter. It's "buy the rumor, sell the fact". Double Whammy of Faster Growth and Lower Taxes If everybody knows that earnings are going to be good, well, they've priced in those expectations into the market.  Why do you think the market has gone up so much since Trump was elected President? It was on the anticipation of all these earnings that were going to come from a combination of faster growth and lower taxes. In fact, the lower taxes are why we were going to get the growth, so it was going to be a double whammy.  Well, all that was priced into the market.  Privacy & Opt-Out: https://redcircle.com/privacy

Another Friday Down Day It looks like the period of calm may be coming to an end and the storm may be looming just over the horizon. The Dow Jones finished down today, just over 200 points off the day's low.  I think I saw us down about 280.  This was the 4th consecutive Friday where the markets were lower - there was a holiday in there (Good Friday) - it has been 5 Fridays.  This seems to be a trend.  The markets still managed to eke out a gain on the week.  All 3 of the major indexes managed gains despite the losses on Friday.   Investors Should Really Worry about the Bond Market What should really be worrying investors are the losses this week in the bond market. Yields continue to ratchet up almost every day, and in fact we closed at the high point all across the curve, from the 2-year all the way up to the 30-year.  The 1--year yield, which is the one everybody seems to be talking about closed at 2.96%.  So this is a new high for the year.  You've got to go back to pre-2008 financial crisis to get a yield up that high.  But the yield is still very very low. Who Believes that 3% Yields are Here to Stay? The amazing thing is to look at the 30-year. The 30-year is 3.15.  It's actually just under 20 basis points - 19 basis points is all you get for taking 20 additional years of interest rate and inflation risk.  Think about that! Think about how crazy that is. Interest rates right now on the 10-year are just under 3%; on the 30-year they are slightly above 3%.  Why would anybody believe that 3% yields are here to stay? Low Rates Are an Aberration Obviously, if you go back to the post-war period and look at what rates have averaged on the 10-year, these low rates are an aberration.  They've been going on now, for a while, but they can't go on forever, Yet the market thinks it's going to go on for another 30 years.  If you think about a 30-year bond, that's like buying a 10-year bond today, holding it for 10 years, letting it mature, then buying another 10-year bond, holding that one for 10 years, letting it mature and buying another one! So you do that 3 times over 30 years, in theory it should give us the same rate as buying one 30-year bond right now.Privacy & Opt-Out: https://redcircle.com/privacy

Podcast Break: Investor Summit at Sea I apologize to everybody who has been waiting patiently for my next podcast.  Las week I went the entire week without doing a podcast, which is unusual. If you are a regular listener to this podcast you'll know that I was on a cruise ship all last week; I was on the Real Estate Guys' cruise.  The internet connections on a ship are very slow; particularly the upload speeds - plus I was very busy, so I really decided to take a week off from podcasting. Markets  Were Overall Quiet You know, there really wasn't that much that happened last week.  the markets were overall quiet, although the U.S  stock market rallied, gold didn't do much, the dollar didn't do much; no real earth-shattering news, so I didn't see any reason why I couldn't wait until I was back onshore, which is what I'm doing, and in fact, I was so  busy today that it is very late on a Monday night and I'm just trying to get this podcast recorded today. FOMC Minutes Released First of all, I'll talk about some if the stuff that happened last week.  We did get the release of the FOMC minutes, in fact, after the minutes came out we had a pretty big drop in the price of gold.  Gold did manage to get all the way up to about 1365 during the week before selling off and I think the Fed minutes were a catalyst to get gold to sell off.  Of course, it really can't get much below 1330; there is a lot of buying that comes in down there. Fed Half Right The read on the minutes was that they were hawkish in that the Fed was signaling that the economy is going to keep strengthening and inflation is going to keep rising.  Well, at least they're half right.  The economy isn't going to keep strengthening, but inflation will keep rising, PPI Close to a Breakout In fact, they're not even half right: They're right that inflation is going to go up, but it is going to go up by a lot more than they think, so even the part they got right they really got wrong.  We did get some inflation numbers - official measures of inflation that the government released last week.  If you look particularly at the Producer Price Index, core producer prices rose at the fastest pace in 7 years.  And if you look at a chart, we're very close to a breakout of resistance on core PPI.  Core CPI also up a little better than expected, but this is just the beginning of a trend.  During the week oil prices made new highs.  We got above $67 a barrel, so we're continuing to get closer and closer to 70 and eventually and 100.  It's not just oil prices that are rising, it's pretty much  commodities prices across the board. Fed Will not Deliver Rate Hikes But the Fed is not going to be able to deliver the rate hikes that the market is expecting and, again, it is the expectation of more rate hikes that is keeping a lid on the price of gold, but it's only a matter of time before the market blows the lid off and the price of gold goes up.Privacy & Opt-Out: https://redcircle.com/privacy

Wednesday Reversal Day On my Wednesday podcast, I talked about Wednesday reversal day, where we gapped way down and then rallied and closed up.  It was a strong outside reversal day. I thought this could be the beginning of a correction.  The correction meaning a rise in a bear market.  Everybody thinks we're in a correction now of a bull market, but I think the bull market is over and a rise is the correction. Three Consecutive Up Days So I thought maybe we'll get one based on that reversal day, and we did.  For one day. The market was up on Thursday; I think the Dow was up better than 200 points, so we did have some follow through to Tuesday and Wednesday's gains.  We had 3 consecutive up days.  Remember we had a big down day on Monday, but then we had those 3 up days. End of Bear Market Correction Well the whole correction came to an end today.  The Dow at one point again was down better than 700 points; we didn't close that badly - we were down 572 points.  Still, below 24,000; 23,932.  This is only the second close below 24,000 this year, on a weekly basis.  The last time was 2 weeks ago.  The NASDAQ was down 161 points back below 7000 - 6915. Dangerous Territory in Dow Transports Dow Transports were also down big.  They were down 307 points, just barely avoiding the Dow Theory sell signal.  So we're not quite there.  We can easily be there on Monday.  If we have another down day on Monday, it seems that we're going to have a sell signal for the Dow Theory. Pattern Developing That seems to be the pattern: big down day Friday followed by a big down day Monday.  Believe me the technicals on this market look awful.  So there is certainly another chance that we have another big sell off on Monday. This entire bear market so far, we've had a pattern of a big sell off on Fridays and Mondays and sometimes we get a big down day, we don't get the follow through on Monday, but to me, this looks like it's all clear on the way down.  Privacy & Opt-Out: https://redcircle.com/privacy

Extreme Volatility It was another extremely volatile day in the U.S. stock market. When I finished my podcast on Monday and we had that big drop, I suspected that Tuesday might be a reversal Tuesday.  So I thought we'd get a bounce on Tuesday and, in fact we did.  We had a big rally; the Dow was up 400 points or so. Then this morning the Dow opened up down 500 points.  In fact when I woke up this morning, a couple of hours before the market opened, the Dow was down closer to 600. Reversing Up Typically when we get these huge sell offs right on the open because overnight weakness, what generally happens is that we end up reversing up - getting some buying after we open the markets down, and that's exactly what happened. The markets ended up recovering the entire loss.  We closed around the highs of the day: the Dow up 230 points and the NASDAQ up just over 100 points. This is a reversal.  Checking the numbers, the Dow did not take out yesterday's low but the NASDAQ and the S&P did.  All the markets closed above the previous day's high. Bear Market: Primary Trend is Down I'm sure some people will look at these numbers and say, "Hey, this is a technical reversal, we took out the lows we closed above the highs,  it's an outside day and this is maybe the end of the correction.  I do think potentially we could have more to the rally.  But I think the rally is the correction.  I still think this is a bear market.  We narrowly avoided the Dow Theory sell. The Dow Theory is still on a buy, and now we have a bit of a reversal, so maybe this correction has a little more legs. The correction being the move up.  I think the primary trend is down.  I don't think today's reversal is big enough to have put in the low of this correction if it is a correction. So I still think that we are in a bear market.        Privacy & Opt-Out: https://redcircle.com/privacy

Really a Head Fake As I suspected and as I stated in my last podcast at the end of the first quarter, I speculated that the rally that closed out the quarter was really a head fake. When the quarter started, I said you would see a resumption of the downtrend of the evolving bear market, which I believe we are already in. Bear Market Even though technically we're not there yet because we're not down 20%, but you can't get to 20% without first hitting 10%. Although not officially acknowledged, we are in a bear market. Just as often a recession is not acknowledged until after 2 quarters of negative GDP growth, but clearly you're in the recession for a long time before it's officially acknowledged.  That doesn't mean you weren't in a recession before they admitted it, albeit not officially.  Similarly, they haven't proclaimed this bear market. The Fed Could Change the Game There's one caveat:  if the Federal Reserve comes in and changes the game by taking away the rate hikes or launching QE4, then we may never make it to a bear market.  But if the Fed continues on its current path and maintains the current pretense, then we are in a bear market and it's only a question of time before it is officially acknowledged. No Real News to Blame for Sell Off As I expected, traders came back from the Passover/Easter break and started to sell.  They came in almost out of the bell; no real news to blame the selloff on.  Now they tried to blame it on Trump and the tariffs, and while I agree that tariffs are a problem, there was nothing new over the weekend.  Yes, China came out and announced a couple of billion dollars worth of tariffs on some agricultural products, etc, but this was not unanticipated.  Anybody who did not think this was coming - c'mon - China could have could have done a lot worse than this. Any News is an Excuse to Sell In fact, the market could have just as easily rallied on the fact that this is such a small response and they could have said, "Oh, this is nothing, it could have been a lot worse!" So the markets could have bought, if they were in a buying mood. But this is a bear market, and so all news is bad news.  So, whatever the news is, that's an excuse to sell. Chinese Tariffs on Agricultural Products But what it does, is it lulls investors into a false sense of security: "Well, the market's not going down for any reason", "It's not because we're in a bear market, it's because of the reaction to the news that the Chinese are going to have tariffs on agricultural products.  Privacy & Opt-Out: https://redcircle.com/privacy

Holiday Rally Major U.S. stock markets managed to finish a holiday-shortened week with strong rallies.  The Dow Jones was up 254 points on the day; earlier in the day it was up better than 400, so the last hour did see the U.S. markets giving up part of their gains.  The NASDAQ up 114 points, S&P up 35.87 points, so these rallies today were enough to put the market in the black for the week. But not for the month - all the markets are down significantly in the month of March, and also for the first quarter.  All the major stock market indexes are down. First Down Quarter in 10 This was the first time in 10 quarters - we had 9 consecutive positive quarters.  I think that's a record; I'm not sure, but 9 consecutive up quarters.  The U.S. stock market finally broke that winning streak.  We'll see how investors who thought U.S. stocks can only go up, we'll see how they may react to their first down quarter in 10, but it's not going to be the last down quarter. It's not going to be the last down quarter. I think its going to be the beginning of several down quarters to come.  Remember the market action that I've been observing really looks to me like a bear market. Window Dressing Today, of course, window dressing; oftentimes you see rallies on the last day of the quarter.  Managers maybe are trying to buy up some of the stocks they own to dress up their statements so they look better so they can bill on higher portfolio value. If you have enough people doing the same thing: paint the tape, whatever you want to call it, you can get some of these rallies.  But my guess would be that we can quickly undo this rally next week when the second quarter begins, and maybe some people who are looking at the quarterly performance decide that this is it.  We rode the upstream and let me allocate some of the money out of U.S. stocks, whether it's to bonds, whether it's to foreign stocks or because they want to go to cash, whatever, we can certainly see some reallocations beginning early next quarter. Don't Screw up the Final Day of the Quarter Especially if some of these downtrends that really broke in some of these major stocks.  I talked about some of the big losers on my last podcast, and a lot of those stocks got clobbered yesterday; they did manage to rally  back today.  Maybe Donald Trump was being careful about his tweets today because he didn't want to screw up the final day of the quarter.Privacy & Opt-Out: https://redcircle.com/privacy

Incredible Stock Market Volatility We're having more incredible stock market volatility and I've spoken about the pickup in volatility as another sign that things are different; that we've had a change.  Increased volatility usually happens at inflection points, especially when we had a record period of minimum volatility.  A of a sudden, we're having incredible swings in the stock market.  Case in point: Monday and Tuesday. Up Day on Friday When I did my podcast on Friday, I thought maybe we could have a Black Monday.  We had a big down day on Friday, we had a big down day on Thursday.  The market was down around 1100 points in 2 days.  Could we have another big down day?  Of course we actually ended up having a massive up day, in fact, I think the Dow was up better than 700 points on Friday. It closed 600 and change; not quite 700.  The NASDAQ was up about 220 points, so even a bigger percentage move. How to Boil a Frog So we had this huge gain, and what a lot of people don't realize is that the stock market has some of its biggest daily gains in a bear market, not in bull markets.  You have some spectacular rallies in bear markets.  That is how bear markets operate.  They are trying to follow the slope of hope. It's like trying to boil a frog.  You turn up the heat slowly so the frog doesn't notice the temperature change and jump out. The idea is when you have these big spikes in the market, that creates some hope and optimism to hold on to stocks, thinking the decline is over.  People are afraid to miss out on the next big up day, so it keeps people in the market, like keeping the frog in the water. The Rally that Wasn't So yesterday we had this huge rally and today we started off with another rally; the Dow was up over 200 points early on, NASDAQ was up 40 or 50 points and then by mid day the market rolled over.  At one point the Dow was down better than 400 points.  The NASDAQ at its lows was actually down more than the gain yesterday. Now there was a small rally on the close, the NASDAQ was only down 211 so about 10 points less than yesterday.Privacy & Opt-Out: https://redcircle.com/privacy

The Rally that Failed On my last podcast, which I recorded on Wednesday, I pointed out that the market's failure to hold the rally in the aftermath of the rate hike. In the face of all of the bullish statements made by Powell about how great everything was, and how strong the economy was, we had a near 300 point rally that failed. All Systems Go for a Market Decline The Dow surrendered the entire rally, closed on the lows of the day; not a huge decline - it was only about a 45 point decline, but seems significant to me was the reversal.  The fact that the market could not hold onto those gains - to me, that looked technically very weak.  And I said on that podcast that I thought all systems were go for a stock market decline. Not a Correction Of course, I had a lot of other anecdotal evidence and things that I look at that had been leading me to believe that more down side was coming.  In fact, I have never believed that we are in a correction.  Everybody wants to talk about it on television - it's a stock market correction, because they don't consider it a bear market until you're down 20%. In a Bear Market Well, in every bear market, before you get down 20%, you've got to be down 10%. So if this is a bear market, if we ultimately go down by more than 20%, then this is a bear market right now.  It's only a correction if it doesn't turn into a bear market.  But if it becomes a bear market, it's been a bear market the entire time. I think we are in a bear market. Fed Will Come in with Live Support Now, I don't believe this bear market will be as bad as it could be.  This market could go down way over 50%; I am not expecting that, because I do believe that the Federal Reserve will come in at some point and save the market, or at least try to save the market.  But I think it's going to be a bear market before that happens, meaning the Dow will have to be below 20,000 before the Fed actually realizes that it needs to be put on life support. 1154 Point Decline in 2 Days But what happened yesterday - the Dow dropped 724 points, huge decline, and then again today we were down another 424 points.  1154 point decline in 2 days.  The bigger decline, percentage wise happened on the NASDAQ.  The NASDAQ still hasn't made a new low for this move.  It did close today below 7000, down 174 points, 2.43% on the day, but we still have further to go.  Privacy & Opt-Out: https://redcircle.com/privacy

Fed Surprised No OneToday, the Federal Reserve surprised nobody. They raised interest rates by 25 basis points; the 6th rate hike since the Fed began, in December of 2015.  The rate is now between 1.5% and 1.75%, so the midpoint of that is around 1.635. So we're still significantly below 2%, but I guess we're closer to 2% than 1% and obviously, we're a lot higher than zero which is where rates stood during most of the Obama Administration.The Fed Already Broke ItAs I said in my last podcast, everybody was convinced the Fed was going to raise rates, which is probably the reason they did it. The Fed doesn't want to upset the apple cart; the Fed does not want to concern anybody;  if anything seems to be going well,  "If it ain't broke, don't fix it." Of course, the Fed already broke it although the Fed does not understand that.Fed Looking All the Way out to 2020In fact what the market was looking for was an indication of whether or not the Fed was going to hike 3 times this year, or would they hike 4 times. I still don't think they know, although the consensus seems to be that as a result of today's statement and press conference, we're going to get 3 rate hikes this year, which means 2 more, not 3 more, but it's still not a done deal. But the Fed seems to be even more optimistic ab0ut the economy going forward, so the Fed is predicting 3 more rate hikes in 2019 and then more rate hikes in 2020. So the Fed is looking all the way out to 2020, saying the economy is going to be great, and we're going to keep on raising rates.Fed's Optimism Waxes as Economic Reality WanesIn fact, the Fed seemed more optimistic about the U.S. economy then they were in the past, which, to me, is all politics. Powell is up there, trying to talk up the U.S. economy because that's exactly what his boss, Donald Trump, wants him to say, so he is being a team player. One of the funnier parts of Powell's prepared statement is that he said the outlook for growth has been improving in recent weeks. Recent weeks! How is he saying that the outlook for growth has been improving when it has done the opposite?Q1 GDP Forecasts CollapseSix weeks ago the Atlanta Fed's Q1 GDP Estimate was at 5.4%. The are now down at 1.8%. Those are the same weeks where Powell says the economic outlook has been improving.  How is it improving when you have a collapse from expecting 5.4% to expecting 1.58%?  It's not just the Atlanta Fed.  All the investment banks, everybody who forecasts GDP  growth has ratcheted down their foresasts significantly in the very weeks where Powell is now saying the economy is improved.Privacy & Opt-Out: https://redcircle.com/privacy

Tomorrow is the first of the Fed's 2-day Federal Open Market Committee Meeting, and it's going to be the first meeting where there is supposed to be a rate hike and a press conference for the new chairman, Jerome Powell.  The markets are pretty much at 100% probability that the Fed is going to raise rates on Wednesday.  What the markets are grappling with is whether or not the Fed will raise rates 4 times this year, or only 3. Now, if they are going to raise them 4 times, it would mean they raised rates once per quarter.  So they raise them in March, they raise them in June, they raise them in September and then they raise them again in December. Now, if they only do it 3 times, then, they pick one of these quarters where they don't do it. Most likely, if they only do 3 hikes, the hike they're going to skip is going to be the June hike.  And, of course, if they skip the June hike, they're probably not going to hike in September or December, either because the economy will be much weaker by then, the U.S. stock market could be much lower.  The fact is, I'm still not 100% sure that the Fed is going to hike on Wednesday. I would agree that it is more likely than not that the Fed is going to hike, because they've been hiking interest rates all along.  The Fed so far has not given any indication that they're not going to hike because they don't want to give up the ghost of this "vibrant recovery", where they need to raise rates because everything is going so well. But that whole narrative, that whole illusion seems to be fading very quickly. As a matter of fact, on Friday the Atlanta Fed's model for Q1 GDP went down another notch! They are now down to 1.8% for Q1 GDP.  Now does it sound like the Fed should be rushing to hike rates when GDP growth for Q1 is only going to be 1.8%? Does that sound like an economy that is in danger of overheating? When they were at 5.4% 6 weeks ago or so and now they're down to 1.8% and falling? For all we know, we could end up being below 1%. Does the Fed really want to add more downward pressure to an accelerating economy by raising interest rates?  So far, everybody just assumes that they're going to hike rates. but we'll see.  Another factor that may weigh on the Fed's decision is the stock market. We still have tomorrow and Wednesday morning for the stock market to tank. Today, the tanking process already began. At one point today, the Dow was down almost 500 points.  At its low it was down around 490.  The NASDAQ, the bigger decliner was down almost 200 points intra day.  Now the markets recouped some of those losses, so the NASDAQ only closed down 137 points; that's still a 1.84% drop.  It's a big drop, not nearly as big as 200.  The Dow was down 335.  It's back in the red on the year.  The Dow was down about 100 points so far this year.  We're only about 800 Dow points above the closing low from March.  I think we're more like maybe 1300 Dow points above the intra-day low in the U.S. session.  But who knows? the market could tank tomorrow, we'll see, and then, is the Fed going to hike rates with the market tanking?Privacy & Opt-Out: https://redcircle.com/privacy

Retail Sales Down Three Months in a Row I've got so much to talk about today, it's hard to even figure out where to begin.  So I'll start with some of the economic data that came out today, in particular, the February Retail Sales number. Remember last month we had a bad number, -.3, the second month in a row we had a decline in retail sales.  The expectation was for a big rebound in February, +.4. Now, I suppose the good news, if you are looking for retail sales to pick up is that they revised the January number upward from -.3 to -.1.  Still a drop, but not quite as big. But instead of getting a rebound, we got another drop! We got another .1% decline in February.  That's a trifecta. Three months in a row of falling retail sales. That hasn't happened in 6 years. This is pretty rare. Great Jobs, Lousy Sales Why is this happening? Remember on Friday, we got this "beautiful", too-good-to-be-true, just what the doctor ordered jobs report that said about a million people got jobs. Why didn't any of those million people take their paychecks and spend them at a retailer? Trump is talking about all the great jobs and all the raises that people are getting and all the tax cuts, why are retail sales down for 3 months in a row? Spike in Inventory Numbers In fact, we also got some inventory numbers that came out that spiked up because of an 18-month slump in sales.  So inventories are building because nobody is buying what's on the shelf. Well, that doesn't make sense if you believe the economy is great and we've got all these jobs. But if you're like me and you've been very skeptical of the economy being good, this is a validation, because Americans are broke. Borrowing at Record Highs This is despite the fact that borrowing is at a record high.  Consumers are borrowing a lot of money, yet they're not spending it on retailers, what are they doing with the borrowed money? The government is borrowing a lot of money, we're running these huge deficits, yet it is not even affecting retail sales. That is really the goal, they want people to go out and shop, and it's not happening. Atlanta Fed Again Lowers Q1 GDP Estimate After the retail sales numbers came out, we got the Atlanta Fed updating their forecast for Q1 GDP.  Remember, this is the forecast that was at 5.4% about 5 or 6 weeks ago.  Of course, you remember on my podcast, as soon as that came out, I said, "This is crazy.  There's no way we're going to be anywhere near that. They will be doing this limbo for weeks and months and they're going to be lowering the bar".  On Friday, I reported on my podcast that they has lowered the bar to 2.5%, the lowest forecast since they started forecasting Q1 for 2018.  And what I said on Friday was, "They aren't done going lower. there's room for this bar to go down". I said I thought that the GDP for Q1 would be under 2%. Goldman Sachs Also Lowers Q1 GDP Forecast to 1.9% Today, after these retail sales numbers, the Atlanta Fed went down to 1.9%. That is a decline of 65% in their forecast from 5 or 6 weeks ago.  It's not just the Atlanta Fed.  Goldman Sachs is now at 1.9%.  And you know what?  This is probably not the low water mark. I think there is at least a 50-50 shot that we end up with a zero handle on Q1 GDP. Borrowing Q2 GDP Growth and Shoving it into Q1 Given how weak the data has been coming in, especially the big trade deficits.  The only reason we might end with a 1 handle and not a zero handle is these rising inventories.  In the short run, they give a boost to the GDP, but if inventories are rising because nobody is spending, what does that mean? That means that businesses are going to allow the inventories to wind down, they're not going to keep stocking up.  So what we're doing is we're borrowing GDP growth from Q2 and we're shoving it into Q1.Privacy & Opt-Out: https://redcircle.com/privacy

NASDAQ New High The stock market had one of its best days of the year; I think it was the second best day.  The Dow was up 440 points - just under 1.8%.  The NASDAQ was up 132 points; about the exact same percentage as the Dow.  The NASDAQ is now at an all-time record high! It closed at 7,60.81. That is a new record. We have taken out the high from before the 10% correction.  The NASDAQ is the only major index that has done that.  That is not the case for the Dow, the S&P or even the Russell 2000, but the NASDAQ has taken off. Optimism Around Stocks Not Affected by Tariffs Remember I talked about this on my last podcast; people are trying to create the idea that these tariffs might be good for U.S. based companies, maybe some of our technology companies.  I don't know how people are trying to spin this thing, but there's a lot of optimism about the sector of the economy that people believe will be not affected by the tariffs. Maybe there is a narrower set of stocks that everybody wants to pile into, and those stocks are disproportionately in the NASDAQ. Perfect Nonfarm Payrolls Report But the catalyst today was the perfect Nonfarm Payroll Report that came out today.  If I were a conspiratorial person, which I am not, you could really say, "Wait a minute.  This looks too good to be true. This is just what the doctor ordered ."  Remember, last time we had the jobs report, even though the jobs number itself was weaker than expected, the markets were spooked by the bigger jump in wages.  In fact, a lot of people thought that the 2.9% YoY growth in wages, and I think the month number was up maybe +.3, that that was really the catalyst for the big sell-off  that we had.  In fact, that was the number that everybody was looking for; not maybe the headline number, but the wage number.  People wanted to confirm that wages were really growing. Market Worries Boost in Employment Might Hike Wages Too Much Trump, of course, every time he talks, he talks about the enormous growth in wages that is really not taking place, although, the President talks about a lot of things that aren't happening and claims credit for them.  But the market was worried that we might get a bigger boost in wages which might mean inflation is coming, maybe the Fed will have to raise rates 4 times, instead of 3 times. Beautiful Statistics But yesterday, I watched the President's speech, and I'll get to that later, when he talked about the tariffs.  One of the things he was talking about when he was talking about the statistics, and specifically he was talking about the jobs numbers and the unemployment numbers - he referred to the statistics as being "beautiful". Everything was perfect, we had record low numbers: African-American unemployment was down, unemployment rate the lowest in I don't know how many years, and he said, "These statistics are beautiful!" That is his new word to describe government employment statistics. Phony, Fake, Fraud, a Joke, Fiction, a Hoax Well he had different words to describe those identical statistics when he was a candidate, and beautiful wasn't among them.  The words that he used as a candidate when describing the government jobs numbers were: phony, fake, fraud, a joke, fiction, a hoax.  Those were the adjectives he used when he was a candidate.  Now he says the numbers are beautiful.Privacy & Opt-Out: https://redcircle.com/privacy

Continued Stock Market Volatility The U.S. stock market continues to be extremely volatile, and as I have said many times on this podcast, I think this volatility following a long-term record lack of volatility is a good sign that the uptrend has changed.  So there's a good chance that the bull market is now a bear market, although few people seem to realize that.  We're still relatively close to the highs.  In fact, the NASDAQ shrugged off the morning weakness and managed to gain for the fourth day in a row. Choosing the Best Seats on the Titanic I'm actually hearing people commenting that tariffs or a trade war could benefit U.S. companies; give them an edge over the multinationals.  All this is wishful thinking.  Maybe they're trying to argue that there are some seats on the Titanic that are better than others. Believe me, if the economy tanks, and the tariffs or a trade war exacerbate it, there will not be a place to hide in U.S. stocks. Market Spooked by Cohn Resignation The volatility started last night with the announcement of the resignation of President Trump's Chief Economic Advisor Gary Cohn. One of the reasons that his resignation spooked the market (Dow futures initially tumbled about 400 points) was that he is opposed to the tariffs. The fact that he is leaving would leave people to believe Cohn has lost that argument internally at the White House, so he is leaving a path to which he has objected.  For people who were thinking that Cohn would rein in the President, and that his rhetoric will not lead to action, now believe that Trump will go forward with the tariffs. So that's why the market sold off. NASDAQ Finished Positive for the Fourth Day in a Row By the time we opened up, the futures had moved off their lows and for most of the day the Dow traded between down a little over 100 and down 300.  But we had a rally near the end of the day. The Dow closed down only about 82, and as I said earlier the NASDAQ finished positive for the fourth day. Exemptions for Canada and Mexico Good News - For Canada and Mexico Part of the news is that Trump is considering exempting Mexico and Canada from the tariffs.  That's supposedly good news; I guess it lessens the probability that those countries will retaliate, but of course, a large portion of the deficits that Trump is concerned about in steel and aluminum, that's where the deficits originate. So the markets rallied on that news.  Also the Canadian dollar and the Mexican peso rallied on that. Mexico and Canada Will Have More Trading Partners If these rumors are true, and you never know; the President can change his mind from tweet to tweet, but if, in fact, the tariffs are enacted, exempting Canada and Mexico, that is great news for Mexico and Canada.  They are going to benefit from these tariffs.  The U.S. economy will not. Mexico and Canada will be able to sell more steel and aluminum to American consumers at even higher prices. So they will benefit, just as domestic steel companies with benefit. Canadian and Mexican steel exporters can shop the entire world, whereas American manufacturers will be limited to North American sources.  Privacy & Opt-Out: https://redcircle.com/privacy

Trade, Comparative Advantage and Protectionism I want to devote this entire podcast on the subject of trade and comparative advantage and protectionism, and this trade war that President Trump is so confident about.  He wants to declare war because he thinks we are going to win.  He's a winner, and he wants America to win and so he wants to launch a trade war so that America can win. The Trade Deficit is the Problem I've been talking about how the trade deficits are at record highs.  We have the biggest trade deficits ever and Donald Trump, when he was a candidate rightly criticized these trade deficits. They are a huge problem. They are endemic of an even bigger problem, and Trump understands that.  He knows enough to realize that trade deficits are bad. I will give him credit where credit is due because most economists don't even see the problem with these trade deficits. They are wrong. Trump is right. The trade deficit is a problem. Tariffs Will Not Solve the Problem But where Trump is wrong is in thinking that these tariffs are going to solve the problem.  They won't.  They will make the problem worse.  This is the irony of these tariffs.  They will result in larger trade deficits, not smaller trade deficits. And that's even without any foreign retaliation; meaning, if China, if Europe, if our trading partners do nothing in response to these tariffs, the result will be larger, not smaller deficits. Manufacturing jobs - the very jobs that Trump is hoping to save will be lost as a result of these tariffs. Mr. Trump: Slash Regulations! I wish someone in the Trump administration, would share this podcast with President Trump.  He needs to really this about economics, to understand what needs to be done.  If Trump really wants to shrink America's trade deficit, there are ways to do that. He could slash regulations, not just talk about all the regulations, but actually slash a bunch of them. Shrink Government But the most important thing that Trump could do to make America more competitive in manufacturing is to shrink government.  We need to cut government spending on a massive scale.  We need to reform entitlements. These are things that President Trump doesn't want to touch. He's making government bigger.  What we need is more savings. We need more capital investment in plant and equipment - but that's not happening. These larger deficits are going to crowd out what little investment we have.Privacy & Opt-Out: https://redcircle.com/privacy

Second Consecutive 300-Point Drop in the Dow The Dow Jones was down 380 points today, in fact this is the second consecutive 300-point drop we've had in the Dow. The Dow is now down about 4% for the month of February which just ended today.  This also means the Dow's record-breaking monthly winning streak has also come to an end.  Remember, the Dow was up every month since Donald Trump was elected President including every single month in calendar year 2017. That is something that has never happened in the history of the stock market. There has always been at least one month during any year where the market went down - except for last year, when it went up every month and it was also up in January.Not so in February.  Big decline. The Dow dropped better than 1000 points on the month. We'll see if this is the beginning of a much bigger downturn.  In fact, it could easily be the beginning of a bear market. Powell's Congressional Testimony the Catalyst The supposed catalyst for the sell-off yesterday and today was Powell's testimony before Congress yesterday.  He goes before the Senate tomorrow - he was in front of the House yesterday to give his talk about the economy. The Congressmen's questions are all self-serving.  They are all talking for their own constituents and nobody really cares what Jerome Powell says - except the market. The stock market is looking and caring about what he says. Powell is Hawkish What Powell said that spooked the markets - he was optimistic! He was hawkish - he was bullish on the economy. First of all, what do we expect?  He is on Team Trump, just as Ben Bernanke said he was a team player when he supported the economy under Bush.  So the Republican narrative is that the economy is great - everything is booming and Powell is going to toe that same line. But of course, when Powell speaks, the markets listen, and the markets didn't like that upbeat tone. It made them think, oh, we're going to keep getting rate hikes. Maybe we're going to get 4 rate hikes instead of 3 - and the stock market sold off. Will Powell Try to Fix What He Broke? It rallied again a little this morning; we were up over 150 I think early in the day, but all of the decline happened in the last hour of trading, as is typically the case with some of these sell-offs.  So it doesn't bode well for tomorrow. - Unless Jerome Powell tries to fix what he broke.Privacy & Opt-Out: https://redcircle.com/privacy

Remembering Irwin Schiff Today would have been my father, Irwin Schiff's 90th birthday. If you're not familiar with my father's story, and I'm sure most of the people who listen to this podcast are familiar with my father but if you're not go to schiffbooks.com and pick up a copy of "The Federal Mafia," which was one of only 2 books banned by the Federal Government.  We have a lot of books, "The Kingdom Moltz" a book that really shows off my father's sense of humor.  It's beautifully illustrated by an artist named Andy Ice.  I always liked that book as a kid. The book is very appropriate now, because it really explains inflation and where it comes from.  My dad's old website, paynoincometax.com is still up, which has an archive of his old radio shows that he did weekly from Las Vegas. If you listen to my Dad, you'll know what I'm coming from.  My dad talks a lot about economics. Everything is Great! But today, everything is great; Wall Street had a huge relief rally today; the Dow Jones was up almost 350 points, pretty much closing right on the highs of the day.  The NASDAQ had an even better day, by percentage, up 120 points.  The Dow was down on the week until today, but this big gain brought it up for the week. Down Day in the Bond Market I think the reason the market was so strong was we finally got a down day in the bond market. The yield on the 10-year treasury went back down. We closed at 2.871.  Remember, we got to 2.95, we almost got to 3% and now we're back down to 2.871 on the 30 year. We had gotten up to 3.22 a couple of days ago.  I think this took a lot of pressure off the stock market and people came in buying. "Everything is great; nothing to worry about!" Commodities Strong Across the Board The commodity market, though, was very strong across the board.  Look at the surprise strength in oil.  Everybody was talking about oil prices coming down - we're already back up to $63.50 and above. Almost back the the highs.  Oil prices are going a lot higher. It's not just oil prices that are going up; commodities in general.  I think we are in the early stages of another major boom in commodity prices.  We had a big boom that ended in 2008 with the financial crisis.  This is going to be a bigger boom, because it's not going to end in a financial crisis.  This is going to be a dollar crisis, which is music to the ears of the commodity markets because they're all priced in dollars.      Privacy & Opt-Out: https://redcircle.com/privacy

Dow Down Over 250 Points Today the Dow Jones was down just over 250 points; we're back below 25,000. I think we were down better than 300 on the lows of the day, but we went out pretty low.  The dollar was actually quite strong today; the dollar index had one of its better days of the year - +.61. We're back at 89.71. We had gotten back below 89, with an 88 handle.  Gold had a bad day today after having had some pretty good days last week.  The price of gold down almost $18 now; just below $1330. We got above $1350 last week, but we couldn't hold it.  I think we really need to go above $1400 to clear away this overhead resistance. Bond Market Continues Decline The only trend that really continued was the bond market, continuing to go down.  It's pretty much a daily affair.  Yields rising off the highs of the day - we're back below 2.9.  We got to 2.915 on the 10-year.  We closed at 2.893.  But I think it is the back-up in yields that continues to put downward pressure on gold and some upward pressure on the dollar. Now, in the scheme of things, it does not matter because the dollar has been falling all year, despite the fact that rates have been rising all year. False Narrative That High Rates Are Good for the Dollar But the narrative that higher rates is good for the dollar still permeates the markets. Traders still have not figured out that they've got this one wrong.  Likewise, they still haven't figured out that rising inflation is good for gold, not bad for gold.  In fact, I think the catalyst for today's rally in the dollar and the sell off in gold is the news that came out on inflation on Friday. Bad News about Inflation We got some really bad news that inflation is picking up.  We got the data for import prices and export prices.  Export prices were up by .8% but import prices, which were clearly more important, because we have to pay for our imports - our import prices shot up 1%. They were expecting a gain of .6%, so 80% higher than what was expected.  Year over year, you're talking about a 3.6% increase in the price of our imports. Import Prices Rising Faster Than Export Prices Now this is bad for a couple of reasons: 1) If our import prices are rising faster than our export prices, what does that mean about our trade deficit? That means its going higher. But 2) It's inflation, or the cost of living, because we have to pay for these imports.  If imports are 1% more expensive, month over month, that means it costs Americans more money to buy whatever is imported.Privacy & Opt-Out: https://redcircle.com/privacy

St. Valentine's Day Rout I wouldn't really call what happened in the bond market and the U.S. dollar market as a St. Valentine's Day massacre, maybe it was a slaughter; even slaughter was too harsh a word.  It was a rout.  But this is nothing compared to what is going to come. The daughter is going to get slaughtered a lot more and the bond market is going to get slaughtered a lot more in the days ahead.  Maybe not exactly tomorrow, but there will be days ahead that will be much worse than today. This is the tip of a huge iceberg. Doing the Impossible Before I get into the tail of the tape today, and all the horrific economic numbers that came out today, I want to take a step back and talk about President Trump's budget, which was released on Monday.  Basically, the Republicans succeeded in doing something that you would have thought was impossible. They are making the Democrats look like the fiscally responsible party. A Farce First of all, there are some cuts in this budget that are never going to happen.  There are a lot of assumptions that are saving money, like they assume a total repeal and replace of ObamaCare, which isn't going to happen.  In fact, if it didn't happen when Republicans controlled Congress, how is it going to happen when the Democrats control Congress in 2019?  So this is all farcical. Assumptions... But one of the biggest farces of the entire budget is the underlying economic assumptions.  They're assuming that the very low unemployment rate gets even lower. But, the most farcical of all, is that they assume that the economy grows uninterrupted at an average of 3% for the next 10 years! This so-called expansion is already 9 years old. That makes it the second or third longest expansion in history, and if it continues this year, I think it will be the largest expansion in history. If it continued for another 10 years it would be almost twice as long as the next largest economic expansion in history.  What are the odds that that is going to happen?  But even if that happens, even if we get 10 years of 3% economic growth (we probably won't even get 1) but let's assume we get 10, even with that, the budget does not balance. Not Even Pretending the Budget will Balance This is the first time the Republicans are presenting a budget that, even in 10 years, does not balance.  Now, think about this: When they were presenting budgets that had a pretense of balancing in 10 years, and they were way off the mark, can you imagine how much further off they will be now when they are not even pretending the budget is going to balance? Trillion Dollar Deficits and no QE In the first couple of years they are forecasting trillion dollar deficits.  As I said on the podcast before, the last time we had trillion dollar deficits, the Fed was doing a trillion dollars a year in QE. Right now, the Fed is still posturing that it is not going to do any QE. In fact, it is posturing that it is going to do QT - it is going to shrink its balance sheet. Big Political Problem for the Republicans But here is going to be the big political problem:  Since the Democrats are now the fiscally responsible party, they will be able to hang these deficits around the necks of the Republican candidates like an Albatross.  I know a lot of people are thinking, "Wait a minute, Peter! Obama doubled the deficit & the national debt - there are all kinds of deficits under Obama, so how can the Democrats say that the Republicans are the big spenders and they are the fiscal Conservatives? Inevitable Keynesian Logic It is very easy.  It is basic Keynes.  They are going to say is when Obama ran deficits, they were necessary to get us out of the recession that Bush caused by cutting taxes on the rich, and the corporations.  So they were a necessary economic stimulus to get out of the ditch that Bush drove us into.  After all, Clinton, a Democrat,Privacy & Opt-Out: https://redcircle.com/privacy

A Change of Trend Another volatile day of trading ended with the Dow gaining a little over 300 points - 330 points to be exact.  The NASDAQ composite was up just shy of 100 points - 97.33 - and the S&P gained 38.5 points.  But about 2 hours before the close, the Dow was down over 500.  And then, in about 20 minutes, it rallied from down 500 to positive, and then at the close it had that 300-point rally. But it started the day up about 200 points, so between up 200, down 500, up 300… Again, we're continuing massive volatility which, as I said is indicative of a change of trend.  We were so long in an uptrend with no volatility, now all of sudden we have this massive volatility. "Just a Reversal" Of course there are a lot of people jumping on this:"Oh, it's a reversal, it's a bottom, we rallied 800 points" Look, that's not how you make a bottom.  800 points is nothing. We had 2 thousand point drops, so I don't think the bottom is in. Is it possible that there will be a rally off of here? Of course, anything is possible, but I don't think it is probable.  I think it is a higher probability that we are going to re-test that low.  If this really is a correction, and not a bear market, I think the low that we put in earlier today is going to have to hold.  It is going to have to have some kind of test. Fundamentals Look Much More Like a Bear Market But, again, looking at the fundamentals, this looks so much more like a bear market.  In fact, when you listen to the talking heads on CNBC, they keep saying, "Relax, don't worry… this is a correction… the market is long overdue for a correction… we haven't had a correction in a long time…corrections are normal,  and all that is true. But we also haven't had a bear market in a long time, and bear markets happen. Bear markets are normal. So how do they know that what we're having now is not the long-overdue bear market?      Privacy & Opt-Out: https://redcircle.com/privacy

Orlando Money Show: 20 Trillion and Beyond I wasn't intending to do a podcast today;  I'm in Orlando at the Money Show, I'm on a stock market panel.  It's going to be fun: Louis Navellier, Mark Skousen, David Callaway  and Chris Gaffney.  My big talk tomorrow should be very interesting. The title is 20 Trillion and Beyond: What the Coming Debt Explosion Will Mean to Your Portfolio. Dow Jones Closed Down 1,032 Points Today Now, of course, it's already exploding, but I gave them that headline about a month ago because I already knew that the debt problem was percolating and that was going to be what was going to blow up everybody's portfolio. But when the Dow is down 1000 points twice in the same week, I have to come on and do a podcast.  If you haven't heard the news, the Dow Jones closed down 1,032 points today. The low of the day.  We closed below the intra-day low of Tuesday morning, when the Dow ended up 500. Successful Test? Now we're not back down to the lows we hit Monday night, in Asian trading.  We'll probably be there by tonight.  This market is looking ugly. That was a horrible close, we have to go lower.  It's crazy: I was watching CNBC in my hotel room and some guy was on saying, "This might be a successful test if we can just close above Monday's lows!"  Successful test?  A successful test is when you get a huge bounce off the lows.  Even if we had closed above it, that wouldn't have been a successful test - we could have crashed below it the following morning.  But we couldn't even hold it.  We closed on the lows. Horrible 30-Year Bond Auction Today And, you know what? Bond yields rose anyway.  1,000 points down in the Dow wasn't even enough to send bond prices higher and yields lower.  The yields on the 10-year and the 30-year rising to new highs for the move.  30-year closed at 3.137.  As I said, horrible, horrible 30-year bond auction today.  Again, why anybody showed up is beyond me, but obviously not as many people showed up as they expected.  Yields on the 10-year, another new high, 2.851 is where we closed.  We got up to 2.884, and the reason we probably didn't close there is because of the 1,000 point drop in the Dow. Government Spending is Behind the Carnage But that big drop didn't make interest rates go down, it just kept them from goin up even more.  But nothing is going to stop rates from rising.  Especially if we get this Budget Deal tonight.  Apparently, if they don't get the budget deal tonight, the Government is going to shut down. And if anybody thinks that the Dow is dropping because people are afraid the government is going to shut down, they don't know what they are talking about.  The reason the market is dropping is because the government's not going to shut down. Government spending and borrowing  is behind the carnage in the bond market, which is killing the stock market.  Privacy & Opt-Out: https://redcircle.com/privacy

Volatility The volatility is really continuing, in fact, today at one point this morning the Dow was up close to 400 points; ended up closing negative.  It wasn't a big drop; about 20 points, but I think that's the biggest reversal of a gain to a loss in a little over 2 years. The broader market did worse.  The S&P percentage-wise dropped about 13.5 points; the NASDAQ was down about 64 points. Turnaround Tuesday Of course the biggest reversal is the one we had yesterday.  In fact, when I recorded my podcast on Monday I thought we'd have a big drop on Tuesday, but then I though we could also have a rally - Turnaround Tuesday.  I thought we'd have a big drop in the morning and some kind of rally.  That's exactly what we did, except we had an even bigger drop in the evening. Dow Futures Loss On Monday night, looking at how U.S. stock futures were trading in Asia, the Dow futures were down the equivalent of 1300 points.  Now by the time New York markets opened, we had recouped almost all those losses.  But if you look at the 5 trading days, from the high, the Dow Futures lost about 13% of their value.  That just shows you how quickly the market can go down.  The next time it could lose even more. That was a big move.  Then we finished the day with a 500-point rally.  So, lots of volatility. Trend is Changing I will tell you something:  When you have a trend, and then all of a sudden you see lots of volatility, generally, that's a sign the trend is changing.  The trend has been up, obviously stocks have been trending up for years.  And they've been trending up with minimal volatility.  All of a sudden you see massive volatility. Does that mean the trend is likely to continue? No.  It's more likely a sign the trend has come to an end. Now you're getting all this volatility as people are jockeying around for position.  People are buying the dips, now they're selling the rips. Tail Wagging the Dog I think the close today is a very weak close. We could start selling off tonight.  I think the markets closed in a very weak way and there could be a lot more downside, especially if you look at what's happening in the bond market.  That is the tail that is wagging the stock market dog.  Yields on bonds are now back to the highs.  In fact, the yield on the 30-year is now the highest it has been all year. Higher than it was before this little crash.  The yield is 3.117 on the close.  Privacy & Opt-Out: https://redcircle.com/privacy

Stock Market Decline Predicted Last Friday I have to warn you up front that I seem to have come down with something last night after the game, and I am having trouble talking today.  I normally would not record, but I have to because on Friday's podcast I predicted the decline that we saw today. I Told You So Of course, we did not have a Black Monday like 1987; it wasn't a 20% decline. It was the biggest point decline in the history of the stock market by a large magnitude. We were down 1175 points. We were down 1600 points at the low.  Although this is not the biggest point decline and in terms of percentage, it is in the top 20 (I think it was number 14).  This is a major decline.  We rarely see declines this big, and I'm pretty much going to say, yeah, I told you so on Friday. Stocks Rising for All the Wrong Reasons I have been seeing this coming for a while.  I know a lot of Peter Schiff critics say, "he's a stopped clock, he says the stock market's going to crash every day, except I don't do that.  Anybody who actually listens to what I say, realizes that I rarely call for the stock market to crash, let alone even go down.  I have been saying the stock market was going to go up for all the wrong reasons during most of the time it was rising. I said it was a bubble as a result of cheap money. Big Drop in Bond Market Signaled Crash It wasn't until very recently that I began talking about a crash.  In fact, on the way up, one of the reasons I thought the market wouldn't crash, was because I thought the Fed would save it. It would reverse course, and take back the idea that it would raise rates or shrink its balance sheet.  But, recently, as it became obvious that the Fed was not giving up and the market was increasing its expectations of rate hikes and I saw a big drop in the bond market, (which I had been warning about for the last several weeks) I've been saying, "Hey wait a minute!  This stock market's going to crash!"  Privacy & Opt-Out: https://redcircle.com/privacy

666 Point Drop Today the Dow finished off its worse week in 2 years with a 666 point drop.  That is the third largest point drop in the history of the Dow.  The last big drop that was larger happened during the 2008 financial crisis.  Percentage-wise, though the 666-point drop today is only 2.5% so it's really not that big, as a historic decline. 3% Drop from All-Time Record High It's large in a sense that we haven't had a one-day 2.5% decline in the Dow in quite some time.  In fact, I'm not even sure when we last had a 3% correction. Now, that's what we had. the dow is now 3% below the all-time record high that it hit last week.  Now, a 3% correction is pretty normal, except we haven't had one in a long time. Is this Ominous? The question is:  is this the something of something more ominous or is this just a small correction? I think there's a lot of evidence that this is the start of something much bigger.  Part of the evidence is that nobody is concerned!  There's maximum complacency.  Even the superstitious aren't concerned that the Dow fell exactly 666 points.  People are so complacent that they're not even being superstitious. 1987 All Over Again Casting that aside, think about this: 1987 was the year that we had a stock market crash. January was the best month for the U.S. stock market since 1987.  The dollar just had its weakest January since 1987.  So far, this year seems to have a lot in common with 1987.  We know what happened in 1987: Black Monday.  That didn't happen until October, but maybe this year it will come early.  Maybe, next Monday. Now, obviously, the probability is not that we will have a crash on Monday, but it is a possibility.  I would say the possibility is much higher than it has ever been, because of where we are, and what's going on. Rates are Going Up Also, the NASDAQ and the S&P were not down quite as much as the Dow, but they were both down about 2%.  The catalyst for the sell-off was the continuation of the increase in long-term interest rates.  The yield on the 10-year bond rose to 2.854%.  That is the highest yield of the day, so bonds closed on the low of the day.  On the 30-year bond, we closed at 30.97. There, the high of the day was 30.99 - almost 3.1%.  I have been talking about this on this podcast - rates are going up, and they are going much, much higher.  If you look at these charts, we've got a lot of air between where we are right now and the normal resistance. Budget Deficits Going Up and Trade Deficits Going Up Therein lies the complacency.  Nobody is worried about the rise in interest rates.  Nobody is thinking about 1987.  It was rising interest rates that ultimately pricked that bubble. But why did rates rise? Because the budget deficits were going up and the trade deficits were going up.  That's exactly what is happening now!  Except they are bigger budget deficits and bigger trade deficits.  And this is happening at a time when the United States is broke.  Our massive debt is far greater than the one we had in 1987.  Privacy & Opt-Out: https://redcircle.com/privacy

Janet Yellen Got Out of Dodge As expected, earlier today, the Federal Reserve decided not to raise interest rates; they left them unchanged.  The next rate hike is likely to come when Powell takes the reins at the Fed.  Janet Yellen got out of Dodge! This is the second Fed chairman to be able to pull this off. Bernanke inherited a disaster, and he got out of Dodge, and so did Janet Yellen. Greenspan as Dr. Frankenstein, Fed Policy as Monster I don't think Powell is going to be as fortunate as his two predecessors.  In fact Alan Greenspan was on CNBC today talking about the bubble in the bond market, the bubble in the stock market, how we're coming to stagflation, how we don't have any productivity growth. I believe that Alan Greenspan knows exactly how bad this is.  He is like the Dr. Frankenstein who created a monster, except neither Yellen nor Bernanke nor Powell even realize that it is a monster.  I don't think any of them know enough about economics. Passing the Baton Full of Dynamite Alan Greenspan is an Austrian-schooled, Ayn Rand guy. He's a smart guy; he certainly knows more about economics than I do.  Obviously he can see this.  He created this thing, yet the Fed Chairs who succeeded him do not understand it.  Greenspan understood all the chemicals and he made this bomb that he handed off and it's been moving like a baton (or maybe like a stick of dynamite!) from one Fed Chair to another.  Yet only Alan Greenspan realizes that the baton is made of dynamite. Keynesians are Blind Greenspan's successors kept expanding the policy, putting more explosives in the baton because they believe in this Keynesian nonsense. Greenspan doesn't believe any of that! So they had no idea what they were dealing with.  Like in the original Frankenstein movie - you got that blind man who could not see that Dr. Frankenstein's monster is actually a monster.  Yellen, or Powell are blind to how the economics are working and can't see the policy for what it is. Not Going to End Well Greenspan sees it, but he can't just come right out say it; you have to read between the lines because he is still protecting himself and the credibility of the Federal Reserve so he is not going to start trashing the people who are running it.  You can tell, though that he knows this is not going to end well.  Privacy & Opt-Out: https://redcircle.com/privacy

A Rare Down Day The U.S. stock market finally had a rare down day today.  The Dow Jones was down almost 180 points.  We did have a little bit of a rally off the lows. NASDAQ closed down 39 points.  But still, it's rare to see the U.S. stock market going down.  Supposedly, the catalyst for the sell-off today was the increase in long-term interest rates.  Long-term interest rates have been rising steadily all year, so the market hasn't cared about rising interest rates at all this year, so I don't know why today is any different.  The yield on the 10-year bond moved above 2.7%  This is not quite a 4-year high in yields; the high was 2.725%. Why Buy Treasuries at All? That's the 10-year.  The yield on the 30-year is at 2.943.  Why would anybody buy a 30-year treasury for 2.93%.  You could just buy a 10-year for 2.7. Twenty extra years of interest rate and inflation risk? Why would somebody assume that for a 20 basis point in yield? To me, it doesn't make sense that anyone would buy any Treasury, regardless of the duration. Why Hasn't the Yield Curve Already Blown Out? But if you are going to buy a long-term Treasury, why on earth would you go for 30 years?  Just buy a 10-year.  The yield is almost the same.  But if we get a big increase in interest rates, the collapse in the value of the 30-year is going to be much bigger than the 1o-year.  In fact, that seems to be a pretty good trade for a spread trader.  Buy the 1o-year and short the 30-year.  That spread has got to widen. That extra 20 years of inflation risk and interest rate risk is going to come back to bite anybody who is buying a 30-year treasury.  So it doesn't even make any sense to me why the yield curve hasn't already blown out. It's going to happen.  It's only a matter of time. If Anyone Cared, The Drop Would Have Bigger I don't think the markets are worried about higher interest rates.  The Dow is down 170 points.  That's nothing. If anyone was actually worried about higher interest rates, we would have had a much bigger drop.  Who knows why the market was down - that's the excuse, but it can't be rates, because this has been happening consistently and nobody has cared.  If anybody cared, we would have had a much bigger drop in the stock market.  Privacy & Opt-Out: https://redcircle.com/privacy

Alice in Wonderland I spent a lot of time today watching CNBC's coverage of the World Economic Forum in Davos.  I feel like I'm in the Twilight Zone, or Alice in Wonderland or something like that. Everybody is so optimistic.  At least all the Americans who are interviewed.  I put up on my Facebook an analyst from Morgan Stanley Asset Management.  She's unquestionably bullish on every front. Everything is bullish - there's nothing at all to worry about.  In fact, the only thing that she said that everybody says there's nothing to worry about. Things are so good, they're wondering, "What are we missing? Maybe we should be a little worried that nobody is worried. There Are So Many Things to Worry About The reality is that there are so many things to worry about. They're not worried about any of these things.  I watched an interview - Donald Trump did an interview with Joe Kernen on CNBC.  Joe Kernen is like a schoolgirl with a crush. He seems so enamored by Donald Trump.  He's basically kissing his ass on anything he has to say. Everybody has gone insane.  I talked about this on Alex Jones.  Alex Jones is saying, "Everything is great under Trump! Obama never had an economy that was going at 3%". Evidence of "Roaring Economy" Obama never managed to achieve 3% growth - as if Donald Trump has! But everybody believes that the economy is growing rapidly. In Donald Trump's speech today - I'm not making this stuff up - this is what he said: "We're experiencing a roaring economy.  After years of stagnation, we finally have strong GDP growth.  Finally, after waiting all these years, the economy is booming, thanks to Trump. 2017 GDP not Roaring Everybody is eating this nonsense up.  Everybody believes it, except none of it is true. We actually got the GDP numbers out today - not that I believe all the numbers we get from the government -  they are overstating the real GDP growth because they are understating how much inflation really is - but the media generally accepts these  numbers.  Early this morning we got the actually GDP numbers.  The economy in Q4 grew at 2.6%! Then, if you average the entire year, because President Trump has been president for pretty much all of 2017 - the economy grew at 2.3%.  That's it!  My bet is they're going to revise Q4 lower, so it will probably be lower than 2.3%.    Privacy & Opt-Out: https://redcircle.com/privacy

Dollar Getting Hammered Gold and oil are breaking out, the dollar is breaking down, bonds continue to break down, and no one cares! Nobody is worried.  The Dow was up today, although it finished up closer to the lows it was up a lot more earlier in the day although the dollar was getting hammered before the stock market opened and they still bid it up, but the S&P, the NASDAQ and the Russel 2000 all finished in the red, but the losses weren't that big. It's based on the fact that nobody even understands what's going on - what it means. Bass Ackwards In fact, they actually got it bass ackwards. You actually have people who think that a weak dollar is good and that rising inflation is a sign of economic growth.  So, there's nothing to worry about! First, let's look at what happened.  Dollar index; that was, I'd say the star of the day - or not the star because it did horrible, do you wouldn't give the dollar a star.  But it was down about 1 full percent. It closed at 89.25 on the dollar index. We cut through 90 like a hot knife through butter.  I think the next stop is a moving average at around 85, and we could be there pretty quickly.  We are headed lower quickly on the dollar. Mnuchin: "A Weak Dollar is Good for America!" In fact, one of the things that helped the dollar fall today (I think it would have fallen anyway) was Treasury Secretary Mnuchin's comments that he made to day over at Davos; he's trying to encourage foreigners to invest in America.  So he said, "A weak dollar is good for America, it's good for business, we're open for business, so he said he welcomes the weak dollar. This is supposed to make foreign investors feel better about investing in America? You're telling foreign investors that if you invest in America, you're going to lose, because you're going to lose on the foreign exchange. Anybody Who Invests in the U.S. Today Will See Losses My clients know what that feels, because we were investing in foreign stocks during years when foreign currencies were falling against the dollar. So, on paper our accounts were going down.  Anybody who invests in the U.S. today will see losses.  The dollar is going to fall even more.  So right now, the dollar is weak; the last thing you want to do is invest in the United States.  You want to invest in markets where the currencies are strong.  Privacy & Opt-Out: https://redcircle.com/privacy

The Government is Back in Business The government is officially re-opened!  Apparently, the government shut down, maybe it was on Friday.  Earlier today Congress voted to re-open it! The good news that the government is back in business sent the stock market to record highs.  The Dow, the NASDAQ, the S&P all rallied on the good news. When the Government Shuts Down, it gets Bigger Of course, the good news was the government shutdown.  Except, it's not really shut down.  If they actually shut the government down, that would be great news. The bad news is that it's not shut down.  It's open for business.  If they really shut down government, people would like it.  At least a lot of people. The problem is, in the past, when the government shuts down, normally government gets bigger during the shutdown. The Problem is not Government Shutdown; It is Government Regulations Let's say they close a National park. They have more government workers making sure nobody uses the National park because it's closed than they had when the park was open. So the whole thing is a farce. I remember reading an article one year, during the government shutdown, that there were businesses that needed permits, but the permit office was closed, so they couldn't get the permits they needed.  The media covered the situation as, "See how bad it is when government is shut down, when people can't get their permits." Well, if government is shut down, you shouldn't need the permit.  If government shut down, you can do what you want.  You don't need a government permit. The problem was not the government shutdown, it was the government regulations. All Federal Taxes Don't Count during the Shutdown Let's say during government shutdown, "No one has to pay any taxes."  All Federal taxed don't count during the shutdown.  How many people would be anxious for the government to be open? So, a real government shutdown, where all taxes and regulations are suspended during the time of the shutdown would be great. Government Business is Destructive Because Government Means Power Government is no longer shut down; it is open for business and that means it is destructive business because government is power.  I thought it was typical or funny - the minute the news came out that they had the votes to open the government, the dollar rallied and gold sold off.  They weren't big moves. The way the lemmings react to this news is that they thought that the dollar was falling because of the government shutdown.  The dollar going down had nothing to do with the government shutdown.Privacy & Opt-Out: https://redcircle.com/privacy

January 19, 2018 Traders Still Ignoring Ominous Warning Signs We closed the week with more gains on Wall Street as stock traders continue to ignore all the ominous warning signs that have been flashing.  The S&P Composite  and the NASDAQ both hitting new record highs today.  The Dow, not a record high, but positive on the day, closing above 26,000 for the week for the first time ever. Important Warning Signs in the Bond Market But most importantly, what the market is ignoring is what is happening in the bond market. The bond market fell again; the yield on the 10-year rose. The high yield was 2.46, we closed at 2.639. These are the highest yields that we've had on the 10-year since July of 2014. The stock market has gone up a lot since then, I think about a 45% increase in the S&P 500.  Earnings are only up around 6%. So you had a massive increase in the stock market.  And a lot of the justification for that valuation, because obviously, valuations have risen sharply, have been based on lower interest rates.   Well, they're not lower anymore, they're back exactly were they were in July of 2014. Take a Look at the 10-Year Treasury But what's more ominous is not where they are, but where they are headed.  That's the thing.  These rates are still very low;  2.639.  We're very close to breaking a key number.  I think the bond market looks like it's going a lot lower.  To me, this looks like it's it.  So I think we're going to break through 3% on the 10-year relatively soon, maybe by next month.  I think if we take out 3.75%, it's a quick move up to 4%.  Now the last time we had a 4% yield on the 10-year was before the 2008 financial crisis.  Basically, that was the yield that broke the camel's back. Interest Rates vs Treasury Yields Remember, the financial crisis was triggered by rising interest rates on the debt that had been accumulated in the prior years as a result of Alan Greenspan keeping interest rates at 1% for a year and a half.  And then, slowly raising them back up over the course of another year and a half.  So as the Fed was moving interest rates up at a measured pace, by the time they got rates back up to 5%, the yield on the 10-year was about 4%. That's about as high as it was able to go. Bubble Precariously Balanced on Interest Rates Now, you have to figure that today, given that we have so much more debt now than we had in 2008 that the breaking point for the markets is actually far below 4%.  If 4% was enough to prick the bubble in '08, a much smaller pin would prick this more enormous bubble.  If we could not withstand a 4% 10-year in 2008,  what was the high in the stock market in 2008? we were the highs of today. The Dow was around 12,000.  So if interest rates get back to where they were, how do you justify it at 25,000?Privacy & Opt-Out: https://redcircle.com/privacy

January 16, 2018 Buying Stocks with Both Hands When I recorded my podcast on Friday, just looking at the technical action in the dollar and I was getting nervous that maybe we could have been setting ourselves up for some kind of holiday surprise; a big drop over the 3-day weekend that could have led to some real fireworks on Tuesday; and when the market started, everybody ignored the new low in the dollar and they were buying stocks with both hands, out of the gate. The Market Could Not Hold the Gain The Dow gapped up, and it kept going up; I think it opened up almost 200 points and the was up almost 280 points in the first half hour of trading.  We went above 26,000. It was just 12 days ago we were at 25,000. That was the fastest 1,000 point move in the history of the Dow.  Of course, 1,000 points doesn't mean as much when you're going from 25,000 to 26,000 as when we went from 1,000 to 2,000. Or even from 10,000 to 11,000, but still, it was very quick.  In fact, if you look at the trading days, it was just 6 days, because one of those days was Martin Luther King Day, and we didn't trade.  So in 6 trading days, the Dow rallied 1,000 points. Well you know what?  It couldn't hold the gain. Almost a 400-Point Swing The Dow actually sold off, and at the low of the day it was down 100 pts, so almost a 400-point swing.  We closed negative on the day. The Dow was actually the best-performing index.  It was only down about 10 points; percentage-wise it was barely down.  But the NASDAQ was down .5% and the S&P 500 was down .25%. So we'll see if we get some followthrough tomorrow, to this potential reversal. It wasn't a massive reversal (we didn't close way down, but we did close down). Technicals are Looking Worse and Worse Meanwhile, the dollar did close out on another new low.  We didn't take out the overnight lows of Martin Luther King Day, when we were closed, but we closed very near the lows. The dollar index went off at 90.45; I think the low over the holiday weekend was 90.28.  The dollar then started to gain back some of it losses early this morning and it surrendered them by the end of the day. But the technicals are just looking worse and worse for the dollar Fed Box: Interest Rates, Inflation, Consumer Prices This so far has not bothered the stock market crowd, because all they can see are positives.  But if everything were positive, the dollar would be going up.  People still don't understand what this is going to do to interest rates, inflation, consumer prices, and the box this puts the Fed in.  How the Fed is damned if it does and damned if it doesn't. If it raises rates to put a floor under the dollar and a lid on inflation, then everything collapsed - we have a worse financial crisis than 2008 and the market implodes - or, the Fed doesn't do that because it's afraid of that and we get something worse.  We get a currency crisis. We get a complete dollar implosion. We get hyperinflation. A Goldilocks Moment So we have probably never been this close to something this bad. Remember, think back to the days leading up to the 2008 Financial Crisis.  Other than me, was anybody warning about anything? No, it was Goldilocks! Everything was perfect. It's even better now.  Back then, they at least let me on television to give the other side. Now, they think, what's the point? Everything is so great, we don't even want anybody to be warning about the possibility of a problem because - "There is no possibility!". Running Up the Deficits What has happened since Trump has been elected.  The market's up 40% since we elected Donald Trump. What has he done? Nothing.  Has government been reduced? No!  We haven't gotten rid of any agencies, we haven't gotten rid of any departments.  All we did is cut taxes and the tax cuts have barely gone into effect yet.  How did we finance the tax cuts?  Running up the deficit. Privacy & Opt-Out: https://redcircle.com/privacy

January 12, 2018 Obvious Negative Factors Hiding in Plain Sight This Friday ahead of the three-day holiday weekend, all three markets are ignoring the ominous warning signs that are building by the day. They're registering new highs, the Dow up better than 200 points, 228, closing over 25,800; S&P, NASDAQ both hitting record highs today.  To me, this is very reminiscent of 1987, in that the stock market is rising despite the fact that there are very obvious negative factors that are building and are hiding in plain sight. CPI Number is About to Go Up The CPI came out today and the headline number was in line, +.1%.  Year over year, though that's still a 2.1% increase in headline CPI. But, unless you're asleep, you have to realize that the number is about to go up. Look at what is happening in commodity prices.  Oil prices are up big today, over $64/barrel.  This is the highest oil prices have closed since November of 2014.  And, if you go 4 months earlier than that, we were over $100. So, if we re-trace that move, we could actually hit $80-$100 this year.  This is an ominous sign for inflation and it's also going to be a big problem for the U.S. economy. That means that headline number is going up. Poor Trade: Dump Gold on Higher Inflation Numbers Now the Core CPI, which everybody seems to look at, year over year, that one's only up .8%.  That's not going to last either. We're going to be over 2% on the Core, I think, in a couple of months. The number was up .3 for the most recent month - they were looking for +.2.  In fact - this is funny - right before the number came out, gold was up about $10 and the dollar index was down about .50.  Then the CPI number comes out, and the traders immediately see this inflation number that is higher than expected on the Core. What is their initial reaction? They dump gold, gold lost half its gains, and they bought the dollar.  The dollar gained about 2/5 of its losses. Why Aren't Higher Rates Bad for the Stock Market? Why is that? Why would people think higher inflation is bad for gold and good for the dollar?  The reason is, they think, "Oh, higher inflation?  The Fed is going to raise rates." So what?  The Fed has been raising rates - we all know the Fed is going to raise rates. But if higher rates are bad for gold, why aren't they bad for the stock market? The stock market should be affected by higher interest rates - but the market somehow thinks higher interest rates will be bad for gold. Gift from the Traders The reality is, higher inflation is great for gold.  That's why people buy gold.  It's a hedge against inflation.  So the more inflation, the more demand there is for gold.  The opposite of the dollar:  by definition high inflation means the dollar is losing purchasing power. So, if the dollar is losing purchasing power, that is bad for the dollar. And by the end of the day, that's exactly what happened.  Gold finished the day up about $16.  So if you bought that ridiculous move, a gift from the traders, you had a nice profit.Privacy & Opt-Out: https://redcircle.com/privacy

January 10, 2018 Bells are Ringing but Nobody is Listening They always say that nobody rings a bell at the top.  And that saying relates to the stock market, investors; there's never a clear warning sign, supposedly, of when to get out. My experience is actually the opposite.  I think many bells ring, not necessarily at the very top, but certainly close to it, it's just that they're ignored; or if they are heard, they are rationalized away. China says No to More U.S. Treasuries Another such bell was rung overnight.  We had a Bloomberg report this morning coming out of China that the Chinese government is going to stop buying U.S. Treasuries.  This is potentially an ominous sign because a) China is the largest buyer and owner of U.S. Treasuries in the world, but, b) we just cut taxes!  We cut taxes and not spending, so we are financing these tax cuts by borrowing more money, bu running bigger deficits, by selling more bonds. Who is Left to Buy? And if the largest buyer and owner of those bonds, is saying "No mas!", well that is a big problem. Who is going to step up to replace the Chinese? Also, if the Chinese aren't going to buy, who else is not going to buy? Why would anyone want to buy U.S. Treasuries?  Even if you did not prescribe to the gloom & doom type perspective that I do, if you're just a typical investor looking at historic bond prices, Why would you want to buy U.S. Treasuries now? Aren't there other assets you'd rather own than extremely low-yielding U.S. Treasuries? Will China Sell? So if the Chinese don't want to buy, it stands to reason a lot of other people don't want to buy either, especially if they know the Chinese are not buying, does that mean they're selling? If they don't think Treasuries are worth buying, are they worth owning?  You would think if they don't want to buy any more, they might want to start selling.  In fact, when Wall Street puts a hold on something, that means sell, right? So, if China is putting a hold on U.S. Treasuries, that means, "Get the Hell out of U.S. Treasuries." China and the Fed Letting Treasuries Mature Another thing is that the Chinese don't have to necessarily sell their Treasuries.  They can just let them mature. After that is what the Federal Reserve is claiming it is going to do.  It is going to shrink its balance sheet (in theory) by not rolling over maturing securities.  The Chinese government will do the same thing. Where is the U.S. Treasury going to get the money to redeem the securities? They can't. That is the problem. Financial Networks Silent on the Problem It is amazing how few people are worried about a problem so potentially ominous as this one.  Remember, nobody was worried about the 2008 Financial Crisis.  You could turn on any financial network and nobody was worried - I was the only guy.  To the extent that I said anything about what was going to happen, I got laughed at. Bigger Crisis Ahead Now, you don't even have that.  I remember when some networks were criticized after the fact about the lack of coverage of the warning signs in '06, and '07 and '08, networks would point to the fact that they had me on. The next time, they won't be able to say that because they won't have me on anymore. They don't have anyone on who is pointing out what should be obvious to all their other guests.  All the other guests are missing an even bigger crisis than they missed before. It's All About Debt What was the Financial Crisis about? It was about too much debt. People took out too much debt. We have even more debt now. Back then, the big problem was rising interest rates.  The Housing Crisis started the Financial Crisis.  I pointed this out for years. The problem was teaser rates.  People were buying homes that they really couldn't afford, but they could afford to make payments on the introductory teaser rates. The first couple of years,Privacy & Opt-Out: https://redcircle.com/privacy

January 8, 2017 Atlanta Fed's Q4 2017 GDP Estimate at Record Low The Atlanta Fed did downwardly revise its estimate of Q4 GDP as a result of the numbers that were released on Friday.  The downward revision took their estimate from 3.2% down to 2.7%. 2.7% is the lowest the estimate has been since they began estimating 2017 Q4.  In fact, earlier on, in October or November the Atlanta Fed was up to 4.5% for their 2017 GDP. So as the U.S. stock market was rising to an all-time record high the Atlanta Fed was downwardly revising its forecast for Q4 of 2017 to its record low. Déja Vu All Over Again Let's assume that the Atlanta Fed is accurate at 2.7%, maybe they're still being too optimistic, but let's say they hit the nail on the head and we get 2.6%. Then the entire year of 2017 would see about 2.5% GDP growth.  Now, how does that compare to Obama? Half of Obama's Second Term Beats Trump's Economic Numbers Everybody is talking as if the economy is rip-roaring now; it's so much better not under Trump than it was under Obama's second term. I'd rather look at the second term because a) it's closer in time to where we are right now, and b) his first term includes the Great Recession that he inherited. So if you look at Obama's second term, GDP growth averaged 2.2% for the entire 4 years.  If that's the case, 2.5% is a little bit better, but if you take 2 of those years, 2014 and 2015, GDP grew by more than 2.5%.  I think we were at 2.56 and 2.9%. In other words, half of Obama's years as President beat the first year of Trump as far as GDP. Economic Growth Hasn't Happened So to me, 2017 just looks like another year of Obama's presidency. Nothing's really different.  2.5% fits in nicely with Obama's economic numbers.  Everybody is talking about all this great economic growth that's taking place - it hasn't happened! Market Soaring in Spite of Lukewarm GDP Granted, there are people saying, we haven't really had the tax cuts yet; the tax cuts don't take effect until next year. That hasn't stopped the stock market from soaring - obviously they are looking forward. Maybe the economy has looked forward. Maybe there has been an increase in investment in anticipation of these cuts. Maybe we've gotten a lot of the benefit and despite that we're still only at 2.5%.Privacy & Opt-Out: https://redcircle.com/privacy

Schiffreport: January 5, 2018 Trump: We Will Win on Trade Earlier this morning the government released the December Nonfarm payrolls report, AKA the Jobs Number.  But rather than start with that, I want to talk about another number that was released at the exact same time. It unfortunately gets very little attention in the media, in fact nobody has really paid attention to this number since the late 1980's - early 1990's.  Of course, I am talking about the trade deficit.  In fact when Donald Trump ran for office, he actually made the trade deficit an issue in his campaign, which was quite rare.  In fact, Donald Trump said that we were losing on trade and he was correct.  He promised that if he was elected, we would be winning on trade. Biggest Trade Deficit in almost Six Years Well we just got the number for November, and it was the biggest trade deficit in almost 6 years.  $50.5 billion. What's more important than that number, look beneath the surface of the number that's bad and it gets a lot worse.  If you take out oil, and America is still a net importer of oil - but if you just focus on the rest of the trade deficit, it was an all time high. Oil Headed Higher The biggest monthly trade deficit ever.  We finally broke the record that I believe was set when Bush was President. But think about this: oil prices were pretty low in 2017.  We just started to rise, in fact we closed the year above $60/barrel for the first time in 4 years. So imagine how much higher these trade deficits are going to be if the price of oil returns to $80-$100, which it was earlier in the year when it dropped below $60/barrel. In fact, I think that's exactly where it's headed. All-Time Record Low against the Yuan Also, look at what's happening with the dollar. The dollar fell last year for the first time in 5 years. It was he largest annual decline in 14 years, measured against the dollar index.  But look at the Chinese yuan.  the dollar fell by the most against the yuan in 9 years. In fact, I think we're going to hit an all-time record low for the dollar against that currency next year. Upward Pressure on an Already Rising U.S. Trade Deficit If you remember, when the year began, all of the strategists on Wall Street were universally bullish on the dollar and bearish on everything including the Renminbi. A lot of people were shorting the Chinese currency. In fact, they were as bullish on the dollar back then as they are on the U.S. stock market right now. Of course, the markets did the opposite of what they expected. If oil prices keep rising, and the dollar keeps falling, that is going to put even more upward pressure on an already rising U.S. Trade Deficit.Privacy & Opt-Out: https://redcircle.com/privacy

Market Ignoring Economic Realities All three of three of the U.S. stock market indexes are ringing in the New Year with new record highs.  The market was up on the first trading day of the year; up again today.  NASDAQ composite is the star, 7065 today up another .84% - a new record high. The same thing with the S&P and the Dow.  The Dow is now almost at 25,000; it closed at 24,922.  Of course, everybody is ignoring, though, the economic reality. What Do Oil Price Increases Imply for the Economy? Look at the price of oil, up again today - 61.77 is the close, up 1.40 - we were up yesterday. This is the highest oil has closed in over 2 years.  If we get above 62.75 that would be the highest close since December of 2014. It was all between July and December of 2014 that oil prices collapsed from above $100/barrel to below $40. I think this year we have clear sailing to $80 - $100 oil this year.  Nobody is talking about what this implies for the U.S economy. This is a gigantic tax hike for consumers. Doubling the price of oil over a 2-year period is going to have a major impact on the cost of everything. Watch Commodities Prices It's not just energy costs.  Commodities in general are strong. Gold was up $15 on the first trading day of the year; we were down about $4-5 today, getting back some of the gains, so gold is off to a good start. Some of the gold stocks were very strong yesterday.  Across the board, the resource sector is going up.  In fact the ironic thing is that we got the release of the FOMC minutes today and as soon as the minutes came out, gold actually sold off, and clawed its way back to down a little bit on the day. Fed Expectations of Low Inflation If you look at those minutes, the only concerns that the FOMC minutes expressed about inflation was that it was still too low.  They are worried that inflation expectations are still too low, that the public, or investors still don't expect enough inflation, which shows you how clueless the public is.  If they don't think there is going to be inflation, they're wrong.  Those expectations are totally wrong. Hitting 2% Inflation Out of the Park People are ignoring what is going on in the currency markets, the commodities markets, the bond markets.  All of these markets are flashing inflation, according to the way you measure it: Consumer prices producer prices, they're all going to be going up, and the Fed, is still worried that they are not going to be going up fast enough, that they're not going to hit their 2% goal. They are going to hit that out of the park.  They are going to be looking at 2% in the distant rear view mirror.Privacy & Opt-Out: https://redcircle.com/privacy

2017 Optimism This is my final podcast for 2017.  I just watched the U.S. Stock Market ring the closing bell for the final time in 2017. Everybody is excited; everybody is optimistic.  I spent most of the day watching the financial coverage, mostly on CNBC to see the attitude and the types of coverage the market has received. The Dow Gained 5,000 Points in a Single Year Of course this is a record year in the stock market; an all-time record high in the Dow.  I think this is the first year that the Dow has ever gained 5,000 points in a single year, in fact the Dow was up every month of 2017 - that's never happened before in history.  I think we've gone 14 consecutive months without a decline.  Not only were we up every month, but 2017 represented the year ever of the lowest stock market volatility. So as the market was going up, it barely ever went down. So no one was nervous. Unprecedented Rise Occurs at the End To me, this type of unprecedented rise does not happen at the beginning of something. It happens at the end. Anybody who believes that 2018 is going to be more of the same is in for a rude awakening. I think the final minutes of the trading day set the tone for next year. Even though the markets were up every month of this year, they were not up in the final week. The Dow and the S&P were both down this week. The entire decline for the week happened today, actually in the last 10 or 15 minutes. The Dow was down about 30 going into the last 15 minutes and it ended up -118. The Dow was never really positive today, same with the S&P. Last Year Optimism was all about the Dollar The NASDAQ was the biggest gainer of the year with well over a 30% gain. The Dow up about 25%, the S&P up about 19%, so certainly a big year, but to me, this is the end of this big bull market. The action in the final minutes may be an indication of what is to come. I have not seen this much universal optimism on an asset since last year at this time with respect to the U.S. dollar. Everybody was bullish on the dollar. In fact, the big short was the Chinese Yuan.  All these big hedge funds were shorting the yuan - it's going to collapse. What was I saying a year ago?  I said these trades were going to blow up. anybody shorting the yuan was going to lose money. Dollar Index Down Almost 10% this Year What has happened to the dollar this year? The dollar index is down almost 10% for the year.  This is the first annual decline for the dollar since 2012, so it is the first drop in 5 years, but it is the biggest drop in 13 years. The last time the dollar was down more than this was 2003.  What happened in 2003? The dollar fell in 2003-4-5-6-7 and 2008. It didn't stop falling until August of 2008 and the only reason it stopped falling is because it was saved by the financial crisis.  Privacy & Opt-Out: https://redcircle.com/privacy

Trump's Economy Today President Trump signed into law the Tax Cuts and Jobs Act.  The biggest problem that the President will have with these tax cuts is that he now owns the economy.  That is going to be a big problem, because this is now Trump's economy. This is now the Republican economy. It's All Bullish Now, Trump now already owns the stock market, and that has served him well so far this year. But you know what?  The stock market could be getting ready to enter a big bear market. I've never seen so much bullishness, so much unfettered optimism on the market in my life.  Not only on the market, on the economy - it's a no-brainer! Guest after guest on CNBC, "There's no way the market is not going to continue to go up!"  "The only question is, how much higher is it going to go?" One bull after another - nobody is bearish.  The networks are not even willing to allow my point of view to  be expressed on the air, in spite of the fact that I was good for their ratings.  I don't think CNBC wants an investment professional to come on and be bearish. To talk about the problems that underlie the economy, to talk about problems with the stock market, it's all bullish. Trump Will Own the Bear Market, Too This crazy optimism; everything is great, nothing can go wrong, oh yeah?  How about inflation pushes up bond yields.  How about corporations end up having to spend more on debt service payments, some of which is no longer deductible.  How about inflation causing an increase in raw material costs? How about the consumer being so strapped with rising prices, no savings and record debt, that earnings go down?  There are so many things that can go wrong when you have an overpriced stock market where everybody is in, and there is no money on the sidelines. So if we go into a bear market, Trump owns it.              Privacy & Opt-Out: https://redcircle.com/privacy

Calling Tax Cuts Reform is Fake News Earlier today the House of Representatives passed the Tax Cut Bill.  Of course, the Media keeps referring to it as "Tax Reform".  That's fake news, for you, calling these tax cuts reform is a perfect example of fake news.  Donald Trump is not going to complain about this fake news.  When the fake news works in his favor, when he prefers the fake news to the real news, he's going to be quiet about it. It's only when he doesn't like the fake news that he calls the media out. Loopholes will Reduce Taxes from 39.6% to 29.6% This has nothing to do with reform.  There are definitely tax cuts in this bill.  In fact, there are substantial tax cuts. The tax cuts are a lot deeper than what people are saying, because the real reduction in the top rate is not from 39.6% to 37%, it's from 39.6% to 29.6%. It's a much bigger reduction because of the ability of so many people who are now paying 39.6% to use the loopholes to reduce their tax to 29.6%.  Now, of course, the top rates are actually higher than that, because no one talks about the 3.8% Medicare and Obamacare taxes that are not repealed. The mandate, the penalty for not buying insurance is repealed, but the taxes to fund Medicare and Obamacare, they're still there.  So the marginal rates are higher than the media is talking about. The reductions, however are actually much bigger for the top end. No One Gets Government Relief Normally, I'm all in favor of lowering the top end. I would just like to do it in a fair and honest way, not through gimmicks and loopholes. But yes, I want to lower the top rate of tax, but I also want to make government smaller.  I want to reduce government spending so we no longer need all that tax revenue. I have said over and over again, that this bill will provide some people with tax relief, but no people with government relief.Privacy & Opt-Out: https://redcircle.com/privacy

Everybody Joins the Party All 3 of the major U.S stock indexes closed out the week at new record highs as it became apparent that the new tax cut deal was pretty much done. Marco Rubio, who had been a hold-out, caved and even Corker, the one Republican who was going to vote against the bill becase it was going to increase the deficit, decided to join the party as well.  He's now a yes, so the bill is going to pass. Plan Riddled with Loopholes We didn't get the compromise details until later Friday afternoon so I am recording this podcast Saturday morning.  The new top rate: 37%, bottom rate: 10%.  But of course, that 37% rate is probably not going to be paid by nearly as many people as the government thinks, because this plan is riddled with loopholes.  In fact, I believe, if this plan passes, we will have a tax code that is more game-able where more people are doing more things to rig the system or exploit the loopholes  - not that there's anything wrong with  that - that's every American is going to do. No American is under obligation to pay more taxes than what is owed. And to the extent that you can re-arrange your affairs, such that you pay the lowest possible tax, that's what everybody is going to do. Reduced Deficit Projections is Nonsense And that is why the Republican projections that this is going to add just $1.5 trillion to the deficit over next 10 years are a bunch of nonsense.  I'm sure that it will add more than twice as much over the next 10 years above how much the deficit is going to grow anyway during those 10 years.  Now, the Republicans try to claim that even though on paper this bill will add $1.5 trillion to the deficit, it won't really be that big, because these tax cuts are going to create all this extra economic growth, which will result in additional tax revenue.  So if you factor in that additional revenue, some kind of dynamic scoring, then the impact will not be as large. That is all a bunch of nonsense.        Privacy & Opt-Out: https://redcircle.com/privacy

Expected Rate Hike Today the Federal Reserve did exactly what everybody expected them to do, they once again raised interest rates by just one quarter of one percent.  This is the third rate hike of the year; this is the fourth rate hike since Donald Trump was elected President and the fifth time the Fed has raised rates since the 2008 financial crisis. The Fed raised rates only once from Obama's election to Trump's election eight years later. Extraordinary Amount of Excess Stimulus We now are at 1.25% on the low end to 1.5%. So if you take the midpoint there, 1.35%; we're barely above 1%.  Despite five rate hikes over the course of more than 2 years.  Remember the first rate hike was in December 2015, so it has been exactly two years. It has taken the Federal Reserve two years to move the rate from zero to 1.35%. This is an extraordinary amount of excess stimulus.  To say that the Fed has been successful in normalizing rates is complete nonsense.  Two years ago, when the Fed raised rates for the first time, nobody in the mainstream believed that two years later, we would still be this low. FOMC Press Conference The most interesting part of the Fed's announcement is always the press conference that follows. The most interesting thing about is, whenever Yellen was asked about inflation; whenever she opined about inflation and what the Fed's concerns might be, the only concern that she ever expresses is that inflation may stay too low.  In fact, that's the only question she gets about inflation.  Nobody asks her, "What if inflation is higher than you think?"  It's always, "What if it doesn't get to 2%?" Even though, of course it's already well above 2%, but everybody wants to pretend it's not, the questions are;"What if it takes longer to get to 2%?  Are you concerned it might not get to 2%> What Happens if Interest Rates go Too High? And the answers are, "Well, we think it will get back there, but yes, we recognize it's a risk that maybe it won't."  It never dawns on anybody to actually consider the real risk.  The real risk is not that inflation stays below 2% (that's the ideal situation for the Fed).  The real risk for the Fed is that inflation goes to 3% or 4%, but that possibility isn't even discussed.  I know why, because they can't deal with that.  I wish somebody would ask Yellen, "What is your plan, if inflation surprises you by spiking up? what if it jumps up to 3 or 4%?" What is she going to say?  We're going to slam on the brakes?  We're going to jack interest rates way up? What's going to happen to the stock market? What's going to happen to the bond market?  What's going to happen to the economy? Does Elevated Asset Prices Concern the Fed? In fact Steve Liesman asked her a question about the stock market; about how the stock market is going up every day and he asked her: "Are you worried about this?  Does these elevated asset prices concern the Fed?" She told him, no, the Fed's not worried at all.  Not only do we not see any flashing red lights, we don't even see any flashing orange lights.  There's nothing to worry about.  She specifically said that, this is very different than it was last time. Yellen: Nothing to Worry About the Debt Yellen said that last time when we had an elevated stock market or real estate market, it was because we had too much credit, we had too much debt, but that we don't have that today. Is she kidding me? We actually have more debt! This is a bigger bubble that has been fueled by even more cheep money.  The Fed is force-feeding cheap money into the economy; interest rates now are 1.3%; we've been going on a borrowing binge - corporations are levered up, they've been buying back stock, consumer debt is at all time high, auto debt, student debt, government debt is exploding, the national debt is twice as big as it was when we had the 2008 financial crisis, and Yellen is saying that there is nothing to worry...Privacy & Opt-Out: https://redcircle.com/privacy

Bitcoin Week I'm going to devote today's podcast to bitcoin; I might as well just talk about bitcoin because that's all anybody else is talking about.  On CNBC that's pretty much all they are talking about; they said it is "BitCoin Week".  It sure sounds like it.  I think they should just rename the network: Crypto News BitCoin Network.  I would be a good guest on that network because I know either side. Swallowing Hype Hook, Line and Sinker But just like in the dot com bubble in the 1990's and the housing bubble in 2007, they are swallowing the hype hook line and sinker. they drank all the Kool Aid. When they look back at those manias, they like to laugh, but they did not laugh at them back then - not at all. The only people they laughed at were people like David Tice, he would come on and they would laugh at him just like they laughed at me when I talked about the bubble leading up to the Financial Crisis. Nobody at CNBC had any idea that there was a dot com bubble.  All they did was laugh at people who pointed it out. Even Less Legitimacy Same thing is going on now, although they do refer to the bubble.  But to me, this bubble is the most irrational of any of the bubbles I've seen.  I there is a less legitimate case for BitCoin than any of the dot com stocks that went to zero, or buying sub-prime mortgages. Total Market Cap: $460,355,182,968 But let me talk a little bit about the whole origin of this thing, in case you don't know. When Bitcoin first came about, it was the only crypto currency out there. Now there are over 1300 crypto currencies.  The market cap is over $450 trillion.  Bitcoin is trading today at over 17,000. That's a new record high on bitstamp.net.  That did not take out the $19,000 record set on coinbase.com last week.  We're up about 15-20% today. Futures trading debuted on Sunday night and Saturday, in advance of that, we had a pretty decent sell-off.  Bitcoin sold off to about $13,000 and then it skyrocketed, it turned around on Sunday night and continued going up on Monday. Speculative Asset But in the beginning, the whole idea behind Bitcoin was that it was going to be money - a digital currency whose advantage was that it could be used anywhere in the world, anonymously, inexpensively and quickly.  I loved that aspect of Bitcoin. But what I did not like is that it had no backing. It has no real value, so it never could actually be money.  Now, as the value has skyrocketed, it is impractical to actually spend, and people are using it as a "store of value".  But it has no intrinsic value.  It is just a speculative asset.Privacy & Opt-Out: https://redcircle.com/privacy

A Nonfarm Payroll Beat Today the labor department released the November jobs report -  Nonfarm Payroll -  of course Wall Street always highly anticipates this number; all the politicians, Donald Trump was ready to tweet as soon as the data was released.  The expectation was for 190,000 jobs and we beat, with 228,000 jobs. An Even Bigger Hoax The unemployment rate held steady at 4.1%, which prompted President Trump to tweet, "The unemployment rate remains at a 17-year low of 4.1%. Now remember, when Trump is running for office he called 5% unemployment "The biggest hoax in American history", claiming that the rate was really 30, 40, 50%.  Well if 5% was the biggest hoax in American history, what's 4.1?%? It's an even bigger hoax. Disappointing Numbers So THIS is the biggest hoax in American history, except that the difference is now Trump is the purveyor of that hoax.  He is no longer calling it out, he is now participating in the same hoax that he criticized in order to get elected.  The numbers that missed were the average hourly earnings, which, again, everybody keeps talking about how earnings are going to go up; they were looking for a .3% increase in average hourly earnings following flat earnings the previous month.  Not only did they not get .3%, they got +.2%, but they revised last month's 0% to -.1%. So really, very disappointing numbers on the wages. Labor Force Participation Labor Force Participation rate held steady at 62.7%; that's near the lowest it has been in this cycle.  And again, if you look at where the jobs were, we did manage to create 31,000 manufacturing jobs.  We have had a boost in manufacturing jobs, despite the fact that we are not seeing it in the trade balance, because we have the worst trade deficit in five years, so I don't really know what everybody's manufacturing, if we're not exporting it, or if it is not reducing our imports.    Privacy & Opt-Out: https://redcircle.com/privacy

Trade Deficit Moving Higher as Economy Slows Down Yesterday we got the release of the October monthly Trade Deficit and we got a trade deficit of $48.7 billion dollars.  That was a little bit North of the $47.4 billion expected in the consensus forecast.  In fact, the prior month, which was $43.5 billion was revised upwards to $44.9 billion. The larger number did cause the Atlanta Fed to shave down its estimates for Q4 GDP from 3.5% to 3.2%; my guess is that they will be revising it lower.  Most of the numbers I have been seeing show the economy slowing down, at least measured by the GDP. Candidate Trump Promised Lower Trade Deficit While Calling Stock Market "A Bubble" What's significant about this trade deficit it is the largest trade deficit in 5 years, and it is the biggest trade deficit in the Trump Presidency.  If you remember, candidate Trump made the trade deficit a big part of his campaign. He wanted to lower it.  He said the trade deficit was too big, and the fact that it had been allowed to get so big; all these countries were taking advantage of us; and he was going to fix it! He was going to "Make America Great Again" in part, by getting rid of these trade deficits. So we were going to start operating at a profit again.  He's not talking about trade deficits anymore.  Does he want to accept responsibility for the increasing trade deficit, just as he claims credit for the rising stock market? Trump Now Takes Credit for the Stock Market but not the Trade Deficit When Trump was a candidate, he never promised, "Vote for me and I'll make the stock market go up!".  He said the stock market was a bubble. Part of the problem was that the stock market was the only thing going up. The economy was actually getting worse, despite the fact that we had a stock market bubble.  So a higher stock market was not part of his stump speech, yet that's all he talks about now is how high the stock market is. Trade Deficit is Not Shrinking What was part of his stump speech was shrinking the trade deficit.  Well the trade deficit is not shrinking.  It's growing! In fact, I believe that the trade deficit is going to end up hitting an all-time record high during the Trump Presidency.  So that will be a complete failure. He campaigned on a lower deficit and we're going to get a much bigger deficit. Dollar Down And of course, the trade deficit is growing even as the dollar is down.  The dollar has fallen by about 8 or 9% this year.  Now, most economists tell you that if the dollar goes down, that will be good for trade, right?  It will be good for our exports, we will import less - none of that happened.  What actually happens when the dollar goes down, it simply makes our imports more expensive. So our trade deficit goes up.  It's not like we can just buy domestically produced goods instead of foreign-produced goods because we don't produce the goods.  We have to import them and we just have to pay more to do it, and the trade deficit goes higher. Bush All Over Again And since I believe the dollar is headed a lot lower during the Trump Presidency, the trade deficit is headed a lot higher. That's exactly what happened under Bush.  The dollar hit an all-time record low under George W. Bush, and the trade deficit hit an all-time record high. And since I think the dollar is going to take out the lows it established under Bush, the trade deficit is going to take out the highs.    Privacy & Opt-Out: https://redcircle.com/privacy

Market Rallies on News of Passing Tax Cuts Act Late Friday night, or I guess early Saturday morning, the Senate passed its version of the Tax Cuts and Jobs Act.  Last week the market, as it became more apparent that the Senate was in fact going to pass the bill, the market was rallying, and continued to rally and, in fact rallied again today.  This was the first chance the market had to react to the Senate actually passing their version of the bill. DJIA Up, NASDAQ Down At one point today: the DJIA was at 24,534, that's the new record high.  It had surrendered most, if not all the gains by the close.  The Dow closed up only about 58 points - still, a new record close at 24,290.  The NASDAQ, on the other hand was down as the correction, and maybe the beginning of a bear market (we don''t know yet).  The correction in the technology sector continues. The NASDAQ was down 72 points today.  Although, even when the Dow was up 250 points earlier this morning, the NASDAQ was still down about 50 points.  So the tech stocks are weak. The S&P ended up negative on the day, although it hit a record high intra-day. Who Benefits? Part of the justification for the markets rallying is the tax cuts. If corporate taxes are going down, then your after tax earnings are going up, and since stocks' value is in theory a function of their after tax earnings, if your after tax earnings goes up, then all else being equal the stock is going to be more valuable. But clearly taxes that are not earning money will not benefit from lower taxes. Republicans Abandon Any Pretense of Smaller Government I wanted to get into an analysis of the Senate version of these tax cuts. There was one Republican senator who voted the Tax Cuts and Jobs Act, of course all the Democrats voted against it, but Senator Bob Corker, who voted against it on the principle of   adding to the debt.  There were some interesting rumors floating around last week that in order to get Corker to vote yes, they considered adding an automatic trigger (implementation  seemed crazy to me, and that's why they did not do it) that if the tax cuts did not pay for themselves or the deficit got bigger, an automatic tax increase would be implemented.  What disturbed me the most about this, is:  Why would there be automatic tax increases, why not automatic spending cuts? Why not say that if the tax cuts don't pay for themselves, we'll cut spending in order to pay for the tax cuts?  If this doesn't tell you that the Republican party has completely abandoned any pretense of wanting smaller government, I don't know what does.          Privacy & Opt-Out: https://redcircle.com/privacy