Financial Conditions Are Loosest Since 1994 I was reading an article today that the Chicago Fed released their National Financial Conditions Index (NFCI)  and according to their research, financial conditions in the United States are the loosest since January of 1994.  Of course, that was early on in the dot com bubble, before it even "bubbled up", it was just at the beginning of that bull market, yet the Federal Reserve has been tightening; raising interest rates for a couple of years.  They've been talking about shrinking the balance sheet - why is it that financial conditions are looser now than they were when the Fed was still at zero? Fed Behind the Curve I have been talking about this the whole time.  The Fed is so far behind the curve.  Yes, they have raised interest rates, but it is too little too late.  Even the official inflation rates have risen as much if not more than the rate hikes. Meanwhile, the stock market keeps going up and now that you have the dollar going down, a weakening dollar actually adds to the loosening of financial conditions which are obviously going to get a lot looser if the Fed doesn't really start jacking up rates faster, which I don't think they are going to do. Relapsing Back into Recession In fact, I think they are going to get ready to cut rates again and loosen financial conditions even further as the economy relapses back into recession, which I said in my last podcast, would have already been here had Hillary Clinton won the election.  Since Donald Trump won, all this false optimism is delaying the onset of that recession for a year or two, but it's not preventing it. So if financial conditions are this loose now, when the Fed is tightening, imagine how much looser they're going to get when the Fed is easing.      Privacy & Opt-Out: https://redcircle.com/privacy

Faltering Expectations The U.S. dollar and the stock market continued to be a little bit under pressure this week as anxieties are rising over the fate of the tax cuts with so many investors are putting so much expectation into the proposed tax cuts. Tax Cuts Do Not Reflect Smaller Government I have gone over many times on this podcast why I do not believe the tax cuts are going to help the economy. Tax cuts are good for the economy to the extent that they reflect smaller government.  If you are going to make government smaller, and government is going to be less of a burden on the economy, if government is going to take fewer resources out of the economy, it will be freeing those resources up for the private sector.  If you are lowering people's taxes because you relieve them of the responsibility of paying for a larger government, that is a big positive! Government Will Have to Print or Borrow Any time we can take resources out of the government sector and put them back into the private sector, those resources will be used more efficiently and more productively, the economy will be better off.  But if we simply cut taxes, and allow government to get bigger and bigger, that is not good for the economy.  All that is happening is that the government has to find and alternative source for paying for the resources it is consuming.  And if it is not going to collect it through taxes, then it is going to have to borrow it or print it. Those other ways of sucking up those resources do more economic damage than what otherwise would have been the case if they had just left taxes alone. So Everybody is Wrong So everybody is wrong in believing that these tax cuts are going to be good for the economy.  They are not going to be good for the economy, and they are certainly not going to be good for the dollar. They will hurt the dollar because, by definition, instead of removing dollars, the government is going to print dollars out of thin air and spend that.  So they are debasing the dollar. No Individual Mandate But putting that aside, there is still a lot of nervousness out there about whether or not the tax cuts will pass and what their final form will be.  First of all, the Senate came out yesterday and all of a sudden thew a curve ball into the tax cuts. As part of the tax cuts they said they were going to repeal the individual mandate from Obamacare. That is the part that requires individuals to pay a penalty to the government for not purchasing insurance. Hail Mary First of all, the fact that they have to throw that in there shows that they needed to do that to tempt some Republicans, maybe like Rand Paul, who were on the fence or not for the tax cuts. I think the fact that they had to go for the Hail Mary shows that they are having a hard time getting enough Republican support. Saving the Government Money? But here's the ridiculous part: The government claims that by eliminating the individual mandate it is going to save the government a lot of money and the savings will subsidize a larger tax cut for the middle class.  Wait a minute. The individual mandate means that people who don't buy insurance have a penalty to the government!  That's revenue to the government. Wouldn't that cost the government more? Republican Logic Here is the Republican logic: If they stop penalizing people who don't buy health insurance, then fewer people will buy health insurance.  Some of the people who are buying health insurance now are getting government subsidies, so if they don't buy health insurance then the government won't have to provide the subsidies and that's where they save the money. Premiums Through the Roof Then they argue that if younger healthy people drop out, then insurance premiums will rise even faster than they are rising right now.  And because health insurance premiums will rise a lot faster,Privacy & Opt-Out: https://redcircle.com/privacy

No Real Tax Relief Yesterday the Senate released their version of the Tax Cut and Jobs Act, and it is not that different from the House version.  There are some differences, some of which I will get into, but the main problem is not the difference, but the similarity.  The plans don't deliver any kind of substantial tax relief, in the manner that President Trump refers to as, "the biggest tax cuts ever". It's not even close. For most people, there will be minor tax cuts and for other people there are actually minor tax increases. Democrats: "I'll Give You Something You Did Not Earn!" The real problem, again, is that Republicans can't really be Republicans, given how much debt we have.  They like to talk about lower taxes - that's how they get elected: "We're going to lower your taxes!". The Democrats are generally the party of, "I'm going to increase your benefits! Vote for me and I will give you something you did not earn."  What the Republicans used to say is, "Vote for me and I'll let you keep more of what you did earn." That was really the difference between the Democrats and the Republicans. The Democrats were about taking things from other people and the Republicans were about keeping your stuff. You Can't Take Away an Entitlement The problem is, too many Republicans are really Democrats or they're afraid to cut any government spending. At this point, the deficits are so big that you can't really have big tax cuts unless you're willing to cut government spending. Most Republicans are not willing to do that. Sometimes they will vote not to create a new government entitlement, but they will never vote to take something away, which is why they didn't really want to take away Obamacare. A lot of Republicans didn't vote for it, but they are not going to vote to kill it. Small Government Everywhere but in the Military The problem is, if you really want to cut spending so you can have tax cuts, where's the money? The defense budget is big, and most Republicans don't want to cut defense - that' s the only place they like big government (in theory) is defense. They want small government everywhere except in the military. So there are not very many Republicans who are willing to cut defense to enable the tax cuts. So What's Left for Republicans to Cut? Now you got Social Security and Medicare, but a lot of Social Security recipients vote Republican. So the Republicans don't want to cut Social Security and don't want to cut Medicare because they are afraid of how the voters will react. So that's off the table. You can't cut interest on the debt, unless you're going to default on the debt; nobody wants to do that. In fact, interest on the debt is going to go up as interest rates go up.  So what's left that Republicans (in theory) can cut?  They are afraid of being labeled mean, heartless, taking away programs for the poor, the needy - so there's really nothing that the Republicans are willing to cut, so they can't give any tax cuts. They don't want to level with their constituents and say that they can't cut your taxes because then, what's the point of voting Republican?  Privacy & Opt-Out: https://redcircle.com/privacy

Conventional Media Was Surprised It's hard to believe has been a year since Donald Trump shocked everybody, at least everybody in the conventional media, Wall Street, all the pundits, professional politicians, anybody who has anything to do with Saturday Night Live... Nobody believed that Trump a snowball's chance in Hell of winning the White House. Hillary Clinton had already picked out her china patterns, she had this big glass ceiling that she was going to shatter in her victory party.  So everybody believed that Trump was going to lose and Hillary was going to win even after the polls closed. It took about an hour or two for reality to set in. Conventional Media Was Surprised So now it has been a year.  Of course the stock market has gone up a lot during that year, in fact, the market was up just under 21% in Trump's first year.  Of course, Trump never lets you forget this because he constantly talks about it, but he says this stock market rise is unprecedented - and that is a lie! Why do you have to go out of your way to lie when 21% is still a big move.  In fact if you go back to Eisenhower, which is almost 70 years, this is the fifth biggest rally for a President's first year.  That's still not bad, it's fifth place. The guy in last place is George W. Bush. Not Unprecedented Unfortunately, Bush was elected in 2000 and the market tanked that year, it was down 20.4%.  That is the worst performance of any President. Trump is #5, but let's look at #1; Number one was Bill Clinton - Democrat, 1996, his second term, the market was up 31.7%. So that's a 50% greater rise than Trump's first year, yet Trump is claiming that this is unprecedented.  Kennedy, first term, 1960, the market was up 28.4%. In third place, Barack Obama's second term the market rallied 23.9%.  Then George Bush (41), in 1988, the stock market rallied 21.7%. So Trump is certainly in the top third, but his first year is not unprecedented.Privacy & Opt-Out: https://redcircle.com/privacy

High Expectations for Jobs Numbers This morning we got the release of the October jobs report, and it followed the hurricane-related very weak report that we got in September. This time, the reason actually was weather-related. Remember, they originally reported a decline of 33,000 in September.  No one cared, though, because it was all about the hurricane. This month everybody was very optimistic; the consensus for October was 325,000 jobs. Numbers Fell Flat I was watching CNBC this morning and they were all trying to guess the jobs number.  Everybody ended up being over.  Rick Santelli's estimate actually was 401,000, but most guys were somewhere between 350 - 400,00, so everyone on CNBC was more optimistic than the consensus. And then the number came out  at 261,000. Everybody went over, so they all lost by the Price is Right rules. Lowest Unemployment Since Dot Com Bubble But beneath the surface, this is a weak report - even weaker than the 261,000 jobs that were reported.  The unemployment fell to 4.1.  That's a new low for this cycle.  You have to go all the way back to the dot com bubble to get an unemployment rate this low.  I don't know if Trump tweeted about it yet, but I'm sure he's going to talk about it: "Oh this is great!" He's going to take credit for the drop in the unemployment rate.  But the problem is, the reason that the unemployment dropped was because so many people left the labor force Largest Labor Force Exodus We had 968,000 people leaving the labor force in October.  This was the third largest monthly exodus ever, causing the number of Americans currently exiled from the labor force to hit a new record high - 95,385,000.  The labor force participation rate plunged back down to 62.7% from 63%. Obama Revisited This is the exact same type of jobs numbers we were getting under Obama, where you'd have a falling unemployment rate because so many people were leaving the labor force and so many people were working part time. Candidate Trump was extremely critical of this:"The unemployment rate is the biggest con, the biggest fraud in history - unemployment is really 30-40-50% - the jobs are lousy, they are low paying, people are leaving the labor force!" Exactly what is going on today.  Yet now, "Everything is great, the unemployment rate is low, it's all thanks to me, and I'm doing a great job!" Weak Number This is a weak number.  In fact, look at average hourly earnings. They were supposed to rise by .2% and they were flat.  The only reason they were flat is because they rounded it up. Actually, average hourly earnings went down during the month of October. And this is not adjusted for inflation.  These are just the earnings.  So we know prices are going up and so earnings actually went down in October.  Now year over year, we have an increase of earnings of 2.4%.  I am sure the cost of living is up by more than 2.4%, regardless of what the CPI claims. So this is a weak report.    Privacy & Opt-Out: https://redcircle.com/privacy

No Change in the Fed Swamp The announcement of the new Fed Chair, Jerome Powell, represents a commitment to the status quo at the Fed.  President Trump has nominated the person most likely to do exactly what Janet Yellen did for President Obama. Powell has voted in lock step with Janet Yellen for the entire time she has chaired the Fed.  The only real difference between the two is that Yellen is a Democrat and Powell is a Republican, even though he was nominated to be on the Fed by President Obama. Politics as Usual, Rather than Change Powell does not have an economics degree.  Initially you might think that's a plus; Bernanke and  Yellen have Ph.D.'s in economics, but they know nothing about economics because they learned from Keynesians. But Powell has hung out with these folks for such a long time, I assume he has all the same failures when it comes to understanding economics. More important than that is the politics of this.  Jerome Powell embodies everything Candidate Trump criticized about the Fed and about Janet Yellen. President Trump accused Janet Yellen of being political, keeping interest rates artificially low to make Obama look better and to help Hillary get elected, and all of that was true. This is why many people voted for Trump, they voted for change.  They thought that he was going to drain the swamp.  Well the water level at the swamp is not going down at all with the nomination of Jerome Powell.  Trump interviewed John Allison, who would have represented a change; he is a free market guy, and Austrian economist, Ayn Rand fan, he would have been a market change in direction at the Fed Cut, Cut, Cut Plan Now let's turn to the sham that is the Tax Cuts. Donald Trump wanted to call the plan the Cut, Cut, Cut Plan. Instead, they named it the Tax Cut and Jobs Act. This plan will definitely create jobs for the accountants. I skimmed through the 450-page outline of this plan, and what I can tell you is I believe that taxes will be much more complicated if this bill passes than they are now. Tax Savings Will Go to Accountants For low income earners. this tax bill will not complicate already rather simple tax filings.  But if you have a small business with employees and capital investments, this bill will substantially complicate your tax filing. So to the extent that you might save any money on taxes, you will spend more on accounting fees, which by the way, are no longer deductible. No Reduction in Size of Government This bill is not the biggest tax cut in history, and it is not a tax cut for everybody. Many people will see a tax increase. Overall, the government will collect less revenue as a result of this bill, even though some people will be paying more. I watched Republicans claiming that this bill will provide relief from high taxes - there is no real relief because government doesn't get any smaller. The reason tax payers have such a heavy burden to bear is because government is so big.  Since there is no reduction in the size of government, in fact, government is getting bigger, and will be bigger next year taxes should be going up on everybody! But Republicans are saying, " No we're not going to make government any cheaper, in fact we're going to provide even more government, we're going to make government bigger and more expensive, but we're just going to relieve you of the burden of paying for it, which is impossible, because there are not free lunches. There are no free lunches from Democrats and there are no free lunches from Republicans.    Privacy & Opt-Out: https://redcircle.com/privacy

Trial Balloon #1: Backpedaling on State and Local Tax Deductions All this talk about tax cuts is all a fraud, because government is getting more expensive and the taxpayers are going to be stuck paying the bill one way or another.  They keep on launching these "trial balloons. I was reading over the weekend that they are backpedaling, talking about the idea of eliminating the deduction for state and local taxes, but not for property taxes. So everybody can deduct their property taxes because everybody pays property taxes, whether you're in a red state or a blue state, whether you have state income tax or not. In fact, some states without state income tax have higher property taxes to compensate. So they still are going to allow the property tax deduction. That's the latest trial balloon that I have heard about. Housing Lobby Against Tax Reform But we still a lot of Republicans from high-tax states to allow the deduction for all taxes, including income taxes. The housing industry is still pushing back because they want people to deduct property taxes because that reduces the cost of owning property and makes it easier to sell at a higher price because one of the features of the property is a tax deduction. They also want to preserve the home mortgage deduction.  I was reading that the housing lobby is trying to get something in there.  Because if you double the standard deduction, that means far fewer people will itemize and they won't need the tax break associated with home ownership and that is a problem for the housing industry, that is really selling tax shelters. They are lobbying to get Congress to put back in a "homeowner's credit".  Even if you don't itemize, you could still get some kind of tax benefit for being a home owner, which, if we were really reforming the tax code we would not want to do. Trial Balloon#2: 20% Corporate Tax Rate "Phased In Over 4 Years" Another trial balloon that came out over the weekend, obviously the market is not liking it, is that corporate tax cuts, where the plan is to lower the corporate tax rate to 20% from 35% - now they are saying that this would be phased in over a number of years so we wouldn't actually get to a 20% corporate tax rate until the year 2022.  Now, why would they be doing this?  Well, obviously, to the extent that they can delay the phase-in of the lower rate, then the effect on the deficit, at least during the initial years is not as great because they don't have to immediately calculate the reduction in tax revenue. Failing to Attract Business to the U.S. A lot of people are saying, "Well this will still be okay, because at least it's a permanent tax cut, and American businesses with still know that they can look forward to these lower tax rates..." And really what these lower tax rates are designed to do is to make the U.S. a more competitive place to do business.  My feeling would be, if they delay the implication of these tax cuts until 2022, they ain't happening! Getting a Bad Rap A lot of stuff is going to happen in the economy between now and 2022, including another presidential election in 2020, and I'm already on record as saying that Trump will be a one termer, a placeholder between 2 democratic administrations.  All the economic problems that built up during the Obama administration will blow up under Trump.  If we get a Bernie Sanders-type as President in 2020, what are the odds that the 2022 corporate tax cuts are ever going to see the light of day? No Such Thing as Permanent Tax Relief All these people talking about permanent tax relief, what are these guys smoking? There is no permanent tax relief, especially when you don't have any relief from increased government spending.  You know how much bigger the national debt will be by 2022?  They will have to raise taxes on somebody, and obviously, corporations will be an easy target, especially if they are vilified.Privacy & Opt-Out: https://redcircle.com/privacy

We're getting a tax cut! There is one thing now that that has the potential to cause a short-term decline of more than 3% in the stock market, and that would be: no tax cut.  If the Republicans announce that they're at a deadlock, and we're not going to have any tax reform or tax cuts, it seems to me the stock market will get hit.  Washington and Wall Street both agree that if we don't get this tax cut, the market's going down.  So what does that mean?  We're getting a tax cut! Making the Stock Market Great Again After all, the market is now the barometer of the success of the Trump Presidency, and by extension, the Republicans in the House and Senate.  If House Republicans want to get elected in 2018, the Dow Jones had better be higher than when Trump was elected. This is not about making America Great Again, it's about Making the Stock Market Great Again. Not that it wasn't great before Trump was elected, but now the greatness of the stock market goes hand in hand with the greatness of America. Accelerating the Growth of the Budget Deficit So we are going to get a tax cut, but that pretty much assures that we are going to get an increase in deficits and the National Debt.  They've already cleared the way now in the Senate and the House is about to rubber stamp it someway that the Republicans are allowed to reduce revenue to the Federal government by $1.5 trillion in the tax cut bill - over 10 years.  So it's not $1.5 trillion a year, it's only $150 billion a year, over 10 years. Remember, government spending is going to rise substantially over those 10 years, so the government actually needs a lot more revenue in order to cover all its spending. So when you reduce the revenue you just further accelerate the growth of the budget deficit and the resulting National debt. Republicans Don't Care About the Deficit We've got a number of Republicans who were very hawkish about the debt and when Obama was President, "We're going to shut down the government…" "We're not going to raise the debt ceiling…" They demanded fiscal discipline.  In fact, there was some modicum of discipline imposed on the budget, but all that is now being unraveled under Trump.  Now the Republicans can throw out whatever discipline that they forced into the system when Obama was President.  I've said this before, that when Republicans are in the minority, they can at least try to exert some pressure on government spending. The minute they have both houses of Congress and the White House, precedence shows that they don't care about the deficit. Consequences of Tax Cuts: Higher Inflation and Higher Interest Rates The deficits are only a problem when the Republicans are in the minority. But when they have the power, they don't care about it because they want a tax cut, and deficits be damned. Especially when the market now depends on it.  Nobody wants to stand in the way of the market. Even Rand Paul, who was the one Republican who voted against the Senate budget resolution, has already said that he will vote for the tax cuts.  He just did not want to vote for the budget bill to enable the tax cuts.  Somehow now that the budget bill has been enacted, he is going to vote for the tax cuts. He'd rather people pay lower tax than deal with the consequences, which are: higher inflation, higher interest rates.  There is not free lunch.  That is the problem with these tax cuts.      Privacy & Opt-Out: https://redcircle.com/privacy

Black Monday 1987 Today marks the 30th anniversary of the 1987 stock market crash.  It's hard to believe that it's been 30 years.  I still remember where I was when the crash happened and my reaction to it. It happened just after I had graduated from the University of California at Berkeley. By the time the crash happened, I had already accepted a job in Newport Beach, California.  I was going to be working in the commodity options market, but I hadn't started yet. Lesson:  The Market Goes Up The crash began a few weeks before I was on the job, but I do remember when I first got there, I met a guy who had a lot of S&P 500 puts for clients and for him, anyway the crash was a great thing because he was able to make a lot of money on those puts.  Of course the S&P was a fraction of its current value.  The market is up dramatically since the 1987, which is the lesson that everybody hope that you learn: "Hey don't worry about the market.  If it ever goes down, it's going to come back up." Trade Deficit Tiny Compared to Now I remember some of the catalysts that were weighing heavily on the stock market leading up to the crash of '87 was the fact that the dollar was weakening as a result of a increase in the trade deficit - trade deficits that are tiny in comparison to the enormous one that we run today. Yet nonetheless, people were rightly worried about it back then.  They couldn't care less about the trade deficits now. Interest Rates at 9% Also interest rates were rising. The yields on the 30-year bond (nobody really talked about the 10-year back then) were 9% and they were going up.  So you had 9% interest rate, interest rates rising, the dollar falling, the trade deficits getting bigger and the stock market had pretty much ignored what everybody agreed was bad news at the time.  The stock market kept going up anyway, despite all of that.  Eventually it all came crashing down in 1 day. Good Company One of the things I remember about that was how Alan Greenspan reacted.  I mentioned this on a prior podcast. Greenspan had not been the Fed chair that long when the market crashed. He took over from Paul Volker.  I knew Greenspan, and was familiar with him because he was a libertarian and an Austrian economist.  He had written an essay on Gold and Economic Freedom, which I had read, in addition to Ayn Rand's Capitalization: the Unknown Ideal.    Privacy & Opt-Out: https://redcircle.com/privacy

Inflation Higher Than Expected Today we got the hotter than expected news on prices - on inflation.  We got the import/export prices.  Import prices were supposed to be up 0.5%, which in and of itself is a pretty big jump, but they were up 0.7. Export were also up; (we would want export prices to go up, because that means we are getting more for what we export) they were expected to rise 0,4%, and instead they rose by 0.8.  Double the expectation. Import/Export Index Methodology More Accurate Year over year, import prices are up 2.7%.  As of last month, the year over rise was just 2.1%, so that's a pretty big jump in the year over year gain.  Export prices were up 2.9% year over year.  Averaging these out, you get 2.8% as the average increase in 1 year of the price of the stuff we import and export.  That's a broad based increase - well above the supposed 2% level the Fed is looking for.  They are looking for consumer prices, measured by the CPI, but the Import/Export index represents things the consumers consume, and I would think these numbers are going to be more accurate than the CPI because there is less subjectivity in there.  I think the methodology is more accurate than the methodology on the CPI.  I think soon we're going to see year-over-year increases import and export prices with a 3 handle. Markets Working Counter-Intuitively When this news came out, the immediate reaction was to buy the dollar and sell gold.  Why?  Why is higher inflation bad for gold?  The main reason to buy gold is as an inflation hedge. If you think there is going to be more inflation, then you buy gold.  Perversely, the way the markets work now, you sell gold if you think there's going to be more inflation, in fact, you buy the currency of the country that is experiencing more inflation, which is counter-intuitive. Inflation by definition, is the currency losing value.  If the currency is losing its purchasing power, why would you want to buy more of it?  You would want to get rid of it to avoid that loss. Will Higher Inflation Produce a Tighter Fed? But the thinking is, if there is more inflation, as measured by these price indexes, that the Federal Reserve is now going to have to fight the inflation, that they are going to be more likely to raise interest rates, to raise them sooner, to raise them more, in the face of higher inflation. So it is the expectation that these higher numbers will produce a tighter Fed - that is what rallies the dollar,  That is what hurts gold - the anticipation of higher rates to fight off the inflation. Fighting Inflation vs. The Bubbles Reality is that the Fed will ignore the higher inflation numbers and do nothing.  Whatever it is going to do with rates, it will do it regardless of these numbers.  Ultimately, if the Fed has to make a choice between fighting inflation and unemployment (because the Fed believes in the Phillips Curve trade-off between employment and inflation), the Fed will always choose to fight unemployment.  It will prop up the labor market and sacrifice its inflation goal. It is more concerned with maintaining asset bubbles, propping up the U.S. government so it does not have to default on its debt. Letting Inflation Burn The reality is, higher inflation is not going to produce a tighter monetary policy.  The Fed is going to have to ignore higher inflation, which means the inflation is going to get even worse.  It is almost like the Fed has to ignore a fire, and because it ignores the fire, it is just going to get bigger, it's not going going to try to put it out because it is afraid that putting it out is actually worse than letting it burn.  If traders understood this, then they would be dumping the dollar and buying gold. Real Inflation vs. Nominal Inflation Even if the Fed ultimately raises rates, they're not going to get out in front of the inflation curve.Privacy & Opt-Out: https://redcircle.com/privacy

Optimism Rules the Day Friday the 13th was not an unlucky day for the U.S. stock market; all three of the major stock market averages closing at all time record highs. Optimism is ruling the day. In fact, there was a consumer confidence number that came out today revealing confidence in the economy - the University of Michigan Consumer Confidence - and this is a measure of the belief that the U.S stock market will be higher 12 months from now than it is today.  By that measure, consumers have more confidence in the U.S. stock market than they have ever had in the past. That would include where we were just before the '08 Financial Crisis and where the market was at the peak of the dot com bubble. Complacent Investors In fact, there are other measures of investor sentiment that have never been this high.  Look at the VIX, for example, which is really a measure of risk, of investors' need to hedge their portfolios.  If you look at that, the VIX is at all time record lows.  Investors have never been this complacent about the U.S. stock market - ever! And all of those measures of fear, confidence, are at the lowest and highest readings, respectively, that they've ever been, even though the U.S. stock market is extremely expensive. Not a Bubble? The U.S. stock market has only been this expensive near the peaks of previous bubbles.  But what's different about this bubble is a) it's bigger, and b) people are even more confident now that it is not a bubble.  You have less fear, less anxiety and investors are more convinced that they can't lose than at any prior time, despite the fact that we actually probably have more risk now than during any of the previous bubbles. Of course, it's not just the investors who are confident.  Consumer confidence is high, in fact the consumer confidence number came out much higher than expected today. Government Inflation Numbers Real?  Not. The dollar rallied on that today. Initially, down because of the lower than expected CPI, which is seen, paradoxically as good for the dollar if there is less inflation.  Somehow, the way the markets react, if there is not enough inflation, they reduce the probability of a rate hike, so the dollar sold off.  The PPI that came out yesterday was a little higher than expected, so people were worried: "Oh, well, maybe there's more inflation, then the CPI comes out and it's lower than expected. Of course none of these numbers are actually real, because we all know consumer prices are rising a lot faster than these indexes purport to show. Fed Confusing Inflation with Employment Of course, then the Fed complains that we don't have enough inflation.  In fact the Fed actually claims they don't even understand why inflation is so low; they expect it to be higher.  Ironically, not because of all the money they printed, they think inflation should be higher based on how low the unemployment is.  They are looking at the Phillips curve and they don't understand why we don't have more inflation when the unemployment rate is so low.  They don't understand that there's no real relationship between employment and inflation. If there was, it's the opposite of what they think.  When people are productively employed, and making more things, that tends to keep prices down. When people are unemployed, governments have to subsidize them by printing a lot of money and making a lot of unemployment benefits or welfare benefits, that will generally lead to higher consumer prices. If anything, they will be correlated together, not opposite.      Privacy & Opt-Out: https://redcircle.com/privacy

Congress May Not Deliver Promised Economic Growth I think part of the renewed weakness in the dollar may be due to the feeling that all the tax cuts are not going to pass.  The Trump/Republican plan outlined some days ago will be difficult to to get through Congress. Even if it does get through Congress it is not going to deliver the economic growth that is being advertised. Tax Cuts Masquerading as Reform Go back to the origins to the Republican dialogue about tax reform.  They actually wanted to do reform. All the reform is out the window now. All we have is tax cuts masquerading as reform.  But the initial concept that the Republicans had was to try to move toward a consumption-based tax system. They tried to do that through the back door with the BAT (Border Adjusted Tax), which is the opposite of what the Republicans are now promising, which was tax relief for the middle class. That's not what they are delivering. Getting Around Elimination of State & Local Tax Deductions A lot of people are going to get tax increases.  Part of the problem, though is the elimination of the deductibility of state and local taxes. I mentioned on an earlier podcast that the states can get around this by shifting the tax to a payroll tax that will be fully deductible for the employers.  Any resulting reduction in salary would be offset by the elimination of state and local taxes.  If the states react the way I think they will to the loss of the deduction, the governments will not reap the tax windfall that they expect, causing much bigger deficits. Big Deficits Ahead At the end of the day the bill may not pass because Congress may not be willing to sign on to anything that raises taxes.  They want everybody to get at tax cut.  How are you going to do that? How are you going to cut income taxes and not cut spending on anything without having a huge increase in the deficit - which of course is what is going to happen. Recession Ahead You can try to assume that some of that increase is not there because of dynamic scoring, you can assume that tax cuts are going to lead to economic growth.  Maybe they will, but I think regardless we're going to have a recession.  There is no recession in any of the forecasts. Nobody thinks a recession is coming at any point during the next 10 years, whether we cut taxes or not. I think, whether we cut taxes or not we're going to have a recession, and if there is a recession, you can throw all this dynamic scoring out the window! Production Equals Stimulus Even if the recession is not as severe as a result of the tax cuts, the results will still be huge increases  in the budget deficit. They are losing some Republican support and they are going to have to reach across the aisle, and there is no way the Democrats will sign on to any tax cuts for the "rich".  If they take away tax cuts on corporations, they take away the reduction in the marginal tax rate, then you lose any hope of economic stimulus. That is where the stimulus comes from.  Real economic stimulus comes from more capital investment, more job creation, less consumption. That is what you get when you reduce marginal taxes on people with the highest propensity to save and invest. Inflation Ahead The Keynesians have it backwards.  They think stimulus comes from consumption - it doesn't.  Consumption doesn't stimulate anything.  Consumption without production just leads to higher prices which is what is going to happen.  We are going to get more inflation.Privacy & Opt-Out: https://redcircle.com/privacy

Government Is Not Measured by What It Taxes, It Is Measured by What It Spends Democrats promise free stuff; Republicans promise free tax cuts.  What's a free tax cut?  That's a tax cut that happens even though you don't reduce government spending. In a recent panel discussion with Steve Forbes, I made the point that government is not measured by what it taxes, it is measured by what it spends. So, if the government is spending money, there is a cost associated with that, whether or not we pay for it through taxation, we're still going to pay for it. Cutting Taxes, but Borrowing and Printing the Difference Is Worse We're going to pay for it through more debt, higher inflation, and ultimately higher taxes in the future to not only repay the debt, but to pay the interest on the money we borrowed to finance the tax cuts.  So cutting taxes, but borrowing and printing the difference is worse.  I would rather pay for government with taxes than debt and inflation and higher taxes in the future. That is the argument I made with Steve Forbes is: If the Republicans are going to tell their constituents that they can get tax cuts even though the government continues to grow, they how do they have the political ability to generate the swell of public opinion to shrink government? You Can't Have Big Government and Low Taxes What I want the Republicans to do is make it all about less government.  I want the Republicans to say, "You've got a choice. You can have big government and high taxes, or you can have small government and low taxes."  That's it.  You can't have big government and low taxes. That's what the Republicans want to sell and that's what Steve Forbes was advocating, but if people think they can have their cake and eat it too, they they will vote for that.  But if you put it in those terms: "You want lower taxes, you need less government. If you want to pay less for government, then government has to cost less. Yes you can have a big tax cut, more take home pay, but these are the government programs you have to eliminate in order to make that possible." You Can't Tell the Voters They Can Have Tax Cuts First and Cut Spending Later You might be able to generate support for cutting government spending if people realize there is a reward for that. You cut government spending and then you get the tax cuts.  Steve Forbes was arguing to give the tax cuts first. If we get the tax cuts first, you will never get the cuts in spending.  It's like young kids who want dessert first, but if they want dessert, they have to eat their dinner. If I give my kids dessert first, they'll never eat their dinner! So you can't tell the voters they can have their tax cuts first and then we'll cut spending later because we we'll never get smaller government.  The tax cuts must be contingent on the spending cuts.Privacy & Opt-Out: https://redcircle.com/privacy

Gun Laws Do Not Prevent Crime The answer to preventing mass killings is not more gun control; Stephen Paddock would have been able to get those guns regardless of whether or not owning them was illegal. He would have found a way to get those guns. Heroine is illegal, cocaine is illegal - there are all kinds of things that are illegal - it doesn't stop people from getting them. Criminals Will Break Any Law If you are a criminal, you are going to break the law, and clearly, if you're willing to murder, you're willing to break the law about gun ownership. Had the police not found him when he did, who knows how many people he would have indiscriminately murdered?  He still had a hundreds of unused bullets that he was intending to fire at the crowd. He didn't even know who he was shooting; he did not care who he hit. So clearly, someone who is willing to commit that kind of murder is willing to break the gun laws. Another Person With A Gun Could Prevent the Murder So gun control would not have prevented him from committing this crime.  Maybe if someone with a gun in the hotel had found him earlier they could have shot that guy in the back of the head before he had the chance to shoot as many people as he did. Beware of Overreaction What really scares me, though, too, is what kind of backlash we might have, what kind of overreaction for additional security at hotels. Will it be confined to just Las Vegas hotels, or hotels all over the country? I get visions of checking into a hotel being just like the TSA lines at the airports. There is no way to be sure that a hotel can keep guns out of a hotel room.  They don't have cameras inside hotel rooms.  Is it possible that if they had had extra security at check-in Stephen Paddock would not have been able to get his guns up to his room? He might not have, but this was obviously a premeditated act that took days of preparation, and he could have found a way around the safeguards, or devised another way of killing.Privacy & Opt-Out: https://redcircle.com/privacy

Record Highs in the Markets This is the last day of the third quarter; S&P 500 and NASDAQ ended at record highs.  I am not sure what made the Dow miss an all-time record - it was close but no cigar.  Other broader measures did hit record highs to close out the quarter, in fact, Donald Trump was tweeting about the record highs in the stock market earlier this morning.  Of course, when we were having record highs under Obama, it was a bubble and it didn't matter, but now that it is his bubble, it's now a bull market and it simply shows what a great job he is doing as President. Weak Dollar Boosts International Markets Of course, U.S stock markets were overshadowed by international markets, thanks in large part to the weakness in the U.S. dollar. The dollar did recover some of its losses in this closing week of the quarter (I believe, again, a bit of a dead cat bounce).  I think the dollar is going to have its weakest quarter of the year in the fourth quarter, so we'll see if I'm right on that. But even with a little bit of a bounce, the dollar index back up to 93.o7. Despite that, foreign markets still well out-performed the U.S. stock markets in Q3 as did gold stocks.  If you bought gold stocks, they did better than the S&P in Q3. Gold Seeking Key Level I think the divergence between the gold stocks and the S&P is going to accelerate in Q4.  Obviously 1300 was not really the breakout; gold got all the way up to $1350 before turning back, and it's now back below $1300; it was off another few bucks today. So I think maybe $1300 wasn't the key level.  It's probably $1350 or higher before we get the breakout.  I think we're at $1280 right now. Personal Income and Spending Weak More bad economic news: the big number was personal income and spending.  It met expectations, relatively, except they did revise July down.  It was originally reported at +1.4% and they revised it to +1.3%, so, weaker than they had originally reported.  For August it was up .2% and consumer spending was up .1%.  Last month's +.3 was unrevised but this month met expectations of +.1% and these are low numbers  Privacy & Opt-Out: https://redcircle.com/privacy

Estate Tax is Out Today President Trump announced some of the details of his highly-anticipated tax reform, which is really not tax reform, it's more of a tax cut masquerading as a reform. I would say the best part about it is the elimination of the estate tax.  That, in and of itself is a very substantial improvement. That tax should not be there;  it raises very little revenue but does tremendous damage to businesses.  It impedes the ability of a family business to be passed down from generation. It leads to the destruction and dismantling of businesses, the loss of know-how, ingenuity and jobs. Fewer Tax Brackets As far as the rest of the plan, I like lower taxes, I like fewer brackets (I'd like to have just one bracket - I'd like to flatten it all the way down to zero). Under the President's plan, the brackets are 12, 25 and 35%.  I'd just as soon it would be one bracket of 25%.  If we are going to have an income tax let's let everybody pay the same rate. The new plan is an improvement over the number of brackets we have now. But again, remember, some future President can just expand on these brackets. In fact they're already talking about a fourth bracket because the highest bracket, 35% represents a reduction of the current top rate of 39.6%.  Of course you have to add the 39% Obamacare tax and, of course a lot of people have to add the state income taxes. State and Local Taxes No Longer Deductible By the way, if this version of the bill passes, state taxes will no longer be deductible. That was the one deduction that they were willing to give up, state and local taxes, but they preserved the home mortgage deduction. Personally, I'd rather see it the other way around: get rid of the home mortgage deduction and allow people to deduct their state and local income taxes.  I have a problem on taxing people on money they never got.  If the state taxes you, you never get that money.  Why should the Federal government tax you on the money the state took from you before you had a chance to get it?  I did a podcast on that idea. I think you can't take income that was taken from the citizens by the state.  In fact it may even be unconstitutional. Home Mortgage Deduction is All Politics Why keep the home mortgage deduction? It's all politics.  That deduction is bad economics. If we're going to have an income tax, you don't have a choice about whether or not to pay state and local taxes, but you have a choice about whether or not to buy a house. You shouldn't get a deduction on your income tax based on the way you choose to spend your money. That's the government trying to micro-manage buying decisions, trying to distort and influence the economy. But the housing industry is a strong lobby and they influence the tax code. It's because of the swamp creatures that the mortgage deduction is there. Standard Deduction is Doubled Now the standard deduction is doubled. What this means is more people utilize this standard deduction, fewer people will itemize.  Itemizing is less advantageous because you can't include your state and local taxes. Now if you own real estate, right now you deduct not only your mortgage but your property taxes. If you can no longer deduct your property taxes, obviously that will reduce the value of real estate because it increases the after tax cost of owning it.  Privacy & Opt-Out: https://redcircle.com/privacy

Yellen Putting On an Optimistic Front Everybody is watching Janet Yellen this week; the Federal Reserve met and did not raise interest rates - no one expected them to raise interest rates.  But Yellen did offer a more optimistic assessment on the economy than most people were expecting. In fact, she shrugged off all these hurricanes and did not mentioned all the money that will have to be borrowed to repair all the destroyed infrastructure. No Rate Hike She's not worried at all about the impact of the hurricanes on the economy, and based on how upbeat she is, the markets are convinced that we are going to get another rate hike between now and the end of the year.  Most likely December - and I think the markets had already started to price out a December rate hike and now they are pricing it back in. Shrinking The Balance Sheet But what everybody was waiting for was the plan on quantitative tightening.  They are afraid to use that language, but they're just talking about winding down their balance sheet. Janet Yellen did say that they would begin in October or November.  They will not roll over $10 billion per month.  Now, if they earn $15 billion in interest, they are still going to re-invest $5 billion. So it is possible that even though they are doing this "taper", that the balance sheet could still be getting bigger. $10 Billion a Month Forever If they stay at $10 billion a month it will take forever to actually shrink the balance sheet - which they won't do, because long before we get to forever, we're going to get to the next recession and then they will have to crank up the balance sheet. Fed is in a Box The Fed is in this box, they've boxed themselves in.  They have kept rates so  low for so long, they've allowed so much debt to accumulate it is impossible to allow interest rates to rise, but they can't admit that.  So they have to pretend, they have to talk as if everything is going to be fine, they will be able to normalize rates, they will be able to shrink the balance sheet. None of this is possible, and it's only a matter of time before the market figures it out.  Bankrupt! Just like Toys R Us - bankrupt overnight.  It was just a matter of time before Toys R Us creditors realized they are insolvent.  Then, Boom! Puerto Rico, already bankrupt, can't do anything to help itself now.  It it were not for money coming to Puerto Rico from the United States, what would they do? They didn't save, they squandered their money, they ran up big debts - America has done the same thing and there is no bailout for America.Privacy & Opt-Out: https://redcircle.com/privacy

Market Anticipates Quantitative Tightening The market continues to rise; people are excited about the Fed meeting that start tomorrow and concludes on Wednesday.  Nobody expects a rate hike and there's not going to be a rate hike, but what everybody is looking forward to is the Fed outlining its strategy for quantitative tightening. Shrinking the Balance Sheet The Fed hasn't actually used those words yet; I use that term because what they are going to do is they are going to shrink their balance sheet.  Right now, it's pretty much as large as it's ever been ever since it has done QE: just over $4.5 trillion.  The idea is that the Fed is going to lay out a timetable or a roadmap for shrinking this balance sheet. Upward Pressure on Interest Rates I don't know why the markets are so excited about the prospect of a plan to shrink the Fed's balance sheet; if the Fed actually shrunk the balance sheet the markets would not like it. This would put dramatic upward pressure on interest rates, which is not good for stocks. GDP Estimates Down Also, GDP forecasts are coming down, we had big reductions late last week. Much of the reductions came from bad economic data we received before the hurricanes. Now, in the aftermath of hurricanes, that bad economic data is going to get even worse.  They are already tallying up the damage from Irma and Harvey and it is enormous. Real Estate Under Water Speaking about real estate, there are many people who did not have flood insurance.  The question is: What are they going to do with their houses? Are they going to borrow more money with low interest rate government loans and be deeper under water? Or are they going to walk away from their homes and just give these underwater housed back to the bank? Also, if Maria hits Puerto Rico and does a lot of damage, the U.S. government will have to pay for some of that. Government Spending Increase With all this bad news about the economy, why is the Fed going to try to make it worse by shrinking its balance sheet? The budget deficit is already going to explode; all the hurricane relief money needs to be borrowed.  Trump is promising to roll out the Republican tax cut plan by the end of the month and it may be a joint efforts with the Democrats.  They've already said it will increase the deficit.  If the deal is with the Democrats, it will no only mean less tax revenue, it will also mean big increases in government spending. Money for Hurricane Damage - Money for Everybody! So not only will we be paying for hurricane damage, there will be new infrastructure spending, new money for the military - who knows if we get money for the wall? Maybe it's going to be money for everybody, the Democrats and Republicans coming together to fill everybody's Christmas stocking with goodies for the voters.  How is the Federal Reserve going to add to the pressure? Who Will Buy Government Bonds? Remember: if the Treasury is going to borrow more money, that's more bonds being offered for sale. If the Federal Reserve is not only not a buyer for those bonds (which it normally would do), if it is shrinking its balance sheets it cannot buy any of them. So now the Federal government, the Treasury, is going to have to go into the private market to sell well over a trillion dollars worth of treasuries to finance next year's budget deficit without any help from the Fed. Repay Fed Plus Finance New Borrowing But not only is the Fed not going to help, the Treasury will be in competition with the Fed.  They will both be trying to unload treasuries at the same time. In other words, if the Federal Reserve refuses to roll over the maturing bonds, or refuses to reinvest the interest payments they earn, then the Treasury will have to sell those bonds, too. They have to sell enough bonds to repay the Fed in addition to finance all the new borrowing.  Privacy & Opt-Out: https://redcircle.com/privacy

President Trump Courts Dems on Tax Reform I think the catalyst for the rise in the stock market today is enthusiasm over President Trump's announcement that he is working with the Democrats and is close to a deal on tax cuts. So that if he can't get something done with the Republicans, he will get it done with the Democrats and, one way or another, he's going to accomplish this major tax reform. Major Shift to Make Economy More Productive But of course, it's not going to be tax reform; it's going to be tax cuts. Based on what the President is saying, we're not going to reform the tax code, we're not going to have a major shift that will make the economy more productive. The President has already said that the "rich", however he is going to end up defining rich, and I have  feeling that "rich" might be a lot less income than people might believe, but he is saying that the rich are not getting a tax cut at all. They may even have a tax hike! Growth Comes When You Lower Marginal Tax Rate If you're not going to lower the top rate, if you're not going to reduce the marginal rate of tax, you're really not going to get any economic stimulus, because that's where the growth comes from.  Growth comes when you lower the marginal rate and people have the incentive to work harder and product more taxable income, so that maybe the government can actually collect more taxes at a lower rate because there will be more income subject to tax. The reason is, the higher income workers need an incentive to continue to work harder in order to promote savings and investment. if the cost of working harder exceeds the cost of not working, people will choose leisure over productivity. More Government Spending, Less Revenue Now if the middle class tax bracket gets reduced a little bit, they probably will not have the incentive to work harder or generate more income or productivity.  They will just pay a little less tax.  I'm all for lower taxes, but only if we shrink government; only if we cut government spending. Nowhere is the President talking about that.  In fact, what he is talking about is more government spending. I'm sure that any deal with the Democrats is going to involve increasing government spending on infrastructure, on hurricane disaster relief, on border security - whatever it is, it is going to be a giant bill that will result in more government spending and less revenue to pay for that spending  Privacy & Opt-Out: https://redcircle.com/privacy

A Huge Risk-On Day The markets rallied all over the world.  Everything was up. All the foreign markets - European markets, Asian markets, rallied.  It was a huge risk-on day. Stocks went up and bonds got clobbered. Yields rose on government bonds, the 10-yr. out to the 30-yr. Insurance Rates Going Up There will be a lot of pressure on insurance companies to pay claims for both recent hurricanes and where's that money coming from? It's got to come from the markets.  It is just not sitting there in a piggy bank. It is invested in stocks and bonds, so if they are going to pay claims, you would think that is a negative for the financial market as the insurance companies have to liquidate some of their portfolios, but not today! Big Move Down for Gold Risk-on, so you get rid of your safe assets, although I don't know why anyone would consider Treasuries safe, but everybody sold treasuries and bought U.S. stocks. They sold gold.  Gold was down $19 today. This is the biggest one day move I've seen in a while.  In fact, this $19 down move - gold has been moving up steadily to $1350 last week. I don't think I have ever seen a $19 up day. Gold's Steady Climb Gold's been going up slowly.  $5, $7, $3; maybe there was one $10 day, I think, but it has been a very slow, steady climb on a wall of worry.  And now, all of a sudden, we have a day where everybody is excited because the hurricane didn't do as much damage as it could have, and they all buy stocks. They dump gold and it goes down $19 in one day. Gold had been climbing before the hurricanes came around. and I don't think any of that gain was necessarily the result of the hurricanes.  Had none of these hurricanes happened, gold could have been exactly where it was before today.  Gold was rallying anyway.Privacy & Opt-Out: https://redcircle.com/privacy

Trump said Government was Too Stupid When Donald Trump was originally elected President, I was out there warning, that budget deficits under the Trump Presidency are going to be huge.  Donald Trump never ran as a fiscal conservative or a Libertarian.  He didn't say government was too big, he just said it was too stupid. He promised just to be smarter. He didn't say he would make government smaller, only that he would make it more efficient. He would do a better job of using big government than politicians who have held the office before him. Trump Promised More Spending So it was my feeling that a Trump Presidency was going to result in increasing the budget deficits that would be necessary to finance a bigger government.  Also, Donald Trump never promised to cut government spending; cut entitlements.  In fact, he promised the opposite.  He promised not to touch entitlements, to allow them to continue to expand. He promised to spend more money on the military, more money on our vets, more money on infrastructure, more money to build a wall.  So I knew all of this would result in bigger deficits. "Gentlemen's Agreement" to Raise the Debt Ceiling But now, my suspicions have been confirmed. Now we have news that Donald Trump has basically made a "gentlemen's agreement" with Chuck Schumer to repeal the debt ceiling completely. There has been some debate again about raising the debt ceiling, we have this charade every year or so, where everybody pretends that they might not raise the ceiling and they raise it anyway.  We had a similar political theater going on until Donald Trump cut a deal with the Democrats to extend the last suspension of the debt ceiling for another 90 days. That's when we found out that they had also been working on this deal to eliminate the ceiling altogether. Never Really Paying Off Bills In recent years, the political spin has always been that lifting the debt ceiling is the politically, fiscally responsible thing to do.  That America always pays her bills, and because we always pay our bills, we have to raise the debt ceiling. Ironically, they have it backwards.  The reason they have to raise the debt ceiling is because America never pays her bills. If we paid our bills, we wouldn't have any debt. Debt Ceiling was a Brake on Government Spending What government wants to do is to continue to not pay the bills; to continue to borrow the money so that we can pretend to pay the bills.  And the obstacle to increase debt is the debt ceiling. Of course, we always raise that ceiling every time we approach it, but the fact that the ceiling is there, must provide some type of brake on government spending.Privacy & Opt-Out: https://redcircle.com/privacy

Threats from Hurricane Irma and North Korea After a long holiday weekend the DJIA fell 234 points this Tuesday.  Finally we have some kind of negative reaction in the stock market to the bad news.  Over the weekend we got news that North Korea had successfully tested a hydrogen bomb, and now we know that Hurricane Irma, which is now listed as a category 5 hurricane, is one of the biggest, if not the biggest hurricane ever in the Caribbean. Anything Can Happen It looks like it is going to go right by Puerto Rico; for those who may be concerned about me, I am Connecticut now, so my family and I are not on the island, but we certainly have property there and we are also very concerned about our neighbors and the people of Puerto Rico. It is not likely to be a direct hit, but anything can happen.  It is projected to pass Puerto Rico Wednesday afternoon. Irma Threatens Caribbean Islands on Heels of Hurricane Harvey The people of the Virgin Islands are going to suffer a similar fate.  There are other Caribbean islands that will not be as fortunate; the hurricane is going to go right over them.  Who knows where it is going to go after that? There is a state of emergency in Miami, in the keys, from Key West all the way to Key Largo. It is a massive hurricane with lots of potential damage on the heels of Hurricane Harvey. We're Broke And you know what? We're broke. Harvey is almost a $200 billion price tag, and I don't know what Irma will be, because the government will have to bail out Puerto Rico and the U.S. Virgin Islands. There is no way the government can deny them relief - they are American citizens.  There was a lot of opposition to a Puerto Rican debt bailout but no one will be against giving money to Puerto Rico as a result of the hurricane. Hurricane Aid for Puerto Rico instead of a Bailout In fact, this could end up being a bonanza for Puerto Rico. They could end up getting a massive amount of aid all disguised as hurricane aid. They are talking now about power being out for 4-6 months in parts of the island because the government has so under-invested in the infrastructure - the government-owned power company.  Maybe Puerto Rico will get a bunch of money in order to re-build that infrastructure as part of the hurricane bail-out money. So money they could not get from Congress because of fiscal troubles may come through another channel.Privacy & Opt-Out: https://redcircle.com/privacy

Nonfarm Payroll Report Fails to Impress Today is the first Day of September; and since it is the first day of a new month, and it is a Friday, we got the nonfarm payroll report. The consensus forecast was about 180,000 jobs.  The number came in at 156,000, well below the consensus. To make it worse, they revised down the prior 2 months by about 20,000 jobs each. The unemployment rate notched up from its 16-year low.  When Donald Trump, the candidate called 5% unemployment the greatest hoax on the American people, well, it's got to be an even greater hoax, now that it is 4.4%. Donald Trump's Huge Reversal I just put up a video on my YouTube channel, Donald Trump's Huge Reversal. I juxtaposed a lot of clips of Candidate Trump with President Trump. Candidate Trump talked about how terrible the economy and how the numbers are so phony and now he is embracing those same numbers, and of course it is the same with the stock market, calling it a big, fat ugly bubble. The stock market today continued to strengthen throughout the week, including in the aftermath of this weaker than expected nonfarm payroll number. Some Silver Linings Labor force participation held steady at 62.9, still very low. Average hourly earnings, which happened to be up .3% last month, the biggest gain we've seen in a while, in August it was up ,1% ; vert meager increases in average hourly earnings.  A lot of that may have to do with the higher minimum wages - just talking about minimal amounts of money here.  The average work week actually ticked down from 34.5 hours  to 34.4 hours, so Americans working slightly more hours and getting barely more money. Is This The Beginning of a New Trend? This was a relatively weak report; there were 2 bright spots; there was that there was a decline in government workers and a better than expected increase in manufacturing. We did see an increase of 36,000 manufacturing jobs; a lot more than the expected 9,000. We do have a 2-month jump in manufacturing jobs. The question is, "Is this the beginning of a new trend?"Privacy & Opt-Out: https://redcircle.com/privacy

$1,300 Was a Coiled Spring Beneath the Market We've been flirting with that $1300 level all year; I've been talking about all the resistance that was up there and every time the price of gold got near $1300 it was met with a tremendous amounts of selling, there was a lot of supply.  But as I have been saying on this podcast, the demand was building. It was a coiled spring beneath the market. The channel was narrowing.  The distance between the $1300 resistance and the support kept getting narrower and narrower.  I thought it was only a matter of time before we exhausted that supply and broke through that psychological $1300 level. The Rally Held Firm All Day Gold is up about $18-19 on the day; we closed at about $1310.  Finally, I think, there were people who were worried it wouldn't hold that level, people were thinking that we would sell off so we wouldn't quite get a close above $1300, we'd just get a trade above $1300. But the rally held firm all day long.  We actually closed on the highs of the day. In fact, as I am recording this, the price of gold is taking another jump.  Maybe it is the missile North Korea fired that went through Japanese airspace.  We're tacking on another  $10-11; we're now trading above $13.20. The Dollar Is Now a Risk Asset The dollar continued its weakness.  It is one of the reasons that gold continues to be strong. The dollar index made new lows today, down around 92.20, and looking at the action so far in the early evening. The dollar is not benefitting at all from this flight to quality. We're seeing a big rise in the Japanese Yen, a big rise in the Swiss franc.  Those are the go-to currencies.  The dollar is now a risk asset. People don't buy the dollar when they're worried, they sell the dollar when they're worried. Even the Chinese Yuan - new high for the year. Gold Now Going Up in Terms of Everything Of course gold, now, is not only rising in terms of dollars, but finally rising in terms of everything. Gold is going up in yen terms, it's going up in Swiss franc terms, even though those currencies are rising as well.  This is a key factor, and I think now that we have cleared out that resistance, there are a lot of people who thought there is no upside in gold.  Well they're about to find out just how much upside there is.    Privacy & Opt-Out: https://redcircle.com/privacy

The Joe Rogan Experience Podcast I appeared the Joe Rogan Experience Podcast while on my trip this week to the West Coast. I first appeared on his show about 3 years ago, and since then the popularity of his podcast has really exploded. A couple of million have already listened to my most recent appearance.  I was on for 3 hours and I did almost all of the talking. Huge Reaction to Minimum Wage Discussion If you look at the YouTube video you'll see a tremendous amount of reactions, both positive and negative, which is a far greater reaction than the show usually gets. I could have set the record on thumbs down but I got more than 3 times the number of thumbs up. If you read the comments, many people are attacking me for being "mean" because I am against the minimum wage. Why Am I Against the Minimum Wage? This is the typical liberal reaction when they encounter someone who disagrees with the liberal agenda. They think I am out of touch, that I don't understand, I'm heartless, and they get so upset at me because they think I am a really bad guy. After all, only a really bad guy would want to exploit poor people by paying low wages. It would not dawn on them to think about why I am against the minimum wage. Against Government Mandated Unemployment I am not against people earning money; I am against mandated unemployment. I am against the government preventing people from acquiring the skills that would enable them to earn a lot more than the minimum wage in the future.  Liberals don't consider any consequences - it's all about how good they feel about themselves. "Who actually cares about the consequences of this law, just as long as I can feel morally superior to anyone who doesn't support the minimum wage law?" For Entry-Level Jobs that Provide Value to Employer I did explain that, but apparently it went right over their heads. I am trying to explain that the minimum wage law leads to more unemployment because it causes people with low skills to lose the opportunity to move up in the workforce through entry-level jobs that provide value for the employer.      Privacy & Opt-Out: https://redcircle.com/privacy

Economic Ignorance I happened to watch a YouTube video Politicon 2017 Live Stream Schapiro vs Uygur and I want to address only the part of the discussion which was about taxes.  Ben Shapiro did a good job, but a much stronger case should be made about Uygur's statements which were economically ignorant. False Logic One of the points that Cenk Uygur made during the debate is that high taxes are good, that we have more prosperity with higher taxes, and lower taxes are bad for the economy. In his opinion, if the government takes money from the people who earn it and gives it to the people who don't earn it, everybody is going to be better off, including the people who are being taxed.  He cited the 1950's as an example of U.S. economic prosperity, concluding that because income tax rates were 91% America was wealthy. This false logic.  it is like eating a banana during a rainstorm and concluding that eating bananas causes rainfall. The '50's and '60's Marked the End of American Prosperity In fact the reason we were prosperous in the 1950's and 1960's is not because of high taxes during those decades, but how low they were taxed in the decades before that. Ben Shapiro's response to Uygur was that we won WWII and the rest of the world was decimated, which is true, but not an accurate response.  The 1950's didn't just occur spontaneously. Tax Rate Was Zero We were wealthy and a mighty power before WWII.  The standard of living in the '50's and '60s was a product of the 19th century, and the early 20th century when we had no taxes at all.  The reason we created such a strong middle class was because we had no taxes. After the end of the civil war, from 1870 - 1913, which was the introduction of the income tax, the income tax rate was zero. That's the time of the industrial revolution. That's when all the immigrants were coming to America - the 1880's the 1890's, the 1900's.  That's when all 4 of my grandparents came here. There were no taxes and massive economic growth when the tax rate was zero. Camel's Nose Under the Tent When they started the income tax in 1913, the top bracket was 7%. That's still very low,  Initially they wanted to cap it at 10% and the reason they didn't is the objection was that the cap would encourage lawmakers to raise it to 10%. Unfortunately, they didn't cap it, and of course this was the camel's nose under the tent and the minute you had an income tax, congress couldn't resist the temptation to raise it.  Privacy & Opt-Out: https://redcircle.com/privacy

Press Wants Freedom of Speech as Long as It Fits Their Agenda One of the few rights left to us in this country is the freedom of speech.  If we don't defend speech that we find offensive, someone else will find your speech offensive and move to silence you.  Political correctness, is evolving into the Thought Police via the mainstream media. In particular, President Trump's reaction to the events in Charlottesville is being portrayed as a defense of White Nationalists over Black Lives Matter. Nothing is President Trump's remarks supports this story.  President Trump, in the lobby of Trump Tower, was subjected to an inquisition by the Press, who intended to entrap the President and further their agenda to mischaracterize him and anyone who supports him. Disrespecting Donald Trump and the Office of the President I know very few members of the Press respect Donald Trump; this is clear.  But they need to respect the office of the Presidency.  Could you imagine members of the Press treating President Obama the way they are treating President Trump? Can you imagine the cries of racism? Of course, no member of the Press would dare show that type of disrespect to President Obama. Condemning Violence on Both Sides President Trump is refusing to denounce only the violence perpetrated  by the White Nationalists without also mentioning that the Black Lives Matter group, who assembled without a permit, also engaged in violence.  The Left is saying that President Trump has not denounced the White Nationalists enough. What the President said was that he was condemning the violence on both sides and that angered the left. They hold that the President should only condemn violence committed by the White Nationalists. That would be hypocritical. Background on the Event To give you a little background, the park, formerly named Robert E. Lee Park, was re-named Emancipation Park and the city was going to tear down the statue of Robert E. Lee that had presided over that park. So there was a local protest that the statue was coming down.  It was coming down regardless of local protests. A local group wanted to protest the fact that this was happening. This group eventually got a permit although it was initially rejected. So they engaged in a legal protest to exercise their First Amendment rights. The counter protesters, who came in from out to town did not have a permit landed first physical blow. Freedom of Speech is there for the Offensive Ideas Are the ideas that the White Nationalists offensive?  Yes.  But it doesn't matter, because that is Freedom of Speech. It is there because of the offensive statements.  See, nobody cares if you say something that makes everybody happy and doesn't offend anybody - you don't need freedom to do that.  The scenario that the left is trying to spin and the media is playing right into it is that America is afraid to go anywhere near anything that would draw the ire of the politically correct thought police. We have a very tenuous grasp on the right of freedom of speech, and there is no doubt in my mind that this right is going to go.  Privacy & Opt-Out: https://redcircle.com/privacy

Speculative Asset Bitcoin is a digital risk asset, not a currency. If you own bitcoin you have an asset, but it is not a safe haven. A safe haven is an asset that is not likely to go down in comparison to another speculative investment.  Bitcoin has been extremely volatile; it happens to be going up, but the price is based on speculation.  Does anybody believe that bitcoin has less downside risk than the stock market? Not a Currency Bitcoin is not used as currency.  They trade in bitcoins for dollars or euros or yen to buy things, but very few legal goods and services are priced in bitcoin.  Because the price is highly volatile and backed by nothing, it can not be used as a currency. It is being used as an asset.  The number of top retailers who accept Bitpay is diminishing, not increasing. Merchants will try to make it easy to trade bitcoin for currency which would then buy goods and services.  Most people who own bitcoin are not spending them; they are hoarding them because they think they are going to keep going up. Just Noise At the end of the day, the realized gains from speculation in bitcoin are going to be overshadowed by the speculative losses. All the rest of it is just noise.  The realized profits will be concentrated on a small group of people, whereas the realized losses will be dispersed among a larger population. Reversing the Consequences Bitcoin will end up achieving the opposite of its original goal, which was to challenge the power of central government, to disrupt money, that is would rein in government and have real commodity money in the same way FedEx upended the Post Office or Uber upended taxis. This is going to give more power to government, because when digital currencies collapse, the central bankers will say, "We told you so! This is what happens when you allow the free market to do what government should do.  When the free market creates money it leads to disaster.  You have to stick with currencies backed by government. " No Joke The original currencies that were created by the private sector, and not by government were issued by banks and backed by gold. Today, the private sector could issue digital currency backed by gold just like paper currency backed by gold. What gave the paper currency value was the gold backing. If any bank tried to issue paper currency backed by nothing, it would have been laughed out of existence. It would have been a joke, except now it's not a joke. People actually want digital currency backed by absolutely nothing.        Privacy & Opt-Out: https://redcircle.com/privacy

Fire and Fury Not Strong Enough Donald Trump's saber-rattling against North Korea continues. Yesterday the President was asked to clarify his statement about the "fire and fury" and he came out and said that that wasn't strong enough; he was really sugar-coating it. What he really means is something worse - if anything his statement was not strong enough. Again, today Trump issued another threat that N. Korea had better be careful, if they say anything if they will regret it big time, so the level of rhetoric is rising. A Legend in Trump's Mind He was talking about the booming economy, the stock market at record highs, employment surging, all these jobs coming back. He is spinning this ridiculous phony story about a recovery that doesn't exist.  Just as I pointed out he took credit for building up our nuclear armament to a level higher than it has ever been - all this is happening, unfortunately, in Donald Trump's mind. Volatility Up There was a big down day in the markets; it dropped over 200 points yesterday; there was a small bounce back today  - the Dow was up about 14, not a major recovery, But if you look at the Vix, which is a measure of fear, a measure of volatility, it was near the lows, below 10 mid-week and it spiked all the way up to 16 yesterday, which is the highest it has been since April. It looks like it is above a key moving average on a weekly chart, so that shows a heightened risk in the market. Dollar No Safe Haven Interestingly enough, the dollar index closed near the lows of the day, just at around 93 even.  It is down on the week.  In fact, this is the lowest weekly close for the dollar index for the entire year. Now, you would expect the dollar to have some kind of a safe haven bounce with all of the saber-rattling - all of the worries about nuclear war.  Typically, you would get money going into the dollar. I guarantee you, if the circumstances were the same a year ago,  there would have been a big rally in the dollar this week. But not now.      Privacy & Opt-Out: https://redcircle.com/privacy

Elimination of Deductions for State and Local Tax - "SALT" Tax reform is the one remaining 2018 Republican campaign issue, and the argument over "SALT", or the elimination of deductions for state and local taxes. In general that would be state income tax or state property tax. In some states that do not have income tax, you are allowed to deduct your sales tax, although that is a more complicated deduction. In the wealthier states on both coasts, tax payers rely on those deductions. The Mortgage Tax Deduction Restricts the Free Market No one wants to get rid of the home mortgage deduction, but that is a much better deduction to eliminate, as it does more damage to the economy. The politically popular mortgage interest deduction is aimed at altering behavior, rather than to let the free market work independently. The real beneficiary of the mortgage tax deduction is not the home buyer but the house seller. There are many predominately Democratic states with high taxes but I don't buy argument in favor of eliminating that deduction. Why Should the Federal Government Subsidize the State Government? The argument is, why should the Federal government subsidize state government?  If a state wants to have a high income tax, then, its citizens get to deduct that income tax from their Federal taxes and therefore, they don't feel the full burden of the tax, because some of it is absorbed by the Federal government. As a result of this, tax payers in high tax states are more receptive to those high taxes because they get a tax break on their Federal tax returns. If they could not deduct these taxes, there would be a bigger pushback on the state level. Federal Government Taxing Unearned Income If we are going to have an income tax, we have to tax the actual income. For example, if you earn $100,000, and let's say you live in a state with a flat 10% income tax, then they pay $10,000 in taxes. Did they earn $100,000 for $90,000? I would say they earned $90,000. Now if the Federal government does not want to give a deduction on the state income tax, they should not tax you on income you never earned.  I don't think that's Constitutional. You can't be taxed on money that didn't come to you. The money paid to the state in taxes is not a voluntary donation. It is taken by force. No Double Tax If you go back to the origins of the first Federal income taxes exempted tax paid to the states, it was because the Federal government respected the sovereignty of the states to tax the people first. If you allow the Federal government to ignore state taxes, theoretically they could place an income tax so high that you would have nothing left between the state and Federal tax burden. I would not allow the government to double tax anything, because it is diminishing the power of the state. Defer Income Tax to Employers Here's another thing that no one in Congress is addressing: the states can get around this. Let's say they pass  a law that says you can't deduct your state income taxes from your Federal income tax.  In the previous example, the taxpayer pays taxes on $10,000 he never earned. What if the state then repeals the state income tax on wages and salaries and in its place, imposes a payroll tax on employers? So that, instead of an employee getting paid $100,000 and paying $10,000 in taxes, the payroll tax causes the employer to pay a state tax that would then reduce the salary of the employee by that much. That payroll tax would be deductible for the employer as an expense. So all the states would have to do is change the way they tax wages and salaries and the net effect would be no change for the individual worker.  This would deprive the Federal government of all the extra money they think they are going to get by removing the state income tax deduction.    Privacy & Opt-Out: https://redcircle.com/privacy

Trump Jumps to Tweet on Mediocre Jobs Numbers This morning the Labor Department released the July Non Farm Payroll numbers and Donald Trump tweeted,"Excellent Jobs Numbers just released - and I have only just begun." Many job stifling regulations continue to fall. Movement back to USA!" What is excellent about these numbers?  If you look at the household survey reveals that we created 393,000 part time jobs during the month, and we lost 54,000 full time jobs. Candidate Trump complained about these types of numbers. He talked about the proliferation of part time jobs and the loss of full time jobs on the campaign trail, yet now, it's "excellent news!". Small Rise in Manufacturing Jobs Although the report was not a disaster, it was not greater than many we've seen under the Obama Administration. The expectation was for a gain of 178,000 and we beat it. We came out with 209,000, which is really not a lot of jobs.  Given the size of the American economy, creating 200,000  jobs in a month is really not a lot of jobs.  But exceeding this rather low bar gives rise to over-exuberant headlines over a strong jobs report.  In fact they did revise last month's gain of 222,000 up to 231,000 and this month's was better than estimates. The unemployment rate did tick back down to 4.3; remember it jumped up to 4.4 and now it's back down to 4.3.  We did gain 16,000 in manufacturing jobs and they did revise upward last month's gain from 1,000 to 12,000, so that is somewhat good news, although as a percentage of the overall jobs, it is small. What's the Real Unemployment Rate? The Labor force participation rate did ratchet up one tenth, back to 62.9; still very low.  Wages rose .3% meeting expectations,  and most numbers remained status quo. It's not a disaster of a report but it is not spectacular.  We had plenty similar reports under Obama, which were previously labeled "fraud".  The unemployment rate is low, and candidate Trump was saying, "The real unemployment rate is closer to 49%". What's the real unemployment rate now? Are the Numbers B.S.? The question is, "Was candidate Donald Trump being honest? Did he really believe the numbers were phony or was he just saying that?" Or, was he being dishonest as a candidate and is he being honest as a president? Was he and honest candidate or was he being dishonest? Does he realize that these numbers are B.S. yet embracing them anyway to feather his own nest, when the economy is behaving exactly as it did when Obama was President. Counting Jobs Twice If you look at the jobs, about 40% of the jobs created were in leisure and hospitality, which was the #1 category, and then healthcare and education. We have record numbers of people now tending bar and waiting tables, although these are probably part time workers being counted multiple times as Obamacare drove away full time employment.Privacy & Opt-Out: https://redcircle.com/privacy

Trump Takes Credit for Dow Jones 22K We have an all-time high in the Dow Jones today, closing above 22K for the first time ever. Donald Trump did not tweet about this today, although yesterday he did put out a tweet that the market was about to hit 22,ooo; of course he is claiming credit for it. In fact he pointed out in his tweet that when he was elected, the Dow was 18,000 and not it is 4,000 points higher and of course he is claiming credit for it.  He says the media is ignoring it. They are reporting on the record highs, but believe me, when the Dow starts falling the media is going to pay a lot more attention to the declines than they do to  the rises, especially when the Dow starts falling the media is going to pay a lot more attention to the declines because Trump has already branded this market with his moniker. Bad Economic News Did not Dampen Stock Market Donald Trump did put out a tweet in which he was bragging about wages rising.  I don't know what Donald Trump is looking at - we got the personal income and spending numbers yesterday, and June income was flat.  They were looking for a gain of .4 and instead they got a flat number. That was the weakest number for personal income growth since November - the month Donald Trump won the election. He's talking about the wage gains, where are they? They don't show up in personal income, and most people's income is comprised of wages.This weak economic news didn't stop the stock market from making new highs today.  Of course, Apple was the main reason - it had almost a 5% gain.  Privacy & Opt-Out: https://redcircle.com/privacy

Obamacare Repeal Charade Over The whole charade surrounding the repeal of Obamacare is finally over. The most recent attempt, labeled "Skinny Repeal" was a big fat lie.  They weren't really repealing anything, leaving the essence of Obamacare and accelerating Obamacare's death spiral. If Congress had repealed the employer mandates and the individual penalties but left everything else the same, then the number of healthy people making the irrational decision not to buy insurance would skyrocket and the sick people who would still be buying, would be facing higher and higher premiums and costing insurance companies bigger and bigger losses to be subsidized by the taxpayer. Let the Democrats Own the Disaster Many Republicans are upset with John McCain, for being one of the 3 Republicans to join all the Democrats in opposing the bill.  I think McCain did the GOP a favor. This bill, if passed, would have let the Democrats off the hook. They would have not owned Obamacare, and they would be responsible for its failure. Now we all know Obamacare is still there, it is exactly the way it was passed, the bill President Obama championed and signed, the one that Nancy Pelosi said, "We have to pass it to see what is in it."  We passed it, we know what is in it (although most people do not understand what is in it) and it is a disaster. Late last year most people thought the Republicans were going to repeal it - everybody but me. I didn't think that they had the guts to do it.  I had this interview on Russia Today in mid-January, it's up on my YouTube Channel; the title is, "Peter Schiff Very Skeptical of Obamacare Repeal". If you watch that video you will see that I say, "I don't think they're going to repeal it." No Guts to Repeal Of course, everybody thought, "of course they are going to repeal it. They've been campaigning on it for years!" The President promised it.  Everybody who has run for office as a Republican says, "Elect me and I am going to get rid of Obamacare!". They voted to repeal it many times when Obama was still President. And, of course, every time they voted to repeal it, Obama vetoed it, which of course, the Republicans knew was going to happen. As it turns out, that was the only reason they had the guts to repeal it because they knew it wouldn't actually happen. I knew that the Republicans would have a tough time taking away the free lunch. I knew that a lot of them were promising to repeal but keep the ban on pre-existing conditions and I knew that was impossible. Pre-existing conditions is the very essence of Obamacare.  You can't repeal it and preserve it at the same time. The Stock Market Has Not Gotten the Message The stock market, however, still doesn't understand the significance.  It hit another record high again today. The Dow was up, it closed at a new high today. The NASDAQ and the S&P were down. The transports managed a slight bounce from yesterday's drubbing.  Transports were down around 300 points yesterday. Again, more cracks in the armor for the stock market.  Look at what happened to Starbucks today.  The latest victim of declining retail sales; it was down around 9% today.  They reduced their guidance based on a drop in sales, now I don't know if you can blame this on people buying their coffee on Amazon.  Privacy & Opt-Out: https://redcircle.com/privacy

Summary: The Dow and the NASDAQ set new record highs today as the dollar sold off near the end of the day to close at yet another low for the year. Remember, the dollar index rallied 6% between the election and the Trump inauguration. It has now fallen more than 10% since inauguration. Many currencies are at two-year highs.  The Australian dollar is at a 2-year high, certain commodities are at a 2-year high, copper broke to a 2-year high; oil prices have been strong.  Oil was up about $.80 today after being up about $2 yesterday.  We're now above $48.50.  Getting close to $50/barrel again. Federal Reserve: "No Hike" One of the reasons for the strength in commodities is the weakness in the U.S. dollar. The catalyst for the weakness in the dollar today is the Federal Reserve, the FOMC, concluded their 2-day meeting today; their press release came out at 2.30pm ET and they announced that they did not decide to raise interest rates during this meeting. Nobody expected the Fed to raise interest rates, which is one of the reasons why they didn't. Balance Sheet Normalization? There was some anticipation that the Federal Reserve may be more specific concerning when it might start quantitative tightening or 'balance sheet normalization' as they call it. So people wanted to know when that would start, and by how much are they going to let their balance sheet to run down but the Fed did not allude to any specifics. All they said is that the process will begin relatively soon.  Now the last time they put out a statement, they said it would begin this year. Now they are saying it will begin 'Relatively soon'. Why didn't they leave it at "this year"? Because "this year" would be within the next six months. "Relatively Soon" leaves the statement comfortably vague enough to fit within the Fed's slippery parameters. Gold Hanging In There The markets didn't know what to do for the first half hour, but eventually the dollar broke, and gold finally popped up; it was up around $11-12.  It was about unchanged going into the announcement  and the knee-jerk reaction was a $2-3 selloff, then it came back to unchanged and then we had the rally.  Gold stocks had a pretty good day today; the GDX up about 2.5%; the junior minors doing a little bit better.  Yet these stocks have barely moved this year, but this is just getting started.      Privacy & Opt-Out: https://redcircle.com/privacy

Summary: My recent trip to Las Vegas for The Freedom Fest provided some interesting lessons.  My observations that we are paying more for less were illustrated by the theft of my luggage,  as there are no more luggage security checkers in baggage claim exits.  Also, for the first time, major Las Vegas hotels are charging from $15 - $18 for parking.  This is causing hotel valet workers to lose money, as customers are less likely to leave a generous tip (or any tip) if they are already paying quite a bit to park. So the Las Vegas experience is changing; we're getting less for more money.  Prices are going up and wages are going down. Taking Credit for Phony Statistics This is the real U.S. economy. Forget about all these phony U.S. statistics. The real world reflects the truth about the economy and why Donald Trump is President.  I wish candidate Trump would come back; I would rather see the President questioning phony government statistics instead of embracing them. I'd like to see the President talking about the stock market being a bubble rather than a bull market and claiming credit for the increase. Weakness in U.S. Dollar The big story is the continued weakness in the U.S. dollar, in fact this morning the dollar index hit a new low for the year. It's now back in positive territory as I am recording this podcast, but the low this morning was 93.64 on the dollar index.  Remember, the dollar index rose about 6% between the election of Donald Trump and the Inauguration, and the reason for the rally was the optimism for economic growth as a result of tax cuts, de-regulation, fiscal stimulus and a tighter Fed. Senate Backing Away From Repeal At the time, I argued that that was nonsense, and so far I am being vindicated.  We're six months into the Trump Presidency and nothing has happened. They haven't even been able to repeal Obamacare, nor are they going to.  The Senate already backed away from the version that I said would not work.  Trump did a press conference yesterday talking about Obamacare, assuring everybody that pre-existing ban is going to stay. The very essence of Obamacare is that insurance companies can't charge sick people more for insurance than they charge healthy people. That's the essence of Obamacare that doesn't work and that's what Donald Trump and many Republicans want to preserve. Preserving the Essence of Obamacare Of course, in order to achieve that goal, they had to have employer mandates and penalties.  These are the only things the Republicans want to get rid of. But they want to preserve the very essence of Obamacare and that's the mandates and penalties were designed to deliver. So now they have to come up with another way to deliver the promise of Obamacare. Currency Markets Get the Message The point is, the currency markets have figured this out.  The dollar has dumped better than 10% since the Inauguration, but the stock market has made new highs. The Dow Jones is at a new high today; the NASDAQ hit a new high yesterday, so it's a disconnect.  The initial rally in the stock market happened for the same reason the dollar rallied.  The currency traders have connected the dots. What's the problem with the stock traders?  Why are they oblivious? Dollar Weakness Spark Commodities The weakness in the dollar is also sparking a rally in multinationals, in commodities.  Look at the move today in Freeport-McMoRan a major copper producer; that stock is up better than 13%.  Oil prices are coming back up; oil is up better than a dollar today. Emerging markets are strong. Bullish Conditions for Emerging Markets I have been saying that a weak dollar is extremely bullish for commodities. Why?Privacy & Opt-Out: https://redcircle.com/privacy

Summary: More weak economic data today sent the U.S. stock market to record highs; at least the Dow and the S&P hit new records. NASDAQ not quite, but very close.  The dollar hit a new low for the year.  The dollar index, settling in at 95.10, right on the low for the day.  That's down .63.  Some of the other currencies are strong. Aussie Dollar Strong The Aussie dollar was up about 1.3% on the day; one of the strongest of the currencies today. The Aussie dollar is very close to a 2-year high.  The Canadian dollar was very strong this week on the back of a rate increase by the Bank of Canada. But the dollar falling across the board. Foreign Stock Gain Foreign stocks did better than U.S stocks, given their tailwind from appreciating currencies.  Gold prices were up just over $11. Given the weakness in the dollar and the weak economic data, gold should be moving up a lot more than it is; I still think there is still a lot of short selling going on, but I smell the mother of all short squeezes coming.  Silver is up about .30; back up to $16. remember was a low as $15.10 earlier in the week. Dollar Index Weakening The dollar index index at 95.10, just down over 7% on the year. It ended last year just above 1.02. In fact, in January, hit almost 1.04, so we're down 8-1/2% since the January high, and the year is only half over. So I think there is a lot more momentum coming, especially in light of the economic data I'm about to get to. Retail Sales Disappoint The big report was the Retail Sales numbers, were supposed to bounce back from May's -.3, and they did manage to revise that to down only .1%;but instead of getting a .1% rebound we had another drop.  We had -.2% in June, so that is back-to back declines.  In fact that is 3 consecutive months of falling retail sales. The picture gets worse when you strip out car autos. Last month, we got -.3%. That was unrevised.  They were looking for June to be +.2% - instead we were down another .2%. And if you strip out gasoline, it's even worse than that. They were looking for +4% and we got -.1%.  So very very weak retail sales. This was supposed to be the quarter of the big bounce back! How are we going to bounce back in GDP without retail sales? Consumer Prices Weaker We also got consumer prices that actually came out weaker than expected. That is supposedly bad news, the way the Fed spins it, because the Fed's trying to get higher inflation, at least the way the CPI measures it. They were supposed to get an increase of .1% for consumer prices following last month's .1% decline and instead we came in unchanged. Year over year CPI, up 1.6% vs an estimate of 1.7%, and core, stripping out food and energy, they were looking for +.2%. instead we were up .1% Janet Yellen Wants More Inflation So when Janet Yellen testified before Congress earlier in the week, the only thing she expressed concern about is that inflation is not high enough.  She does not seem concerned at all about the weakness in the economy.Privacy & Opt-Out: https://redcircle.com/privacy

Summary: There are market indicators of a major top as illustrated by the Blue Apron IPO, as it represents the failure of a very weak company attempting to raise money my means of an IPO when the market may have lost its steam. The stock is trading at $7.14, down from its initial $10/share offering. Wall Street has lost control of this IPO. A smaller bank actually issued a price target of $2/share. The point is that they brought the IPO to the market and they could not keep the air in the bubble. SnapChat, another Wall Street darling, went public at $17 not too long ago and although it had a big pop initially up to $29, now trades at about half that price. The point is that this process is coming unglued. The inability of Wall Street to maintain the air in these bubble stocks is an indication that we're nearing the end of this bull market. The Yellen Put May Have Expired The only way the Fed might be about to extend the bubble market is by changing its tune. As I said in my last podcast, I don't know if that Yellen put is still there. It may have expired with the election of Donald Trump.  We know that the Fed wanted to prop the market up during the Obama Presidency; that was clearly their goal. But, especially since Trump has wrapped his presidency in the market's recent upswing, the Fed's willingness to risk credibility may be waning. The Fed may have a greater tolerance for lower stock prices. The Fed will, however step in if they see weakness in Wall Street spill over to Main Street. Commodities and Emerging Markets Commodities are looking good, despite the recent dip in oil, gold and silver. Base metal stocks are rising, emerging markets are continuing to pick up, especially those markets that are big exporters of commodities. So, beneath the surface we are starting to see a rotation into these commodity-sensitive, inflation-sensitive sectors. Golden Opportunity in Silver Meanwhile the headlines are still all about the drop gold and silver.  I recorded a video blog on Monday morning; silver was down almost to $15. It has just bounced off that low as I recorded the video. At SchiffGold, we were able to organize a great deal from one of our suppliers on silver.  The ratio of the price of gold to the price of silver was near 80:1, which is about as cheap as silver is going to get, relative to gold.  Historically, it is a great buying opportunity.  We were able to lock up this deal where we have a limited quantity of junk silver bags we're offering to our clients at $1.25 over the spot price of silver. Sometimes these bags are scarce.      Privacy & Opt-Out: https://redcircle.com/privacy

Summary: There wasn't much of a market reaction to this Nonfarm Payroll report; the dollar index was only up .2% on the day. It closed up flat on the week. The Canadian dollar closed at a 10-month high against the dollar. Also bond prices continue to fall; this is a bad week if you own bonds, worldwide.  Yields are rising across the board.  The trend looks like we are about to break down in the bond market and break out in yield. Gold Market I think it is the weakness in bonds and the backup in yields that is one reason the gold market has been acting as weak as it has. There is still a false perception that rising interest rates are bad for gold. That, coupled with the fact that the dollar has been falling recently and gold has not been rising (meaning gold prices are falling in terms of other currencies) is causing a breakdown in the charts, resulting in selling. Even North Korea's recent successful ICBM testing did not cause gold to catch a bid. Silver Dropped Early last night, around the opening of the Japanese stock market, there was a bit of a flash crash in silver. Silver prices dropped abruptly by about fifty cents an ounce within a second.  The market quickly recovered but then re-tested those lows. Silver was down over .40 today in the U.S. market. It didn't open down that soft, but it traded lower all day. The price of silver hit a new 52-week low. Gold Stocks Signalling a Reversal I have been talking about the relative strength of  the gold miners in the face of this correction and once again, the GDX, which is an index of gold stocks, was only down 1.3% on the day, which is not a big drop, considering the price of gold was down by 1% on the day and the price of silver was down close to 3% on the day. I think this is a good sign for a reversal. A Weaker Japanese Yen Another reason for the recent weakness in gold and silver prices has to do with the weakness in the Japanese yen. While the U.S dollar has been losing ground against other currencies, it has actually been gaining ground against the yen. I am not sure why, or for how long this relationship is going to hold, but there has been a very close correlation between the price of gold and silver and the exchange rate between the U.S dollar and the Japanese yen. Printing Yen to Prevent Interest Rates From Rising The yen was weak overnight particularly because of the global rise in yields above a level where the JGB has drawn a line in the sand. It is basically committed to printing an infinite amount of Japanese yen to keep buying those JGB's to prevent interest rates from rising. Why is the Bank of Japan determined to keep interest rates from rising? Because of the enormity of the Japanese government debt. If interest rates go up, there is not way to service that debt. The choice is default or runaway inflation, and they are choosing the latter. So, last night during all this selling in global bonds, including the JGB, there was massive intervention to support the bond market. That meant the printing of a lot of Yen. It is possible that this is the catalyst that drove down the price of silver and gold. Risk-On/Risk Off Trade One reason for the correlation between the yen and gold has to do with the risk-on/risk-off trade, where both the Japanese yen and gold are seen as the safe-haven assets.  Therefore, when investors want to take risk off, they buy gold and they buy the yen and that may be one of the reasons that the two have been moving together.  Once they start to move together and form a relationship, traders start to key off of it. So if they see weakness in the yen, they sell gold, and if they see strength in the yen they buy gold. Rising Interest Rates are Positive for Gold One of the reasons interest rates are rising in the world is because inflation is picking up. Higher inflation is positive for gold, it is the most bullish factor for gold.Privacy & Opt-Out: https://redcircle.com/privacy

Summary: One of the key differences between Americans and citizens of other countries is that in most nations of the world, individuals gradually won freedoms and privileges from a monarchy. In the U.S., however, we started with all of our rights.  Then, Americans created government by surrendering some of their power, empowering government.  These rights are spelled out in Article 1 Section 8 of the Constitution. Free Stuff Rather Than Freedom We have government not to give us stuff, but to secure our freedom. Americans today really don't want freedom.  They want free stuff. When the government gives you something they take away your choice; they tell you what you are going to get and how you are going to get it. When the government gives you something, however, they must take away from someone else, diminishing that person's freedom. Article 1, Section 8 of the Constitution The Constitution created a Federal Government.  Prior to the Constitution we were organized under the Articles of the Confederation. But the framers of the Constitution wanted the government to have a little more power.  All of the powers of the Federal Government are contained in Article 1, Section 8, and it's not a big section.  It has 18 enumerated powers. Government Powers vs. State Powers The Constitution is written in two ways: it grants powers to the Federal Government and it denies powers to the states. You know that by reading the 10th Amendment to the U.S. Constitution, The Bill of Rights ,which lays out how the Constitution is organized, and that the Federal Government has only the powers expressly granted. The states retain certain powers owned prior to the formation of the Federal government. So, if the Constitution did not specifically prohibit the states from doing something, they could do it. Ignoring the Constitution We know what the Constitution means because its writing is clear. Today they say the Constitution needs to be interpreted - that the Supreme Court is there to "interpret the Constitution". The Constitution is not written in Chinese - it is written in plain English.  The Constitution needs to be applied and enforced.  When people are talking about interpreting the Constitution they are really talking about ignoring the Constitution and to impart meaning that doesn't exist. The Federalist Papers If you look back at the Federalist Papers, at what the founders of the Constitution wrote about the meaning of the document, particularly James Madison, in Federalist Paper #45. If you don't know what the Federalist Papers are, or you've never read them, they are a collection of articles, written at the time the Constitution was being ratified, to generate understanding and support. The authors were James Madison, Alexander Hamilton and John Jay. Here is a quote from Madison, who was considered to be the "Father of the Constitution": The powers delegated by the proposed Constitution to the federal government, are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace,Privacy & Opt-Out: https://redcircle.com/privacy

Summary Independence Day is a great American holiday, but it fills me with joy and sadness.  I love to commemorate what America was, and the whole idea of what made America different. Once we declared our independence in 1776 the people created a government.  We the people had all the power and we surrendered some of our power to form a limited government.  The government was a creation of the people and they ceded some power to the government. This was unique. As a result of this limited government, this uniquely American way of life, America prospered and created the wealthiest country in the history or the world. So we celebrate the beginning of this experiment in freedom and limited government. Benjamin Franklin famously responded to the question, "What have you given us, Mr. Franklin?": "A republic, if you can keep it." We have become what the founding fathers feared most, a democracy.Privacy & Opt-Out: https://redcircle.com/privacy

Summary: Blue Apron Holdings IPO The Blue Apron Holdings IPO today is reminiscent of the dot com boom.  The market is saying the 5-year old company is worth close to $2 billion. This IPO represents a "down round" which may occur after a company suffers a decline in valuation after it has received initial rounds of capital investment. The initial offering was $10/share, and by the closing bell it only managed to close at $10. This stock may go below $10 as early as tomorrow, as many investors were planning to flip the stock. The concept of this company is not proprietary; indeed the recent merger of Amazon and Whole Foods could pose a serious market threat to this company. Rand Paul In more news on this ever-evolving Republican Health Care saga. the Republicans are caving in to media and left spins the Republican Healthcare bill as a re-distribution of wealth from the poor to the rich.  You are not taking from the poor by stealing less from the rich. For some reason, the voting public expects American profit-seeking companies to sell insurance to people who are already sick. This would be the equivalent of selling home insurance for a house that has already burned, or car insurance for a car that has just been in an accident.   Rand Paul is getting a lot of press recently because he is the only Republican who opposes this on principle. He believes in the freedom for Americans to purchase the kind of insurance they need. They can pick their deductible; they can pick their co-pay. They can have the freedom to buy or not to buy health insurance.  But this can only happen in a market where insurance companies are allowed to make a profit and are free to compete for insurance business without government intervention. U.S. Dollar Continues Decline * The U.S dollar continued its decline today falling to a fresh 8-month low, closing to about 95.60 * The dollar is being led lower by a surging euro; the euro is actually at a 12-month high against the U.S. dollar * Trading just below 114.5 * It wasn't too long ago the euro was down around 105, and there was a lot of talk about parity with the dollar * I was saying that the euro has bottomed; that the euro is going to rise * And the rise is just now beginning for the euro, I think there's a lot more to this move * Other currencies are also following the euro's lead, but ultimately I think they will surpass it * The dollar has a substantial ill-gotten gain that it needs to surrender * The dollar got bid up for years based on a misunderstanding of the true state of the U.S. economy * Of the efficacy of Fed monetary policy * The market was factoring in far more rate hikes than the Fed was capable of delivering * Meanwhile the economy is rolling over * I mentioned on my last podcast Mario Draghi's statement about the deflationary threat subsiding * About the drop in inflation being transitory and the euro rose on that * The very next day, the ECB went out to do damage control * Why is it "damage" when the currency is going up? Strength in Financial Markets * The only segment of the market that was strong today were the financials * The banks feel they are going to benefit from higher interest rates, higher spreads * And here, we had those bogus stress tests where the Federal Reserve supposedly stress-tested all the banks *  And, what to you know? The all passed *  So that is creating a bid for the banks * I have said this before, when it comes to higher interest rates and banks, be careful what you wish forPrivacy & Opt-Out: https://redcircle.com/privacy

Summary: Once again the solution doesn't work.  As with the Democrats' solution, the penalties are too low.  In both the House and the Senate, trying to force people to buy insurance won't work because the penalty for not buying insurance is not stiff enough. The reason they aren't doing that is, politically, it is a losing proposition. This is why the Republicans never should have touched this issue. If they did not have the guts for outright repeal, they should have never done anything. They should have left it alone and the Democrats would have owned this disaster. The best thing the Republicans can do, politically, is do nothing. In this way any collapse cannot be attributed to ambiguity in the market. Downward Pressures on the Dollar * Very big day in the market today; the most significant being the breakdown in both the NASDAQ composite and the U.S dollar. * The dollar was down sharply and broadly today, led lower by a rally in the euro * The catalyst for the euro rise was statements by Mario Draghi early in the morning where he commented that downward pressures on inflation were transitory * A somewhat hawkish stance on inflation and the markets took that to mean that QE will come to an end sooner rather than later * But I think the markets are looking for any reason to trade the dollar lower * I have been talking about that on this podcast, that the dollar has been looking weak * It broke down again today, the dollar index down just over 1 full percentage point on the day * The dollar trading at its lowest level in 8 months * I think this was the lowest closing level in about 9 months * The euro is trading at a 113 handle NASDAQ Woes * At the same time the dollar was breaking down, so were tech stocks, the FANG stocks were particularly weak * The NASDAQ composite down just over 100 points on the day * That's a pretty big move; a 1.6% decline * The Dow was only down about 100 points, just under a half percent * So the NASDAQ experienced about triple the decline * I talked about that on this podcast a couple of episodes ago when we had that one really big reversal day in the NASDAQ stocks * When the NASDAQ stocks made an all-time record high and then closed negative * We had that kind of flash crash coming into the final hour of trading * To me, there was some big money that decided to get out of those stocksPrivacy & Opt-Out: https://redcircle.com/privacy

Summary: Let the SS ObamaCare Ship Sink The Republicans in the Senate finally unveiled their version of ObamaCare Repeal & Replace.  It's very heavy on replace, but there really isn't any repeal. They are replacing it with something that may even be worse. Regardless, we still should let the ObamaCare ship sink while it's called the SS ObamaCare. Senate Bill Leans Toward Socialized Medicine The House already passed their version. The Senate version is even worse; it takes away all penalties for not buying insurance. At least the House version tried to create some kind of penalty. Now, a penalty of any sort would not be necessary if the government did not mandate insurance companies to cover people with preexisting conditions. The only way insurance companies can survive, if the Senate bill were enacted, is with massive government (taxpayer) subsidies. Moral Hazard Of course the Senate does not consider the moral hazard of offering a "medical bill-paying service", so the cost will be enormous. This solution will collapse the health insurance industry and lead to socialized medicine. If the Senate Republicans really want socialized medicine, they should just come out and say it. If you don't believe in the free market, just come out and say it. Something For Nothing If the government can deliver healthcare cheaper and better than the free market, then why not socialize everything? Republicans are afraid to say that they don't believe this because they want to get elected and they know that the voters don't understand that capitalism works.  They just want something for nothing.  The Senators want to get elected so they are going to provide it for them. * It was a relatively quiet week, this week; not a lot of market-driven data * Next week, things might pick up a bit; we'll get the final week of Q2 * So I have a feeling there may be a little more action as some of the portfolio managers look to window-dress a bit or get their portfolios looking better for the end of Q2 * The dollar finished the week on a down note, although it was relatively flat on the week; it was down today * The opposite for gold * Up about $6.50; it was also flat on the week, but it had a good day * Gold stocks were not flat; I think the gold stocks, as a group, the best performing sector in the market * I have been noting on this podcast that these stocks have been trading better * When they were weak, that precipitated the correction in the price of gold * Then gold bottomed out when the gold stocks showed some relative strength * That has continued, and I think this was a pretty good week, technically * We're close to getting above some key resistance on these stocks * So we will see what kind of bid they can pick up next week as we wrap up Q2 * I think the significant thing, for the dollar and for gold * Is that the dollar is in the process of putting in a very significant top * The flip side of that is that gold will be putting in a significant bottom * I think the catalyst for breakdowns for the dollar and breakouts in gold * Will be some realization, some capitulation on the part of the markets * And for the Fed to square perception with realityPrivacy & Opt-Out: https://redcircle.com/privacy

Summary: Every tax cut is temporary. Ryan's premise that we can't get the stimulus we need without a permanent tax cut is complete nonsense.  Congress has no idea what the budget's going to be next year, let alone 10 years from now. The only budget that really counts, and even then they can't get it that accurate, is the current year. When the government cuts taxes it doesn't come with a guarantee that the rates are never going to go up. * We had a bit of a turnaround Tuesday today; all of the major U.S. stock market averages were higher in the morning and we closed broadly lower on the day * In fact, the Dow Jones did make an all-time record high this morning before closing down about 60 points, although the decline in the NASDAQ was greater * We had a .082% decline in the NASDAQ; the Dow was only down by about .03% * S&P 500 though had a bigger decline, it was down about .07% * So the broader averages took a bigger decline than the Dow * I don't think the technical damage is extreme * Yes, we made new highs and closed lower, but it really wasn't an outside day * It didn't close below Monday's lows, which would have been an outside reversal * But when markets are as extended as they are, they can top on just about anything * I put up an interesting article on my Facebook page that tried to draw a comparison between Amazon and Whole Foods merger and the big high-profile AOL-Time/Warner in 2000 * You had a big, internet darling making a big brick and mortar purchase and that marked the peak of the internet bubble * And the author was making the case that this is another major internet company buying a brick and mortar company, a lot of fanfare, a lot of hype and maybe this is also going to mark a major top * It's an interesting analysis, because I think we're at about the 15-year anniversary of the purchase * It is an interesting comparison, not a perfect analogy; some things are similar and some things are not * I do believe that the U.S. stock market is substantially overvalued, in fact a bubble * The only reason I believe that the air is not going to come out of the bubble is because the Fed is not going to let it * I am pretty sure that any significant decline in the stock market is going to be met with an aggressive Fed rate cut, quantitative easing * I don't believe the Yellen Fed to allow the market to implode the way it did in 2008Privacy & Opt-Out: https://redcircle.com/privacy

Summary: Amazon Buys Whole Foods The Dow was up today; mainly on the surprise announcement that Amazon, the king of on-line retailing, is buying Whole Foods.  In a labor market significantly altered by ObamaCare-style government intervention, this news could signal further changes to the labor market.  Retail has experienced a steady decline, and this move could usher in a new wave of Amazon Go-style services. Economic Surprise Index Headed For  2009 Territory According to an article in Zero Hedge: For the 13th straight week, US economic data disappointed (already downgraded) expectations, sending Citi's US Macro Surprise Index to its weakest since August 2011 (crashing at a pace only beaten by the periods surrounding Lehman and the US ratings downgrade). The last time, Us economic data disappointed this much, Ben Bernanke immediately unleashed Operation Twist... but this time Janet Yellen is hiking rates and unwinding the balance sheet. "Unexpected" Bad News in Housing Starts and Building Permits Another "unexpected" big drop in housing starts; the third month in a row is accompanied by a drop in building permits, so that means that this trend is likely to continue. The last time we had 3 consecutive monthly declines it was 2009. * We got some more bad economic news coming out today, and it capped a week of generally worse than expected news * I was looking at a chart of the Economic Surprise Index on an article on Zero Hedge and it was a new low for this cycle * They went back to find the last time the Economic Surprise Index was this low * It was right about the time the Federal Reserve launched "Operation Twist" * Remember that? I was calling it "Operation Screw" * When the Fed was lengthening the maturity of its balance sheet * It was selling some of its short term bonds and buying longer term bonds * To have a better impact on pushing down long-term interest rates * Yet today, when the market is being surprised by the same amount of negative economic data * "Unexpected negative news" * Again, every time you read a negative news story it is always prefaced with "Unexpected" * I always put that in quotes because, why don't they expect it by now? * You get enough bad news, you should expect it * At some point, they will, and that's when the index starts to go the other way * When things are bad long enough, people start expecting bad things to happen * And then the next thing you know, good things happen * So the Economic Surprise Index goes the other way * People are still optimistic, yet they keep being disappointed * Despite this, the Fed is not only not doing "Operation Twist", it is tightening * It's putting the screws on big time in that it has just announced quantitative tightening * Not only did they just raise interest rates on Wednesday but they indicated they are getting ready to do quantitative tightening for the first time ever * This has never been tried before by the Federal Reserve * It's amazing, too that the Federal Reserve is always out there talking about quantitative easing helped the economy * It pushed up asset prices, it pushed up the stock market, pushed up the real estate market * O.K., if that is what they think,Privacy & Opt-Out: https://redcircle.com/privacy

Summary Quantitative Tightening Ahead: The Federal Reserve came out with a surprisingly hawkish rate hike today, announcing plans to  shrink the balance sheet by $50 billion per month.  This would mean an annualized rate of $600 billion per year in new treasuries to hit the market. This does not take into consideration existing budget deficits or future spending. The Fed's policy reversal, in the face of no corroborating positive economic data, is still "data dependent". No Good News: Meanwhile, the "recovery" was the weakest recovery in history, with a doubling of the national debt, we have bubbles in the stock market, the real estate market, in the bond market market, the automobile market, student loans.  We have eviscerated our labor market with people having multiple part time jobs and this is the Fed's definition of success! Perfect Storm Now you've got a perfect storm for stocks: falling earnings, weak economic data, rising interest rates and the Fed flooding the market with treasuries.  Now maybe the stock market will take a second look at this hawkish hike and the implications of the Fed's rate hike plans in conjunction with quantitative tightening later this year in the face of a weakening economy. * A lot of people, myself included, were looking for a dovish rate hike today coming from the Federal Reserve * What I mean by a dovish hike was that the Fed would hike rates, because after all, everybody expected them to hike rates and they don't want to disappoint market expectations * They don't want to raise any cautionary flags that they know something that they have not been forthright about * I was expecting the Fed to acknowledge somewhat the weakening economic data to the point that itis now waiting for some confirmation that Q1 weakness was transitory * And since such confirmation has not been forthcoming they may have acknowledged it * But that's not what happened * We actually got a hawkish hike * Not only did the Fed raise rates but they did nothing to dampen expectations for future hikes * In fact, Janet Yellen in her prepared remarks and in the press conference that followed was very upbeat, very optimistic on the economy * Not worried about anything, no longer talking about the need for confirmation that prior weakness was transitory * She seems to just believe that it was * She thinks it is clear skies as far as the eye can see * Looking for economic growth of just under 2% a year * Not as optimistic as Donald Trump, looking for 3 or 4% growth * But she doesn't see a recession coming * She sees the economy continuing to perform at this 1.8 - 1.9% annual GDP * She continues to see improvement in the labor market * She's not worried about the decline in labor force participation * She says it's holding steady and again she dismisses the low participation rate due to the ageing of the population, so she's very optimistic * And something else she said that I think surprised the markets and made this more of a hawkish hike * Was she actually talked about starting the shrinking of the balance sheet this year * most people thought that maybe it would start next year, at least the rhetoric would say it would start next year * Whether it actually starts or not remains to be seen * But now Janet Yellen seems to suggest the Fed is ready to get started very soon with its normalization process * In fact, she didn't use these words * But it's really a reverse quantitative easing or quantitative tightening * What Yellen basically said is that they are going to start off by tapering down their balance sheet by about $10 billion a month * She actually specified, I think, $6 billion in treasuries and $4 billion in mortgage b...Privacy & Opt-Out: https://redcircle.com/privacy

Summary: In Puerto Rico's  recently held non-binding referendum on statehood, just 23% of the eligible voters who actually voted overwhelmingly chose statehood.  This would mean that Puerto Rico would keep its current debt and take on the $20 trillion U.S. national debt. This would offer the moral hazard of offering Puerto Ricans additional welfare benefits. The last thing Puerto Ricans need is to be in a situation where it is more attractive not to work. * A lot of people are asking me abo0ut the recent non-binding referendum in Puerto Rico on statehood * 97% of the people who bothered to vote voted for statehood over independence or maintaining the status quo * Only about 23% of the eligible voters actually voted * So most people who objected to statehood boycotted the election * So most of the people who voted were predisposed to vote for statehood * The last statehood referendum held in 2012 was even more in favor of statehood * Nevertheless, the governor of Puerto Rico, Ricardo Rosselló is going to go to Washington demanding that the will of the Puerto Rican people be addressed * If you do not know by now, I am Puerto Rican * I am an American citizen residing in Puerto Rico so I vote in Puerto Rican elections I do not vote in U.S. National elections, but I am away from Puerto Rico at present * Had I voted, I would have voted to maintain the status quo * I don't want Puerto Rico to become an independent country, but the last thing I would want is for Puerto Rico to become a state * That's why I am doing this podcast * Most of the articles I'm reading on this issue address the idea that state will somehow benefit Puerto Rico, because they have been in a recession for 10 years, they have high unemployment * They have a lot of debt and somehow they see statehood as a solution to this problem * Statehood for Puerto Rico is like throwing a drowning man an anchor *  The worst thing that could happen to Puerto Rico is for it to become a state * If Puerto Rico becomes a state, every person who lives in Puerto Rico, who is currently exempt from paying Federal income tax will now have to pay it * The IRS doesn't exist in Puerto Rico * Puerto Ricans also do not have to deal with Obamacare - it doesn't exist there * Each Puerto Rican currently owes about $20,000 in debt * American citizens per capita owe $61,000 in debt * That's just the $20 trillion national debt * That doesn't include all the other unfunded liabilities * Right now, Puerto Ricans do not share in the U.S. national debt * If Puerto Rico becomes a state, the per capita debt goes from $20,000 to $80,000 * Because they inherit a share of the U.S. national debt * Why would they want to sign up for that?Privacy & Opt-Out: https://redcircle.com/privacy

Summary: Friday's Tech Wreck continued today, some stocks making key technical reversals. The crypto currencies, also experienced volatility as Bitcoin seems to be losing some of its market share to other competing crypto currencies, but volatility remains a key component of the market. Volatility may be exacerbated by Wednesday's anticipated Federal Reserve rate hike. * Friday's Tech Wreck continued today; the NASDAQ composite led lower by the same momentum stocks that got clobbered on Friday * Some of them making key technical reversals where they made new all-time highs in the morning and yet got clobbered and closed below the lows of prior trading days *  Some of them went below the lows of the prior week * So a lot of these stocks looking very weak coming in to today's trading and continued although some of the losers did manage to eke out a gain * Novita was one of the earliest stocks to reverse on Friday, which had a big technical reversal took out a low and managed to eke out a gain * Tesla also was positive * Google, Apple getting clobbered again, Netflix, Facebook, a lot of these big stocks continue to decline * And this time the overall market did not escape the carnage because the Dow and also the S&P were also down on the day * There was still some strength; the energy stocks were up again today building on the rotational strength that they enjoyed on Friday * But it wasn't just the stock market that had big reversals * It was the cryptocurrencies as well, particularly Bitcoin * I mentioned the last couple of podcasts that when I was talking about Bitcoin and the cryptos * Bitcoin's shrinking market share in the crypto world, and that continues * Right now, the market cap of Bitcoin is now down to about 40% of the total market cap of all cryptocurrencies * Ethereum, Bitcoin's biggest competitor right now, if you look at its market cap, it's actually not that much lower now * Total market cap as I'm looking right now, of course it changes very quickly * But about a $43 billion market cap for Bitcoin and about a $34 billion market cap for Ethereum * This is the closest I've seen the two * In fact, Ethereum is actually up today, even though Bitcoin is down quite a bit * Bitcoin had a big reversal last night, I think it traded above $3000 I think for the first time, not on every exchange * And then by late morning, it was trading below $2500    Privacy & Opt-Out: https://redcircle.com/privacy