The Peter Schiff Show Podcast

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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