The Peter Schiff Show Podcast

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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