Monday, December 28, 2015

CNBC article - Peter Schiff response



Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, December 21, 2015

Fed will print money again if there is a recession

Everybody has been anticipating the Fed was going to raise rates; in fact, they thought the would’ve raised them a lot more than 25 basis points by now. There are still people who think there’s a lot more rate hikes coming.

I still believe that’s wrong: people are ignoring the inherent weakness in the US economy and the fact that the Fed is going to be back to its old tricks and only has one game plan for recession, and that’s printing money.



Peter Schiff is an investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, December 14, 2015

Why the Feds QE policies may fail

Over the past year, while the U.S. economy has continually missed expectations, Federal Reserve Chairwoman Janet Yellen has assured all who could stay awake during her press conferences that it was strong enough to withstand tighter monetary policy. In delivering months of mildly tough talk (with nothing in the way of action), Yellen began stressing that WHEN the Fed would finally raise rates (for the first time in almost a decade) was not nearly as important as how fast and how high  the increases would be once they started. Not only did this blunt the criticism of those who felt that the delays were unnecessary, and in fact dangerous, but it also began laying the groundwork for the Fed to do nothing over a much longer time period. To the delight of investors, the Fed has telegraphed that it will adopt a "low and slow" trajectory for the foreseeable future and move, in the words of Larry Kudlow, like "an injured snail."

I would suggest that Kudlow is a bit aggressive. I believe that if the Fed raises rates by 25 basis points next week, as everyone expects it will, that the move will likely represent the END of the tightening cycle, not the beginning. (As I explained in my last commentary, the current tightening cycle actually started more than two years ago when the Fed began shortening its forward guidance on Quantitative Easing). The expected rate hike this month has long been referred to as “liftoff” for the Fed, an image that suggests the very beginning of a process that eventually puts a spacecraft into orbit. But, in this case, liftoff will be far less dramatic. I believe the Fed’s rocket to nowhere will hover above the launch pad for a considerable period of time before ultimately falling back down to Earth.
  
If we believe that the Fed will remain "data dependent", then we should not even expect an increase this month. The latest batch of data, including terrible retail sales figures, an ISM manufacturing number that indicates we may already be in a manufacturing recession, and a much weaker than expected ISM service sector number, show an economy that is rapidly decelerating. Even last week's supposedly good jobs report, that showed 211,000 jobs created in November, included a huge jump in the number of people (319,000) taking part-time jobs because they couldn't find full-time work.(Bureau of Labor Statistics, 12/7/15)

This current "recovery," engineered by the largest monetary experiment in history, that has left us with trillions of dollars of new debt that we will likely never be able to repay, is quickly running out of what little steam it had. On average, since the Second World War, the U.S. economy has experienced a recession every six years. Since it is approaching eight years since our last official recession began, time is not on our side. Interestingly, the Wall Street Journal reported this week on its front page that the "junk" bond market is poised to notch its first annual loss since the 2008-2009 financial crisis. Many economists consider distress in these high yield debt instruments as an early sign of a recession.   

But rather than admit its rosy forecasts were too optimistic, and risk losing much of its remaining credibility, the Fed is apparently prepared to prove to the markets that it has the ability to deliver tough love with an actual rate hike. But that's the easy part. Although I believe that even 25 basis points may be too much of a headwind for this anemic economy to overcome, it's not something that should really spread fear in a marginally healthy economy. The dollar did not rally by 30% or more over the past year against many currencies based on the fear of a 25 basis point rate hike. What really moved markets and currencies was the prospect of a bona fide tightening cycle. 

These fears moved into sharp focus in September when widespread fears of an imminent rate hike had caused the Dow to experience its first 10% correction in four years. That is when Yellen began stressing that it's not the first rate hike that is important, but what happens after. As a result, Wall Street now sees liftoff as a far less significant event, with far more attention being paid to the ultimate flight path.

As late as this summer many economists were predicting that Fed funds would be at least 2% by the end of 2017. The Fed’s own forecasters still see rates at more than 2.5% by early 2018, according to its Summary of Economic Projections released 9/17/15. But over the last few months, those predictions have flattened out more than an open can of soda in the sun. The current Fed Funds futures contracts imply a 79% chance that the Fed raises rates in December (Reuters, 12/4/15). That figure is about as high as it has been for quite a few months. But the market also indicates that rates may only rise twice more by the end of 2016. (Reuters 12/4/15) This would put Fed Funds at 75 basis points by next December, presuming a 25 basis rise this month. That pace is less than half of the last rate tightening cycle of 2004-2006, when the Fed raised rates by 25 basis points for 17 consecutive meetings (Federal Reserve Bank of NY). (It's interesting to recall that then Fed Chairman Alan Greenspan was criticized for moving too slowly at that time, and even more so in the aftermath of the bursting of the housing bubble, as many correctly concluded that the Fed's measured pace had allowed the bubble to grow unnecessarily).

I believe that when it comes to gold, commodities and currencies, we may be headed into a "buy the rumor, sell the fact" market that might turn the tables on the trends of the past four years. In this case, the "rumor" was a meaningful tightening cycle that would restore positive real rates, but the "fact" is likely to be a symbolic 25 basis point nudge. This "one and done/wait and see" scenario is gaining a surprising amount of support, especially among those Wall Street investment firms whose livelihood depends on perennially positive markets. How else could you explain the 4% rally in gold that had occurred from the lows on Thursday to the highs on Friday last week if not for the fact that markets are coming to expect much more tender loving care from the Fed?

I believe that the Fed understands the deteriorating economic data better than it cares to admit. But candor is rarely high on a Fed Chairperson's agenda. (In an interview this week on the Freakonomics Podcast, former Fed Chairman Ben Bernanke blundered by accidentally telling the truth regarding his penchant for painting unjustifiably rosy economic pictures while in office, saying, "I was representing the administration. And you don't really want to go out and say, 'Run for the hills,' right?" In other words, one should expect the same partisan cheerleading from the supposedly independent Fed chairman as one gets from the blatantly partisan White House Press Secretary). This time around the Fed's rhetoric has now backed it into a corner, where its credibility with the markets is at stake. If they fail to deliver 25 basis points in December, as they have failed to do many times this year, then the markets may be shocked by the Fed’s lack of confidence.  As a result, they may reluctantly deliver a rate hike, even though the data they supposedly depend on would argue against it. But if all we get is a symbolic 25 basis point increase, then, I believe, any economic confidence that the Fed hoped would be implied by its actions will be lost anyway.

The real problem for the Fed will be how foolish it will look if it does raise by 25 basis points and is then forced by a slowing economy to lower rates back to zero soon after liftoff. At that point, the markets should finally understand that the Fed is powerless to get out of the stimulus trap it has created. But it looks like the Fed would rather look foolish later when it's forced to cut rates, than look foolish now by not raising them at all.

Given that we are going into an election year, look for the Fed to be hyper-vigilant in keeping the economy, and the financial markets,  from contracting through the spring and summer. History has shown that the incumbent presidential party fares very poorly in an election year when the economy is bad. Just ask George H.W. Bush, whose post-Gulf War popularity evaporated in the face of the 1992 recession, which turned out to be one of the mildest in memory. Can anyone really expect that the Fed's left-leaning leadership will sit still while a recession gains momentum and, in so doing, run the risk of easing Donald Trump into the White House?  

In her testimony before Congress last week, Yellen indicated that if the economy unexpectedly slipped back into recession in 2016, and it turned out that the Fed had raised rates, it would simply reverse course and lower them. She also stated she would launch another round of Quantitative Easing (QE), because the program “worked so well in the past.” But a recession that begins so soon after a 25 basis point rate increase, or even with rates still at zero, should prove to even the Fed’s biggest boosters that its stimuli were complete and utter failures. But in government, nothing succeeds like failure.

Monday, December 7, 2015

Job reports shows Manufacturing losing big time in USA

We lost manufacturing jobs. Manufacturing is in a recession here in the United States.



Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, November 23, 2015

US Dollar to be replaced by Yuan as reserve currency

According to the minutes, a rate hike has been a possibility all year long and it hasn't happened. I think it's a dangerous game the Fed is playing. This is a bubble, not a recovery.

See below Video on Chinese Yuan's prospects of replacing US Dollar

Monday, November 16, 2015

Recessions occur every SEVEN YEARS on average

Nearly 92% of economists surveyed this week by the Wall Street Journal expect that our eight-year experiment with unprecedented monetary easing from the Federal Reserve will come to an end at the next Fed meeting in December. Since we have had the monetary wind at our back for so many years, at least a few have begun to question our ability to make economic and financial gains against actual headwinds. But in reality, the tightening cycle that the forecasters are waiting for actually started last year. Sadly, the markets and the economy are already showing an inability to handle it.

While it’s true that we have yet to achieve “lift-off” from zero percent interest rates, rates have not been the only means by which the Fed has provided stimulus. We also have to account for the effects of Quantitative Easing (QE) and forward guidance of the Fed. Changes in those inputs over the past year have already created conditions of monetary tightening.

QE has been the process by which the central bank expands its balance sheet (otherwise known as printing money) to buy government and asset-backed bonds on the longer end of the duration spectrum. In so doing, it is able to help hold down long-term interest rates, a result that it would be difficult to achieve by changes in the federal funds rate. Zero percent interest rates represent a loose monetary policy, but once at the zero lower bound, QE is the way the bank eases even further.

Another big input is Fed “forward guidance.” This comes in the form of official and unofficial pronouncements from top Fed policy makers as to the possible trajectory of rates in the future. If the Fed communicates that rates will stay low, or QE will remain in place, for some time, then policy becomes looser still. Such assurances effectively remove near term interest rate risk, which stimulates financial activity. Ever since the Financial Crisis of 2008, the Fed has engaged in unprecedented forward guidance, without which monetary conditions could have been expected to be tighter.

To account for these important factors, University of Chicago professors Cynthia Wu and Fan Dora Xia, constructed a model for the “Shadow Rate.” While the fed funds rate has remained between 0.0% and 0.25% ever since November of 2008 (Federal Reserve Board), the Shadow Rate moved much lower, factoring in the effects of QE and forward guidance. That rate got as low as -2.99% in May of 2014. (Federal Reserve Bank of Atlanta, CQER, Shadow Rate)

But the Fed’s QE tapering campaign, which gradually reduced the amount of securities purchased monthly by the Fed, effectively began a campaign of monetary tightening that helped push up the Shadow Rate sharply even as the fed funds rate itself did not budge. After QE was officially wound down in October 2014, the Fed began to change its forward guidance to actively suggest that a long-term campaign to lift interest rates would begin in 2015. This also worked to help tighten monetary conditions. As a result, the Shadow Rate moved up from -2.99% in May of 2014 to just -.74% in September of 2015, (FRB Atlanta, CQER, Shadow Rate) an increase of 225 basis points in just over a year.

This is a fairly robust tightening trajectory that can be said to have clearly taken a toll. Since January of this year, the major market index, the S&P 500, has essentially been flat. While in contrast, it had been up by double-digits in five of the last six calendar years. Similarly, GDP growth has slowed considerably in the months since the QE program was finally tapered down to zero in October of 2014.

U.S. stock investors may be complacent regarding the ability of the stock market to withstand higher interest rates. Their confidence may come from the fact that, historically, markets have not peaked until 12-24 months after the Fed begins to tighten. This assumes the tightening cycle begins with the first official rate hike. But if it really began with the increase in the Shadow Rate, then a December rate hike will already be 19 months into the tightening cycle! Plus, given how overvalued stocks may currently be, and the amount of corporate debt accumulated to finance share buybacks, this bull market may be far more vulnerable than most to higher interest rates.

The last three times that the Fed had conducted a rate tightening cycle (1986-1989, 1994-2000 and 2004-2006), the increases in rates averaged 388 basis points. But those moves upward occurred when QE did not exist and when forward guidance was hardly a factor (the Fed only started doing press conferences in the last few years). So the tightening that has occurred to the Shadow Rate in the last year is already 58% of the size of the average of the last three tightening cycles.


If the Fed does as it has suggested it will, and takes fed funds up to 2.6% by the end of 2017 (which is the Fed’s own median forecast), then the total effective move (that includes the tightening of the Shadow Rate) would be a tightening of 559 basis points, well larger than the average of the last three tightening cycles. Does anyone really believe that our fragile and slowing economy can deal with that kind of headwind?

Generally, the Fed tends to wait until the economy is on solid footing before tightening. For instance, in the 12 months prior to the 390 basis point tightening that occurred between 1986-1989, real GDP was 3.2%. GDP was 2.65% in 1993, the year before a six-year tightening cycle raised rates by 350 basis points. GDP was a solid 4.3% in 2003, the year before Alan Greenspan began raising rates in 2004, a move that took up fed funds by 425 basis points. But current GDP, which is somewhere around 2.0% over the past four quarters, is not nearly as robust. (Bureau of Economic Analysis)

But what’s more concerning is the magnitude of the easing cycle that has gotten us to this point. It began in 2007, lasted a full 80 months, and took the effective fed funds rate (accounting for the Shadow Rate) down by 825 basis points. In contrast, the prior two easing cycles averaged 612 basis points and 34.5 months. This huge dose of stimulus is certain to have caused distortions in the economy that won’t be seen until we get more normalized levels of monetary policy. As Warren Buffet has most famously quipped, “We have to wait till the tide goes out before we see who has been swimming without bathing suits.”

Since the Second World War, recessions have begun, on average, every seven years. Since the current recovery is already seven years old, how much longer should we expect this historically anemic recovery to last? If the slowdown occurs next year, can we really expect the Fed to remain on the sidelines and risk the possibility that the economy goes into a recession leading into a presidential election? Both the chairperson and vice chairman of the Fed are solidly associated with the left side of the political spectrum. Should we expect that they would be hesitant to support the markets and the economy and thereby create conditions that might help Republicans take the White House?

Nevertheless, most people assume that rates are on the way up to 2% or more. But from my perspective it’s much more likely that the rates never get close to that level. I would argue that any positive rate of interest would be enough to stop this economy cold. Years of negative rates have so corrupted our economy that I believe it is now fully addicted and cannot survive under any other condition.

Since this historically weak recovery is already decelerating, one might expect the removal of stimulus could cause the next recession to start quicker and be far deeper than any experienced in the past. Since the Fed may recognize this, the next easing cycle could likely start much sooner, and the accompanying monetary stimulus be much larger than just about anyone believes.

Each of the last three easing cycles took rates lower than where they were at the end of the prior easing cycle. Given that the fed funds rate is at zero (and the Shadow Rate got to as low as -2.99%), one shudders to think how low the Fed is prepared to go the next time around. As a result, investors may want to consider re-positioning their assets for another period of possible monetary easing not a period of tightening, which I believe, in fact, is already well underway and will soon be a thing of the past. December is far less significant than what almost everyone has been led to believe.

Wednesday, November 11, 2015

Dark Christmas ahead for many people

Job market weakness

I expect job layoffs to start picking up by the end of the year. Retailers have overestimated the ability of their customers to buy their products. Americans are broke. They are loaded up with debt. We're teetering on the edge of an official recession. The labor market is softening.


Federal Reserve mistakes

The Fed has to talk about raising rates to pretend the whole recovery is real, but they can't actually raise them. [Janet Yellen] can't admit that she can't raise them because then she's admitting the whole recovery is a sham and that the policy was a failure.


US Dollar Bubble

[Dollar is] the biggest bubble that the Fed has ever inflated and it's the only thing keeping the economy afloat. [The dollars strength] is keeping the cost of living from rising rapidly and it's keeping interest rates artificially low. It's allowing the Fed to pretend everything is great. Eventually the bottom is going to drop out of the dollar and we are going to have to deal with reality. That reality is we are staring at a financial crisis much worse than the one we saw in 2008.

Monday, October 26, 2015

Peter Schiff in New Orleans for conference

Peter Schiff will be in New Orleans for the 2015 New Orleans Investment conference. Other prominent speakers are  Dr. Marc Faber, Dr. Charles Krauthammer, Dr. Larry Reed, Doug Casey, and many more.

Peter Schiff announced the event a couple months ago. 


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, October 19, 2015

Peter's dad Irwin Schiff dies in prison

My father Irwin A. Schiff was born Feb. 23rd 1928, the 8th child and only son of Jewish immigrants, who had crossed the Atlantic twenty years earlier in search of freedom. As a result of their hope and courage my father was fortunate to have been born into the freest nation in the history of the world.  But when he passed away on Oct. 16th, 2015 at the age of 87, a political prisoner of that same nation, legally blind and shackled to a hospital bed in a guarded room in intensive care, the free nation he was born into had itself died years earlier.

My father had a life-long love affair with our nation’s founding principals and proudly served his country during the Korean War, for a while even having the less then honorable distinction of being the lowest ranking American soldier in Europe.  While in college he became exposed to the principles of Austrian economics through the writings of Henry Hazlitt and Frederick Hayek. He first became active in politics during Barry Goldwater’s failed 1964 presidential bid. His activism intensified during the Vietnam Era when he led local grass root efforts to resist Yale University’s plans to conduct aid shipments to North Vietnam at a time when that nation was actively fighting U.S. forces in the south. Later in life he staged an unsuccessful write in campaign for governor of Connecticut, then eventually lost the Libertarian Party’s presidential nomination to Harry Brown in 1996.  

In 1976 his beliefs in free market economics, limited government, and strict interpretation of the Constitution led him to write his first book The Biggest Con: How the Government is Fleecing You, a blistering indictment of the post New Deal expansion of government in the United States. The book achieved accolades in the mainstream conservative world, receiving a stellar review in the Wall Street Journal, among other mainstream publications.

But my father was most known for his staunch opposition to the Federal Income Tax, for which the Federal Government labeled him a “tax protester.”  But he had no objection to lawful, reasonable taxation.  He was not an anarchist and believed that the state had an important, but limited role to play in market based economy.  He opposed the Federal Government’s illegal and unconstitutional enforcement and collection of the income tax.   His first book on this topic (he authored six books in total) How Anyone Can Stop Paying Income Taxes, published in 1982 became a New York Times best seller.  His last, The Federal Mafia; How the Government Illegally Imposes and Unlawfully collects Income Taxes, the first of three editions published in 1992, became the only non-fiction, and second and last book to be banned in America.  The only other book being Fanny Hill; Memoirs of a Woman of Pleasure, banned for obscenity in 1821 and 1963. 

His crusade to force the government to obey the law earned him three prison sentences, the final one being a fourteen-year sentence that he began serving ten years ago, at the age of 77.   That sentence turned into a life sentence, as my father failed to survive until his planned 2017 release date. However in actuality the life sentence amounted to a death sentence.  My father died from skin cancer that went undiagnosed and untreated while he was in federal custody.  The skin cancer then led to a virulent outbreak of lung cancer that took his life just more than two months after his initial diagnosis.

The unnecessarily cruel twist in his final years occurred seven years ago when he reached his 80th birthday. At that point the government moved him from an extremely low security federal prison camp in New York State where he was within easy driving distance from family and friends, to a federal correctional institute, first in Indiana and then in Texas.  This was done specially to give him access to better medical care.  The trade off was that my father was forced to live isolated from those who loved him.  Given that visiting him required long flights, car rentals, and hotel stays, his visits were few and far between.   Yet while at these supposed superior medical facilities, my father received virtually no medical care at all, not even for the cataracts that left him legally blind, until the skin cancer on his head had spread to just about every organ in his body.

At the time of his diagnosis in early August of this year, he was given four to six mouths to live.  We tried to get him out of prison on compassionate release so that he could live out the final months of his life with his family, spending some precious moments with the grandchildren he had barely known.  But he did not live long enough for the bureaucratic process to be completed.  Two months after the process began, despite the combined help of a sitting Democratic U.S. congresswoman and a Republican U.S. senator, his petition was still sitting on someone’s desk waiting for yet another signature, even though everyone at the prison actually wanted him released.   Even as my father lay dying in intensive care, a phone call came in from a lawyer and the Bureau of Prisons in Washington asking the prison medical representatives for more proof of the serious nature of my father’s condition.

As the cancer consumed him his voice changed, and the prison phone system no longer recognized it, so he could not even talk with family members on the phone during his finale month of life.  When his condition deteriorated to the point where he needed to be hospitalized, government employees blindly following orders kept him shackled to his bed.   This despite the fact that escape was impossible for an 87 year old terminally ill, legally blind patient who could barley breathe, let alone walk. 

Whether or not you agree with my father’s views on the Federal Income Tax, or the manner by which it is collected, it’s hard to condone the way he was treated by our government. He held his convictions so sincerely and so passionately that he continued to espouse them until his dying breath.  Like William Wallace in the final scene of Braveheart, an oppressive government may have succeeded in killing him, but they did not break his spirit.    And that spirit will live on in his books, his videos, and in his children and grandchildren.   Hopefully his legacy will one day help restore the lost freedoms he died trying to protect, finally allowing him to rest in peace.   

Monday, October 5, 2015

Peter Schiff Jackson Hole full speech | Text and Video

“I’ve been saying for years that the Fed has been bluffing about raising interest rates, because the Fed wants to pretend that its policies were a success. If it raises interest rates, it will prove that they were a failure… When the financial crisis took just about everybody by surprise, the conventional wisdom was, ‘Okay, the US economy has been crippled by this crisis, and we need the Fed to save us, to provide us with some kind of crutches that we would use temporarily until we got over the pain.’ Of course, that puts aside the fact that it was the Fed that crippled us in the first place, but everybody thought that the Fed was going to save us. What were the crutches that were supposedly going to help us? One was zero percent interest rates. And the other was quantitative easing…



“They didn’t give us crutches. What the Fed did was knock the legs out from under the economy. They severed our actual legs and replaced them with these prosthetics of quantitative easing and zero percent interest rates. If the Fed takes those away, the stump of the economy is going to come collapsing down…

“You have two camps. You have people who think the Fed should raise interest rates right now: ‘The economy is strong enough, let’s raise rates.’ Then you have the other camp that says, ‘No, no, no. The economy needs more help. It’s not quite strong enough yet. We need to keep interest rates at zero.’ Both camps are wrong. The Fed needs to raise interest rates right now. Not because the economy can take it, but because it can’t. Again, it is a bubble that needs to be popped. The sooner we pop it, the better…The Fed didn’t save us from the financial crisis. They simply interrupted it…

“If she [Janet Yellen] couldn’t see [the housing bubble] crisis coming, why would anybody expect her vision to be any better now? The truth of the matter is the last crisis was created by the Fed. And so is this one. They’ve created it by doing the exact same thing…

“Janet Yellen actually said, ‘We are going to shrink the balance sheet down to $1 trillion by the end of the decade.’ Yeah, good luck with that. It hasn’t shrunk at all since she made that promise about a year ago… How are you going to raise interest rates now that you’re so addicted? How much more debt do we have today than we had seven years ago? How much painful is it going to be to try to service that debt if interest rates go up? The truth of the matter is interest rates have to stay at zero, because that’s all we can afford…

“2015 is probably going to be the slowest year of GDP growth of the entire so-called recovery. And interest rates have been at zero for the entire year… A lot of the [economic] numbers coming out are so bad that we haven’t seen numbers this low outside of a recession. Remember, the Great Recession, which began in December 2007 – I was doing TV shows, debates with people in mid-2008 about whether we were heading into a recession. We were already in one. And most people thought there was none on the horizon, including the Federal Reserve…”


Wednesday, September 30, 2015

Schiff speaks at Jackson Hole Summit | VIDEO




Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, September 28, 2015

Governments indirectly causing higher tuition rates at universities

You have students graduating waiting on tables and driving taxi cabs with $50,000 to $100,000 worth of debt. They majored in nothing. They studied Liberal Arts. They wasted their time. They wasted money. There’s no hope of ever paying it back. It’s a typical example of how the government destroys everything it gets into. The government wanted to make college more affordable. They made it more expensive.

The government all of a sudden sees a bunch of college students and they want their votes. So how do they get their votes? “Hey, we’ll make it easier for you so you don’t have to go out and get a job to go to college. You don’t have to do that. We’ll loan you some money. We’ll guarantee your loans so you can borrow money at a really low rate of interest. It will be like a U.S. Treasury [Note]."

The government solution is, “We’ll make more money available. We’ll make more loans. We’ll make more scholarships.” The universities say, “Great! We can raise our prices even faster now because our customers have even more government money to pay the tuitions.”



Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, September 21, 2015

Why more QE will be coming ahead

Every dictator knows that a continuous state of emergency is the best means to justify tyrannical policies. The trick is to keep the fictitious emergency from breeding so much paranoia that routine activities come to a halt. Many have discovered that its best to make the threat external, intangible and ultimately, unverifiable. In Orwell's 1984 the preferred mantra was "We've always been at war with Eurasia," even though everyone knew it wasn't true. In its rate decision this week the Federal Reserve, adopted a similar approach and conjured up an external threat to maintain a policy that is becoming increasingly absurd.  

In blaming its continued inaction on "uncertainties abroad" (an excuse never before invoked by the Fed in the current period of zero interest rates), the Fed was able to maintain the pretense of a strong domestic economy, and its desire to lift rates at the earliest appropriate moment while continuing the economic life support of zero percent rates. Unbelievably, the media swallowed the propaganda hook, line, and sinker.  

Over the summer it all seemed so certain. In mid-August the Wall Street Journal conducted a poll revealing that 95% of economists expected a rate hike by the end of 2015, with 82% expecting the first move to come in September. On July 29, Marketwatch reported that changes in Fed language were the "smoking gun" that made a September move a certainty. I was one of the few who publicly predicted that all the tough talk from the Fed was a bluff, and that there would be no hike in 2015. For taking that stance, I was largely ignored and ridiculed. In a July 16 interview on CNBC's Futures Now (I am no longer invited to be on their television broadcasts), pundit Scott Nations took me to task for making the "outlandish" suggestion that the Fed would not raise in 2015, saying (to paraphrase):

"If price is truth and Fed funds futures are the collective wisdom of everybody in the world, and they are absolutely a lock for the Fed to raise rates by the end of the year, why is everybody else wrong and you are right?" 

But now, in mid-September, it has all changed, far fewer economists expect a hike this year. However, despite this dramatic reversal, few have downgraded their forecasts or weakened their belief that the Fed remains committed to tighten policy...eventually. In other words, the Fed has achieved a complete communications victory.

Just like it has in prior statements, the Fed painted a picture of a stable and growing economy that was ready for a hike. In fact, in her press conference, Janet Yellen said that the Fed was "impressed" by the strength of the domestic economy. Although such statements began to resemble the film Groundhog Day, no one seems to tire of it.

A cornucopia of metaphors should have come to mind: The Fed's bite had failed to live up to its bark; its "open mouth" operations wrote a check that its Open Market Committee was unable to cash; the Fed has become Lucy of the comic strip Peanuts, always promising to hold the football for Charlie Brown to kick, but always taking it away before he kicks it. Instead, the dominant theme of the coverage was that the Fed's understanding of the global economy was just better than the rest of us. It apparently understood that a 25 basis point increase in rates in the U.S. could ripple through to the world markets and could potentially push China's tottering stock market into the abyss. That was a risk it believed was not worth taking.

To keep the story line going requires that the steady torrent of negative data be ignored (see manufacturing data in September Manufacturing Business Outlook Survey of Philly Fed]. Similar weakness is evident in business investment, productivity, and consumer confidence numbers. Based on those data sets, conventional Keynesian “wisdom” suggests the Fed should be preparing a fresh round of stimulus, not readying its first economic sedative in nine years.

The big news is the introduction of "international developments" as an ongoing input into the Fed's rate deliberation process. This addition allows the Fed nearly limitless latitude to perpetually kick the can down the road. After all, it is a great big world, and it will always be possible to find a problem somewhere. A Reuters article issued after the decision describes the new reality (9/18/15, Howard Schneider):

"It is a situation that could leave the Fed stranded in its hunt for a rate liftoff until the entire global economy is growing in sync, and the horizon is clear of risks."

So there you have it. The Fed is no longer just the central bank of the United States, but the central bank of the entire world. As such it will need to consider any possible negative impacts, anywhere, before it pulls the trigger. This isn't just moving the goalposts; it is dismantling them completely, putting them in crates, and losing them in a government warehouse...much like the Ark of the Covenant at the end of the first Indiana Jones movie. 

The height of yesterday's absurdity came during Janet Yellen's press conference when Ann Saphir from Reuters asked her about the possibility that interest rates could stay at zero "forever." While characterizing that likelihood as "extreme," Yellen incredibly stated that she could not rule out the possibility. Of course the absurd suggestion that American civilization may never see rates above zero did not even raise eyebrows in the mainstream media. But the statement itself raises some interesting questions about Yellen's actual thinking. First, how can she really be contemplating at 2015 rate hike, if she cannot even rule out the possibility of rates remaining at zero forever? Second, is she really that naïve and arrogant to believe that currency markets would allow the Fed to hold interest rates at zero indefinitely, without creating a dollar crisis, even if the Fed wanted to hold them there?

As I have maintained continuously, rate hike talk from the Fed is just a bluff to disguise its inability to tighten, as even small increases could be sufficient to prick the biggest bubble it has ever inflated. It is no coincidence that the stunning 170% increase in the Dow Jones, that occurred between March 2009 and the end of 2014, happened while the Fed was stimulating the economy almost continuously with QE, and that the rally came to an abrupt end when the QE stopped.

The recent 10% correction on Wall Street confirms to me just how sensitive the markets remain to the prospect of any rates higher than zero. In reality, that sell-off was a much greater factor than China in keeping the Fed quiet. That steep correction occurred at a time when most forecasters believed that a September hike was in the cards. For years, they had known that a rate hike was coming, but they always thought it would arrive when the economy was healthy. But when the big day became a clear and present danger, and the economy was still less than optimal, markets began to panic. It was only when Fed officials came out with publicly dovish statements that the sell-off ended. Despite this obvious connection, the markets are still blaming China, despite the fact that big sell-offs in China had been occurring for much of 2015 without sparking follow on panics in the U.S. 

As a result, it should be clear that ongoing Fed decision-making is not just "data dependent" (and now we are talking about international, not just domestic, data), but also "market dependent," meaning the Fed won't raise rates if markets sell off sharply on expectations that it will raise. Given these impossible conditions, perhaps a perpetual zero rates are not so outlandish. But the reality is Central banks can't really control interest rates across the spectrum, just the short end of the curve...when markets really panic, they won't be able to stop economically devastating interest rate spikes on the long end. 

In the meantime, I can only hope that the foreign exchange and commodity markets are finally getting the picture that the Fed appears impotent. The tremendous rally in the dollar over the past 18 months was predicated on the belief that interest rates would be rising in the U.S. just as they were falling everywhere else. Now that that premise is in tatters, the dollar should be giving back its undeserved gains. Recent moves in the foreign exchange market reveal that this is the case.    

When the year began, opinion was divided between those who thought the Fed would move in March, and those who thought it wouldn't happen until June. When June came and went, September became the odds-on favorite. Now those same experts are once again divided between December and sometime in 2016. When will these "experts" finally connect the real dots and discover that the monetary medicine that the Fed has doused over the economy since 2008 has only created a weak and utterly dependent economy. A rate hike is supposed to be a signal that the economy has a clean bill of health. But as the patient fails to recover, another dose of QE will be just what the doctor orders.


via http://www.europac.com/commentaries/groundhog_day_fed

Monday, September 14, 2015

Fed will not raise rates and this is why

I don't think the Fed ever really, seriously considered raising rates in the first place.

I think they wanted to create that impression, they wanted the markets to believe that rate hikes were under consideration, because they want markets to believe that the economic recovery is legitimate and that the economy can actually withstand the higher rates that they're pretending that they're ready to deliver.

But I think it's all been part of a show to mask the fact that the Fed understands all we have is a gigantic bubble, not a real recovery, and if they were to raise rates, they would prick that bubble. That's the last thing they want to do, which is why all they do is talk about raising rates, but haven't actually followed through with any of that talk.


Tuesday, September 8, 2015

US Dollar will collapse by more QE

There is a growing sense across the financial spectrum that the world is about to turn some type of economic page. Unfortunately no one in the mainstream is too sure what the last chapter was about, and fewer still have any clue as to what the next chapter will bring. There is some agreement however, that the age of ever easing monetary policy in the U.S. will be ending at the same time that the Chinese economy (that had powered the commodity and emerging market booms) will be finally running out of gas. While I believe this theory gets both scenarios wrong (the Fed will not be tightening and China will not be falling off the economic map), there is a growing concern that the new chapter will introduce a new character into the economic drama. As introduced by researchers at Deutsche Bank, meet "Quantitative Tightening," the pesky, problematic, and much less disciplined kid brother of "Quantitative Easing."  Now that QE is ready to move out...QT is prepared to take over.

For much of the past generation foreign central banks, led by China, have accumulated vast quantities of foreign reserves. In August of last year the amount topped out at more than $12 trillion, an increase of five times over levels seen just 10 years earlier. During that time central banks added on average $824 billion in reserves per year. The vast majority of these reserves have been accumulated by China, Japan, Saudi Arabia, and the emerging market economies in Asia. 

It is widely accepted, although hard to quantify, that approximately two-thirds of these reserves are held in U.S. dollar denominated instruments, the most common being U.S. Treasury debt.

Initially this "Great Accumulation" (as it became known) was undertaken as a means to protect emerging economies from the types of shocks that they experienced during the 1997-98 Asian Currency Crisis, in which emerging market central banks lacked the ammunition to support their free falling currencies through market intervention. It was hoped that large stockpiles of reserves would allow these banks to buy sufficient amounts of their own currencies on the open market, thereby stemming any steep falls. The accumulation was also used as a primary means for EM central banks to manage their exchange rates and prevent unwanted appreciation against the dollar while the Greenback was being depreciated through the Federal Reserve's QE and zero interest rate policies.

The steady accumulation of Treasury debt provided tremendous benefits to the U.S. Treasury, which had needed to issue trillions of dollars in debt as a result of exploding government deficits that occurred in the years following the Financial Crisis of 2008. Without this buying, which kept active bids under U.S. Treasuries, long-term interest rates in the U.S. could have been much higher, which would have made the road to recovery much steeper. In addition, absent the accumulation, the declines in the dollar in 2009 and 2010 could have been much more severe, which would have put significant upward pressure on U.S. consumer prices.

But in 2015 the tide started to slowly ebb. By March of 2015 global reserves had declined by about $400 billion in just about 8 months, according to data compiled by Bloomberg. Analysts at Citi estimate that global FX reserves have been depleted at an average pace of $59 billion a month in the past year or so, and closer to $100 billion per month over the last few months (Brace for QT...as China leads FX reserves purge, Reuters, 8/28/15). Some think that these declines stem largely by actions of emerging economies whose currencies have been falling rapidly against the U.S. dollar that had been lifted by the belief that a tightening cycle by the Fed was a near term inevitability.

It was speculated that China led the reversal, dumping more than $140 billion in Treasuries in just three months (through front transactions made through a Belgian intermediary - solving the so-called "Belgian Mystery") (China Dumps Record $143 Billion in US Treasurys in Three Months via Belgium, Zero Hedge, 7/17/15). The steep decline in the Chinese stock market has also sparked a flight of assets out of the Chinese economy. China has used FX sales as a means to stabilize its currency in the wake of this capital flight.

The steep fall in the price of oil in late 2014 and 2015 also has led to diminished appetite for Treasuries by oil producing nations like Saudi Arabia, which no longer needed to recycle excess profits into dollars to prevent their currencies from rising on the back of strong oil. The same holds true for nations like Russia, Brazil, Norway and Australia, whose currencies had previously benefited from the rising prices of commodities.

Analysts at Deutsche Bank see this liquidation trend holding for quite some time. However, new categories of buyers to replace these central bank sellers are unlikely to emerge. This changing dynamic between buyers and sellers will tend to lower bond prices, and increase bond yields (which move in the opposite direction as price). Citi estimates that every $500 billion in Emerging Markets FX drawdowns will result in 108 basis points of upward pressure placed on the yields of 10-year U.S. Treasurys (It's Official: China Confirms It Has Begun Liquidating Treasuries, Warns Washington, Zero Hedge, 8/27/15). This means that if just China were to dump its $1.1 trillion in Treasury holdings, U.S. interest rates would be about 2% higher. Such an increase in rates would present the U.S. economy and U.S. Treasury with the most daunting headwinds that they have seen in years. 

The Federal Reserve sets overnight interest rates through its much-watched Fed Funds rate (that has been kept at zero since 2008). But to control rates on the "long end of the curve' requires the Fed to purchase long-dated debt on the open market, a process known as Quantitative Easing. The buying helps push up bond prices and push down yields. It follows then that a process of large scale selling, by foreign central banks, or other large holders of bonds, should be known as Quantitative Tightening.

Potentially making matters much worse, Janet Yellen has indicated the Fed's desire to allow its current hoard of Treasurys to mature without rolling them over. The intention is to shrink the Fed's $4.5 trillion dollar balance sheet back to its pre-crisis level of about $1 trillion. That means, in addition to finding buyers for all those Treasurys being dumped on the market by foreign central banks, the Treasury may also have to find buyers for $3.5 trillion in Treasurys that the Fed intends on not rolling over. The Fed has stated that it hopes to effectuate the drawdown by the end of the decade, which translates into about $700 billion in bonds per year. That's just under $60 billion per month (or slightly smaller than the $85 billion per month that the Fed had been buying through QE). Given the enormity of central bank selling, and the incredibly low yields offered on U.S. Treasurys, I cannot imagine any private investor willing to step in front of that freight train.

So even as the Fed apparently is preparing to raise rates on the short end of the curve, forces beyond its control will be pushing rates up on the long end of the curve. This will seriously undermine the health of the U.S. economy even while many signs already point to near recession level weakness. Just this week, data was released that showed U.S. factory orders decreasing 14.7% year-over-year, which is the ninth month in a row that orders have declined year-over-year. Historically, this type of result has only occurred either during a recession, or in the lead up to a recession. 

The August jobs report issued today, which was supposed to be the most important such report in years, as it would be the final indication as to whether the Fed would finally move in September, provided no relief for the Fed's quandaries. While the headline rate fell to a near generational low of 5.1%, the actual hiring figures came in at just 173,000 jobs, which was well below even the low end of the consensus forecast. Private sector hiring led the weakness, manufacturing jobs declined, and the labor participation rate remained at the lowest level since 1976. So even while the Fed is indicating that it is still on track for a rate hike, all the conditions that Janet Yellen wanted to see confirmed before an increase are not materializing. This is a recipe for more uncertainty, even while certainty increases overseas that U.S. Treasurys are troubled long term investments.

The arrival of Quantitative Tightening will provide years' worth of monetary headwinds. Of course the only tool that the Fed will be able to use to combat international QT will be a fresh dose of domestic QE. That means the Fed will not only have to shelve its plan to allow its balance sheet to run down (a plan I never thought remotely feasible from the moment it was announced), but to launch QE4, and watch its balance sheet swell towards $10 trillion. Of course, these monetary crosscurrents should finally be enough to capsize the U.S. dollar.


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Wednesday, September 2, 2015

Dow will drop over 1000 if the Fed hike rates

It’s not just a 580 points [on the Dow] we drop today or the 530 on Friday or the 350 on Thursday. We have thousands and thousands of points to surrender if the Fed is actually going to follow through with its threats to raise interest rates.

Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, August 31, 2015

Fed rate hike this month will cause a RECESSION

There’s nothing beneath the market but air. [The economy] is teetering on the edge of recession now, and any kind of rate hike would probably push it over the edge.

In the past it was the Fed that has been there to catch the markets with more quantitative easing, but right now the Fed is still pretending that they’re getting ready to raise rates, which is really what’s behind the stock market selloff. People want to blame it on China, but it’s not about China.



Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Thursday, August 27, 2015

Peter Schiff, Marc Faber conference October 28, 2015 in New Orleans, USA

It is once again time for one of the world's most respected gold and natural resources conference: The New Orleans Investment Conference. This year's conference is held at the Hilton New Orleans Riverside on October 28-31, 2015. Click here to register now! The schedule is still to be determined, but I will be speaking on Thursday, the 29th. Over the decades, this conference has become a major showcase not just of investing ideas but a major forum for fantastic discussion of politics and economics. The top-level presentations occur all day, but the organizers are careful to allow participants to get out and roam the Streets of lovely New Orleans, one of America's treasures of culture, music and food. Better still, New Orleans really comes to life in the days before Halloween.

I will be getting together with the top minds in finance and investment, and speaking alongside Dr. Marc Faber, Dr. Charles Krauthammer, Dr. Larry Reed, Doug Casey, and many more.

Given the slowing economy, the heightened tensions that are currently engulfing the markets, and the Fed's need to come finally clean about its reluctance to raise interest rates, this year's conference should be riveting. Now more than ever you need to hear expert opinions to help you navigate the turbulence ahead. New Orleans is a great place to do just that. I hope to see you there.

Register for the event at
http://www.eventbrite.com/e/the-2015-new-orleans-investment-conference-registration-15210083770

Monday, August 24, 2015

Resemblences of 1987 Black Monday



Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Tuesday, August 18, 2015

Dollar will suffer after Chinese Yuan devaluation says Peter Schiff




Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, August 10, 2015

Gold is scarce and cannot be printed like money



Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, July 27, 2015

Peter Schiff on Alex Jones show [VIDEO]




Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Wednesday, July 22, 2015

We cant pay our creditors

"What's happening in Greece and what's happening in Puerto Rico is going to happen in the United States."

"Once the Greek creditors began to question the solvency of Greece they demanded higher interest rates. The minute our creditors figure out we are in the same position as Greece or Puerto Rico, they're going to demand higher interest rate from us and we can't pay either."


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, July 20, 2015

Peter Schiff: We Are All Slaves [VIDEO]





Peter Schiff is an investor and best selling author of several books. He correctly predicted the economic meltdown of 2008 - 2009.

Thursday, July 16, 2015

Stocks are expensive and markets will go down not because of Greece

Stocks should fall around the world, not because of Greek banks, but because many markets are obscenely expensive relative to the underlying fundamental growth potential in the global economy. 



Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Wednesday, July 15, 2015

Smart money is buying gold

Gold is not overvalued at $500, and gold will not be overvalued at $1,500 or $2,000. The real money is buying gold and putting it away.


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Tuesday, July 14, 2015

Greece crisis is a warning to America

This is what happens when politicians promise more than their taxpayers can pay. Politicians on both sides of the Atlantic are guilty of this. They pander [to] the voters, they make all sorts of promises and when the bills come due, it's a crisis and they're going to come due in more countries than Greece.

They're going to come due in America and unfortunately there's a lot more bills that we can't pay.

Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, July 13, 2015

Greece vs USA

The only thing that really separates the [United States] from Greece is that Greek creditors have figured out that Greece is broke and America's creditors are still delusional.


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Wednesday, July 8, 2015

Puerto Rico should default and crisis could affect your Retirement funds




Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, July 6, 2015

Peter Schiff on "Cheap Money"

The U.S. is being eaten alive by a horrific cancer that will ultimately destroy the economy and impoverish the vast majority of its citizens.



Tuesday, June 30, 2015

Greece problem looks similar to USA problems with low interest rates

The reason Greece got themselves into such a big problem is because for years at artificially low interest rates. Well we've made the same problem, its just that our creditors haven't figured it out yet and so they are still willing to loan us money even though we cant pay any of it back.



[See Full video below]


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, June 29, 2015

Peter Schiff vs Steve Liesman of CNBC


CNBC's Steve Liesman thinks central banks don't know how to create inflation. Unfortunately that is the only thing they know how to create.



Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Friday, June 26, 2015

Heres why there will be no rate hike in 2015

Janet Yellen said the Fed needs to see further improvement in the labor markets prior to raising rates. Translation, no rate hike in 2015.


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Wednesday, June 24, 2015

Gold dropped because Greek deal possibilities rose

Gold declines below $1,200 as optimism on Greek deal lessens safe-haven appeal. Investors focused on larger threats in the U.S. are buying 

- VIA Twitter


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, June 22, 2015

Peter Schiff says the Fed will not raise rates

The last attempt made by the Fed to raise rates gradually occurred after 2003-2004 when Alan Greenspan had attempted to withdraw the easy liquidity that he had supplied to the markets in the form of more than one years’ worth of 1% interest rates. But by raising rates in quarter point increments for the succeeding two years, Greenspan was unable to get in front of and contain the growing housing bubble, which burst a few years later and threatened to bring down the entire economy. In retrospect, Greenspan may have done us all a favor if he had moved more decisively.

Today, we face a similar but far more dangerous prospect. Whereas Greenspan kept rates at 1% for only a year, Bernanke and Yellen have kept them at zero for almost seven years. We have pumped in massively more liquidity this time around, and our economy has become that much more addicted and unbalanced as a result. Arguably, the bubbles we have created (in stocks, bonds, student debt, auto loans, and real estate) in the years since rates were cut to zero in 2008 have been far larger than the stock and housing bubbles of the Greenspan era. When they pop, look out below. Unfortunately, the gradual approach did not save us last time (worse, it backfired by making the ensuing crisis that much worse), and I believe it won’t work this time.   


In fact, the current bubbles are so large and fragile that air is already coming out with rates still locked at zero. However, unlike prior bubbles that pricked in response to Fed rate hikes, the current bubble may be the first to burst without a pin. It appears the Fed fears this and will do everything it can to avoid any possible stress. That is why Fed officials will talk about raising rates, but keep coming up with excuses why they can’t.   


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Wednesday, June 17, 2015

Fed has created a phony wealth effect

I believe that a very large portion of even our modest current growth is based on the “wealth effect” of rising stock, bond, and real estate prices that have only been made possible by zero percent rates in the first place. In my opinion, it is no coincidence that economic growth and stock market performance have stagnated since December 2014 when the Fed’s QE program came to an end (it has very little to do with either bad winter weather or the West Coast port closings).

Prior to that, the $80+ billion dollars per month that the Fed had been pumping into the economy had helped push up asset prices across the board. With QE gone, the only thing helping to keep them from falling, and the economy from an outright recession (which is technically a possibility for the first half of 2015), is zero percent interest rates. Given this, even modest increases in interest rates could be devastating.


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, June 15, 2015

Peter Schiff says Larry Lindsey got a few things right

It is well known that I don’t think much of the ability of government officials to correctly forecast much of anything. Alan Greenspan and Ben Bernanke have made famously clueless predictions with respect to stock and housing bubbles, and rank and file Fed economists have consistently overestimated the strength of the economy ever since their forecasts became public in 2008. 

But there is one former Fed and White House economist who has a slightly better track record...which is really not saying much. Over his public and private career, former Fed Governor and Bush-era White House Chief Economist Larry Lindsey actually got a few things right.

Back in the late 1990's, Lindsey was one of the few Fed governors to warn about a pending stock bubble, and to suggest that forecasts for future growth in corporate earnings were wildly optimistic. He also famously predicted that the cost of the 2003 Iraq invasion would greatly exceed the $50 billion promised by then Secretary of Defense Donald Rumsfeld, a dissent that ultimately cost him his White House position.

Now Lindsey is speaking out again, and this time he is pointing to what he sees as a painfully obvious problem: That the Fed is creating new bubbles that no one seems willing to confront or even acknowledge. To paraphrase:

“The public and the political class love to have everything going up. We had 'Bubble #1' in the 1990s, “Bubble #2” in the 00s, and now we are in “Bubble #3.” It’s a lot of fun while it’s going up, but no one wants to be accused of ending the party early. But it’s the Fed’s job to take away the punch bowl before the party really gets going.”

To his credit, however, Lindsey sees how this is sowing the seeds for future pain, saying:

“The current Fed Funds rate is clearly too low, the only question is how we move it higher: Do we do it slowly, and start sooner, or do we wait until we are forced to, by the bond market or by events or statistics, in which case we would need to move more quickly. By far the lower risk approach would be to move slowly and gradually.”

In other words, he is virtually pleading for his former Fed colleagues to begin raising rates immediately. I would take Lindsey’s assertion one step further; the party really got going years ago and has been raging since September 2011, the last time the Dow corrected more than 10%. (That correction occurred at a time when the Fed had briefly ceased stimulating markets with quantitative easing.) Since then, the Dow has rallied by almost 58% without ever taking a breather. With such confidence, the party has long since passed into the realm of late night delirium.


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, June 1, 2015

China economy fundamentals much better than China [VIDEO]

The fundamentals of China are much better than United States. [Watch full video above]

Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, May 18, 2015

Gold to reward investors big time

There really is no limit to how high gold prices can rise. We’ll always have to do [QE] to offset the damage from the previous QE.

It’s like trying to put out a fire with gasoline. That’s all the Fed has—gasoline. And everyone expects the fire to go out. It can’t go out.

You need to be long gold and there is going to be a huge payday. I think the upside in gold stocks is phenomenal from here,

Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, May 11, 2015

Janet Yellen was right ...sort of

Janet Yellen was half right when she said the stock market was overvalued.

If the Fed was really going to raise interest rates [the stock market] would be a lot lower. That's also why I don't think the Fed is going to raise interest rates, because I don't think Janet Yellen wants the stock market to go down. This whole phony recovery is based on asset bubbles and the Fed is not going to intentionally prick those bubbles."

I don't know how far the market will drop because I don't think the Fed will allow it to.


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Wednesday, May 6, 2015

China probably wont have a US styled recession

The recession in China is when the economy is growing at 7% instead of like 9%, but I don't think they are going to have a recession the way we measure it. I do think that there are misallocations in the Chinese economy that are the result of their monetary policy being too loose, their interest rates being to low. They have printed too much money but all that has been to prop up our economy and to prop up the US dollar. I think it has been China's effort to prop up the US economy that has been undermining their own economy. What they need to do is stop buying treasuries, let their own currency rise so that their own people can consume more of what they produce and stop lending money to Americans to buy things that we cannot afford.


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Things could be worse for Greece if it exits EU

I think the politicians in Greece have to talk in a certain way to get elected – 'We are going to take a tough line against the Europeans' – and that is how they appeal to the masses and they get votes. But at the end of the day, once they are in power again they are lot more pragmatic and they are going to actually look at the situation. If they actually leave the eurozone, then what are they going to do? Then the country is going to implode, the currency is going to collapse, and now they are going to have to impose austerity on themselves. At least now they can always blame it on Germany or Brussels. If they actually leave the eurozone then who do they have to blame? They are going to have to stew in their own brew.

Everybody thinks that it is going to be terrible for Europe if Greece leaves. Look, it could be the best thing for the eurozone to have a sacrificial lamb, to let Portugal or Spain or somebody else have a good look at life after the euro and then maybe they will be shocked into making some reforms, kind of like scared straight, and say, 'Hey, look. I don't want to end up like Greece so let's start cutting back on government spending now so that we don't have to leave or get kicked out.'

You can't have Greece holding everybody else hostage by saying, 'We are going to leave unless you keep giving us more and more money.' That is an even greater moral hazard because that sends a message to other countries to do the same thing if there are no consequences to being reckless and there is no reward for being frugal or prudent. They just can't cave in to Greece's demands.

But I feel bad for Greece in that it was government moral hazard that enabled the Greek government to get so indebted in the first place. It's just like what we have done in the US. We did the same thing. Look at all the money Puerto Rico owes, the debt crisis there. Why does Puerto Rico owe so much money, and why were they able to borrow so much money in the first place? It's because the US government made Puerto Rican debt tax free in all 50 states and so muni bond funds were eager to gobble. Plus, by keeping interest rates so low everybody was chasing yield, and they found it in Puerto Rican bonds. Puerto Rican politicians then took advantage of all that demand by borrowing money at artificially low rates and using it to buy votes.

Now they are in trouble, but they would not be so highly indebted but for our tax code and the Fed. Politicians just do what politicians do. They are always looking for a handout. That's how they get votes. They promise something for nothing and cheap money allows them to deliver on that promise until the bill comes due. And it always comes due, whether it is Greece or the United States. We have been throwing this party a lot longer then they have and we are in much worse shape. When interest rates go up the real Greek tragedy will play out in America.


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, May 4, 2015

Greece is example of government that wants to avoid telling the truth

I hope for the sake of Greeks that the drachma does not come back. It did not serve them well in the past but what it shows you is the degree to which politicians will avoid telling the truth. The Greek politicians don't want to level with Greek voters that they can't pay the pensions and they can't pay these inflated salaries and benefits that they promised, so they want to pay them in drachma. But the drachmas aren't going to buy much.

Greece would probably be better served to stick with the euro and to actually implement the reforms – real austerity on the part of the government. They need less government not just trying to get more taxes from the Greek workers. They just need fewer people living off those Greek taxpayers. They need less government in Greece. I would be all for Greece leaving the eurozone if they wanted to establish a free-market paradise, if they were going to become like a Hong Kong or a Singapore in Europe, if they were going to just say, 'Yeah, we want to be out of the eurozone so we can have sound monetary policy, limited government, low taxes.' But instead, they are promising even more socialism. They say, 'We need to leave the eurozone so we can have even more socialism than we have now.'


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Thursday, April 30, 2015

Eurozone has a moral hazard problem

The moral hazard of the euro-zone is that you had convergence because the markets began to sense that any sovereign was too big to fail and so all these overly indebted countries got to keep on borrowing money at low rates of interest. Had the eurozone never been created and Greece was trying to borrow in drachma they could not have accumulated all that debt because nobody would have loaned them the money. But there was this moral hazard that should have diffused earlier. Instead, they are feeding it by trying to keep it and make it so that nobody defaults and that is a mistake.

We are doing the same thing here. We bailed everyone out. We prevented a lot of defaults that should have been allowed to occur. We have even more moral hazards than they have in Europe. We've got all sorts of people who have borrowed money who are never going to pay it back. We have all these students that have debt, we have mortgages and credit cards and, of course, the federal government can never repay its debts, either. So in that respect we are no different than Greece.


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Tuesday, April 28, 2015

Financial crisis will come to us

People think the financial crisis is in our past. It is not. It is in our future. That was the overture to the opera, the beginning. This thing is far from over. It is the people who didn't understand that crisis that are the ones who think we have solved the problem. They never understood the problem in the first place, which is why they were so blindsided by the '08 financial crisis. I understood the problem. That is why I was warning about it for years and that is why I understand that the problem has only been made worse by the very people and institutions that caused it in the first place.


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, April 20, 2015

Peter Schiff on Greece and Euro [VIDEO]




Peter Schiff is a smart investor and author of several best selling books. He correctly pre\dicted the economic meltdown of 2008 - 2009

Monday, March 30, 2015

Fed bluff on rate hikes


The Fed has been bluffing the entire time [on rate hikes]. It has no intention of raising rates, but it can’t come clean and admit that, so it has to pretend that it is going to do something it’s not going to do, so it does not reveal the fragility of the US economy.

Eventually Fed policymakers will increase rates but they will do so not because they want to, but because they have to, because the markets will give them no choice, because I think we will have a currency crisis. . . . It’s going to make 2008 look like a Sunday school picnic.

Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

Monday, March 16, 2015

Government cant take from you if you hide your gold

It’s not that people want to do something illegal but people fear that the government may do something illegal in the future, may do something oppressive in the future. 

They might want to confiscate gold but they can’t confiscate it if they don’t know where you have it. If you have it in a brokerage account, they know where it is and they can take it. But if you have it buried somewhere or in a safe, they can’t get at it.

Wednesday, March 11, 2015

Peter Schiff on Fed's real problem

I have always argued that quantitative easing and zero percent interest rates were misguided policies to combat economic weakness. But as the years went on, misguided turned into irresponsible, which led to ridiculous, and then turned into dangerous. But lately, the only word that comes to mind is "surreal." How should we react when central bankers begin to speak like Willie Wonka?

Contained in the latest release of the Minutes of the Federal Reserve's Open Market Committee (Jan. 27-28, 2015) was a lively discussion of how to say something without anyone understanding what is being said. Although I have been critical of the Fed for many years, I never imagined that it would provide me with material that bordered on the metaphysical.

As Fed policies have become ever more critical to our economic health and stock-market performance (see our 2015 Outlook piece in our latest newsletter), the degree to which investors and journalists dissect every public statement and utterance by Fed officials has increased remarkably. At present, one of the biggest points of contention is to find the true meaning and significance of the word "patient."

Last year, as market watchers grew nervous with the Fed's withdrawal of its quantitative easing purchases, many began to wonder how long it would be, after the program came to an end, for the Fed to actually raise interest rates, which had remained at zero since 2008. After all, this would shift the bank into a second, potentially more consequential, phase of monetary tightening. Investors wanted to know what to expect.

Initially the Fed let market participants know that it would hold rates at zero for a "considerable time" after the end of QE (9/13/12 press release), thereby creating a buffer zone between the end of QE and the beginning of rate increases. But, after a while, this also became too amorphous and static for investors who crave actionable information. So in December of 2014, in a bid to increase "transparency" (which is the central banking buzzword for "no surprises"), and to signal that the day of tightening had moved closer, the Fed replaced "considerable time" with the word "patient." But this only deepened the mystery. Investors began to wonder what "patient" actually meant to the Fed. With potential fortunes riding on every word, the discussion was anything but academic.

When pressed for an answer at a Fed press conference, Yellen explained that the word "patient" in the FOMC statement indicated that it would be unlikely that the Fed would raise rates for at least "a couple" of meetings. She then conceded that "a couple" could be interpreted as "two." Since the FOMC meets every six weeks, that seems to mean that a rate hike would not happen for at least three months after the word "patient" is removed from its statements. But she was also careful to say that removal of the word "patient" does not necessarily mean that the Fed would raise rates after two meetings, just that it's possible. But this much transparency may have become too much for the Fed to handle.

A Change Of Mind?

With the economy now clearly losing steam, based on the drop in GDP from 3rd to 4th quarters, and general macro data coming in very weak (Zero Hedge, 2/18/15), I believe the Fed wants desperately to move those goalposts. But after a series of seemingly strong jobs reports, culminating with a strong 295,000 jobs in February, the market expects that "patient" will soon disappear from the statement. The Fed wants to comply, thereby signaling that everything is fine. But at the same time it doesn't want the markets to conclude that rate hikes are imminent when it does.

In other words, they are searching for a way to drop the word "patient" without communicating a loss of patience. What? This is like a driver telling other drivers that she plans on engaging her turn signal before making a left, but then wonders how to hit the blinker without actually creating an expectation that a turn is imminent. This seems to be a question for psychologists not bankers. Perhaps it is looking for a new word to replace "patient"? Something that implies a slightly less patient outlook, but that certainly does not imply imminence. "Casual" or "nonchalance" may fit the bill. How would the markets react to a "nonchalant" Fed? Time for a focus group.

The recently released Minutes of the January 27-28 FOMC Meeting frames the difficulty:

    Many participants regarded dropping the "patient" language in the statement, whenever that might occur, as risking a shift in market expectations for the beginning of policy firming toward an unduly narrow range of dates. As a result, some expressed the concern that financial markets might overreact, resulting in undesirably tight financial conditions.

Translated into English this means,

We hope the markets don't actually believe what we tell them." The Minutes continue:

    A number of participants noted that while forward guidance had been a very useful tool under the extraordinary conditions of recent years, as the start of normalization approaches, there would be limits to the specificity that the Committee could provide about its timing.

To me this translates as "Transparency was great while we were loosening policy, or doing nothing, but it isn't useful now that the markets expect us to tighten." If you believe as I do, that the Fed has no intention of tightening anytime soon, its sudden aversion to clarity is understandable. Not surprisingly, the Committee appears to be in favor of shifting to a "data-dependent" stance:

    ...it was suggested that the Committee should communicate clearly that policy decisions will be data dependent, and that unanticipated economic developments could therefore warrant a path of the federal funds rate different from that currently expected by investors or policymakers.

Of course the Fed won't actually define exactly what type of data movements will translate into what specific policy actions. In that sense, a "data dependent" policy stance puts the Fed back into a "goalpost-free" environment where no one knows what it will do or when it will do it.

Yellen's Warning

To underscore the absurdity of the situation, Chairman Yellen, at her semi-annual Senate testimony in February, offered this "full-throated" warning about pending policy normalization, saying that the Fed "will at some point begin considering an increase in the target range for the federal funds rate." So this means that after some unspecified time of not even thinking about rate increases, the Fed will "begin" the process of getting itself to the point where it may "consider" (which is in itself an open-ended deliberation) an increase in its rate target (which does not even in itself imply an actual increase in rates). Yet despite this squishy language, the lead front page article on February 24th in the Wall Street Journal (that contained that quote), ran under the bold headline "Yellen Puts Fed on Path to Lift Rates." Leave it to the media to carry the water that the Fed refuses to pick up.

So are we expected to believe that the Fed hasn't even begun considering rate increases yet? Really? Isn't that the biggest, most urgent, issue before it? The Fed is a central bank, what else is it supposed to consider? This is like a 16-year old boy saying that "at some point in the future I may begin thinking about girls." Till then, should we expect him to think solely about homework and household chores?

Fed officials have warned that they are concerned about raising rates too quickly. Perhaps that fear may have been plausible a few years ago, before unemployment plummeted and the stock market soared. But how would a 25 basis point increase in rates seriously slow an economy that most people believe has fully recovered? And if the Fed is concerned now, why would it not be concerned next year? If anything, the longer it waits, the more vulnerable the recovery will be to higher rates.


The business cycle tells us that recoveries do lose momentum over time. The current recovery is already five years old, and is, statistically speaking, already well past its prime. And since low rates encourage the economy to take on more debt, the longer the Fed waits to raise rates, the more debt we will have when it does. This means that the debt will be more costly to service when rates rise, which will throw even more cold water on the "recovery."

The Fed's real predicament is not how to raise rates, but how to talk about raising interest rates without ever having to actually raise them. If we had a real recovery, the Fed would not need to couch its language so delicately. It would have just pulled the trigger already. But when its communications and its intentions are different, credibility becomes a very delicate asset.


Peter Schiff is a smart investor and author of several best selling books. He correctly predicted the economic meltdown of 2008 - 2009

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