The Peter Schiff Show Podcast

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

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

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

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

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

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

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

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

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

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