Peter Schiff Media Roundup Dec. 16-Dec. 22
In the past week, Peter Schiff released two podcasts, and appeared on CNBC, Fox Business, InfoWars and The Hard Line. The Federal Reserve’s decision to nudge interest rates up and the possible ramifications dominated discussions.
Follow these links to jump to the video or article you’d like to see:
1. Schiff Radio Podcast: CNBC Calls Me Out On Gold, Dec. 21
2. Commentary: Mission Accomplished, Dec. 18
3. InfoWars: All Fed Decisions Are Made for Political Reasons, Dec. 18
4. CNBC: The Battle Continues: Schiff vs. Nations on Gold & Fed Rate Hike, Dec. 17
5. Schiff Radio Podcast: Janet Yellen Gets Nuts, Dec. 17
6. Fox Business: If the Market Believes in the Fed, the Market has a Problem, Dec. 16
7. The Hard Line: Rate Hikes Are Over; Fed Will Ease Next, Dec. 16
Schiff Radio Podcast: CNBC Calls Me Out on Gold
Peter discusses the aftermath of the Fed’s rate hike and the stock market’s reaction. He also shares some new evidence that the economy isn’t nearly as good as the policymakers want you to think. Peter also breaks down a CNBC article taking him to task on his predictions about gold.
Read along with the full transcript.
While recording this podcast on Monday afternoon, the stock market closed about an hour ago, and it was up over a hundred points today. It lept up over a hundred points, sold off just slightly negative end of day, and then regained the plus-100 by the close. But the more dramatic days happened on Thursday and Friday.
Now, I recorded my Thursday podcast, I think, long before the markets had closed. And despite the initial euphoric increase in the stock market that greeted the Fed’s highly anticipated quarter point rate hike on Wednesday…In fact we got a big rally in the market on Tuesday prior to that, because everybody was celebrating in advance the rate hike and what that supposedly signified about how great the US economy was, because the Fed had enough confidence in it to raise rates from 0 to .25. But then the market tanked on Thursday and Friday. We were down over 600 points on Thursday and Friday. So we were down on the week.
The most significant part about the selloffs is that in both cases the markets closed on the absolute low of the day, with much of the selling not only coming in the final hour, but the final half hour, or final 15 minutes. And I think the Fed is getting dangerously close to losing what remains of its credibility. It’s a credibility bubble that might be the first one to deflate. It’s amazing to me, after two busted bubbles in the last 15 years, that the Fed still has any credibility left. But I guess it’s going to be the third time’s a charm or, I guess, whatever is the opposite of charm, for the Fed when it comes to losing their credibility.
See, I’ve been saying this all along the Fed has been talking about how it believed the US economy would be strong enough for a rate hike later in the year, right? They were saying that all year long. When December came around…this was their last meeting, their last opportunity to raise rates. If they didn’t do it, it would have been an admission that they were wrong, that the economy wasn’t strong enough to raise rates by the end of the year. Because if they didn’t raise rates and the year ended and we were still at zero, then that would prove that their assessment was inaccurate. And I guess that the Fed was afraid to have to admit that they were wrong. So, rather than admit that they were wrong, they raised rates anyway, even though the economic data clearly showed that they shouldn’t have done it, based on their own criteria.
And so I said the Fed had a choice. It was they could either look foolish now by not raising rates or look foolish later by raising them. And I think that they’re going to look foolish a lot sooner than they thought by looking foolish later, because the markets are already unraveling. More and more people are now questioning whether or not they’ve made a policy mistake, because it’s obvious. Look at the data that has just come out even since the Fed hiked rates. Look at what happened on Friday. We got the PMI Flash Services Index. That came out at 53.7. Last month, it was 56.5. So it went way down from the previous month. And this is the service sector. Also the Kansas City Fed Manufacturing last month was +1, and in December, it was -8. That’s a weak number. And then even today, we got Chicago Fed National Activity – this is coming from the Fed itself – it was supposed to be +1.5 for November. Instead, it came out at -0.3. So it came out twice as negative as they were expecting positive, and they revised down the prior month. They took October from -0.04 to -0.17. So this is typical. Not only do we get worse data than is expected, but they go back, and they make the data from the prior month even worse than they originally told us.
So with all the economic data horrible, with retail sales, horrible, with corporate earnings, horrible, it’s obvious that the U. S. economy is heading to recession. Well, then why did the Fed raise rates? Well, it must mean that what was obvious to everybody else, or should have been obvious, wasn’t obvious to the Fed – that the Fed was oblivious to this. So as the economy slows and the Fed is forced to admit that it’s wrong and is forced to lower interest rates back down to zero and launch QE4, there goes its credibility.
They were obviously wrong. And they were so wrong that they couldn’t even admit it. All of these problems that we have in the US economy, they’re a long time in the making. This collapse that’s coming is the culmination of, really, decades of bad macroeconomic policy, monetary policy, fiscal policy. But where we really went off the rails to a whole new level of insanity was in the Greenspan era. Greenspan had the most reckless of monetary policies up until his tenure. And his monetary policy really sent us off on this trajectory, accelerated the problems that had been building for decades. And then when Ben Bernanke took over and had to deal with the aftermath, he took monetary policy to a whole new level.
It really became ridiculous under Bernanke because it wasn’t just 1% rates a Greenspan put. We had 0% rates for seven years and three rounds of quantitative easing. And when Janet Yellen took over the helm, she continued those ridiculous policies initially. But then she decided to try and dial it back – dial it back from ridiculous to just crazy or whatever Greenspan had.
In fact, we haven’t even got back to levels that are that irrational yet. Interest rates aren’t back at one. They’re just not zero. And she stopped doing the quantitative easing. Although, she’s still rolling over. Janet Yellen admitted in their press conference or in their statement last week when they raised rates that they’re still going to be rolling over all of the bonds that mature and reinvesting all of the interest on those bonds. So in other words, the Fed’s balance sheet is still set, at a minimum, to stay the same but actually grow, because when they reinvest the interest, the balance sheet is growing. So the Fed is not even shrinking its balance sheet yet. It’s still expanding it. It’s just not expanding it as fast as they were when they were still officially doing QE. So she’s trying to dial back that level of monetary policy away from the ridiculous policy that we had under Bernanke, but it’s going to blow up in her face.
The economy, the bubble economy, can’t handle it. The drug addicts need their full dose of heroin. They can’t take the tapered dose. And they certainly can’t take it with a 25 basis point rate hike. We were already heading into monetary withdrawal just with the absence of the QE. This slight rate hike and the prospect of four more…Remember, the Federal Reserve, according to Janet Yellen, is telegraphing that we’re going to get four more quarter point rate hikes. Every season of 2016, the Fed is going to raise rates another 25 basis points. Of course, this is all part of the pretense, right? This is the Fed just trying to pretend that they have confidence in the economy, so they can pretend that they’re actually going to be raising rates four more times next year when they really didn’t even want to raise rates once this year. But they had backed themselves into that credibility corner.
But now, I think they’re going to lose even more credibility for having raised rates than they would have lost if they just left them at zero. Janet Yellen is going to have to take this thing to a whole new level. She’s going to have to go to ludicrous speed when it comes to quantitative easing. If you saw the movie Spaceballs, you remember when they tried to go to ludicrous speed; it didn’t work out too well for the Rick Moranis character, Dark Helmet, when they went to ludicrous speed. And when they take quantitative easing up to ludicrous speed, that’s going to be it, right? Not only for the Fed’s credibility, but it’s not going to work in blowing any bubbles. It’s just going to blow up in their faces. And we’re going to blow up the dollar. We’re going to blow up the bond market.
Maybe initially, there might be some kind of boost. I don’t know. The Fed is going to have to try to pretend that everything worked. They just misjudged the amount of fuel that the rocket ship needed to achieve escape velocity. They’re saying, “You know what, we didn’t just have quite enough quantitative easing. Paul Krugman was right. We needed to do it bigger. So we just need to do ludicrous. We need to do more quantitative easing on a bigger scale. We need bigger asset purchases. We need negative interest rates. Zero wasn’t quite low enough. We need to go negative. And then we’re going to get escape velocity. And then we’ll be able to dial it back. We just need to take the balance sheet from 4 and a half trillion to 10 trillion. And then we’ll be able shrink it.”
Now, I don’t think the market is going to buy it one more time. That’s why I’m saying the third time is going to be the opposite of the charm when it comes to the Fed. But it will be the charm, I think, for gold and other investment strategies that I have been recommending, which brings me to what I want to discuss on this podcast. And that is CNBC really taking me to task on their website.
The article came out on Sunday evening. The title, I guess, is “The Peter Meter: Assessing Schiff’s Predictions.” They really want to take me to task for how awful my predictions have been. And of course, they don’t want to focus, or they don’t want to look at, any of the predictions that I’ve made on CNBC that have actually panned out already, because there are plenty of those, right? But they want to focus in on the ones that haven’t worked out in order to discredit me. And so they focused on a prediction that I made in an interview I did in 2012. Now, I’ve been going on CNBC since 2005, right? And so there’s a lot of stuff that I’ve said, particularly the earlier interviews, that has come true in a spectacular way. And they don’t give me any credit for that. In fact, CNBC never wrote an article about me, about my predictions that came true, right? They never wanted to pat me on the back and say, “Hey, Peter Schiff’s made some good calls.” No, they only want to write an article about my bad calls.
And by the way, there are a lot of other people that go on CNBC that made a lot worse calls than me. They never write articles about them. For some reason, they want to single me out, even though I’m barely on. I’ve only been on actual CNBC twice in the last two years. They barely had me on. Yet, they decide to write an article about how bad my forecasts are. But I have been on the show Futures Now a few times, which is not even on CNBC. It’s on their website. And so they have had me on their website a few times because they know it generates traffic, because there are people who look for me on the Internet. And so they probably get a lot more traffic on their website when they have Peter Schiff than when they have just about anybody else. So, every once in a while they do have me on.
And so they brought up this interview I did in 2012 when gold was at 1,700. And I said that I thought it was going to 5,000. And they pressed me, and they asked me, “Well, when? How soon do you think it’s going to happen?” Now, initially I said I think in a few years. I said, “I think gold’s going to go to 5,000 in a few years.” And then they pressed me on, “How soon do you think it’s going to happen?” And I really said, “I don’t know. I think we’re going to make a big move though in the next couple of years.” So I never really put a time horizon on my 5,000 call. But I said a few years. And I don’t know. Obviously, a few is more than two because two would be a couple. But a few could be three. But I don’t know. A few could be four. It could be five. It just means a small number. It’s not a lot. I didn’t know how many years. That’s why I just said a few.
I mentioned to them in there the Marines are looking for a few good men. How many are they looking for? They’re looking for quite a few, actually. So it’s a very non-descriptive term, but it’s meant to apply a few, a small number of years, as opposed to a large number of years. And so it’s still possible that my 5,000 prediction could come true, could come true in the next couple of years. Now, granted that given that it’s fallen down to below 1,100, that it’s obviously going to take a lot longer to hit 5,000 than I believed in 2012 when I recorded that interview. And what’s also obvious is that, when I recorded that interview, I did not foresee the severity of the pullback in the price of gold. Remember, I had been bullish on gold for over a decade when we gave that interview. In fact, I sent CNBC a copy of the interview I did with Mark Haines in 2005 when gold was still below 500, in which everybody was making fun of me for recommending gold. And I was telling people they should buy gold, and it’s going higher.
So by the time I did this interview, it was more than triple the price of that interview. They don’t want to give me credit for that call. And of course, I was recommending it even when it was below 400. But I was recommending it below 300. I just wasn’t on CNBC during those times. They didn’t know who I was. But I was certainly on CNBC when gold was in the 400s. And you can see articles that I wrote. I didn’t start writing articles and publishing them until I think maybe 2004-ish. But there were plenty of articles I wrote about gold, about recommending gold when it was 350. So there’s plenty of evidence that shows that I was recommending it and predicting higher prices when gold was very, very low.
Of course, there were not that many people that were doing that. Most people on CNBC, when I would talk about gold, would laugh at me. And they were all bearish. By the time gold got to 1,700, there were people on CNBC who had been bearish the entire way up to 1,700, right? So they were more wrong than I was. But look, I didn’t foresee the big correction, a near 40% correction in the price of gold. I didn’t think that was going to happen, because I thought the world would react differently, that people would figure out the ultimate problem that quantitative easing was going to cause. Instead, they got fooled by the bubble, just like people got fooled by bubbles in the past. People believe we have a real recovery. They think the Fed solved their problems. They don’t understand that they’ve made the problems worse.
So, I didn’t foresee the big run on the dollar, based on the anticipation of all these rate hikes that aren’t even going to happen, based on the false belief that a legitimate recovery had evolved from this monetary policy. And I know it’s a bubble. And so, yes, sure, I got that wrong, right? Nobody is perfect. I didn’t see the big correction in the price of gold. But to look at this article, according to the article, my calling for 5,000 gold when it was at 1,700 was the worst prediction or one of the worst predictions ever made, ever made, in the history of CNBC. Here’s the exact quote, “Made when trading at 1,700, this prediction may count among the least prescient ever made on CNBC.” Give me a break. One of the worst predictions ever made on CNBC? Gold isn’t even down 40%. Now, think about this. Twice in the last 15 years, the US stock market lost more than half its value. That means it was down more than gold, which means that anybody who was on CNBC, which is everybody, who was on CNBC in 1999 and recommended the stock market, which was every guest that got on there, made a worse prediction than me. It also means that every guest who was on CNBC in 2007 and 2008 and recommended the stock market made a worse prediction than me. What about all the dot-com stocks that went bankrupt, that went to zero? You lost everything, right? If you bought gold at 1,700, you didn’t lose everything. You’re still in the game. And yeah, maybe you’re down close to 40%, but you still have your gold. But if you bought one of those dot-com stocks that went to zero, you don’t have anything. You got wiped out. What about all the people that bought financials before the 2008 financial crisis that went to zero?
There were plenty of stocks that went down, in fact, even the stocks that didn’t go to zero. There were plenty of stocks. Look at General Electric, which used to own CNBC. That stock was down 90% during the 2008 financial crisis. How many stocks did go down 90%? Many of them came back. GE has come back, believe it or not, from that 90% decline. But it went down 90%. So anybody that recommended GE on CNBC, certainly, that was a worse recommendation than me recommending gold at 1,700. This isn’t even close to one of the worst predictions. My bet is that if you took all the predictions that were ever made, all the forecasts on CNBC, my forecast of gold going up when it was at 1,700 was probably better than most. It probably wasn’t even in the bottom half of wrong predictions, because there are so many predictions. Going down by 40% is probably one of the better predictions made, because there were so many predictions made on that network where people recommended individual stocks that have gone down a lot more than 40%, and, of course, the entire market.
But then again, what about all the predictions that were made just about the new era in general, about the dot-com economy in the late 1990s? What about all the predictions or all the denials of the problems in the economy in 2007 before it imploded, including the comments made by Ben Bernanke? Ben Bernanke said some things on CNBC about there not being a housing bubble, about the US economy being in great shape. Those predictions were way worse than my call to buy gold at 1,700. Ben Bernanke said a lot worse things on CNBC. His predictions were a lot less prescient. What about all the predictions by people, including Ben Bernanke, that the subprime problems were contained? How un-prescient was that? It was a major, major bad prediction.
I was on CNBC saying it wasn’t contained at all, that the entire mortgage market was going to be in trouble. I was right. In fact, I probably made some of the most prescient calls ever made by anybody on CNBC. Ever. Now, have I made some calls that were wrong, yes. But on balance, I’ve probably made the most accurate calls of any of the guests on CNBC. Yet, has CNBC taken anybody else to task? Are they writing articles critical of anybody else who comes on CNBC and recommends something that goes down? No, this is the first time I’ve seen them ever, ever write an article about one of their guests and criticize their predictions is me. Now, of course, they’ve never written an article extolling my predictions, say, “Hey, Peter Schiff got this one right. Peter Schiff got that one right,” right? The only time they want to write an article is if it can be critical of what I’m saying. And it shows you their incredible bias in writing a story, A, in writing it in the first place, and then the way they describe it as being like the worst prediction ever made on CNBC when there were so many other predictions that are so much worse, and nobody ever writes about them. In fact, they keep inviting those guests on, over and over again. And it’s a clean slate every time. It doesn’t matter how many things they say that are wrong. No one cares. They ask them their opinion. But me, all they can ever do is try to point out what I’m wrong about.
Now of course, also, it wasn’t just my gold forecast that they claimed I was wrong about on this interview. Also, in the interview, I said that quantitative easing wasn’t going to work in reviving economy or creating jobs, right? It’s just going to cause asset prices to go up. And they claimed that I was wrong about that too, because they’re saying that the economy did revive, and it did create jobs. Well, that’s not true. The economy hasn’t been revived. It’s lousy. There are a lot of other people that will agree. In fact, they’re saying that we have the worst recovery ever, right? Most of their guests were looking for a strong recovery, including all the Fed officials. I was right to say that the QE wouldn’t work because it hasn’t worked. Why do you think they did it three times? Why do you think they’re going to do it a fourth time?
Now, they’re saying, “Well, Schiff said it wasn’t going to create jobs, and it did.” It didn’t create jobs. Yes, the unemployment rate has come down, but not because QE worked, not because QE created jobs. It’s because millions of people left the labor force. That’s why the unemployment rate came down. Or because millions more have accepted part-time jobs. It’s not quantitative easing that created those part-time jobs. It was probably ObamaCare causing employers to fire their full-time workers and replace them with more part-time workers. And yes, the quantitative easing that prevented legitimate jobs from being created, yes, people probably don’t have good jobs because of QE. So instead, they have lousy low-paying jobs, but there are more people in those lousy low-paying jobs. In fact, a lot of people have lousy low-paying part-time jobs because they can’t even find a lousy low-paying full-time job. So to say that the low unemployment rate or the non-farm payrolls that consist mainly of part-time jobs or jobs that were just manufactured out of thin air in the birth-death model, to say that this proves that my criticism that QE wouldn’t work was wrong, no, my criticism was right.
In fact, we’re going to see just how right it was when the Fed has to do QE4. And of course, CNBC also wants to criticize me because I said that the Fed wouldn’t raise rates, and they did. Well, look, what about all the people that expected them to raise rates in March or June or September? They were all wrong, right? I was right. They waited until the last possible minute. And I never said, even from the beginning, that it was impossible that the Fed would raise rates. I said that they could, that they might make that mistake, but that I didn’t think that they would because I thought it would be too foolish for them to have to raise rates and then lower it back down. But I knew that it was possible that they could be that dumb. And I guess that they were that dumb, because they were dumb enough to back themselves into a corner and then dumb enough to actually raise rates. And now, they’re in this predicament.
I acknowledged from the beginning that this was possible. In fact, by the time we were weeks away from the rate hike, you can hear from my podcast, I pretty much had conceded that they were probably going to raise rates. But months earlier, it still looked like they were going to continue to bluff. But then they changed their narrative. And I guess they thought that it was too risky not to raise rates after having talked about it for so long. They were afraid that they would knock the confidence out of the economy. In fact, maybe this false confidence was the last thing they thought the economy got going for it. They were so worried about the economy. They had to throw it a lifeline in the form of a symbolic rate hike. But you know, again, this lifeline isn’t a lifesaver. It’s going to act as an anchor. Because the economy is so weak, this is going to backfire. And the data is so bad.
Again, the Fed looks more foolish by raising rates than had they not raised them at all, because, again, they always said that it depends on the data. So they had a way out. They could’ve said the data wasn’t as good as they thought. And they could’ve justified not raising rates, in which case, my prediction would have been correct. But rather than allow that prediction to be correct…and I know they weren’t thinking about Peter Schiff when they decided to raise rates. They didn’t do that to discredit me. But the idea was, well, we’re going to have to raise rates, because if we don’t do it, it’s going to prove that this economy is weak. And we don’t want to let that cat out of the bag. We want to continue the charade. We want to continue the pretense that this economy is strong. And the only way the Fed could do that was to raise interest rates by a quarter point and hope and pray that everything didn’t fall apart and that maybe that gesture would invigorate the markets with some kind of confidence, right?
Hey, the Fed wouldn’t be raising rates unless they were confident that the economy can take it. Things must really be good, because the Fed is raising rates, right? That is the attitude that they were hoping. But often, be careful of the things that you’re wishing for. I think that the Fed is going to get the opposite of what they expected, which is often the case with government. It’s not going to instill confidence. It’s going to destroy what little confidence there is left. There’s so much factually incorrect information and under-reporting by legacy media today.
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We’re in the middle of a war. The global conflict is destroying the lives of millions without a single bomb being dropped. It’s called the international currency war. And your bank account has been drafted to fight. The victims in this conflict are our currencies, the dollar, the euro, the yen, the pound. They’re all heading to zero as irresponsible central banks compete to see who can print the most the fastest. But there’s one form of money politicians and central banks can’t destroy, gold. Today, it’s more important than ever to understand the value of gold in your portfolio and to keep a close eye on major market developments. Subscribe to my monthly video cast, and you’ll be the first to hear my latest analysis on gold investing and the currency wars. Visit goldvideocast.com right now to subscribe for free. I called the dot-com bust then the housing bust, and I advised clients to diversify into foreign equities and hard assets while the rest of Wall Street laughed at me. Now, I want to keep you up to date on the next crisis that is brewing. My gold video cast also includes personal interviews I’ve conducted with other contrarian investors like Jim Rickards and Axel Merk. Gold has gone up 256% since 2003, but it has a lot further to go. Don’t miss the rally. You can prosper during this time of currency wars but only if you stay educated. Get a free subscription to my gold video cast at goldvideocast.com. That’s goldvideocast.com.
Commentary: Mission Accomplished
On May 1, 2003 on the flight deck of the USS Abraham Lincoln then President George W. Bush, after becoming the first U.S. president to land on an aircraft carrier in a fixed wing aircraft (in a dashing olive drab flight suit), declared underneath an enormous “Mission Accomplished” banner that “major combat operations” in Iraq had been concluded, that regime change had been effected, and that America had prevailed in its mission to transform the Middle East. 13 years later, after years of additional combat operations in Iraq, and a Middle East that is spiraling out of control and increasingly disdainful of America’s influence, we look back at the “Mission Accomplished” event as the epitome of false confidence and premature celebration.
The image of W on the flight deck comes to mind in much of the reaction to this week’s decision by the Federal Reserve to raise interest rates for the first time in nearly a decade. While many in the media and on Wall Street talked of a “concluded experiment” and the “dawning of a new era,” few realize that we are just as firmly caught in the thickets of failed policy as were Bush, Cheney, and Rumsfeld in the misunderstood quagmire of 2003 Iraq.
In its initial story of the day’s events, The Washington Post (12/16/15) declared that by raising the Fed Funds rate to one quarter of a percent The Fed is “ending an era of easy money that helped save the nation from another Great Depression.” Putting aside the fact that 25 basis points is still 175 points below the near 2.0% rate of core inflation that the government has reported over the past 12 months (and should therefore be considered undeniably easy), the more important question to ask is into what environment the Fed is apparently turning this page.
Continue Reading the Full Article at Euro Pacific Capital
InfoWars: All Fed Decisions Are Made for Political Reasons
Peter Schiff made his regular appearance on InfoWars last Friday. Guest host Paul Joseph Watson talked with him about the Federal Reserve’s rate hike decision and gold’s price movement in response. They also discussed the destruction of the American middle class, the ill effects of minimum wage laws, and the role the Fed will play in the 2016 election. Read full article from Dec. 21.
The Battle Continues: Schiff vs. Nations on Gold & Fed Rate Hike
During Peter Schiff’s appearance on CNBC’s Futures Now, anchors more or less scoffed at his suggestion that the Federal Reserve’s rate hike announcement was simply a strategy to cover the fact that the Fed has almost zero confidence in the United States’ economic recovery. Regular readers of Peter Schiff’s Gold News will enjoy his ongoing argument with Scott Nations. Read full article from Dec. 18.
Janet Yellen Gets Nuts
Peter provides in-depth analysis of the Federal Reserves rate hike. He also defends his predictions on the Fed’s move and discusses what’s next. Peter makes the case the Yellen has gone nuts.
Follow Along with Full Transcript:
Well, yesterday the Federal Reserve finally met market expectations and actually did increase interest rates to 0.25%. Actually, the official rate was zero to 0.25 and now the official rate is 0.25-0.5. And you know, by the way, the actual rate has always been somewhere in the middle of the zero to 0.25. It was not exactly zero. Assuming the Fed tries to keep the rates closer to the 0.25 then the 0.5 the actual increase in short-term rates could be less than 25 basis points. It may only end up being 10 of 15 basis points. In fact, that may be what the Fed does.
Of course, the initial reaction to this rate hike was, “OK, this is the end of the cheap money; the area of cheap money is over.” Even Janet Yellen herself mentions that – you know this is the end of cheap money. But 0.25 is still cheap money. Interest rates are still a quarter of the low that they went to under Alen Greenspan. He only brought them down to 1%. That was as low as he dared go and he left them there too long – for about a year and a half before he started to raise them. So we would have to raise rates several more times to get up to the low level that Greenspan reduced them to, and that was the level that was low enough to give us the housing bubble and the ensuing financial crisis.
So, as I’ve said many, many times, if you thought that was bad, wait until you see what’s in store for us now, because the Fed has been much easier and much more reckless than it was then. The consequences of the reckless monetary policy are going to be much greater than were the consequences the last time around.
But you know, a lot of people are taking an opportunity to say, “Oh, you know Peter Schiff was wrong because he said the Fed would not raise interest rates, and they did. Therefore, Peter Schiff was wrong. Well, first of all, most people have been saying that the Fed was going to raise interest rates all year long. At the end of last year, people were looking for rate increases in March. Some were looking in June. Very few people, if anybody, thought the Fed would wait all the way until December to raise rates. In fact, even when they didn’t raise rates in March, it was June, and then it was September. So, I think that I was a lot more right in saying that they wouldn’t raise rates at all than the people who expected them to raise rates a lot sooner, because they were looking for two or three rate hikes by now. People thought that they would start raising in March, and by now rates would be 75 basis points or a full percent. I think that I was a lot closer to getting it right by saying that they wouldn’t raise them at all.
They basically got one hike in under the gun. We had two weeks left in the year, and they raised interest rates by the smallest amount they could possibly do. If the Fed really were data-dependent – they always said they were data-dependent – and if they actually looked at the data they would not have raised rates.
That was part of the reason that I thought that they wouldn’t. I knew the data was going to get worse, and I thought the data might scare the Fed – that even if they were considering a rate hike, it would get them not to do it.
But I think what happened is that the dialog changed. I started talking about this after the Fed’s last press conference, when for the first time I believed that it was more likely than not that the Fed was actually going to do a symbolic rate hike. So, when they hiked rates, I was not surprised. By then, I was expecting it. Although I didn’t think it was a sure thing, I still thought that there was a possibility that the Fed would not hike. I do believe that they are going to regret this decision, but I knew that it was possible.
But just because the Fed raised rates doesn’t invalidate what I’ve been saying all year long. In fact, I think that the only reason that they did raise rates is because they were afraid of what would happen if they didn’t. Everybody was so convinced that if the Fed didn’t raise rates, it would show that the Fed had no confidence in the economy. What do they know that we don’t know? That would have spooked the market, if they didn’t live up to the expectations of a rate hike. Especially since Janet Yellen had gone out of her way to reassure the markets. Don’t worry. Even if we raise rates that doesn’t mean we are going to raise them again anytime soon. We’re going to go very slowly. So, Yellen tried to take the sting out of the hike and have her rate hike cake and eat it too.
So, ultimately I think the Fed felt that even though the data didn’t justify it, they had to raise rates, because they were afraid of the psychological damage. In other words, to prove that they were confident in the economy they had to raise rates even though the economic data would argue against it.
But I think they’re hoping to send this message. In fact, if you listen to press conference, she actually said, “This rate hike is to show confidence in the market.” She actually admitted that this was a gesture hoping to instill confidence. Well, you know, if the economy really was sound, we don’t need Janet Yellen to create a sense of confidence. A strong economy creates its own confidence. We don’t need propaganda from the government by way of a symbolic rate hike that says, “Ah ha! You see, the Fed wouldn’t be raising rates if the economy were weak.”
Well look, they were raising rates right up until the 2008 financial crisis. They didn’t know that was coming. In fact, Janet Yellen and her cronies at the Federal Reserve in mid-2008 still did not have a recession in their forecast for either 2008 or 2009. They were already in the Great Recession when they were making those forecasts because the Great Recession began in December of 2007. Yet the Fed did not know it. So, who cares if the Federal Reserve is confident of not? In fact, I mentioned in an earlier podcast the Ben Bernanke admitted in a radio interview that he was speaking as an administrative official – as a member of the administration, and you know Janet Yellen feels that she is part of the Obama administration. Therefore, she is going to try to create a sense of confidence, even if that means raising interest rates even though, based on her own objective criteria, she shouldn’t have raised them. But not raising them would prove that the economy was weak, and she doesn’t want to do that. So, she raised them anyway and that’s exactly what happened.
But does it mean that we’re going to get more rate hikes in the future? Now, the Federal Reserve is still pretending that that’s what’s going to happen. If you look at what Janet Yellen said, the Fed is forecasting that they will increase interest rates four more times next year by 25 basis points each time. That would be another 1% hike in interest rates. I think all of that is about pretending that she believes that the economy is actually strong enough to withstand all those rate hikes, and it’s not. And believe me; she didn’t wait until December to pull the trigger for no reason. Obviously, she didn’t wait until the economic data was the weakest it’s been all year in order to raise rates. Remember, when she didn’t raise rates in September, she cited a whole litany of reasons why she didn’t do it. Well, all of those reasons have gotten worse. There is so much more tension in the global economy, and there’s so many more problems in the U.S. economy than there were in September. Things have gotten a lot worse very fast. Yet, for some reason, now the data supports a rate hike. But in September it didn’t, even though the data in September was better than the data that we have now.
In fact, the ultimate irony is probably the data that came out on the morning of the rate hike – we got industrial production. Listen to how bad this number was. They were forecasting a drop of 0.2, which is still bad, right? That would be the same drop we got the prior month. Instead, we got a drop of 0.6, which was triple what they were anticipating. This was the biggest drop in three-and-a-half years in that number. But also, they revised last month’s from down 0.2 to down 0.4. So, they doubled the decline, and now we declined more than expected from a lower level. So, minus 0.6 is bigger when it’s coming off of minus 0.4 than it would have been coming off of minus 0.2. So, that was very, very weak numbers.
Beneath the surface, if you look at some of the numbers, they’re the weakest in six years – the new orders, the hiring, the jobs component, and then we’ve got the PMI manufacturing index. This was the lowest in many, many years. It was a five year low in this index. It came in at 51.3, down from 52.6. The consensus was for an increase to 52.8. Instead, we went down to 52.6. So, another really bad number.
All these numbers show an economy that is rapidly slowing down, decelerating. So, why would you step on the brake, if you’re a Keynesian, which Janet Yellen is, and you actually believe in this nonsense? The monetary prescription for what the patient obviously has would be stimulus, would be a cut in interest rates, not an increase in interest rates.
Then again, today, we got more bad news. Look at the Philadelphia Fed. Last month, we got an increase. We’ve been getting a lot of decreases, but last month it was up 1.9. So, they thought that we’d have another increase of 1.2. Nope. We dropped 5.9. We’re down at the lowest level in a couple of years on the Philly Fed. All of these numbers are looking horrible. And by the way, if you look at a chart, we’re about to crash even lower. These numbers are flashing recession, recession, recession.
I’m not the only one seeing it. There’re a lot of mainstream guys now that are predicting a recession in 2016. So, I’m not the only one saying it. And if there is a recession in 2016, what is the chance that any of these promised rate hikes are actually going to be delivered? Practically zero. Hey, if they waited all year to give us the first 25 bips, why are they going to hurry up and give up another 25 basis points in March? Why would they do that? Especially since the markets and the economy are going to get a lot weaker a lot faster because of this rate hike.
Now, of course, the air was already coming out of this bubble anyway. All she did was make the hole a little wider so the air can come out quicker. Now, I do believe that because the stock market had rallied the day before the rate hikes that the market was kind of blessing the rate hike, so the Fed felt confident. Remember, I said in my earlier podcast that that would be a mistake for the Fed. If they interpreted a small rally as some kind of green light to go ahead a raise rates because the market can tank. In fact, after rallying yesterday the market closed down about 250 points on the low of the day. In fact, at least, 100 of those points probably happened in the last half hour, maybe even the last 15 minutes.
The transports, of course, have been the weakest of all, and this is the most economic sensitive. Despite oil prices at $35-36 a barrel that Dow transports are leading the way down.
Of course, we continue to see weakness in the High Yield Bond Market as the air is coming out of that bubble as well. So, it’s very probable that this stock market carnage is going to get a lot worse between now and the time that the Fed is supposed to hike rates again. But the problem for the Fed is if the market starts to tank now, they can’t do anything. They can’t cut rates, they can’t even hint at a rate cut. They have to wait now for more bad economic data to come out, and it probably can’t be just more manufacturing data because they ignored that all along. They’re going to have to wait for jobs numbers to be bad, and you know that could be a few more months. Who knows how long it’s going to take before the jobs numbers really get bad. I think that the layoffs are going to be huge, and we’re going to see a big increase in unemployment and some big negative prints on our payrolls, but that might not happen for a few more months.
Meanwhile, what if the stock market is tanking? The Fed’s not going to do anything, and in fact, because the market is going to believe the Fed is basically neutered here, they can’t hike rates and then immediately start cutting them. So, the market really could collapse here. I mean it could go down quite a bit before the Fed actually comes back to its rescue. Of course, they can’t look like they are rescuing the stock market, then it’ll be too obvious. So, they have to wait until the data bleeds into the jobs numbers because that’s the only numbers we’ve been looking at.
You know, one of the things I thought was so ridiculous about Janet Yellen’s comments is that she actually tried to pretend that they were ahead of the curve. She said that we didn’t want to wait too long before we raised interest rates, as if there were some people that were saying don’t do it yet because it’s too soon. And the Federal Reserve says, “No, no, no. We don’t want to be too late to the party. We want to be preemptive. We want to be ahead of the curve. Talk about closing the barn door after the horses have left. I mean, they should have raised rates years ago. I mean, first of all, they never should’ve cut them. But to say that they’re early by moving now?
Now, what she said is that if they waited too much longer she thought that the Fed would overshoot on its objectives, which of course is ridiculous. She mentioned three objectives that she was worried about she would overshoot. One was unemployment, meaning that if the Fed didn’t raise rates the unemployment rate might get too low. How can it get too low, right? And especially with so many people out of the labor market. She’s worried about the economy creating too many jobs? Yes, we’d better hurry up and raise rates otherwise we might get too many jobs created? Is the Fed really worried about that with all these people working part time? All right, the labor force participation rate as low as it is. How is it a problem if we create too many jobs? I mean obviously, you know she’s talking about the Phillip’s curve, which is this discredited Keynesian theory that too much employment creates inflation, which is nonsense. People employed productively don’t create inflation. If anything, it leads to greater production and it helps keep prices low, because you have more things to buy. So, that is nonsense that she was worried about low-interest rates creating too much employment.
Then she said that we might overshoot on GDP, meaning that if the Fed didn’t move, the GDP might be too strong. Was she really worried? Yea, we’d better raise rates now because if we don’t GDP could be 5% or something like that. GDP is not even going to be 2% this year and Janet Yellen is saying she was worried that if she didn’t raise rates the GDP could be too high? I mean meanwhile, all the evidence says that we’re going into a recession. We’re going to have negative GDP but of course, GDP can’t be too high. Again, that’s the whole Keynesian idea that growth creates inflation. The economic growth and prosperity are what leads to a rising cost of living. It doesn’t. It leads to a falling cost of living.
The only thing that she said that was in a way accurate – she said that if we waited too long,we might overshoot on our inflation target. Right, that 2%. Now there, she’s going to overshoot, big time she’s going to overshoot. She’s already waited way too long. Inflation’s going to be a lot more than 2%. But the Fed’s not going to do anything about it, because what’s going to happen is the economy is going to tank in a recession, unemployment is going to spike, and they’re going to go back to the well on the QE.
I think this time they’re going to take rates negative. In fact, Yellen let the cat out of the bag by hinting or talking about the fact that they had been looking and studying negative interest rates. Meaning, that’s what they’re going to do the next time around, because if the next recession starts and interest are just 25 basis points or 50 basis points, reducing them to 0 you’re not going to get a lot of bang for that buck, right? So, they’re going to have to go negative. And yes, they’re going to go with a big QE program, bigger than before, because remember when Paul Krugman always said that we didn’t do enough quantitative easing? And you know what? He’s going to claim he was right. When we’re right back in a recession, Paul Krugman is going to be saying, “I told you so, I told you it wasn’t enough stimulus. We didn’t print enough money. We didn’t buy enough bonds. We didn’t spend enough money. We needed to do it bigger next time, right? We didn’t quite get escape velocity. We didn’t just put enough rocket fuel in that rocket ship and we didn’t quite escape. We came back down to earth, so now we need more, we need bigger QE.”
You know what? That’s what they’re going to do because they can’t admit the opposite is true, right? That Peter Schiff was right and they never should’ve done QE at all. They never should’ve lowered interest rates. That the Fed is the source of our problems not the solution to our problems. So, they are going to go all in on quantitative easing.
And by the way, one of the things that I’ve been talking about on some of the media appearances that I’ve made is the significance of this rate hike because normally, and I keep saying this because people keep talking about, well they want to figure out what’s going to happen now that the Fed is raising rates. So, they go back and look at previous economic cycles – where the Fed began raising rates – and they look back and said well what happened? What normally happens when the Fed begins a tightening cycle and how does the market react how does the economy react? Well, none of that makes any sense because there’s never been a cycle like this one. We’ve never had interest rates at zero for seven years or anything close to that for anywhere near that length of time. This recovery is seven years old. Most of them don’t even last seven years. Yet, the Fed didn’t raise interest rates until seven years in. See, normally when the Fed starts raising rates it’s earlier in the recovery. So, the economy has a lot more momentum because it’s just emerged from recession. So you’ve got all this power. You’ve got all this pent up demand, right? From the recession. So, you don’t really have strong GDP growth and unemployment is still probably high. It’s starting to come down, but it’s still high because unemployment comes down as the recovery progresses. But it’s normally pretty high when the recovery ends. It’s low when the recession starts because the people lose their jobs during the recession. They don’t lose their jobs before the recession. So, this time, the Fed waited so long to raise rates that the recovery is basically over and we are already starting the next down leg. Yet, the Fed has never raised interest rates back to a level where they can start reducing them again.
Normally the Fed is raising the rates into a strengthening economy. Now, they’re raising rates into an already weakening economy. So, going back in time and saying, well how did the market react and the economy react when the Fed was trying to lean against a strong economy that was growing, compared to today, the economy is weakening and the Fed is pushing it weaker. The Fed is just adding weights as it’s sinking. So, it’s a very different situation that is without precedent.
I don’t know why people can’t understand this distinction and differentiate between the types of recessions and recoveries that we’ve had in the past and what is going on now. And of course, the last time we had a recession, the 2001 recession, the Fed did wait about three years before it started raising rates. It didn’t rate seven, and of course, it never got as low as 0, it only got to 1. But that extra elongated time period is what really provided the fuel to the housing bubble. When they did raise rates they did it very slowly and then we ended up with a financial crisis. Well this one is off the charts. If you compare the recklessness of the Yellen approach to what happened to under Alan Greenspan, this is a much bigger deal. So, how can people be so complacent and say, “Well you know everything was OK when they raised rates in the past?”
This is a different situation now, and of course, people are talking about the fact that Janet Yellen promised that the rate hikes would be slow and that’s supposed to make the market feel good. I don’t think that they did a good enough job there. I think if the Fed is telling the markets that they’re going to raise rates four times in the next year, I don’t care how much she wants to define that as slow. I think that’s too fast. I think that’s way too fast of a pace. And if the markets actually think that that’s what’s coming – again, this 250 point drop that we got today is just the beginning of a much, much bigger decline.
Now, also, the dollar had a delayed reaction too. The dollar was up strongly today, although the euro didn’t make new lows. I think the Canadian dollar is on a new low. That was the only currency I think made a new low, and that’s very sensitive to oil. Other currencies did drop, but they’re not at 52-week lows.
Gold also dropped, it was up yesterday. It was up about $10-15 bucks, although most of those gains happened before the rate hike. So, by the time the Fed hiked rates, I think gold was bounced around a little bit, but it was around the same level. It was down about $20 bucks today, so really, we’re right back down to the lows of the year, that we were at a few weeks ago and then we had that big rally and so now we’re right back down to those same levels. So, gold hasn’t free-falled. In fact, we’re $10.51, $10.52. We got down to $10.45 – what a few weeks ago was the low. So, we haven’t even gotten down just to that level. I think this morning I did see gold get below $10.50 again, but you know we haven’t made a new low. There are a lot of people that are thinking, oh you know, gold’s going to get killed when the Fed raises rates. Well, it hasn’t really happened yet. Yeah, it was down today, but it’s still holding this $10.50 level.
Silver was down big today, but it was up almost as big yesterday. So, if you take the two days combined it was a volatile up and down, but it was relatively unchanged. We’ll see what happens though, as the days and weeks progress, because I do believe that the vast majority of dollar upside and gold downside is already in the markets and that the markets are going to start perceiving sooner rather than later that we’re not going to get nearly as many rate hikes as people believe for two reasons.
One, the stock market is going to be coming under a lot of pressure and again. Not just the stock market, the bond market – in particular, the high yield bond market. Investors are going to be losing a lot of money and so that is going to make the Fed nervous for a number of reasons. One, the weakness in the market will be an indicator of a potential recession – another indicator, as if we don’t have enough indicators already leading indicators of a recession. Also, the reverse wealth effect as people start to see the value of their portfolios go down, will they have less money to spend? Spending is already under pressure, that’s why this Christmas season is likely to be the worse since the ’08 recession.
Hey, by the way, I didn’t even mention, we got the current account numbers that came out for the quarter. They came out today. The current account deficit for the third quarter came out at -124.1 billion. That is the biggest quarterly deficit since I think the second quarter of 2008. Just before the financial crisis brought it down, because you know, then we were too broke to buy things. Of course, the current account is a combination of our trade flows and our investment flows. When interest rates start to go up, that is going to balloon the current account deficit because that means the cost of servicing our overseas debt is going to go up and this is a huge concern.
By the way, they revised down the prior month. The prior month was originally reported as 19.7 billion and we revised it upward to 111.1 billion. So, this is some terrible numbers coming on our current account on top of all these other numbers. So, when you have weakness in the financial markets and then you have growing weakness in the economy, corporate earnings are under pressure, their revenues are under pressure. The next thing that’s going to give is their payroll, right? I mean, they hired all these people that they really shouldn’t have hired. It was a mistake and the Federal Reserve said oh, look at all this hiring, oh that means I can raise interest rates. Well, the hiring was a mistake. They’re going to solve that mistake by firing a lot of the people they never should’ve hired in the first place because they don’t need them.
Just like the inventory. All that GDP build was companies buying inventory that is now gathering dust on the shelves because their customers are too broke to actually afford it. And so we are going to have the inventory liquidation and we are going to have the employee. We have a surplus of workers. There’s a big inventory of workers that employers don’t need and can’t afford, so the pink slips are going to start coming out. Usually, you don’t fire people around Christmastime. You don’t want to, that’s not the kind of Christmas present…you don’t want to put a pink slip in their stocking. But in the first of the year, companies are going to reassessing the damage and they’re going to be trying to hunker down and try to minimize their expenses and their overhead. Laying off people is going to be the easy way to do it.
So then you’re going to have the fear of the economy, the weakening economy on top of the weakening markets. So, how can the Fed react to that? What can the Fed do? At some point, everyone’s going to know that the Fed’s not going to raise rates, even if they want to continue pretending that they’re thinking about it. It’s going to be obvious that they’re not, and I think that you’re going to see the big unwind. Right? The most crowded trade out there is long on the dollar because everybody knew that this rate hike was coming, right? It’s all anybody ever talked about was the Fed’s going to hike rates; the Fed’s going to hike rates. Oh, and when the Fed hikes rates the dollar’s going to go up. So, everybody crowded into the dollar looking to profit from this trade. So everybody is there. Everybody is in the dollar looking to profit. They’ve got to take their profits. They’ve got to get out. Who’s going to take the other side of that trade?
You’ve got the mirror image in the gold market. People being long the dollar, they’ve short gold. So, I think these trades are going to blow up and the people who are short gold are going to lose. The people who are long the dollar are going to lose. Obviously, the people who are fading that trade, and I know that it’s been painful to have been on the other side of that, are going to be paid. The markets are a function of buyers and sellers. If everybody is wrong and their buying well the prices are going to be too high, because it’s the majority of what people are doing, right?
There is an old adage that in the short run the markets are a voting machine, right? Because people think that something’s going to go up they’re going to buy it and so the market is going to reflect what people think. If the majority of people think one thing then those expectations are going to be built into the prices. But in the long run, it’s a weighing machine because it’s not what people think that counts. It’s the fundamentals. It’s reality. So eventually, the markets are going to reflect not what people think but what actually happens. And that’s what happened in the mortgage market and the subprime market for a while everybody thought that people could repay these loans and that there was no risk in holding a subprime paper. The way Wall Street had packaged it insulated you from risk. People believed a bunch of things that were complete nonsense, until all of a sudden they figured out that what they believed wasn’t true. Then the whole market unraveled almost overnight. You couldn’t give the paper away. It went from bit above par to basically worthless. The actual nature of the security never changed. All that changed was the perception of what it was worth. Once people who believed it had value recognized they had no value the party was over.
So, I think all the people that have believed what the Fed has done has worked, that they’ve actually restored the economy to economic health, that they’re actually going to be raising interest rates, that they’re actually going to be shrinking their balance sheet – when they find out that they’ve been fooled again, that this is just another gigantic bubble that they have mistaken for a legitimate recovery, the Federal Reserve has not solved any of the problems, it’s made them all worse. And again the people that think the Fed solves the problems are the same people that didn’t recognize the problems when they were there and so if they didn’t understand the problem does it, it certainly makes sense that they don’t understand that they weren’t solved.
I knew what the problems were leading up to the financial crisis. That’s how come I knew the financial crisis was coming. And I also know that everything the government has done since the financial crisis has made all of the problems that caused the financial crisis worse. And now we are on the precipice of a much greater crisis and the Fed has inched us that much closer to the crisis, not only by raising interest rates by 25 basis points even though their own data would have suggested to stay at zero, but by hinting that more rate hikes are coming next year.
Attention listeners I have an urgent message for you. We’re in the middle of a war. The global conflict is destroying the lives of millions without a single bomb being dropped. It’s called the international currency war and your bank account has been drafted to fight. The victims in this conflict are our currencies. The dollar, the euro, the yen, and the pound, they’re all heading to zero as irresponsible central banks compete to see who can print the most the fastest. But there’s one form of money politicians and central banks can’t destroy. Gold.
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If the Market Believes in the Fed, the Market has a Problem
Shortly after the Federal Reserve’s rate hike announcement on Wednesday, Peter Schiff appeared on Fox Business alongside Moody’s Chief Economist John Lonski and Fox Business correspondent Charlie Gasparino. For once, everyone seemed to agree with Peter that the Fed’s decision does not actually mean the US economy is truly recovering. Read full article from Dec. 18.
Rate Hikes Are Over; Fed Will Ease Next
Peter appeared on The Hard Line on Newsmax TV a short time after the Federal Reserve announced its rate hike, reiterating what he was saying before the Fed’s announcement – the rate hike does not indicate confidence in the US economy. Read full article from Dec. 17.
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