Did The Fed’s Luck Run Out On Friday The 13th? – Ep. 118

  • Friday the 13 was an unlucky day on Wall Street
  • The Dow was down over 200 points – the second back to back decline of over 1% since August
  • What was happening in August? Everybody was convinced the Fed was going to raise rates in September
  • Now, everybody is just as convinced that the Fed will raise rates in December
  • Once again, as I predicted a week ago, the market sold off
  • We are down over 650 points on the week
  • Nasdaq is down today even more – 1-1/2%
  • The carnage was once again led by the retailers
  • Bad earnings out of Macy’s Nordstrom’s Walmart and others set the scene for new share price lows
  • I have been warning about this all year, based on inventory numbers
  • All the evidence is flashing recession
  • The Fed has been saying that they are data dependent – open your eyes and look at the data!
  • This data is consistent with the beginning of a recession
  • Yes, unemployment is low, but unemployment is always low when recessions begin
  • I think the Fed knows they are not going to raise rates
  • The Fed minutes are coming out next week and we’ll get an insight into the deliberation between the members
  • All Janet Yellen said was that an interest rate hike was a “live possibility” – The market did the rest.
  • They took the word “possibility” and assumed that it was a probability
  • Let’s look at the economic data that came in today:
  • First, October Producer Prices – they were looking for a rise of .2, because last month, they actually fell by .5
  • We didn’t get .2; we got -.4
  • As of last month, year over year producer prices have declined 1.1%
  • Now they are down 1.6% on the year
  • This is going the opposite direction of the Fed’s goal of 2% inflation
  • The worst number was retail sales:
  • They were looking for a rise of .3, which is still not a big rise – but we got an increase of just .1
  • To add insult to injury, they had adjusted last month’s forecast to zero
  • Also x auto, they were looking for a gain of .4 and instead got a gain of .2
  • These numbers will subtract from Q3 and Q4 GDP
  • We also got September inventory numbers:
  • The consensus was a rise of .1, but instead we rose .3
  • This rise was not a result of an increase of sales, it is because sales are not keeping up with inventories
  • The inventory to sales ratio rose to 1.48 fro 1.47
  • The last time we had this number was during the financial crisis
  • I have been pointing out that these inventory numbers have been padding the GDP for the last several quarters
  • This has been ignored on Wall Street
  • This means future GDP will plunge as companies need to liquidate inventories and not replenish them
  • Not only that, they will be liquidating their workforce
  • The heavy layoffs may not happen this year – more likely they will come in January and February
  • The odds are that the Fed is not going to raise rates in December and the odds against a rate hike as the market continues to sink, with more and more bad economic news
  • This bad news about retail sales was unexpected by the market as evidenced by the sharp drop in share prices
  • Is the Fed going to raise rates just as the economy is turning down? Not a chance.
  • If they do, imagine how much worse the economy will be
  • The question is: When is the Fed going to come clean and admit that they are not going to raise rates and will their excuse be and will the markets buy it?

Peter Schiff is an economist, financial broker/dealer, author, frequent guest on national news, and host of the Peter Schiff Show Podcast.

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