Dow Tumbles on Cruz Iowa Caucus Win – Ep. 137

• It was another tough day in the stock market today; the Dow Jones finished down 295 points, NASDAQ fared even worse, down 103 points, that’s about 2.25%
• These 100-point moves are coming quite often now; in the NASDAQ, the transports were hardest hit once again down 204 points – that’s almost 3%
• When I saw this carnage, I wondered if North Korea had tested another nuclear bomb – early in January the market was down about 250 points and they blamed it on the North Korean bomb test
• The markets have been moving about that much every single day! What are the odds that the Korean test had anything to do with the market drop that day?
• Everybody wants to find a way to rationalize a weak market, but look, nothing happened today
• The financials got clobbered – Goldman Sachs is down 5% on the day, getting ready to break through $150; it was a $200 stock not too long ago
• There’s a lot of air beneath this chart – is that all oil related?
• You might as well blame today’s selloff on the fact that Ted Cruz won the Iowa Caucus
• The reality is the market is going down because it’s a bear market
• The market’s going down because the U.S. economy is in a recession
• There’s nothing the Fed can do without loosing credibility or acknowledge that the economy is much weaker that it thought
• Going back prior to the rate hike, one of the reasons I constantly said I did not expect the Fed to raise rates is because I knew if they did, they would be in a very bad position
• I said, what’s going to happen if the Fed raises rates and the stock market starts to decline, how are they going to stop it?  They cant.
• Since QE1 in 2009, every time the stock market has faltered the Fed has either launched another round of QE or hinted that it was considering another round
• That’s what saved the market
• That how “Buy the Dips” worked – you had the Bernanke put or the Yellen put
• If that put expired with that rate hike in December, then how was the Fed going to stop the carnage?
• It can’t hint about another round of quantitative easing while it’s raising rates
• Most people believe that the Fed will not raise rates 4 times this year, maybe only once or twice
• But if the market is already collapsing based on the first rate hike, how much lower will it fall if the Fed puts a couple more nails in the coffin?
• The only the Fed can save this market is to come out and:
  • a) Take future rate hikes off the table and
  • b) Lower rates
• They are trying to get the ECB and the Bank of Japan to help, and that hasn’t worked – each rally has reversed
• The Fed will have to get in on this: sending the ECB and the Bank of Japan in will not do it.  This is a woman’s job, and it’s going to be Janet Yellen is the only one who can stop the market from falling
• We’re going to get the jobs number this week – with a first look at it with the ADP number tomorrow but we get the big Non-Farm Payroll number on Friday
• The only thing that can really save this market is a horrific jobs number is really bad, then Janet Yellen can talk about not raising rates based on the jobs numbers, so she doesn’t have to claim it is based on the stock market
• If we get another on of these good jobs numbers, of course it’s only good superficially, it’s not really good, it’s just a high number, then this market’s going to tank
• Because the Fed is back in the predicament of not cutting rates because they don’t want to admit that the jobs numbers are bogus
• I happen to be in the supermarket with my 13-year old son and he noticed a help wanted sign on the door, saying, “Part Time Positions Available – Multiple Departments”
• They don’t want any more full time people – that is the secret to the “strength” in our economy
• People who dad one full-time job now have 3 part-time jobs, and if those 3 jobs are held by the same individual and collectively equal 35 hrs/wk the government counts each of these full time jobs as full time jobs
• So now, because the economy is so weak that people can’t get full time jobs they are forced to take 3 low-paying part time jobs, the economy gets credit for creating 2 additional jobs
• So if we get another one of these bogus jobs reports, with all these people getting 2nd and 3rd jobs, and it produces another +200,000 – job data point, there’s nothing to stop this market
• Eventually we will get a bad number in the jobs market and the Fed will have an excuse
• By the way the Atlanta Fed, GDP Now, came out yesterday with their 2016 Q1 GDP first estimate
• Their initial estimate was just 1.2% – that’s it
• The Federal Reserve is still thinking, officially,  that growth is going to be 2.5-3%
• But now the Atlanta Fed is coming out at 1.2%
• Last year, when the Atlanta Fed came out with their initial 2105 Q4 GDP, they were at 2.5%
• Where did we end up at? .7!
• So if we miss this quarter as we missed last quarter, based on where they started, this quarter will be negative
• This quarter is off to a worse start than last quarter, certainly the financial markets are off to a worse start
• I don’t think last quarter’s .7 will hold up after revisions from incoming data
• I think after all the revisions, they will declare that this recession that will be greater than the Great Recession of ’08-09, began in Q4 of last year
• It began exactly when the Fed was raising rates
• By the time the Fed finally moved, the economy was already in recession
• Let me get in to some of the economic data that came out just since yesterday
• Personal income and spending for December, they were looking for +.3 in income, and that’s exactly what they got
• But spending, which will factor into 2015 GDP, was expected at +.1 and we got flat
• The saving rate has picked up
• January Manufacturers PMI was slightly below the 52.6 estimate, coming in at 52.4
• The January ISM number, expected at a weak 48.3, came in at a weaker 48.2
• This is the 4th month in a row this number has been below 50, which is contraction
• They revised the prior month down a little bit from 48.2 to 48, so the numbers are getting worse
• But the one that’s going to negatively weigh the most on last quarter’s GDP is the December Construction Spending numbers
• We had a warm December, and we were looking for a gain of .6; instead we got a gain of just .1
• And they revised the prior month down from -.4 to -.6
• Had the prior month not been revised down, then this month would have been a decline
• These numbers will factor in to the revised 2015 Q4 GDP, which is already weak, at just .7
• We are going to get more data this week which will impact the calculation for the already low Q4 GDP
• In order to keep this phony economy growing, in order to expand this bubble, we need to go deeper into debt
• Officially, the National Debt just went to $19 trillion on Friday
• I think we will hit $20 trillion before Barack Obama leaves office this year which will mean that the national debt would have more than doubled
• In order for Obama’s successor to keep this bubble economy going, we’re going to have to double the debt again
• If it can’t do that, the whole economy will implode
• The bigger the economy gets, the more debt you need to buy less and less GDP growth
• When we have borrowed so much money we can’t take on more debt because we can’t service existing debt, the whole thing implodes
• Given our current debt, if interest rates rose to a market level, the whole thing would implode
• We can’t afford to pay market rate on the debt we already have, let alone the debt we are going to have to incur to keep the bubble inflating
• That is why the Fed has interest rates so low, and why they can’t raise rates
• And how can we take on more debt with rising interest rates?
• If we are going to deleverage because the Fed is raising rates, then we have to have a huge recession
• We never really did that before; we just shifted the debt around and it didn’t go away, it got bigger
• What the Fed is doing now by raising rates, they are forcing the economy to contract massively, causing a lot of defaults
• We know the Fed will not allow that, so when are they going to admit it?
• Right now they are pretending that the economy is strong and not going into recession, because by admitting that, they would prove that they were wrong to raise rates and confirm that QE doesn’t work
• The fact that we’re right back in recession the minute the Fed raises rates is proof that it doesn’t work
• The whole world want to emulate our success, but it wasn’t a success
• The last thing anyone wants to do is admit that, so we continue to pretend, and the market keeps collapsing and the horrible economic data keeps coming in
• Nobody seems to have figured this out yet – the price of gold was up about a buck today
• People are still not connecting the dots
• I think the big move in gold is coming – if we get weaker jobs numbers later this week, and if we get a big trade deficit, bad factory orders, meaning that Q4 GDP will be revised down further
• You can’t see all this stock market carnage, all these bad corporate earnings without seeing weak jobs numbers soon
• If we do get these weak numbers this week, I would expect gold would make a huge move up and we could be back above 1200 very quickly
• I want to talk a little bit about the Iowa Caucus
• Bernie Sanders is the quintessential Democrat – I like the fact that he is at least up front about being a Socialist – a lot of Democrats are closet Socialists
• The interesting thing about Bernie Sanders is, he is probably an honest guy, a nice guy
• He’s like the Ron Paul of the left, except he’s wrong about the economy
• There are actually some social issues where I would agree with him
• People he’s genuine. It’s the same type of support Ron Paul got, but Ron Paul’s supporters were a lot sharper about the economics
• Sanders get a lot of money from small donors – Hillary Clinton gets her support from Wall Street – she just got another $6million from George Soros
• She is the establishment candidate, backed by all the big money
• But what Bernie Sanders is promising could not actually get his programs through Congress
• Maybe if it wasn’t for 6 lucky coin flips Sanders would have won the Iowa Caucus – I don’t know – he’s demanding a recount
• The establishment wanted Hillary – the last thing they wanted was for Bernie to upset Hillary in Iowa
• He’s going to win New Hampshire, and if he wins them both, the momentum could upset this apple cart
• Meanwhile, Hillary could get indicted – Obama would not want Sanders, so he would prefer Biden jump in, and this race could get really interesting on the Democratic side
• On the Republican side, it was an upset, because Trump didn’t win, he came in second
• He had high expectations, but the people who win in Iowa are strong evangelical personalities, and Ted Cruz really knows how to play into that crowd
• Trump is probably going to win New Hampshire
• Rand Paul cam in 5th place, but he beat Bush and Kasich
• I didn’t see any articles suggesting Bush should drop out of the race, but there were several articles suggesting Paul should drop out
• The big showing was Rubio at 3rd place, clearly an establishment candidate who can challenge Trump or Cruz
• 4 years ago in Iowa, Ron Paul got 24% of the vote in Iowa, and in fact, we later found out that when it came to delegates, he actually won Iowa – months later we found out that the fix was in
• 4 years later Rand did not do so well because he has dialed back his father’s rhetoric
• Maybe Rand will have a much better chance in 2020
• There is no way we can make it another 4 years without a major economic disaster
• If Trump gets the Republican nomination, he would be very vulnerable to a challenge from within the Republican Party
• I don’t know if Ted Cruz could beat Hillary Clinton; Donald Trump has a better chance of beating Clinton
• Rubio is probably the Republican’s best bet, because he is pretty mainstream
• It would probably be better going down with a Democrat at the helm so they get the blame for the coming economic implosion
• Bernie Sanders’ solutions are the reason that we have all these problems he wants to solve

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