- Happy St. Patrick’s Day everybody and to those of you who have been waiting since yesterday for this podcast, you won’t be disappointed
- Yesterday I did an interview with Liz Claman at Fox Business News and I did respond to the Fed’s decision. That video is up on my YouTube Channel.
- The Fed did not raise interest rates, which didn’t surprise a lot of people, but what did surprise a lot of people was the the Fed indicated, based on their Dot Plot, the consensus is that the Fed now sees two rate hikes coming in 2016
- If you recall, at the end of last year and earlier this year, the Fed was still projecting 4 rate hikes in 2016
- What I said from the very beginning is, “No chance.”
- In fact I still thought it was more likely that we’d get a rate cut
- Now it’s two down and two to go, because now the Fed is only pretending that they will raise rates twice this year instead of pretending that they’re going to raise rates 4 times
- What’s really interesting now is how the Fed is starting to lose credibility that it never should have had
- Steve Liesman asked Janet Yellen a good question: He said, what about your credibility – you said you would raise rates 4 times and now it’s 2 times, and you said you were data dependent and unemployment is below 5%, creating 200,000+ jobs per year and the core CPI is up 2.3%
- He said, if you’re not raising rates now, under what circumstances will you raise rates?
- Janet Yellen didn’t really answer the question, but I thought she was thinking, “Don’t you understand, we never intended to raise rates.”
- I pointed this out from the beginning: The Federal Reserve never said that they would raise rates 4 times. They said, based on our economic forecasts, this is what we think is going to happen – BUT if we’re wrong, it’s not going to happen
- Janet Yellen said to Steve Liesman, “Look, these dots don’t mean anything – this is what we’re thinking at a moment in time, but it’s not a promise.”
- For some reason, everybody assumes that if the Fed thinks the economy is going to get better it will get better, in fact, if anything, since the Fed’s track record is so horrific, if the Fed thinks the economy is going to get better, it’s probably going to get worse, and so they are not going to raise interest rates the way they’re pretending
- One of the reasons the Fed is pretending that the economy is good is because that’s the official line of the Obama Administration: “The economy is good, and if you say it’s not good, you’re peddling fiction.”
- Yellen probably wanted to say to Liesman,”Steve, we’re not raising rates because the economy is lousy.”
- The fact that they don’t raise rates is the proof that they know that the economy is lousy, but they don’t want to say it, so Janet Yellen is saying “Read between the lines”
- When I’m listening to all the coverage about the fact that the Fed didn’t raise rates, the reports say,”Janet Yellen chickens out”, “Janet Yellen gets cold feet”
- That’s not the point. Her feet were always cold. The Fed never intended to raise rates.
- If they were planning to do it they would have done it
- This is all part of the extend and pretend charade
- In fact, in my Fox Business News interview with Liz Claman, I was debating Andy Brenner who holds that the Fed will raise rates 2 or 3 times this year
- I said, “If the Fed was going to raise rates, they should have raised them yesterday.”
- Brenner responded that the market wasn’t prepared for it
- I said the Fed is not supposed to be market dependent, it is supposed to be data dependent
- The market may never be prepared to raise rates – look at what happened the last time, the market got off to the worse start in the history of the market
- Smarter people realize they’re not going to raise rates at all
- How could they risk another rate hike given what happened the last time
- Most people look at the Fed as if they were honest
- If the Fed were honest, they would acknowledge how weak the economy is
- But they can’t do that for political reasons
- So all they can do is not raise rates, but they have to keep pretending that they will raise rates so they can keep pretending that the economy is strong, but when they don’t do it, we see what they really think
- What’s even more ridiculous about the Fed ignoring the bad economic news, is individuals, managing hedge funds, or mutual funds or manage banks, economists; people in the private sector, why are they ignoring all the bad economic news?
- They’re just looking at the Fed. It’s like the story about the Emperor’s new clothes, nobody wants to say anything as long as Janet Yellen is talking about how great the economy is
- Why does the private sector, who doesn’t have a political agenda, ignoring overwhelming evidence of recession to pretend that we’re still in an expansion?
- Even if we ever had a recovery, it is over. How much more evidence do people need than the data that has been coming out?
- The markets are figuring out. Look at the dollar index – it got clobbered.
- The dollar index was trading above 97 before the Fed announcement – it’s now trading below 95
- We’ve got support at about 93.80 – a full point lower. It was a double bottom from October and May of last year
- I think once we take out that level, it will be a precipitous drop down because the whole dollar trade is going to unravel fast
- Meanwhile, the price of gold was up $30 yesterday
- Gold stocks another story. The GDX index was up about 7% – gold stocks made new highs for the year
- What’s even better than the gold stocks are the silver stocks
- Silver, after having lagged, is making new highs for the year, leading gold, and the silver stocks are really on fire
- The gold and silver sector are showing you that people are figuring this out
- Money is now starting to move in a bigger way out of the dollar and the dollar is down across the board
- When I’m talking about the dollar index, I’m talking about mainly the euro, the yen, the pound
- But the dollar is getting creamed all over the world – South America, Southeast Asia, and the momentum in this trade is going to build
- Ultimately this will put upward pressure on commodity prices, oil prices now back above $40/barrel – that’s going to keep going up
- Which means all this deflation nonsense all around the world will go away
- There will be upward pressure on interest rates around the world
- But here in America, it doesn’t matter, because we can’t afford higher interest rates
- Remember when the ruble was under attack last year, and Putin had to hike interest rates up to 17% to stop the collapse of the ruble
- Obviously we can’t do that in America – how do we stop the collapse of the dollar?
- Exchange controls? We can’t raise interest rates
- The Russian government raised interest rates to 17% and it didn’t default on any of its debt
- If we raise interest rates to 17% – or 7%, we’d have to default on all of our debt
- We cannot survive a run on the dollar, but that’s exactly what’s coming because everybody is going to stampede out of this trade when they realize how wrong they were
- The dollar rally is predicated on interest rates rising in a strong economy
- When people realize that interest rates are not rising
- It’s not buy the rumor sell the fact – it’s buy the rumor and get the hell out because the rumor was false – there is no fact
- One of other things that Janet Yellen said that strikes me, is she talks about the confidence she sees in the American consumer
- I don’t know where she’s getting her information, and I’m going to get to retail sales data later, but the best poll of consumer confidence are the exit polls during the primaries
- If you look at those exit polls, the number one issue is the economy
- It’s still the economy, stupid, and what the voters are telling us is that the economy is awful
- That is why they are voting for Donald Trump and Bernie Sanders
- The one thing that Janet Yellen has is talk. This is all part of Open Mouth Operations
- They peddle fiction, because they hope they will avert the collapse they see ahead
- If they didn’t raise interest rates yesterday, why will they raise them in June?
- The economy will be weaker by then, we will get all the weak data from the first quarter, and we’ll be even closer to the election, so what’s the point?
- If unemployment goes up to 5%, clearly they won’t raise rates if they didn’t at 4.9%
- And inflation – it doesn’t matter how high that number gets
- Earlier on Wednesday morning, we got the core CPI – it was supposed to go up .2% – instead it rose to .3% – the year over year change was 2/3%
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