• The Dow Jones had its worst week since January – closed the week at 17,568, down 518 points
  • Friday’s drop alone accounted for 163 points
  • Capital One had a huge earnings miss and announced big layoffs
  • Big losses on bad debt
  • All the economic data from this year has been negative
  • There is no precedent for the Fed to raise rates when all economic indicators are down
  • Normally The Fed stimulates when the economy is down
  • The most interesting economic news on Friday was a leak from the Federal Reserve
  • Fed employees’ internal projections are way below the Fed’s public estimates
  • Projections go all the way out to 2020 and can only amount to guesses
  • The document is posted on my Facebook page
  • Real GDP: 2015: 2.31 way below the official forecast but still overly optimistic
  • Real GDP for 2016: 2.38 – 2017: 2.17 – 2018:1.76 – 2019:1.75 – 2020:1.74
  • This shows an average of under 2% for the next 5 years
  • If the Fed believes its staff’s estimates, why would they be talking about raising rates?
  • Inflation numbers are even more difficult to believe:
  • 2015: 1.15 – 2016: 1.54 – 2017:1.76 – 2018:1.89 – 2019: 1.92 – 2020: 1.94
  • How can they possibly know? It looks like they just picked numbers somewhere below 2%
  • They even have the core PCE
  • 2015: 1.33 – 2016: 1.52 – 2017: 1.78 – 2018: 1.9 – 2019: 1.92 – 2020: 1.94
  • Fed Funds Numbers:
  • 2015: .35%(implies one rate hike) – 2016: 1.26% – 2017: 2.12% – 2018: 2.8% – 2019: 3.1% – 202 : 3.34%
  • After 5 years of tightening rates would still be at historically low levels
  • This indicates how little confidence the Fed has in the economy
  • They predict the yield on the 10-year note to rise 2.63% in 2015 up to 4.2 in 5 years
  • One of the most ridiculous assumptions is unemployment: 2015: 5.34% – 2016: 5.24% – 2017: 5.18 – 2018: 5.15 – 2019: 5.15 – 2020: 5.16
  • These are all just guesses. How do they know?
  • This shows by the Fed’s own estimates that employment is not expected to improve
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  • The Fed expects the economy to grow even slower over the next 5 years than during the preceding 5 years
  • The Fed is either ignoring staff’s numbers to paint a rosy picture or they don’t trust their own staff
  • I think the market can’t handle the truth and that may have been the reason for Friday’d drop in the Dow
  • The only thing that will stop the market from going down is some talk from Janet Yellen to dial back the rate hikes and to open the door to QE4
  • Another number that came out on Friday which confirms the slowdown in the economy is the new home sales
  • The current rise in new home sales is primarily for those trying to beat the Fed
  • June’s number was awful: 482,000 against an expectation of 550,000
  • The last 2 month’s estimates were revised down
  • The July plunge was the biggest number since November of 2014, and the biggest miss in a year
  • There is also an interesting statistic on new homes: prices are continuing to rise
  • It now requires 10 times your salary to buy a new home
  • In the 1950’s it took 2 times a year’s salary to buy a new home
  • All the government spending on “affordable housing” has managed to increase the cost of a home from twice a worker’s salary to ten times a worker’s salary
  • That is a 500% increase – that is far beyond failure
  • This also illustrates how much our standard of living has fallen
  • New York State passed a minimum wage of $15/hr, which applies to chains of over 30 restaurants
  • Because employers cannot be forced to pay wages higher than workers’ productivity allows, employers will be forced to fire some employees and will seek automation to replace unskilled workers.
  • Just as workers can not be expected to work for free, employers cannot be expected to maintain a business at a loss, for the benefit of the employees
  • This law will also create a competitive advantage for smaller fast-food restaurants or will drive large franchises out of New York
  • Gold prices continued to be under pressure until Friday
  • Friday’s action looked constructive, in light of the stock market drop
  • Dollar still gained strength against commodities
  • There’s negativity on the euro
  • If the stock market continues to drop, cracks will develop in the dollar’s armor
  • When everyone was the most bearish on the euro, in the next 7 years it doubled in value
  • For the first time ever, hedge funds are net short the gold market
  • Gold stocks have never been this cheap relative to the price of gold
  • The previous record for the low price of gold stocks was at the time of Pearl Harbor
  • Today, gold’s price is strictly due to sentiment – short selling
  • All this gold that was dumped on the market has all been sold – I think China bought it, along with other central bankers
  • The U.S. Mint has had its best month in years the Perth Mint is reporting the same thing
  • The physical gold market is strong and increasing, even as the price is going down
  • The selling is not coming from the real gold market – it is the speculators
  • The leveraged speculators are making bets on the future price of gold by selling gold that they don’t own and cannot deliver
  • No tears will be shed for the shorts who get bloodied when gold goes up
  • This is an opportunity for real investors who understand what is going on to buy the stocks that the speculators are unloading