Fed Worried Cost of Living Not Rising Fast Enough – Ep. 112

  • The Dow Jones finished up almost 140 points – back over 17000
  • The Dow has now rallied 1,000 points since its lows on Friday following the lower than expected Non-Farm Payroll number
  • The market originally sold off until traders realized that bad news is good news and they bought the dip
  • The buying intensified today following the release of the FOMC minutes from the last meeting
  • I predicted the markets would experience a rally based on the weak Non-Farm Payrol number
  • The U.S. market looks like it’s standing still compared to the markets overseas
  • Now that so many traders are starting to connect the dots and realize that a rate hike is not around the corner we’ve seen a huge rally in overseas stocks, particularly in emerging markets
  • All currencies continue to gain against the dollar
  • Silver prices earlier in the week hit a 3-1/2 month high
  • Gold got back above 1150
  • Oil prices are close to $50/barrel
  • All of this is happening because traders are beginning to pare back their rate hike bets
  • In light of today’s release of the dovish September FOMC meeting minutes the trend will intensify
  • Why were people surprised by the dovish minutes?
  • If you read the minutes, the real reason the Fed did not raise rates is because inflation is too low
  • They also said they would risk credibility raising rates below 2%
  • Lose credibility with whom?
  • If they are afraid to raise rates with inflation below 2%, they why have they been bluffing that they are about to raise rates?
  • The official inflation number has been below 2% the entire time they have been talking about a rate hike
  • I have been saying that they will continue to pretend to raise rates, but they won’t
  • I thought it was funny that Netflix raised their rates 11% – the Fed must have thought this was good news
  • The real reason the Fed won’t rais rates is that they don’t want to prick the bubbles
  • We have a bubble in the stock market
  • A bubble in the real estate market
  • A bubble in the bond market
  • Auto loans, student loans, consumer credit, art – you name it
  • The Fed doesn’t want the government to deal with higher interest rates
  • Look at the headline in the Wall Street Journal about foreign central banks beginning to dump treasuries
  • Look at how many treasuries China has sold
  • This is the tip of a huge iceberg
  • How is the Fed going to end QE when it has to take the other side of the mother of all trades?
  • CNBC cited overseas problems washing up on our shore as the reason why the Fed won’t be raising rates – these are not overseas problems
  • The problems started here – they’re just coming back
  • The overseas markets were reacting to higher interest rates and a strong dollar
  • This game is going to end – the next time the dollar goes down, it’s down for the count
  • Rather than having foreign central banks coming to its rescue, they are going to be joining in the dollar selloff just like everybody else
  • I wanted to comment on an Robert Wenzel’s article in the Economic Policy Journal
  • Wenzel appears to be referring to me but does not mention my name
  • Here’s the title of his piece, dated September 18, following the most recent Fed meeting:
  • “The Absurd Idea That The Fed is Not Going to Raise Rates”
  • Wenzel refers to “certain so-called Austrians out cheering that they were proven correct in their view that the Fed will not raise rates…”
  • Many people commented that he must be referring to Peter Schiff, but he denied this
  • Wenzel seems to believe I do not think the Fed should raise rates
  • I am not saying what I think the Fed should do, I’m saying what I think they will do
  • I don’t think zero percent interest rates and QE is good for the economy – of course not!
  • I also know if they do raise rates now, we are going to have a recession
  • If Wenzel is an Austrian, he knows the economy is in terrible shape
  • Ultimately this article will look absurd because the Fed is not going to raise rates until the market forces them, and not before
  • Several comments on the article said “This is about Peter Schiff” and he responded that it is not, however
  • I commented that the article asking who the article is about – Wenzel did not approve the comment on his site
  • Most people with whom I agree, over the course of the year, did believe that the Fed would raise rates
  • I’m the only one I know who said they would never do it
  • I am not going to take credit until the Fed launches QE4
  • But you’d better believe that if they do not raise rates and they launch QE4 I will take a victory lap
  • Also on economic data this week:
  • Disappointing ISM Non-Manufacturing number 56.9 against am expected 58
  • The worst number we got this week was the Tuesday Trade Deficit number 48.3 billion, which will subtract quite a bit from Q3 GDP
  • A symptom of a sick economy
  • Weekly jobless claim number 13,000 on the week to 263 -on of the lowest numbers in about 40 years despite the fact that layoff numbers have surged
  • /why aren’t people filing for unemployment?
  • The labor market is unhealthy and shrinking
  • Unemployment may shoot early next year when we’re in recession
  • That’s when there will be a lot of pressure on the Fed to stimulate the economy
  • I don’t see how the Fed can avoid QE, given their playbook
  • The Fed will put off dealing with it until past the election
The Dow Jones finished up almost 140 points - back over 17000 The Dow has now rallied 1,000 points since its lows on Friday following the lower than expected Non-Farm Payroll number