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It Looks Like a Recession Because It Is One – Ep. 132

  • The bear market in global stocks continues, and I believe we’re in a bear market in the U.S.
  • Technically the major averages are not quite down 20%, although some of the averages are
  • Transports were down 30% from their highs
  • The Russell 2000 was down more than 25%
  • Many individual sectors are way down into bear market territory, as are some individual stocks
  • IBM hit a new 6-year low; and, of course, IBM is the poster boy for share buy-backs
  • Imagine how much shareholder money has been flushed down the toilet buying back stock at over $200/sh and now we’re looking at 12o and falling
  • But remember: all bear markets begin as corrections
  • The bear market of 2001, when the S&P was cut in half, and the NASDAQ fell by 80%, started as a correction
  • The same thing in 2008 – they were calling that a correction, too, until they realized that it was a bear market
  • In fact, the main thing I am hearing today is the comeback – the Dow had a huge comeback because it was down more than 560 points at the low and it closed down at just 249
  • The NASDAQ was down more than 160 and it closed down only 5
  • Had we closed at the lows of the day maybe we would be closer to a short-term bottom
  • This is another short-covering inter-day rally creating a slippery slope of hope for the market to continue to slide down
  • Today, we have hit the most 52-week lows in any month since September of 2008
  • Earlier in the day, we were showing the biggest monthly point drop in the history of the stock market
  • It’s not just the worst January, it’s the worst month of any year, ever
  • The market has got to be telling us that not only are we in a bear market, but we are in a recession
  • The market is forward-looking: it is telling us that we are in a recession
  • The bond market is priced as if we are in a recession
  • Maybe that is because we are in a recession
  • All the economic data indicates a severe recession
  • The market is behaving as though something bad is happening – we haven’t seen action like this since 2008, yet people are dismissing all of this evidence
  • If it walks like a recession, quacks like a recession, smells like a recession, it is a recession
  • There are now more people acknowledging that the Fed should not continue raising rates in the near future – an article in the Guardian says:”Janet Yellen and Fed left with face full of egg after interest rate rise blunder” accuses the Fed of raising rates too early
  • The problem isn’t that they raised rates early, it is that they raised them too late
  • Actually the real problem is that they never should have lowered rates to zero in the first place
  • I said this from the beginning: They sealed their fate as soon as they dropped rates to zero – no matter when they raised rates it would be a disaster, and the longer they waited it would be a disaster
  • What is ridiculous is that the Fed wants us to believe that they can raise rates, after leaving them at zero for so long, and that we could sometime just be fine
  • The narrative that Ben Bernanke, Janet Yellen and the Obama administration have been selling is that they saved the economy
  • The economy is in much worse shape now than it was 7 years ago
  • Instead the Fed’s poisonous cure made us sicker than ever – That is what I wrote in “Crash Proof”
  • When I forecasted the bursting of the real estate bubble and the Great Recession and financial crisis, I said the economy could withstand that
  • What would kill it was the Fed’s cure, they came up with the exact remedy I was afraid they would and it is having this exact effect
  • The Fed is going to take interest rates to negative and they will launch QE4, which will be bigger than 1,2 & 3, but it will be too late to stop the recession
  • At this point the dose of monetary stimulus will be lethal for the dollar
  • The dollar is still rising based on the idea that the Fed is going to continue to tighten monetary policy
  • This is causing turmoil in global markets
  • The dollar is massively overvalued – we have huge trade deficits, huge budget deficits – the dollar should be much lower
  • The U.S. economy is the most vulnerable to higher interest rates because we are the biggest debtors
  • A U.S. economy recovery and higher interest rates cannot co-exist  people have not figured that out
  • Gold prices are rising – up another $15 or so today
  • Even though gold prices were flat, gold stocks collapsed again to record lows
  • Gold stocks as a group are down about 10%, even though gold is up 3-4% since the Fed raised rates
  • Right now there’s a big shake-out, a lot of redemptions and margin calls
  • Back in 2008, the dollar was strong right up until the Fed admitted that there was a problem, and once they stimulated and launched QE1, the dollar tanked
  • This time the dollar is on its final push that began 4 years ago
  • The only thing the economic bulls have left to hang their hat on is the jobs numbers
  •  I want to go back and talk again about that December Non-Farms Payroll number: 292,000 jobs
  • Only 16% of those jobs went to people between 25 and 54
  • That tells you that they hired a lot of people for non-career jobs
  • 64% of jobs that were gained in December went to people who already had a job
  • That is a 10-month high
  • The number of people who got a first job is at a 3-month low
  • Here’s an interesting fact: the government counts any part-time job that goes to a worker who works at least 35 hours a week, is considered a full-time job
  • The government counts all the jobs a person works, as long as that person works at least 35 hrs./wk. full time
  • By destroying one full-time job, and causing 3 part-time jobs to be replace it, Obama can get credit for adding 2 more full-time jobs to the economy
  • The only time they count a part-time job as a part-time job, is if the worker only has one, or is working less than 35 hrs./wk
  • That is why the labor market seems so strong
  • If we are in a recession, and it looks like we are, based on the data, there are going to be layoffs
  • The Fed has put a lot of stock in the “wealth effect’, but does not acknowledge the reverse wealth effect
  • About $2 trillion have been wiped out from the decline in the S&P just this year
  • The whole “recovery” was built on a foundation of the “wealth effect”
  • The real estate market is rolling over – the December New Home Starts number today was disappointing
  • This was a very warm December so one would have thought we would have had a better number
  • The numbers will be worse in January and February
  • JP Morgan has now brought their Q4 GDP estimate down to .1
  •  If last year Q4 was so weak, before the stock market collapse, imagine what is going to happen to the first quarter of this year
  • The problems with global currency is that countries believe they have to break their peg to the dollar because it is going up so high
  • Why should the currency of the world’s biggest debtor nation go up?
  • The Fed can not keep raising rates in a vacuum
  • This is an election year: Hillary Clinton has no chance if Janet Yellen does nothing and allows this recession to unfold
  • I believe we will still be in a recession in November when people vote
  • Obama’s claim to fame is that he inherited a mess in the economy and that he fixed it.  Hillary wants to jump on that same bandwagon
  • If we are right back in recession, it will be just like John McCain all over again: the Democratic nominee will have no chance if it is a complete meltdown
  • The only chance they have is to acknowledge the problem but blame it on anything but policy
  • They will have to have an excuse to lower rates again and to launch QE4
  • They won’t stop there.  They will do real, old-fashioned Keynesian stimulus will finally approve of
  • They will have a bonanza of deficit spending, and we could end up with a $2 trillion budget deficit
  • How much longer can the Fed be in denial? they should have allowed the market to fixed the problem
  • But if they allowed that painful fix, it would have been obvious that they created the problem, so rather than admit that the monetary policy was not working, they covered it up with more of the same
  • Ray Dalia said in an interview at the big economic meeting in Davos, Switzerland, that he predicts QE4
  • I predicted it when they launched QE1, because once you go down that road, you can’t get back
  • Now we have more people talking about the fact that the Fed will probably come out with more stimulus
  • We’re drowning in the Fed’s poisonous medicine
  • My one prediction that has not happened yet is the decline of the dollar
  • The dollar is high because no one knows what the Fed will do.  Janet Yellen has to finally admit the “the Emperor has no clothes on”
  • Until she admits the obvious, the markets will resist acknowledging the inevitable
  • When she does, it is huge game changer for the dollar, the commodities markets, and gold, and then I believe my investment thesis will be vindicated