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Stagflation Rears Its Ugly Head – Ep.145

  • It looks like Jamie Dimon’s bottom turned out to be the trap door I thought it was, with the Dow Jones today down almost 190 points
  • The market was let lower by the financials, JP Morgan itself down better than 4%
  • Remember it was Jami Dimon having the confidence to put a year’s salary into company stock that sparked this rally, but it seems to be losing steam and rolling over
  • Because we’re not going to get a lasting bottom until the Fed makes that bottom
  •  It’s not going to be a Jamie Dimon bottom, it has to be a Janet Yellen bottom; and as much as I have no interest in seeing Janet Yellen’s bottom, that’s exactly what we’re going to have to do to get a real low in this market
  • Every single decline that the market has experienced since 2009, the bottom has been set by the Fed
  • It’s been the Fed forming that bottom by coming to the rescue with rate cuts, QE programs, Operation Twist, hinting about more QE, and so far, the Fed has done none of that
  • The Fed is still sticking to its narrative that rate hikes are coming
  • Yes, nobody believes they’re coming anytime soon, but that is still the official forecast
  • Meanwhile, the markets can’t even deal with rates as is
  • The gold market will be the mirror image of the stock market; gold was up about $16 today
  • It reversed a near $20 decline yesterday, but it consolidating its huge move above $1200
  • So we are not getting the pullback that Dennis Gartman and Jim Cramer are hoping for to get on board
  • I think if people want to get on board this train, this is the stop.
  • If you like gold, just buy it and be happy that you’re getting it for $1225 – yes, you could have bought it below $1100 in December, but $1225 is still cheap
  • The most interesting about yesterday’s drop in gold – the gold stocks didn’t really decline
  • Most of the gold stocks finished positive on the day
  • Gold stocks added to their gains today, and many are sitting on their highest close of the year, and several are at 52-week highs
  • Other than the gold stocks, the 52-week high list is pretty short
  • The 52-week low list looks like a rap sheet
  • Something happened on Friday that made some people believe that help from the Fed is not forthcoming
  • Which may be part of the reason why the markets are declining
  • The release of the CPI number caught a lot of people by surprise: January consumer prices, forecast to drop by .1%
  • The real number was the core rate, which excludes food and energy was up .3, month over month – the biggest jump since August 2011
  • The increase in the core price year-over-year was 2.2%, the biggest increase since June of 2012
  • Remember, the Fed says our target is 2%, well, we got 2.2!
  • We’re there! We can raise rates! That’s what’s so scary
  • I wrote a commentary that is posted on this website, “The Fed’s Nightmare Scenario”, and I got that title after reading an article in which an economist who, observing that the CPI was 2.2% announced that this is a”dream come true” for the Fed
  • He cited inflation as the primary barrier to the Fed’s rate increase goals
  • The Fed’s “mandate” of 2% inflation is finally met
  • First, the Fed doesn’t have a mandate of 2% inflation. They made that up.
  • The Fed’s real mandate is price stability, which doesn’t require a definition, because everybody knows what the word “stable” means
  • The Federal Reserve decided to interpret that mandate to mean an increase of 2%
  • The late U.S. Supreme Court Justice Antonin Scalia was one of the few justices who believed in the “bizarre concept” of original intent
  • He believed that the Constitution actually meant what the founding fathers intended it to mean, that the words actually mean what they say
  • My father always said, “If you want to know what the Constitution says, read it.  It’s not written in Chinese.”
  • If you’re really not sure, go back and read the Federalist Papers, where the framers of the Constitution discussed the intent of the document
  • Today, activist Supreme Court Justices ignore all that and says the Constitution means whatever we want to think it means
  • It’s interesting that laws that apply to people, like robbery, are not subject to interpretation.  So why are the laws meant to restrain the government subject to interpretation?
  • That’s what the Fed has done with their mandate.  The original intent of that mandate of price stability, was price stability
  • The Fed has redefined that mission to 2% inflation every year.  They don’t want prices to remain stable, but that’s their choice
  • So they can raise rates at any time, because the “mandate” is made up – because they did not want to raise interest rates
  • The Fed originally set up 2 goalposts for interest hikes, the first one was  6-1/2 unemployment
  • We know what happened to that! They moved the goalpost
  • That is exactly what I said would happen – go back and listen to my podcast from the first time Ben Bernanke actually said that rates would go up at 6-1/2 % – I said, “No we won’t”
  • The other goal post was inflation
  • The question is, “When will the market figure this out?” How far can they push that goal post back?
  • That’s the Fed’s worst nightmare, it’s not their dream come true, it is that the market will figure out that when it comes to rate hikes, they are all hat and no cowboy
  • Some other economic data that came out this week: We got the PMI Manufacturing Index for February
  • January’s number was 52.7 and the consensus for February was 52.5; instead, we got 51 even
  • A rather substantial decline, closer and closer to 50 and without some help from the Fed, this number will eventually be sub-50
  • Also, the Richmond Fed Manufacturing Index today, another negative number
  • January we managed to get +2, and instead of an expected +2 again, we got -4
  • Even consumer confidence numbers were down in February
  • Last month’s number was revised down to 97.8 and the February number came in all the way down to 92.2
  • One final thing, today is the anniversary of my father’s birthday today (February 23), he would have been 88 years old
  • I have decided to sell my father’s  best-seller, “How Anyone Can Stop Paying Income Taxes
  • It is available on schiffbooks.com now for $35.00.  We only have 100 copies, and they will probably go quickly, but please remember, do not stop paying income taxes as a result of reading this book
  • These books are made available to the first 100 people who order
  • I also have only 15 copies of The Great Income Tax Hoax.