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Peter Schiff: The Fed Made This Bed and Now We Have to Lie In It

January 20, 2022

Peter Schiff: The Fed Made This Bed and Now We Have to Lie In It

Inflation is running hot. Economic data is running cold. Stocks and bonds are under pressure. The Fed is scrambling. In his podcast, Peter Schiff talked about the trajectory of the economy. He said we’re on the cusp of the most obvious crisis that virtually nobody saw coming. The Federal Reserve made this bed. Now we have to lie in it.

Stocks and bonds are off to a rough start in 2022 with the expectation of rate hikes on the horizon. In fact, many analysts now think that the Fed could raise interest rates five times in 2022. And some also think the first hike in March could be 50 basis points.

Hedge fund manager Bill Ackman called a .5% rate hike “shock and awe.”

Peter called this “ridiculous.”

It’s not shock and awe. When you’re talking about 7% inflation, a move from zero to 50 basis points is still recklessly low interest rates. And for a Fed that’s actually serious about fighting inflation, raising interest rates to 50 basis points is not nearly enough for the task at hand.”

Even so, a .5% rate hike could have a profound impact and pop the bubble economy.

Given the incredible amount of leverage that’s in the system, a 50 basis point rate hike can still do a lot of damage. And I think Bill Ackman is underestimating the extent of the damage. But not just the damage from the initial hike, but from all the subsequent hike, which aren’t going to do any good about slowing down this inflation freight train.”

Peter noted the price of oil hit has continued its upward trajectory this week. The price of oil is at a seven-year high with plenty of room to keep running up. In 2021, a lot of producers ate their rising costs…

…click on the above link to read the rest of the article…

Fed Chair Faces the Ultimate Lose-Lose Decision

January 17, 2022

Fed Chair Faces the Ultimate Lose-Lose Decision

Photo by Vadim Sadovski

The U.S. economy teeters between two catastrophes: wild and untamed hyperinflation that turns cash into wallpaper, or an epic crash that would make 2008 look like a day at the beach. Federal Reserve Chairman Jerome Powell has led the U.S. government’s monetary policy to this point.

Now he’s attempting a nearly impossible feat…

He will need to thread the needle between the two economic disasters, between the frying pan and the fire, to return the U.S. economy to any form of sustainable prosperity.

Is that kind of miracle even possible?

The frying pan: 40-year-record-high inflation

We will start with the obvious issue: December’s inflation report of 7% year-over-year price increases. That’s at the end an entire year where inflation rose steadily for eleven of twelve months. August, the exception, saw a 0.1% decline.


Source

In addition, what Powell endlessly assured us was merely “transitory” inflation, a “blip,” caused by “supply chain snarls” and so on? It’s the highest we’ve seen in 40 years.

Most of our readers who have a little gray in their hair may remember how grim the stagflationary crisis of the late 70s and early 80s was. However, the average American is only 38 years old. They most likely have no idea what we’re facing, even while watching their personal expenses go up month after month.

And make no mistake, those expenses have gone up quite a bit for virtually everyone.

The Bureau of Labor and Statistics (BLS) report revealed the prices that rose the most in December 2021 :

  • Gasoline +49.6%
  • Fuel oil, and other fuels for heating +48.9% (just in time for the coldest days of winter, too)
  • Natural gas: +24.1%
  • Meats, poultry, fish, and eggs: +12.5%
  • Electricity: +6.3%
  • Housing +4.1%

If you find this list depressing, I’m afraid your solace isn’t immune to this trend… Distilled spirits (excluding whiskey) rose 3.4% in price.

…click on the above link to read the rest of the article…

Is Powell Again Pulling Strings From “The Shadows”?

January 17, 2022

Is Powell Again Pulling Strings From “The Shadows”?

Recently, we have seen stocks rally while the dollar falls. Some of us are wondering why the dollar is falling at the same time currency traders are busy penciling in as many as four interest rate increases. The ICE U.S. Dollar Index, a measure of the currency against a basket of six major rivals, was down 0.1% on Thursday hitting a two-month low. This drop leaves the dollar with a loss of 1.2% since the start of the new year.A more aggressive tightening of monetary policy and “hawkish” central bank intent on slowing inflation is generally seen as supportive to a currency. Is it possible Powell dropped the dollar to kick the stock market back up? I contend this is what is happening. Such a move has been used in the past. In volatile markets, like we have today ruled at times by emotions, the fear of missing out, and a slew of traders trained to buy the dip, it doesn’t take much to turn an ugly selling streak into a buying panic.

The combination of a sudden drop in the dollar just as the Fed starts talking about tapering and raising rates is difficult to understand. With most seasoned investors allergic to risk, logic would tend to make them view the coming Fed action as a strong headwind to markets going higher. At the same time, higher interest rates and less expansion of the Fed’s balance sheet generally moves the dollar higher.

While it could be argued the falling dollar simply reflects the coming recession into which the Fed is tightening, again I point to Powell as the great enabler…

…click on the above link to read the rest of the article…

It Has Been 7% Inflation Since 1996

January 16, 2022

It Has Been 7% Inflation Since 1996

And so finally, now fiat $USD financial authorities are being forced to admit we have at a minimum 7% price inflation annualized.

The issue, as per usual, is the real value loss truth is like twice that amount in terms of real purchasing power disappearances over the last twelve months.

To attain shreds of credibility, even some in the mainstream financial media now have to report how rigged the Bureau of Labor and Statistics (BLS) inflation tracking methodology is.

Of course, yet another deflationary global bankruptcy phase is likely to come about this decade.

Look for perhaps some cyber-attack excuse to cover yet more derivative bet loss insolvencies to come.

And when it does, it will likely turn these increasing-price inflationary pressure downwards for a brief timeframe as it did during the 2008 GFC and briefly, and too at the start of the 2020 pandemic.

Yet our financial authority’s most predictable response mechanism will likely be more seemingly ∞fiat currency∞ creation.

Ultimately and also by major central banks’ pre-meditated ‘Go Direct‘ actions. Secular inflation should remain persistent, reaching levels already now larger than perhaps ever before experienced in most of our lifetimes until significant structural issues of too much record-level fiat currency-denominated debt and unsaved promise piles get reckoned.

Over 7% Inflation Since 1996

The Fed Just Guaranteed a Stagflation Crisis in 2022 – Here’s How

January 14, 2022

The Fed Just Guaranteed a Stagflation Crisis in 2022 - Here Is How

Chair Powell leads a two day meeting of the Federal Open Market Committee (FOMC) held January 29-30th, 2019. Public domain photo courtesy of the Federal Reserve

I don’t think I can overstate the danger that the U.S. economy is in right now as we enter 2022. While most people are caught up in the ongoing drama of Covid-19, a real threat looms over the nation in the form of a stagflationary tidal wave. The mainstream media is attempting to place the blame on “supply chain disruptions,” but this is a misrepresentation of the issue.

The two factors are indeed intertwined, but the reality is that inflation is the cause of supply chain disruptions, not the result of supply chain disruptions. If we look at the underlying stats for price rises in essential products, we can get a clearer picture.

Before I get into my argument, I really want to stress that this is a truly dangerous time and I suggest that people prepare accordingly. In just the past few months I have seen personal expenses rise at least 20% overall, and I’m sure it’s the same or worse for most of you. Safe-haven investments with intrinsic value like physical precious metals are a good choice for protecting whatever buying power your dollars have left…

Higher prices everywhere

The Consumer Price Index (CPI) is officially at the highest levels in 40 years. CPI measurements often diminish the scale of the problem because they do not include things like food, energy and housing which are core expenses for the public. CPI calculations have also been “adjusted” over the past few decades by the government to express a more positive view on inflation…

…click on the above link to read the rest of the article…

Peter Schiff: The Fed Can’t Do What It’s Saying It Will Do

January 11, 2022

Peter Schiff: The Fed Can’t Do What It’s Saying It Will Do

The Fed FOMC minutes came out last week, signaling tighter monetary policy. Peter Schiff talked about the minutes in his podcast, arguing that the Fed can’t do what it says it’s going to do. If it does, it will crash the markets and the economy. And it won’t lower inflation.

The Fed minutes were widely viewed as even more hawkish than the messaging coming out of the December meeting. Peter said the minutes even surprised him a bit. But he reminded us that when he’s talking about a “hawkish” Fed, he’s not really talking about hawks.

They’re extinct. They may as well be the dodo bird at the Federal Reserve. Everybody is a dove. We’re just talking about degrees of dovishness. And so, the Fed was less dovish than the markets had expected.”

The minutes indicated we could now see four interest rate hikes this year. Three hikes were widely anticipated after the meeting. That would push rates up to about 1% by the end of the year. In the big scheme of things, and against the backdrop of the current economic data, that’s not a lot.

You cannot describe those itsy-bitsy moves in any way ‘hawkish.’”

But comments regarding quantitative tightening – shrinking the balance sheet – really roiled the markets.

In other words, they’re going to go from being a massive buyer in US Treasuries and mortgage-backed securities to a seller of those securities. And that’s what really spooked the markets. Because that sent the bond markets tanking.”

Yields on the 10-year Treasury hit a 52-week high and briefly pushed above 1.8%.

If the Fed is going to shift from buying bonds to selling, clearly, that will put heavy pressure on the bond market. But Peter said there is one thing that the markets don’t seem to comprehend.

…click on the above link to read the rest of the article…

“Minsky Moments Almost Certainly Await”: Nomura Fears ‘Collateral’ Damage From The QE-to-QT Transition

January 10, 2022

“Minsky Moments Almost Certainly Await”: Nomura Fears ‘Collateral’ Damage From The QE-to-QT Transition

“Minsky Moments” almost certainly await, warns Nomura’s Charlie McElligott in his latest note as he reflects on a massive week ahead for markets.

With Powell testimony and bunches of Fed speakers, along with US economic releases headlined by the market’s most important datapoint in the CPI release Wednesday, in addition to PPI, Retail Sales and Consumer Sentiment over the course of the week, plus two Duration-heavy auctions ($36B of 10Y and $22B 30Y, on top of tomorrow’s $52B 3Y),… and finally, US corporate earnings season kickoff (highlighted by JPM, C and WFC this upcoming Friday), it is no wonder that investors are degrossing still…

While the long-end of the curve is reversing modestly – after some more ugliness overnight – STIRs continue to grind hawkishly higher with March now consolidating around a 90% chance of a rate-hike…

McElligott raises some worries of a rapid ‘reversal’ risk in bonds – via “market tantrum” forcing the Fed to yet-again “Bend the Knee” – as market positioning in bonds is extreme to say the least.

Looking at the QIS CTA Trend model to get a sense of the “bearish momentum” and asymmetry within Fixed-Income positioning, we currently see the net exposure across G10 Bonds is back to 10 year historical “extreme Short” at just 2.2%ile overall exposure since 2011; further, the aggregate $notional position across the agg G10 Bond positions is now greater that -2 SD rank (i.e. very “net Short”) dating all the way back to 2002.

Similarly, the Nomura MD notes that eventually, the more this selloff in legacy long / crowded hyper Growth Tech extends, there is ultimately a mounting risk of a sharp counter-trend rally in beaten-down Nasdaq, particularly considering the extremely magnitude of the Dealer “short Gamma” profile in QQQ ($Gamma -$476mm, 3.4%ile since 2013…

…click on the above link to read the rest of the article…

The Economy May Be Finally Peaking, and the Fed Won’t Help Matters

January 3, 2022

THE ECONOMY MAY BE FINALLY PEAKING, AND THE FED WON’T HELP MATTERS

Here we go again it may seem to many. The Fed is preparing us for a policy tightening just when a powerful growth cycle upturn is faltering. Or is it in fact an example of another well-known type of error from Fed history—getting behind the curve of rising inflation? The most plausible answer is that it is neither.

Instead, the huge monetary inflation shock which the Fed has administered so far in this pandemic means that the “normalization steps” now in prospect for 2022 are all but irrelevant to macroeconomic prospects or asset market price trajectories.

The more Federal Reserve chief Jerome Powell has been huffing and puffing, since his renomination (November 22), about normalizing policy, the steeper has been the fall in long-term interest rates. In the first two trading weeks following the renomination, the ten-year yield on US Treasurys was down by thirty basis points to 1.35 percent. A coincidence, surely, explained in part by the possible Omicron menace? Yes, perhaps in part, but not altogether.

The chief’s performance is now in the theater of the absurd. Many in the marketplace have deserted the audience, though the noise still irritates them. Instead, they focus on the drama of monetary reality. The title? “Lost Illusions on the Journey from Mega Pandemic Inflation to Great Depression.” The evolving mood of the audience here will have a powerful effect on financial markets and ultimately the global economy.

Toward understanding the theater of the absurd and its triviality, recall the story of the natural history museum renowned for its dinosaur relics. The guardian there, quizzed by a child as to the age of those specimens, answers: 5 million years and 90 days. How so? Because when he started work there, around three months ago, he was told their age was 5 million years!

…click on the above link to read the rest of the article…

Weekly Commentary: 2021 Year in Review

January 3, 2022

Weekly Commentary: 2021 Year in Review

Books will be written chronicling 2021. I’ll boil an extraordinary year’s developments down to a few simple words: “Things Ran Wild”. Covid ran wild. Monetary inflation ran wild. Inflation, in general, ran completely wild. Speculation and asset inflation ran really wild. More insidiously, mal-investment and inequality turned wilder. Extreme weather ran wild. Bucking the trend, confidence in Washington policymaking ran – into a wall.
Covid running wild. With the hope for vaccines and a waning pandemic, few anticipated the tragedy of more than 475,000 Covid deaths (exceeding 2020). As the year comes to its conclusion, we are shocked by daily new cases exceeding 500,000 – and two million for the week. Globally, daily cases exceed two million.

Inflation running wild. CPI surged 6.8% y-o-y in November, the strongest consumer price inflation since June 1982. Core PCE, the Fed’s favored inflation gauge, rose above 6% for the first time since 1983. Surging food and energy prices, in particular, punish those who can least afford it.

Monetary inflation running wild. Federal Reserve Credit expanded $1.391 TN over the past year, or 19%, to a record $8.742 TN. The Fed’s balance sheet inflated an astonishing $5.015 TN, or 135%, in the 120 weeks since QE was restarted in September 2019. Federal Reserve Assets have now inflated 10-fold since the mortgage finance Bubble collapse.

M2 “money” supply inflated another $2.478 TN (12 months through November) to a record $21.437 TN – with egregious two-year growth of $6.185 TN, or 40.6%. Bank Deposits surged $1.957 TN over the past year (12.1%), with two-year growth of $4.812 TN (36%). Money Fund Assets rose another $408 billion y-o-y, or 9.5%, to $4.70 TN. The myth that QE effects remain well contained within Treasury and securities markets has been debunked.

In the seven pandemic quarters through Q3 2021, Non-Financial Debt surged $9.183 TN, or 16.8%, in history’s greatest Credit expansion.
…click on the above link to read the rest of the article…

The Economy May Be Finally Peaking, and the Fed Won’t Help Matters

December 29, 2021

THE ECONOMY MAY BE FINALLY PEAKING, AND THE FED WON’T HELP MATTERS

Here we go again it may seem to many. The Fed is preparing us for a policy tightening just when a powerful growth cycle upturn is faltering. Or is it in fact an example of another well-known type of error from Fed history—getting behind the curve of rising inflation? The most plausible answer is that it is neither.

Instead, the huge monetary inflation shock which the Fed has administered so far in this pandemic means that the “normalization steps” now in prospect for 2022 are all but irrelevant to macroeconomic prospects or asset market price trajectories.

The more Federal Reserve chief Jerome Powell has been huffing and puffing, since his renomination (November 22), about normalizing policy, the steeper has been the fall in long-term interest rates. In the first two trading weeks following the renomination, the ten-year yield on US Treasurys was down by thirty basis points to 1.35 percent. A coincidence, surely, explained in part by the possible Omicron menace? Yes, perhaps in part, but not altogether.

The chief’s performance is now in the theater of the absurd. Many in the marketplace have deserted the audience, though the noise still irritates them. Instead, they focus on the drama of monetary reality. The title? “Lost Illusions on the Journey from Mega Pandemic Inflation to Great Depression.” The evolving mood of the audience here will have a powerful effect on financial markets and ultimately the global economy.

Toward understanding the theater of the absurd and its triviality, recall the story of the natural history museum renowned for its dinosaur relics. The guardian there, quizzed by a child as to the age of those specimens, answers: 5 million years and 90 days. How so? Because when he started work there, around three months ago, he was told their age was 5 million years!

…click on the above link to read the rest of the article…

My “Wealth Effect Monitor” & “Wealth Disparity Monitor” for the Fed’s Money-Printer Economy: December Update

December 28, 2021

My “Wealth Effect Monitor” & “Wealth Disparity Monitor” for the Fed’s Money-Printer Economy: December Update

Billionaires got more billions, bottom half of Americans got peanuts and inflation.

My “Wealth Effect Monitor” uses the data that the Fed releases quarterly about the wealth of households. The Fed, after having released the overall data for the third quarter earlier in December, has now released the detailed data by wealth category for the “1%,” the “2% to 9%,” the “next 40%” (the top 10% to 50%) and the “bottom 50%.”

Wealth here is defined as assets minus debts. The wealth of the 1% ($43.9 trillion, according to the Fed) is owned by 1% of the population. The wealth of the “bottom 50%” (only $3.4 trillion) gets split across half the population. My Wealth Effect Monitor takes this a step further and tracks the wealth of the average household in each category.

The average wealth in the 1% category ticked up by only $121,000 in Q3 from Q2, after skyrocketing over the prior five quarters, to $34,478,000 per household (red line). In the bottom 50% category, the average wealth ticked up by $6,800 $53,600 (green line). And get this: About half of that “wealth” at the bottom 50% is the value of consumer durable goods such as cars, appliances, etc. Even the top 2% to 9% (yellow), have been totally left behind by the explosion of wealth at the 1%:

Note the immense increase in the wealth for the 1% households, following the Fed’s money-printing scheme and interest rate repression in March 2020.

A household is defined by the Census Bureau as the people living at one address, whether they’re a three-generation family or five roommates or a single person. In the third quarter, there were 127.4 million households in the US, per Census estimates.

…click on the above link to read the rest of the article…

Is the Crack-up Boom Here?

December 28, 2021

Is the Crack-up Boom Here?

Bloomberg News recently solicited advice from Argentinians who lived through that country’s high inflation on how Americans should cope with rising inflation. The Argentinians suggested Americans spend their paychecks as fast as possible to avoid future price increases. They also suggested taking out loans that can be paid back later in devalued currency.

These strategies may make sense for individuals. However, encouraging debt and discouraging savings is disastrous for the country. Relying on debt and spending one’s paycheck immediately encourages people to seek instant gratification instead of planning for the future. This depletes both economic and moral capital.

November’s 9.6 percent increase in the producer price index, combined with the consumer price index’s increase to levels not seen since the early 1980s, shows why fears of inflation have become the public’s number one concern. Even the Federal Reserve has acknowledged that inflation is not just “transitory.”

The Fed recently announced it is accelerating the timetable to reduce its monthly purchases of Treasury and mortgage-backed securities. The Fed also announced it is planning three interest rate increases next year. However, the Fed plans to increase rates by no more than one percent. So even if the Fed does follow through on its promise to hike rates, it will do little if anything to combat rising prices. If the Fed allowed interest rates to rise to anything approaching market levels, it would make the federal government’s debt servicing costs unsustainable. This puts tremendous pressure on the Fed to maintain low rates.

The biggest victims of the Federal Reserve’s erosion of the dollar are lower- and middle-class Americans whose paychecks do not keep pace with the Fed-caused price increases. Yet many progressives still cling to the fallacy that average workers somehow benefit from continued dollar devaluation.

…click on the above link to read the rest of the article…

Peter Schiff: There Is No Ceiling on Inflation

December 27, 2021

Peter Schiff: There Is No Ceiling on Inflation

Gold closed out the week before Christmas above $1,800 an ounce, despite rising bond yields. The $1,800 level has been viewed as a ceiling for the price of gold. In his podcast, Peter Schiff said people need to start thinking of $1,800 as a floor. And he said they will once they realize there is no ceiling on inflation.

We got the personal income and spending data for November last week. Incomes grew at a slower pace than projected — 0.4%. Meanwhile, spending was up 0.6%. Obviously, if spending is outpacing income, the difference has to come from somewhere. It appears Americans are dipping into their savings to cope with rising prices. The savings rate declined to 6.9%. That is the lowest level since December 2017.

We also know that consumers are turning to debt to make ends meet, with credit card balances growing at a fast pace.

The savings rate shot up and Americans paid down their credit cards when the government showered them with stimulus. Peter said it appears the stimulus has run out.

Obviously, Americans have now exhausted that windfall. They’ve depleted that savings war-chest that was built up with stimulus money, and now it’s gone. And so, they’re having to go into debt.”

Consumers have a double problem. They’ve run out of savings and consumer prices keep going up. That is robbing people of their purchasing power.

That robber is the government, because it’s the government that’s creating the inflation that is causing the cost of living to go up. But the cost of living is going up, yet consumers have even less savings to afford that increase in the cost of living.”

…click on the above link to read the rest of the article…

Inflation In 2021 Far Different From What We Had In 1979

December 27, 2021

Inflation In 2021 Far Different From What We Had In 1979

The inflation of today is a starkly different creature than what we faced in 1979. The world is massively different and presenting us with a strain of inflation that will most likely be stronger and more difficult to combat without major disruptions to our economy. This article is an attempt to highlight the differences and why today the position we find ourselves in is much more precarious.New data released by the Bureau of Labor Statistics showed price inflation in November rose to the highest in forty years. Allianz Chief Economic Advisor Mohamed El-Erian warned the Federal Reserve is losing credibility by not tapering its balance sheet to rein in inflation. Appearing on CBS’ “Face the Nation” he stated the most significant miscalculation in decades is the Fed’s inability to characterize inflation correctly. It was only on November 30th that Fed Chair Jerome Powell finally retired the term “transitory” and opted to label inflation as persistent.

President Biden responded to rising inflation has been to call upon Congress to pass his Build Back Better plan. Biden claims this will lower how much families pay for health care, prescription drugs, child care, and more.” In reality, of course, the passage of BBB would increase inflationary pressure throughout the economy and only transfer these soaring costs from the individual to the government.

The idea the economy of 2021 is strong enough to allow a rapid and huge surge in interest rates such as those imposed upon America in 1981 is false. During America’s prior bout with inflation 40 years ago the economy was able to withstand the shock…

…click on the above link to read the rest of the article…

Inflation Is a Policy That Cannot Last

December 26, 2021

Inflation Is a Policy That Cannot Last

Are we heading toward a Fed policy that fixes inflation at a permanent rate of five to six percent?

We could be.

But inflation is a policy that cannot last.

We’re currently experiencing a massive wave of price inflation. This should come as no surprise. The Fed has increased the M2 money supply by around 40% since the end of 2019. The US government showered that newly created money on American consumers in the form of stimulus. Meanwhile, governments effectively shut down the US economy. That led to a big drop in production. This created the perfect inflationary storm. We have more money chasing fewer goods and services.

Prices are rising.

Now the Federal Reserve has a big problem. It needs to tighten monetary policy to take on inflation. But the economy depends on easy money. Economic growth is built on borrowing. Any significant tightening of monetary policy will pop the bubble and the whole house of cards will fall down.

The Fed has finally abandoned the “transitory” inflation narrative and it appears to be getting more serious about addressing the issue. But how will the central bank really play this?

In an article published by the Mises Wire, economist Thorsten Polleit asserts there are basically two scenarios in play.

(1) The Fed means business; it really wants to lower consumer goods price inflation back toward the 2% mark.

(2) The Fed just wants to keep inflation from spiraling out of control, but it does not want to abandon the new regime of increased inflation.

Scenario (1) is not impossible, but it is relatively unlikely. Under the prevailing economic and political doctrine, the Fed is not meant to curb inflation at the expense of triggering another economic and financial crisis…

…click on the above link to read the rest of the article…

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