Friday, January 31, 2014
Wage Rage - How Good Intentions Lead to Unemployment
Wednesday, January 29, 2014
Taper Lite - Bernanke Tightens Monetary Policy by Easing it!
- Source, The Schiff Report:
Monday, January 27, 2014
Peter Schiff - How an Economy Grows and Why it Crashes Collectors Edition
Saturday, January 25, 2014
Do Walmart Shoppers Support Higher Prices in Order to Have Higher Wages?
- Source, Peter Schiff via Schiff Radio:
Thursday, January 23, 2014
Harry Dent vs. Peter Schiff - Inflation or Deflation Debate
- Source, Schiff Radio:
Tuesday, January 21, 2014
Holding the Dollar Could be Riskier Than Stocks
Sunday, January 19, 2014
Ultimate Bitcoin Showdown - Schiff vs. Voorhees
Friday, January 17, 2014
Peter Schiff's 2014 Recommendations
Saturday, January 11, 2014
China Is Rising
Last month, China officially surpassed India as the world's largest consumer of gold. Unlike New Delhi, Beijing is encouraging its citizens' gold lust by easing restrictions on the gold trade. The People's Bank of China (PBOC) is preparing to expand the number of businesses allowed to import and export gold on a large scale. It has also increased the amount of tax-free gold citizens are allowed to bring into the country.
Meanwhile, China is finally pulling away from the US dollar. A month after China's government news agency called for a "de-Americanized world," a deputy governor at the PBOC said, "It's no longer in China's favor to accumulate foreign-exchange reserves."
Simply put, China is planning to wind down its own stimulus program of buying US dollars, and instead allow the value of the yuan to appreciate. In preparation for this shift, China has been diversifying its foreign exchange reserves into gold. The PBOC has not released official numbers on its gold reserves since 2009, but experts have begun to speculate that its current holdings are far larger than previously estimated.
Meanwhile, China is finally pulling away from the US dollar. A month after China's government news agency called for a "de-Americanized world," a deputy governor at the PBOC said, "It's no longer in China's favor to accumulate foreign-exchange reserves."
Simply put, China is planning to wind down its own stimulus program of buying US dollars, and instead allow the value of the yuan to appreciate. In preparation for this shift, China has been diversifying its foreign exchange reserves into gold. The PBOC has not released official numbers on its gold reserves since 2009, but experts have begun to speculate that its current holdings are far larger than previously estimated.
- Source, Schiff Radio:
Thursday, January 9, 2014
The FED is Not Going to Taper, It Doesn't Have the Integrity
I don't think the Fed's going to taper. I think the people who should be the most worried are the people who have cash in the bank, the people that own government bonds. I actually think you're better off being in the stock market. Even though the rally is phony, it's probably going to continue because the Fed doesn't have the integrity to do the right thing.
- Peter Schiff via a recent CNN interview
Tuesday, January 7, 2014
Ben’s Rocket to Nowhere
By: Peter Schiff Monday, November 25, 2013
Herd mentality can be as frustrating as it is inexplicable. Once a crowd starts moving, momentum can be all that matters and clear signs and warnings are often totally ignored. Financial markets are currently following this pattern with respect to the unshakable belief that the Federal Reserve is ready, willing, and most importantly, able, to immediately execute a wind down of its quantitative easing program. Although the release last week of the minutes of the Fed’s last policy meeting did not contain a shred of hard information about the certainty or timing of a “tapering” campaign, most observers read into it definitive proof that the Fed would jump into action by December or March at the latest. The herd is blissfully unaware that the Fed may not be able to reverse, or even slow, the course of QE without immediately sending the economy back into recession.
In an interview this week, outgoing Fed Chairman Ben Bernanke likened the QE program to the first stage in a multiple stage rocket that gets the spacecraft off the ground and accelerates it to the point where it is close to achieving permanent orbit. Like a first stage that has spent its fuel and has become dead weight, Bernanke seems to concede that QE is no longer capable of providing positive thrust, and as a result can now be jettisoned (like a first stage) so that the remainder of the spacecraft/economy can now move higher and faster. The Chairman’s nifty metaphor provides some inspiring visuals, but is completely flawed in just about every way imaginable.
In real rocketry, when the first stage separates, it falls back to earth and is no longer a burden to the remainder of the ship. Subsequent booster rockets (which in economic terms Bernanke imagines would be continuation of zero interest rate policies) build on the gains made by the first stage. But the almost $4 trillion in assets that the Fed has accumulated as a result of the QE program will not simply vaporize into the stratosphere like a discarded rocket engine. In fact it will remain tethered to the rest of the economy with chains of solid lead.
In the process of accumulating the world’s largest cache of Treasuries, the Fed has become the most important player in that market. I believe the Fed can’t stop accumulating and dispose of its inventory without creating major market disruptions that will drag the economy down.
This would be true even if the economic rocket were actually approaching escape velocity. In reality, we are still sitting on the launch pad. By keeping interest rates far below market levels and by channeling newly created dollars directly into the financial markets, the QE program has resulted in major gains in the stock, real estate, and bond markets. Many have argued that all three are currently in bubble territory. Yet to the casual observer, these gains are proof of America’s surging economic vitality.
But things look very different on Main Street, where the employment picture has not kept pace with the rising prices of financial assets. The work force participation rate continues to shrink (recently falling back to levels last seen in 1978),real wages have declined, and since the end of 2009 the temporary workforce has grown at a pace that is 14 times faster than those with permanent jobs. Americans are driving less, vacationing less, and switching to lower quality products and services in order to deal with falling purchasing power. But the herd is closely watching the Fed’s rocket show and does not understand that stocks and housing will likely fall, and bond yields rise steeply, once the QE is removed. The crowd is similarly ignoring the significance of the Chinese announcement.
But while the Fed was gaining much attention by saying nothing, the Chinese made a blockbuster statement that was summarily ignored. Last week, a deputy governor of the People’s Bank of China said that buying foreign exchange reserves was now no longer in China’s national interest. The implication that China may no longer be accumulating U.S. government debt would amount to the “mother of all tapers” and could create a clear and present danger to the American economy. But the story barely rated a mention in the American media. Over the past decade or so, the People’s Bank of China has been one of the largest buyers of U.S. Treasuries (after various U.S. government entities that are essentially nationalizing U.S. debt). China currently sits on $1 trillion or more in U.S. bond obligations.
So, just as many expect that the #1 buyer of Treasuries (the Fed) will soon begin paring back its purchases, the top foreign holder may cease buying, thereby opening a second front in the taper campaign. This should cause any level-headed observer to conclude that the market for such bonds will fall dramatically, causing severe upward pressure on interest rates. But the possibility is not widely discussed.
Also left out of the discussion is the degree to which remaining private demand for Treasuries is a function of the Fed’s backstop (the Greenspan put, renewed by Bernanke, and expected to be maintained by Yellen). The ultra-low yields currently offered by long-term Treasuries are only acceptable to investors so long as the Fed removes the risk of significant price declines. If the private buyers, the Fed, China (and other central banks that may likely follow China’s lead) refuse to buy Treasuries, who will take on the slack? Absent the Fed’s backstop, prices will likely have to fall considerably to offer an acceptable risk/reward dynamic to investors. The problem is that any yield high enough to satisfy investors may be too high for the government or the economy to afford.
Little thought seems to be given to how the economy would react to 5% yields on 10 year Treasuries (a modest number in historical standards). The herd assumes that our stronger economy could handle such levels. In reality, 5% rates would likely deeply impact the financial sector, prick the bubbles in housing and stocks, blow a hole in the federal budget, and cause sizable losses in the value of the Fed’s bond holdings. These developments would require the Fed to devise a rocket with even more power than the one it is now thinking of discarding.
That is why when it comes to tapering, the Fed is all bark and no bite. In fact, toward the end of last week, Dennis Lockhart, President of the Federal Reserve Bank of Atlanta, said that the Fed “won’t taper its bond-buying until the economy is ready.” He must know that the economy will never be ready. It’s like a drug addict claiming that he’ll stop using when he no longer needs them to stay high.
But the market understands none of this. Instead it is operating under dangerous delusions that are creating sky-high valuations for the latest social media craze, undermining the investment case for gold and other inflation hedges, and encouraging people to ignore growing risks that are hiding in plain sight.
This is not unusual in market history. When the spell is finally broken and markets wake up to reality, we will scratch our heads and wonder how we could ever have been so misguided.
Herd mentality can be as frustrating as it is inexplicable. Once a crowd starts moving, momentum can be all that matters and clear signs and warnings are often totally ignored. Financial markets are currently following this pattern with respect to the unshakable belief that the Federal Reserve is ready, willing, and most importantly, able, to immediately execute a wind down of its quantitative easing program. Although the release last week of the minutes of the Fed’s last policy meeting did not contain a shred of hard information about the certainty or timing of a “tapering” campaign, most observers read into it definitive proof that the Fed would jump into action by December or March at the latest. The herd is blissfully unaware that the Fed may not be able to reverse, or even slow, the course of QE without immediately sending the economy back into recession.
In an interview this week, outgoing Fed Chairman Ben Bernanke likened the QE program to the first stage in a multiple stage rocket that gets the spacecraft off the ground and accelerates it to the point where it is close to achieving permanent orbit. Like a first stage that has spent its fuel and has become dead weight, Bernanke seems to concede that QE is no longer capable of providing positive thrust, and as a result can now be jettisoned (like a first stage) so that the remainder of the spacecraft/economy can now move higher and faster. The Chairman’s nifty metaphor provides some inspiring visuals, but is completely flawed in just about every way imaginable.
In real rocketry, when the first stage separates, it falls back to earth and is no longer a burden to the remainder of the ship. Subsequent booster rockets (which in economic terms Bernanke imagines would be continuation of zero interest rate policies) build on the gains made by the first stage. But the almost $4 trillion in assets that the Fed has accumulated as a result of the QE program will not simply vaporize into the stratosphere like a discarded rocket engine. In fact it will remain tethered to the rest of the economy with chains of solid lead.
In the process of accumulating the world’s largest cache of Treasuries, the Fed has become the most important player in that market. I believe the Fed can’t stop accumulating and dispose of its inventory without creating major market disruptions that will drag the economy down.
This would be true even if the economic rocket were actually approaching escape velocity. In reality, we are still sitting on the launch pad. By keeping interest rates far below market levels and by channeling newly created dollars directly into the financial markets, the QE program has resulted in major gains in the stock, real estate, and bond markets. Many have argued that all three are currently in bubble territory. Yet to the casual observer, these gains are proof of America’s surging economic vitality.
But things look very different on Main Street, where the employment picture has not kept pace with the rising prices of financial assets. The work force participation rate continues to shrink (recently falling back to levels last seen in 1978),real wages have declined, and since the end of 2009 the temporary workforce has grown at a pace that is 14 times faster than those with permanent jobs. Americans are driving less, vacationing less, and switching to lower quality products and services in order to deal with falling purchasing power. But the herd is closely watching the Fed’s rocket show and does not understand that stocks and housing will likely fall, and bond yields rise steeply, once the QE is removed. The crowd is similarly ignoring the significance of the Chinese announcement.
But while the Fed was gaining much attention by saying nothing, the Chinese made a blockbuster statement that was summarily ignored. Last week, a deputy governor of the People’s Bank of China said that buying foreign exchange reserves was now no longer in China’s national interest. The implication that China may no longer be accumulating U.S. government debt would amount to the “mother of all tapers” and could create a clear and present danger to the American economy. But the story barely rated a mention in the American media. Over the past decade or so, the People’s Bank of China has been one of the largest buyers of U.S. Treasuries (after various U.S. government entities that are essentially nationalizing U.S. debt). China currently sits on $1 trillion or more in U.S. bond obligations.
So, just as many expect that the #1 buyer of Treasuries (the Fed) will soon begin paring back its purchases, the top foreign holder may cease buying, thereby opening a second front in the taper campaign. This should cause any level-headed observer to conclude that the market for such bonds will fall dramatically, causing severe upward pressure on interest rates. But the possibility is not widely discussed.
Also left out of the discussion is the degree to which remaining private demand for Treasuries is a function of the Fed’s backstop (the Greenspan put, renewed by Bernanke, and expected to be maintained by Yellen). The ultra-low yields currently offered by long-term Treasuries are only acceptable to investors so long as the Fed removes the risk of significant price declines. If the private buyers, the Fed, China (and other central banks that may likely follow China’s lead) refuse to buy Treasuries, who will take on the slack? Absent the Fed’s backstop, prices will likely have to fall considerably to offer an acceptable risk/reward dynamic to investors. The problem is that any yield high enough to satisfy investors may be too high for the government or the economy to afford.
Little thought seems to be given to how the economy would react to 5% yields on 10 year Treasuries (a modest number in historical standards). The herd assumes that our stronger economy could handle such levels. In reality, 5% rates would likely deeply impact the financial sector, prick the bubbles in housing and stocks, blow a hole in the federal budget, and cause sizable losses in the value of the Fed’s bond holdings. These developments would require the Fed to devise a rocket with even more power than the one it is now thinking of discarding.
That is why when it comes to tapering, the Fed is all bark and no bite. In fact, toward the end of last week, Dennis Lockhart, President of the Federal Reserve Bank of Atlanta, said that the Fed “won’t taper its bond-buying until the economy is ready.” He must know that the economy will never be ready. It’s like a drug addict claiming that he’ll stop using when he no longer needs them to stay high.
But the market understands none of this. Instead it is operating under dangerous delusions that are creating sky-high valuations for the latest social media craze, undermining the investment case for gold and other inflation hedges, and encouraging people to ignore growing risks that are hiding in plain sight.
This is not unusual in market history. When the spell is finally broken and markets wake up to reality, we will scratch our heads and wonder how we could ever have been so misguided.
- Source, Peter Schiff via Value Walk:
Sunday, January 5, 2014
A Culture of Gold
One of the most important elements of Eastern gold demand is that it is not limited to educated investors or the higher classes, as often seems to be the case in the West. Throughout Asia, no matter one's social status, precious metals are the first assets people choose to protect their wealth. There is not even a glimmer of doubt about the enduring value of hard money.
A recent Bloomberg article quotes a Chinese woman, "I don't know anything about the stock market and I don't have enough money to buy property, so I figured gold is the safest choice."
Some might write off this philosophy as naïve, but her logic is founded in centuries of tradition, borne of hard-won experience. The same goes in India and across South Asia, where gold is an essential part of local religious customs. From wedding dowries to temple offerings, gold carries a caché in Asia that most Westerners can't fathom.
Consider the US as a comparison. Here, newlyweds are more likely to receive a house full of fancy appliances than any assets that might form the foundation of long-term financial independence.
After a couple of generations of US-dollar dominance, Americans have become lazy with our wealth. While we exploit our economic power by going into debt for fancy cars, big-screen TVs, and expensive smart phones, our creditors are steadily stockpiling gold.
A recent Bloomberg article quotes a Chinese woman, "I don't know anything about the stock market and I don't have enough money to buy property, so I figured gold is the safest choice."
Some might write off this philosophy as naïve, but her logic is founded in centuries of tradition, borne of hard-won experience. The same goes in India and across South Asia, where gold is an essential part of local religious customs. From wedding dowries to temple offerings, gold carries a caché in Asia that most Westerners can't fathom.
Consider the US as a comparison. Here, newlyweds are more likely to receive a house full of fancy appliances than any assets that might form the foundation of long-term financial independence.
After a couple of generations of US-dollar dominance, Americans have become lazy with our wealth. While we exploit our economic power by going into debt for fancy cars, big-screen TVs, and expensive smart phones, our creditors are steadily stockpiling gold.
- Source, Schiff Radio:
Friday, January 3, 2014
Clueless Yellen Will Trigger Collapse
- Source, Yahoo Finance:
Wednesday, January 1, 2014
Janet Yellen is Going to Increase the Money Printing
She's going to increase, she's going to crank it up. She's going to do more stimulus. And, remember, Janet Yellen, despite the way the media tries to redefine her, was just as clueless as everybody else. She never warned about anything with respect to the housing market or the financial crisis.
In fact, she dismissed the warnings that other people were making. She said there was no bubble. She thought real estate prices would keep on rising and she thought that even if they went down, which would have surprised her, it wouldn't hurt the economy. That's how little she understood about the economy or real estate market. So I think it's very dangerous to have Janet Yellen as the Fed chairman.
It is going to be more of the same. That's why the economy's going to continue to get worse.
In fact, she dismissed the warnings that other people were making. She said there was no bubble. She thought real estate prices would keep on rising and she thought that even if they went down, which would have surprised her, it wouldn't hurt the economy. That's how little she understood about the economy or real estate market. So I think it's very dangerous to have Janet Yellen as the Fed chairman.
It is going to be more of the same. That's why the economy's going to continue to get worse.
- Peter Schiff via a recent CNN interview
Subscribe to:
Posts (Atom)