← The Peter Schiff Show Podcast
The Peter Schiff Show Podcast
Stagflation: The Fed's Worst Nightmare Is Coming True - Ep 1008
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Terms and conditions may apply. The Peter Schiff show well, the last time I did a podcast, it was on a Sunday night, although I did have a Tuesday announcement. I did a video about gold and the record high. And I'm going to talk more about gold on today's podcast because we hit yet another record high today. In fact, I think we probably hit record highs every day this week. But before I get into that, I want to return to what I spoke about on Sunday night, which was the trade war that had been declared over the weekend. Remember that on Saturday or Sunday, tariffs were supposed to go into effect, 25% tariffs on goods coming in from Mexico and Canada and 10% on goods coming in from China. Well, on Sunday night when I was recording the podcast, the stock market futures were way down across the board. There was a lot of concern about these tariffs and how they may impact the economy, inflation, interest rates. And then on Monday, Trump announced that the tariffs weren't going to happen. At least the ones on Canada and Mexico. They were postponed for 30 days. Now I think they're postponed indefinitely. And I think this really amounts to a surrender on the part of Trump. I think this is maybe the shortest trade war ever because it really ended before it began. Now, you know, if Trump really just wanted to get more troops on the border, because basically the reason that Trump gave for this 30 day reprieve on the tariffs was because Mexico agreed to send 10,000 troops to the border. Canada, I think also is going to do something to help keep fentanyl out of the United States. And so now no tariffs. Well, Trump could have made those phone calls in private. He could have basically said, hey, you need to bring more troops down to the border. And if you don't do that, we're going to have these tariffs. And that all could have been negotiated quietly and nobody would have known. But I think Trump wanted to get that threat out there to be the tough guy and to show, hey, look, I threatened these tariffs and look what we got. We got these great concessions. Again, he could have threatened it privately and not publicly. But I also think more important, it was kind of like a trial balloon to see how the markets would react. You know, if the stock markets were way up as a result of this announcement, maybe the tariffs would have stuck. But because the stock market was tanking and Donald Trump wants the stock market to go up, I think that was like, oh, no, this isn't going to work. The market is not happy with these tariffs and so let's call them off. But of course I can't call them off for that reason. So I think Mexico is, and Canada did us a favor by agreeing to send some troops. Cuz that created a pretense for Trump to declare victory and not impose the tariffs, which, you know, would have done a lot of harm to America. Remember, we're all a consumer based bubble economy and tariffs are a consumption tax. And now I'm all in favor of tariffs and I want to talk a little bit more about that again, because people say, hey, Peter, why are you criticizing these tariffs? Don't you prefer tariffs to income taxes? And I do. I'm criticizing the way the tariffs are being portrayed and what their impact is going to be because they're being portrayed as a tax on Canada and Mexico. It's not. It's a tax on Americans who buy Mexican and Canadian goods. But actually, even if you don't buy Mexican and Canadian goods, all the goods that you buy that compete with those goods are going to be more expensive as a result of the tariffs. So I think that Trump really dodged another bullet in the sense that we don't have to have these tariffs and prove that they don't work because all the goods subject to the tariff would have gone up in price, contrary to the assurances that Trump has given that our trading partners will eat the tariffs. Right. They love our business so much that they're willing to lose money to keep our business, which is nonsense. I mean, they, they're, they're trying to make money. And if they can't make money selling goods in America, they'll sell them someplace else. And so now that's not going to happen. Now, the tariffs were left on China, who has already retaliated. The, you know, government of China has announced retaliatory tariffs against their own people. Again, a trade war is one of these unique wars where all you do is shoot your own troops. Right? So because we are going to tax Americans for buying some Chinese goods, China said, okay, then we're going to tax our citizens for buying your goods. Right. So everybody loses in the trade war. So what China did was wrong. I mean, if they really wanted to get us where it hurts, they should just sell our Treasuries. Now. You know, I saw Kyle Bass, who's an otherwise pretty smart guy, and you know, I do have a lot of respect for him, but we don't always agree on things. And in particular, what he said on CNBC today about China, because the host asked him, he said, hey, you know what if China were to sell the Treasuries that it owns, you know, is that a threat? And he basically dismissed it, said that's ridiculous, that's nonsense, it's immaterial. They can dump all their Treasuries and it won't even affect our markets. You know, maybe it'll make interest rates go up by 25 basis points. You know, I think he's dreaming that it won't have an impact, but he's overlooking something more important. Treasuries are not the only dollar denominated debt that the Chinese government holds in reserve. Their foreign reserves are over 3 trillion. And in addition to 770 billion of treasuries, they have over a trillion of other US dollar denominated debt. Some of it is agency debt, some of it is corporate debt. So if they're going to dump their debt, they're going to dump all that debt. So now you're talking about maybe 1.8, 1.9 trillion of US dollar denominated debt. Now you don't think that's going to have a meaningful impact on interest rates when the market has to absorb that selling? And also if the Chinese are selling, what do you think the rest of the world is going to do? Are they going to sit back? No, it's going to probably spark a lot of other countries to wanna sell their dollar debt too. And so I think he is just glossing over this significant problem, trying to claim that oh no, China's got no leverage, they've got nothing. They've got a lot more leverage than people think when it comes to owning so much dollar denominated debt. And some people might think, well, China wouldn't dump their U.S. treasuries or their dollar debt because they would only hu. No, no, they would help themselves. That's the best thing they can do. I mean, eventually, and maybe eventually means soon, US bonds are going to collapse because of rising interest rates, the dollar is going to collapse because of inflation, or it's both going to happen. But either way the Chinese government is going to lose a lot of money on all those dollar denominated bonds. So the best thing they can do is get rid of them. And so the last thing we want to do is give them an excuse because if they do, it hurts us and it helps them. But anyway, so we're not going to get the tariffs. But the point I wanted to make on the criticism I'm getting because I'm against these tariffs I would be in favor of tariffs, kind of across the board tariffs as a better way for the government to raise money from American citizens than an income tax or a payroll tax. The problem is there is no way the government will ever collect enough in tariffs to replace the income tax or the payroll tax. So we're not going to get one or the other. We're going to have both. If we end up with tariffs, we're going to have tariffs and an income tax, and that's probably not a good idea because they'll end up raising both. Now, if we had a budget where they actually said, hey, here's an income tax cut and we're going to offset it with this tariff and it's permanent and it's locked in, it may be a trade worth making. It's hard to say. But the problem is Donald Trump claims that the great thing about tariffs is that he uses them as leverage. Well, if the tariffs are permanent, if the tariffs are ingrained in law to replace income taxes that have been cut, well, how are they leveraged anymore? They're just there all the time. You can't leverage them if they have to be there, and you can't remove them if you're counting on it. In fact, when they're talking about the President's budget that they're trying to come up with this big tax cut, part of the funding mechanism were tariffs. Well, if tariffs are just a threat that you never actually use, well, you can't raise any revenue from tariffs that don't actually get imposed. So are we gonna have them or not? But if we do have them, they are taxes on American consumption. Now, the budget that Trump is proposing has all kinds of Keynesian style tax cuts, stimulative tax cuts, the no tax on tips, the no tax on Social Security, the no tax on overtime. That is pure inflation. Because all that extra money is going to be spent and it's going to be spent driving up prices. And so it needs to be offset by either higher consumption taxes, like tariffs that were at least as high as those tax cuts, or we need real spending cuts. And yeah, it's great. They've identified some problems at U.S. aid Agency of International Development. What a scam that turned out to be. I mean, who would have thunk it, right? Foreign aid was a scam. I've been long in favor of completely abolishing a foreign aid, and hopefully they can get rid of that entire agency. There's nothing in the Constitution that authorizes the US Government to give aid to foreigners. There's nothing that authorizes US Government to give aid to Americans either. You know, Americans are free if they want to donate to whatever foreign causes they believe in. So if there's some lbgdt, you know, you know, project that you think is important in Somalia and you want to send some money there, have at it. Right? People are free to do anything they want with the money they earn. But the US Government has no constitutional authority to take money away from any American to just fund whatever kind of charity it believes in in foreign countries. In fact, it can't even do that domestically either. But at least let's get rid of it internationally. And so that's a step in the right direction, but it is a drop in the bucket when it comes to the federal budget and the type of spending cuts that would be necessary to offset the tax cuts that are coming. Plus, they wanna get rid of the SALT limits, which was one of the offsets that they had in the original Tax Cut Jobs act. And that was part of the pay for. Now they wanna get rid of that. Of course they're talking about getting rid of the carat interest deduction, but they always talk about that. Biden talked about it. Trump talked about it too, when he first got elected. He was supposed to get rid of that. They can't get rid of it, even though, because it doesn't actually save a lot of money. It's only about a billion dollars a year, but it's a billion dollars that goes to billionaires. Right. Who do you think runs these hedge funds? But they obviously give a lot of money to the politicians and so that sacred cow never gets gored, despite the fact that a lot of people talk about. Now maybe Trump will be able to do it this time, I don't know. But so far, you know, they've tried to kill it over and over again, both Republicans and Democrats, and no one could do it. But again, the significance is more symbolic. I mean, I think it would be fair, personally. Yeah, we should get rid of that. I like to get rid of the entire income tax. But if we're going to have an income tax, then, you know, we shouldn't have the carried interest deduction. It should be taxed the same as everybody else. If you run a hedge fund for a living, you should pay the same tax as any other occupation. The government shouldn't be trying to favor one particular occupation over another by trying to use the tax code to get people to pursue their income one way versus doing it another. Now, I get the, the, the capital gains, but carried Interest is not really capital gains because you didn't put any capital. Sure. If you run. If you manage a hedge fund and you put your own money into that hedge fund and then you get a capital gain. Yeah, you get the same capital gains treatment as your customers. But if you manage a hedge fund and your carried interest means you have no money up front. Right. You're getting a percentage of the gains as compensation for the work that you did to produce those gains. It should be taxed as ordinary income. Just like I have an asset management company, Euro Pacific Asset Management, we charge a management fee instead of a performance fee, but we have to pay taxes on. Of course, I'm not the greatest example because I'm in Puerto Rico. Right. So I'm only paying 4% tax. But if I still lived in the United States, I would pay 37% tax on the management fee that I charge to manage money. Why should a hedge fund that charges a fee a different way pay 20%? We should all be taxed the same. Now, of course, any hedge fund manager that wants to move to Puerto Rico, well, can have the same tax treatment as me. That's why a lot of my neighbors run hedge funds. Right. A lot of people have come down here. So that's the legitimate way to get out from under these high taxes. But even if they were to get rid of it, it's not going to amount to anything. When people are talking about inflation, I'm going to get into inflation a lot after this break, but when people are talking about the inflation threat, it's not coming from tariffs. Yes, tariffs are going to make all sorts of goods more expensive, but they'll end up making a lot of services less expensive, which of course is bad news if you're providing those services and you're an American. Right. Because we don't import our services. We do that domestically, but we import all the, all the goods, a lot of the goods. And so they're going to be more expensive. The real inflation threat is coming from the much bigger budget deficits that are going to be the result of tax cuts and a failure to reduce spending. We're going to have bigger deficits, we're going to have more money printing. We're going to have more quantitative easing. And that's the reason we're going to have a lot more inflation, not the tariffs. Even though I don't really think they're going to get imposed to that degree, because I think inside the Trump administration, they realize the harm they do domestically and they've already seen the reaction in the market, you know, it's like, you know, the trial balloon ends up being the Hindenburg. You, you know, you back away. Anyway, we got a quick commercial break. I got a lot to discuss on this podcast, so stick around. Coming right back. 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Don't keep settling for clothes that don't last. Go to quincy.comgold for free shipping and 365 day returns. Quince.comgold all right, so we got a lot of economic data that came out throughout the week. And basically all of this data taken collectively screams stagflation. I mean, that is where we are headed. In fact, that's where we've been. And we're just going to go deeper into it. But the significant thing about stagflation, other than the fact that it's the worst of both worlds, is that it's the one thing that the Federal Reserve has no contingency plan for. We went over this on a prior podcast. Jerome Powell was asked about it at a press conference, what's your plan for stagflation? And his response was, we're just going to hope we don't have it. Well, hoping is not a plan. But why is hoping all they've got? Because there is no plan. Stagflation is the one thing that their tools don't work with. Right. Because they can either fight inflation or try to stimulate the economy. And the tools are opposite. So if there's too much inflation, what do they do? Well, they raise interest rates or they do quantitative tightening. Right. What do they do if the economy is weak? If the labor Market is weak. They do the opposite of that. They cut interest rates and they do quantitative easing. Well, if you have a weak economy, rising unemployment and rising inflation at the same time, the Fed's got nothing. You can't ease and tighten simultaneously. It's like you can't push and pull on the same thing because you go nowhere. So if the Fed gets stagflation, they're out of ammo, they got nothing. Right. And in fact, earlier this week, I think, was it, well, maybe Thursday, not that early in the week, the Fed announced the results of its stress tests. Every year they come out with these stress tests for the bank. And what do you know? The banks passed, right? They passed the stress. I think they passed them, but they did not test at all for stagflation. The most adverse scenario, right. This is the worst possible thing the Fed could think of. The worst case scenario was a recession where stock market went down, like real estate market went down, but inflation went way down and interest rates went way down. So wait a minute, this is supposed to be the worst thing that can happen. And in the worst possible thing, interest rates go down and inflation comes down. Well, why is that bad? Isn't that what everybody wants? Like we got all this debt, everybody is loaded up with debt and the Fed is saying, imagine how bad it's going to be if interest rates go down. Well, wait a minute, that's a relief. We all want interest rates to go down. Certainly Donald Trump wants interest rates to go down. So according to the Fed, this would be a disaster. This is such a horrible thing if interest rates go down and inflation comes down. But wait a minute, don't we want inflation to come down? I mean, it's been so high for so long. Why would inflation coming down be part of the worst case scenario that the banks are testing for? Because that's because the Fed just assumes that if we have a severe recession, well, we're going to get rewarded with low interest rates and low inflation. Well, I can think of a far more adverse scenario than that one. And that's the scenario where we have a recession, but interest rates go up and inflation goes up. And in fact, it's because inflation goes up that interest rates go up. Now isn't that worse? Right. Why doesn't the Fed test for that? Why doesn't this Fed say, okay, all you banks, I want you to run a stress test and imagine the stock market goes down, the real estate market goes down, but interest rates and inflation go up. So run a test for that. The reason that Powell is not asking the banks to do that. Test is he knows that every single major bank will fail if we have that type of scenario where we have inflation and recession at the same time and the result is rising, not falling interest rates. That's it. Right. Everything comes crashing down. And so that's the reason there's no stress test for stagflation. That's the reason that the Fed has no plan for stagflation. But that's why we're gonna have stagflation. You know, Murphy's got this law. Obviously Powell doesn't know Murphy's Law, but it says anything that can go wrong will go wrong. And stagflation is the worst thing that can go wrong. And it eventually will go wrong. In fact, it's probably already going wrong. So let me get to the data that we got this week that evidences stagflation. Right. And nobody is talking about this, you know, in the mainstream media, the mainstream financial media. I mean maybe there are some other podcasts that talk about, I can't watch everybody's podcast. I'm sure there's some other guys that get it. But this is where the, the, the truth is coming from. It's not coming from conventional media, it's coming from podcasts. Right. So anyway, so we got the, the jobs numbers today. But before I get into the non farm number, talk about the jolts number that we got on jobs earlier this week came out on Tuesday, a big job drop in job openings down to 7.6 million from 8 million. Actually from 8.156 million. They were looking for 8 million job openings and we only got 7.6. So that was a very disappointing number. And it shows that companies are, you know, they're not hiring as much. And I think that the job openings will continue to contract in the months of ahead. Now the unemployment rate is still low, but it's notching up. It went up to 219,000 for the week from 208,000 the prior week. It's still low, but it is heading in the wrong direction and I expect it to continue to head in that direction. The jobs report. Before I even get into the actual jobs report, the government came out and announced another like 600,000 jobs that were eliminated from last year, 2024, that's what, almost 50,000 jobs per month. And remember, they've already revised heavily down all of those numbers. I mean pretty much all of the, the job numbers that originally were reported as being beats where we got a number that was greater than was expected. It now turns out that those reports were misses. We were celebrating a beat when we should have been, you know, mourning a miss. And all the reports that were misses were actually much bigger misses than what was reported. So, I mean, all the market reactions, right, the stock market rallied because we had stronger than expected jobs. Well, it turns out the market shouldn't have rallied because a year later we find out that we actually had a weaker than expected job report. I mean, that's why I keep talking about the fact that the Fed says that it's data dependent and it depends on this data, which is completely unreliable. None of it means anything when it comes to these jobs. The government doesn't even know how many jobs are created. So many of these jobs are just, you know, made up based on the birth death model. And I also read up on Zero Hedge that all the jobs, I've been talking about this, but all the jobs that were created in 2024 went to illegals. There weren't any jobs created for legal Americans. It was all the illegals that were coming across the border. They got the jobs. You know, now we're going to try to kick them out. So, I mean, maybe there's going to be a lot of job losses. I wonder if that counts. If you kick out an illegal who's employed, does that count as a job loss? I guess he's not unemployed if he's no longer in the country anym. But so the whole thing was a fake. I was saying that all year that the jobs numbers were going to be revised down and I was predicting big revisions after the election and we've got them. In fact, they started the revisions right before the election and we've gotten multiple downward revisions. And I think we got more coming. I mean, I still think they may revise enough data down to show that we were in recession all of 2024. Right. And that might happen now that, you know, we got the Trump administration maybe instead of, you know, being blamed for inheriting this great economy and causing a recession, if they could at least show that the recession started a year before Trump took office, he can't be blamed for creating a recession that he in fact inherited. Right. So we may see that. But anyway, so let's get into the jobs number, the first job number of the Trump term, although Trump was not president for all of January. So, you know, maybe this is partial, but, you know, he's going to own the February number. They did revise up the December number from 256,000 to 307,000. But again, you know, I think it's meaningless, as is the number from today. But it was a miss. They were looking for 168,000, and the number came out at 143,000. The unemployment rate dropped to 4%. But I think that was a fluke based on changes made to the labor force, adjusting some numbers for immigration or whatever. And so it made the unemployment rate come down, even though very few jobs were created. And the labor force participation rate went up to 62.6% from 62.5%. But the, the more inflationary aspect of the numbers was average hourly earnings. They jumped by 0.5% for the month. The expected rise was 0.3, so almost double and above the higher end of the range. And year over year, hourly wages went up 4.1%. And to add insult to injury, they revised up the average hourly earnings from the prior month from up 3.9 to up 4.1. So we're 4.1 in December and 4.1 in January. Doesn't sound like 2% inflation to me. Wages are going up 4.1%. The average hourly work week actually went down. So it may mean that people are earning less because they're working fewer hours. It dropped from 43.3 to. Oh, excuse me. Nope, I'm wrong. It no dropped from 34.3. I'm not wrong, from 34.3 to 34.1. So it's costing employers more to hire people, but they're working fewer hours now, maybe because it costs more. So they're not buying as many hours. But that's not great for the worker because, yes, he's getting a little bit more money, but if he's not working as many hours, he may have less money in his pocket, but it's still the labor costs that are the issue. So I think this is a weak report. Right. We have weaker than expected job growth, but more than expected upward pressure on the price of labor, which are wages. So stagflation in the jobs report, consumer sentiment came out today, And it collapsed from 71.1 down to 67.8. This is a February number. The consensus was for an improvement in sentiment to 72. So consumers are way more pessimistic now. I think this is skewed towards the Democrats because, you know, Trump is president and they're worried. The Republicans are happy and the Democrats are worried, and I guess more independents are worried because, you know, we're down to 67.8. But that again, shows that the economy is weakening and Consumers are worried that it's going to get even weaker. But look what happened to inflation expectations. They soared to 4.3%. That's the highest since mid 2008, just before the 2008 financial crisis. Now, if you look beneath the surface, it's mainly due to Democrats. Where Democrats expect 5.1% inflation for 2025, Republicans expect zero. They just believe that inflation is going to go away because Trump is president. This is probably the one time where the Democrats got it right and the Republicans got it wrong. Because the Democrats expect higher inflation and the Republicans expect no inflation. The Republicans are dead wrong. The Democrats are right. It's going to go up. It may actually go up more than they think, but at least 5.1% is a decent estimate compared to zero. Now, the independents were in between. But what's significant is that the average of Democrats, Republicans and independents is for a expectation of 4.3% inflation in 2025. Now, the Fed has got a 2% target. So that's double what the Fed's target is. But remember, Powell always says that they really key off of expectations. So they believe that inflation is a function of expectations. If people expect inflation, they'll get inflation because if they expect it, they'll build it into their wage demands, their price increases. Now I think this is bs. I don't think people get inflation because they expect it. I think they expect inflation because they've got it. The government causes the inflation. The people just expect it to continue. But if the Fed really places a lot of weight on consumer expectations and they keep talking about expectations have to stay well anchored at 2%, well, clearly we lost that anchorage. I mean, we're drifting way away from 2%. When expectations are 4.3%. What's the Fed going to do about that? I don't think they're going to do anything about it because they can't. Now when this number came out, gold was at an all time record high. It was up $30 on the day it was trading just over 2,885. It sold off to just a little bit negative, ended up closing the down the day up about 8 bucks. So another record high close. You know, record high, weekly close. I mean, gold's going up, but it would have been up a lot more if we didn't get this bad inflation news. But again, bad inflation news is good for gold. It's not bad for gold. But the traders still react to this news. Whenever they see hotter than expected inflation, the reaction is, okay, the Fed is going to have to delay the rate cuts. Delaying the rate cuts is programmed in the algorithms. Anything that delays the rate cuts is good for the dollar and bad for gold. So the dollar rallied and gold sold off. But these algorithms are an example of garbage in, garbage out, because whoever's programming them doesn't understand what's going on. Yes, inflation is worse than expected because the Fed is behind the curve. In fact, they've surrendered in the inflation war. They're wrong. Higher inflation just shows that the Fed lost. The Fed is wrong. Right. The Fed keeps saying inflation is going to go down, but the data keeps proving that it's going in the other direction. And what's significant is not that the Fed is going to delay the cuts. What's significant is that they're not hiking. They should be hiking. The data argues for higher interest rates, yet they won't raise rates. There's no way they're going to raise rates. And of course, when Powell's term is over, whoever Trump nominates, right, there's no way that guy's going to raise rates. Right? Because, you know, we need lower rates. And so inflation that is rising that the Fed refuses to fight because it can't fight it, is bullish for gold and it's bearish for the dollar. Now, gold's gonna go up anyway because it's just gonna keep on going up, right? The central banks are gonna keep on buying. You know, I mentioned on my gold, you know, promotion that I did for shift Gold on Tuesday and I haven't checked today, but as of when I checked on, on Tuesday, there wasn't a single day in 2025 where there was net inflows into GLD every day. As gold was making record highs and rallying, Americans were selling. And not only are they selling their ETFs, they're selling their physical gold. Redemptions are way up at shift gold. That's what's, you know, that's what's keeping us going. I mean, yeah, some people are buying, but we're getting a lot of people selling. And I checked around, the same thing is happening with gold firms all around the country. Americans are selling their gold. I mean, what idiots, right? They should be buying, right? The central banks are buying. And I mentioned on that video that the delivery notices on the London Metal Exchange and the COMEX have shot up dramatically, meaning that people are taking delivery of these hundred ounce bars of gold. These are not mom and pop guys who are buying gold in 100 ounce bars. There's some sophisticated money alongside of central banks that are Buying up all the gold they can get their hands on. Meanwhile, unsophisticated retail investors are selling their gold to buy bitcoin or bitcoin ETFs. Look, who do you think has got it right? These central banks or you know, or people who are trading on, on, on Robinhood apps. Right. So this is the best contrarian indicator I've ever seen that you've got all the smart money buy in and all the dumb money selling. You know, you gotta be loading the boat on, on gold. You gotta be loading the boat on these gold stocks. I mean, yeah, I think, you know they, they're up now about 20% this year. Gold's up about 9%, 10% but they still haven't gotten back to their highs from October of last year even though gold is 3% or so above those highs. So these things are a steal. People should be buying my gold fund, the Euro Pacific Gold fund. I, I, I just think this is the greatest speculative trade I've seen. I think these stocks are going to explode and nobody is there, nobody is going along for the ride, which is perfect. Right? We've got a bull market and no one's going to go along. Right. The public is completely in the dark. They're missing out. The financial media is leading them astray by refusing to cover this and instead non stop coverage of Fool's Gold and no coverage of the real thing. They're missing what's going to be I think the biggest gold bull market in history. It's as of now it's the most unloved bull market in history. That will change. I don't think it's going to change at three thousand dollar gold and we, I think we'll be there before the end of the month. We may be there before the end of next week. We get a lot of inflation numbers next week. I think they're going to be bad. So we'll see. I mean gold could react negatively to that. Initially we get CPI and PPI but I don't think $3,000 gold will do it. But maybe 4 or 5,000 will and I think we're going to be there relatively soon. We could be there in 2025. But anyway, let me get back to this economic data. So the consumer sentiment number screams stagflation, right? Consumers are more pessimistic about the economy and more optimistic on high inflation, which is pessimism. And probably the reason that they're more pessimistic about the economy is because they realize that inflation is going to get worse. And that is the biggest problem that they are facing.
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also we got the consumer credit that came out this afternoon. This was a real shocker. So this is December and remember we had a big trade deficit in December. It was an all time record high. And how did Americans pay for all those imports? With credit. Right. Consumer Credit surged by 40.8 billion in one month. That's an all time record. And it's all credit card debt. So this is the biggest monthly increase in credit card debt in history. At least the history of keeping track. Now they were looking for an increase of 16 billion. So it's probably the biggest beat in history too, over what they expected. But why are consumers putting so much on credit cards when credit card interest rates are near record highs? I mean, I think they're down to 23% now. They were at 24, but that is ridiculous. Why would anybody borrow money at 23%? It's because they don't have a choice. I already mentioned on this podcast that right now the percent of Americans who are making the minimum monthly payment on their credit card, which is like 2% of what you owe, is at an all time record high. So why would people be paying off their credit cards at the slowest rate in history when it's costing them the most in history and they have the largest balances in history? It's because they are dying. Consumers are broke, they are out of savings. They, they have no money and they have no choice. The only way they can eat, the only way they can pay their bills is to borrow the money. So how is this a great economy? How is this, this really strong? I keep hearing it every day how strong the consumer is. Yeah, he's on life support. He just borrowed another $40 billion in one month to buy groceries. How is that a strong consumer? This is nonsense. So this is stagflation. But again, it shows you the Fed is much too loose. If the Fed were fighting inflation, credit wouldn't be expanding, it would be contracting. Remember, inflation is not just an expansion of the money supply, it's an expansion of credit because it's money and credit that bids up prices. So consumers are buying with credit and that means they're pushing up prices. What the Fed needs to do is contract credit. But it can't do that because if it did that, we'd have the mother of all recessions. We'd have a financial crisis. If the Fed reduce credit, so they can't, which means they can't fight inflation. The whole thing was a bluff. So again, consumer credit, it's more a stagflation. Factory orders for December down 0.9. They were supposed to be down 0.6, but what makes it worse is the prior month was reported initially as down 0.4, but it's actually down 0.8. So we dropped more than expected from a level that was lower than everybody thought. So factory orders coming down. This is another recession sign. Weak economy. We're producing less, but we're buying more. Where is the money coming from or where are the goods coming from? Imports again, which is why a tariff now would bite harder than ever before. Seeing Americans are more dependent on imports now than we've ever been in history. The largest percentage of what we consume is imported. And we're going to tax imports. I mean, we should, we need to discourage consumption. But then we have to have a massive recession. See, doing the right thing, moving from an income tax system to a consumption tax system, in the short run, you know, we have a recession. I mean, a massive recession and a financial crisis. I mean, talk about you can't make an omelet without breaking a few eggs. We got to break all the eggs. And by the way, if you've seen egg prices lately, they are skyrocketing. Americans are probably going to have to stop eating eggs because they're not going to be able to afford them. But you have to have a painful recession to do what Trump wants to do. But no, Trump doesn't want a painful recession, not while he's president, because he doesn't want to accept responsibility, even if it's constructive, Right? He wants to take credit for an immediate golden age that he has promised, but that he cannot deliver. ISM Service Sector Index came out this week for January. Remember, service sector is the big enchilada, right? That's the big part of our bubble economy. The service sector, they were looking for 54 and we got 52.8. So a miss. So the ISM service index coming out much weaker than expected, still in expansion, but headed in the wrong direction. So again, more evidence of stagflation, productivity and cost. This was a big one. Productivity. The preliminary estimate for the fourth quarter of the year was up 1.8%. It came out at up just 1.2%. So that is very meager productivity growth. Now, if you're trying to mask the signs of inflation, you want productivity growth because if businesses become more efficient, that can lower prices. And so that hides some of the effect that inflation has to raise prices. So you need productivity if you're trying to fight, trying to get a lower cpi, right? Higher productivity helps you, lower productivity hurts you. And that is what the Fed got, lower productivity. And part of that is because of the increase in unit labor cost, which was 3% on the, on the quarter annualized. That was a little less than the estimate of 3.3, but much higher than the 0.5 from the prior quarter. So more upward pressure on wages, lower productivity. Again, more evidence of stagflation. The Fed's got no contingency plan for that and they haven't bothered to ask anybody to stress test that because they know that everybody would Fail. Let me see what all the data points do. I still have. Oh, the challenger job cuts. I forgot to mention that that came out much higher than expected. Almost 50,000 jobs eliminated in the month of January. The prior month was a little below 39,000. So we are moving up. But I think one of the most significant economic events that is happening is taking place in Japan. I've talked about it and that is the Yield on the 10 year Japanese government bond. In fact all Japanese government bonds but the 10 year yield is now up to 1.3%. Now again that doesn't sound like a whole hell of a lot. 1.3 but it's a 15 year high. So it's very significant what's going on. But it's not going to stop at 1.3. The inflation rate in Japan according to their own CPI, which I'm sure has its flaws, was 3.6%. Now I think that the CPI in Japan in 2025 is going to go up more than it did in 2024, maybe over 4%. Well if you've got a four handle on inflation, you're not going to have a one handle on a 10 year government bond. We're going not only to 2%, probably 3 or 4% now that's still low. But not in Japan and not when you have 250, 260% debt to GDP. There is a major financial crisis that is going to hit Japan if bond yields do what I think they're going to do. Now one of the things I think Japan is going to have to do in response to its financial crisis is sell US Treasuries and other US dollar that are not bonds. Japan is the largest holder of U. S Treasury debt. Now maybe Kyle Bass doesn't care if the Japanese sell their Treasuries either. But they're going to have to because they're going to have to pay down that debt because it's like a massive margin call. The bank of Japan owns these Treasuries on margin. And if interest rates go way up, they gotta sell. See right now they're earning more money on their US Treasuries than what it costs to borrow in Japan. But if rates go up in Japan, they gotta unwrap, unwind that they need to pay off a lot of that debt. Also a lot of people in Japan who have bought assets all around the world, they're gonna have margin calls they have to pay back. Because now the cost of servicing all that borrowed yen is going up. Plus as interest rates are forced higher and the bank of Japan has to raise short term interest rates because remember, the short term interest rates are still basically zero. They're 25 basis points, whatever, they're practically zero. They're gonna have to raise rates. And so the yen is going to go up. Remember, look where the yen is. It was at 160. Now it's, you know, coming back. It's like 152ish or something like that. But the Japanese yen is still way, way down from where it was at 151.4. But I think we're going back to maybe 100. I mean, I think the dollar is going to be back, but particularly in the United States because we are more vulnerable. We have all these risk assets that have been bid up on this yen carry trade. And so we're actually in worse shape. We don't have a pile of Japanese government bonds to sell. All we got is gold. I mean, I hope we don't sell our gold because we need that.
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Which, by the way, let me transition into it from this sublime to the ridiculous, which is all the talk now about the US establishing a sovereign wealth fund. I mean, are these guys serious? How could they even say this? With a straight face. Now they're saying, well, Singapore has a sovereign wealth fund, Switzerland has a sovereign wealth fund, Norway has one. So why can't America? Well, there's a huge difference. These countries don't have any debt, they have surpluses. Yes, they have government debt, but their sovereign wealth funds. Or in the case of Switzerland, Switzerland doesn't have a sovereign wealth fund, but the Swiss national bank has a balance sheet that's almost a trillion dollars. Their total national debt of the Swiss government is about 20% of that. So Switzerland has a huge surplus. They don't have a 36 trillion dollar national debt. They have no national debt. They have national assets. They're creditors. They're not the world's biggest debtor like America. The same thing in Norway. Norway's sovereign wealth fund exceeds all the outstanding Norwegian government debt. Same thing in Singapore. They hardly have any debt. Right. So these countries are creditors. Plus they have trade surpluses, they're earning money. America is hemorrhaging red ink. How the hell can we have a sovereign debt wealth fund when we're drowning in sovereign debt? We got to do something about our sovereign debt before we talk about sovereign wealth. I mean, where would the money come from to fund this sovereign wealth fund? We'd have to go deeper into debt. We'd have to borrow more money. So it's like a giant hedge fund. Yeah, let's take on leverage, let's borrow a bunch of money and let the US government figure out how to invest it. I mean, that's the last thing we want. I mean, first of all, I don't even like the concept of sovereign wealth funds. I don't think Singapore should have one. Or they should just let the people invest their own money. Right. If they have all this excess money, it just means the taxes are too high. Cut taxes, let the people invest their own money. I mean, that's capitalism. Why would you be in favor of having the government take our money or borrow money and then pick winners and losers? That's the last thing you want in a free market. And of course, once the government has skin in the game, it's going to influence everything they do. They're going to try to pass legislation, taxes, regulation that favor the stocks that they bought at the expense of the ones that they don't. So the last thing you want is for the government to be owning stocks. And of course, you know, look at Solyndra, right? That's the example of the type of thing the government wants to fund. Right. The government puts all this money into it, you know, they're talking about buying bitcoin in there. What a ridiculous thing to do, right? Again, if people are dumb enough to buy bitcoin with their own money, have at it. Right? But we don't want the government buying it with taxpayer money. We don't want the government buying it with borrowed money. Bitcoin doesn't produce a yield. And how are you going to pay the interest on the debt if all you got is bitcoin? Especially, you know, the bitcoin strategic reserve. The whole idea is you can't even sell it for 20 years. Again, I mentioned this on the my thing on Tuesday. There was a press conference. Everybody was excited. They talked, they had, they had. The cryptos are Sachs, David Sachs was talking a few other people and they didn't even mention bitcoin. They mentioned it once, right? It only came up because a reporter said, hey, what about the bitcoin reserve? And what was the response? The response was, well, we've been asked to study the feasibility of that, and so we're going to do that. That means they're not going to do it. See, if Trump wanted to do it, he's had all this time to study the feasibility of a strategic bitcoin reserve, right? They talked about it a long time ago. Right. So Trump knows what he wants to do, Right? If he wanted to have a bitcoin strategic reserve, he wouldn't have to have people study the feasibility of it. He would do it. Why do politicians form committees to study stuff? It's an excuse, Right? It's a way not to disappoint people. I said they did this with reparations all the time, Right. The Democrats didn't want to tell their African American constituents that reparations is an asinine idea and it's never going to happen. Right? They didn't want to say that. So what did they say? Well, we're going to form a committee to study reparations. Right? That's what they did. Okay. We're studying it. We'll see. We're, you know, we're doing something. That's what Trump did with the strategic bitcoin reserve, Right? He set up a committee to study it. And if the committee actually studies it, they realize it's a bunch of nonsense. You know, Bloomberg actually had a very good op ed about the biggest crypto scam ever would be the strategic reserve. So I'm not saying it's impossible. I mean, they could do it, but it would be a bigger boondoggle than usaid. I Mean, you're talking about the money we wasted on that. We'd waste even more buying bitcoin. So I don't think it's going to happen though, because again, they would have announced it, but they also got questions on setting up a sovereign wealth fund. You know, would we put, you know, we, we're broke, it's laughable. Deal with the debt, which they're about to make a lot bigger with these tax cuts. But deal with the sovereign debt before you start talking about sovereign wealth. Because we don't have wealth. We have debt. We have liabilities. And we're not going to take on more liabilities to, to fund, to fund the, the wealth fund. But anyway, before I transition about that, I was talking about what's happening in Japan. So these yields are going to keep rising in Japan and it's going to send a tsunami. Right. This could be the real pin that, that, that pricks the bubble. It can start in Japan, it doesn't have to start in the United States, but it's going to be even more impactful here because I think that Japan has the resources to deal with its debt. It's going to have a big problem, no question about it. And they never should have got themselves into this problem. But I think it's an even bigger problem for the US and it easily could be part of the process of the US losing its reserve status for the dollar. It's why central banks are buying gold. And you know, by the way, I mentioned, you know, China has about 770 billion of treasuries. Years ago they had over a trillion when the US national debt was much smaller than it is right now. So they've obviously made a decision to substantially reduce their Treasuries as they're buying more and more gold. And who knows how much gold they actually have. My guess would be they're underestimating the size of their holdings. But they are continuing to buy. They may have taken a brief reprieve, but they're gonna keep on buying gold. And 3,000 is not expensive for them. They probably still regard it as cheap and they want to get rid of their dollars. I think they want to get rid of a lot of this dollar denominated debt. They still have a lot of dollars to sell, which means they still have a lot of gold to buy. And at some point when the public stops selling and then starts buying, they're going to have more competition and prices are going a lot higher. So in the meantime, you know, buy your gold now, you know, go to shift gold. Silver is still on sale. In fact, silver got clobbered today. It was still positive on the week, but it got back below $32. It closed at 3190ish on the week. Gold was up 1.6%. Silver was up 1.7%. But it's still cheap. Gold stocks up about 4% on the week. They are still giving these stocks away. Again, go to europack.com check out the Euro Pacific Gold Fund if you're, if you're a speculator, I can't think of a better speculation right now than these gold mining stocks. We've got an excellent portfolio of junior miners, real juniors, not the fake juniors that you get in the gdxj, but some real hidden gems I think that Adrian has uncovered. We've built really strong positions and I think when, you know, the public wakes up to the fact that this is a bull market in gold and maybe the mother of all bull markets, you're going to see a big rise, I think, in these, in these gold mining stocks and you want to get in there ahead of the crowd. Anyway, that's it for today's podcast. Have a great weekend, everybody. Enjoy the super bowl on Sunday and I will be back next week with more podcasts. Bye for now.