Debt Ceiling and Peter Schiff vs Trump

Peter Schiff is using the latest news about an attempt to end the debt ceiling as a way to promote his long gold positions:


Source: Peter Schiff YouTube

Of course Schiff works in the gold promotion industry and so it’s not surprising to hear all the ways Schiff interprets the news as being good for gold. He’s been wrong since 2012 when gold peaked but eventually he’ll be right again, at least for a little while.

Minus the gold bug doom and gloom spinning, let’s look at what’s really going on with the push to end the debt ceiling.

Debt Ceiling

President Trump said he would think about working with Democrats to end the limit on the country’s borrowing. According to The Washington Post, Trump and Schumer have agreed to work on a plan to eliminate the debt ceiling.

President Trump told reporters on Thursday that “there are a lot of good reasons” to get rid of it.

Speaker of the House Paul Ryan, R-Wis., specifically has come out against eliminating the debt ceiling.

Republicans Dishonest About The Debt Ceiling

Republicans have been dishonest about the debt ceiling for many years. The debt ceiling has nothing to do with being fiscally responsible. In fact, it is just the opposite. Using the debt ceiling to control spending is like a corporation using Accounts Payable to control costs. Dumb, right? In a corporation, Accounts Payable writes the check and mails it to a vendor. It would be detrimental to the health of a corporation for the boss to tell Accounts Payable to stop writing checks and paying vendors as a way to control costs. Vendors would stop doing work for the corporation and the entire business would implode. A boss controls costs by making decisions BEFORE an invoice gets to Accounts Payable for payment.

Another analogy is declining to pay a credit card bill or agreeing to go to dinner and then arguing about whether you’re going to pay the bill, after you’ve already eaten.

Congress is dumb to threaten to not pay its bills as a means of controlling costs. It destabilizes the country and sends the message that it’s risky working for or doing business with the US government. The time to control costs is during the budget approval process and NOT after the debt has already been incurred.

The debt ceiling is hardly more than a public manipulation tool of Congressmen to fool voters into thinking they are trying to control costs by voting against raising the debt ceiling, while at the same time voting for the government programs that caused the ceiling to be hit in the first place!

When Republicans took back the House in 1995, they brought back the debt ceiling vote as a way to pressure members on spending. Republicans would waver back and forth on using the debt ceiling vote. Sometimes they’d use the budget procedure to wave it through, and then other times they’d require the vote. It’s silly because it’s just politics and grandstanding. I mean how effective has the debt ceiling really been considering we have $20 trillion in debt?

If Republicans really wanted to control spending then they would vote for budgetary and spending decisions that would balance the budget. If Republicans really wanted to reduce government spending they would do that because that’s where the money is spent.

Richard Gephardt, D-Mo. has proposed the ‘Gephardt rule,’ which does away with the need for a second debt ceiling vote to approve borrowing once Congress has already voted once to approve spending that inherently necessitates borrowing.

Peter Schiff doesn’t know what he’s talking about when he claims that President Trump is for big spending and even bigger government and that his working with Democrats to end the second debt ceiling vote is somehow proof of that. I’m not sure Schiff himself honestly believes that. I think Schiff is playing to his alternative-news audience which are primarily gold bugs. Any bit of news that can be spun to support some lofty $5,000 an ounce for gold prediction, is what Peter Schiff does and boy does he do it well.

Bear Market Coming If Trump Agenda Does Not Move Forward

A bear market is coming if President Trump’s agenda does not move forward quickly. I have been saying for months now that the Federal Reserve is hiking rates not because we are in a strong economy that needs cooling off but instead to save pension fund holders and others who depend on the income generated from bond yields.

The Trump rally ended back in March. That was the turning point when the markets started pricing in the reality that President Trump was being blocked even on a common-sense travel ban from radical Muslim countries that support terrorists and that generally dislike America. If a common-sense travel ban can’t even get put in place, how does Trump’s economic agenda have any hope?

Bear Market Coming As Economy Slows

We are six months into Trump’s presidency and we have no clear plan for raising the debt ceiling when the government runs out of money in August. We have no big comprehensive corporate tax reform yet. We have no tax cuts for working Americans yet. We have no repatriation of trillions of overseas dollars yet. We have no massive infrastructure plan to boost the economy yet. Meanwhile, the Federal Reserve continues to hike rates.

The chart below shows the effects of rate hikes on commercial and industrial loans.

The arrows mark the three rate hikes since the end of the Great Recession. When the Fed hikes rates next week, we could have commercial and industrial loans drop below the zero line and signal a contraction for the first time since the Great Recession.

Today, there’s a greater chance that a bear market will happen than not happen because of trend logic. Trend logic is the idea that a trend will continue until it actually ends. Assume continuation of the previous trend until proven otherwise. The Federal Reserve is on a rate hike up-trend. Commercial and industrial loans are in a downtrend. Assuming these trends continue, the yield curve will go flat or inverted within the next few months. The only thing that will stop this gloomy scenario from taking place is if one of those trends change.

The only thing capable of preventing the next bear market is if Trump’s economic agenda moves forward on tax cuts and infrastructure spending, or if the Federal Reserve does not raise rates in June. Since I see neither of these outcomes happening right now, rather than assume a magical trend change appearing from out of nowhere, it’s better to assume continuation of the previous trends until proven otherwise.

Peter Schiff gave an excellent speech at Cambridge House recently about the deteriorating US economy, check it out:

Don’t Double Down On Wrong Prediction, Just Move On

Whether we are talking about individual stocks, the stock market, or the economy, when you’re wrong just admit it and then move on. The goal is to make money, not to be right 100% of the time so you can stroke your ego.

AM TV and Peter Schiff predicted that the Federal Reserve could not stop their monthly QE injections into the economy. Even though the Fed kept cutting the monthly injection all the way down to zero, alternative media outlets AM TV and Peter Schiff kept saying the Fed wouldn’t stop the monthly infusions because they couldn’t as the patient (the economy) would die. Peter Schiff then went on to say that the Fed was not going to hike rates in December 2015 but instead actually cut rates. The Fed increased rates a quarter point right on schedule. For all of 2016, Peter Schiff has been saying that the Fed isn’t going to hike rates again but instead reverse course and lower rates. In December of 2016, the Fed will likely increase rates another quarter point.

Most alternative media outfits think they have to be crazed perma-bears to get viewers. Maybe they do. Rather than AM TV and Peter Schiff admitting they were wrong about the Federal Reserve, they double down on their wrong predictions and do another “interview” together, check it out.

There are some really good points in this interview, don’t get me wrong. However, to be a successful traders and investor, you can never be a perma-bear. You can never be a perma-bull. You have to adapt and respond to market conditions. That adaptation means you have to be willing to admit when you’re wrong and then to just move on.

Folks, watch out for fear mongering. Fear drives viewership and video view counts on YouTube but being forever fearful is a great way to lose all your money at trading. Some parts of the economy will no doubt suffer under a Trump Administration and higher interest rates; however, higher rates will be good for other parts of the economy like Banking. A Trump Administration will be bad for multinationals and the Dow and parts of the S&P 500; however, Trump will be great for domestic businesses and the Russell 2000.