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Peter Schiff: The Best Of Times During The Worst Of Times

Peter Schiff: The Best Of Times During The Worst Of Times

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Peter Schiff: The Best Of Times During The Worst Of Times Tyler Durden Tue, 10/13/2020 - 13:52

Authored by Peter Schiff via SchiffGold.com,

While most people generally understand that the stock market and the economy do not move in lockstep, there is still an underlying belief that a strong market reflects a strong economy. But according to that logic, our current economy must be historically strong. If this strikes you as strange, given that we are in the midst of a destabilizing and polarizing pandemic, and a period of political risk that threatens the foundations of the Republic, that’s just because you don’t understand how the fundamental relationship between the stock market and the economy has changed. Believe it or not, strength on Wall Street is now driven by weakness in the broader economy.

Perhaps the most reliable metric for stock valuations is the Cyclically Adjusted Price to Earnings (CAPE) Ratio, which compares share prices to average earnings over a 10-year period, thereby smoothing out short term conditions. An August 6th Fortune article pointed out that CAPE ratios (which were 31.1 then, and have since moved up to 32.65) have only been as high or higher on three occasions over the past 132 years of available data: in 1929 right before the Great Depression, in 1999 right before the dotcom crash, and then briefly in September of 2018. And while we now know that the optimism that fueled those prior spikes were largely, if not totally, illusory, at least it made some sense that stocks were rallying. (It’s also worth noting that stocks crashed in the immediate aftermath of those spikes). But where’s the optimism that’s fueling the markets now? Sure, Donald Trump may be wildly waving the pom poms, but no serious economist or investor thinks the economy is poised for greatness. Instead, this rally is all about the printing press.

With the Fed now delivering more stimulus than ever, and promising to keep interest rates at zero for as far as the eye can see, many attribute the surprising rally to a “never fight the Fed” bias, which has banished investor fears through the assumption that the Fed will vanquish every dip with even more stimulus. The low rates also “push” investors into stocks because they nearly eliminate the returns available through fixed income. But these forces, which have been with us, off and on, for the past 20 years, don’t fully explain why the current market is so strong. The Covid pandemic has actually created conditions whereby what hurts the economy and Main Street businesses actually helps the S&P 500.

Fed stimulus is particularly helpful to very large publicly traded companies who can borrow by issuing bonds to the public market. Thus, major companies, mostly those that are publicly traded, can actually take advantage of the Fed’s activism in real-time. In contrast, smaller companies typically rely on traditional bank loans, which are often riskier than alternative uses of bank capital. As a result, small businesses are routinely denied credit, or face much higher interest rates, than do public bond issuers.

Low rates also allow large publicly traded companies to refinance their existing higher-cost debt with lower rates, thereby increasing their earnings by lowering their interest expense.  This results in the market assigning a higher price-earnings multiple to those enhanced earnings.   So, the impact of lower rates delivers a double benefit to these companies both in terms of enhanced earnings and higher valuations.

But private companies, that collectively employ many more people than large public companies, get only modest benefits from ultra-low rates. Smaller businesses, that rely far more on sales revenue than capital markets to meet their funding needs, have seen sales plummet due to forced lockdowns, consumer austerity, worker shortages, and supply disruptions. They can’t turn to Wall Street smoke and mirrors to make up for the shortfall.

In addition, large companies are much better equipped to survive the Covid lockdowns, through greater ability to move business online and to allow employees to work from home. The best-performing companies, like Amazon or Netflix, have online commerce as their core of their business model. These companies may actually benefit from decreased competition from small businesses that can’t transition as effectively.  In this environment, it should not be surprising that as of July 31 the S&P 500’s 10 biggest companies by index weight compromise nearly 29% of total market capitalization of the index, the highest level in nearly 40 years. (B. Winck, Business Insider, 8/10/20)  As a result, the performance of those companies has a big impact on the market as a whole.

As the “Main Street” economy continues to languish, the Fed will continue the funding available for large business to borrow cheaply even while the pain for small business persists. This means that a bad economy is good for the stock market. Main Street’s pain is Wall Street’s gain.

But to expect that a Main Street recovery will soon take hold to change this dynamic is to completely ignore reality. Those who point to the remarkably strong July home sales numbers as a sign for optimism should think twice. A sober reading of the data suggests that the sales were largely fueled by people abandoning urban areas to buy in the suburbs. If so, the sales do not indicate economic health, but growing fear.

Coronavirus and its attendant economic stagnation are likely to be with us for years to come. Even if a vaccine is found in the next year or so, which is the most optimistic timetable, the damage to the travel, entertainment, fitness and food service industries may be beyond repair. How long will it take for people to once again feel comfortable in large groups? The fear will linger long after the real danger is gone.

Cultural changes that have already taken hold may mean that office towers, retail chains, and theaters may never recover. People and companies are becoming more comfortable with working from home, shopping online, and avoiding crowds. According to an article on Bloomberg on August 23, Goldman Sachs now anticipates that almost a quarter of the 22 million temporary layoffs that began with the first shutdown in March will become permanent. Some 2 million of those individuals could remain unemployed well into 2021.  But these near-term problems may be just the beginning.

Many public sector workers across the country have made it clear that they will not return to work unless there is absolutely no danger from Coronavirus.  If those demands seem ridiculous, it’s only because you fail to grasp the new idea about work itself. There are those who seem to now believe that an economy can function without work as long as the government is there to foot the bill. The process of producing goods and services has become so remote to most Americans that people don’t understand that something must be produced before it can be consumed, and that production isn’t always easy. This feeling is evident in the rise of concepts such as Universal Basic Income, extended unemployment benefits that pay more than the median wage, and Modern Monetary Theory, which suggests that there is no downside to unlimited money printing.

The trillions that Washington has already spent to help shield people from the ravages of government-mandated lockdowns will be very hard to withdraw once people have come to rely on them. In his first interview since accepting the Democratic presidential nomination, Joe Biden conceded that he would completely shut down the economy again if Covid “was not brought under control.” Of course, he failed to define what “under control” really meant. No doubt it will mean whatever serves his political interest, which seems to be an effort to place government at the center of every facet of life.

It’s not just the possibility of more shutdowns that should be spooking investors.  If the Democrats do take over in November, it’s likely that businesses could contend with corporate tax hikes (not only at the corporate level, but also for shareholders through higher taxes on dividends and capital gains), a raft of new environmental mandates, new rules on higher wages and benefits, and increasingly absurd and unworkable diversity and equity requirements that could make compliance and legal costs soar and productivity plummet.

But none of this has dented share prices.

In fact, even as more and more American cities succumb to nightly rioting and paralysis, Citigroup has raised its year-end target for the S&P 500 index to 3,300 from 2,900. Ignoring all the bad news, Citi credited the upgrade to the “unbridled” Federal Reserve monetary easing, negative real rates, and its belief that the Fed will do “whatever it takes to prevent U.S. stocks declining by teen-like percentages.” (C. Mullen, Bloomberg, 8/24/20)

Recently Deutsche Bank came to a similar conclusion, suggesting that in order to make up for the stimulatory “insufficiency” of zero percent interest rates, the Fed’s balance sheet would need to expand by an “additional $12 Trillion” in the near term. (D. Rabouin, Axios, 7/27/20) To put that into perspective, the Fed’s balance sheet expanded by less than $4 trillion as a result of the four years of quantitative easing of 2009-2013. So far in 2020, the Fed has created almost $3 trillion in new money.  But Deutsche Bank thinks the Fed will need to pump in 4 times that amount in the near-term just to keep the economy afloat.

As if there were any room left to doubt that the Fed is about to rush further into uncharted stimulus territory, Fed Chairman Jerome Powell recently announced that the central bank will no longer raise interest rates pre-emptively to head off higher inflation. This is really a distinction without a difference as the Fed has no intention of raising rates anytime in the foreseeable future. But this does give it cover to do nothing if inflation does show up in earnest.

As Congress and the President have proven to be absolutely incapable and uninterested in making the difficult economic policy decisions, they have found it much easier to ask the Fed to bail them out with its printing press. Last month, Joe Biden and Congressional Democrats called for changes in the Federal Reserve’s Charter that would require the bank to “aggressively target persistent racial gaps in jobs, wages, and wealth.” How it could possibly accomplish those goals given its limited toolset was left unsaid, but you can bet it will involve printing more money.

So, we have been handed a map of what may be expected over the next few years. The government will attempt to replace an imploded economy with an inflated money supply. This strategy has never worked in the past and it won’t work now. While the dollar has survived similar assaults on its strength before, it has never faced a test of this magnitude. Dollar weakness in recent months have many in the mainstream finally convinced that a reckoning is at hand. Buckle up.

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Survey Shows Declining Concerns Among Americans About COVID-19

Survey Shows Declining Concerns Among Americans About COVID-19

A new survey reveals that only 20% of Americans view covid-19 as "a major threat"…

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2 hours ago

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March 11, 2024

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Survey Shows Declining Concerns Among Americans About COVID-19

A new survey reveals that only 20% of Americans view covid-19 as "a major threat" to the health of the US population - a sharp decline from a high of 67% in July 2020.

(SARMDY/Shutterstock)

What's more, the Pew Research Center survey conducted from Feb. 7 to Feb. 11 showed that just 10% of Americans are concerned that they will  catch the disease and require hospitalization.

"This data represents a low ebb of public concern about the virus that reached its height in the summer and fall of 2020, when as many as two-thirds of Americans viewed COVID-19 as a major threat to public health," reads the report, which was published March 7.

According to the survey, half of the participants understand the significance of researchers and healthcare providers in understanding and treating long COVID - however 27% of participants consider this issue less important, while 22% of Americans are unaware of long COVID.

What's more, while Democrats were far more worried than Republicans in the past, that gap has narrowed significantly.

"In the pandemic’s first year, Democrats were routinely about 40 points more likely than Republicans to view the coronavirus as a major threat to the health of the U.S. population. This gap has waned as overall levels of concern have fallen," reads the report.

More via the Epoch Times;

The survey found that three in ten Democrats under 50 have received an updated COVID-19 vaccine, compared with 66 percent of Democrats ages 65 and older.

Moreover, 66 percent of Democrats ages 65 and older have received the updated COVID-19 vaccine, while only 24 percent of Republicans ages 65 and older have done so.

“This 42-point partisan gap is much wider now than at other points since the start of the outbreak. For instance, in August 2021, 93 percent of older Democrats and 78 percent of older Republicans said they had received all the shots needed to be fully vaccinated (a 15-point gap),” it noted.

COVID-19 No Longer an Emergency

The U.S. Centers for Disease Control and Prevention (CDC) recently issued its updated recommendations for the virus, which no longer require people to stay home for five days after testing positive for COVID-19.

The updated guidance recommends that people who contracted a respiratory virus stay home, and they can resume normal activities when their symptoms improve overall and their fever subsides for 24 hours without medication.

“We still must use the commonsense solutions we know work to protect ourselves and others from serious illness from respiratory viruses, this includes vaccination, treatment, and staying home when we get sick,” CDC director Dr. Mandy Cohen said in a statement.

The CDC said that while the virus remains a threat, it is now less likely to cause severe illness because of widespread immunity and improved tools to prevent and treat the disease.

“Importantly, states and countries that have already adjusted recommended isolation times have not seen increased hospitalizations or deaths related to COVID-19,” it stated.

The federal government suspended its free at-home COVID-19 test program on March 8, according to a website set up by the government, following a decrease in COVID-19-related hospitalizations.

According to the CDC, hospitalization rates for COVID-19 and influenza diseases remain “elevated” but are decreasing in some parts of the United States.

Tyler Durden Sun, 03/10/2024 - 22:45

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Rand Paul Teases Senate GOP Leader Run – Musk Says “I Would Support”

Rand Paul Teases Senate GOP Leader Run – Musk Says "I Would Support"

Republican Kentucky Senator Rand Paul on Friday hinted that he may jump…

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March 10, 2024

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Rand Paul Teases Senate GOP Leader Run - Musk Says "I Would Support"

Republican Kentucky Senator Rand Paul on Friday hinted that he may jump into the race to become the next Senate GOP leader, and Elon Musk was quick to support the idea. Republicans must find a successor for periodically malfunctioning Mitch McConnell, who recently announced he'll step down in November, though intending to keep his Senate seat until his term ends in January 2027, when he'd be within weeks of turning 86. 

So far, the announced field consists of two quintessential establishment types: John Cornyn of Texas and John Thune of South Dakota. While John Barrasso's name had been thrown around as one of "The Three Johns" considered top contenders, the Wyoming senator on Tuesday said he'll instead seek the number two slot as party whip. 

Paul used X to tease his potential bid for the position which -- if the GOP takes back the upper chamber in November -- could graduate from Minority Leader to Majority Leader. He started by telling his 5.1 million followers he'd had lots of people asking him about his interest in running...

...then followed up with a poll in which he predictably annihilated Cornyn and Thune, taking a 96% share as of Friday night, with the other two below 2% each. 

Elon Musk was quick to back the idea of Paul as GOP leader, while daring Cornyn and Thune to follow Paul's lead by throwing their names out for consideration by the Twitter-verse X-verse. 

Paul has been a stalwart opponent of security-state mass surveillance, foreign interventionism -- to include shoveling billions of dollars into the proxy war in Ukraine -- and out-of-control spending in general. He demonstrated the latter passion on the Senate floor this week as he ridiculed the latest kick-the-can spending package:   

In February, Paul used Senate rules to force his colleagues into a grueling Super Bowl weekend of votes, as he worked to derail a $95 billion foreign aid bill. "I think we should stay here as long as it takes,” said Paul. “If it takes a week or a month, I’ll force them to stay here to discuss why they think the border of Ukraine is more important than the US border.”

Don't expect a Majority Leader Paul to ditch the filibuster -- he's been a hardy user of the legislative delay tactic. In 2013, he spoke for 13 hours to fight the nomination of John Brennan as CIA director. In 2015, he orated for 10-and-a-half-hours to oppose extension of the Patriot Act. 

Rand Paul amid his 10 1/2 hour filibuster in 2015

Among the general public, Paul is probably best known as Capitol Hill's chief tormentor of Dr. Anthony Fauci, who was director of the National Institute of Allergy and Infectious Disease during the Covid-19 pandemic. Paul says the evidence indicates the virus emerged from China's Wuhan Institute of Virology. He's accused Fauci and other members of the US government public health apparatus of evading questions about their funding of the Chinese lab's "gain of function" research, which takes natural viruses and morphs them into something more dangerous. Paul has pointedly said that Fauci committed perjury in congressional hearings and that he belongs in jail "without question."   

Musk is neither the only nor the first noteworthy figure to back Paul for party leader. Just hours after McConnell announced his upcoming step-down from leadership, independent 2024 presidential candidate Robert F. Kennedy, Jr voiced his support: 

In a testament to the extent to which the establishment recoils at the libertarian-minded Paul, mainstream media outlets -- which have been quick to report on other developments in the majority leader race -- pretended not to notice that Paul had signaled his interest in the job. More than 24 hours after Paul's test-the-waters tweet-fest began, not a single major outlet had brought it to the attention of their audience. 

That may be his strongest endorsement yet. 

Tyler Durden Sun, 03/10/2024 - 20:25

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The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While “Waiting” For Deporation, Asylum

The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While "Waiting" For Deporation, Asylum

Over the past several…

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March 10, 2024

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The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While "Waiting" For Deporation, Asylum

Over the past several months we've pointed out that there has  been zero job creation for native-born workers since the summer of 2018...

... and that since Joe Biden was sworn into office, most of the post-pandemic job gains the administration continuously brags about have gone foreign-born (read immigrants, mostly illegal ones) workers.

And while the left might find this data almost as verboten as FBI crime statistics - as it directly supports the so-called "great replacement theory" we're not supposed to discuss - it also coincides with record numbers of illegal crossings into the United States under Biden.

In short, the Biden administration opened the floodgates, 10 million illegal immigrants poured into the country, and most of the post-pandemic "jobs recovery" went to foreign-born workers, of which illegal immigrants represent the largest chunk.

Asylum seekers from Venezuela await work permits on June 28, 2023 (via the Chicago Tribune)

'But Tyler, illegal immigrants can't possibly work in the United States whilst awaiting their asylum hearings,' one might hear from the peanut gallery. On the contrary: ever since Biden reversed a key aspect of Trump's labor policies, all illegal immigrants - even those awaiting deportation proceedings - have been given carte blanche to work while awaiting said proceedings for up to five years...

... something which even Elon Musk was shocked to learn.

Which leads us to another question: recall that the primary concern for the Biden admin for much of 2022 and 2023 was soaring prices, i.e., relentless inflation in general, and rising wages in particular, which in turn prompted even Goldman to admit two years ago that the diabolical wage-price spiral had been unleashed in the US (diabolical, because nothing absent a major economic shock, read recession or depression, can short-circuit it once it is in place).

Well, there is one other thing that can break the wage-price spiral loop: a flood of ultra-cheap illegal immigrant workers. But don't take our word for it: here is Fed Chair Jerome Powell himself during his February 60 Minutes interview:

PELLEY: Why was immigration important?

POWELL: Because, you know, immigrants come in, and they tend to work at a rate that is at or above that for non-immigrants. Immigrants who come to the country tend to be in the workforce at a slightly higher level than native Americans do. But that's largely because of the age difference. They tend to skew younger.

PELLEY: Why is immigration so important to the economy?

POWELL: Well, first of all, immigration policy is not the Fed's job. The immigration policy of the United States is really important and really much under discussion right now, and that's none of our business. We don't set immigration policy. We don't comment on it.

I will say, over time, though, the U.S. economy has benefited from immigration. And, frankly, just in the last, year a big part of the story of the labor market coming back into better balance is immigration returning to levels that were more typical of the pre-pandemic era.

PELLEY: The country needed the workers.

POWELL: It did. And so, that's what's been happening.

Translation: Immigrants work hard, and Americans are lazy. But much more importantly, since illegal immigrants will work for any pay, and since Biden's Department of Homeland Security, via its Citizenship and Immigration Services Agency, has made it so illegal immigrants can work in the US perfectly legally for up to 5 years (if not more), one can argue that the flood of illegals through the southern border has been the primary reason why inflation - or rather mostly wage inflation, that all too critical component of the wage-price spiral  - has moderated in in the past year, when the US labor market suddenly found itself flooded with millions of perfectly eligible workers, who just also happen to be illegal immigrants and thus have zero wage bargaining options.

None of this is to suggest that the relentless flood of immigrants into the US is not also driven by voting and census concerns - something Elon Musk has been pounding the table on in recent weeks, and has gone so far to call it "the biggest corruption of American democracy in the 21st century", but in retrospect, one can also argue that the only modest success the Biden admin has had in the past year - namely bringing inflation down from a torrid 9% annual rate to "only" 3% - has also been due to the millions of illegals he's imported into the country.

We would be remiss if we didn't also note that this so often carries catastrophic short-term consequences for the social fabric of the country (the Laken Riley fiasco being only the latest example), not to mention the far more dire long-term consequences for the future of the US - chief among them the trillions of dollars in debt the US will need to incur to pay for all those new illegal immigrants Democrat voters and low-paid workers. This is on top of the labor revolution that will kick in once AI leads to mass layoffs among high-paying, white-collar jobs, after which all those newly laid off native-born workers hoping to trade down to lower paying (if available) jobs will discover that hardened criminals from Honduras or Guatemala have already taken them, all thanks to Joe Biden.

Tyler Durden Sun, 03/10/2024 - 19:15

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