Transcription
The fundamentals are, we have so much debt. This whole economy is such a massive bubble that if we actually tried to do what Paul Volcker did, we would create an economic condition much worse than what they perceive the threat to be from inflation. So they're not going to do anything.
But at this point, I think the Fed is now damned if they do, or we're damned if they do, and we're damned if they don't, because even if the Fed doesn't hike rates, the markets are gonna crash. If it does hike rates, they're gonna crash even more.
The Peter Schiff show. Earlier today, the Federal Reserve announced that it left its policy rate unchanged. That was widely expected, although there was about a 30% probability of a quarter-point rate hike. And even if we did get a quarter-point rate hike, I think it would've been much too little, much too late to actually do anything to achieve the Fed's 2% inflation target. I think a lot more would be needed, not only a bigger rate hike, but the Fed would have to do something about the size of its balance sheet and money supply growth. They would have to shrink the balance sheet and start shrinking money supply, the opposite of what is continuing to happen so far ever since Warsh took over as Fed chair.
But anyway, it was not a unanimous vote. There were three FOMC members that did vote for a quarter-point rate hike, but Kevin Warsh was not among them. He voted to leave interest rates unchanged. The rate is three and a half to three and three quarters. By the way, that's where the rate has been since December of last year when the Fed cut rates by 25 basis points. But for the last, or for five months before Warsh took over, rates were exactly where they are right now. And Warsh has been FOMC chairman now for, what, a couple of months. This is his second, uh, press conference that he had today, the second opportunity that he's had to match up his rhetoric with actions.
The markets thought there was a 30% chance of a rate hike. Why not deliver one? The fact of the matter is, and I've been saying this from the beginning, he's all bark and no bite. He can talk the talk, and he talked it again today, but he can't walk the walk. And the markets now are starting to take notice of what I have been talking about.
Now, first of all, before he took the Q&A, uh, he delivered his prepared remarks, and during those remarks- number one, the first thing he did was praise the committee. Oh, how great the committee is. They've done an excellent job, right? Everybody is great on the FOMC. Um, talked about how great the economy is, how resilient the economy is, and I think he does that because that's what Trump wants to pretend. So I think he wants to continue the pretense, uh, by reiterating how we've got this great economy so Trump can take credit for it.
But then he continued about how the Fed is resolute in its resolve or to bring down inflation. It's, it's, it's resolute. And he also said that given the fact that inflation has been above 2% for over five years, that the markets may believe that the Fed really has a inflation target above above 2%. After all, if the inflation target really was 2%, then why would the Fed tolerate it being above 2% for so long? Maybe it's a soft two. Maybe the Fed has a secret target that's north of two, and it's just not letting the markets know.
Well, what Warsh wanted to make sure is that that belief, uh, was extinguished, that it's not the case, certainly not under his watch, even if that may have been the case, and he didn't admit that it was, but he made it clear in his rhetoric that it's not the case now, that the Fed does not have a secret target higher than 2%. 2% is the target.
Now, of course, it also means that if 2% was the target all along, if there was no secret higher target, then the Fed failed. The Fed was not able to achieve 2% inflation despite the fact that that was its goal. And of course, the reason that the Fed never achieved 2% inflation was for precisely the reasons that I stated in the past. Monetary policy never got restrictive enough to reduce inflation to 2%. In fact, monetary policy remained accommodative despite all of the Fed's rate hikes because the entire time the Fed was hiking rates under, um, Powell, money supply growth only shrank briefly, credit never contracted. Uh, the government, corporations, individuals continued to borrow more money, so you had more credit chasing a supply of goods.
Remember, inflation is not just the expansion of the money supply, but the expansion of credit, because you don't need money to buy stuff. Just ask just about any American. You could have no money and keep on spending because you can spend credit as easily as you can spend money, and spending credit also pushes up prices. That's the demand. If the Fed wants to get inflation down, it has to bring down that demand, which means it has to raise rates enough to tighten credit. Consumers have to borrow less. The government has to borrow less. Businesses have to borrow less. But none of that happened. Everybody kept on borrowing and kept on spending, and that's why inflation didn't go back down to 2%.
Now, it went down a little bit, you know, at the taper, the, the rates came down from the peak, but that was just temporary. Now we're seeing a resurgence because the inflation fire never got put out. The Fed didn't want to. Because as soon as you got problems in the economy, as soon as you got banks that were failing, that's when the Fed stopped hiking. And I said this all along, the Fed surrendered. In fact, Powell always made a big deal about the fact that, hey, we got rid of inflation without causing a recession, without seeing a meaningful increase in unemployment, and they were bragging about that. Like, "Hey, nobody thought we could do it. We pulled it off." Well, the reason they won the inflation war without that collateral damage is because they really didn't win. They surrendered before the damage became too great, and that's why inflation never went away, because the Fed didn't have what it takes to get rid of it. It chose inflation, which is something that Warsh gets right. He says inflation is a choice. Absolutely. His predecessors chose inflation, and it's obvious by his deeds, not by his words, but by his deeds, that Warsh is making the exact same choice for the exact same reasons. That's why he didn't hike rates today. Why? Because had the Fed hiked rates, the markets would have tanked.
Now, they tanked anyway. They just would have tanked even more had they raised rates. Uh, and I think that's why he didn't do it. But again, he can't admit that. And I pointed this out even before I get into, uh, the, the Q&A today. I pointed this out based on the press, um, on the, uh, s- testimony from a week or two ago when Warsh testified before the House and the Senate, and in particular the Senate, when Senator Kennedy asked him specifically, "What are you going to do to reduce inflation?" And he had three things that he was gonna do, and all three amounted to talking tough on inflation and letting everybody know how committed he was, how resolute they were, how much they owned the inflation problem, and that they were determined, unlike predecessors maybe, to solve the problem. That is exactly what he did. With an opportunity to hike rates, he didn't do it. With an opportunity to, you know, go back to quantitative tightening, didn't do that either. All he did is talk about how, uh, you know, how, uh, tough they were gonna be, how they were serious about bringing down inflation, just like he said he was gonna do. But he didn't do anything about it.
You know, if the Fed really is different, if it's really different now with a new sheriff in town, why are interest rates exactly the same as they were when he came to town? Rates are where they were i- during the five months before he became, uh, Fed chair. And if he's basically saying, "Look, now we're really getting serious here. I'm, I'm resolved. We're gonna bring inflation down to 2%," because maybe in the past the Fed wasn't doing enough, well, why haven't you, why have you done nothing? I mean, the only thing that he's done is they don't have forward guidance anymore. But other than that, there is no change. It's exactly the same. And so clearly, um, Warsh is no more serious about bringing inflation down to 2% than was, uh, Powell. And in fact, he voted with Powell, right? Powell was one of the other FOMC members that voted to keep rates unchanged, so he's basically voting exactly with his predecessor.
Now, it, it's possible- That he actually wants to hike rates, but he didn't wanna vote with the minority and have four votes. I, I don't think there's ever been a time that I can remember, or probably ever, where the, uh, FOMC went against the chair, where the chair cast a minority vote. So maybe it's possible that knowing that he can only get three other people for a hike, he just decided to vote to stay pat because he was trying to spare the markets of, of, of that problem. Because that would've been a problem to see the Fed chair, uh, in the minority, meaning he had no control over the FOMC. So maybe he decided to, uh, go for no hike just because he knew that there was no way that they were gonna get a hike.
And you know, they asked Donald Trump about the decision today, and of course, had Powell still been Fed chair, he would've been all over this. He would've been calling Powell an idiot, a moron, you know, a, a, a low IQ person. How dare he, you know, we need to cut rates. He didn't do any of that. Uh, he basically just said, "Look, you know, uh, Warsh is a very smart guy. He's a very competent guy, so he's doing what he's gotta do." Uh, but then he said that, "You know, he's got a very political board there, and so that makes it difficult for him to do the right thing. I'm sure he wants to cut rates." This is what Trump said. "But you know, he, he can't do it because he doesn't have the cooperation of this, uh, political, uh, uh, FOMC."
I think it's the opposite. I think he, he wants to raise rates. I mean, if he's serious about wanting inflation at 2%, then he needs to raise rates. The reason he's not raising rates is because he, he, either he can't convince his colleagues, or he doesn't wanna disappoint Trump. He, he, he wants to do what Trump wants. Now, of course, what Trump really wants is rate cuts, and he may in fact end up getting rate cuts. He just can't get them right away. I think they have to maintain some kind of pretense before they cut rates.
In fact, there's now a 70% probability that we're gonna get a rate hike in the September meeting. Although, if the Fed wasn't willing to hike rates now, why would they hike them in September? So my estimate would be that between now and September, the probability of a September rate hike will probably come down. Even though the bond market is screaming, and I'll get to that later, for a hike between now and September, if the carnage that we saw in the stock market today and, and this week in tech stocks in particular, if that continues, uh, and we start to see weaker economic data, uh, that makes it more difficult for the Fed to hike rates, especially since in September you're getting very close to the midterm elections. So to the extent that there's a lot of damage from a rate hike, you would think they would have wanted to do that damage now, uh, in July rather than waiting till September when there may not be enough time between then and the election to, you know, to recover from that. Uh, so to me, I think the, a rate hike may be even less probable in, uh, in September than it was now.
Anyway, we're gonna take a quick, a commercial break. On the other side of the break, I'm gonna get into the Q&A, which is always the most telling part of these press conferences. It's not what, uh, the Fed chair reads from prepared remarks, but his off-the-cuff responses, although I'm sure a lot of them are rehearsed. They probably have, you know, s- sample questions. You know, they prepare for these press conferences probably so they're not completely caught off guard. But still, I, you know, they're not reading from cue cards. Uh, they have to answer the questions and then, or avoid answering the questions, which is generally what they do, uh, and then maybe getting a follow-up. So we got a quick commercial. We're coming right back, so don't go anywhere.
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All right, so I wanna focus on three questions in particular that happened during the press conference because I think these are the most significant questions, and these are the questions and answers or not answers that I think the markets are focusing on and now the financial media Is, is focusing on. Oh, oh, oh, before I do that, there's, there's one point I wanted to make, uh, that, that Warsh said, and this was … He said this in his prepared remarks, and he then, you know, talked about it again in the Q&A. But he said that without the far, forward guidance, he likes the fact that long-term interest rates are moving higher. He said that this is good news that both real interest rates and nominal rates are higher. And, you know, I disagree with his assessment about real rates. I, I … Ha- Nominal rates are definitely higher, and they moved a lot higher today. But I think real rates are actually falling because I think the inflation rate is gonna be much higher than what the bond markets are assuming. So if, if you have a benign outlook on inflation, looking at the increase in nominal rates, you might assume that there's also a commensurate increase in real rates. Or maybe you're just looking at the tips or something like that, but I don't think that that's what's going on. I, I think real rates are actually falling because I think the markets are underestimating, um, how much inflation is actually going to be.
But what Warsh said was this is a good thing because the markets aren't cheating, because they're not taking their cue from the Fed, and I agree with that. I've never liked, um, the forward guidance where markets are, are pricing things based on what they think the Fed is going to do, not based on what they believe, uh, is economically fundamentally justified. They're just focusing on, hey, what's the Fed gonna do? So regardless of what we think, we wanna price assets based on what we expect the Fed to do, even if what the Fed's gonna do is wrong, right? It's all about expectations. And he said he doesn't wanna do that, and in fact, Warsh specifically said he wants to be able to take cues from the markets. And if the markets are pricing thing based off what they expect the Fed to do, then those cues are worthless. He wants to actually see what the markets are doing so he can listen to the markets. So if rates are going up, that means something if they're going up or they're going down. If they're just going up or down because of what they expect the Fed to do, how does the Fed, uh, learn anything from that if everything that's happening is just based on what it's saying? It's, it like it's skewing the markets. It's interfering with the very results that it wants to use to make policy.
So, uh, Warsh is happy now that the markets are kinda doing their own thing, although what the markets are doing- Is telling him that he needs to hike rates, and he's not doing it. And that came up i- in one of the Q&A. And in fact, I might as well start with that question. That was from Steve Liesman, CNBC's, you know, guy. And this was in a follow-up. I, I forget his initial question because it was the follow-up that I thought was more interesting. And, and it may have been, uh, this very discussion about forward guidance. But he said that, "Okay, uh, Chair, uh, Warsh, you're saying that you want to listen to the markets, and you've noted that the markets are moving rates higher. So if you're listening to the markets, what are those markets telling you?" And I was hoping to get an answer, and I didn't. He pretty much sidestepped the question, which was a good question. Because you're listening to the markets, it's pretty obvious what they're saying. They're saying that rates should be higher, so you should have hiked rates, yet, you know, why didn't you do that? And that was really the focus of the other two questions. It's more of a put up or shut up. It's stop talking and start acting because all of this tough rhetoric, and he repeated this in, in, in the Q&A, right? He, he keeps on talking about how committed they are to that 2% target, and not even, like, slightly above. Like, we won't even settle for 2.1. He's not even talking about the right or the left of the decimal point anymore. He's like, "We are committed to getting to 2%, and we're gonna do whatever it takes," despite the fact that he's done nothing.
So one question he got was, um- The reporter said, "Well, so far all you're doing is talking." Right? Which is true. He said, "What are you waiting for?" He didn't answer the question, what are you waiting for? He didn't have an explanation. Now, he talked about the fact that, hey, we haven't been here that long, you know, it's only been, you know, whatever, a month or whatever it is. We're still thinking about what we're gonna do. We're still assessing things. What's to think about? What's to assess? He's already said that inflation has been way above 2% for more than five years. Why is that? Because rates have been too low for those five years, because the Fed has created too much money, because the balance sheet has been too big. You don't need to wait for the recommendations of your task force to tell you what's needed. We need higher interest rates, and we need a smaller balance sheet, yet he is delivering neither.
And in fact, then another, uh, reporter asked him to define what he meant by no tolerance for inflation, because he kept saying, "We have no tolerance for inflation above 2%." Okay, well, it's well above 2%. What does that mean? Because you say you have no tolerance, but you're not hiking rates. You're not doing anything. Now, one of the things that he kept using as an excuse was that we don't have a magic wand, and he must have talked about his magic wand at least two or three times. Like, well, you know, what are you expecting? We don't have a magic wand. Nobody thinks the Fed has a magic wand, but they do have these tools that they constantly talk about, so why not use your tools? Yes, you can't wave a magic wand, but you can wave your tools or use your tools. You can raise interest rates. It's not a magic wand, but it's something that you could do. Uh, you could shrink the balance sheet. You could shrink money supply. You could do something. What the Fed is doing is absolutely nothing and then claiming we don't have a magic wand. In other words, what they're saying, or what he's saying, is inflation's not gonna go down because the only way we could reduce inflation is if we could do it by magic. But unfortunately, we don't have a magic wand, so I guess you're SOL. Right? You're gonna have to s- you know, stay with inflation even though we have no tolerance for it, and we are determined to bring it down, since we don't have any magic spells to cast.
You know, what is the reason, right? When people are not asking themselves, okay, if this guy really is committed, as committed as he says, to bringing inflation down to 2%, why did he waste two FOMC meetings and not hike rates? Even when the market was at least opening the door to an expectation that, that rates were gonna go up, why, why not do it? Why not put some, you know, words and put some actions behind your words? There, there's one of two possibilities, right? Either, you know, words is all he's got. He really doesn't want 2% inflation, or yeah, he'd take it if he can get it, but he doesn't want to do what it takes to get it. He doesn't wanna make the trade-offs. He doesn't wanna make the choice. So he's thinking, "Look, if I can get 2% inflation just by talking about it, then fantastic." Because he wants to avoid the- the- the other trade-offs. He wants to avoid recession, he wants to avoid stock market crash, real estate crash, financial crisis, all these things that might happen if he really did what it took to bring inflation down. So he doesn't wanna do- he wants to cheat. He wants to see if I can get it down just by talking about it. Well, that's obviously not gonna work, right? And if he thought it was gonna work, he should know by the market reaction, which I'm gonna get to, that it is not going to work. And, and so… And the- the other, the other possibility is it's- it's all the markets. He's just, he knows that the markets are gonna go down if he hikes interest rates, so he's not doing it. But he- he- he can't say that, so he just has to, you know, keep pretending, uh, that inflation is gonna come down somehow because we got a tough guy in town who's gonna talk and talk and talk, and- and hopefully the markets will, you know, will move based on that, based on just, uh, that tough talk. You know, ba- you know, s- speak loudly even though you don't have a stick, and he's hoping that the markets don't realize he doesn't have a stick.
Well, what's happening now is the markets are reacting to this apparent disparity, the complete, uh, you know, difference between the Fed's words and the Fed's actions. And now the Fed is losing credibility. Now Warsh is getting a credibility problem. The markets gave him some credibility. And remember, I kept saying from the beginning, all, the whole idea that he's gonna be an inflation hawk, that he's gonna be tough on inflation, that he's gonna be another Paul Volcker, was all BS, that there was no chance that that was going to happen because politically it can't happen based on the economic fundamentals. The fundamentals are we have so much debt, this whole economy is such a massive bubble, that if we actually tried to do what Paul Volcker did, we would create an economic condition much worse than what they perceive the threat to be from inflation. So they're not going to do anything. But at this point, I think the Fed is now damned if they do, or we're damned if they do, and we're damned if they don't. Because even if the Fed doesn't hike rates, the markets are gonna crash. If it does hike rates, they're gonna crash even more. So it's not that the Fed can look at the market reaction to their lack of a hike and think, "Whoa, that means we have to hike." No. Because when they actually hike, it's gonna even be worse for the markets than the sell-off from the non-hike.
But I think we're at a point where regardless, the markets go down because the Fed can't keep sending these missed signals and losing all of its credibility. Because once you realize that the Fed is just BS and, and Warsh is just talking, uh, that, uh, is a big loss of confidence, especially for the bond market. And if you're losing confidence in the bond market, well, the stock market is gonna follow. And what happened to bonds today? Yields rose. The highest I saw the, uh, 30-year Treasury was 5.22% on the day. That is the highest it's been in about 20 years, before the 2008 financial crisis. So this is a new high. The yield on the 10-year didn't quite make a new high, uh, because it got to 4.69, so still didn't see it above 4.7, but we could easily be there by tomorrow. But the decline in bonds is why the stock market sold off. In fact, the market was down before, uh, the announcement. In fact, I think maybe on the lows, the Dow was down 7, 800 points, and the Nasdaq was down not quite as much percentage-wise 'cause it got killed, uh, the prior couple of days. But when we didn't get a hike, we got a rally in the market. I mean, the Dow didn't go positive. I think it may have been down 300, 400 points, uh, at its best. But the Nasdaq reversed and went positive. But when the bond market rolled over and, and sold off, even though the Fed didn't hike, and in fact, not hiking is bad for the bond market because it shows that the Fed doesn't really have zero tolerance for inflation. In fact, I interpret what Warsh did today, , leaving rates unchanged, as choosing inflation. That's what he chose. He told everybody inflation was a choice, and then that's exactly the choice that he made.
Well, when the Fed chooses inflation, people who hold 30-year Treasury bonds choose to sell them and they also choose to buy gold. Gold was down, and I'll get to… Let me… I'll get to gold in a minute. Let me f- just, uh, start with, with the markets. So the bond market sold off, and that's when the stock market rolled over. So the market closed on the lows of the day. The Dow was down 2.2%, which is about 1,100 and change. S&P not quite down as much, 1.5%. The Nasdaq down 1.7%, but the TripleQs, which is the Nasdaq 100, that was down over 2%. And in fact, on the week now, that index is down over 3%. As I warned on the podcast I did on Sa- on Saturday, I thought we were gonna see a bigger pullback in the AI-related stocks as the air came out of that bubble, and that's exactly what happened. In fact, Meta's getting beat up after hours. It missed on earnings. Uh, it's down about 10%. Microsoft beat, but it's only up maybe a couple of percent. But a lot of the chip stocks have gotten clobbered so far this week like I warned. I mean, one example is SanDisk, which is down 30% so far in the first three days of this week. Monday, Tuesday, and Wednesday, 30% drop. Now, sure, the stock is still way up on the year, but you know, it's been cut in half and, you know, a big move just in the last few days, uh, from that.
But gold, gold rallied. It wasn't a big rally, but it didn't sell off. That's the key. In fact, gold was down maybe 20 or 30 bucks before we got the decision. Uh, then it rallied just before the decision came, about a half hour before, got to up 15 bucks or so. And it got as high as up $80, um, after, uh, um, Po- uh, uh, Warsh was talking during the presser. It got up to about 80 bucks. But when the bond market rolled over, uh, that hit, that hit the stock market. And, um, and, and that, you know, 'cause gold traders look at the yields and they think that rising bond yields are bearish for gold. They're wrong. They're, they're actually bullish for gold, and I will get to that. We're gonna take another quick commercial break and I'm gonna finish up with this, a topic on the other side of, of that break. So stick around.
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Anyway, I was saying that gold, which had rallied about 80 bucks, sold off, but it never went negative. It never went below 4,000. And in fact, it closed up about $40 on the day, uh, about 4,070. And silver, which was up about a buck and change at one point, sold off to about unch, and then ended up closing up about 50 cents at 57.50. And the, the reason that- Um, gold and silver traders are worried about rising yields as they think, well, that's, you know, that's, that's bad for, for, for gold because higher interest rates are bad for gold. Higher bond yields are not necessarily bad for gold. It depends on why those yields are rising. And if bond yields are rising because bond investors are losing confidence in the Fed, because bond investors are worried that inflation is going to be higher because the Fed is too s- timid to hike rates or slow money supply growth because it's too worried about adverse effects on the economy, that is also bullish for gold because the loss of confidence in the Fed is why you buy gold. If you're worried about higher inflation, that's why you buy gold. It's the same reason you wanted to sell treasuries. In fact, the smart thing to do as a result of what happened today is to sell treasuries and buy gold. And clearly some of that happened today because treasuries went down and gold went up. Gold is the last safe haven standing. And a lot of people I know recently have been questioning whether gold has lost its luster as a safe haven, whether it's no longer a store of value or an inflation hedge. Yeah, that's all a bunch of BS. It hasn't lost anything. All people are looking at is, oh, gold got to 5,500 and it went down to 4,000. Who cares that it went to 5,500? It's at 4,000. Where was it a couple of years ago? Where was it 10 years ago, 20 years ago, 25 years ago? Gold hasn't lost anything. The problem is a lot of people, uh, never really had confidence in gold because they never really understood it, and they had a lot more confidence in the Fed because they didn't understand the Fed either. They don't understand the Fed and they don't understand gold. But I think more people are gonna start to understand that as they start to perceive the dilemma that the Fed is in. They can't hike rates and they can't not hike rates because the markets are gonna go down regardless of, of what they do.
Now, the dollar was down today as well. Not a lot, but the dollar index slipped back below 101. We're at, I think I'm looking at it, 100.84. So again, that's also a bad sign, a loss of confidence. Rising interest rates didn't help the dollar. Now, again, it's long-term interest rates. We didn't get a rise in short-term interest rates because, uh, the Fed didn't have the guts to raise them. Also, oil has been on a rollercoaster. You know, we got a big drop in oil prices on Monday because Trump deescalated the rhetoric he escalated. So after talking about bombing the shit out of, um, of Iran or whatever he said, I think on Sunday he said, "You know what? We're not gonna bomb them after all. They're playing nice." And then, I don't know, a day later he came out and said, "That's it. I gotta bomb the hell out of these guys." And, and so oil, oil's been on a rollercoaster. And in fact, right now, let me, let me, let me check where oil price is Are trading because they were over $90 a barrel when I finished my podcast on, on Saturday And they're, they're, they're lower than that now. We had a couple of … We had Monday and Tuesday oil went down. Today it went up. Now we're back about 84 and a half. But we're still trending higher on oil prices, which is also problematic, and which is another reason why the Fed should have hiked rates.
Um, you know, I'm surprised a little bit that he didn't even get more pushback than he did during that press conference for the disparity between the tough talk and the failure to act. But, you know, CNBC actually was focusing on this. In fact, I think Steve Liesman was reading my, my X feeds because he started talking about the markets giving, uh, Warsh the thumbs down, and that was, like, one of my first posts that came out right away. I said, uh, the, you know, the market was given a thumbs down to the Fed's, uh, rate, rate decision. That was the exact word that I used. Now, I realize other people might have said thumbs down. Uh, but I, I, I was, I was the first one there to raise that, um, 'cause I knew exactly what was going on, and I was watching very closely or listening intently, waiting for somebody to ask these questions. Before they were asked, I was waiting for somebody to say, "Wait a minute. Wait, what, what are you doing here? Why didn't you hike? Give me a valid explanation for why you did not hike." And then we- when he didn't give one, press him again. "Look, are you serious or not?" Right? It's like, you know, you, you, you can't keep talking about how serious you are about solving this big inflation problem, yet do nothing to solve it but talk about the fact that you're gonna think about solving it. What's there to think about? Just use your tools. You only have two tools, right? That's all you've got in your chest. You know, yeah, there's no magic wand in there. We all know that, and nobody expected a magic wand. But we would at least expect you, uh, to, to use the tools that you, you, you acknowledge that you have.
Anyway, I, I expect there to be, um, some more reaction to this overseas back tomorrow as the markets really start to now question, uh, the Fed and start to ask the questions why. What are they afraid of? Why aren't they hiking? 'Cause those are the serious questions. Those are the important questions. And once the markets figure out that the Fed can't fight inflation because the adverse consequences are too serious, they can't admit that, so all they can do is talk, but talk doesn't work anymore. These should be a huge rally in gold, huge decline in the dollar. Bonds should continue to fall, and this should spill over into an overvalued stock market that needs to come down.
Anyway, we got some economic news that came out during the week that I want to mention. Most significant was probably consumer confidence, which unexpectedly took a drop. I think, I think, uh, one key number in there was at a five-year low. Uh, so, you know, despite, you know, the claims of how great the economy is coming from not just Donald Trump, but coming from the Fed, right, we have this really, really strong economy, uh, consumers, you know, confidence part- you know, at a five-year low in certain aspects at 90.8. Maybe the Fed realizes, and that's one of the reasons that the Fed doesn't wanna hike, is because it realizes that the economy is a lot more fragile than it is publicly, uh, pretending by talking about how resilient it is. Yeah, it wouldn't be that resilient if the Fed really started, uh, to fight inflation with, with rate hikes.
We also got the trade numbers. Again, this is the, uh, merchandise trade. The trade deficit for, uh, June, 101.5 billion, a little bit less than 105.8 billion in the prior month, but exceeding expectations. But most significantly, it's still north of $100 billion. Imports down 2.6% on the month. Uh, that's what helped. Exports, though, also down 1.8%. You know, I noticed on X, somebody pointed this out, and I, I, I reposted it, but somebody put up a chart of, um, the last, of the 18 months prior to Trump and the 18 months since Trump, and the trade deficit in goods is actually a little bit higher in the, in the post 18 months than the pre. It was $1,738,784,000 before the tariffs, and now with the tariffs, it's $1,801,377,000,000. So it's bigger. We have a bigger trade deficit with the tariffs than before the tariffs. Now, it's hard to say where it would be if we had never imposed the tariffs. I mean, maybe the trade deficit would be even bigger than that. I don't know. But one thing for sure, the tariffs didn't turn anything around. It-- They, they didn't improve our trade deficit The trade deficit is not lower because we have these tariffs. It still went up. And of course, we had to pay the tariffs on top of that. So we imported a lot more stuff, and we had to pay higher prices because in addition to what the s- the stuff cost us, we had to pay the tariffs. All right, so the tariffs are a complete failure any way that you want to look at them.
Uh, but what I want to talk a little bit more about, uh, to end up the podcast is just, you know, I guess I'm going from the sublime to the ridiculous here, 'cause I wanna talk about Mom-Donny in, uh, in New York, and he just announced that these new grocery stores are gonna be opening up, uh, in New York. He's gonna open up five stores And he's happy to announce that the prices in these government-owned grocery stores are gonna be 30% lower than at, you know, your regular, you know, price gouging, you know, capitalist-run, uh, stores, where the greedy capitalists, you know, just don't care about the consumer and they're just ripping everybody off, right? And so the government's gonna take care of everybody and prices are gonna be 30% lower.
Now, first of all, I, I mentioned this before in my podcasts, but grocery stores, supermarkets, you've got about the, the, the lowest margins of, of, of any retailer. It- they mark stuff up 2%, 1%. I don't… Maybe they can get away with 3%. The markups are very low. They make their profit on volume because y- you know, you shop a lot. People go grocery shopping every week, sometimes several times a week, so, you know, people are constantly buying stuff. So the way you make money is you sell a lot of stuff, but you make a little bit of money on everything that you sell. And the reason that you can't charge a lot more is because there's so much competition. There's a lot of grocery stores, and by and large, the groceries are the same. And, and so if you try to charge too much, people are gonna shop at your competitor. Um, a- a- a- and so because of the competition, uh, prices are, are low, but you can make money because you're selling a lot of stuff. I mean, it's different, you know, if you're, you know, selling clothes. People don't go buy new clothes every week, right? They, they, they, they b- they go clothes shopping maybe a few times a year. I mean, uh, not my wife unfortunately, but, but a lot of people, uh, you know, they don't constantly shop. And so y- y- you have a bigger markup because you don't have as m- as many sales, uh, to, to earn your, uh, you know, your money. So when you sell something, you, you have to have a bigger markup because you don't sell as much stuff. But if people were just, you know, constantly buying new stuff all the time, you know, redoing their wardrobe, you know, once a week, yeah, you know, in theory, uh, the markups could be a lot lower and, and, and, and the businesses can make money. But grocery stores are very unique because we constantly eat food, and then the food that we buy is gone, right? Well, if I buy clothes, I can still wear it, right? Un- l- you know, unless I, you know, I gain a lot of weight or if you have little kids, they grow up or something. But, you know, y- you can keep using it. Or if I, I buy a television set, I don't need to buy a new television set every week. I got television sets that are more than 10 years old. They still work, right? I don't have to keep re-buying them. But with food- Is you buy it, you eat it, it's gone. You gotta go back and you gotta buy it again, you gotta buy it again, over and over again. So it's a very competitive, uh, business.
How is Mandami gonna run his stores so that he could charge 30% less? Because first of all, there's no way the government-run grocery store is going to be as lean and mean and efficient as a for-profit grocery store that is run by an entrepreneur who's trying to make a profit. Because if I own a grocery store, I need to watch my costs. I need to keep my costs low, because whatever I don't spend, that's my money. I earned that. And I have to keep my costs low so I can keep my prices low so I can keep my customers happy so they keep coming back and they don't go to my competitor. But the guys that run the government stores, they, they don't give a shit about any of this. None of this is their own money. So their overhead, their, their cost of doing business is going to be higher than any privately-owned, for-profit grocer. Yet somehow they're gonna sell the same groceries for 30% less. How is that gonna happen? Well, it's only gonna happen because the taxpayers of New York City are gonna be hit with a huge bill to cover those losses, to subsidize these money-losing grocery stores. Because the only way they're going to be able to sell groceries for 30% below the market is if they lose money, and they're gonna lose even more money than a private company would do if it was selling for 30% less, because their operation is gonna be a lot less efficient and a lot more expensive. So this is gonna be a huge loss, but that's just the first part about it. Forget about just how much money New York City is gonna lose. And of course, they're gonna lose more and more money the longer these stores stay in business. That, that, that's the sad part. But just like anything that a socialist does, they, they never think anything out. They never stop to consider the consequences of their idiotic plans, right? 'Cause they're, they're… 'Cause these plans are not based on reason or logic. They're just meant to sound good, right? " 'Cause hey, I promise cheaper food, so here. How am I gonna deliver it? We're gonna have these government, uh, grocery stores." Um, you know, if the government could, could deliver food cheaper than the private sector, then we'd all be eating at government, you know, stores, you know? But it doesn't work. I mean, ev- everybody that's tried it… You know, I, I… There was a meme that I saw, you know, under capitalism, uh, bread lines up for people, 'cause it showed an image of a shopper, and there's all kinds of bread. I mean, so many different varieties, uh, you know, brands and kinds of bread and stuff. A whole row in a supermarket, it's just bread, right? And you just, you know, it… You could pick whatever you want So the bread is lining up for the, for the consumer, but under communism, socialism, the people have to line up for bread because you're standing in a long line to get whatever stinking bread they got. You don't have a choice. You can't get rye or, or pumpernickel or sourdough. You just get whatever they have, and it's probably stale, and you're lucky if you even get that because they probably run out by the time you finish waiting on your long line. But anyway, so here's what's gonna
Happen with these, these supermarkets. So first of all, they're gonna sell stuff for 30% less. Then it's actually worth, right?
Now, what's gonna happen is that people are gonna start shopping in these stores and not the for-profit stores. I mean, 'cause, you know, they're getting 30% cheaper. And the other companies, they can't compete with that. Right, how they… They're gonna lose money. If their margins are 2 or 3%, they can't cut prices 30%. That- they- they'd lose a fortune.
So what happens now is people start shopping in these government stores, and the more people who shop in these government stores, the more, you know, food and, uh, uh, you know, items those stores are gonna have to sell, right? So their, their volume of their business is gonna go up. They're gonna sell more stuff at a 30- at a big loss, which means the losses are even bigger.
But now what happens is the private sector grocery stores, now they start going out of business because they're losing business to the government because the government is selling subsidized food below market. So the private companies, they start shutting down. And, and, and so now the, the real, uh, industry in New York City, grocery store industry, is less competitive, and the stores that are the most likely to shut down are the ones that are in the poorer neighborhoods where, uh, the, you know, the price is even a bigger draw.
You know, maybe in the more affluent areas, A, those free grocery stores will be far away from where the customers are, so they may not wanna go all the way across town. Uh, you know, they may have a premium on, on proximity. Plus also the quality. You know, they may not have the highest quality produce or meats, and so people who are more concerned over pro- quality, you know, may not go there. But people who are very price conscious in the inner cities, uh, in the, the supermar- the, the markets that are closest to these government stores, those are the ones that are gonna go out of business first.
So now you're creating a situation where the, the poorest people, the most vulnerable people, you're now destroying the grocery industry in their communities so that now they're gonna need these government grocery stores more than ever. Because if they ever shut down, there's gonna be nothing left. They're gonna be stuck without any, uh, private sector alternatives.
But that's only part of it, because here's what's gonna happen. So the government now is selling groceries for 30% below market. What's gonna happen? People are going to rush into those stores and buy up as much as they can because they can turn around and sell it- I can make a business. I can go and buy grocery items from the government 30% below market, and then I can take them to a for-profit grocery store and just, "Hey, hey, I got all this extra stuff," and I can sell it 10% below market. That's still a good profit for me, and that's still a better deal than a grocer is gonna get from a wholesaler because the government is selling groceries below wholesale, not just below retail, below wholesale. So now all these customers can become wholesalers and, and sell to the, the, the, the, the other stores.
So what's gonna happen is the minute these stores open up, these government stores, they're gonna run out of merchandise. People are gonna rush in and clean out the shelves, which means there's gonna be no food there. They're gonna be empty, right? So people aren't gonna be able to get any food. That's gonna be a big problem.
Now, what might the solution be? They're gonna have to ration. They're gonna have to say, "One loaf of bread per shopper, one carton of milk," like, "One stick of butter," whatever. They're not gonna let people load up on stuff. And so what does that mean? That means there's gonna be really, really long lines at these government-run grocery stores, just like in the old Soviet Union. So you wanna get food 30% below market? Be prepared to wait in line a long time.
Now again, some people, you know, they have-- maybe they have a job, they don't-- they, they can't afford to wait in line all day to buy their groceries. But there are gonna be a lot of people who, a lot of people who are, you know, getting government money, uh, they're, you know, they don't have a job anyway, so they'll, they'll, they'll, they'll queue up and they'll stay there.
So this whole thing is gonna be a disaster. And, you know, a- as it continues, more people are going to wanna buy stuff from these government stores even though they have to wait in line. Um, and that means even bigger losses for, uh, the taxpayer, even bigger losses for the private sector because they lose out on, on customers. And so this Mandiami is just gonna destroy the grocery industry in, in New York.
The only thing that may save it is that the-- if these things are such a big disaster that there's just no food on the shelves at all because they, they can't stock it, they just-- they, you know, a- and the whole thing collapses and nobody even shops there, they, they, they may ultimately save themselves from their-- because of their own incompetence. But to the extent that they can actually do what they're claiming they're going to do- That they, they would wreck the industry, and they would, they would, they would basically cause, uh, a, a, a, a huge taxpayer loss, which, you know, where are they gonna get the money to subsidize, uh, all these, all these groceries?
Look, the bottom line, and this is what the socialists don't get, is the free market does a great job of, uh, of distributing goods and services at the highest quality and at the lowest price. The government can't do it. Government is impossible. I mean, look, look at the post office, right? I- i- is that an example of efficiency the way the government runs the mail? No, the government doesn't run anything efficiently because it doesn't have the proper motivation. There, there, there is no profit motive. You don't have the right incentives, and so it doesn't work.
And why the people of New York don't understand this, they're, you know… There, there are so many people who immigrated, who came to New York because they fled socialist countries, communist countries. They know firsthand that the government can't, can't do this, least of all feeding people, right? Uh, but, you know, all of this, you know, sounds good to a lot of people who, uh, you know, were indoctrinated by government schools and have no idea how bad socialism is, how bad, you know, communism, which is a form of socialism, is, that it doesn't work, 'cause they didn't learn anything, and they don't understand capitalism.
And, you know, they might understand it better if we actually had it because the problem is capitalism has such a bad rap now because of all the problems that the government has created and has blamed on capitalism. And the other people who want to defend capitalism don't do it the right way. You know, that's why it's so important, uh, that you share my content with other people because there aren't that many people out there who explain it, who, who educate people to understand free market capitalism and sound money and, and how it's supposed to work, and who, uh, are able to explain the problems that we have in society and explain how government creates them, how they originate from the government, from regulations, from subsidies, uh, from artificially low interest rates, so that they understand that what, what they need, uh, to be rebelling against is government and government power and government corruption.
Capitalism is the solution. That's the only real salvation that works. If you're poor and you don't wanna be poor, the government is not your ticket out of poverty. It's free market capitalism. That's what creates the opportunities. That's what creates the abundance that lifts you out of poverty. The, the natural state of nature is scarcity. Things are scarce. The reason people are poor is because they, they can't afford to buy things, because things are too expensive, because there's not enough stuff. Well, if that is the problem, there's not enough stuff, government doesn't make anything. If we need more stuff, we need more capitalism. We need more entrepreneurs. We need more risk-taking. We need more savings. We need more investment because that's what creates more stuff. So the government has to get out of the way and let capitalism work.
What Mandami wants to do is build more government barriers to prosperity to trap people in poverty. So we gotta get the, the message out there. That's why I keep encouraging everybody to, uh, not only subscribe to my YouTube channel, uh, for these podcasts, but tell your friends to subscribe, uh, on X, follow me there. You know, my, my, my subscriber count is really growing. That's great. Better than 100,000 a month now. You gotta follow me on X if you're not following me. Repost all the posts I did today about the Fed. Uh, every time you see one of those, just repost it. Make sure the people who, who follow you also see what I'm s- what I'm saying so that they can, they, they can repost it. We can spread the word. We have a grassroots, uh, movement of truth.
You know, my perspective would not really get out if it was just dependent on the mainstream media. If they could, you know, be the gatekeepers of what the public is able to hear and see, uh, the truth would never get out. But we have the internet, we have social media, so I can bypass, uh, those traditional gatekeepers, and I can bring the message of truth and capitalism and freedom and sound money directly, uh, to, to the public.
Oh, you know, I, I totally forgot I didn't mention anything when I went over the markets, didn't mention anything about Bitcoin, and I'll throw that in because Bitcoin has actually been a lot more resilient than I kind of expected. It's barely below 64,000. I mean, it's 63,000, uh, 900 or so. Uh, but I wouldn't, you know, r- read anything into that. I, I, I don't think that this means that Bitcoin is setting up for a big rally. Uh, I, I just think it's ultimately gonna give way, and in fact, a lot of people are being given a lot of opportunity to buy what they think is the bottom. And, you know, when you have a lot of opportunities to buy the bottom, it's probably because it's not the bottom. What you're doing is you're buying, uh, just before a trapdoor opens up. People are getting suckered into thinking that there's a Bitcoin bottom, and the next thing they know, the rug's gonna be pulled right out from under them.
Anyway, that's it for today's podcast. Uh, get ready, uh, you know, for the next one that's coming up, and, uh, if, if I don't, uh, have another one this week, I'm not sure. I'm gonna be a little bit busy, but if I don't have another one this week, uh, I'll be doing one next week. So bye for now.