Sunday, August 2, 2015

The Fed Considers a More Seasoned Approach

By: Peter Schiff

Just as the steady torrent of awful economic data, which began in the First Quarter and continued well into April and May, had forced many market analysts to grudgingly concede that 2015 would not see the robust economic growth that most had expected, the statisticians arrived on the scene like a cavalry charge and routed the forces of pessimism with a wave of their spreadsheets.

The campaign began in late April with some seemingly groundbreaking analysis by CNBC's Steve Liesman showing that over a 30 year time frame GDP data had consistently measured first quarter growth at 1.87%, which was far lower than the 2.7% rate averaged in the following three quarters of the year. He pointed out that the trend had gotten even more pronounced since 2010, when first quarter growth averaged just .62% and the remaining three quarters averaged 2.3%. The disparity caused Liesman, and others, to question whether first quarter data should be regarded as reliable.

The problem hinges on the efficacy of the "seasonal' adjustments that are baked into the GDP methodology. These filters are designed to smooth out the changes in spending, production, and consumption that occur over the course of the year. After all, business and consumers behave differently in December than they do in July.

When Liesman pressed the Bureau of Economic Analysis (the government entity that supplies the data) to explain his findings, the agency responded "BEA is currently examining possible residual seasonality in several series, which may lead to improvements in...the regular annual revision to GDP." We should understand "improvements" to mean changes that make first quarter GDP higher. A few weeks later the BEA provided some specifics saying methods for counting government defense spending and "certain inventory investment series" could be improved to help address the distortion. It promised to correct these deficiencies by July 30. It promised to correct these deficiencies by July 30. But to make sure that everyone understood that the help was definitely on the way, the BEA issued a blog post on May 22 in which it specified a number of areas in which it will eliminate what it calls "residual seasonality." This term should be accurately defined as "areas that we think should be higher."

As if on cue, the Federal Reserve itself waded into the debate with its own new study (released by the San Francisco Fed - Janet Yellen's former stomping grounds) that seemed to confirm and expand on Liesman's analysis and the BEA's concessions (makes one wonder if these campaigns are coordinated). Fed economists took a hard look at the disappointing .2% annualized first quarter 2015 growth, and determined that the seasonal adjustments that have been in use for years were insufficient to fully reveal the true health of the economy. When the San Francisco Fed added a second level of seasonal adjustments, it determined that Q1 growth should have been measured at 1.8% annualized. While that growth rate would not be considered strong, it is much closer to the 2.7%-3.0% that most forecasters had predicted at the end of 2014. No matter that the Atlanta Fed's "GDP Now," which was designed to be a more objective and contemporaneous measurement tool, was confirming near zero growth in Q1, many economists and media outlets jumped on the Fed study as proof positive that the economy is stronger than the pessimists portray.

In reality, few people actually understand how the complex and opaque seasonal adjustments really work (I know I don't). Fewer still have the patience to wade through the formulas to determine inefficiencies and potential remedies. This provides the statisticians with a good deal of convenient refuge against critics. But it's important to realize that unlike straight GDP measurement, which is ideally a strict accounting of spending, these adjustments can introduce an element of subjective institutional bias.

Government entities (and to a lesser extent media outlets) have many reasons to suggest that the economy is better than it really is. The Fed wants us to believe that its policies are effective; the Federal government wants us to believe that the economy is healthy, and financial media outlets depend on confident investors. I'm not saying that these biases are insidious or conspiratorial, but it does produce an environment where there is more emphasis placed on finding reasons to explain why GDP measurements are low, than there is to find reasons why it is too high. The subjectivity of the seasonal adjustments gives these biases room to run.

People understand that holiday spending juices GDP at the end of the year, and that post-holiday depletion and cold winters cause consumers to retrench. This causes them to try to compensate for the weakness in the first quarter. But there is no pressure for them to find reasons that GDP may be too high in December and May (when Christmas lists and pleasant weather should be encouraging shopping).

Given that, why do we really need seasonal adjustments in the first place? Yes December is different from July, but those differences persist every year. If we are looking at full year GDP, which is the measure that everyone is really after, why not keep a cumulative tally that we compare to prior years rather than prior quarters? Wouldn't this strip out a needless and opaque system of adjustments from a measurement system that is already overly complex to begin with? I believe the truth is the system is getting more complex because we want it that way. We prefer the ability to manipulate figures rather than allowing the figures to tell us things that we don't want to hear.

The real disconnect lies in the failure of the economy to grow, as most people assumed that it would, after the Fed's quantitative easing and zero interest rates had supposedly worked their magic. But as I have said many times before, these policies act more as economic depressants than they do as stimulants. As long as these monetary policies persist, our economy will never return to the growth rates that would be considered healthy.

In any event, many market watchers are grabbing at the San Francisco Fed report to conclude that Janet Yellen will raise rates this year, despite the weakness that the unadjusted GDP reports indicate. Such a conclusion is premature. I believe that the Fed wants us to think that the economy is strong, in the hopes that perception may one day soon become reality. If people think the economy is strong their optimism could influence their spending, hiring, and investing decision. As a result, optimistic Fed pronouncements should be considered just another policy tool; call it "open mouth operations." But I do not believe the Fed has any actual intention of delivering the rate increases that it may expect will damage our already weak economy.

- Source, Euro Pac

Friday, July 31, 2015

Peter Schiff Warns This May Be The First Bubble To Burst Without A Pin

It is well known that I don’t think much of the ability of government officials to correctly forecast much of anything. Alan Greenspan and Ben Bernanke have made famously clueless predictions with respect to stock and housing bubbles, and rank and file Fed economists have consistently overestimated the strength of the economy ever since their forecasts became public in 2008 (see my previous article on the subject). But there is one former Fed and White House economist who has a slightly better track record…which is really not saying much. Over his public and private career, former Fed Governor and Bush-era White House Chief Economist Larry Lindsey actually got a few things right.

Back in the late 1990s, Lindsey was one of the few Fed governors to warn about a pending stock bubble, and to suggest that forecasts for future growth in corporate earnings were wildly optimistic. He also famously predicted that the cost of the 2003 Iraq invasion would greatly exceed the $50 billion promised by then Secretary of Defense Donald Rumsfeld, a dissent that ultimately cost him his White House position. (But even Lindsey’s $100-$200 billion forecast proved way too conservative – the final price of the invasion and occupation is expected to exceed $2 trillion).

- Source, Peter Schiff via ETF Daily

Tuesday, July 28, 2015

Why the Peter Schiff Gold Price Target Is $13,000

A typical Peter Schiff gold forecast points to mounting government debt and "money printing" as evidence that someday, the fiat money system will be upended. At that point, people will pour into gold to stave off the rapid deceleration of the U.S. dollar's value.

A skeptic's typical Peter Schiff gold rebuttal will consist of questioning why, after U.S. debt has reached $18.3 trillion and the U.S. Federal Reserve has pumped $2.4 trillion in the banking system through three rounds of quantitative easing, the dollar is still stronger than it's been in recent history.

Quantitative easing is the process by which the Fed buys bank assets and credits them with newly created reserves in an attempt to bring down interest rates. But QE by itself is not an inflationary policy.

The reason why inflation, or hyperinflation for that matter, hasn't happened yet is that the U.S. economy hasn't entirely shrugged off the effects of a so-called "balance sheet recession."

In a balance sheet recession, households and firms use extra money to pay down debt, as opposed to making purchases on consumer goods. The classic definition of inflation as "too many dollars chasing too few goods" breaks down when the economy is not "chasing goods." Instead it's redirecting that money to reduce debt.

When there simply isn't enough economic activity and consumer loan demand is stifled, no amount of quantitative easing or government spending is going to get money moving around in a way that stokes inflation/hyperinflation.

But, there is another more sinister force brewing beneath all these policies that can help explain why gold is a valuable portfolio builder…

- Source, Money Morning

Saturday, July 25, 2015

What to Take Away from This Bold Peter Schiff Gold Prediction

Recent Peter Schiff gold forecasts predict the metal's rapid rise to a five-figure price tag -$13,000 long term, according to his gold investing blog. Schiff says the gold-price driver will be a hyperinflationary episode brought on by easy money.

Peter Schiff gold price predictions like this are typically predicated on gloom-and-doom forecasts of a dollar collapse and a financial meltdown.

This take on gold investing tends to attract skeptics. The gold skeptics are so dead-set on discrediting this caricature of gold investing – brought on by the Peter Schiff gold investing thesis – that they write gold off altogether as an asset for the paranoid investor.

This polarizes the investing world between gold bugs who think an economic collapse is imminent and gold bears who think the gold bugs are scare-mongering demagogues.

The truth about why gold matters lies somewhere in between.

You don't have to agree 100% with Peter Schiff gold predictions to appreciate the yellow metal's value. Regardless of which "side" you're on, gold is an important part of a portfolio.

- Source, Money Morning

Sunday, July 12, 2015

What are the problems weighing on US economy?

Peter Schiff, CEO of Euro Pacific Capital, says factors such as inventory overhang that will weight on the US economy...

- Source, CNBC

Thursday, July 9, 2015

Is Gold Overvalued? Peter Schiff & Mike Maloney

Recently Peter Schiff visited Mike Maloney in California. During his stay they filmed nearly 3 hours of discussions about gold, silver, freedom, and the economy in general. Over the next few weeks we’ll be publishing a series of these videos to our YouTube channel so make sure you are subscribed as this analysis is not to be missed. In this second installment, Mike and Peter discuss whether gold is overvalued or undervalued.

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