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lot of people would think well if the economy is this strong well the FED can't cut in fact the FED has to hike in fact we're going to have more inflation because you still have all these keynesians out there that think that inflation is a byproduct of economic growth and if we're going to have this booming economy well then we're going to have you know the trade-off of higher inflation yeah the big news on the day and you know it's not even really big news as far as I'm concerned but the markets you know they still don't get this we got the release of the Federal Open Market Committee fomc their minutes right this is what the governors were discussing prior to their last rate hike right so we know what they did and now we get to see their private discussions that led up to that decision and what spooked the markets was that these minutes uh reflected that fomc members were more concerned about an upward surprise in inflation then they had publicly maybe uh admitted to and although this obviously these deliberations are public as well but what they had said so far the feds seemed more confident that inflation was coming down that they had won in fact you know the Fed was still signaling that rates would be cut as early as next year right they ruled out this year but there's not that much left of this year they talked about cutting rates next year and they also talked about cutting rates long before inflation goes back to two percent they didn't just say we're going to cut rates before inflation is two percent Powell specifically said long before so I mean long time right and so that would mean that okay they're going to start cutting rates pretty soon next year right so they must be pretty confident that inflation is coming down right otherwise they wouldn't be cutting rates because they they're telling us how how bad inflation is and how important it is to get it back down to uh to two percent so clearly they're not going to cut rates unless they have high confidence that inflation is coming down well in these minutes uh what was revealed was that they're worried about an upside surprise which they should be I mean I've been pointing out on this podcast that take your eyes off the rear view mirror and look at everything that's happening in in the windshield forget about the fact that the CPI has gone down from nine to three we're now going back up right whether we get up to nine or not I mean is even immaterial I think ultimately we're going above nine but just going back up to four or five you know under undoes much of what the FED claims to have accomplished but more importantly if inflation is going to stick around longer than the FED thought then the FED is going to have to reassess its idea that it can start cutting rates next year in fact the FED might actually have to raise rates more than they thought in other words it might not be just one more rate Ike maybe the fed's got to go up to six percent maybe they got to go higher than that this all uh scared the markets which is why you saw the sell-off uh the NASDAQ was down about one percent that was the biggest decliner on the day you know the NASDAQ has actually lost quite a bit of ground since I did a podcast a week or two ago where I I questioned whether or not that bubble had popped and you know it's looking more and more like the answer to that question is yes because the technical picture for the NASDAQ has deteriorated uh since that podcast the the overall stock market the Dow you know was down about a half a percent so not as much gold reacted as you would expect negatively to that number gold dropped about 10 bucks a little bit more as I'm recording this podcast right now I think we're down another Buck or so or two whatever we're below 1900 again we're just above uh 1890.
so I think this is really the buy area I mean I think you know gold gets down a little bit below 1900 that's where the support's been a little bit above 2000 is the resistance most of the trading has been between about 1920 1930 and 1970. so I think we're still in this range and I don't believe that these minutes are going to cause a breakdown in the price of gold the dollar Rose a bit uh as a result of this but bond yields continue to rise the continued back up in bond yields and I've been talking about this again you've been watching this podcast I've been hammering home the point that bond yields are going up and they continue to go up in fact we're almost at the high point of this tightening cycle you know we had a pullback in yields but we've almost recovered that entire uh pullback uh The Five-Year treasury is now at 4.4 just above 4.4 percent right this is right below uh its high the 10-year is at 4.258 that's where it closed and the 30-year at 4.361 these are the highs again for this uh this move uh or just below them since the FED began hiking raids uh and so this is a big deal the markets haven't even you know begun to price this in because the stock market is a lot higher than it was the last time yields were this high and one of the reasons that the stock market went up is because yields came down that helped push the market up but the market hasn't surrendered much of those gains even though bonds have lost pretty much all of their gains and they're about to make new lows which means these bond yields are going to make new highs also that means mortgage rates which now I think are just about seven and a half I was calling for eight percent mortgages before the end of the year and I'm still relatively confident that that's going to be the case in fact it's not going to be eight percent I think we'll have an eight handle but I think the actual mortgage rate will be eight point something and again that's not even the top and I pointed out that in 1981 the top was 18 and a half so there is a precedent for mortgage rates of close to 20 percent at a time when the United States was fiscally in much better shape than it is now I mean rates should be higher now than they were in 1981.
we have a lot less debt now than we had back then so we were a lot more credit worthy and you know we we had a greater ability to control inflation and we ended up controlling inflation at least we brought the rates down considerably from where they were in 1981 because the FED had a lot more Firepower than it does now uh and you know the government wasn't in the fiscal uh condition that it was it and remember we had big tax hikes too in the 1980s we raised Social Security taxes you know significantly the payroll tax went way up uh who's talking about raising Social Security taxes no I mean they're talking about maybe raising them on the super rich but they're not even going to get that through so there's the tax hikes can't make it through Congress nobody wants to cut spending so the fiscal situation that we're in is far more precarious than it was back then so rates should be higher and in fact adding uh insult to injury today you know the Atlanta fed right while we got the minutes of the fomc we got the Atlanta fed GDP now and I haven't been talking about the Atlanta fed uh recently but this is really one uh to scratch your head but so they upwardly revised their predictions for Q3 GDP to 5.8 percent now of course that's an annualized number but still 5.8 percent I can't even remember the last time we had a 5.8 percent quarter right nobody was expecting anything like that including me right all these people that are you know looking for the FED to stop hiking or start cutting or looking for even a soft Landing 5.8 percent that isn't landing at all that's the plane is still up there in in the air right I mean you're not landing at five point eight percent you're not even close to the runway now a lot of people would think well if the economy is this strong well the FED can't cut in fact the FED has to hike in fact we're going to have more inflation because you still have all these keynesians out there that think that inflation is a byproduct of economic growth and if we're going to have this booming economy well then we're going to have you know the trade-off of higher inflation in fact all the coverage I'm watching on financial television is about this that oh you know the fed the FED is not what the FED is doing is it working because they want to slow the economy and it's not happening you know the rate hikes are there to slow the economy as if slowing the economy is what's going to bring down inflation it's not the truth is if they really want to bring down inflation the consequence is going to be that the economy weakens it has to because we have a bubble economy that's based on debt everybody is loaded up with debt and it's all based on excess consumption right the American economy is about spending more than you earn I mean we have elevated that to an art form Nobody Does that better than Americans you know I remember watching this I forget what show it was uh but they were you know kind of talk about the US economy and our trade deficits and they were like Americans are uniquely uh qualified to go shopping right we have bigger cars so we have more room to fill up our trunks uh with stuff that we buy I mean I was laughing hysterically about this but it was like we had a comparative advantage in shopping that's why we do the shopping for the world as if like you know this is some difficult task how did we draw that straw that we get to shop right that's the easy part the hard part is making all the stuff is is working in the factories that's the hard part anybody can go to a store and bring stuff home in fact people are going to stores now they're not even paying right shoplifting uh is running rampant right I mean should we applaud these these people I mean right is it this isn't this growing the economy I mean they they're they're really out there right they're shopping they're not they're not spending but they're still getting stuff right and that stuff has to be uh replaced but people think that okay well if if the economy uh is is is growing that's gonna cause the inflation no but to fight inflation the only way you're going to fight inflation is to reduce the spending reduce the demand you're not trying to weaken the economy you're trying to stop the spending so what the FED doesn't want to do they don't want to put people out of work that's nonsense that's the last thing if you're trying to fight inflation the last thing you want to do is to have people stop working why because people working is adding productivity remember it's about too much money chasing too few goods so the more people that are working the more Goods that they are producing so we want people to work we just don't want them to spend we want them to take what they earn and save it right that's how you bring down inflation you get more production and you get less consumption so now you get more goods and less money right and you want to have fiscal responsibility you want the government to cut back on its spending so that demand goes down you don't want the government to give people money to go out and buy stuff and one of the things you're supposed to be accomplishing with your rate hikes is that consumers don't borrow anymore because it's too expensive so you want to see credit card debt coming down right you want to see people paying off their helocs because they're too expensive right so it's all about more savings and less spending and that's how we bring down inflation well the FED is not accomplishing that at all because the rate hikes have been too little to accomplish that and they've had no help from the government because the government is spending and borrowing uh you know like there's no tomorrow and it doesn't care that the cost to borrow has gone up because it's just borrowing that because the government doesn't care about the deficit so if the interest on the national debt goes up the politicians in Washington couldn't care less because whatever extra money they need to pay the higher interest will they just borrow that too with the rest of it so nobody in Washington has been discouraged from spending because interest rates are higher and the deficits are bigger they just borrow it anyway so nothing the FED has done has been enough the FED needs much bigger rate hikes than it's already had in order to affect the changes that need to take place at the federal level at the household level to bring down spending and bring up savings which is the only thing that is going to reduce the future inflation but getting back to this false idea that it is uh economic growth that is going to drive uh inflation and that the FED is is is losing on its attempts to weaken the economy and and increase unemployment this was a bad number the fact that the Atlanta fed is jacking up its um expectation for uh GDP so I would expect some additional Carnage in the stock market follow through as a result of of what happened today also we got some more bad news right which you know good news is bad news that came out today in industrial production because industrial production jumped up one percent and I think this number was part of that Atlanta fed I think they take into account the the numbers that came out earlier in the day but it was supposed to rise by 0.3 now the prior month you know was revised down it was initially minus 0.5 and they remind revised it to minus 0.8 so it wasn't as big and upward uh number when you factor in revision but it was still more than expected and it's showing a rebound but again I don't think this really evidences anything strong with the economy because again it's not adjusted for inflation prices are going up so you would expect these numbers to go up because the prices of the stuff they're producing is going up and so it's it's not they're not measuring quantity it's the aggregate dollar value of what's being produced so if prices are going up then obviously these numbers are going to go up and that's skewing it capacity utilization though also inched up from 79.1 to 79.3 and we also got yesterday some stronger than expected numbers on retail sales again the consumer that factored in to these upper revisions they were looking for an increase of 0.4 this is July and the number came out at up 0.7 and there was even a slightly slight upward revision to the prior month from up 0.2 to up 0.3 even X gasoline and and Automobiles or first just at X Autos it was up one percent you know um it would point seven I might have got that backwards 0.7 was the retail sales up one percent was X autos uh and that was versus expectations above 0.4 uh and uh same thing with xoils X gas up one percent uh versus up 0.4 and the 0.3 from the prior month was revised up 0.4 so that was also stronger data Wall Street remember Wall Street wants weaker data that's the Goldilocks scenario that they're counting on because again the one thing Wall Street has got right is that they know that rates have to come down because nobody can pay these rates for any extended period of time five and a quarter five and a half is tolerable if it's only for a year or so but if you're gonna have to do that for the duration well then it can't be afforded especially at the government level if you start Imagining the interest burden of the entire national debt rolling over and having to be refinanced at a five handle let alone a six handle or a seven handle or something like that but it wasn't all you know positive data on the week yesterday's Empire State manufacturing uh number was horrible they were looking for um minus 0.4 this is for August and it came out at minus 19.
so a huge beat uh and if you look beneath the surface of that report it really was stagflation because not only was manufacturing down production but everything the costs were going way up again so prices up production down again uh fewer Goods but they're more expensive so this was an inflationary stagflationary number uh but again it's kind of get it lost now in the sauce with all this other stuff that is going on that seems to be uh this seems to be more important uh uh than that week number but it's more the fed's Outlook because again everybody just cares uh what these guys think and if they're scared of inflation which they should be they should be a lot more afraid of it than what they're publicly admitting uh but this again is a game changer for the markets and the markets were already skating on thin ice the markets were already ignoring all sorts of bad news and shrugging it off because I guess they were looking for these rate cuts to bail them out well maybe the bailout isn't going to come as soon as they think and the stock market potentially still has a long way to drop uh to uh catch up to the bond mark
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