US manufacturing activity contracted in August, according to the latest ISM data.
The number for August came in at 49.1. Any number under 50 signals a drop in manufacturing. This was the first contraction in three years. According to Reuters, this was the first time the index has dropped below 50 since August 2016. It was the fifth straight monthly decline. And as Peter pointed out in his latest podcast, this was the lowest ISM number in a decade.
“This is the weakest manufacturing economy we’ve had in 10 years, basically since the tail-end of the Great Recession. So, for all the talk from Donald Trump about how great this economy is, how it’s the greatest economy ever, it’s the weakest manufacturing economy since the Great Recession. It’s weaker than it was pretty much at any point during the Obama presidency. And according to Trump, Obama was a disaster for the economy; he was a disaster for manufacturing. Well, maybe he was right, but Trump has proved to be an even bigger disaster than Obama.”
As Peter said, the only thing holding up the US economy is a debt-financed consumption binge by American consumers and the US government. Basically, Americans are driving their economy with money they don’t have.
“How much longer can people keep spending borrowed money that they don’t have and they can’t repay? And how much longer are companies going to keep retaining their workers when a recession is staring them in the face?”
Peter said when people figure out what’s going on, the dollar is going to turn. In fact, Peter said the dollar really isn’t as strong now as people think. It’s just stronger than the other fiat currencies out there. Gold and silver have been surging, and that tells us something about the dollar.
For all the hype about the strong greenback, the dollar index has increased by about 1% since May. To put that into perspective, silver is up by almost 30%.
“The dollar is not really strong. It’s not quite as weak as all the other fiat currencies, but it is weak. Gold and silver’s strength is basically showing you just how weak the US dollar is. It’s just that that weakness is not being reflected in the foreign exchange markets when all the other currencies are also weak. But the days where the dollar is the least weak are going to come to an end.”
Peter said the only thing the US economy has going for it right now is the Federal Reserve.
“The Fed built a phony economic recovery on the foundation of a wealth effect. The Fed deliberately inflated an asset bubble so that people will think they were richer.”
As Peter put it, the Fed created a bubble and in order to sustain that bubble, it has to keep force-feeding more air into it.
“The problem is the air is going to come out faster than they can put it in.”
Peter reiterated a recession is on the horizon and said this is going to be one of the worst we’ve seen because a recession is proportionate to the artificial boom that precedes it.
“The more the Fed has to interfere with the free market, the more the Fed has to distort the free market by artificially lowering interest rates, the more mistakes that we make, the more screwed up the economy gets, which means the more severe the bust when the market tries to correct all the mistake that the government created and the Fed created.”
Peter also talked about the trade war, Treasurys, central bank gold-buying, presidential politics, and about what gold and silver are telling us.
President Trump accurately points out that the election of a Democrat will have serious negative ramifications to the market.