Best of the Week
Most Popular
1.Bitcoin War Begins – Bitcoin Cash Rises 50% While Bitcoin Drops $1,000 In 24 Hours - Jeff_Berwick
2.Fragile Stock Market Bull in a China Shop -James_Quinn
3.Sheffield Leafy Suburbs Tree Felling's Triggering House Prices CRASH! - Nadeem_Walayat
4.Bank of England Hikes UK Interest Rates 100%, Reversing BREXIT PANIC Cut! - Nadeem_Walayat
5.Government Finances and Gold - Cautionary Tale told in Four Charts - Michael_J_Kosares
6.Gold Stocks Winter Rally - Zeal_LLC
7.The Stock Market- From Here to Infinity? - Plunger
8.Ethereum (ETH/USD) – bullish breakout of large symmetrical triangle looks to be getting closer - MarketsToday
9.Electronic Gold: The Deep State’s Corrupt Threat to Human Prosperity and Freedom - Stewart_Dougherty
10.Finally, The Fall Of The House Of Saud - Jim_Willie_CB
Last 7 days
Sheffield's 'Real' LORAX Defending the Trees From the Labour City Council Patrol Units - 15th Dec 17
Stock Market Decline Signals are Near - 15th Dec 17
Santa Is Putting Christmas On The Blockchain And Saving Billions - 14th Dec 17
The Unprotected, the Protected, the Vulnerably Protected Classes—Which Are You? - 14th Dec 17
Gold’s Upside Target - 14th Dec 17
Year-end US Interest Rate Hike Again Proves To Be Launchpad For Gold Price - 14th Dec 17
2 Charts That Might Define the Fed’s Jerome Powell Era - 13th Dec 17
UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - 13th Dec 17
Stock Market Elliott Wave Forecasts - Is the World coming to the end? - 13th Dec 17
A Method Traders Can Use to Confirm an Elliott Wave Count - 13th Dec 17
Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - 13th Dec 17
A Former Wall Street Veteran: Good Traders Are Born, Not Trained - 12th Dec 17
Buy Gold, Silver Time After Speculators Reduce Longs and Banks Reduce Shorts to Continue? - 12th Dec 17
Masters of Economic and Political Illusion – in Taxes, Debt, Government, and Markets - 12th Dec 17
Approved Used Land Rover Main Dealer Real Customer Buying Guide - Hunters, Chester - 12th Dec 17
Gold Price 100% Bullish Signal - 12th Dec 17
Epic Stock Market & Fixed Income Bubble Will Not End Well - 12th Dec 17
Bitcoin can be stolen. Although Can’t be hacked - 11th Dec 17
Have Stocks Reached A Permanently Rigged Plateau? - 11th Dec 17
Trying To Beat The System Is A Fatally Flawed Investment Strategy - 11th Dec 17
Is This The Beginning Of The Next Silver Rush? - 11th Dec 17
The Dow Gold Ratio - 11th Dec 17
Evidence of a Stock Market Top Mounting - 10th Dec 17
Bitcoin Doesn’t Exist – Forks and Mad Max - 10th Dec 17
Bitcoin Doesn’t Exist – Putting the Banks Out of Business - 9th Dec 17
China’s Struggle for Market Economy Status - 9th Dec 17
Is Gold Really Strong? - 9th Dec 17
Bitcoin Parabolic Mania - 8th Dec 17
SPX Make a 61.8% Retracement - 8th Dec 17
Gold, Stocks and Bonds - The 3 Amigos Update - 8th Dec 17
Gold Stocks Break, Gold to Follow - 8th Dec 17
4 Charts That Show How Trump Tax Cuts Will Trigger A Recession - 8th Dec 17
Precious Metals Breaking Down! 3 Amigos to Abort? 4 Horsemen to Ride? - 7th Dec 17
Bitcoin Just Smashed Through $12k… Wait, $13k… Now $14k… This Is Getting Ridiculous! - 7th Dec 17
Stock Market Tops Look Like This - 7th Dec 17
Crude Oil, Oil Stocks and Invalidation of Breakouts - 7th Dec 17
Bitcoin Doesn’t Exist – 2 - 7th Dec 17

Market Oracle FREE Newsletter

Traders Workshop

Phony Global Economic Recovery is an Illusion

Economics / Economic Recovery Dec 04, 2012 - 11:32 AM GMT

By: Michael_Pento

Economics

Many investors still hope that the global economy will experience a significant rebound in 2013. I guess it is human nature to assume the optimistic position that our economic fate will turn to the upside with each new calendar.


In fact, a Bloomberg poll of 862 global investors taken this month showed that 66 percent of respondents believe in a stabilizing or improving global economy, compared to just over 50 percent in September. The survey also indicated that the world economy is in its best shape in 18 months as China’s prospects improve and the U.S. looks likely to avoid the Fiscal Cliff.

In sharp contrast, I believe the temporary illusion of global stabilization has come from a massive increase in public sector debt, artificially-produced low interest rates that can never be allowed to increase and central bankers that have taken their cue on how to conduct monetary policy from Gideon Gono (Governor of the Reserve Bank of Zimbabwe).  

If the politicians and bureaucrats in Japan, Europe and U.S. allowed their private sectors to deleverage, if they did not interfere with the correction of asset prices, if they allowed insolvent institutions to go bankrupt, and if they did not abuse their currencies and interest rates; then they would indeed be on a sustainable and free-market based pathway to prosperity.

However, because they have the collective hubris to believe recessions can be expunged from the business cycle, what we do see is the empirical evidence of a government-induced mediocrity in the developed world, which will only lead to a severe downturn in the GDP in the near future.

If the current strategies deployed led to economic prosperity, then international lenders would not have to undertake yet another bailout for Greece. The nation already defaulted on €172 billion worth of Greek bonds, which represented 85.5% of the total €206 billion held by the private sector in the early part of 2012. However, just this week they again had to restructure their debt by cutting the interest rate on official Greek loans, extending the maturity of those loans from the EFSF bailout fund by 15 years to 30 years, and be granted a 10-year interest repayment deferral on those loans.

Turning to China, if government spending was the solution, then the Shanghai composite index would not be down 20% in 2012 and now be trading at a four-year low. Also, if central bank counterfeiting from the ECB was the answer, Spain’s stock market would not be down 6% for the year. And if the U.S. was indeed rebounding after a multi-year recession, why is the S&P 500 down 4% since the end of this summer--especially in the light of the fact that it has not gained one point from the level it was five years ago?

If the global economy was about to make a turn to the upside, then industrial commodity prices would presage a rebound in growth. But instead copper prices are down from close to $4.00 per pound in February, to just $3.60 today. Oil prices were trading close to $100 a barrel in the summer and have sold off to just $88 today. If the global economy was about to make a significant move to the upside, why haven’t industrial commodities and equity markets begun to price in that improvement—especially in consideration of the massive amount of liquidity that has been added by central banks?

The truth is that the Great Recession was the result of too much debt, rapid money supply growth, asset bubbles and artificial interest rates.  Governments believe the economy can be remedied by placing all those conditions on steroids. They are wrong, and when falling real interest rates finally cause investors to demand a real rate of return on their holdings of government paper the game will be over.

In an effort to maintain the illusion of prosperity, politicians on both sides of isle will ensure that the Fiscal Cliff and Debt Ceiling in the U.S. will be avoided at all costs.  Any retracement in government borrowing of the Fed’s phony money will send the economy into a steep recession. That’s because the main borrower of Bernanke-Bucks has been Uncle Sam. If our fiscal imbalances are suddenly and sharply reduced then the money supply would shrink, which would send asset prices and the economy tumbling. And then the mirages of economic stabilization and improvement would rapidly vanish away.

Therefore, the developed world will continue to be mired in stagflation, not only next year but indeed until those governments are finally forced into addressing the real underlying economic problems.

Respectfully,

Michael Pento
President
Pento Portfolio Strategies
www.pentoport.com
mpento@pentoport.com

Twitter@ michaelpento1
(O) 732-203-1333
(M) 732- 213-1295

Michael Pento is the President and Founder of Pento Portfolio Strategies (PPS). PPS is a Registered Investment Advisory Firm that provides money management services and research for individual and institutional clients.

Michael is a well-established specialist in markets and economics and a regular guest on CNBC, CNN, Bloomberg, FOX Business News and other international media outlets. His market analysis can also be read in most major financial publications, including the Wall Street Journal. He also acts as a Financial Columnist for Forbes, Contributor to thestreet.com and is a blogger at the Huffington Post.
               
Prior to starting PPS, Michael served as a senior economist and vice president of the managed products division of Euro Pacific Capital. There, he also led an external sales division that marketed their managed products to outside broker-dealers and registered investment advisors. 
       
Additionally, Michael has worked at an investment advisory firm where he helped create ETFs and UITs that were sold throughout Wall Street.  Earlier in his career he spent two years on the floor of the New York Stock Exchange.  He has carried series 7, 63, 65, 55 and Life and Health Insurance Licenses. Michael Pento graduated from Rowan University in 1991.
       

© 2012 Copyright Michael Pento - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Michael Pento Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife