Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Interest Rates Are Rising for All the Wrong Reasons

Interest-Rates / US Interest Rates Jun 22, 2015 - 03:19 PM GMT

By: Michael_Pento

Interest-Rates

Wall Street carnival barkers are relishing in the fantasy that the economy has finally achieved escape velocity. Therefore, they accept with alacrity that this is the primary reason why interest rates have started to rise. However, the fact still remains for the first half of 2015 GDP growth will probably be less than 1%.


GDP contracted by 0.7% in the first quarter of 2015. The Atlanta Fed, whose GDP Now calculation has been on the money, now sees second quarter growth at 1.9%. Therefore, it is prudent to conclude the most optimistic case for growth in the first half of the year will be about 1%. Of course, the perpetually upbeat economists on Wall Street are always convinced the economy will skyrocket in the second half of each year. But still, if the Atlanta Fed is correct-and it looks like it will be spot on given the anemic data already released for April and May-annualized GDP for the first two quarters of 2015 will be running at a pace that is less than half of the 2.2% growth averaged since 2010.

Perpetual optimists will highlight the recent positive data in housing as evidence of a robust recovery. But most of the upbeat numbers in housing are a result of front running the inevitable mortgage rate increases, as people rush to lock into low rates while they still can. And even with this, housing data has been mixed at best. U.S. housing starts in May fell 11.1%, to an annual rate of 1.04 million units from a revised 1.17 million units in April. This rate of new home construction is far below the 1.5 million rate seen in the year 2000, and light years away from the 2.2 million rate at the height of the housing bubble.

And we also have some encouraging data in retail sales, courtesy of the booming auto market. But sales in cars have been driven by the resurgence of the infamous liar loans, loose lending standards and virtually free money that led to the collapse in Mortgage Backed Securities in 2007.

Yet, despite booming car sales and slightly better new home construction rates, the nation's manufacturing base remains literally in the basement. For example, the Empire State's business conditions index unexpectedly dropped to -1.98 in June and Industrial Production decreased 0.2 percent in May after falling 0.5 percent in April. May is the fourth negative reading in the last six months on I.P., with the other two readings being flat.

But bond yields have started their inevitable climb higher regardless of the persistent economic malaise. Since mid-April the yield on the 10-year U.S. Treasury has gone from 1.85%, to 2.36%. The yield on the 10-year German bund has surged from essentially zero, to 0.8%. And the Spanish 10-year has gone from 1.45%, to over 2.40%.

One has to wonder, if worldwide economies are barely growing with free money how they will fare as rates start to spike.But the cheerleaders on Wall Street love to site rising rates as evidence the global economy is improving. They argue rising rates are a healthy sign, proof that the U.S. and European economies are strengthening, people are spending, companies are hiring and prices are starting to rise at more normal rates. And more importantly, the risk of too-low inflation-whatever nonsense that means--has ended.

Before you pop the champagne corks remember: this is the same crowd who was convinced rising rates wouldn't hurt the housing market back in 2008-because a bubble didn't exist, and even if one did the demise of subprime home buyers wouldn't spill over to the overall economy.

Wall Street and Washington fail to realize that rates are rising for all the wrong reasons.For instance, the yield on the Ten year in Greece has now skyrocketed to around 12.5%. Is this a result of budding optimism in the Greek economy? No, the rising rates in Greece represent the increasing likelihood of a Greek default.

Here is the truth behind the global rise of interest rates: Interest rates are spiking due to the increased insolvency risks in the American, Japanese and European social welfare states that have piled on an incredible $60 trillion of new debt since the credit crisis.

Rates are also now rising because of the return of inflation, or at the very least the end of deflation. Inflation in Germany crept higher in May, with consumer prices rising by 0.7 percent year-on-year. The index had risen by 0.5 percent on a YOY basis during the month prior. And even more importantly, data collected by Gabriel Stein at Oxford Economics shows M1 money supply in the Eurozone has been growing at a 16.2% annualized rate over the last six months. And broader M3 money supply has been surging at an 8.4% rate, a pace not seen since just before the credit crises blew up.

Rising Rates Forebode Stagflation

In the past, the Fed has viewed itself as a rocket booster: Providing the reagent to launch economic growth; and then retreating once the economy achieved escape velocity. But with growth at 1% for the first half of this year we are still firmly within the earth's gravitational field-even after seven years of massive market manipulations.

Debt disabled economies that are mired in slow growth will not view rising interest rates as the pathway to economic nirvana--they are simply the product of stagflation. And since rates are rising for all of the wrong reasons how can this be viewed as a benefit to the stock market?

The bottom line is interest rates are now rising because the free market is doing the work that feckless central bankers don't have the courage to undertake. The stock market currently trades at extremely high valuations; and these inappropriate valuations sit atop little to no revenue, earnings and economic growth. Far from being the harbinger of a strong economy; these rising rates will instead be the dagger for the massive asset bubbles created by governments worldwide.

Perhaps for the immediate future the stock market will cheer the Fed's abeyance to deal with interest rate normalization. However, asset bubbles grow increasingly more incendiary with each passing day that central banks fail to act. And that means the inevitable collapse will be all the more pernicious.

Michael Pento is the President and Founder of Pento Portfolio Strategies and Author of the book “The Coming Bond Market Collapse.”

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.
       

© 2015 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

© 2005-2019 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

6 Critical Money Making Rules