Best of the Week
Most Popular
1. Trumponomics Stock Market 2018 - The Manchurian President (1/2) - Nadeem_Walayat
2.Yield Curve Inversion a Remarkably Accurate Warning Indicator For Economic & Market Peril - Dan_Amerman
3.China is Now Officially at War With the US and Japan - Graham_Summers
4.Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18 - Plunger
5.Stock Market Longer-Term Charts Show Incredible Potential - Chris_Vermeulen
6.U.S. Stock Market Cycles Update - Jim_Curry
7.Another Stock Market Drop Next Week? - Brad_Gudgeon
8.The Death of the US Real Estate Dream - Harry_Dent
9.Gold Market Signal vs. Noise - Jordan_Roy_Byrne
10.The Fonzie–Ponzi Theory of Government Debt: An Update - F_F_Wiley
Last 7 days
Impulse Moves in the Currencies - 15th Aug 19
Best Merlin UK Theme Park Summer Holiday 2018 - Thorpe, Alton Towers, LegoLand or Chessington? - 15th Aug 19
The Essence of Writing an Essay that Must be Understood - 15th Aug 19
Is Solar Energy Rising From The Ashes Again? - 15th Aug 19
A Bullish Bond Argument That Hides in Plain Sight - 15th Aug 19
Jim Rogers on Gold, Silver, Bitcoin and Blockchain’s “Spectacular Future” - 15th Aug 19
A Depressed Economy And A Silver Boom - 15th Aug 19
Moving Averages Help You Define Market Trend – Here’s How - 14th Aug 18
It's Time for A New Economic Strategy in Turkey - 14th Aug 18
Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - 14th Aug 18
Dow Stock Market Trend Forecast 2018 - Video - 13th Aug 18
Stock Market Downtrend to Continue? - 13th Aug 18
More Signs That the Stock Market Will Rally Until 2019 - 13th Aug 18
New Stock Market Correction Underway - 13th Aug 18
Talk Cold Turkey Economic Crisis - 13th Aug 18
Which UK Best Theme Park - Alton Towers vs Thorpe Park vs Lego Land vs Chessington World - 12th Aug 18
USD is Rising. What this Means for Currencies and Stocks - 12th Aug 18
Hardest US Housing Market Places to Live - Look Out Middle Class - 12th Aug 18
America’s Suburbs Are Making a Comeback - 12th Aug 18
Stock Market US Presidential Cycle, Seasonal Analysis and Economy - Video - 12th Aug 18
Yield Curve Inversion and the Stock Market - Video - 11th Aug 18
Land Rover Discovery Sport 1st Dealer Oil Change Service - What to Expect - 11th Aug 18
How to Setup Webinars and Use Them to Overcome the Barriers in E-Learning - 11th Aug 18
Big US Stocks’ Q2’18 Fundamentals - 11th Aug 18
Dow Stock Market Trend Forecast 2018 - 10th Aug 18
SPX Testing Its First Support Level - 10th Aug 18
Dreaming of a "Comfortable Retirement" on a Public Pension? - 10th Aug 18
The Forrest Gump of All Future Democrat Election Losses - 10th Aug 18
More Uncertainty as Stocks Got Closer to January Record High - 10th Aug 18
Gold and Silver Kill Zone - 9th Aug 18
Even More Cracks in the Gold Dam - 9th Aug 18
Ignore the Stock Market “midterm election year”, Which is “supposed” to be Weak - 9th Aug 18
Stock Market Trend and Volatility Analysis - Video - 9th Aug 18
Tips on Maximizing Small Serviced Offices Space - 9th Aug 18
VIX’s Collapse is Bullish for VIX and the Stock Market - 9th Aug 18
Vestles Platform Offers Several Key Trading Tools - 8th Aug 18
US Stock Markets Higher Until November 2018 - Part 2 - 8th Aug 18
US Stock Markets Higher Until November 2018 - Part 1 - 8th Aug 18
Stock Market US Presidential Cycle and Seasonal Analysis - 8th Aug 18
Is the Stock Market Correction Over? - 7th Aug 18
Yield Curve Inversion and the Stock Market - 7th Aug 18
Stock Market Elliott Wave Analysis and Forecast - Video - 7th Aug 18
Trade War! Win the Economic Hostilities Against the Chinese - 7th Aug 18
Technical Analyst Sees Silver as 'Oversold' - 7th Aug 18
Alex Jones Banned! Will Unapproved Opinions Be Censored Off the Internet? - 7th Aug 18
Gold and Silver Stocks On the Verge of the Next Major Decline - 7th Aug 18
First Time Buyers Need to ‘boost the affordability’ of Their Move Alone  - 7th Aug 18
Long Term Care Homes as an Investment are Heating Up! - 7th Aug 18
The Exponential Inflationary Stocks Bull Market - Video - 6th Aug 18
Land Rover Discovery Sport Oil Change Service Dash Warning Message - 6th Aug 18
Restructuring of Western Economic Power - 6th Aug 18
Stock Market Trend and Volatility Analysis - 6th Aug 18
Stock Market and Economy False Narratives That are Just Wrong - 6th Aug 18
VPN – Is It Worth It? - 6th Aug 18
All You Need to Know About Umbrella Companies - 6th Aug 18
Why China Lost the Trade War Before it Even Began - SSEC Stocks Index - Video - 5th Aug 18
Dow Stock Market Elliott Wave Analysis - 5th Aug 18
Iran's Rial Currency Is In A Death Spiral, Again - 5th Aug 18
IMF Produces Another Bogus Venezuela Inflation Forecast - 5th Aug 18
Gold & Silver Precious Metals Monthly Charts - 5th Aug 18
Time to Position for a Decade-Long Bull Market in Natural Resources - 5th Aug 18

Market Oracle FREE Newsletter

Trading Any Market

Chaos is the Only Way Out of Interest Rates Normalisation

Interest-Rates / US Interest Rates Mar 21, 2018 - 03:13 PM GMT

By: Michael_Pento

Interest-Rates

The prevailing fiction pervading Wall Street right now is that economic growth is picking up in a sustainable fashion and that interest rates will merely rise slowly. Then, soon level off at historically low levels. In other words, they are selling a fairytale; and a dangerous one at that.

This premise is blatantly false. The Fed’s reverse QE program, Government debt levels and Nominal Gross Domestic Product, all dictate that the 10-year Note Yield should be now swiftly on its way to at least 4.5%, from the artificial level of 1.4% found in July of 2016.


Therefore, there is no perfect outcome for the market and the economy and no safe path for the Fed to normalize rates. If they stop raising rates, or just move too slowly, inflation picks up even more steam, and long rates will mean revert rather quickly by rising another few hundred basis points from where they are now. On the other hand, keep on hiking short-term rates, according to the Fed’s dot plot there will be three to four increases this year and several more scheduled for 2019--along with the draining a couple of trillion dollars from the balance sheet--and the yield curve will invert much sooner rather than later.

In either case, a recession, along with an epoch stock market crash is destined to occur…and there is no way of avoiding that inevitability. Such are the ramifications of counterfeiting trillions of dollars to push interest rates into the basement, recreating asset bubbles and force-feeding more debt on to an already debt-disabled economy.

The truth is that debt and deficits have already risen to extremely daunting levels. And those levels are especially frightening when viewed in relation to our phony, ZIRP-inflated GDP. But when combined with interest rates that have been manipulated into a gargantuan bubble, the situation becomes downright catastrophic; and ensures that the eventual interest rate normalization process will be an incredibly chaotic mess.

When the current implosion of bond prices slams into the record bubble in equities, it won’t be a pretty scenario. At nearly one and a half times the underlying economy, the market value of stocks is at the most preposterous level in history.

While the perma-bulls are working overtime to convince investors that rising rates won’t be a problem, that stocks are a bargain, and the economy is building momentum; the economic data begs to differ. Contrary to the continued delusional and incorrect claims of the Fed, whose torch of bewilderment is now being carried by Jerome Powell, the economy has been decelerating, not showing signs of improvement.

Coming off two consecutive quarters of over 3% growth, Q4 2017 GDP was 2.5%, and the Atlanta Fed has Q1 of this year at just 1.8%. Total orders for Durable Goods sank a sharp 3.7% in January, with core orders (nondefense ex-aircraft) down 0.2% in January following December's 0.6% decline. And Retail Sales have posted a negative reading for three months in a row. The Trade deficit for January came in at negative $74.4B, which is a big drag on GDP. Exports fell 2.2% in the month with capital goods and industrial supplies posting sharp declines. On top of all this is the salient decline now being seen in the all-important Real Estate sector.

The bottom line is that tax reform is mostly leading to stock buybacks and dividends, not capital goods expenditures—so there won’t be the productivity growth most have hoped for. And when a slow economy, massive debt and record high stock, bond, and real estate valuations slam into three to four more Fed Fund rate hikes and $600 billion worth of central bank sales; it will engender a crash much worse than the 12% debacle suffered during early February. Indeed, it should resemble the 23% plunge in 1987 and start down from there.

Chasing the major averages at their most dangerous time in history is a terrible strategy. This was clearly proven a few weeks ago when the Dow fell nearly 1,700 points in a matter of hours. Dip buying is only prudent if bond yields fall and if the economy hasn’t already gone over the cliff—so we probably have a few more months left of that. Shorting stocks on up days when bond yields rise is definitely worth the chance. Of course, owning a small allocation of gold is appropriate, even though it has not worked lately as an adequate hedge. This is because the weaker U.S. dollar has been offset by rising real interest rates.

However, the Fed’s capitulation on its rate hikes and balance reduction is drawing very close due to the coming yield-shock-induced recession. And the return to QE should follow soon after. At that time gold will not only work as a hedge; but should surge back to all-time nominal highs-- and at a record pace as well. This is because fiat currencies will get dumped with abandon as a purging collapse of asset prices cascades around the globe. After all, if central banks are drawn back into buying sovereign debt now, it is tantamount to admitting interest rates can never be allowed to normalize. In fact, the tacit admission will be without perpetual central bank manipulation; rising interest rates would render governments completely insolvent.

Perhaps at the end of this coming market meltdown governments will admit their folly and ensure that money consists only of gold once again. Indeed, Chaos may be the only way out of the pernicious manipulation of free markets by government. That is our best hope and prayer to engender a viable way out of this economic Ferris wheel that has been whirling between asset bubbles and deflationary depressions with increasing intensities.

Michael Pento produces the weekly podcast “The Mid-week Reality Check”, 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 www.earthoflight.caLicenses. Michael Pento graduated from Rowan University in 1991.
       

© 2018 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

6 Critical Money Making Rules