Best of the Week
Most Popular
1. Dollargeddon - Gold Price to Soar Above $6,000 - P_Radomski_CFA
2.Is Gold Price On Verge Of A Bottom, See For Yourself - Chris_Vermeulen
3.Dow Stock Market Trend Forecast 2018 - Nadeem_Walayat
4.Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - P_Radomski_CFA
5.Why The Uranium Price Must Go Up - Richard_Mills
6.Dow Stock Market Trend Forecast 2018 - Video - Nadeem_Walayat
7.Jim Rogers on Gold, Silver, Bitcoin and Blockchain’s “Spectacular Future” - GoldCore
8.More Signs That the Stock Market Will Rally Until 2019 - Troy_Bombardia
9.It's Time for A New Economic Strategy in Turkey - Steve_H_Hanke
10.Fiat Currency Inflation, And Collapse Insurance - Raymond_Matison
Last 7 days
Gold / US Dollar Inverse Trend Relationship Video - 23rd Sep 18
US and Global Stocks, Commodities, Precious Metals and the ‘Anti-USD’ Trade - 23rd Sep 18
Gerald Celente Warns Fed May Bring Down the Economy, Crash Markets - 23rd Sep 18
Top 3 Side Jobs for Day Traders - 23rd Sep 18
Gold Exodus to Reverse - 22nd Sep 18
Bitcoin Trader SCAM WARNING - Peter Jones, Dragons Den Fake Facebook Ads - 22nd Sep 18
China Is Building the World’s Largest Innovation Economy - 21st Sep 18
How Can New Companies Succeed in the Overcrowded Online Gambling Market? - 21st Sep 18
Golden Sunsets in the Land of U.S. Dollar Hegemony - 20th Sep 18
5 Things to Keep in Mind When Buying a Luxury Car in Dubai - 20th Sep 18
Gold Price Seasonal Trend Analysis - Video - 20th Sep 18
The Stealth Reason Why the Stock Market Keeps On Rising - 20th Sep 18
Sheffield School Applications Crisis Eased by New Secondary Schools Places - 20th Sep 18
Precious Metals Sector: It’s 2013 All Over Again - 19th Sep 18
US Dollar Head & Shoulders Triggered. What's Next? - 19th Sep 18
Prepare for the Stock Market’s Volatility to Increase - 19th Sep 18
The Beginning of the End of the Dollar - 19th Sep 18
Land Rover Discovery Sport 'Approved Used' Bad Paint Job - Inchcape Chester - 19th Sep 18
Are Technology and FANG Stocks Bottoming? - 18th Sep 18
Predictive Trading Model Suggests Falling Stock Prices During US Elections - 18th Sep 18
Lehman Brothers Financial Collapse - Ten Years Later - 18th Sep 18
Financial Crisis Markets Reality Check Now in Progress - 18th Sep 18
Gold’s Ultimate Confirmation - 18th Sep 18
Omanization: a 20-year Process to Fight Volatile Oil Prices  - 18th Sep 18
Sheffield Best Secondary Schools Rankings and Trend Trajectory for Applications 2018 - 18th Sep 18
Gold / US Dollar Inverse Correlation - 17th Sep 18
The Apple Story - Trump Tariffs Penalize US Multinationals - 17th Sep 18
Wall Street Created Financial Crash Catastrophe Ten Years Later - 17th Sep 18
Trade Wars Are Going To Crash This Stock Market - 17th Sep 18
Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - 17th Sep 18
Financial Markets Macro/Micro View: Waves and Cycles - 17th Sep 18
Stock Market Bulls Prevail – for Now! - 17th Sep 18
GBPUSD Set to Explode Higher - 17th Sep 18
The China Threat - Global Crisis Hot Spots & Pressure Points - 17th Sep 18 - Jim_Willie_CB
Silver's Relationship with Gold Reaching Historical Extremes - 16th Sep 18
Emerging Markets to Follow and Those to Avoid - 16th Sep 18
Investing - Look at the Facts to Find the Truth - 16th Sep 18
Gold Stocks Forced Capitulation - 15th Sep 18
Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - 15th Sep 18
Trading The Global Future - Bad Consequences - 15th Sep 18
Central Banks Have Gone Rogue, Putting Us All at Risk - 15th Sep 18
Gold Price Seasonal Trend Analysis - 14th Sep 18
Growing Number of Small Businesses Opening – and Closing – In the UK - 14th Sep 18
Gold Price Trend Analysis - Video - 14th Sep 18
Esports Is Exploding—Here’s 3 Best Stocks to Profit From - 13th Sep 18
The Four Steel Men Behind Trump’s Trade War - 13th Sep 18
How Trump Tariffs Could Double America’s Trade Losses - 13th Sep 18
Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - 13th Sep 18
Trading Cryptocurrencies: To Win, You Must Know Where You're Wrong - 13th Sep 18
Gold, Silver, and USD Index - Three Important “Nothings” - 13th Sep 18
Precious Metals Sector On a Long-term SELL Signal - 13th Sep 18
Does Gambling Regulation Work - A Case Study - 13th Sep 18
The Ritual Burial of the US Constitution - 12th Sep 18
Stock Market Final Probe Higher ... Then the PANIC! - 12th Sep 18
Gold Nuggets And Silver Bullets - 12th Sep 18
Bitcoin Trading - SEC Strikes Again - 12th Sep 18

Market Oracle FREE Newsletter

Trading Any Market

Top 8 Reasons to Find the Stock Market Emergency Exit Before this Fall

Stock-Markets / Stock Markets 2018 Apr 10, 2018 - 09:30 AM GMT

By: Michael_Pento

Stock-Markets

The stock market was trading at an all-time high valuation of 150% of GDP this January. That was indeed the bell rung at the very top. Stocks have since started to roll over, but valuations are still at 140% of the underlying economy. And that is, historically speaking, way off the chart. The average of this metric was around 45% throughout the decades of the 70’s thru the mid-1990’s. Therefore, the market is screaming for investors to hit the sell button now while there are still ample bids left. But, if your complacency and procrastination prevent you from realizing the truly dangerous bubble in equities right now, here are eight of the most salient reasons why you’ll definitely need to find the nearest emergency exit before this fall.


  1. If the Fed is going to be true to its word, there is now a fairly strong commitment for 2-3 more 25bp rate hikes to occur by the end of this year. The motivation behind the continued hiking campaign is that Jerome Powell is cut from the same Phillips Curve cloth as the rest of the Keynesian automatons that ran the Fed before him. The problem is that 50-75bps worth of rate increases should be enough to flatten the yield curve and could even cause it to invert. The spread between the 2 and 10-year Note is already at the narrowest point since 2007--just 50bps. Three more hikes would put the effective Fed Funds Rate (FFR) around 2.5%. And if the 2-Year Note yield maintains its current spread to the FFR that would invert the curve. An inverted yield curve is a condition where short-term rates are higher than long-term rates, and it has nearly always led to a recession because the credit channel gets turned off once this occurs.
  2. The London Interbank Offered Rate or LIBOR is used for the pricing of $370 trillion worth of loans and derivatives across the globe. It is basically an unsecured dollar loan rate between banks in Europe and is used as a gauge of distress inside the banking system. This rate has increased from 0.3% to 2.33% in just the last two and half years and has caused a significant move higher in borrowing costs, which continues to increase on a daily basis. Spiking debt service costs on the record level of global debt is a dangerous condition for a stock market bubble
  3. The repatriation of overseas earnings resulting from Trump’s tax reform package, which is primarily being used to buy back shares, should become exhausted by this fall. Corporations have a limited time to bring back overseas profits. This, in addition to the progressively increasing cost to borrow money, should greatly attenuate the amount of corporate buybacks before the end of the year.
  4. Year-Over-Year earnings growth on the S&P 500 will fall to flat—or even turn negative--from up 18% this year. The end of the Republicans’ other one-time steroid shot—a massive deficit-funded corporate tax cut—will run out of steam this fall. Wall Street’s nasty habit of making linear extrapolations on any good trend has caused them to price in earnings growth in the high teens in perpetuity. However, investors should not apply a once-in-a-generation corporate tax cut from 35% to 21%, which has temporarily boosted earnings growth this year, to next year’s earnings growth. 2019 will enjoy no such reduction in tax rates to dress up the profits picture. But rather, U.S. corporations have to deal with tariffs and a bond bubble implosion instead.
  5. The Fed’s Reverse QE program—effectively selling bonds to the public and destroying the proceeds in the process--rises to $50 billion per month, or $600 billion per year, from the current $30 billion per month. And, the ECB cuts its QE program in half, from €30 billion per month to €15 billion; and then should be completely out of QE by the end of the year. Investors would be very wise not to ignore this rational: Central banks are moving from a high of $180 billion worth per month of QE to a net of virtually zero by year’s end. Therefore, the major tailwind behind equity prices will come to a stop in just about three quarters from now.
  6. The U.S. Federal Budget Deficit will grow from $665 billion in fiscal 2017, to $1 trillion this fiscal year, before rising to $1.2 trillion in fiscal 2019 starting in October. Therefore, there will indeed be a crowding out of private capital in a huge way due to a doubling of deficits, which are going to be confronted this time around with central sales instead of massive purchases.
  7. The synchronized global growth narrative turns upside down as global PMIs fall sharply. Already, weakness from rising rates and potential trade wars are causing China, Japan Europe, and U.S. Purchasing Manager Indexes to begin rolling over, as well as many others. And this condition will only be exacerbated by the progression of Trump’s trade wars, along with the mounting intensity of rising debt service costs into the fall. Expect the full effect of tariffs and rising rates to significantly impact in a negative fashion global GDP growth by the third quarter of this year.
  8. There is a significant risk, at least according to the polls and recent election results, that the Mid-term elections will move the House back to Democrats’ control. This would put an abrupt end to Trump’s Wall Street-friendly agenda…and this also will occur in the fall.

Given the confluence of the above events occurring between now and this fall, it is imperative to watch yield curve dynamics and credit spreads as some of the indicators to get the timing right for when you should be completely and safely out of the door. Pento Portfolio Strategies has several other components to monitor inside the Inflation/Deflation model to help clients not only find a chair but maybe even a luxury coach once the music stops. And even better yet, to help our investors get properly positioned to capitalize on the third massive equity market crash since the year 2000.

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