Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21
US House Prices Momentum Analysis - 20th Feb 21
The Most Important Chart in Housing Right Now - 20th Feb 21
Gold Is the Ultimate Reserve Asset - 20th Feb 21
Is That the S&P 500 And Gold Correction Finally? - 20th Feb 21
Technical Analysis of EUR/USD - 20th Feb 21
The Stock Market Big Picture - 19th Feb 21
Could Silver "Do a Palladium"? - 19th Feb 21
Three More Reasons We Love To Trade Options! - 19th Feb 21
Here’s What’s Eating Away at Gold - 19th Feb 21
Stock Market March Melt-Up Madness - 19th Feb 21
Land Rover Discovery Sport Extreme Ice and Snow vs Windscreen Wipers Test - 19th Feb 21
Real Reason Why Black and Asian BAME are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 19th Feb 21
New BNPL Regulations Leave Zilch Leading the Way - 19th Feb 21
Work From Home Inflationary House Prices BOOM! - 18th Feb 21
Why This "Excellent" Stock Market Indicator Should Be on Your Radar Screen Now - 18th Feb 21
The Commodity Cycle - 18th Feb 21
Silver Backwardation and Other Evidence of a Silver Supply Squeeze - 18th Feb 21
Why I’m Avoiding These “Bottle Rocket” Stocks Like GameStop - 18th Feb 21
S&P 500 Correction Delayed Again While Silver Runs - 18th Feb 21
Silver Prices Are About to Explode as Stars are Lining up Like Never Before! - 18th Feb 21
Cannabis, Alternative Agra, Mushrooms, and Cryptos – Everything ALT is HOT - 18th Feb 21
Crypto Mining Craze, How We Mined 6 Bitcoins with a PS4 Gaming Console - 18th Feb 21
Stock Market Trend Forecasts Analysis Review - 17th Feb 21
Vaccine Nationalism Is a Multilateral, Neocolonial Failure - 17th Feb 21
First year of a Stocks bull market, or End of a Bubble? - 17th Feb 21
5 Reasons Why People Prefer to Trade Options Over Stocks - 17th Feb 21
The Gold & Gold Stock Corrections Are Normal - 17th Feb 21
WARNING Oculus Quest 2 Update v25 BROKE My VR Headset! - 17th Feb 21
UK Covid-19 Parks PACKED During Lockdown Despite "Stay at Home" Message - Endcliffe Park Sheffield - 17th Feb 21
How to Invest in ETFs in the UK - 17th Feb 21
Real Reason Why Black and Asian Ethnic minorities are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 16th Feb 21
THE INFLATION MEGA-TREND QE4EVER! - 16th Feb 21
Gold / Silver: What This "Large Non-Confirmation" May Mean - 16th Feb 21
Major Optimism for Platinum, Silver, and Copper - 16th Feb 21
S&P 500 Correction Looming, Just as in Gold – Or Not? - 16th Feb 21
Stock Market Last pull-back before intermediate top? - 16th Feb 21
GAMESTOP MANIA BUBBLE BURSTS! Investing Newbs Pump and Dump Roller coaster Ride - 16th Feb 21
Thinking About Starting to Trade This Year? Here Are Some Things to Keep in Mind - 16th Feb 21
US House Prices Real Estate Trend Forecast Review - 15th Feb 21
Will Tesla Charge Gold With Energy? - 15th Feb 21
Feeling the Growing Heat and Tensions in Stocks? - 15th Feb 21
Morgan Stanley Warns Gasoline Industry Is About to Become Totally Worthless - 15th Feb 21
Debts Lift Gold - Precious Metal Prices Will Rise on a Deluge of Red Ink - 15th Feb 21
Platinum Begins Big Breakout Rally - 15th Feb 21
How to Change Car Battery Without Losing Power, Memory, Radio Code Settings - 15th Feb 21
Five reasons why a financial advisor can make a big difference to your small business - 15th Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Why the Stock Market Crash is Just Beginning

Stock-Markets / Stock Market Crash Oct 31, 2018 - 08:38 AM GMT

By: Michael_Pento

Stock-Markets


Wall Street’s playbook stipulates that every down tick in the market is just another buying opportunity. While that is most often true, peak margins, a slowing global economy and the bond bubble collapse makes this time more like 2008 than just a routine selloff. 

In the vanguard of this coming market crash is China, whose make-pretend growthrate slid to 6.5% in the third quarter. This is the slowest pace of growth thatthe communist government has been willing to own up tosince the last global financial crisis.Leaving one to conclude that the reality in China is farworse.


This sluggish growth and a near 30% plunge in Shanghai shares prompted swift action from the Chinese government, which announced plans to cut personal income taxes and cut the Reserve Requirement Ratio for the fourth time to encourage more leverage on top of the debt-disabled economy.The government has even bought ETF’s to prop of the sinking Chinese stock market. As a result, shares recently surged 4% in one day. However,more than half of those gains were quickly reversed the following day as investors took a sober look at whether the Chinese government is starting to lose its grip on theeconomy. 



According to the Wall Street Journal,investments in Chinese factories and other fixed assets are at their lowest level in 18 years andChina’s usually reliable household consumption is also beginning to decelerate sharply.

China’s economy has been on a downward trajectory in the past few months, with auto and retail sales on the decline. Fixed-asset investment rose a mere 5.3% in the January-August period from a year earlier. It was the most lacklustergrowth rate since 1992. This was mostly a planned slowdown; an edict from the government that realized its economy was beginning to resemble a Ponzi scheme.

What is very interesting is that this lethargic growth persisted even though companies have beengearing up for U.S. tariffs on Chinese products; hence, front-runningpurchases. Macquarie Capital Ltd. predicts that Chinese growthfrom exports will decline as much as 10% in the coming months.

All thisconcern about deceleratinggrowth is hindering China’s deleveraging plans that itpromised to follow through on at the beginning of this year. According to the Financial Times,Chinese debt was in the range of 170% of GrossDomestic Product prior to the Great Recession. But in 2008, China responded to the financial crisis with a huge infrastructure program---building empty cities to the tune of 12.5% of GDP, the biggest ever peacetime stimulus.

According to the Institute for International Finance, China’s gross debt has now exploded to over 300% of GDP. Bloomberg estimates the dollar amount of this debt—both public and private--at $34 trillion; others have it as high as $40 trillion. With a gigantic shadow banking system, this number is obfuscated by design.

Adding to the problem is that much of the Chinese private debt is pledged with collateral from the stock market, which has been in free-fall this year. According to Reuters, more than 637 billion shares valued at $4.44 trillion yuan ($639.86 billion) were pledged for loans as of Oct. 12. As the air continues to pour out of the stock market, it will put additional pressure on the debt market.

Most importantly, China’s debt binge was taken up in record time; soaring by over2,000% in the past 18 years. And thisearth shattering debt spree wasn’t used to generate productive assets. Rather, it was the non-productive, state-directed variety, whichnow requiresa constant stream of new debt to pay off the maturing debt. Therefore, the schizophrenic communist party is caught between the absolute need to deleverage the economy; and at the same time, trying to maintain the growth mirage with additional stimulus measures.

The stimulus provided thus far has managed to expand the amount of money in circulation,M2—a measure of the money supply that includes cash and most deposits—to 8.5% this year, from 8.1% last year.Yet, even with a large growth in the money supply, China has not been able to achieveitsdesired rate of growthbecause it is weighed down by its legacy of debt.

Although this latest round of fiscal and monetary stimulus has not had the anticipated economic effect to date, it has produced a negative effect on the Chinese yuan. Leaving some to wonder if China is finally losingcontrol overits currency. In August 2015, an unexpected devaluation in the yuan led to a capital flight as Chinese companies, citizens and investors sought to protect themselves from further declines in the currency. If the yuan weakens too quickly again—either naturally or by another planned devaluation—this would add even more chaos to the already fragile global markets.

The yuanhas fallen nearly 10% against the dollar since April ‘18. The Chinese are currently trying to keep the currency from falling below the key support level ofseven to the dollar. The yuan hasn’t traded that low in more than a decade; but holding that line has become more difficult as China dances capriciously from deleveraging to massive stimulus measures. In order to defend the value of the Yuan,China has depleted much of its dollar reserves.


A further yuan de-valuation could panic the Asian block nations in a similar wayas did the Thai baht back in 1998; Leading to mass devaluations and putting further downward pressure on emerging markets.

But China isn’t the only wild card in the global growth deck of cards. Over in the Eurozone, Italy is brazenly threatening to move forward with a budget proposal that would obscenely breach the European Union’s budget guidelines. The bureaucrats in Brussels are threatening fines. But this doesn’t appear to be enough to inhibitthe Italian government,whichis intenton increasing social welfare programs, adding to pensions and giving workers a tax cut.

These bold plans have led the rating agency Moody’s to downgrade Italy’s sovereign debt to one notch above junk.  Uncertainty in Italy is a major geopolitical factor weighing on global sentiment. Investorsare rightly concerned about the Rome-Brussels stand-off, given that Italy is the Eurozone’sthird-largest economy and its debt is held by every major bank in Europe—and most in the U.S. As interest rates rise in Italy, the prospect of insolvency rises alongside.


These global headwinds matter because as good as things may appear in the U.S. at the moment, China has accounted for nearly 30% of global growth. And with Emerging Markets and the European Union hanging in the balance, the synchronized global growth story is now ancient history. Point being, the U.S. economy does not exist on an island.

This begs the salient question: How much lower will the growth rate of earnings be in 2019 for the S&P 500? Earnings growth in 2018 peaked at 25%. However, with the top global economies all rolling over, peak corporate margins, trade wars, the waning of repatriation and stock buybacks, soaring worldwide debt and trillion dollar U.S. deficits, mounting rate hikes from global central banks and a Fed that is destroying $600 billion this year through its reverse QE program, it is doubtful that there will by any earnings growth at all next year. Nevertheless, Wall Street Shlls are still pricing in 10% earnings growth and slapping a big multiple on top of it.

The surprise here is that earnings growth could very easily be negative next year. A sharp global slowdown coupled with a plunge in earnings growth won’t sit well with a market that is trading at 140% of undelying GDP—a rare altitude indeed. That is the real reason why the stock market is crashing…and why that crash is just getting underway.


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

© 2005-2019 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