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
Silver and the Yield Curve Inversion - 23rd Sep 19
Comparing Gold Producers to Main Stream Stocks - 23rd Sep 19
The Incredible World of Gold Stock Chartology - 23rd Sep 19
The Hottest Sports Stock Of 2020 - 23rd Sep 19
Stocks Wedge At The Edge – Front And Center - 23rd Sep 19
Stock Market Top Almost Confirmed - 23rd Sep 19
Thomas Cook COLLAPSE! 300,000 Passengers Stranded, Flights Cancelled, Planes Grounded - 23rd Sep 19
Massive Stock Market Price Reversion May Be Days or Weeks Away - 22nd Sep 19
How Russia Seized Control of the Uranium Market - 22nd Sep 19
Dow Stock Market Trend Forecast Update - 21st Sep 19
Is Stock Market Price Revaluation Event About To Happen? - 21st Sep 19
Gold Leads, Will the Rest Follow? - 21st Sep 19
Are Cowboys Really Dreaming of... Electric Trucks? - 21st Sep 19
Gold among Negative-Yielding Bonds - 20th Sep 19
Panicky Fed Flooding Overnight Markets with Cash - 20th Sep 19
Uber Stock Price Will Crash on November 6 - 20th Sep 19
Semiconductor Stocks Sector Market & Economic Leader - 20th Sep 19
Learning Artificial Intelligence - What is a Neural Network? - 20th Sep 19
Precious Metals Setting Up Another Momentum Base/Bottom - 20th Sep 19
Small Marketing Budget? No Problem! - 20th Sep 19
The Many Forex Trading Opportunities the Fed Day Has Dealt Us - 19th Sep 19
Fed Cuts Interest Rates and Gold Drops. Again - 19th Sep 19
Silver Still Cheap Relative to Gold, Trend Forecast Update Video - 19th Sep 19
Baby Boomers Are the Worst Investors in the World - 19th Sep 19
Your $1,229 FREE Tticket to Elliott Market Analysis & Trading Set-ups - 19th Sep 19
Is The Stock Market Other Shoe About To Drop With Fed News? - 19th Sep 19
Bitcoin Price 2019 Trend Current State - 18th Sep 19
No More Realtors… These Start-ups Will Buy Your House in Less than 20 Days - 18th Sep 19
Gold Bugs And Manipulation Theorists Unite – Another “Manipulation” Indictment - 18th Sep 19
Central Bankers' Desperate Grab for Power - 18th Sep 19
Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets? - 18th Sep 19
Importance Of Internal Rate Of Return For A Business - 18th Sep 19
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19

Market Oracle FREE Newsletter

How to Invest in the Esports Revolution

Asset Bubbles and the Economy Are Now One

Economics / Liquidity Bubble Mar 20, 2019 - 04:11 PM GMT

By: Michael_Pento

Economics

After this latest round of a deflationary recession/depression consummates, global central banks and governments will engage in an epoch battle to re-inflate asset prices such as never before contemplated. Indeed, they are laying the framework for that assault right now.

Global central banks took interest rates to the zero percent range a decade ago and, for the most part, they remain there today. These confetti pushers printed $15 trillion dollars in order to push rates into history’s basement. Such an enterprise in counterfeiting has never been attempted before outside of a banana republic.


This process sent the total market cap of equities in the U.S. to 150% of GDP in the fall of last year, which was an all-time record high. Today, this most-accurate metric of equity valuations stands about 80 percentage points higher than its long-term average prior to the NASDAQ bubble of 2000. In other words, because of the unwarranted bounce in stocks at the start of this year, equity valuations have traded back to an extremely dangerous level once again.

The current bubbles in stocks, bonds and real estate began to concern the Fed a few years back. The FOMC ended QE in October 2014 and began raising rates in December of 2015. This process of first ending QE, then raising rates 9 times, then selling $500 billion of its assets; was an honest attempt to roll back the massive and unprecedented stimulus programs deployed during the Great Recession. In fact, the new Fed Head, Jerome Powell, avowed on October 3rd of last year that his Quantitative Tightening (QT) program would remain on autopilot and that he intended to raise interest rates by another 100 basis points over the course of the next 1-2 years.

However, the cumulative effects of ending QE, draining half trillion dollars of liquidity from the economy, and raising the Funds Rate by 225 basis points eventually hit asset prices hard only a few days after his now infamous pledges. The major averages plunged by 20% and small cap stocks cratered by nearly 30% by Christmas. It was at that point the Fed reached an epiphany. Mr. Powell and the rest of his merry band of money printers realized that asset prices and the economy had become one in the same. Whatever economic growth was experienced by the economy was completely beholden to the asset bubbles central banks created.

After all, the watershed change from hawkish to dovish was not due to the Fed’s two mandates comprised of stable prices and full employment. The December data on Consumer Inflation increased by 1.9% year over year and the January Non-farm payroll report showed a net 304k jobs were created. Therefore, it was the collapse in stock prices and the seizing up of the high-yield bond market that cowered the Fed into mush. So now, in reality, the Fed has only one true mandate and that is a to ensure there exists a perpetual bull market in junk bonds and equities.

The sad truth is that central bankers are a group of flawed humans who have the hubris to believe they can play God with economies. Need more proof? Remember when former Fed Chair Janet Yellen promised that QT would be “like watching paint dry” and that there would not be another financial crisis in our lifetimes. Then, 16 months later the global economy began to crumble along with equity prices. Proving once again that central bankers aren’t even demi gods—much less gods--they are just foolish and feckless individuals that have given themselves way too much power.

Therefore, the Fed is unaware what turning dovish at this juncture really means. With an effective overnight lending rate of 2.4%, Powell wasn’t even able to get the Fed Funds Rate at half the level it was at the peak of the last cycle. And, most importantly, leaving the balance sheet at a level of $3.5-$4 trillion when it ends Quantitative Tightening will mean the Fed has permanently monetized around $3 trillion worth of government debt and mortgage bonds.

The salient danger in stopping its normalization process at such levels is tantamount to admitting that asset prices and the economy are one in the same. And, the Fed is now powerless to stop their ascent without engendering an absolute and complete economic collapse. Also, the markets will soon be put on notice that real interest rates will become progressively more negative over time and that nominal rates are stuck near zero percent. Being a slave to the markets also denotes that there will never be a good time to normalize monetary policy and this condition will only grow worse over time.

As this current deflationary cycle intensifies, expect central banks to go full throttle back into QE and global interest rates to fall even further into the cellar of history. We should also expect massive fiscal stimulus programs worldwide that will add significantly to the global leverage ratio. For example, we already see China’s government force a record 4.64 trillion yuan ($685 billion) in the month of January alone into their economy! Hence, not long after this complete capitulation on the part of governments to go full-throttle with inflation, look for asset prices to grow further detached from the underlying economy and for the wealth gap to surge from its already crippling level.

In the end, it will be a brutal battle with global stagflation that eventually craters GDP, which has been artificially constructed using the printing press. The plunging faith in the fiat currency regime that underwrites a record $250 trillion of global debt will be the result.

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.

© 2019 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