Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
AMD Ryzen 4900x / 5900x and 4950x / 5950x Zen3 4th Gen IPC and Clock Speed and Core Specs - 14th Aug 20
Stock Market Gap Fills Suggests Market Momentum May Stall - 14th Aug 20
Silver May Be Overextended – But It’s STILL Cheap - 14th Aug 20
A Short Guide To Making Your First Stock Market Investment - 14th Aug 20
Is Tech Reality Affects our Dating Possibilities? - 14th Aug 20
Will You Make Money in the New Silver Bull Market ? - 13th Aug 20
Hyper-Deflation Capital Destruction And Gold & Silver - 13th Aug 20
Stock Market Correction Approaching - 13th Aug 20
Silver Took the Stairs to $21 in 2008, Took Escalator to $29 2010. Is Silver on Elevator to 120th floor today? - 13th Aug 20
President Trump Signs Additional COVID Relief – What To Expect from the Markets - 13th Aug 20
Has Gold's Upward Drive Come to an End? - 13th Aug 20
YouTuber Ads Revenue & How to Start a Career on YouTube - 13th Aug 20
Silver Notches Best Month Since 1979 - 12th Aug 20
Silver Shorts Get Squeezed Hard… What’s Next? - 12th Aug 20
A Tale of Two Precious Metal Bulls - 12th Aug 20
Stock Market Melt-Up Continues While Precious Metals Warn of Risks - 12th Aug 20
How Does the Gold Fit the Corona World? - 12th Aug 20
3 (free) ways to ride next big wave in EURUSD, USDJPY, gold, silver and more - 12th Aug 20
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Central Planners: Out of Room and Running Out of Time

Interest-Rates / Quantitative Easing Dec 10, 2019 - 10:28 AM GMT

By: Michael_Pento

Interest-Rates

One would have to place their trust in unicorns, sasquatch, leprechauns, and the tooth fairy to believe the current economic construct is sustainable. You also need to be woefully ignorant of history. In fact, there has never been a nation that engaged in massive debt monetization and did not eventually face hyperinflation, depression, and mass chaos. There is simply no such thing as magic, and you can’t build an economy on the foundation of debt, asset bubbles, and unlimited fiat money printing.

Perhaps the reason why the market hasn’t imploded yet is that the developed world has coordinated this so-called “strategy” of unbridled central bank lunacy to engage in permanent ZIRP and QE. Therefore, a currency crisis has been averted so far. However, now that these money printers have gone all-in, the next recession or freeze-up in credit markets cannot be averted by a dovish turnaround in monetary policies, as governments already have the gas pedal to the monetary and fiscal floor. The globe now has $255 trillion in debt, and the U.S alone is adding one trillion to that pile each year. The Fed is back in QE, along with the ECB and BOJ. And, no central bank in the developed world has room any longer to cut rates enough to boost consumption. 


In the past few months, we have seen the yield curve invert, credit markets freeze, spiking repo rates, stalling global economic growth, an earnings recession, and a crash in equities. The Fed has panicked from the practice of raising rates and from burning the base money supply through its QT program to three rate cuts and a return to QE ($60 billion per month). That trenchant change in monetary policy is the main reason why the market has rallied to near all-time record highs.

Therefore, the salient question for investors is to determine if the economy is in a 1995 type of mid-cycle slowdown, where the Fed cuts rates a few times and stocks rallied nearly 200% into the end of the millennium (That is what Mr. Powell is hoping for and wants you to believe). Or, are we in a 2000//2007 rate-cutting cycle, where the Fed’s efforts to slash and burn banks’ borrowing costs by over 500 bps was still woefully inadequate towards reflating the economy and equities? And, in fact, did nothing to avert an absolute bloodbath in asset prices on both occasions.

It is critically important to answer this question correctly because you don’t want to be short stocks and miss out on the ride up to the massive blow-off top. Likewise, you don’t want to passively buy and hold equities when they are on the cusp of losing over half their value once again. Either way, it is imperative to point out that the Fed was only able to keep the inevitable crash in abeyance for just a few years at best. But, it only exacerbated the eventual demise. So, we are definitely headed for an epoch crash; the only question that remains is from how high?

With the value of equities already in the thermosphere, another massive increase in stock prices like we saw in the late ’90s is out of the question. Global interest rate levels are at an all-time low, while debt levels are at an all-time high. And, the entire developed world’s central bankers are already in some state of QE. Therefore, the incremental monetary and fiscal fuel just isn’t available to boost asset prices much further from here.

Having a model that analyzes 20 rigorously selected components and signals when it is time to bail out of equity-long exposures, get into cash, get net short stocks and increase exposure to gold is crucial. The earnings and GDP growth picture continues to deteriorate and points to trouble ahead. However, as of yet, we do not see any breakdown in the high-yield debt market. Also, the breakeven and LIBOR spreads are still quiescent. And importantly, although the Ten-Two Treasury Note yield spread has started to contract once again after inverting last year, it has not yet set off alarm bells--but it is getting very close. If that spread gets below ten bps or even inverts once again, it will most certainly mean that the Fed’s mid-cycle adjustment was woefully inadequate, and we are headed for another Great Recession/depression coupled with a crash in equity prices. Alternatively, if the yield spread widens due to a rising Ten-Year Note, then it is a sign of increasing economic strength, albeit on a temporary basis.

At the end of last year, investors were pricing in a recession, and the stock market was in freefall. But, as of now, the Fed’s pivot has allayed those fears of recession and has caused most investors to fully price in a global economic recovery. Now the burden is on that recovery to materialize. Otherwise, investors are in for a huge disappointment, given the fact that stock valuations have never been higher relative to the underlying economy. Investors need to monitor the data instead of being brainwashed by Wall Street’s mantra about perpetual growth and fair valuations. Making money during all economic cycles should be the goal and that includes depressions, stagflations and everything in between. This is unique on Wall Street because 95% of money managers just try and mimic the S&P 500 and charge a hefty fee for doing so.

I’ll close with this warning from Vanguard, who is the largest provider of mutual funds and the second-largest provider of exchange-traded funds in the world. “As global growth slows further in 2020, investors should expect periodic bouts of volatility in the financial markets, given heightened policy uncertainties, late-cycle risks, and stretched valuations. Our near-term outlook for global equity markets remains guarded, and the chance of a large drawdown for equities and other high-beta assets remains elevated and significantly higher than it would be in a normal market environment…Returns over the next decade are anticipated to be modest at best.”

The average investor will be lucky to see any returns at all over the next decade and with major drawdowns during that 10-year duration. Given this extraordinary set up, investors may want to plan on shorting the market when the secular downturn arrives. This way they will have the capital available to deploy once the panic is over.

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