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
FED Balance Sheet Current State - 5th Mar 21
The Global Vaccine Race Against Time and Variants - 5th Mar 21
US Treasury Yields Rally May Trigger A Crazy Ivan Event (Again) In Stock Market - 5th Mar 21
After Gold’s Slide, What Happens to Miners? - 5th Mar 21
Racism Pandemic Why UK Black and Asians NOT Getting Vaccinated - NHS Covid-19 BAME - 5th Mar 21
Get Ready for Inflation Mega-trend to Surge 2021 - 4th Mar 21
Stocks, Gold – Rebound or Dead Cat Bounce? - 4th Mar 21
The Top Technologies That Are Transforming the Casino Industry - 4th Mar 21
How to Get RICH Crypto Mining Bitcoin, Ethereum With NiceHash - 4th Mar 21
Coronavirus Pandemic Vaccines Indicator Current State - 3rd Mar 21
AI Tech Stocks Investing 2021 Buy Ratings, Levels and Valuations Explained - 3rd Mar 21
Stock Market Bull Trend in Jeopardy - 3rd Mar 21
New Global Reserve Currency? - 3rd Mar 21
Gold To Monetary Base Ratio Says No Hyperinflation - 3rd Mar 21
US Fed Grilled about Its Unsound Currency, Digital Currency Schemes - 3rd Mar 21
The Case Against Inflation - 3rd Mar 21
How to Start Crypto Mining Bitcoins, Ethereum with Your Desktop PC, Laptop with NiceHash - 3rd Mar 21
AI Tech Stocks Investing Portfolio Buying Levels and Valuations 2021 Explained - 2nd Mar 21
There’s A “Chip” Shortage: And TSMC Holds All The Cards - 2nd Mar 21
Why now might be a good time to buy gold and gold juniors - 2nd Mar 21
Silver Is Close To Something Big - 2nd Mar 21
Bitcoin: Let's Put 2 Heart-Pounding Price Drops into Perspective - 2nd Mar 21
Gold Stocks Spring Rally 2021 - 2nd Mar 21
US Housing Market Trend Forecast 2021 - 2nd Mar 21
Covid-19 Vaccinations US House Prices Trend Indicator 2021 - 2nd Mar 21
How blockchain technology will change the online casino - 2nd Mar 21
How Much PC RAM Memory is Good in 2021, 16gb, 32gb or 64gb? - 2nd Mar 21
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
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

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

5 Reasons to Fear the Stock Market Fall

Stock-Markets / Stock Market 2017 Jul 24, 2017 - 02:27 PM GMT

By: Michael_Pento

Stock-Markets

This powerful and protracted bull market has made Cassandras look foolish for a long time. Those who went on record predicting that massive central bank manipulation of markets would not engender viable economic growth have been proven correct. However, these same individuals failed to fully anticipate the willingness of momentum-trading algorithms to take asset prices very far above the underlying level of economic growth.


Nevertheless, there are five reasons to believe that this fall will finally bring stock market valuations down to earth, and vindicate those who have displayed caution amidst all the frenzy.

Reason Number One: Budget and Debt Ceiling Showdowns in D.C.

Congress needed to shave two weeks off its August recess in an effort to make headway on raising the debt ceiling, which will hit the absolute limit by mid-October, and how to fund the government past September 30th of this year. Tea-Party Republicans, as well as Office of Management and Budget Director Mick Mulvaney, would like to add spending reform riders to the debt limit bill. But, U.S. Treasury Secretary Steven Mnuchin is looking to pass a “clean” bill. If Mnuchin gets his clean debt ceiling bill passed, the show-down will then move to the appropriations bills used to fund the upcoming fiscal year. For the past few years, Congress has been pushing through last minute continuing resolutions, rather than passing a budget, to provide funding at a rate of the previous year's funding. Not being able to make progress on either of these measures will lead to a government shutdown that could leave markets and Trump’s tax reform agenda in a tail spin.

Reason Number Two: Trump May Finally Deal with North Korea

The Donald may find it very convenient to “Wag the Dog” before the year closes out. What is needed is a “fantastic” distraction from his failure to reach an agreement to repeal and replace Obamacare and to push through with a tax reform package. Also, an assault on Kim Jong-un’s nuclear facilities would go a long way in reducing the media’s obsession with Russiagate. The President and his administration held an emergency meeting on July 4th after North Korea fired its first ICBM into the Sea of Japan. Trump promised that a nuclear strike against the U.S. “won’t happen” and guaranteed, “A measured response” to the rogue regime. Trump also urged China to, “put a heavy move on North Korea” and to “end this nonsense once and for all.” Such a preemptive strike this fall would tilt the robot trading machines into a sell-button frenzy.

Reason Number Three: China’s Inverted Yield Curve

On June 7th the spread between China’s 10 and 1 year Sovereign bond yields became negative. This was only the second time since 2005 that such an inversion occurred, and this time around it became the most inverted in history. An inverted yield curve, no matter what country it occurs in, is a sign of severe distress in the banking system and almost always presages a recession. A recession, or even just a sharp decline in China’s GDP growth, would send shock waves throughout emerging markets and the global economy. Indeed, on July 17th the major indexes in China all plunged the most since December 2016 due to investor fears over tighter monetary and economic controls from Beijing. If the yield curve remains inverted into the fall, look for exacerbated moves to the downside in global markets.

Reason Number Four: QE Tapering from the European Central Bank

The head of the ECB, Mario Draghi, stated in late June that deflationary forces have been replaced by reflationary forces. This simple statement sent bond yields soaring across the globe in anticipation of his inevitable official taper announcement that could be made as soon as September 7th. German 10-year Bund yields are still about 150 basis points below the ECB’s inflation target, and about 350 bps below implied nominal GDP. This means when Mr. Draghi actually starts removing his massive bid from the European bond markets yields should spike suddenly and in dramatic fashion—regardless of the pervasive weak economy. Rapidly rising borrowing costs on Europe’s over-leveraged economy would cause investors to worry about future growth prospects and send high-frequency front-runners scrambling for the narrow exit door at once.

Reason Number Five: Janet Yellen’s Quantitative Tightening

Most investors don’t understand that the Federal Reserve has been tightening monetary policy since December 2013 when it started to taper its $85 billion per month asset purchase program. Now, after QE has been wound down to zero and four rate hikes have taken place, the Fed will likely announce the actual start date for the selling of its balance sheet at its September FOMC meeting. This means it should begin dumping about half of the $4.5 trillion worth of Treasury and MBS holdings starting in Q4. The problem is that global central banks are tightening monetary policy as the economy weakens. For instance, U.S. GDP averaged about 2% since 2010; but has dropped to just 1.6% during 2016 and is just 1.4% so far in 2017. This additional supply of Treasury debt, coupled with the already soaring deficits (up 31% year over year), could send bond prices tumbling. This would exacerbate the move higher in bond yields caused by the ECB’s Tapering. That could be enough to send the passive ETF investing sheeple jumping off a cliff en masse.

The end of central bank monetary accommodations, which is coming to a head this fall, is the primary reason to believe the odds for a significant stock market correction could be just a couple of months away. Rising debt service payments on the additional $60 trillion of debt incurred since 2008 is likely to be the catalyst that turns the market sentiment from greed to panic.

Adding to this perilous situation is the record amount of NYSE margin debt outstanding, along with the fact that institutional investors have just 2.25% of their portfolios in cash—the lowest level since just prior to the start of the Great Recession, according to Citigroup. In other words, investors are levered up and all-in.

Since the election of Donald Trump, the Dow Jones Industrial Average has reached a record high one out of every four trading days. And, according to Ned Davis Research, the S&P 500 hasn’t seen a pullback of more than 10% in almost 350 days, and it has been nearly 2100 days without a decline of more than 20%. The average days without such a decline is 167 and 635 respectively.  This market is overvalued, overextended and extremely dangerous!

Therefore, it is very likely this long-overdue market correction could be worse than the ordinary 20 percent decline. The upcoming stock market toboggan ride is not only starting from the second highest valuation in history, but also with the balance sheets of the Fed and Treasury already severely impaired. In other words, there just isn’t a lot of room left to lower interest rates or to run up huge deficits in an attempt to quickly pull the economy out of its downward spiral. It is time to put a wealth preservation strategy in place before the fall arrives.

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.
       

© 2017 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